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34 20 46 COVER STORY INTERVIEW HEALTH COVER Wheretoinvest $10k: Owner of Pulse Collective Your 10 key insurance expert picks Lauren Fried questions answered

ON THE COVER UPFRONT MY MONEY 34 Wheretoinvest$10k 6 Editor’s letter 42 Funerals: Vita Palestrant 42 Business of dying 8 Our experts 46 Health insurance 46 Health insurance questions 10 In your interest: Paul Clitheroe 49 Mortgages: Effie Zahos 64 Flipping homes 12 News&views 50 Savings: Richard Scott 67 Unit oversupply 16 In brief 52 Banking: Effie Zahos 54 Family money: Susan Hely 68 China and India boom 20 Interview: Alan Deans 56 Small business: Anthony O’Brien 82 Share insights 24 Ask the experts 58 What if...: Annette Sampson 26 Ask Paul 58 The challenge: Maria Bekiaris 30 Smart spending 60 Crisis: Sam Henderson 33 Paul’s verdict 61 Life matters: Heidi Armstrong

Disclaimer: Theinformationfeaturedinthismagazineisgeneralinnatureanddoesnottakeintoaccountyourobjectives,financialsituationorneeds.Youshould consider the appropri- atenessoftheinformationhavingregardtoyourowncircumstances.Beforemakinganinvestment,insuranceorfinancialplanningdecisionyoushouldconsultalicensedprofessional who can advise you of whether your decision is appropriate. Bauer Media does not have an interest in the promotion of any company, investment or product featured in this magazine.

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4 MONEY SEPTEMBER 2017 SEPTEMBER 2017, ISSUE 204

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PROPERTY INVESTING SHARES 62 Investing: Mark Chapman 68 Global investing: Mark Story 82 Strategy: Greg Hoffman What you can claim on tax China&India Second-level thinkers 64 Renovating: Philippe Brach 70 Fixed interest: Susan Hely 84 Media: James Greenhalgh Making money from flipping Bondsstillhavearoletoplay Where the money is 67 Real estate: Pam Walkley 74 Super Booster: Susan Hely 86 Outlook: Sarah Hunter Startplanningtolivethedream 87 Value.able: Roger Montgomery IN EVERY MONTH 78 At large: Ross Greenwood 88 This month: Marcus Padley 7Privacynotice 80 Super: Vita Palestrant 89 Databank 81 The debate 90 The hot seat

FLIPPING HOMES CHINA & INDIA HOW YOU CAN STILL PROFIT UNIT OVERSUPPLY CATCHING THE NEXT BOOM BARGAIN BUYS YOUR ANNUAL INVESTMENT SAVINGS & GIVEAWAYS GUIDE $7.95 ISSUE 204 SEPTEMBER 2017 @MoneyMagAUS www.moneymag.com.au Subscribe and receive Win one of five copies of DIGITAL & 2 63 PRINT WHERE TO aPortfolioandJournal Life and Taxes plus get SUBSCRIPTION setvaluedat$87.25. a 20% discount on MAXIMISE DIVORCE S PAUL CLITHEROE BULLETPROOF WAYS SCOTT PAPE aselectionoftaxand VE INVEST 6 A 12-month subscription SAVE forLetteroftheMonth! superannuation books. $10k 10 copies of Creating NEW HOTSPOTS 46% THE 66 MARGARET LOMAS 10 copies of our Book of TURNING TEENS INTO 14 ROSS GREENWOOD EXPERT PICKS INVESTORS the Month – Suddenly Property Wealth in Any PAGE 91 Single. Market to be won.

$1Ok PA FROM SHARES GUIDE TO RENTVESTING MARCUS PADLEY PROPERTY THROUGH BEN KINGSLEY PERFECT RETIREMENT SMSFs SAM HENDERSON PORTFOLIO NERIDA COLE INSIGHTS: WHY 2ND LEVEL THINKERS BEAT THE MARKET SHARE FOR AS LITTLE AS $1500 SIGN UP FOR OUR FREE WEEKLY NEWSLETTER MONEYMAG.COM.AU THE BUSINESS OF DYING: GOODBYE YOUR 10 KEY QUESTIONS ANSWERED

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MONEY SEPTEMBER 2017 5 FROM THE EDITOR

Put that $10,000 to work

f you had a lazy $10,000, where would While cash and fixed interest should play a Iyou invest it? After Best of the Best, our partinanydiversifiedportfolio(seepage70), awards edition that comes out in December, recordlowinterestratesandalowgrowth this issue would have to be my next favourite. outlook are making it exceptionally hard for Notonlydoourregularexpertsanswersome thoselivingonafixedincome.Accordingto ofthemostpopularquestionsthatourread- data from comparison site Mozo, three out of ers keep asking but they let you in on where five savings accounts are now paying ongoing they’re investing their own cash. And as Sam rates under 2%. There are only three providers Henderson points out, the advice they give offering ongoing saving rates of 3% – AMP, theirclientsisnotalwayswhattheywoulddo RAMS and Australian Unity. themselves.Ashesaysonpage41,“I’mgoing Whileoneshouldneversimplyfollowsome- togooutonalimbandselectamorepoten- oneelse’ssteps,especiallywhenitcomesto tially volatile investment, and one I wouldn’t investing, this issue is a great way of starting recommendformyclients”.Thisyearafew a conversation with yourself. If you’re short on of them have dialled up the risk, which isn’t cash then these strategies could easily work surprising given the dismal returns earned on just as well with $2000 or so. bank accounts. If you’re looking for other conversation

Contact us Feedback To send a letter to the editor, write to Money, GPO Box 4088, Letter of the month Sydney NSW 2001 or email Take personal responsibility for debts [email protected] Your article “Tougher rules needed to tackle debt. I can’t help but wonder if perhaps it For all inquiries and letters, please debt problems” (The Buzz, August) high- shouldn’t just be the responsibilities of banks include name, address and phone lighted some great ideas to help reduce and government to fix all our financial prob- details. Letters may be edited for credit card debt. Reforms have been needed lems.SurelytheaverageAussiecanseethat clarity or space. Because of the forsometimeandit’sgoodtoseeourgov- payingmorethantheminimumamountwill high number of letters received, no ernment looking at ways to help Aussies get gettheirdebtspaidofffaster. personal replies are possible. out of personal debt and hopefully move Good on our leaders for trying to help

17_cover NO BAR - 1 2017- 06- 19T14: 07: 44+10: 00

SOFTWARE PORTFOLIO INFRASTRUCTURE forward to a brighter financial future. thosewho,foramultitudeofreasons,have REVIEWED j unecover _nobar - 1 2017- 05- 15T17: 28: 21+10: 00 THE FUNDS 7 OPTIONS SUPER PERFORMERS SELF MANAGED FUNDSQUESTIONS BANK SHARES MOST ASKED VERDICT ESTATE 10 ON THE TOP MONEY MAGAZ NE REAL ON BIG 4 10 REAL SELLING COMMISS BEYOND ESTATE PICKS FIXED FEES V THE HOTSPOTS Idowonder,though,wherepersonal gotten into debt, but isn’t personal responsi- EFFIE JULY 20 ZAHOS 7 $7 95 SSUE www moneymag 202 PAY 1% LESS com AWARDS au @MoneyMagAUS ON YOUR HOME LOAN & ISSUE 201 ★★ISSUE JUNE 2017 $7.95 com au @MoneyMagAUS BANKS GET 1% MORE moneymag RATING THE ON YOUR SAVINGS responsibility comes in. The article suggests bility needed, both to get out of debt and to www “ASK THE EXPERTS” SAFE PLACE TO WHY YOU ONLY NEED INVEST THAT SMART PAYS MORE governments compel credit card providers THAN A TERM stay out of debt long term? DEPOSIT STRATEGIES to increase the minimum repayments on Melissa, Qld

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SUSAN HELY TERRY RYDER HOW MUCH AFFORDABLE MODERATE YOU SHOULD NEW PROPERTY BE PAYING IN HOTSPOTS AROUND SUPER FEES AUSTRALIA LOW fraud and I am very concerned about this. anythingillegalwithmyID,soIwasworrying I was recently asked to apply for a police about nothing. I mentioned ID fraud and priva- HowtogetMoney check to work voluntarily with children. After cy,etcandwasbrushedoffasparanoid. Subscribe to the print or digital edition completing the paperwork I was asked to The ID sent with these applications is Call: 136 116 supply my ID and take it to the local police enoughforsomeonetoassumemyidentity stationforthemtoverify.Theycopiedmy and commit fraudulent transactions without Online: magshop. ID and attached it to my application. I asked requiringanythingelse.Idon’tthinkthissys- com.au/money- wheremyIDwasgoingandwastolditwould temisagoodoneanditleavesthousandsofus magazine gotopoliceadminsomyapplicationmaybe inapositiontohaveouridentity compromised. assessed.IassumedmyIDwouldbesighted Love the magazine. only and something on the form signed but not Wendy, email

6 MONEY SEPTEMBER 2017 starters, Vita Palestrant’s story on the cost of dying (page 42) is sure to give you plenty of material – $20,000 to say goodbye! Surely “If investing is entertaining, if therearecheaperwaystomoveon.Greg Hoffman gets you thinking whether you’re a you’re having fun, you’re “first-level” or “second-level” thinker. If you want sharemarket success you need to be on probably not making any money. thatsecondlevel.Seepage82tofindoutif you have the traits. Good investing is boring.” Don’tforgettocheckoutourSuperBooster GEORGE SOROS campaign. Your chance to win one of five $1000 prizes for your super fund closes on September 15. All you have to do is pledge Follow Money Visit Money online some extra money for your super before then on Facebook Check out our website and while anddescribeyourdreamretirementin25 facebook.com/MoneyMagAUS you’re there sign up for our free words or less. See superboosterday.com.au. weekly email newsletter. You’ll get Follow Money our top money stories plus exclusive Effie Zahos, finance tips. Editor, Money on Twitter magazine twitter.com/MoneyMagAUS moneymag.com.au

An expensive lesson I recently sold an investment property for $1.1 mil- lion after acquiring it for $180,000 and decided to seek advice about investing the proceeds. I knew the capital gains tax was going to be considerable; however, I learnt from the adviser that I was also up for the budget deficit levy, extra Medicare levy and more tax on my salary sacrifice contributions to super (15% to 30%) as the tax office now saw me as a high income earner (albeit for one year). Had I spoken to an adviser first I would have been told to hold off selling for two years until I was 60, retired and in pension phase on my super. There would be no budget deficit levy, as this would have been phased out, and a reduced CGT liability – thousands of dollars I missed out on. Act in haste, repent at leisure! Peter, Vic

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MONEY SEPTEMBER 2017 7 OUR EXPERTS

What is the best advice your father ever gave you? The Money team

EDITORIAL CONTRIBUTING Chairman & chief ARTISTS commentator Reg Lynch, Rob Shaw, GREG HOFFMAN VITA PALESTRANT MARK CHAPMAN Paul Clitheroe Jim Tsinganos, John Greg is an independent Former editor of the Mark is director of tax Editor Effie Zahos Tiedemann, Frank Redward financial educator, com- Money section of The communications at H&R Deputy Editor mentator and investor. Sydney Morning Herald Block. Mark says: “Look Maria Bekiaris PHOTOGRAPHS Greg says: “More than and The Age, Vita says: after the pennies and the Getty Images Art Director advice, my father gave “For the generation that pounds will look after Ann Loveday ADVERTISING me confidence by always lived through two world themselves. It’s not a Designer NSW & Vic Vince Lam trusting my abilities. He wars, self-indulgence was motto I’ve always followed Heather Armstrong (02) 9282 8906 allowed me, at the age unthinkable. My father myself but it’s still the Senior Sub-editors Queensland Judy Taylor of 19, to manage his and taught me self-reliance. His soundest financial advice Bob Christensen, (07) 3101 6636 mum’s superannuation favourite remark was ‘It I’ve ever received!” Janice Hogg South Australia fund. That gave me tre- won’t happen on its own.’ Senior Writers Jo Moroney mendous experience and His favourite act was to Susan Hely, Pam Walkley (08) 8267 5032 he never lost faith in me.” help those less fortunate Online Content Western Australia and keep it anonymous.” Producer Chris Eyres Sharyn McCowen (08) 9449 9908 CONTRIBUTING PRODUCTION WRITERS Controller Heidi Armstrong, Rosanna Quinzon Philippe Brach, Mark Advertising Production Chapman, Nerida Cole, Dominic Roy Alan Deans, Nicola Field, MARKETING James Greenhalgh, Brand Manager Ross Greenwood, Georgia Mavrakakis Sam Henderson, Greg Hoffman, Subscriptions MARK STORY PHILIPPE BRACH HEIDI ARMSTRONG Sarah Hunter, Craig Thea Mahoney Mark is director of Prime Philippe is CEO of Heidi is finance expert for James, Ben Kingsley, MANAGEMENT Strategy Media and has Multifocus Properties and Money to Love, and a TV Margaret Lomas, CEO Paul Dykzeul Roger Montgomery, been a business and Finance. Philippe says: “My and radio presenter. Heidi Publisher Anthony O’Brien, finance journalist for more father’s mantra – ‘Spend says: “The best advice was Eugene Varricchio Shane Oliver, Marcus than 15 years. Mark says: some and save some’ – to consider being a small Director of Sales Padley, Vita Palestrant, “Don’t be fearful of money, instilled in me the need to business owner. No school Fiorella Di Santo Scott Pape, Annette leaning out of your com- budget and save, enabling career counselling ever Sampson, Richard fort zone or the unknown. me to purchase my own presented me with this Scott, Mark Story Syndication inquiries: Steer clear of Bible-bash- home, build an investment opportunity for consider- acpsyndication@ bauer-media.com.au ers and bigots. Life isn’t a property portfolio and con- ation. I have loved running ISSN 1444-6219 dress rehearsal so don’t tinue working towards a my own businesses and waste worrying about the secure financial future.” often pass on my father’s future, live in the moment.” advice to my children.”

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* Net rate paid to investors with Allocated Units calculated daily and paid monthly in arrears for the month ended 31 July 2017. Net rates are net of management fees, costs and tax, and assumes no reinvestment of distributions. The rates of return equivalent to 8.00%pa are not guaranteed and are determined by the future revenue of the Trust. For the month ended 31 July 2017 Investors held Cash units for an average of 5 days but historically this time period has been much longer. Cash units were paid a net rate of 1.25% p.a. calculated daily and paid monthly in arrears. Past performance is not a reliable indicator of future performance. IMPORTANT: This advertisement is issued by Trilogy Funds Management Limited ACN 080 383 679 AFSL 261425 (Trilogy Funds) and does not take into account your objectives, personal circumstances or needs nor is it an off er of securities. The Trilogy Monthly Income Trust ARSN 121 846 722 is a registered pooled mortgage fund and investments can only be made on the application form accompanying the Product Disclosure Statement (PDS) dated 17 October 2016 issued by Trilogy Funds and available from www. trilogyfunds.com.au/tmit. The PDS contains full details of the terms and conditions of investment and should be read in full, particularly the risk section, prior to lodging any application or making a further investment. All investments, including the Trilogy Monthly Income Trust, involve risk which can lead to loss of part or your capital. Trilogy Funds is licensed to provide only general fi nancial product advice about its products and therefore recommends you seek personal advice on the suitability of this investment to your objectives, fi nancial situation and needs from a licensed adviser who will conduct an analysis based on your circumstances. Investments in the Trilogy Monthly Income Trust are not bank deposits and are not government guaranteed. IN YOUR INTEREST Paul Clitheroe

Tourism will be one of the great themes of the future – a huge generator of jobs and revenue

e all know the old saying that Iamabigfanofthesimple.Thesimplest numbers of us experience more travel, I at times it is hard to see the fact is that the world population is growing have no doubt many of us will pay a bit W forest for the trees. I am cer- at some 90 million people a year. Despite more for a smaller-group experience like tainly guilty of this. The amount of micro all the bad news, some of it heart-wrench- my Arctic kayak experience. detail in the world of money is growing ing, another simple fact is that poverty is So my radar has turned with interest to andgrowing.Thechangestosuperannua- dramatically lower. The average wealth of how we can invest in this obvious growth tionhadmewellandtrulyinmicrofocus a global citizen is also strongly on the rise. area. We can already invest in airlines, mode up to June 30, along with various I have been fortunate to travel a lot and cruise ship companies and so on but tour- pronouncements about capital gains tax, it is easy to feel the pressure of wealth and ism is going to be one of the great themes negative gearing and later trusts. Add mar- a growing population. In St Petersburg, of the future, so I am going to do a bit more ket and currency volatility and it would be Tallinn, Gdansk or any attractive city you digging around and I’ll report back. For fair to say I had little time to ponder what care to name, it is basically standing room example, big cruise ships are not really I believe really adds value to investment only at major tourist sites. I have spent a bit my thing but they are loved by millions of returns – a long-term perspective. of time in St Petersburg over the years – it people. So just think for a minute about the So it was with some relief that I left these is an amazing city. There were five monster food and beverages that they need as they issuesbehindand,withmywifeVickiand cruise liners in town, as there are every stop and the benefits to local suppliers, some very old friends, headed off to the day in summer, and our Russian guide told restaurants, taxis, travel companies, tourist Baltic and then, even better, into the Arctic me the port facilities would be expanded to shops and so on. And they are only one Circleforsomekayakingintheseaice.I allow for up to 15 ever-bigger liners. Outside part of travel. Airports, also an economic should pause here and tell you that this what I would regard as a minor attraction miracle, seem to me to be the new world was not even a vaguely brave move. First, I counted 47 tourist coaches, with more shopping malls. we were in an ice-reinforced expedition circling. Thank heavens I had been there I am not in the business of travel tips but ship; we had breakfast, lunch and dinner some years earlier, so I could just watch the one thing firmly in my mind is the need on board, as well as a nice warm bed! hordes in amazement. to go to major tourist destinations in the Not being a fan of the potential to roll But there is important information here shoulder season. And I suspect in a decade in zero-degree water at a latitude of 80 about future investment. Clearly tourism this may need to be winter. Even for the degrees north, we kayaked in full dry will be a huge generator of jobs and reve- Arctic or Antarctic, where for now you at suits,andnotatallifitwasblowinga nue. The “owners”, by which I mean the least will get peace and quiet, you’d better gale. So much for an adventurous life. But residents, of the great global attractions book early to get a small-expedition boat it was a great experience, with ice, polar will have to put quotas on tourist arrivals, experience, or prepare to be on a wait list. bears, walruses, seals and whales. Even a most interesting new source of revenue. better, there were absolutely no commu- It is very clear that business and invest- Paul Clitheroe is Money’s chairman and nications for nearly two weeks. Without ment opportunities abound. “Mass tour- chief commentator. He is also chairman a minute-by-minute deluge of news I had a ism” is rapidly leading to what I would call of the Australian government’s Financial chance to mull over the long-term outlook. “middle class exclusive” tourism. As larger Literacy Board and a best-selling author.

10 MONEY SEPTEMBER 2017 If you’re after a reason to bank with us, this isn’t it.

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If that sounds like your kind of bank, visit us online or call us on 132 888 to fi nd out more. THIS MONTH

THE BUZZ Refunds to be given forjunkinsurance Add-on policies can be expensive and provide little benefit

he Australian Securities & advocates and ASIC have notbeagreatproductbutit TInvestments Commission found add-on insurance is often is a boon for insurers, with (ASIC) recently announced expensive, low value and full of $1.6 billion of policies sold that Commonwealth Bank and exclusions and conditions that between 2013 and 2015 just in insurers QBE and Virginia Surety surprisepeoplewhentheytryto car yards. This has been easy

VIEWS will repay over $26 million to make a claim. money for far too long. It’s time people who were mis-sold Consumer credit insurance for insurers, banks and others add-on insurance, including has been sold to people who selling junk insurance to repay consumer credit insurance. It work casually or part time, their ripped-off customers and has been a long time coming, or are self-employed, and are stop mis-selling it.

& andtheremaybemore ineligible to claim under their Consumer Action’s website announcements on the way. policies. It has also been sold to (DemandARefund.com) has If you’ve taken out credit people who have pre-existing assisted people to claim more or finance, you may have medical conditions that would than $700,000 in refunds on been offered consumer credit exclude a claim. And it has been add-on insurance (and extended insurance. It is typically added sold to people who already have car warranties) which they did to your loan or credit card to similar insurance, often in their not need or want. You could cover some of your repayments super, or who just don’t need the be one of thousands of people if you lose your job, are injured, cover they are paying for. whocangetarefundonjunk become sick or pass away. It’s Plus the benefits can often be insurance. To ask for a refund, just like being asked at the fast- much lower than people expect, head to DemandARefund. food drive-through, “Would you andinsomecaseslowerthan Susan Quinn, senior policy like fries with that?” the premium paid. officer, Consumer Action The problem is that consumer Add-on insurance might Law Centre NEWS ON MY MIND CALENDAR OF EVENTS Property cycle still has life

Thursday, September 7 very property cycle I’ve difficulty with affordability, but established Balance of trade Eexperienced has come to home buyers who tend to stay put rather than Wednesday, Sep. 13 a halt because of finance or trading up (or down) because they find that Westpac consumer difficulty getting it. high prices and excessive stamp duty are too confidence In general, the Reserve much of a disincentive. Bank increases interest rates to slow down There’s still life left in this cycle and it’s not too Thursday, Sep. 14 the economy, and in the past it has been quite late to buy an investment property. But at this Unemployment rate effective at doing this. mature stage of the cycle, careful selection will Friday, Sep. 15 And over recent years, the Australian be critical for property investors as our markets Consumer inflation Prudential Regulation Authority (APRA) has put are very fragmented. expectations the brakes on investment lending, creating a Not all properties will grow in value and Tuesday, October 3 credit squeeze. some of them will make very poor long-term RBA interest rate decision Affordability is another factor near the investment choices. end of the cycle. And I’m not talking about Michael Yardney, CEO, Metropole first home buyers who always seem to have Property Strategists

12 MONEY SEPTEMBER 2017 NEWS BITES

BUSSQisthelatestofthe superannuation funds to give fund members an incentive for joining up for its retirement pension. It pays a retirement reward of up to $11,520 to new retirement pension members who have set up an account-based pension.Itcanbetakenasacash payment or left in the account to top up the member’s balance.

The Fat Prophets Global Property Fund runbySimonWheatley,exGoldman Sachs and JB Were, is being listed on the ASX in September. It will invest in listed real-estate equities in developed markets around the world and make regular payouts to investors. It holds 30%inAustralianREITs and 70% in international REITs.

Airtasker workers can now take out income protection insurance asthecompanyhasteamedup with insurer Roobyx Pty Ltd to offer the cover. Available through the Airtasker platform the premium is calculated weekly based on how much the worker earned in the previous week on the platform, so the cost increases and decreases based on their earnings each week.

Banks put profits first

t might seem like a distant customers and their shareholders, more Imemorybuttherewasatime often than not homeowners are asked when Australian banks moved to step up. theirstandardvariablerates The margin between the cash rate 47.8% alongside the official cash rate, and the bank’s standard variable rate That’sthepercentageofhousesinSydneythat maintaining a steady margin of 1.8%. However, in is now 3.75%, more than double what sold for at least $1 million over the 12 months to 2008 financial markets were thrown into turmoil it was 10 years ago, adding tens of June 2017, according to CoreLogic. Even 21.3% andthecostoffundingskyrocketed.Bankprofit thousands of dollars to the repayments of units sold in Sydney in this time period hit margins were squeezed and they turned to their of mortgage holders. Yes, the banks’ the$1mmark.Melbourneisnextonthelist homeloancustomerstohelpfundtheshortfall. net interest margins have dipped slightly with 25.9% of houses selling for at least Banks are well within their rights to make a overthistimebuta0.12%dropfor $1 million. Other capital cities have profit. After all, they aren’t charities and a strong Commonwealth Bank and a 0.06% drop for a lower proportion of million- bankingsectorisvitalforoureconomy.However, Westpac doesn’t quite pass the sniff test. when banks are forced to decide between their Sally Tindall, money editor, ratecity.com.au dollar sales.

MONEYMNEYSEPTEMBER 2017 13 THIS MONTH

BOOK OF THE APP OF THE TAX TIP MONTH MONTH Key issue in PACKPOINT COST: FREE (some investing for kids in-app purchases and option to upgrade) t’s quite common for parents or other OS: iOS, Android Irelatives looking to give children a head-

VIEWS start in life to invest money on behalf of ho doesn’t the kids from an early age. That way, a love a good nest egg can accumulate which the child & W holiday but if you’re can draw on once they reach adulthood. anything like me A question that often arises is who pays packing for the trip can be quite tax on the income: the child or the parent? SUDDENLY SINGLE stressful. This app is meant to To find out the answer, it’s necessary to Christine Williams make it much easier. consider who provided the funds for the Graphics Unlimited, RRP $27 Youentertheimportant investment, who receives the investment details such as where you’re income (regardless of who it is spent on) NEWS uthor Christine Williams began to going, for how long and also and who makes the investment decisions. Ainvest in property when she had to any activities you have planned, For the child to be liable for tax, the start all over again at the age of 35 after for example hiking, swimming income must belong to the child and the her divorce. In this book she offers a sev- or a fancy dinner. Also note if assets that produce the income must also en-step guide to wealth creation through you’re travelling for business or demonstrably belong to the child. Indica- property for people who find themselves if you’ll have a baby with you tions that this is the case include: in the same situation she was all those and the app will create a cus- • Assets are acquired or savings years ago. There are plenty of useful tips tom packing list that takes into accounts are opened in the child’s name. for investing in property even if you’re not account all these factors. A strong indicator is where the money in “suddenly single”. Williams looks at financ- There’s also an option you a savings account was actually earned by ing your purchase, finding the right proper- can click if you’re happy to the child, for example from a part-time job. ty and when to buy, through to managing repeat basics or if you prefer • The child’s TFN is quoted. your property and building your portfolio. anewoutfiteachdayandyou • The child has access to the funds and MARIA BEKIARIS can nominate whether you’ll be can use them as they see fit. doing the laundry. If the parent provides the original funds Ten readers can win a copy. The app will even check the and then receives the investment income In 25 words or less, tell us the first thing weather at your destination (even if they decide to use it for the ben- you’d do if you found yourself suddenly to make sure you have the efit of the child), the income is treated single. Send entries to Money, GPO appropriate attire for rain, hail as belonging to the parent and must be Box 4088, Sydney, NSW 2001 or email or shine. disclosed. Similarly, any capital gains or [email protected]. Don’t Allyouhavetodoispop losses must be reported by the parent. forget to include your name and postal everything in your suitcase and MARK CHAPMAN, DIRECTOR OF TAX COMMUNICATIONS AT address. Entries close October 4, 2017. zipitup.MARIA BEKIARIS H&R BLOCK. [email protected]

SNAPSHOT THE SHRINKING COMFORT ZONE Biggest worries and positives nominated by households, June 2017 -44% Cost of necessities 11% -33% Level of savings/cash on hand 18% -33% Ability to maintain lifestyle in retirement 14% -29% Being able to make ends meet 32% -26% How the global economy will affect Australia 5% -22% Security of my job or my partner’s job 16% -20% Impact of legislative change on my financial situation 3% -18% Level of government assistance available 11% -18% Value of cash investments 12% -17% My level of personal/household debt 20% -16% Ability to purchase and/or pay off property to live in 10% 37% -11% Changes to personal taxes 4% said it would be ‘easy -7% Ability to purchase/pay off an investment property 5% to raise $3000 in an emergency’ Source: ME, Household financial comfort report – June 2017

14 MONEY SEPTEMBER 2017 %* %* %* %* 3.20 5.20 6.00 7.00

13 80 10 www.latrobefinancial.com IN BRIEF

ENERGY BILLS Reforms aim to cut costs ising power bills are many households remain on Ralways a hot topic and it expired deals. Millions of probably comes as no surprise • Developing simple, that millions of families are plain-English fact sheets that dollars wasted payingmorethantheyneedfor provide easy-to-understand their electricity. comparison rates. on gift cards Part of the problem is lack of • Supporting a change to ussies are throwing away millions of transparency. You might have the electricity rules requiring Adollars each year in unredeemed gift started on a discounted plan them to inform customers cards, according to research by finder. that has since expired and you when their discount benefits com.au, which indicated that 14% have may not have realised you have end and setting out the dollar let funds expire in the past two years. On been switched to a default plan impact of doing nothing. average, $54 is left on gift cards, which that is more expensive. • Ensuring that families equates to a whopping $142 million in But soon that should no and individuals on hardship unused funds over two years. longer be the case. programs will not lose any There’s no need to let any gift cards The prime minister, Malcolm benefits or discounts for go to waste. As Bessie Hassan, money Turnbull, met energy retailers late payment. expert at Finder says, whether Aussies in August and they have agreed “Too many families are not are forgetting about the whole voucher to contact all customers who on the best power deal. That or spare change left on it, they are giving are on expired is why today we took retailers a free ride. discounts and tell further action,” If you find yourself with a voucher them how much Turnbull said you’re not likely to use, then consider

MY MONEY theycansaveon at the time, selling it. “Websites like CardHub are abetterdeal. adding that great if you receive a gift card for a shop XMORE Other these measures that’s totally not up your alley,” says measures that would help Hassan. “CardHub allows you to buy or MONEY the energy ensure families sell your gift cards at a discount. This way STORIES companies are not paying you can buy a gift with a voucher that’s ON P42-61 have agreed to more for their bestforyou,orspendthecash.”You implement include: power than could also try eBay, Gumtree or any local • Reporting to they should. buy, sell or swap groups on Facebook. the government Makesureyou Try to spend it all at once if you want to TOP 5 LOW-RATE and Australian take action, too, and avoid wasting funds, says Hassan. “If you CREDIT CARDS Competition check out sites such as find you really can’t spend the full amount & Consumer energymadeeasy.gov.au, on your gift card, ask the sales assistant My Credit Union Commission (ACCC) energywatch.com.au and to write the remaining total in permanent 7.99%pa, 55 days what they are doing energybilldoctor.com.au marker on the back. This way you’ll know interest free and $59pa; to get families onto toseeifyoucanfinda how much you can spend.” Northern Inland CU abetterdealandhow better deal. 8.99%pa, 0 days interest free and $0pa; Community First CU 8.99%pa, 55 days Moreperks,please interest free and $40pa; If you’re disappointed with your salary increase this Bank Australia year you’re probably not alone. Nick Deligiannis, 9.39%pa, 0 days interest managing director of Hays in Australia & New free and $59pa; Zealand, says salary increases are sedate, which 59% 55% Woolworths has triggered a much greater focus from employees of Aussies would like would like a day Employees CU on the benefits available to them in their current or potential new role. Flexible working arrangements, a job offering more off work for 9.45%pa, 55 days than 20 days of their birthday interest free and $25pa. more days off, financial support for study and annual leave Source: Canstar as at access to health and wellness programs are some of 16-Aug-17. the perks employees would like. COMPILED BY MARIA BEKIARIS

16 MONEY SEPTEMBER 2017 IN BRIEF

MORTGAGES Interest-only loans come at a cost atch out if you are on an initial monthly mortgage repayment Winterest-only mortgage. Not only would be $2320. Five years later in have banks increased the interest rate 2022, when the mortgage converts on these loans by 0.4% to 0.6%, they to a principal and interest loan, the can cost you substantially more over monthly repayment jumps to $3174, the life of the loan. To save interest an increase of 37%. payments, switch from an interest-only And if you rolled over the interest- to a principal and interest loan. only period for a further five years, be UBS banking analyst Jonathan prepared for a steep increase in what Mott estimates that if you took out you pay thanks to compounding. Mott a $600,000 loan for a Sydney home calculates that the repayments would with a 30-year term, paying interest be $3643 a month in 2027, a step-up Location only for the first five years, the of 57% overall. SUSAN HELY is the top priority ith property prices Wso high, you may need to make compromises when you’re deciding what and where to buy. Research commissioned by Gateway

Credit Union found that PROPERTY some aspiring property owners may be willing to XMORE sacrifice space for location, PROPERTY with 35.5% saying they STORIES ON would rather buy a studio apartment in their ideal P62-67 location than a bigger property further away in TOP AUSTRALIAN a less ideal area. NATIONAL PROPERTY CLOCK - AUGUST 2017 (HOUSES) PROPERTY Baby boomers are most Entries coloured red SECURITIES willing to take a studio Melbourne Coffs Harbour NSW Central indicate positional change Newcastle Coast from last month apartment in an ideal Gold Coast FUNDS, BY 3-YEAR location (44.8%), followed NSW Mid North Coast PERFORMANCE South East NSW Sydney by 18- to 29-year-olds Peak of Sunshine Coast Folkestone Maxim (30.8%) and 30- to 49-year- market Approaching Starting A-REIT (COL0001AU), olds (27.5%). peak of to decline 15.05%pa 3-year return; Adelaide Devonport market Paul Thomas, Gateway Resolution Capital Credit Union CEO, warns Canberra Echuca Hobart Launceston Rising Declining Core Plus Prop there could be a catch, Ballarat Lismore market market Sec (WHT0014AU), though, as many lenders Bendigo Mount Gambier 13.6%pa 3-year return; have strict criteria when Burnie Tamworth Approaching Start of bottom of APN Prop for Income it comes to lending for recovery market 2 (APN0004AU), studio apartments. If you’re Bottom of 12.48%pa 3-year thinking about buying a Brisbane Mildura market Perth Cairns Townsville Bundaberg return; APN Prop for studio smaller than 50sq m Emerald Wellington Rockhampton Income (APN0001AU), it pays to shop around to Hervey Bay Beach Darwin Mackay Toowoomba 12.24%pa 3-year return. find a lender who does. Ipswich Whitsundays Alice Springs South Source: SQM Research as Gladstone West WA Source: Herron Todd White Residential at 30-Jun-17. COMPILED BY MARIA BEKIARIS

MONEY SEPTEMBER 2017 17 IN BRIEF

SUPER GUARANTEE Workers miss out on $125m

Martin Fahy, CEO, ASFA

here is casual or part-time jobs for more Forastudentaged19years, Tcurrently a than one employer at a time. workingparttimeforfiveyears $450-a-month It also impacts young people and earning $4000 a year, a $1900 wage threshold in casual jobs and delays them super guarantee would apply. For for the superannuation guarantee embarking on the super journey. a woman aged 37, working part (SG) and as a result an estimated Having young people engaged in time and earning $5000 a year, a 220,000 women and 145,000 men super, saving as early as possible, $1425 SG would apply. These are miss out on around $125 million of makes more sense than excluding significant amounts. contributions each year. them from a super start in their As more and more people build The SG is 9.5% of an individual’s first job. portfolio careers around the gig salary which, by law, their employer Compounding of investment economy, we need to move with the has to pay into their super fund. returns can turn small initial times and recalibrate the SG to meet INVESTING It should be part of everyone’s contributions into substantial their needs. work-related entitlements, amounts at retirement. Everyone needs super. It’s time XMORE particularly low-income earners, Casual and low-paid workers to level the field, give everyone the INVESTING whoneedSGtohelpputthemon in retail, hospitality and nursing entitlement of super and strengthen STORIES ON the road to comfort in retirement. are reportedly the hardest hit the super system by removing any The $450 threshold particularly by being left out of super due to impediment to providing a fully P68-81 affects women, who often work in the threshold. universal means to build wealth. TOP MULTISECTOR Greenest of the green FUNDS, hich investment companies have the best environmental, Money keeps BY 5-YEAR Wsocial and governance standards when it comes to investing? PERFORMANCE The Responsible Investment Association Australasia (RIAA) flowing into ETFs assessed 99 Australian and New Zealand investment managers and xchange-traded Australian Ethical gave 16 asset managers, representing $557.1 billion, a score of 80% or funds had Diversified E more. They are: AMP Capital, Amundi Asset Management, ATI Asset a record (AUG0019AU), Management,g, AXA Investment Mana ackRock, Celeste Funds 15.83%pa 5-yearr $30.1 billion return; Fiducian Ultra Management, Colonial First State Globaal Asset Management, under $30bn Growth (FPS00014AU), Dexus PropertyGroup, IFM Investors, management This is the total funds under 15.12%pa 5-year return; Investa Property Group, Lendlease in July 2017, management in Australian BT Classic InvS plit Investmment Management, according to exchange-traded funds as at Growth (BTA00012AU) Perpetualu Investments, QIC, RARE the BetaShares the end of July 2017. 14.93%pa 5-year Infrastructure,u Robeco and Solaris Australian ETF return; Perpetuaal Investmente Management. Review. Wholesale Split Three funds did even better as In a month when the Australian Growth (PER00066AU) theyhad outstanding core values sharemarket was flat, 100% of the 14.65%pa 5-year return. as well as ESG standards. They are growth came from net inflows rather Source: Morningsstar as Australiana Ethical, New Forests and than asset appreciation, says BetaShares. at 30-Jul-17 Stewart Investors.I SUSAN HELY COMPILED BY MARIA BEKIARIS

18 MONEY SEPPTEMBER 2017 IN BRIEF

TELECOMS Telstra faces a big challenge

Brain Han, we do not see this share price brought on by the NBN, mobile analyst, discount as warranted. Granted, competition and relentless changes Morningstar the magnitude of the dividend in the converging telecom space. cut (from 90% of earnings to Indeed, the rising competitive 70%) and the abrupt fashion in intensity in mobile and the accel- elstra’s shock which it has been executed was erating NBN impact in broadband Tannouncement a surprise, especially as we had have led to a 4% reduction across of a 22¢ a share dividend guidance for previously anticipated a more Morningstar’s forecast EBITDA nextyear–down29%fromthe31¢in gradual decrease to 25¢ by fiscal (earnings before interest, tax, depre- fiscal 2017 – was clearly too much for 2021. However, a dividend cut ciation and amortisation) for the investors to stomach judging by the was inevitable, as was a move to a next three years. This has resulted stock price reaction. more sustainable capital structure in a cut to our fair value estimate to Contrary to the prevailing sentiment, in the face of proliferating changes $4.60 a share, down from $4.80. SHARES Equities lag over the decade ustralian residential property Equity markets posted double- Russell says that while residen- XMORE Abeat Australian shares as the digit returns for 2016 and many tial property overall has achieved SHARES top-performing asset class over alternative asset classes (high- strong positive returns over the STORIES ON the 10 years to June 2016, accord- yield debt, emerging market debt, past 10 and 20 years, it would be P82-88 ing to the Russell Investments/ listed infrastructure and property) a mistake to blindly rely on the ASX long-term investment report. performed strongly but year-on- upward trend continuing. Residential property returned year 10-year returns fell compared It recommends investors 8.1%pa followed by global fixed with 2015. This is because 2006 take a nimble approach, shifting income (7.4%), Australian bonds was a stronger year than 2016 and between asset classes and (6.1%), Australian equities (4.3%), the negative impact of the GFC sub-asset classes in real time as hedged global equities (5.5%) and moved closer to the beginning of market conditions change, rather Australian listed property (0%). the period. than a set-and-forget approach. HOLD RPMGLOBAL The Intelligent Investor. Analyst Alex Hughes TOP AUSTRALIAN he country’s pre-eminent mining RECOMMENDATION EQUITY ETFs Tsoftware business, RPMGlobal RANKED BY ONE- (ASX: RUL) is only just scraping the BUY HOLD SELLL below up to aboove YEAR RETURN surface of its future potential. Let’s $0.55 $1.00 $1.00 hope a takeover doesn’t snatch the BetaShares FTSE RAFI opportunity away from us. Australia 200 (QOZ) RPMGlobal (the new name for HOLD at $0.62 14.28%; UBS IQ MSCI RungePincockMinarco) is uniquely Australian Ethical positioned to take advantage of the Source: Intelligent Investor; price as at 26-Jul-17 close of business (UBA) 10.85%; SPDR trend in the mining industry towards S&P/ASX 50 (SFY) utilising driverless trucks and remote The holy grail of investing is own- a small premium. We hope they stay 9.56%; iShares S&P/ operational centres. ing companies that can compound away for now. ASX 20 ETF (ILC) It has no equal on the ASX or any earnings over long periods. RPMGlob- The share price recently dipped 9.44%; Vanguard MSCI other exchange. That gives it scarcity al has the ingredients to do that. below 55 cents, and we hoped this Australian Large value but it is hard to define the size The risk is that this could be cut may have been the precursor to a Companies Index of the opportunity. What we do know short by a takeover from a large mul- weak year, offering a buying opportu- (VLC) 9.42% is that the use of technology is very tinational, with the lion’s share of the nity. Unfortunately, we’ll need a little Source: ASX as at 30- low in the mining industry. long-term gains being exchanged for more patience for now. HOLD. Jul-17. COMPILED BY SUSAN HELY SUSAN BY COMPILED

MONEY SEPTEMBER 2017 19 INTERVIEW

STORY Magic in ALAN DEANS marketing

20 MONEY SEPTEMBER 2017 Fact file Lauren Fried Owner of marketing agency Pulse Fried is perhaps best known for youbuyahybridcar?’,youmightsay‘yes’.But Collective and former panellist on the hersharpinsightsasapanelliston would you really buy one? Maybe not. We use ABC’s Gruen TV show; age 37. the ABC’s advertising-focused TV actual behaviours, not what people say they show Gruen.“Thereisconfusion,” willdo.Theyareverydifferentthings.The Friedsaysofthenewmarketing quantitative research tells us about people’s Commutes between her Sydney business and home world.“Chiefmarketingofficers behaviours and what influences them. intheAdelaideHillswhereshepursueswine, most likely are dealing with a PR “Forexample,oneofourclients,afami- tourism and food opportunities; professes to being company,acontentcompany,asocial ly-runbusiness,wasadamantitwas16-to agunattennis;andsaysshelovesherGerman agency, a creative agency, a marketing 24-year-oldmenandboys buyingtheir vitamin shorthaired pointer Aggie “like a human”. agency and might be offshoring some supplements. All of the data told us it was Herfirstjob,atage12,waswaitressing work with digital and a media buyer. 50-to54-year-oldswithanaveragehousehold in an Italian restaurant. Theirroleistokeepalltheballsinthe income of $150,000 or more. You couldn’t get air. Imagine having to do eight meetings moreopposite.Eventhen,youcan’tmake each week with different agencies just to assumptionsaboutwhata50-year-oldearning update you about the same thing. It is chaos. $150,000does.Butthedatatoldustheywere Beinginamarketingroleisreallyhard.You fourtimesmorelikelythanthepopulationto aremeanttoknowabitabouteverything.IfI gotoBali.Theyweremorelikelytobuyat wentonholidaysforsixmonths,therewould online discount stores. They were premium be so much change in the digital landscape winebuyers.Thisgivesusdeepdetail.So that I would have to get back on top of. It is we did a promotion which offered a prize of changing rapidly.” atriptoBali.Youwouldhavethoughtthata Advertising agencies once dominated – 50-year-old with that sort of income would think Don Draper in the TV series Mad Men be going to Europe. It’s the data that tells the –buttheircreativeworkisnowincreasingly story. It’s a no-brainer.” handled offshore or outsourced. Fried’s job is There’s an aspect of George Orwell’s Big to manage this milieu while rolling out king- Brother about this. Data reveals what prod- hit strategies. She says all her clients want to ucts people buy at the supermarket, what grow but they may not know how. They want theyspendontheircreditcardsandmuch, toinnovate,bustintonewmarketswithkiller muchmore.AustralianBureauofStatistics products or services. But this still requires a information can also be added. “When you smart marketing plan, a team to deliver it and merge it all together it is magic,” says Fried. partners to produce the creative messaging Hercareerstartedinthemarketingdepartment and execution. There’s not much different in at McDonald’s. She left school for a career in isruption is one business therecipebutthereareimportantnewtricks. journalismviaaBAincommunications.But trend overarching most others “Every marketing campaign should be based thecoursedidn’toffermuchonhowtowrite. rightnow.Retailersarethreat- on data – it has to be,” says Fried. “I talk about McDonald’s paid handsomely and, important- ened by the looming arrival of thisalot.Iampassionateaboutit,therolethat ly,itwas“ahugemachinethatwasusedfor Amazon.TVandprintmedia data plays. People want to be more creative training and mentoring and coaching. It was DarebeingsavagedbyFacebookandGoogle. andhavebigcampaignsbutthedefinitionof theultimatelaunchpadformycareer”.Five Batteries are the death knell for the internal marketing is getting the thinking down. That yearson,Friedquitforasmall,family-owned, combustion engines in the cars we drive, and is the foundation that lasts for years and years. quick-servicerestaurantchainbutleftafter fintech start-ups are unleashing technologies If you are making assumptions, you could be three weeks because “they didn’t like that I tocannibalisebanks.Theopportunitiesare going off only slightly in the wrong direction. was woman”. enormous for those embracing the trend. Butthat1%youareoffcompoundsovertime. Then came Pulse. Marketingisnodifferent.LaurenFriedisan If there is no data to tie your thoughts to and That was accidental. It was meant to be a adviser and business strategist who describes to prove them, then the marketing strategy bridge to something bigger in her career but her agency, Pulse Collective, as dedicated to should not be signed off. sheenjoyedtheworkbecauseclientsgaveher growingentrepreneurialbusinesses.Those “Businessesneedtousetheirowndata,and more control of their marketing. She hired causing all this upheaval need help, and there’s they also need to buy the right data to under- staff, and after four years jagged a major client no doubt those suffering at the hands of dis- stand what a high-value customer looks like in gas distributor Jemena. That transformed

ROB SHAW ruption do too. – what are their behaviours? If I asked ‘Would the business, supported its growth and taught

MONEY SEPTEMBER 2017 21 INTERVIEW

Shared passions ... Lauren Fried with husband Jock Zonfrillo, a chef.

her skills she didn’t have. Then in 2010 came fine dining restaurants and it would permeate a NSW Telstra Young Business Woman of the through. But at the moment you can’t get a Year Award. “That gave us a great reputation cookbook with native ingredients in it because but clients wanted me. It was tricky to manage.” you can’t buy the ingredients.” The next boost came from the national “At the moment native Another passion that Fried shares with spotlight on Gruen. her husband is travel. She says her financial Now another pivot is happening. Fried ingredients are so goal is “to buy freedom to have wonderful recently married Scottish chef Jock Zonfrillo experiences in life. To go to Europe and who owns two noted South Australian restau- mysterious. We are see Jock in the Highlands for a month or go rants. Fried is still invigorated by marketing to Canada, that is what financial freedom but wants someone else to run the business looks like to me. Not necessarily building up so she can focus on advising clients and pur- trying to make the food assets. That is part of the mix but that does suing new passions in South Australia for not drive me. I sit down at the end of the year food, wine, tourism and produce. She is now more accessible” and say, ‘Wow, wasn’t that month we had in chair of the McLaren Vale Grape Wine and the Highlands fantastic!’ ” Tourism Association and a director on the Botanic Gardens of SA and the SA Museum, Property investment plays a part. Fried Rundle Mall Management Authority. to develop a laboratory and build an open owns one investment property and, with Jock, One priority is the work that Zonfrillo’s source database anyone can use. plans to buy more residential and commercial Orana Foundation is undertaking to catalogue “At the moment native ingredients are property over the next two years. There is also the thousands of native natural food ingredi- so mysterious,” says Fried. “We go out and the notion of buying a castle in Scotland. On ents in Australia. His fine dining Restaurant spend time in Indigenous communities. My a trip there this year, their eye was captured Orana in Adelaide is known for foods such as husband had been doing it for 16 years. Much by one place while walking in the Highlands. zig-zag wattle, sandalwood nut, kutjera (desert of the food seems inedible but they show you “Having a piece of the Scottish Highlands raisin), gubinge (plums) and Geraldton wax. how to make it edible. We are trying to make that is ours would be extraordinary. To have He spends considerable sums of his own each it more accessible. We want Geraldton wax something that our kids go to and their kids year on toxicology testing and researching on supermarket shelves along with rosemary, go to. I am sure it’s not the best investment. native plants, and has documented up to 500 thyme and coriander. We would probably be there several times a varieties. Recently the South Australian gov- “It is a big challenge to say we are going to year. But that is the pinnacle. We are going ernment granted $1.25 million to his foundation preserve the sophisticated cooking methods back in several weeks and the conversation and its partners, University of Adelaide, the of Australia. Normally you would start with will come up. Jock will be into it in no time.”

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CASE STUDY Sailors keep it simple A couple who spend their livesonthehighseas needasafeharbour for their investments

NAME: Jody Bedson STATUS: Married, retired and sailing around the world. QUESTIONS: Where do I invest $100,000 in a conservative but high-return portfolio? ShouldIculloraddtomyexistingshares? ANSWERS: Keep your investments simple andplaceyourextramoneyintoAustralian- Super, where investment earnings are tax free andyoucandrawitdownwhenyouneedit. Sell your shares and invest the money in AustralianSupersoyouwon’thavetokeepan eye on how they are performing. But if you want to keep the shares, consider cutting back on banks and retail stocks.

even years ago, Jody and her husband flew from Melbourne to Florida and S boughta13-metreketchbuiltin1980. “Intwoweeksweboughttheperfectboat,” says Jody. The couple, in their early 50s, nameditBluePelicanandsetsailforthe Bahamas. After 30 years in corporate life, US into New York harbour past the Statue hasinheritedsharesworthabout$50,000 theydecidedtosailtheworldwhilethey of Liberty, past Guatemala, Jamaica and thatincludeBHP,CBA,CenturiaIndustrial werestillyoungandable.“Overthepast Cuba and backpacked through five Central REIT,Healthscope,NAB,Origin,Sonic seven years we have lived a simple life on American countries. They transited the Healthcare,Telstra,WesfarmersandWool- oursailingvesselandarecontinuingour Panama Canal and for 39 days saw no one worths.Dotheyneedculling? circumnavigation this year,” she says. at sea before reaching French Polynesia, They have around $100,000 to invest. “I How can they afford to stop working? It then sailed across the Pacific to Brisbane. wasgoingtobuymoresharesbuttheworld isacleverstrategyofnotneedingtoomuch They sold their apartment and built is so volatile, I thought I would sit on them money and living off the rental income up their account with AustralianSuper, andwatchawhile,”saysJody.“It’simpor- from their apartment. “We just don’t spend drawing down a pension of around $4000 tant to me not to take on too much risk.” much and we are very content. We used to amonth.“WearereallyhappywithAus- They would like a set-and-forget invest- spend so much money but now our priori- tralianSuper. You can see it all online and ment but be able to access the funds within ties are different,” says Jody. usuallytalktosomeoneprettyquickly,” threemonthsifnecessary.“Wemayretire They sailed throughout the Bahamas, shesays.TheyarenowsettingsailforAsia in Asia or Mexico. We don’t know.” in the Caribbean, up the east coast of the and then Suez and the Mediterranean. Jody SUSAN HELY

24 MONEY SEPTEMBER 2017 Set and forget Diversify to through super reduce risk SAM HENDERSON JAMES CARLISLE Sam is the CEO of financial planning firm Henderson James is research director at Intelligent Investor Maxwell and host of Sky News Business’s Your Mon- and author of Value: Intelligent Investor’s Guide ey Your Call – Super to Finding Hidden Gems on the Sharemarket

ody, it sounds like you’re a non-concessional contribution t’s great that you’re mak- It’s also worth noting that truly living the lifestyle and to super (of up to $300,000) and ing such good use of the all these are Australian stocks. J financial dream. You’re potentially use a concessional Iwealth you’ve built up but Given that you’re considering not paying a cent in tax from contribution or part thereof if remember that it’s got to last. retiring abroad, it will probably your super and you have plenty you have a capital gain on the Life expectancies are increasing make sense to have plenty of of money to supply you with an sale – this will keep the CGT to a and you could be in for a lot international exposure, so check income stream, most probably minimum. Alternatively, you can of sailing! I’ll leave the overall to see that you’re getting this for life. sell progressively across a num- wealth advice – including the from your other investments. Having spent a lot of time ber of financial years to lower vehicles through which to You could use the extra surfing my way around the Indo- your taxable gain. It’s important invest – to others and stick to $100,000 to fill in the gaps and nesian archipelago, I can attest to seek advice from an account- the share portfolio. broaden your diversification. It’s to the beauty of the place and ant on this point. It’s generally best to have at true that stocks can be volatile many others just like it, so good Leave an amount you feel least a dozen stocks (probably but over the long term they on you! comfortable with as a cash buff- more) to provide diversification, tend to provide higher returns The other important aspect er for emergencies and put the so on its own this portfolio will than bonds and cash. Having to your situation is that because rest into super, where it will be probably be a bit too concen- retired early, you need to keep a you spend a lot of time away managed by AussieSuper. Man- trated. It’s not just about the long-term focus. Property may from home, your request for a aging the shares yourself will number of stocks but their also be a good option for get- set-and-forget strategy plays require more work and expertise percentage weighting. Held ting specific exposure to a par- nicely into the hands of investing and your lifestyle sounds more equally, they’d each be 10%, ticular country if you’re serious most of your hard-earned dollars like a priority than sitting in front which is high, but if any are well about finally settling there. in superannuation. of a screen trading shares. above this then it could bring in In terms of the actual stocks, I think this is good idea One final point I’ll make relates a lot of risk. we have “hold” recommen- because in AustralianSuper it’s to the $1.6 million pension bal- There might also be signifi- dations on them all, except well invested, has performed ance transfer cap. I’d suggest cant sector concentrations. For Centuria, which we don’t cover. well and is a low-cost option. ensuring that the super is split example, we recommend keep- Sonic Healthcare, Wesfarmers Let’s not fix what ain’t broke! between you fairly evenly so that ing your overall bank exposure and Woolworths are close to I manage self-managed funds one partner doesn’t hit that cap. below 20%, or closer to 10% our buy prices, while Telstra is for clients with similar amounts This can be easily done given for conservative investors. With getting towards a point where and they enjoy the transparency your age and the contribution both CBA and NAB, you could we might sell. and flexibility of the SMSF struc- levels available, and because be well above this. Having both Bear in mind that price and ture, not to mention the potential you’ve already attained a condi- Wesfarmers and Woolworths value will move about, and our to invest in property. You’re tion of release you can take mon- might also leave you overex- recommendations will change probably even not an Australian ey out of one person’s account posed to retail. over time. That needn’t worry resident for tax purposes if you and put it into the other’s (up to However, you have to consid- you unduly. Good investing is spend so much time overseas so $300,000 each as a non-con- er all this in terms of your over- generally lazy investing – too an SMSF won’t be recommend- cessional contribution using the all wealth. If the portfolio is only much activity often does more ed, as central management con- three-year bring-forward rule) to a 30th of your total net worth harm than good. trol needs to stay in Australia. rebalance the amounts. then even a 30% weighting in The less balanced your port- Your needs are really simple. Just make sure your binding this stock portfolio would only folio is to begin with, though, Despite having five times the death nominations are kept up translate to 1% of everything the more quickly it could get average amount in super at to date, your wills and powers taken together. Bear in mind, more unbalanced. If you’re retirement it doesn’t mean you of attorney are complete and though, that your other equity going to go months without have to have more complexity. available to each of you and investments could have similar looking at it, then you’ll prob- I’m a big fan of keeping things other family members. Apart concentrations, particularly ably want to consider either a simple. The same applies to your from that, let’s keep it as simple in the banks. You should think fully passive strategy or finding share portfolio. If I were you, I’d as possible and keep the wind in about it altogether to get an someone to manage your port- probably sell it down and make the sails. idea of your overall exposures. folio actively.

MONEY SEPTEMBER 2017 25 ASK PAUL Q & A

For Stalla, too much debt could put ... Dream home in danger

My husband and I bought our first try to refinance again after the renovations are owner-occupied home 16 months ago in our completed? Or should we wait and build up equity NEED Q dream location. It’s a lifestyle property on by making extra repayments to the loan? Or do you PAUL’S two hectares in a regional Victorian town. Although know of any other options that may be available for HELP? it’s our first home we plan on staying in the property this scenario? long term and want to renovate the kitchen and Send your questions to: bathrooms to make it into our dream home as well. Ask Paul, Money Desktop valuations, in particular in regional areas with magazine, GPO Box The renovations would be to our own taste as it is acreage, are more guesswork than science. They also 4088, Sydney NSW our owner-occupied property and we have had no tend to be super conservative. 2001 or money@ regard for the other houses in the area, as we have So I think your first step is to seek a second opinion. bauer-media.com.au. no plans to sell or use it as an investment property. I’d be talking to a local lender such as a building society We put all our savings into the deposit and got a or credit union. If that confirms the recent valuation, then Sorry, but Paul can’t loan at an 80% loan-to-value ratio (LVR). I agree you have to look to other options. personally answer your Our plan was to refinance and access equity to The biggest issue for me is something you did not questions other than complete the renovations. However, a desktop val- mention: your incomes. I do get your point that this is in the Q&A column. uation was recently obtained from one of the major a lifetime property for you, so a new kitchen and bath- By submitting your banks and it came in $25,000 lower than what we rooms will not only add value but will bring lasting pleas- question to Money, paid for the property. This could be due to one of ure. If you have relatively high incomes a lender will be you consent to having the major power stations nearby closing down and more inclined to make a loan extension work for you, or your question and the there being limited comparable sales in the past at least a very low-cost personal loan. response you receive three months for properties on acreage. We are now If, however, money is tight, I really cannot encourage from Paul published currently sitting at about 81% LVR based on the you to take on potentially high-interest debt to renovate. in the print and digital desktop valuation. It could put your dream home at risk. If this is the case, edition of Money. Our question is, should we obtain a personal I would recommend that you bide your time and build loan or other unsecured finance to renovate and your savings.

26 MONEY SEPTEMBER 2017 Kevin’sinvestmentscando... Better than term deposits

MywifeandIareinourmidand late 70s and we have sold our Q home, which was getting too much to maintain at our ages. We are bothagepensionersandnowhaveabout $50,000 in shares with dividends of about 5.2%, plus about $450,000 that is currentlyinvestedintermdeposits, whichstruggletoreachdeemingrates. Wenowliveinarentedapartmentwith asuperblifestyle. Can you please suggest a better Simonalreadyhasthreeproperties,so... investment plan for at least some of our fundsconsideringourlifeexpectancy. All of our term deposits are inside It’s now time to diversify 12 months in time and about 75% of the funds are held in government-guaran- Iamhopingyoucanguidemy also had the idea put to us of creating teed bank term deposits. wifeandIinthe(fortunate) aself-managedsuperfundtoperhaps Q situationwearein.Weareboth invest in a mix of commercial property Hi, Kevin. First up I am delighted to hear that 45 with two children, aged 8 and 11. and shares. Is there a strategy you yourlifestyleissuperb!With Iearn$120,000ayearandmywife would recommend? bothofyouinyourmid earns$88,000.Wehavebeenlucky to late 70s you have enough to pay off our home over Idolikethe“quietachiever”approach, plenty of life in 15 years and it is now worth Simon, but I don’t think luck has much to frontofyou,so $1.4 million. do with your situation. You have saved hard unless you both We have two investment units: overthepastdecadeandahalfanddeserve haveaserious oneworth$500,000,onwhich thesuccessyouhaveachievedtodate. health issue, we owe $160,000, and the other Withahomeandtwootherproperties,I your investment worth $350,000, on which we owe do think the time has come for some diver- approach can be $275,000.Wehave$20,000inan sification. Yes, you could keep buying prop- for the medium offset account on one of those loans. erties and this may work out well, but I just to long term. Wealsohavea$30,000loanagainst don’tlikeseeingpeoplewithalltheireggsin With investments a $180,000 share portfolio. one basket. of some $500,000, We have been putting money into SoIquiteliketheself-managedsuper Ifeelthat$50,000in ASGforthechildren’seducationsince fund with exposure to commercial property growthinvestmentssuchassharesandthe they were born. This will largely cover andshares.ButIdowantyoutocheckthe restinatermdepositpayingaround2.7% theirschoolfeesbutwerealisethere costs of establishing and running an SMSF. needs a re-think. will be other costs associated with their I have one, and it is not cheap to run, but it Sure,shareswillhaveupsanddownsbut education.Ihave$280,000insuperan- does give me the ability to make my own thedividendsarelikelytobetwicethoseof nuationandmywifehas$130,000,both investment decisions. atermdeposit.Thingsareclearlygoingwell in industry funds. The ability to gear into a small commer- foryou,soIcan’tseemuchpointinchang- Werealiseweareinagoodsituation cial property with a long-term view and then ingifyouweretolosesleepoverit. butwouldreallyliketomakesurewe add some decent quality shares appeals to But I would be inclined to consider don’t tread water. Ideally it would be me,asitreallydoesimprovethediversifica- something like $200,000 in shares and greattocreateenoughwealthsowecan tion in your portfolio. $300,000 in term deposits. The risk on work for enjoyment rather than feeling Congratulations to you both. You are in your portfolio would go up but so would as if we have to do it. agreatpositionandcapitalisingonthisby your income, and over time it is realistic to We had been thinking about investing continuing to save and invest, while spread- expect better overall returns. in another residential property but have ing your risk, has got to be a good plan.

MONEY SEPTEMBER 2017 27 ASK PAUL

While living cheaply at home Q Keegan is in a good position to ... & Take the property A plunge

I am 22, live on the Sunshine Coast and earn $60,000, with Q an expected pay rise in 18 months. I have $160,000 in cash just sitting in a savings account earning quite low interest, and $4000 in shares. I would consider myself a pretty good saver, saving about $1400 a fortnight, as I have very few expenses due to living with my parents and having a Cath could top up super or buy another property but ... company vehicle. I plan to move out in the next three or four years. Would my best strategy be investing in a property Remember more debt now or investing in other areas, such as managed funds, for the next few years, means more risk then buying a property. I’m a 49-year-old female you now really depends on your attitude earning $113,000. I work for to risk. Gearing accelerates wealth but Q the federal government and destroys it if asset prices fall. contribute 10% to the PSS scheme. Gearing into another property is very Icurrentlyhave$510,000insuper. realistic for you. With the equity in your I had more but I lost $158,000 when home, along with your savings and a I got divorced. My house is worth solid income, you are a most attractive $750,000, I owe $290,000 and I customer for a lender. While it is critical have $41,000 in savings. My house is that you do your own research, if you currentlyrentedoutat$600aweek, were to buy in a growth area with public as I have been working overseas. transport, entertainment and so on, and My repayments are interest-only to providing you do not overborrow, I am reducemytaxableincomeandIhave pretty relaxed. Even if you had a period no other debt. without a tenant, your good salary, with I will return home soon and I find the security of a government job, does myself completely independent for help to lower the risk of more debt. You certainly are a great saver, Keegan! thefirsttimeinmanyyears.Ihave On the other hand, topping up your I am super-impressed. But I agree with been thinking of buying an invest- super to the maximum level, which is you that low-interest bank savings are ment property. However, I worry now $25,000pa, is a low-risk way to just for a short-term holding plan while about being able to manage two mort- create wealth. It would also save you you look at longer-term options. Here I am gages on my own if the property has plenty of tax thanks to the concessional quite happy with low-cost managed funds: periods with no rental income. nature of contributions to super and tax exchange-traded funds (ETFs) would be a Am I in a good position to invest on investments in your fund. good option for you. in another property, or should I add Given you already have an excellent But if property is your long-term goal, more to my super? super balance and a home, I am broadly then I would get out and do plenty of comfortable with either strategy. Clearly, research and consider buying now and At 49, Cath, you are in a really solid finan- more debt means more risk, with poten- renting it out while you live at home. Then in cial position. You are on a good salary, tially greater upside. If in doubt, topping time to come you could move in, or contin- are topping up your super and own a up your super and paying down your ue to rent it if you go overseas or interstate. valuable property. The real decision for mortgage is a great option with low risk.

28 MONEY SEPTEMBER 2017 AnnaandGrahamwanttohelpas... Son’s super takes a hit

Our 22-year-old son attends university and has a part-time casual teacher’s Q aidejobwithaschoolduringterm time.Hedoesn’tgetpaidmuchandhissuper contributions are paid to the fund that the school promotes. An account summary reveals that at February 5, 2016 he paid $300.92 into the super fund; net investment earnings were $4.78andfundstakenout(taxes,feesand premiums)were$154.52–leavinghimwiththe grandtotalof$151.18!Inoticethatadeduction of$37.53wasinrespectofdeath/totaland permanent disability insurance (which has now been cancelled). Giventhatheisleftwithapittanceafterthe deductionoffees(andwantingtoencourage himtostartseriouslysavingforsuperannua- tion),couldyousuggestanyotherfundorway hecanoptimisehiscontributions.Hehastwo years remaining at university. We could help financially if this would bring about a better outcome for him.

AnnaandGraham,youhavehighlightedoneofmy main grievances with our compulsory super system: Keithiskeentobuynowbut... insuranceforthosewhodon’tneedit. Ineedtostartbysayingthatmostofusjustdon’t give insurance enough thought and we are generally Beware the dreaded underinsured or not insured at all. But this is not a good reason to give young Aussies, often in low- mortgage insurance paid part-time work, a financial flogging through insurance that most just don’t need. In time to come Iam30yearsoldandcur- enceintermsofthevalueofanyproperty I have no doubt he will need insurance, in particular rentlyhavecloseto$50,000 you might buy. It is already September death and income protection, but I fully understand Q saved.Iamexpectinganother andifyouboughtandfoundaproperty whyhehascancelleditfornow. $50,000, hopefully before the end of immediately, it is unlikely you would settle This issue, though, is the super system, not the theyear.WouldyousuggestIgeta before late October or November. funds.Intermsofthe$4.78ininvestmentearnings, mortgagenowwiththefirst$50,000 Wherethatextra$50,000wouldbe theperiodfromJuly1,2015toFebruary5,2016isas andthengetanothermortgagewith reallyhandyisincreatingadepositof aboutasbadaperiodasyoucouldpick.Growthor thesecond$50,000,orwaituntilI over 20% to avoid the dreaded lenders balanced-style funds, where most members’ money havethefull$100,000andgetamore mortgage insurance (LMI). I say dreaded isinvested,holdalotofsharesandinthisperiodthe valuable property? Maybe even one because you pay for this to protect the market fell from around 5500 to 4800, so I am a bit withthechancetodevelop,asI am in lender, not you. surprisedhemadeaprofit. theconstructionindustry. So provided you are certain that you WhatIwoulddoistakealookattheearningsup willreceivetheextra$50,000,Iwould to June 30 this year – the fund should have done Good job saving $50,000, Keith, and the plan to buy a property on the basis that well.Docompareitwithothermajorfunds;youmay additional $50,000 will certainly help. youhaveitalready.Dodiscussthiswith find the school’s recommended fund is doing well. Providingyouaresureitwillarriveinyour your lender, though. It would be silly to If not, I agree with changing to another low-cost, bankaccounteitherthisyearorearlynext proceed in haste and find you get hit with good-performing fund. year, I don’t think it will make much differ- mortgage insurance.

MONEY SEPTEMBER 2017 29 THIS MONTH Destination Ireland

Beautyandbeasts...the15th-centuryRossCastleontheshoreofLough Leane; the dramatic Cliffs of Moher; take your chances in the Titanic Experience; the Irish National Stud.

Five things to do 1. Listen: to traditional music (known locally as the endofthetouryoudiscoverwhetheryousurvived!Take craic) at Murphy’s Bar in Killarney Town in County time to visit the nearby promenade and if you’re lucky, as Kerry. Renowned as an Irish music pub, Murphy’s has live Iwas,therewillbeabandplaying. musiceverynightinthesummerandeveryweekendin 4. Take: a jaunting car ride through the beautiful and thewinter.It’sbeenrunbytheMurphyfamilysince1955, wildKillarneynationalparktoRossCastle.Keepaneye offering great pub food all day plus accommodation. outforreddeerastheparkishometothecountry’slast 2. Stroll: throughtheIrishNationalStudinCounty native herd. Gaze out at Lough Leane, against a backdrop Kildare.MakesureyouseethestallionInvincibleSpirit, ofdistantmountains,andseeifyoucanmakeoutCar- sometimesbilledasthe“daddyofalldaddies”because rauntoohil, one of Ireland’s tallest peaks. Ross Castle is a SMART SPENDING his stud fee of ¤120,000 ($180,000) for each service 15th-centurytowerhouseandwasthelasttobedefeat- brings in about 80% of the facility’s revenue. And visit ed by Oliver Cromwell and the English in 1652. Also enjoy the surrounding Japanese gardens, reputed to be the a cruise on Lough Leane from Ross Castle. finest in Europe. 5. Walk: onthemysticalCliffsofMoherinCounty 3. Pretend: to be a passenger on the Titanic in the Clare. Ireland’s most-visited natural tourist attraction, Titanic Experience at Cobh (pronounced Cove), housed thecliffshavebeencarvedbyoceanandweatherinto in the original White Star Line ticket office. Cobh was the fantasticshapes.OnacleardayyoucanseetheAran lastportofcallfortheill-fatedshipbeforeithitanice- Islands,GalwayBay,theTwelvePinsandtheMaumturk bergandsankonApril15,2012.Yourtickethasyourpas- mountains in Connemara as well as the Dingle Peninsula senger name (123 people embarked at Cobh) and at the and Blasket Islands in Kerry. PAM WALKLEY

30 MONEY SEPTEMBER 2017 DRIVING PASSION WINE Workhorses SPOTLIGHT get the luxury 2016 Trentham treatment ‘The Family’ Vermentino $15 he idea of a Mercedes-Benz ute Nestled on a gentle Twould have once been the subject $80,000+ $67,900 $59,590- bend in the Murray of an April Fool’s gag. But such is the River, just near growing demand for luxury utes (or Mercedes-Benz Volkswagen $61,790 Mildura, this fam- pick-ups) that when the German car X-Class Power Amarok V6 TDI Ford Ranger ily-run winery maker recently launched its X-Class The X-Class, based 550 Ultimate Wildtrak offers great dual-cab ute everyone knew it was on the Nissan Navara, The range-topping The flagship Ford ute value in a wide deadly serious. will come in three var- Amarok’s 165kW/ is powered by a gutsy range of varie- One of the X-Class’s primary markets iants, topped by the 550Nm 3.0-litre V6 147kW/470Nm five-cyl- ties. Vermentino will be Australia, where Ford has had Power. Expected to turbo-diesel and eight- inder turbo diesel with is the most great success with the upmarket XLT cost beyond $80,000, speed auto powertrain a choice of six-speed popular Italian and Wildtrak versions of its big-selling the Power will feature provides significant manual or automat- white and the Ranger ute. a 190kW/550Nm grunt. Its 1584mm ic transmissions. It Trentham exam- Priced around $60,000, both mod- 3.0-litre V6 turbo x 1620mm tray is a can ably carry up to ple shows why els account for more than 62% of all diesel engine with little wider than the 950kg on its 1549mm – it’s bright, fresh and Ranger registrations, demonstrating seven-speed automatic Merc’s, though its x 1560mm tray. The lively with intense, the demand for luxury vehicles that can transmission and large 846kg payload is active safety features pristine flavours and still put in the hard yards. 1587mm x 1560mm around 150kg less. include adaptive a crisp, refreshing, There are premium versions of most tray. It will also have The permanent all- cruise control, forward dry finish. Delicious. 4x4 dual-cab utes, including the Toyota active safety features wheel-drive adapts collision alert and HiLux SR5 ($57,990), Mitsubishi Triton and luxury trim. between on- and off- lane-keeping assist. Exceed ($48,000), Holden Colorado Pros: Quality; an road conditions. Pros: Good to drive, SPLURGE Z71 ($57,190) and Volkswagen Amarok established platform. Pros: Comfortable, great off road. 2015 Shaw + Smith V6 TDI 550 Ultimate whose once-un- Cons: Cost; unproven car-like handling. Cons: Bouncy when Adelaide Hills thinkable $67,900 price will be topped as a workhorse. Cons: Lacks active unladen; lacks some when the X-Class arrives. mercedes-benz. safety and rear airbags. refinement. Shiraz $46 DAVID BONNICI, WHICHCAR.COM.AU com.au volkswagen.com.au ford.com.au The cool Adelaide Hills has produced some of the most exciting shiraz EXTRAVAGANCE in the coun- try in recent years with Ride in style its savoury Enjoy chilled champagne in flavour profile the Orrefors crystal flutes and plush texture. Shaw that come with the Volvo + Smith is XC90 Excellence. among its fin- est producers. In 2015, the wine has a vitality and fresh- How much: Starts at $172,200 ness that delights, plus onroad costs with brambly, briary blackberry flavours and succulent, fleshy texture before a fine, lingering finish. PETER FORRESTAL

MONEY SEPTEMBER 2017 31 THIS MONTH

SMART TECH Nostalgic gamers have a field day

e’ve reached something of a Wtipping point when it comes to videogames.Whilemostconsumer interest lies with the latest generation of home-entertainment consoles – the Xbox One, PlayStation 4 and Nintendo Switch – there’s been a strong resur- gence of interest in classic video games thatfirstgracedlivingroomsbackinthe What is it? Nintendo What is it? Atari What is it? Sega Mega 1980s and 1990s. Classic Mini: SNES Flashback 8 Gold Drive Flashback Nintendo’s runaway success with How much? $119.95 How much? $149.95 How much? $149.95 lastyear’sClassicMiniNEShasshown Pros: Scheduled for Pros: Well before Pros: Onceuponatime that there’s huge demand among older launch on September Nintendo was a household Sega and Nintendo were gamers for retro gaming done right. The 30, this Super Nintendo name, another brand ruled bitter gaming rivals, before Classic Mini NES was a limited edition remake takes the iconic the ’70s and ’80s gaming theformerlostoutinthe

SMART SPENDING sporting 30 included games from the ’90s console, squeezes in roost. The Atari 2600 with hardware business and NES’s1980sheyday,anditsnearimme- 20 classic games (plus one itsfauxwoodpanelling began producing software diate sellout everywhere means it now never-released title) and introduced millions of only. The Mega Drive commands huge prices on eBay. shrinks it to a hand palm players to joysticks and Flashback revisits the Not to be outdone, manufacturers of size. It is regarded by many Pitfall!, and the company company’s ’90s peak, with other gaming systems are also getting as the best Nintendo sys- isnowbackwiththeAtari 85 built-in games, two in on the act, and Nintendo has now tem ever, so you couldn’t Flashback 8 Gold, which wireless game pads and announced a SNES successor console hopeforabettergift. ships with 120 built-in an actual cartridge slot too. These retro remakes don’t offer Cons: The biggest prob- games, two wireless in case you’ve amazingly cutting-edge 3D graphics, online play, lem may be getting your controllers, 720p output managed to hold on to any social features or VR capabilities but handsonone.Pre-orders and save support. original cartridges. they’ve got it where it counts: timeless have sold out, meaning Cons: If you can wait, Cons: 85 games sounds pixel art, mind-bendingly addictive you’ll need to keep your Atari’s upcoming Atari- like a lot but not all of the gameplayandplentyof“gameover” eyespeeledcomethe boxconsolewillofferthe included titles are Mega screensjustbeggingyoutotryagain. official release date. aboveplusnewcontent. Drive originals. What’s not to like? PETER DOCKRILL nintendo.com atari.com atgames.net

GIVE IT UP Stroke Foundation

What is it? Strokes are Australia’s professionals by offering training in the second single greatest killer (after latest treatments and best practices, heartdisease),withover60,000 and supporting stroke survivors by occurring every year, and the Stroke offering vital information and connect- WAN I NOW.COM.AU Foundation aims to raise awareness. ingthemwithcareservices. The goal is to ensure every household How to donate: You can donate Buying something online but has someone who knows the signs of directly to the Stroke Foundation at don’twanttowaitafewdays, stroke and to call 000. strokefoundation.org.au or call 1300 or even overnight, to get it? Whereyourmoneygoes:The 194196formoredetails. Then check out this site. You Stroke Foundation delivers a number You could also start your own fund- cangetgoodsfromanumber of important prevention, support and raiserlinkedtoeventssuchasNational of retailers delivered within treatment programs and also has a Stroke Week (September 4 to 10) or threehours–forapremium,of research program. These include things Stride4strokeinNovember.Youcan course.OnlyavailableinSyd- such as free health checks, stroke-safe get more information on the website. ney and Melbourne. MARIA BEKIARIS education sessions, supporting health MARIA BEKIARIS

32 MONEY SEPTEMBER 2017 Paul Clitheroe PAUL’S VERDICT

Dad wants to invest for his young son

am a 45-year-old medical Ipractitioner. I am looking at investing about $500 a month forthenext10yearssothat my 12-year-old son gets a lump sum when he’s at uni. Currently I have some shares and exchange-traded funds (ETFs) in a family trust. I am happy to take risk. Do you think investment bonds would be a good alter- native, or should I stick to ETFs only? I am confused as bonds will have lower returns than ETFs but will be totally tax free. NitinJChavan

Thinking ahead ... Nitin and Rakhi

with Dev, 2½, and Lohit, 12. REDWARD FRANK

xcellent question, Nitin. Investment Paul’s verdict: There would be no tax on capital gains as bonds always strike me as a pretty With a 10-year I can’t see any reason to sell the investment Eancient investment vehicle and are not until it passed to your son. And this is an my preferred option. The big issue is that they horizon, shares important point. Providing you invest in your are not “totally tax free”. The correct term is name “as trustee” for your son, he is the that they are a “tax paid investment”. What can provide good beneficial owner. When he turns 18 you can this means is that the returns they earn each growth transfer the investment to him without any year are taxed at the current company rate of capital gains tax liability as he has always An exchange-traded fund tax of 30%. been the beneficial owner. offers tax benefits as well Clearly, a salesperson or supporter of these So in my view this is the way to go. You as flexibility bonds could fairly argue that a bond paying would pay some tax on income received 30% each year has a lower tax rate than you but this is not the main game. That is capital would pay if you invested in your own name. I agree that an exchange-traded fund is a growth, which would pass to your son untaxed Investing in the name of your son is not good way to go, as also would be a low-cost until he chooses to sell. I expect his income, going to be a great idea as minors (those indexed fund offered by a firm such as Van- as a university student, to be nil or very low, under 18) pay very high rates on “unearned guard. You will pay brokerage fees each time so selling this investment, in particular if he income”. I suspect that this is why you may be you buy and sell ETF units so may be worth did so over a number of years, would be most looking at an insurance bond. In your situation, directing your monthly savings into an online unlikely to see any tax liability. investing in an insurance bond to provide an account and buying once a year. All in all, in my opinion, this is a better and after-tax payout for your son’s education in a There is little argument that with a view of more flexible option. decade or so is not the world’s worst idea but at least 10 years you should opt for a growth- I don't think it is the best either. style investment. This type of investment I do appreciate that as a doctor you are likely would be mainly international and local shares. ASK YOUR QUESTION to be in the maximum tax bracket. We should These assets tend to generate lower income, also consider that if you are married it may and in the case of international shares this If you have a question, email money@bauer -media.com.au or write to GPO Box 4088, be that your wife is a lower tax payer and the would be close to zero. Local shares tend to Sydney NSW 2001. Questions need to be 150 investment could be held in her name as trus- pay franked dividends with a 30% tax credit words or less and you must be willing to be tee for your son. But let’s go with the higher attached to the income. So my view is that photographed. Readers who appear on this taxed scenario and look at investing the $500 even if the shares are held in your name the page will receive a six-month subscription. a month in your name as trustee for your son. tax liability would be low.

MONEY SEPTEMBER 2017 33 COVER STORY WHERE TO EXPERT 10k PICKS

PLUS The experts provide answers to some of the top questions Money gets from our readers.

FINANCIAL BREAK-UP

Paul Clitheroe What’s the best way to Paul is chairman of the Financial Literacy Board invest the proceeds from and author. He is also chairman and a share- holder in AWI, which owns a divorce settlement? InvestSmart and Intelli- gent Investor. WHERE I WOULD he very best advice I can give when it the time and thought put into the right location INVEST comes to investing the proceeds from a and also enough research to ensure a purchase is divorce settlement is to take your time. made at a sensible price. $10k The best investment you will make after Others have paid off their mortgage. Now that Ta divorce is not property, shares or super. It is an sounds great but then they have found that a job f $10,000 landed on my investment in time to build a future plan for your was harder to get than they thought, meaning they Idoorstep today, I would lifeandyourmoney.Thiswillbeoneofthebest needed access to the money. As you can imagine, invest not in today’s companies investment decisions you have ever made. this trip to the bank goes badly. The bank can’t set but tomorrow’s. So for me that Divorce is inevitably a time of high emotion, up a new mortgage if you have no source of income. means smaller companies. stress and uncertainty. I know that once a financial Here, though, there is a piece of simple advice. If But I don’t have the time to do settlement is reached and there is money to invest, you have a mortgage it may have an offset account, the research necessary, so I'd there is a new sense of being in control of your or your lender can set this up for you. Putting go with a smaller companies own money and the desire to “move ahead” and your divorce proceeds here is a good “holding” exchange-traded fund, man- make decisions. But there are so many variables. plan. It means you are in effect earning risk free aged fund or listed investment Will you reduce your mortgage, buy a home or and tax free the rate of interest you are paying on company. I hold shares in the an investment property, top up your super or buy your mortgage. And you can access your money. LIC Monash Absolute Invest- shares? Then there are far more important things. I’ve seen others put the maximum possible ment Company (ASX: MA1), Willyoukeepworking,orgobacktowork?There into superannuation – and then realise they can’t which is no great surprise as are complex issues relating to children, other access it until they retire. Others have raced out I am chairman. family members, your age, where you want to live to buy shares without enough thought, or made It holds shares in a range nowandinthefutureand,morebroadly,howyou an emotional decision to buy a beach house they of smaller companies with want to live your life. really can’t afford. excellent future potential and If you listen to all the advice from family, friends, So my advice is very simple. Do not do anything at its current share price is themediaandpeoplelikeme,youmaywellfeel until you have invested enough time to create a trading at a discount to its net under pressure to make decisions. But these can plan about your own future. Once you have this asset backing. gobadlywrong.Ihaveseenpeopletakeadivorce personal framework worked out, investment settlement and rush into buying a property, without becomes a lot simpler.

34 MONEY SEPTEMBER 2017 HOT SPOTS What suburbs should IbewatchingifI want to invest?

f ever a country was seeing a many-speed existence of measurable fac- market, it’s Australia! Media report- tors – such as population ing might have you believing we have growth, improving wealth, been experiencing a nationwide boom, infrastructure development Ibut while Sydney and Melbourne property and the diversity of employ- owners have been enjoying a much-needed ment opportunity. (and long-awaited) price surge, other cities If you stop and think about such as Adelaide and Brisbane have been people who have made good taking only tiny forward shuffles and Perth profits from property investing, and Darwin have been suffering the pain of it’s always the ones who got into an a post-resources-boom price recession with area before anyone else really saw the little sign of a bottom just yet. potential. For most investors, though, their Depending on which data you read, there’s buying decision is very much influenced by see where the an interesting story to the past 12 years that the behaviour of those around them and what gains will be made in might surprise you. Sydney’s median house they read in the media. And by following the the future. Melbourne is full of family areas price was reported in 2005 as being $505,000 crowd in this way, the potential to make a where the buy-in price is low, the public amenity and in 2017 was sitting at $880,000, which is good gain on property is at best going to be is in place, the schools are in demand and a 74% increase. Adelaide, on the other hand, limited (since the property prices will already public transport is readily available for that showed a 2005 price of $278,000 and a July 2017 be inflated) and at worst non-existent, as the work commute. This includes areas such as median of $585,000 – that’s a 110% increase! purchase was made too late into the boom and Werribee and Hoppers Crossing to the west These figures show that while some cities the price paid – in a market where the seller and Dandenong South and Cranbourne to sit flat for years and then boom for a while, dictates how much they will accept – was the east, an area where the population is the others just enjoy year-on-year growth that likely to have been far too much. fastest growing in Australia. adds up to be quite impressive. And so the key to being a successful property The affordable middle ring of Adelaide, Of course, median prices are greatly inac- investor lies not in just buying property with around Semaphore near the coast, and curate as a measure of performance, as they the potential to grow but buying that property Modbury and Highbury to the north-east, is depend on too many variables and can swing before it even begins growing. It lies not in quietly heading into boom territory as demand wildly from month to month. But a review buying in blue-chip areas but in recognising a picks up and the areas become more affluent. of them over a period of years does show us blue-chip area before it actually becomes one! And let’s not leave out Brisbane – with massive that it’s less important to follow the crowd The potential to make a significant gain in road infrastructure improvements, those into overheated, frenzied markets, and far Sydney is, for the foreseeable future, behind us. affordable northern suburbs in the Moreton more important to seek out areas that show However, as many parts of Melbourne heat up, Bay Shire are absolutely an area that is set the potential for sustainable growth from the it’s easy to follow the population growth and to provide lasting growth for years to come.

WHERE I WOULD INVEST $10k

nsuchalowinterestrate funds (especially if you reinvest yourself (if you have the skills), or Ienvironment, $10,000 off your the dividends) and end up with a by calling in some favours from mortgage may not be the best larger lump sum in a few years, friends you might know with Margaret Lomas place for you to invest right now, which will make a difference to any kind of trade skill, you might Margaret is founder and unless you truly feel that reducing your mortgage. achieve a cosmetic renovation director of Destiny Financial your payments by $8 a week is If you don’t like the thought of worth much more than the Solutions (destiny.com.au) critical to you. Instead, diversifica- investing in the sharemarket, then $10,000 you put into the mate- and a best-selling author of tion into a property trust or even spruce up your own home in prac- rials, which could add enough seven property investment a share fund may well provide you tical ways and see if you can man- value to help you raise a deposit to books. with the capacity to grow those ufacture some value. By labouring invest in another property.

MONEY SEPTEMBER 2017 35 COVER STORY

RETURNS What shares or other investments can give me a regular income of $10k-plus a year?

hen it comes 15 STOCKS FOR INCOME Wesfarmers – sector under siege; to earning an Fortescue metals – too volatile; ASX GROSS income from an COMPANY PE YIELD FRANK DPS ROE Aurizon – geared to resources, asset class, you CODE YIELD not reliable; Crown – earnings Wcannot consider returns, or yield, CBA CWLTH BANK 13.3 5.5% 100% 7.9% +1.7% 15.6 too volatile; Coca-Cola – horrible without considering risk. The WBC WESTPAC 13.2 5.8% 100% 8.3% +0.0% 13.3 trend, one day it will turn but scar tissue from the GFC is still ANZ ANZ 12.8 5.3% 100% 7.6% +0.6% 11.9 currently in the sin bin; regional visible and generally speaking banks – if you already have the NAB NAB 12.6 6.3% 100% 9.0% -0.6% 13.2 income-hungry investors have banks you can pass on these, become more cautious about MQG MACQUARIE 12.8 5.4% 45% 6.5% +2.2% 14.4 they are more volatile and need equities. Many would prefer to SUN SUNCORP 13.1 5.9% 100% 8.4% +5.0% 11.2 timing; Harvey Norman – too earn a risk-free return in bonds AMP AMP 14.0 5.7% 90% 7.9% +3.1% 14.2 cyclical, can be traded but not of around 6%-7% but that is no VCX VICINITY STAPLED 14.2 6.5% 0 6.5% -1.8% 7.2 an income stock. longer available unfortunately, TAH TABCORP 16.1 6.1% 100% 8.6% -3.7% 13.9 That leaves us nine stocks: so many have come out of the Commonwealth Bank, Westpac, PTM PLATINUM MAN. 20.0 5.3% 100% 7.6% -20.1% 46.4 woods and have reluctantly had ANZ, NAB, Macquarie, Suncorp, to buy equities and take risk. CMW CROMWELL PROP 11.9 8.7% 0 8.7% -0.9% 8.9 AMP, Vicinity Centres and Tabcorp. Their tendency is to gravitate IFL IOOF 17.4 4.9% 100% 7.1% +6.0% 14.3 Not really enough there to diversify to “safe” equities as bond proxies, PPT PERPETUAL 17.0 5.2% 100% 7.4% +2.2% 22.2 a conservative income portfolio, which means that “big” income CQR CH. HALL REIT 12.7 7.1% 0 7.1% +1.6% 7.6 so let’s now look at the 6% yields stocks get the most attention. We in the next 100 stocks – let’s call GOZ GROWTHPT PROP 13.8 6.7% 0 6.7% +5.6% 8.5 can debate whether “big” equals them “the best of the rest”. These “safe”, of course, but after the falls PE price earnings, FRANK franking credits, DPS dividend per share, ROE return on equity. include smaller market cap stocks and volatility in the banks and Telstra over the So if you are really income focused and have at the conservative end of the scale: a couple past few years it is clear that big is not safe. Big been dragged out of low-yielding asset classes of REITs and a few financial stocks including stocks may be safer but they are not safe. For such as bonds and term deposits, your focus fund managers Platinum Asset Management, example, both Wesfarmers and Telstra have should not be on size but on reliability of IOOF and Perpetual. been going down and underperforming on earnings and therefore dividend. That’s 15 big stock picks for risk-averse every level. Woolworths has underperformed So let’s look through the stocks in the top income investors. This list achieves an average 33% in three years. 100 that have a yield over 6% and, on first yield of 6%, which grosses up to 7.7% including So I think you have to accept that there is no pass, let’s eliminate stocks rather than choose franking. On that basis to achieve a $10,000 “safe” in equities, whether you are focused on them. I am going to eliminate: Telstra – no annual income you will need to invest $167,000 income or not. Equities come with volatility. growth; NBN – uncertainty, horrible trend; equally across all of them. WHERE I WOULD INVEST $10k

If I know anything about the something I believe could happen which I think will happen less stockmarket, then the goal is to from here: a fall in the Australian painfully than currently expected. achieve long-term consistent dollar. It has done its dash. The stock is in an uptrend. It has Marcus Padley returns, not gaze at your screen So I pick Janus Henderson, a $9 billion market cap so is rea- Marcus is the author of the daily looking for a stock going up an investment manager. It is UK sonably large (read safer). It yields stockmarket newsletter, Marcus tomorrow. It is about quality with listed and will directly benefit 4.2%. Results were out on August Today. For a free trial of the an element of growth. At this through the translation of the UK 8 so the stock is de-risked for the Marcus Today newsletter go to moment I would also be looking price into Australian dollars from next three to six months. If the marcustoday.com.au for a company with international a fall in the Australian dollar. It is dollar falls this is one of the best businesses that will benefit out of also a play on a successful Brexit, leveraged stocks on the market.

36 MONEY SEPTEMBER 2017 SPENDING & SAVING What is your failproof budgeting Scott Pape technique? Scott, AKA The Barefoot In- vestor (barefootinvestor.com), is an investment adviser, au- y failproof budgeting technique is ATM card for each (it’s easier if you get your “Daily thor and radio commentator. (drum roll, please) ... to not use budgets. expenses” card first, then simply open another The truth? I’ve never been able to account for “Splurge”). WHERE stick to something as rigid as a budget, • 2 × online savings accounts – call them “Smile” Mand I don’t expect you to either. and “Fire extinguisher” and link them both to I WOULD Look, I’ve helped thousands of people with their “Daily expenses”. INVEST money and I can tell you that the conventional Then calculate 60% of your take-home pay and $10k wisdom espoused by finance experts – “Get on keep this in your “Daily expenses” account. This is a budget! Track your spending” – is dead wrong. how much you should be spending on bare-bones Using willpower to force yourself to stick to a living expenses (think mortgage/rent, groceries and If I had $10,000 – and I do – I’d rigid budget, day in day out, just doesn’t work. In bills). If it’s more than 60% look at ways to cut costs. buy more shares. fact, it’s the opposite. Next I want you to put your money on autopilot Here’s you: “Which ones?” If you really want to win, you should ditch so you’ll never have to worry about it again. Here’s me: “None of your tracking everything and instead keep Set up an automatic transfer of 10% business!” things simple. of your take-home pay from your Here’s you: “Dude, I think Couples who bank together, “Daily expenses” account to you’re missing the point of this stay together your “Splurge” account (for breakout box: people want According to Relationships short-term splurges like stock picks.” Australia, the No. 1 cause shoes, booze and lattes). Well, my view is that the of break-ups is fighting Then set up an auto- Barefoot Investor steps are about money. matic transfer of 10% of more important than stock If you’re married you your take-home pay from picks. OK, so here goes ... should share the same your “Daily expenses” to If you’ve got debts, use the bank account – and the your “Smile” account (for money to pay them off. financial decisions that longer-term splurges like If you’re aiming to buy a go with it. How do you get weddings and holidays) home, put the cash towards your partner on board? Well, and 20% to your “Fire extin- saving for a deposit. money talk goes better with guisher” account (for paying If you’ve already got a garlic bread and wine! off credit card debt, saving for mortgage, put your retirement Schedule monthly date nights a home deposit or making extra planning on autopilot by tipping devoted to making money decisions mortgage repayments). extra into super. together so that you can make regular pro- Mojo, baby If you’re already boosting gress and stay on the same page. If there’s one thing that will act like a financial your super contributions, use Set up your money buckets firehose it’s having savings on hand. We Barefoot- the cash to build up your Mojo As I’ve said, budgets suck. Instead, you should ers call it Mojo – a high-interest online savings (savings) account to three simplify things and focus on three money “buck- account with three months of living expenses. months of living expenses. ets”: Blow (your spending), Grow (your long-term To avoid temptation, keep it away from your If you’ve already done all investing) and Mojo (your emergency savings). day-to-day banking – I even have it with another that, buy some shares. Just The deal with the Blow bucket is spending more bank altogether. don’t ask me which ones. money on the stuff you love and less on the stuff When you open your separate Mojo account, you don’t. Better yet, I want you to actually allocate set it up with an initial $2000 deposit. And if you some of your pay packet to guilt-free splurges for don’t have a spare $2000, look around your house stuff that’ll put a smile on your dial. and see what you can flog on Gumtree. Here’s how to set up your Blow bucket. Whip out your phone and apply for: ◆ This is an edited excerpt from Scott Pape’s best- • 2 × everyday transaction accounts – call them selling book, The Barefoot Investor: The Only Money “Daily expenses” and “Splurge” and get a fee-free Guide You’ll Ever Need. Available now.

MONEY SEPTEMBER 2017 37 COVER STORY

MONEY SKILLS HowdoIget teenagers interested in investing?

ne of the greatest sources of pride for a parent is to teach their children a lifelong skill. And seeing that par- ents spend so much time, money and Oenergy protecting their children, educating them, ferrying them to sport or dance classes, there is one maths Ross Greenwood blindingly obvious thing I have often pondered. under the nose of even a non-numerate teenager, Ross is Channel 9’s finance Why do parents spend so little time teaching do you imagine they might listen – even if for a editor and Radio 2GB’s their kids money and investment skills? few moments? Money News host Perhaps, and maybe this is also obvious, the Now take a person whose parents decided not to parents doubt their own abilities in these matters. encourage them to save, and who only came upon In many families, I know, there is an inherited the idea themselves later in life when their income WHERE problem in that money issues are barely discussed picked up. Here I’m assuming they start saving I WOULD – not the income of the household, the expenses or around $200 a week from the age of 30. Using the INVEST the net worth. 4% return, they end up with around $776,000 – or Granted, idle playground gossip is a risk you run about $394,000 less than the person whose savings $10k by letting the kids in on too much information (a started earlier. little like employees, where the boss’s tactic is never If I add 4% capital growth to that equation, the 10,000…oneshot…or to let the staff compare salaries). 30-year-old ends up with $1.87 million. It’s certainly $maybe two. Buy media But surely if you want to protect your children, still worth having but the compounding effect has stocks. Why? Because and their assets, then the sooner you teach them not had as long to work. It’s close on $1 million short expected changes to media the merits of compound returns, the advantages of the family and the kids who started salting away ownership laws are going and dangers of debt and the need for investments the money much earlier. toseearushbybigmedia with cash flow the better off you and they will be. The other education I think parents and kids companies to buy up smaller Just one small example. Start salting away around should engage in is to invest through their kids’ eyes. rivals. Some of the companies $50 a week for a kid at the age of 15 ($2500 a year). A younger person might have spotted Facebook as in play: Fairfax Media, Prime Once they start to earn, say at 20, encourage them an investment before you. Or Nintendo (Pokemon Media and Southern Cross to lift it to $100 a week ($5000 a year). When they Go) or any one of the young fashionable labels that Austereo are foremost among turn 30, $200 a week ($10,000 a year). It’s not a emerge from the pack while you are still listening them. The other benefit is that massive ask. to music from 20 years ago. Again, it might pique the sector, finally, is seeing Let’s assume the interest rate (or dividend rate, their interest that there’s money to be made by an uptick from the overall even better) is a constant 4% – which you will now spotting trends early. improvement in the economy, get from many cheap index funds or exchange- The truth is that all investment needs vision notwithstanding the continued traded funds – then at age 65 the person will have and imagination, along with the fundamentals of weaknessintheretailsector, $1.17 million. cash flow, yield and gearing. And understand that which generates a big chunk of Here I am being very conservative, only account- the motives for teaching these concepts to your the advertising dollars. ing for the income – not the increase in the capital children are not completely altruistic. The sooner value. If I assume an average 4% capital growth as a child can financially stand on their own two feet, well (still conservative) that figure would jump to the less likely it is that they will come and tap the $2.83 million. bank of mum and dad, like so many are doing today. Just one small question … if you waved that sort of Good for you … good for them.

38 MONEY SEPTEMBER 2017 PROPERTY their own money working harder for them in building their own equity and wealth story. How do I make If you are after high capital growth, focus on areas with high demand and low supply, pref- erably houses, townhouses or villas with some rentvesting work? land. You might even buy in the same location where you are renting that bigger property! Let’s be conservative and use only $30,000, saving $5000 a year for repairs and mainte- nance. If we buy a duplex or townhouse for laying the property game isn’t that look at properties in Essendon-Moonee Ponds $900,000, assuming an 80% loan to value easy for gen Ys in our two global cit- in Melbourne, where you can find family ($720,000 loan at 6% principal and interest ies, Sydney and Melbourne. We have homes worth around $1.5 million. over 30 years) our annual interest and principal watched prices surge on the back of Let’s assume we borrow 80% of its value, repayments would be $51,800. Plower interest rates and years of undersupply. meaning our loan would be $1.2 million. On the income side, let’s assume that with a The net result is that more locations than ever At a long-term interest rate estimate of 6% yield of 3% our annual rent would be $27,000. before are beyond the reach of most gen Ys. (principal and interest loan over 30 years) Overall, and without factoring in any negative What’s more, for the past 10 years or so these our monthly repayments would be gearing benefits, the shortfall of professional gen Ys have rented in cosmopolitan $7195, or $86,340 annually. Yet $24,800 ($27,000-$51,800) is areas, enjoying the benefits of being close to there are similar properties wellcovered by the $30,000 “everything” to live, work and play. So they available for rent in this we had set aside. can’t bring themselves to the idea of moving area, and the rental yield The bigger the “out wide” and dealing with extended daily is only 2% for a stand- difference in out-of- commute times, on top of their long work hours, ard but functional pocket cash flow or the lack of variety in the local amenity that place. That yield between owning they now have come to expect. equates to an annual versus buying, Our global cities come with global price tags rental commitment the more it makes for houses with any land content, as this limited of $30,000. rentvesting worth supply is swamped by excessive demand. The So many of these considering. A good harsh reality is that this trend will not stop gen Y and other cou- rule of thumb is a as the population of our two biggest cities ples simply couldn’t differential of greater is forecast to double in size over the next 34 afford to buy a house in than 3% between the years to 8 million each. But all is not lost for this upmarket location. costs to buy versus the gen Y or others who choose to rent where However, with a poten- costs to rent. they want to live but still want to get onto the tial saving of over $55,000 a It’s not a perfect outcome property ladder via a “rentvesting” strategy. year in cash flow, this additional for all gen Ys or others in this Rentvesting works best where the differential money could be used to start, or add to, situation but it does enable you to live is greatest between the repayments on a home a family – say $20,000, leaving over $35,000 a where you and your family want to live and loan compared with what it would cost to rent year available to invest. This surplus could buy also put your money to work to build a port- a similar property in the same location. This at least one or possibly even two investment folio of properties to provide you with greater is best illustrated by way of an example. Let’s properties. That ensures they are getting wealth and income for retirement.

WHERE I WOULD INVEST $10k

epending on the condition on the loan. The benefit of this in need of a tidy-up, you can Dof the property I buy in my strategy is that the interest saving get the biggest bang for your rentvesting strategy, there are is technically tax free, as you are buck by painting it. This is by far Ben Kingsley two options I’d consider. not generating income, which the best way to transform any Ben is the founder of Empower First, if the property was in a would be taxable with other property. If it’s a freestanding Wealth, a property advisory sound condition, whereby it may types of investing. In the case of property $10,000 would more firm, co-host of The Property not look brand new but rather is an offset account you are saving than likely get both the full interior Couch podcast and co-creator of clean and tidy for any tenant to interest, and you don’t get taxed and exterior painted, giving rise locationscore.com.au, a property enjoy, then the $10,000 would go on saving on an expense such to improved income in the form research website. straight into the offset account to as interest. of higher rent and potentially an reduce the interest I was paying If, however, the property was uplift in the valuation.

MONEY SEPTEMBER 2017 39 COVER STORY

RETIREMENT How do I structure my portfolio at retirement Nerida Cole Nerida is managing director to maximise of the financial advisory division of Dixon Advisory income? (dixon.com.au). She is an expert on super, includ- ing self-managed funds, retirement planning and ecord low interest rates and a low-growth wealth-building strategies. outlook are making it very tough for retirees R to fund a comfortable lifestyle. But there WHERE areplentyofoptionstohelpmeetyour income needs, and while picking the right investments is I WOULD important don’t underestimate the importance of INVEST strategic planning and risk management. $10k Analyse and position your goalposts The 1Separating your annual living expenses into unlisted raditional business models core and discretionary expenses can help to set New Energy Tacross many sectors – boundaries around what you are aiming to achieve Solar for example, retail, media, banking, health from your retirement nest egg. Listing one-off invests in large solar power stations that generate – are under a lot of pressure. In lumpy capital requirements, such as renovations, emissions-free power, producing positive social my view, investing in the com- is also vital. If the cash needs to be available at impact while you invest. Set up in 2015, it targets panies leading this disruption a certain time, it may change how much of your assets that generate returns of around 7% to 10% is a good way to benefit from retirement nest egg can be invested in medium- or (before tax and borrowing costs) but fund per- the new developments and long-term investments. formance will depend on the actual investments hedge against traditional blue Agree plans for bad weather selected and future performance, so may be less. chips. That’s why I’d be putting 2It’s a good idea to consider how much risk you Returns from commercial property have histori- the $10,000 into the Evans are comfortable taking on because, unfortunately, cally been underpinned by high income yields. The & Partners Global Disruption unexpected outcomes are a fact of investing. So difference between commercial property yields and Fund, which listed on the ASX plan for the bad weather that will inevitably turn official cash rates remains close to 10-year highs. on August 1, 2017 under the up at some point. If you can’t bear volatility or the For most self-funded retirees, it can be difficult to code EGD. risk of capital loss, it may be prudent to stay away access quality investments due to the amount of Even though you are buying from the more volatile growth investments. capital required. The Australian Property Oppor- one investment through the Diversify, diversify, diversify tunities Fund series allows long-term investors ASX, in turn the fund invests in 3Holding cash may not feel attractive but it’s a (including SMSFs) to invest as little as $2000 in a major global companies that good buffer against volatility and provides flexi- high-quality portfolio of assets in this sector. The have a proven ability to disrupt bility. Dixon Advisory recommends that retirees investment targets properties with yields (net and continue to disrupt existing hold three years of annual expenses in cash to rental return) in the range of 5% to 8% but actual markets and businesses, and protect their ability to meet expenses and reduce returns will depend on market conditions and will also look at a selection of the risk of having to sell investments at a low point. other circumstances, and may be lower. smaller positions in potential To produce income from the part of your port- Lastly, beware of FOMO – the fear of missing out. disruptors. The investment folio that can be invested for the long term, con- Focus on your total returns (income and capital committee guiding the fund sider alternative yield-focused investments such growth) after accounting for how much risk you has deep insight and experi- as infrastructure and commercial property. Big are taking on. Your neighbour or friend may gen- ence investing in this theme. investors have been buying up in these areas for erate a higher return than your portfolio but they It is a long-term investment, a number of years now, so do your due diligence may be taking on a lot more risk. It’s important focused on capital growth on pricing before jumping in. to consider the risks and disadvantages of these rather than income, so consider Because of the long-term nature of infrastructure opportunities, such as the ability to get into them, your own circumstances and assets, they tend to be more defensively positioned and cash out, and if it’s right for you. the risks before investing. than share investments. A key feature of infrastructure Disclosure: Nerida Cole owns the investments listed and is can include highly predictable future cash flows. on the board of related entities.

40 MONEY SEPTEMBER 2017 SELF-MANAGED SUPER How do I invest in property through my super?

n the back of the recent property grip. It’s important to point out that you need been that they are kind of useless to deal with. boom, I’m often stunned that not expert advice in establishing the structures It is therefore more important to have a good O enough people are aware that you and making the purchase. Importantly, you accountant who can tell your lender how to can buy property in your super fund. And you need to establish a self-managed fund with a structure the deal. can gear it, and you pay less tax or no capital corporate trustee, which will cost you around Anyway, don’t lose faith because it’s worth gains tax, and you can renovate it. It’s one $1760 – the market rate – at my firm. the effort and extra cost because we’re going of the best-kept secrets in wealth creation! You’ll also need a second structure called to help you repay the debt with super con- If property is your thing, it’s truly a no-brainer a limited recourse borrowing arrangement tributions taxed at only 15% instead of your for the right investor. That right investor is (LRBA), also with a corporate structure that normal 19%, 32.5%, 37% or 45%, and the tenant ideally a high income earner who may bring will cost around the same price – so about is going to pay off the rest of your debt if you in more than $100,000 a year and has more $3520 in total. For example, your super fund structure things correctly. than $200,000 in super and the ability to max- name will read Henderson Pty Ltd as trustee As with all property, you need to do your imise their concessional super contributions for the Henderson Family Super Fund, and research thoroughly, you need to understand of $25,000pa to repay the debt. you’ll have another company perhaps called we are very deep into (if not at the tail end But don’t worry, the next best thing is that Henderson Super Property Pty Ltd ATF (as of) a very positive property cycle, and you you combine your super with up to four family trustee for) Hendo Property Trust. need to think long term. Avoid the spruikers members, including your spouse, although Your fund will then buy the prop- and do your homework on cash flow. most self-managed funds have just two mem- erty in the name of the second Importantly, you also need to bers, and you can combine the balances and trustee, or Henderson Super understand that you carry the contributions to pool the assets and pitch in Property Pty Ltd. Simple, burden and cost (around to buy a property. right? Well, sort of ... but $2500-$3000pa) of com- Most banks will lend up to 80% of the value it’s really important to pliance in running an of a property, although I like to see properties select an SMSF expert SMSF and you might being cash flow positive so I recommend a who has done many pay around 1% more loan to value ratio of 70% or less. This means of these and won’t on the loan. that the rent and super contributions can be mess it up when it Notwithstanding, lowering the debt, so by the time you retire comes to purchasing for the right investor you can repay the loan and either sell the the property and talk- this can be a terrific property free of capital gains tax (if you’re ing to the bank. wealth builder, as it over 60 and in pension phase, and under the While the banks have has been for me and $1.6 million pension transfer balance cap). lending products for this select clients (it’s not for Now you’re all excited, let me help you get a purpose, my experience has everyone) over the years.

WHERE I WOULD INVEST $10k

’m going to go out on a limb exchange traded fund (ASX: But this strategy isn’t for the Sam Henderson Iand select a more potentially GEAR) from BetaShares. It's faint-hearted. Sam Henderson is CEO and volatile investment, and one I geared by 250%, meaning you For contrarians there’s the senior financial adviser at wouldn’t recommend for my cli- can make 2.5% for every 1% BetaShares Australian Equities Henderson Maxwell ents. But it’s one I’d put my own move upwards in the sharemar- Bear Hedge Fund (BEAR), which (hendersonmaxwell.com.au) and money into – and have. I’d wait ket. The opposite is also true, is handy if you think the market can be seen as host of Foxtel’s patiently for the right market con- which is why I don’t recommend is due for a fall. SkyNewsBusinessprogram, ditions, and then I’d pounce! it for my clients. I’d buy these in my SMSF to Your Money Your Call – So if the Aussie sharemarket If the market fell further to lower tax and give the market Retirement. He is also the author drops to around 5400, I’d buy around 5100, then I’d go again time to recover because I can’t of three best-selling books. the Geared Australian Equity and top up my investment. access my super for many years.

MONEY SEPTEMBER 2017 41 MY MONEY FUNERALS

Hidden costs mean grieving families can Parlour be ripped off when organising afuneral STORY VITA games PALESTRANT ithout meaning to sound ghoulish, For too long opaque pricing has made it difficult for there’s good news on the funeral consumers to shop around. Often the only way to get front. A number of reports and compar- to grips with the true cost of a funeral is face to face ison websites have recently emerged with the funeral director, by which time the exhausted to lift the lid on the industry and family finds it’s easiest to just accept what’s on offer. Whelp consumers navigate this costly and complex world. Consumer groups such as Choice want funeral homes to It’s a welcome development given that funerals are itemise their pricing on their websites so that consumers often organised when bereaved family members are can research their options and compare prices beforehand still reeling from their loss, unsure of what to do and andmakeaninformeddecision.Thiswaytheycanavoid under pressure to have the body removed for burial or being lumbered with a hefty financial burden. cremation as soon as possible. Funerals come with a significant price tag. A cremation

42 MONEY SEPTEMBER 2017 costsabout$6000whileaburial,includingthemonument year.Buthelpisfinallyathand.Thesituationhasbeen and cemetery fees, can amount to close on $20,000. improved by the website GatheredHere.com.au, says van Arecentstudyentitled“It’syourfuneral:aninvestiga- derLaan.“Ifyouputinyourpostcode,itwillgiveyou tionofdeathcareandthefuneralindustryinAustralia” some indicative prices of what it will cost for a funeral found funeral homes inflate the pricing of individual in your local area.” services and products by offering them only as part of Launched earlier this year, GatheredHere is Australia’s a bundled package. largest funeral home comparison site. But some opera- “Details of the individual components of the funeral tors in the $1 billion industry are less than enthusiastic servicewasnotoftendisclosed,”notedthereport, about it and have threatened to sue. “Insteada‘packaged’or‘bundled’totalpricewasgenerally Its founder, Colin Wong, anticipated the pushback. supplied.” It said this made it difficult to put together “Whatwe’redoingisatitscoreprettydisruptivetothe cheaper alternatives and it also stifled competition. industry.As a whole, it [the industry] basically benefits “Don’t get fromalackoftransparency,”hetoldThe Guardian PACKAGES LIMIT CHOICE online newspaper. Thereportnotedthatalackofnationalregulation Industry giant InvoCare, which owns well-known provided opportunities for predatory pricing and rec- sucked into brands such as White Lady, Simplicity and Guardian, ommended a standard product information statement has also launched a website, TheFuneralPlanner.com. be introduced with itemised pricing so people could buying a au. The company operates 270 funeral locations and 16 buyonlytheitemstheywanted. cemeteries and crematoria in Australia, New Zealand It also recommended funeral homes be required to offer funeral andSingapore.Ithasa40%marketshareinAustralia abasic,oressentialservices,funeral(seebreakout,page andupto80%ontheeastcoast. 44).Adirectcommittalor“noservice,noattendance” Its website lets consumers compare InvoCare’s dif- optioncostsaslittleas$1500.Thefamilycanalways that’s got ferent brands and their prices but it is not immediately celebratethedeceased’slifewithawakeathome. obvious the site is not an independent comparison site, LeadauthorSandravanderLaan,aprofessorof all sorts of so users may not realise they are dealing with only the accounting and associate dean at the University of one company. Sydney Business School, says bundled products limit things you people’sabilitytodosomethingsthemselvesandkeep RELIABLE, TRUSTWORTHY costs higher than they need to be. don’t want” Spokesman Fergus Kelly says the site was launched in “Funeral homes bundle the celebration of life, or the responsetoconsumerresearchthatshowedtherewas memorialovationoflife,withthedisposalofthebody. aneedforonlineinformation. Ifyougotoafuneraldirectorthosedecisionsaretaken “Funeralsneedtobeplannedinaveryshortperiod awaybecausetheyofferonepackageofabundleof oftimeandcustomersweresayingtheywantedto products and services. You can negotiate within that a be able to look up a funeral location and get a better littlebitbutyouarestillhavingthingsbundled.” understandingofthecostsinvolvedinplanninga That’snottosaythatpeoplearen’tappreciativeofthe funeral,” says Kelly. one-stop-shop service provided by funeral directors, Hesaysthesiteallowsforacertainamountofcus- says van der Laan. “But make sure you understand tomisation. “If they use the site they will see the price your choices and try not to be making decisions when changing if they use a different coffin or different someoneyouareclosetohasjustdied.It’swhatmost flowers–itwillautomaticallyrecalculateitforthem. peopledoandIthinkthat’swhatdisreputablefuneral Theywillbeabletoseethatstraightaway. directors prey on. “If they choose some of the other elements, like “Onlybuytheservicesthatyouwant.Don’tgetsucked catering, they need to speak to a funeral provider who into buying a full-service, packaged-up funeral that’s got canguidethemastothoseothercosts.Ourpriorityis allsortsofthingsyoudon’twant.Youcanpaytwiceas to make sure it is very transparent.” Additional options muchforflowersoracoupleof100%moreforacoffin. can be added, ranging from limousine hire to choirs. Findoutwhatitisyouwanttodoyourself.” Kelly’s advice to consumers is to look for a funeral Difficulty obtaining pricing for the report were provider that is experienced, reliable and trustworthy. consistent with findings of a Choice investigation last “You need to know they are fully connected to the

MONEY SEPTEMBER 2017 43 MY MONEY FUNERALS

No fuss and no frills: the David Bowie way

hen the singer songwrit- Formanypeoplethatisabig makesallthepaymentsforcosts Wer David Bowie died last relief. The funeral director organ- such as clergy fees, flowers, notic- year he had the ultimate no-fuss, ises the transfer of the body to es, cemetery/crematoria fees and no-frillsfuneralwitha“directcre- amortuaryorfuneralpremises, grief counselling. mation”.Thebodyissentdirectly provides the coffin, arranges the Choice is important, including for cremation from the hospital ceremony and committal, organ- theoptionofhavinganafforda- with no attendance or ceremony. ises floral tributes and newspaper ble,basicfuneral.Alwaysaskfor Ashesarescatteredorreturnedto notices, gets the medical certifi- an itemised price list (in writing) thefamilyafterwards. cate, registers the death, arranges beforeyoumeetanyfuneraldirec- Adirectcommittalorcremation aviewing,organisesthehearseto tor. Fair trading departments in costs about $1500 in Australia. the ceremony and committal, and most states require it. The memorial, or celebration of life,canbeheldathome,atapark or on a beach afterwards. In Tas- mania’s north-west a community coffin club meets at the Ulver- Price segmentation of funerals in Australia (IBISWorld, 2016) stone Community Shed to make Other disbursements coffins for themselves or family 6% members for as little as $200. Cremation 10% Typically, the biggest cost of a Professional 39% services fee funeralistheprofessionalservice Burial 14% feeat39%,followedbythecoffin at 31% (see graphic). The funeral director relieves the bereaved from Coffin/casket 31% havingtoorganisethefuneral Source: University themselves within a few days. of Sydney

community and can turn that event around for you in costs are in breach of regulations. The watchdog also a relatively short period of time.” suggestsyoushoparoundtocomparepackages. Mostpeopledon’twanttoburdentheirfamilywith Funeral insurance is another product on the market. theirfuneralbillsandwilllookatdifferentfinancial However,a2015ASICinvestigationfounditwasdogged options. Some are better than others. by high cancellation rates and other problems, “not A pre-paid, pre-arranged funeral can be cost effective. only with cost but the design, marketing and sales of “It’s basically a financial product you are buying so it’s funeral insurance”. heavily regulated,” says van der Laan. “If you want to Specifically, it was referring to policies with stepped lock in a price in today’s money for a particular set of premiums that rise as policyholders age just as their services,that’sprobablythewaytogoifyoudon’twant incomedeclines,trappingpeoplewhomayhavepaid your family to worry about it.” thousands of dollars into keeping up a policy they can Itusuallyrequiresadepositandregularinstalments no longer afford (see case study, right). over time. The Australian Securities and Investments ASIC found the number of policies cancelled in 2014 Commission (ASIC) says this can be a lot cheaper than was 80% of the number of policies sold. Nearly 55% of a funeral bond or funeral insurance if you live another cancellations occurred during the first year of the policy. five to 10 years. Theonlydrawbackisthatsomepre-paidfuneralscan PAYUPORLOSEPOLICY beinflexibleifyoumoveinterstate.Exclusionsmayalso Philippa Heir, a senior solicitor at the Consumer Action applyifyouchangeyourmind,asyoumaynotbeable LawCentre,saystheinsuranceproductistypically togetyourmoneyback,soit’sbesttochecktheterms designed to cover the cost of a funeral between $6000 and conditions carefully beforehand. and $15,000. “The premiums can increase quite quickly. ASICsaysyoushouldaskforafulldescriptionofthe Youmightstartpayingforitwhenyouarestillworking itemsandcostsinvolvedtoseeexactlywhatyouare at age 65 and then are still paying it when you’ve retired paying for. Funeral providers that don’t reveal these at 70 but your income is less and your premiums are

44 MONEY SEPTEMBER 2017 Astruggle to keep up premiums

ome funeral Sinsurance policies will allow you to stop paying your premi- ums once you have reached the amount youneedforyour funeral. Not all poli- cies work like this. Alice was 58 and still working when she took out funeral insurance costing $20 a fortnight. Shewantedtohave funeral cover so her family did not have to worry about paying for her funeral. Butbythetime shewas71,Alice’s stepped premium haddoubledandcost hermorethan$40 perfortnight.Ithad gone up every year assheagedandto cover inflation. more. The problem is if you stop paying you generally com.au/star-rating-reports/funeral-insurance. “The She struggled to lose it all.” product has a fixed sum insured – it’s capped at that pay the higher pre- Shesayssomeinsurershavetakenstepstoimprove suminsuredsothepolicyholderwillneverpaymore mium on her much theirproducts.“Somehavelevelpremiumsandalso than that amount,” says Callaghan. lower, post-retire- mighthaveacaponhowmuchyoumightpay.Butthe But be careful of others that sound the same. “There’s ment income. She capmaystillbedoublewhatthepayoutis. aproductthathasafixedsuminsuredbutpolicyholders also knew it would “TheASICreportofacoupleyearsagofoundthat keeppayinguntiltheyreachanagecap,soyoucanend continue to go up even when they are not stepped they might have what up paying far more than the sum insured. each year. is called inflation protection, which means they will “Then there are another two products that don’t have Alice added up all increaseyourpremiumsandyourbenefitquitesignifi- caps in place. The one is where you fix the sum insured the premiums she cantly each year.” For more information see moneysmart. upfrontbutyoukeeppayinginperpetuity.Withthe hadpaidoverthe gov.au/insurance/funeral-insurance. other you have the fixed sum insured but continue to past 13 years and Policy exclusions also apply, says Heir. “For the first paypremiums.Onceyoureachthatamount,yougetthe worked out that it two years you are only covered for accidental death. So excess back. Your sum insured increases by that amount." hadcosthermore ifyouthinkyouaregoingtodieinthreeorfouryears’ Affordabilityisthekey,hesays.“Ifpremiumsare than $10,000. time funeral insurance is a good idea but you have no registeringas20%ofyourincome,it’sobviouslynot wayofknowingthat.” sustainable.There’sthepotentialyou’llstoppayingand Source: ASIC. See Thepolicy’scashpayoutcanbespentonyourfuneral everythinguptothatpointisadonationtotheinsurer.If money smart.gov.au/ or left to your next of kin. that’sgoingtobethecase,justputthemoneyinabank insurance/funeral-in- Josh Callaghan, general manager, wealth, at Can- account – it’s going to be better than a lapsed funeral surance star, says insurers get their biggest return from policy policy worth thousands of dollars that goes nowhere.” lapses. The research house recently rated policies that Finally,oneofthesimplest,mosteffectiveformsof havelevelpremiumsandguaranteeyouwillneverpay financelieswithyoursuper.Usingpartofyoursavings more in premiums than the sum insured. See canstar. to cover your funeral expenses is perfectly OK. M

MONEY SEPTEMBER 2017 45 MY MONEY HEALTH INSURANCE

THE EXPERTS For body Private health cover isacomplexissue but it pays to look Josh Callaghan, & soul closely at the detail general manager, wealth, Canstar

Laura Crowden, spokesperson, iSelect

Daniel Graham, finance journalist, Choice

10 Abigail Koch, spokesperson, MOST-ASKED comparethemarket. QUESTIONS com.au

46 MONEY SEPTEMBER 2017 When should I take out health the Medicare system, including those with Why are there waiting periods Qinsurance? private health insurance. Qand will I need to start a waiting The benefit of being admitted as a public period again if I change insurers? There isn’t a hard and fast deadline. Many patient is that you may avoid the excess, people chose to take it out when their life co-payment and other costs associated with Once you know why waiting periods exist stage or health needs change, such as turn- your hospital cover. On the other hand, then they do make sense, even though they ing 25 and coming off their parents’ policy, the benefit of being admitted as a private can be frustrating if you weren’t aware you deciding to try for a baby or experiencing a patient has always been that you would had to serve one before making a claim. The health issue that comes with growing older. get a choice over who treats you and how government sets waiting periods for hospital But there are a couple of government policies soon the treatment comes. However, that’s cover to ensure people don’t join a fund, that encourage people to take out private cover unlikely to matter in an emergency where make a claim and then leave, as this would at particular times. The lifetime health cover regardless of whether you’re a public or push up the price of private cover for everyone. loading (LHC) means that if you don’t have private patient you would be seen by the Waiting period lengths change depending private hospital cover by the time you turn next available doctor as soon as possible. on the hospital treatment but you’ll never 31 you’ll have to pay more if you do decide to So in many cases presenting as a private have to wait longer than 12 months for anything, take it out down the track (anywhere between patient in a public hospital may not provide including pre-existing conditions and 2% and 70% extra depending on how long you any real difference. pregnancy. When you’ve served your waiting wait). The Medicare levy surcharge (MLS) JOSH CALLAGHAN period, you won’t need to serve it again if means that if you earn over $90,000 and you move to another fund, as long as you’ve don’t have hospital cover you’ll have to pay Will a pre-existing condition chosen the same or a lower level of cover. extra tax (minimum of $900). So if you are Qaffect my insurance policy and ABIGAIL KOCH approaching 31 or have just started earning will I pay more for cover? more than $90,000, now is a good time to Am I better off having couples think about taking out private cover. Private health insurance is community Qcover or just cover on my own? LAURA CROWDEN rated. This means that anyone is entitled to buy or renew a health insurance policy For couples without dependent children, It’s so expensive – should I just at the same price as anyone else. Someone there is no real benefit to a couples policy. Qself-insure? young and healthy pays exactly the same for Generally, a couples policy will cost the same a policy as an elderly person with numerous as two singles policies (assuming they are The cost of treatment in a private hospital can pre-existing conditions (unless a lifetime otherwise exactly the same policy). It can be prohibitively expensive for most people, health cover loading is applicable). actually be better to have separate policies, and it’s not something anyone should consider Unlikeothe other types of insurance, health particularly if you have different health needs. self-insurance for. If you’re worried about coverer is s notn risk rated – that is, you don’t For example, a couple trying for a baby could costs, consider taking up a higher excess or shopping around for a cheaper policy. Our analysis has found that families with top-tier hospital cover with an excess could save up In many cases presenting as a private to $1400 a year by getting a cheaper policy that offers the same level of cover. patient in a public hospital may not provide Many people don’t get value out of their extras cover – they spend more on premiums any real difference than they get back in claims. That’s a waste of money, and you should consider taking pay more if you’re considered more likely save by only upgrading the female to a more out a more suitable policy or just dropping to make a claim. expensive policy that includes pregnancy it. Take a night to do some personal account- However, if you do have pre-existing cover while the male stays on a cheaper ing to figure out whether your extras policy conditions then you will need to serve a policy. Keeping your policies separate also is working for you or for your health fund. 12-month waiting period before you can allows you to tailor your own policy to your DANIEL GRAHAM claim when purchasing private cover for the specific health needs. first time or upgrading your policy. That said, while there isn’t a financial Can I choose to be treated as Community rating is important, as it means benefit to having a couples policy it can be Qa public patient in a public those people who are reliant on their health less hassle from an administrative perspective hospital if I have private cover? cover don’t have to pay more or find their as you’ll have just the one policy with the health insurance prohibitively expensive same fund and just the one premium to pay. All Australians have the right to be treated because of their underlying health issues. And remember, if you have kids that changes as a public patient at a public hospital under ABIGAIL KOCH everything. If you have a child you’ll need

MONEY SEPTEMBER 2017 47 MY MONEY HEALTH INSURANCE

to move to a family policy, which is always cheaper than a single-parent policy and a Once your kids are adults, encourage them single policy. LAURA CROWDEN to take out their own policy before they turn 31 What is ambulance cover and do QI need it? or they will have to pay the loading

Ambulance insurance covers the costs of New arrivals have one year from the day reinstating it (perhaps with another provider being treated by paramedics or transported they get full Medicare benefits to take out who may be inclined to say yes next time) in an ambulance. If you are weighing up private health insurance, otherwise they on your return. whether or not you need it, then here are a will have to pay the premium loading if If you are looking to cancel your private few facts to consider. they eventually do take out cover. If you health insurance while travelling overseas, More than three million people across missed the date and do take out cover, your another important consideration is that Australia were helped by paramedics in premiums will be 2% higher for every year you may be liable to pay the Medicare levy 2015-16, according to a recent Productivity you’re aged over 30. surcharge (MLS). It’s a good idea to contact Commission report. The rules don’t take into consideration your health fund to work out the amount of Given that Australia’s population is roughly when you came to Australia, or whether premium you expect to save by cancelling 24 million people, then arguably one in eight you held private health insurance in your or suspending your cover and compare that required ambulance assistance over the past former country. The only way to avoid it with the surcharge you may have to pay. couple of years. is to take out a hospital policy before the JOSH CALLAGHAN Not all states require you to pay an ambu- one year is up, or never take one out at all. lance callout fee, but if they do then these fees DANIEL GRAHAM When does my child come off range from $372 in NSW to $1174 in Victoria. Qa family policy and need to get People living in Queensland and Tasmania I am going overseas for a few their own cover? have their ambulance costs covered by their Qmonths. Can I put my health state governments. insurance on hold? This really depends on your fund, as it varies For ACT and NSW residents, ambulance a lot between policies and insurers. Some cover is often included as part of your private If you’re heading overseas you can put your policies only cover adult children up to 18, health insurance policy. Residents in all other health cover on hold. However, each provider while others will cover any dependent chil- states may organise cover through will have rules relating to how long dren until 21, 22, 23 or even 25 as long as they their state-based ambulance and how often you can do this. are a full-time student or apprentice. With authority or rely on their Provided you stick to the some funds you’ll need to pay a dependent health insurance policy. rules relating to your extension of around 25% to cover any adult ABIGAIL KOCH policy, it won’t affect kids who aren’t students. your lifetime health Make sure you check your own policy as I’ve just cover (LHC) loading. otherwise your children could find them- Qmoved to For a short trip of selves uninsured (and with no ambulance Australia and just a few months cover) without even realising it! Once your I’m over 31. your health insurer kids are adults, encourage them to sort Can I avoid will most likely out their own policy before they turn 31 as the lifetime agree to suspend otherwise they’ll have to pay the lifetime health cover your policy for health cover loading if they decide to take loading? those few months it out later in life. and then reinstate it LAURA CROWDEN The LHC loading on your return. is there to penalise However, if your fund For the answers to more health insurance people for taking out doesn’t agree to suspend questions – such as the difference between health insurance later in your policy then keep in an excess and a co-payment, whether you life and relying longer on the mind that the LHC scheme does should have hospital and extras with the public system. Migrants face the same allow an individual to go for up to same insurer, how to reduce gap fees what penalties, even though they weren’t a burden three years without cover before applying to do if your insurer won’t pay a claim and on our healthcare system – they weren’t any loading to premiums, so an option may more – visit moneymag.com.au/health even living here! be to consider cancelling your policy and insurancequestions. M

48 MONEY SEPTEMBER 2017 MY MONEY MORTGAGES

On home ground

STORY THE DEPOSIT EFFIE ZAHOS 1Cash rates are 1.5% and term deposits pay around 2.5%. Your net returns (after tax) would mean your It'sabig money would be going backwards as the Reserve Bank FORTNIGHTLYORWEEKLY is expecting inflation to be around 2% over the next 3Whenitcomestoslashingyourinterestbillbya challenge year. Your options for putting together a deposit include good$86,000orso(seetable),thereisnobetterstrat- onlinesavers,whichpayasmuchas3%.Butwhileyour egy(andit’seasiertoo)thanpayingfortnightly.Toget building a moneyiscertainlysafe,itwillbeaslowjourney. thesesavingsyouneedtotaketheminimummonthly deposit and If you’re happy to dial up the risk then there’s certainly repayment, halve it and then pay that amount every acaseforsavinginlinewiththeassetyouwanttobuy, twoweeks.Thiswayyouget13monthlyrepayments securing the in this case property.The ASX Russell Investments Long in the year rather than 12. Minimal savings are made finance to buy Term Investing Report shows cash grew 2.8% in the if you make the monthly repayment, multiply it by 12 10 years to December 2016 compared with residential and then divide by 26. aproperty property at 8.1%. Fractional funds such as BrickX, where –thisquick you can invest in property with just $100, are one option, EQUITY as are property exchange-traded funds (ETFs). Best to 4Your home equity is the difference between the guide can help get some independent financial advice here. value of your family home and the amount you owe onyourmortgage.Equityisusuallybuiltupfroma you get going BORROWING combination of paying down the mortgage and the 2Bank or broker? A good mortgage broker can be increaseinthevalueofthepropertyovertime.Let’ssay, worth their weight in gold. But just remember that they forexample,yourhomeisvaluedat$800,000andyou don’toffereveryhomeloaninthemarket.Alwaysdo have a mortgage of $350,000. The difference between some research yourself first, then see a broker. A broker’s the two is $450,000, which is your home equity. As a feeorcommissionforarrangingaloanisoftenpaidby general rule you could use up to 80% of this equity, the credit provider whose products they sell. When it so$360,000,tohelpfundthepurchaseofinvestment comestoincreasingyourborrowingpower,youreally property.Beawarethattoughrulesnowapplyaround only have two levers to play with. You either need to investment lending with increased rates and tightened increase your income or lower your expenses. If you’ve up policies, or lenders are even saying no to investment gotalimitof$10,000onyourcreditcardbeawarethat lending altogether. it will reduce your borrowing power for a home loan by around $40,000. EXTENDINGYOURHOME 5LOANFORARENO SLASH YOUR INTEREST BILL If there’s enough equity (see point 4) in your home to fundtherenovations,thenthesimplestwaytosetup FORTNIGHTLY FORTNIGHTLY WEEKLY a refinance is to increase your loan size and place the MONTHLY (mth/2) ([mthx12]/26) (mth/4) fundsinanoffsetaccount.Thatway,ineffectyou’re REPAYMENT $3222pm $1611pf $1487pf $806 notpayinginterestontherenosuntilyouusethefunds. Whateveryoudodon’tputitonyourcreditcard.Ona TERM 25 years 21yrs 1mth 25yrs 21yrs credit card charging 17% you’d pay $20,441 in interest INTEREST PAID $466,452 $380,334 $465,027 $379,280 over seven years even if you were making repayments of $609amonth.Ifyouhadaddedittoyourmortgageand SAVING — $86,118 $1425 $87,172 paidanextra$672amonthyou’dhave$6929ininterest, On a $500,000 loan at 6%pa interest. assuming a rate of 6%pa and a monthly fee of $8. M

MONEY SEPTEMBER 2017 49 MY MONEY SAVINGS

STORY RICHARD SCOTT Ifamajorappliance breaks down, there could Repair s life

ot until they start coughing Pullingitout,wefoundthehosehadcracked boardcancostupwardsof$400,depending and spluttering do we realise during the move, and after my father-in-law’s onthebrand.Soifthedishwasher’sgotabit justhowmuchwetakeour abortive attempts to fix it (with electrical of age on it, I’ll try and talk [the customer] whitegoodsforgranted.While tape,noless)wecalledinthepros.Anew outofpatchingitup.Icanguaranteethe the price of replacements is hose($41)plusflat-rateservicecall($110) newboardbutiftherestofthecomponents Nevercheaper,arewethrowingawaymoney savedus$348.Ourwasherhasbeenrunning are over 10 years old, I can’t and won’t guar- by throwing away perfectly salvageable happily ever since. antee those.” household appliances? However, repairing older whitegoods is Refrigerators, once the most troublesome “Inaway,retailershavetrickedpeopleby always a gamble. An American study (by the item in a household, are now built to last giving the impression that if a machine breaks National Association of Home Builders) found between15and18years,saysRayner.“So down that we must rush out and buy a new that the average life of a washing machine is if you’re spending $3000 on a modern side- one immediately,” says John Moody, owner 10years,13yearsforafridgeorclothesdryer by-sidefridge,puttinga$400boardinand andoperatorofJohnMoody’sAppliance andnineyearsforadishwasher(seetable). extendingitslifespanupto18yearsisjust Service. “But a smoking washing machine But such numbers should be taken with a good economics.” doesn’t necessarily mean anything serious. pinchofsalt,warnsSteveRayner,a31-year Arethereanytelltalesignsthatanappliance Itmightlookbad,sure,butitmaysimply veteranofWilson’sWashingMachines& is completely dead? If a dishwasher emits a indicatethatthepump’sfailed,whichisa RefrigerationinGoonellabah,NSW.“Itellmy burning smell, it can either be the electrical fairly common complaint and a pretty minor customersthere’snouse-bydateontheback,” board,whichisfixable,orthewholeharness and inexpensive repair.” hesays.“Iworkontheassumptionthatyou’ll hasburntout,whichisnot. Movingintoourfirsthomelastyear,we get 10 years out of most washing machines Furthermore, should the compressor go on noticed our 11-year-old washing machine butthatwilldifferbybrand,frequencyof your fridge, a new one can cost up to $1000. (Samsung 7kg front loader) was on the blink. use and level of maintenance.” However,saysRayner,abrokencompressoris It made strangulated noises before displaying The most common complaints he comes classified as an electrical burnout and may be an error message and refusing to continue. across are frazzled electronic boards and claimableonyourhomeandcontentspolicy. Online,wediscovereditwasadrainage blocked pumping systems in dishwashers. Sowhatshouldyoudoifanappliance issue; a replacement machine would cost “Unblocking a pump is an easy fix, just a breaks down? upwards of $499. service call [and] labour,” he says. “But a new The first thing is to check whether your

50 MONEY SEPTEMBER 2017 EXTENDED WARRANTIES

When we purchase new whitegoods, our machines are automatically covered by a basic manufacturer’s warranty for the next 12 to 24 months. Often your retailer will offer you additional cover for roughly 10% of the pur- chasecost.Butdowereallyneedit? HOW LONG THEY LAST According to the Australian Competition APPLIANCE LIFE EXPECTANCY & Consumer Commission (ACCC), you are already protected by the Australian Consumer Air-conditioners (room) 10 years Law(ACL)foraslongasyourmachinecan Air-conditioners (central) 15 years “reasonably” last. “Most people don’t realise Dishwashers 9 years that they may still have rights to a repair, replacement or refund even after a manufac- Dryers 13 years turer’sorextendedwarrantyhasexpired,” Freezers 11 years says ACCC deputy chair Delia Rickard. Microwave ovens 9 years Some extended warranties may allow you Range/oven hoods 14 years benefits not covered under the ACL, such as accidental damage cover or providing “cour- Refrigerators 13 years tesy”productsduringrepairs.Butdon’tbe Refrigerators (compact) 9 years browbeaten by pushy sales staff. Be sure to Washing machines 10 years check exactly what benefits you will get. “The ACCC advises consumers to ask the Water heaters (electric) 11 years retailer to explain what the extended warranty Water heaters (gas) 10 years givesyouoverandabovetheAustralianCon- Water heaters (tankless) 20+ years sumerLaw,otherwisepurchasinganextend- Source: consumerreports.org/cro/news/2009/03/by-the-numbers-how- edwarrantymightmeanthatyouarepaying long-will-your-appliances-last-it-depends/index.htm for rights you already have for free under the ACL,” says Rickard. machineisunderwarranty.Mostmanu- techniciantoyourhouseonlytotellyouthey the proper knowledge, confidence and tools. facturer’s warranties last between 12 and can’t fix the thing.” Rayner concurs: “Anyone working with 24months–althoughsome“parts-only” Have you considered doing it yourself? electrical components should really be a warrantiescanlastupto10years–andthen Guido Verbist runs Australia’s first Repair licensed professional. A customer might put you’ve got extended warranties, sold through Cafe in Marrickville, Sydney, where visitors a green wire where a brown wire should be theretailer,ontopofthat. can take their broken goods (from electronics and light themselves up. There’s no getting There’sagoodchanceyoupurchasedan to furniture and bicycles) and learn how to around that.” extended warranty when you first bought repair them. Ultimately, if you want to avoid shelling yourappliance–arecentChoicesurvey “Today items are deliberately manufac- out for new appliances, you really should take found65%ofAussieswhowereofferedan turedsothattheyarenoteasilyrepaired,” better care of the ones you have. extended warranty ended up buying one and says Verbist. “Many electrical appliances While many newer washing machines have 33%feltpressuredintodoingso.Whether have special screws that are designed to be self-cleaning filters, your dishwasher filters you actually need one, however, is another thrown away, or require special tools that need a regular clean. Rayner recommends matter entirely (see box). aren’t readily available and prevent people payingspecialattentiontoanyshardsfrom “Calling your manufacturer or retailer [in fromfixingtheirownthings.It’scheaper, broken wineglasses, which can be trouble- thecaseofextendedwarranties]isyourfirst of course, to build electrical appliances this some should they find their way into a pump. portofcall–theycanauthoriseajoband way but it leads to a one-off use.” Itpaystouseavacuumonyourdryer’slint appointanagent,”saysMoody. Furthermore,hesaysthatfundamental tray, along with AC filters and fridge units Ifthere’snowarranty,you’llneedtocallyour repairsknowledgehasbeenlostoverthe with fans at the base. If you’ve got cats and local service agent, giving a brief description years, contributing to mountains of electri- dogs, do it every six months, or annually in of what’s wrong with the appliance, and see calwaste.“Notonlyis[makingyourown a tidy, well-kept home. ifyoucanworkoutaroughcost. repairs] significantly cheaper than the cost “Regular cleaning and care are essential,” “Thebenefitofusingaqualifiedrepairs of replacing household items but it’s a far less agrees Moody.“Maintaining your appliances specialististhattheycanoftenprovidean wasteful approach.” before they break down can significantly accurate cost estimate over the phone,” says While his repairs cafe offers free advice extend the life of any household appliance Moody. “A larger appliance repair firm may and assistance, he doesn’t recommend nov- and drastically reduce the likelihood of either slap you with a service charge for sending a ices taking apart machines at home without repair or replacement.” M

MONEY SEPTEMBER 2017 51 BANKING Effie Zahos

Brokers in the firing line Upfront fees, trailing commissions and other perks add to mortgage costs

re mortgage brokers overpaid? product a customer chooses, says people It’s a valid question and one that using brokers tend to be first home buyers was asked by the investment (who often don’t have a big deposit and bank UBS in its report into the require a loan with a higher LVR) and inves- Amortgage broking industry back in May. On tors (who require an interest-only loan). a $500,000 loan a broker would on average “Australians are savvy. They understand receive an upfront that a mortgage broker is in the perfect commission of $2700 position to find them the right home loan from the lender (this for their needs, especially if their financial doesn’t include the situation is slightly unusual,” he says. aggregator’s cut). There’s no denying the value that brokers Typically a broker add in this market but as ASIC reported: would also receive CASE FOR REFORM “Remuneration and ownership structures a trailing commission of 0.14% from the ASIC’s six proposals to improve consumer can, however, inhibit the consumer and lender over the life of the loan. This would outcomes and competition: competition benefits that can be achieved be $700 in the first year and decline each 1 Change the standard commissions by brokers.” year as the loan is paid down. Too much? model (upfront and ongoing trailing Rice Warner believes consumers’ inter- Maybe but I could also ask the same ques- commissions). ests would be best served by reclassifying tion about real estate agents. Commissions 2 Get rid of bonus commissions and mortgages as financial products in terms of on a $500,000 property can be $10,000 to bonus payments. the Corporations Act. This, it says, would $15,000. Not bad given properties in a hot 3 Get rid of soft-dollar benefits. address the issues relating to remuneration. market can sell in less than 31 days. 4 Clearer disclosures of ownership It also suggests outlawing commissions I personally don’t care what mortgage structures. and instead allowing brokers to charge an brokers get paid. After all, it’s not coming 5 A new public reporting regime. establishment fee. Trailing commissions out of my pocket. This may sound naive 6 Governance and oversight. “make no sense.” and probably is, as somewhere down the I tend to agree on the trailing commis- line somebody is paying. It’s hard to believe that volume-based sions – what other industry gets paid each According to UBS, commissions paid to commissions and campaign-based year on the assumption that you will use brokers exceeded $2.4 billion in 2015, add- commissions still exist today, along with their services again? As for brokers charg- ing 0.16%pa to the cost of every mortgage. soft-dollar benefits. As Choice’s financial ing an upfront fee, I’m in two minds. Would consumers see savings on their policy adviser, Erin Turner, says: “Some The UBS report may have compared home loans if commissions were cut? I things are so clear that they have to go and broker advice to “simple” financial advice, highly doubt it. Would I pay a broker $2700 soft-dollar commissions are one of them.” which costs between $200 and $700, but to secure me the best home loan? Probably ASIC also found broker-originated mort- when you’re going for a home loan (unlike not, as it now sounds a little too steep. gages were larger, had lower property values seeking financial advice) you’re already But here’s the real problem: it’s not how and higher loan-to-valuation (LVR) ratios, paying out a heap of money, so I’d hate an much they get paid but how. Both the ASIC were more likely to be interest only and, upfront free to prevent homeowners from and Sedgwick reviews into mortgage bro- despite broker claims that they negotiated seeking third-party help. If it was to be kers found some serious conflicts of inter- better rates, were the same rates as consum- the answer, then consumers should not est and are now calling for broad changes. ers would get if they went direct. be faced with a lender establishment fee in As well as upfront and trailing commis- Mortgage Choice CEO John Flavell says addition to a broker establishment fee. sions (which ASIC says could encourage there are some very good reasons why Here’s to some sound solutions for all brokers to place consumers in larger loans), broker-originated loans differ from direct homeowners. aggregators (they act between brokers lender loans. “This trend can be attributed and lenders by providing technology and to the types of customers that the broker Finance expert and author of The Great administrative support) can also receive channel attracts,” he says. $20 Adventure, Money’s editor Effie Zahos, bonus commissions from lenders which Flavell, whose brokers are paid the same appears regularly on TV and radio. She can be passed onto brokers. rate of commission regardless of which started her career in banking.

52 MONEY SEPTEMBER 2017 SIGN UP FOR YOUR FREE NEWSLETTER AT WWW.MONEYMAG. Pay off your COM.AU mortgage or invest? Answers at moneymag.com.au FAMILYF MONEY Susan Hely

Who gets your savings? A binding death nomination will ensure the right people benefit

t is worth taking the time to under- stand where your superannuation goes I when you die, particularly as balances grow and because life insurance is often held through your fund. You may think that your super is part of your estate and would be covered by your will. But this isn’t the case. Super is held in a trust and is not part of your personal wealth. “That’s why you need a separate document. You need a death benefit nom- ination. It’s like a little will to decide who gets your superannuation,” says Brian Hor, special counsel, superannuation and estate planning, at Townsends Lawyers. Checking on who you have nominated as a beneficiary when you die is important and needs to be kept up to date. You can either have no one nominated, a non-bind- ing nomination or a binding nomination. “Binding death nomination is an issue is important to you then it is worth moving Even if you don’t have a lot of personal that affects everyone these days,” says Hor. funds. Plenty of funds offer binding death wealth or super, you may have life and total The advantage of having a binding nom- nominations and the forms can be found on and permanent disability (TPD) insurance ination is that it instructs your fund how their websites. Self-managed funds do not worth hundreds of thousands of dollars. to pay out superannuation if you die. As have lapsing nominations, which Hor says is There have been legal cases involving long as it is valid, your nomination is legal- a big attraction. young people who have died with little ly binding and the fund must follow your wealth but valuable insurance that is left to wishes. If you haven’t nominated who will Who you can nominate their family. receive your super or the nomination is out With a will you can decide who can inherit As the population ages, there is a danger of date, the fund will make the decision. your home and other assets but with your that fund members will lose capacity and If your circumstances change – for exam- super you are limited as to who can get not be able to make a nomination. It could ple, you have a new partner – you should your money directly. It goes to your spouse be because they have dementia or they consider changing or cancelling your earli- (including de facto and same sex) and your have had a stroke or serious accident. er binding nomination so that your super- children (including step, adopted or ex-nup- There are plenty of contested death annuation will be paid in line with your tial of any age), anyone financially depend- benefits among families, particularly with most up-to-date wishes. ent on you or an interdependent. the rise of blended households, second If you are in an employer fund, typically This means that if you have non-de- spouses and children from first and second you must update your binding death nom- pendent grandchildren, they can’t directly marriages. “If people don’t get along, they ination every three years or it will lapse. receive your super, says Hor. If you want to will potentially take advantage of any little “Three years comes around reasonably leave it to someone apart from your spouse loophole,” says Hor. regularly,” says Hor. and children, you have to make sure that It is another reason to have put your This means that you might think you are your will and your super work together, he enduring power of attorney in place. It up to date with the arrangements but you says. “You need to make a binding nomi- gives the trustee the power to act for the are not and it will be at the discretion of the nation to your estate and then in your will person in case they are unable to. trustees of the super fund to determine who give it to your grandchildren.” gets your balance. You need to think of both your will and Susan Hely has been a senior investment Remarkably, some super funds don’t offer your binding nomination. “They have to go writer at The Sydney Morning Herald. She binding death nominations, so if having one hand in hand,” says Hor. is author of the bestseller Women & Money.

54 MONEY SEPTEMBER 2017

SMMALL BUSINESS Anthony O’Brien

The dog ate my tax deduction If a four-legged friend guards your business, even the pet food may be a write-off

he late Kerry Packer famously told taxi fares are deductible if they are incurred a House of Representatives select in meeting a client. “If you travel via Uber, T committee in 1991: “I don’t know create a business profile in the app and track anybody that doesn’t minimise their tax.” your work trips easily,” says Solomons. He added: “Of course I’m minimising my tax. And if anybody in this country doesn’t Stay up to date minimise their tax they want their head Education and training are tax deductible, read. As a government, I can tell you you’re even if they’re seemingly independent of not spending it that well that we should be your nominated profession or trade. “Inde- donating extra.” pendent lawyers can take acting classes to It is one of the best and most inclusive improve their courtroom performances and political sledges ever, and Packer’s frus- claim the cost of tuition,” says Solomons. “A trations with our political masters are still plumber can take a TAFE course in market- shared by many of us 26 years later. None- ing to learn about expanding his business. theless, Packer knew there are sensible and able to claim the expense of buying a car- If the training will help run the business legitimate strategies for minimising the avan or Winnebago, says James Solomons, better, you can likely claim the cost.” taxes we pay on our business profits. head of accounting at Xero. “Full-time That’s not to say the political class has builders sometimes spend weeks or months Home office given up on seducing small business. In on a job site and run their operations out of If you’re running your business from home, May the current government announced a Jayco. It’s no different to renting a hotel you can claim some of your electricity, an extension to the 2015-16 budget measure room. If you use the caravan for holidays water and gas bills and even your insur- providing an instant asset write-off for that portion won’t be tax deductible but the ance, provided the policy covers business small businesses. They can immediately rest will be. Take advantage of the $20,000 use. The amount claimed is often based on deduct the business portion of most assets instant write-off, or depreciate the cost of floor space of the home office, says Solo- if they cost less than $20,000 and were pur- the vehicle over time. Don’t forget to claim mons. It is possible to deduct some of your chased between May 12, 2015 and June 30, maintenance expenses too.” council rates and mortgage interest. How- 2018, according to the tax office. The only Moreover, if you have a dog that safe- ever, this can have capital gains tax impli- proviso is that the SME must have a turn- guards your small business site you can cations when you sell the property. over of less than $10 million, which was claim food, vet bills and the cost of buying Look for deductions even if you don’t increased from $2 million. the animal, says Solomon. If you carry work from home. Many self-employed your work laptop in a designer handbag tradies store their trucks and tools in a Innovative thinking it’s effectively a laptop bag – and that’s garage at night. If those take up 10% of This deduction can be used for new or tax deductible. “You should use the bag the home’s floor space, you may be able to second-hand assets and is a tax break that primarily for work, and its cost should be claim a similar percentage of the home’s small business owners would do well to a reasonable proportion of your business running and occupancy costs, such as a consider. Indeed, MYOB’s June SME Snap- revenue,” says Solomons. “While there are mortgage or rent, while being mindful of shot found business owners have been fol- no ATO thresholds, claiming a $3000 Prada the potential capital gains implications if lowing government policy changes closely, on yearly turnover of $100,000 might look you are the homeowner, says Solomons. resulting in 43% of SMEs planning to use unreasonable. But a $200 handbag would Finally, don’t forget that your account- the write-off this financial year. “The asset likely be fine.” ant’s fees are tax deductible, as are the tax write-off is such an important policy for costs incurred travelling to meet them. business wanting to kickstart their growth. Travel deductions Likewise, you can deduct the subscriptions We’re seeing a real buzz around this policy Most business owners recognise petrol of any accounting software packages such in the small business community,” says costs are tax deductible but don’t forget to as Xero, Reckon or MYOB. Tim Reed, CEO of MYOB. claim the ever-increasing number of motor- As an example of an innovative use of the way and highway tolls when travelling to Anthony O’Brien is a small business and write-off, if you travel to remote locations a client’s workplace, as well as the costs of personal finance writer with 20-plus years’ to work for extended periods you may be parking once you get there. Train, bus or experience in the communication industry.

56 MONEY SEPTEMBER 2017 WHAT ARE YOU PAYING? MY MONEY

Car insurance LIFE’S BUSY SO IT’SHARDTO SHOP AROUND Name: Amy State: NSW

Sydney woman Amy says it’s been more than 12 months since she last compared prices on car insurance. She and her husband are busy, balancing work and three chil- dren,anddon’talwaysfindtimetolookforbetterdeals ontheirpolicies.“IknowIshoulddoiteverytimea renewal comes up, but there’s never enough time,” says Amy. “With the other bills, it’s hit-and-miss when I shop around for better deals.”

What is she Can she do How you can MONEY’S TIPS 1paying? 2better? 3do it • Have more than one car Amy and her husband currently WetookAmy’scasetotheteam Tips from Laura insured at your address? pay $869.37 a year for compre- at iSelect.com.au, who found she Crowden, iSelect Combinecarsononepolicyto hensive insurance through NRMA couldsaveabout$300ayearby • The renewal notice should receive a multi-vehicle discount. for their 2016 Mitsubishi Lancer. changing policies. But insurance be a reminder to review your • Howmuchdoyoudrive? Alldriversareagedover30,with is not just about price, so we’re policy and make sure it’s still the Reducingyourmileage–orhow cleanrecords,andthecariscov- leavingitinAmy’shandsuntil best value for your needs and oftenyoudrivethecar–can ered for unlimit- she’s ready to make the switch. budget. Policies and discounts save you money. ed use. CE “Thisexercisewasuseful canchangefromyeartoyearso Drivinganolder,lessvalua- RAN • SU becauseitmademeeval- it’s always worth taking the time blecar?Considerdropping IN uatewhattypeofcov- tospeaktoanexpertand comprehensive insurance in R Amy A er I really need for compare your options. favour of third party property C pays the car,” she says. • Oneofthesimplestwaysto cover, which will pay for dam- cut your premium is to increase age to someone else’s car if you $869.37$ Average yourexcess.It’satrade-off:you’ll have an at-fault accident. Use 1 paylesseachyearbutitwillcost the savings to self-insure – put ppremium you more in the event that you the money away to repair or need to make a claim. replace your vehicle in the event $1000 • Limiting certain age brackets of an accident. 1 For drivers aged from driving your car will bring • Howoftenareyoupaying? 30-44 with a your premium down. Some insur- Ask whether your insurer offers 22014-2017 car ersenableyoutolimitcoverto a discount for paying annually drivers aged over 30, 40 or 50 rather than monthly. Remove S ou and the higher the age bracket extras such as windscreen rce : Ca the lower your premium. cover for more savings. nstar • Make sure you are getting the • Any bonus discounts? For ■ Callout maximum discount you are eligi- example, Shannons offers a Have you optimised part of your budget and want to share it with bleforbasedonyourdrivingand 10% discount for named drivers Money readers, or maybe you need some help cutting costs? claims history. Your rating should with a Confederation of Austral- Email [email protected]. We’ll be covering eating out, move with you even if you change ianMotorSportlicence.Others internet, home and contents insurance and financial planning. insurer or policy type. offer a discount for buying online. SHARYN McCOWEN

MONEY SEPTEMBER 2017 57 WHATW IF? Annette Sampson

Crackdown on family trusts becomes law The Labor proposal aims to limit the ability of families to minimise tax by splitting income

WHAT’S ON THE TABLE? investment portfolio in his own name, Fred Labor is planning to tax distributions from Nerk might choose to set up a trust to own trusts at a minimum rate of 30%. Currently those assets. distributions are taxed in the hands of the A trust can be either fixed, which means individuals who receive them at their mar- the beneficiaries have a specific entitle- ginal tax rate, which theoretically means ment to trust assets and income, or discre- they could be taxed at anything up to the top tionary, which means the trustee decides marginal rate of 47% plus the Medicare levy. who benefits from trust assets. Because In reality, however, many people use of their flexibility, most family trusts are trust. So if Fred is on a big salary, he may trusts to minimise tax by directing trust structured as discretionary trusts. receive no distributions from the trust. income to non-earning or low-earning There are several advantages to this. Instead, they may be distributed to lower beneficiaries. This is why Labor argues First, if the trust is properly structured, tax paying family members such as Fred’s that trusts give the wealthy (who presum- Fred doesn’t own or control the assets, so non-working wife, his retired father and ably can pay accountants to set them up they should be protected from his creditors his daughter, who is studying full time at and run them) an unfair advantage over if Fred should be bankrupted at some time university. All will pay much lower rates pay-as-you-earn workers who don’t have in the future. They should also be protected of tax than Fred would have if he had the option of directing their income to from legal claims against Fred if he is sued received the trust income. someone else. for negligence. If, later on, Fred retires but his daughter But that’s not what has them in Labor’s takes on the family business and earns HOW TRUSTS WORK sights. The trustee of a discretionary trust more income, the trustee may decide to A trust is a legal entity set up to hold assets, also has the ability to decide from year distribute the income to Fred and his wife usually within a family or extended fam- to year which beneficiaries will receive to minimise the tax payable. ily. So instead of buying a business or an any income or capital distributed by the Note, however, that penalty tax rates

THE CHALLENGE Maria Bekiaris Sell your mobile phone First, do your research to find out what it’s worth

ith the latest iPhone line-up expected option to consider if you want to sell your Wto be released in early September, phone. How much you’re likely to get will you might be thinking about upgrading depend on the make and model and of your mobile phone. The question is, what course the condition. do you do with the old one? You could pass “If history repeats itself, your precious it on to someone who needs it or you could iPhone will drop in value the moment recycle it but it is definitely worth trying Apple announces a newer model,” says to sell it. Alex Angove, from the communications According to eBay, even old, broken and comparison site WhistleOut. used phones are worth money. eBay is one If you want to figure out how much your

58 MONEY SEPTEMBER 2017 DID YOU KNOW? Thisisfarfromthefirsttimethatatrust crackdown has been mooted. In 2011, his own forasimilarexemptionbutsofar party slapped down then treasurer Joe Hockey has received no joy on this front. when he said trusts should be taxed as companies. Sothemainloserswillbepeo- PeterCostelloalsomootedthisinthelate1990s. ple using trusts to split income. BEST-CASE SCENARIO Even beneficiaries with no other Ifyouhaveatrust,Labormaynotwinthenextelection. income will be taxed at 30% on WORST-CASE SCENARIO theirtrustincome,whilethoseon Forpeopleusingtrusts,thiscouldbeabipartisan marginal rates above 30% will still commitment to restricting their tax benefits. be taxed at their personal tax rate. WILD CARD Jonathan Philpot, wealth partner The next election. atHLBMannJudd,saystrustshave growninpopularityinrecentyears,as the federal government has moved to limit superannuation tax concessions. But if the changes come in, he says super trustcouldstillbemoretaxeffectivethan will become more important and families the parents holding the assets directly. The will need to look for ways to maximise trust could also be used to pass on assets tax-concessional super contributions for without triggering capital gains tax. younger family members. Later, as they near retirement, Philpot apply to trust distributions received by He said some families might need to look saystheparentsmightbeabletowithdraw minors, so it is not tax effective to split to other structures to hold their assets, money with little tax consequences to use income with children. though this will depend on their circum- in retirement when their personal tax rates stances.Forexample,hesaidacouple wouldbelower.However,hesayssome WINNERS AND LOSERS nearing retirement may be better off hold- families,particularlyiftheyhavewealth Despite some of the commentary, trusts ing assets in their joint names if they have of more than $5 million, may be better to will not lose all of their advantages if $1millionor$2million(outsidethefamily consider other vehicles such as companies Labor’splanisadopted.Theywillstillbe home) as splitting income in retirement to hold the assets. able to be used for asset protection and to couldbemoretaxeffective. pass on assets within the family. Hesaysafamilywith$2millionto Annette Sampson has written extensively on Farmershavealsobeenpromisedan $5millioninassetscouldstilldobetter personal finance. She was personal finance exemption from the proposed tax changes withafamilytrust,dependingontheircir- editor with The Sydney Morning Herald,a on the basis that their income is highly cumstances.Forexample,ifmumanddad former editor of the Herald’s Money section variable (and they carry a lot of political were both earning high incomes but other and a columnist for The Age. She has writ- clout). The small business lobby has asked family members were not working, the ten several books.

phone is worth on eBay, you can enter your them, you’ll probably need to lower your phone back. Once they have inspected your detailsatebay.com.au/s/phoneandyouwill asking price.” handset and ensured it’s in the condition begivenanestimatebasedonsimilaritems YoucouldalsotrysitessuchasGumtree youdescribed,youreceiveyourmoneyvia that recently sold or completed. or use Facebook. Another option is to cheque or direct bank transfer.” Forexample,atthetimeofwritingeBay sell through a phone resale site. These He adds that, essentially, these businesses estimates I’d get $338 for my gold iPhone 6 include Boomerang Buyback, Cashaphone, work like pawn shops so you’ll probably whichhas64GB,isingoodusedcondition Fonebank, Mazuma and Mobile Monster. need to send them a photocopy of your ID and has no accessories. You’ll probably get less money using one beforetheycantakeyouroldphone. “Tomaximiseyourphone’sselling of these sites than eBay but it’s slightly less Youneedtoprotectyourprivate potential, do your own search for other hassle as you won’t need to list your phone information before handing over your models of your type currently being sold andtakephotosetc. phone. You absolutely must strip your and price your device accordingly,” says “You select your phone model, answer iPhone of its personal content, says Angove. Angove.“Tryyourbesttopackitupas some basic questions about the condition “Before wiping your phone’s memory, youoriginallyboughtit,andifyoustill ofyourdeviceandthewebsitegivesyou make sure that you have all your content havethebox,useit.Ifpossible,includeall a quote,” explains Angove. “The company backed up either on iCloud, Google, the original accessories; if you don’t have then sends you out a box to safely post your or on your home PC or laptop.”

MONEY SEPTEMBER 2017 59 CRISIS MANAGEMENT Sam Henderson

Try the bait but keep your mind on the job

‘LIKES’ BRING OUT THE SPAMMERS • No doubt you read Money magazine because you want to make money. And there are so many terrific illustrations of how you can do this. If you’re doing your homework, you’re probably “liking” many of the personalities and companies on Facebook, and because of that I’m guessing you’re getting spammed by all and sundry! Here’s what you can do if your Facebook has been over-run by spruikers.

ne of the beauties of Facebook is on the internet and Facebook is the art of for the book and this permits us to commu- that you can get instant gratifica- reciprocation. Advertisers have to give nicate directly with a pre-qualified audience. O tion with a variety of money-mak- away some of their best information as Sounds sensible, right? And it mostly is. ing samples such as tips from property click bait such as a “free” piece of content But there are a few rules around these investors, small business experts and r email and potentially types of communications. One of the most digital marketing gurus, and a plethora of important is to offer recipients the option miscellaneous social goop that seems to of unsubscribing, which is simply provid- get stuck all over your social media pages. ing them with the opportunity to opt out at It happens to me all the time. I’ll like a any time and stop receiving the communi- few posts and then BAM! Those people The marketer tracks cations. I’ll often clean up my mailbox by are everywhere in my Facebook feeds, unsubscribing to all those emails I don’t Facebook ads, Google search ads and you everywhere you read from marketers. A clean-up of your Google ads on other pages I visit. It’s called inboxisgoodforyouandgoodforthem “retargeting”, and while it’s a wonderful if you’re no longer interested in what they marketing tool if you’re on the other side go, like a bit of have to offer. of the equation as a consumer it can get In this age of information overwhelm and a little overwhelming at times. chewing gum on your high anxiety, these emails can add to your Retargeting is when a marketer tracks problems and detract from your solutions. your visit to their site by using a “pixel” internet shoes Anxiety, distraction and indecision are a big embedded into its site or ad, and then problem in our money-making world and it’s tracks you everywhere you go on the lickbait can either probably one of the greatest reasons people internet like a bit of chewing gum on your educate you or just sign you up to count- don’t become wealthy. inter-web shoes. less communications across social and So clean out your inbox, tidy up your The easiest way to get rid of these ads email spruikers. social media and maintain your focus is to clickonthelittledown-arrowonthe This is one of the most common types on how you plan to achieve financial top right of the ad which will open a drop- of marketing around at the moment. In independence and peace of mind. After all, down box, and then click the button that fact, if you look at my home page, I have that’s what we’re all searching for. says “see less of these posts” or simply a free download, “15 strategies to reduce “unfollow”. The alternative is to sample a your tax and boost your super”. This is an Sam Henderson is CEO and senior financial few of the posts and products you see to ebook designed to give away some of the adviser at Henderson Maxwell and is host find something that might float your boat best strategies we use with our clients to of Foxtel’s Sky News Business program Your in a risk-free manner. attract new clients, and it works a treat. Money Your Call – Retirement. He is also the One of the best things about marketing We collect an email address in exchange author of three best-selling books.

60 MONEY SEPTEMBER 2017 Heidi Armstrong LIFE MATTERS

Join the dream team As households evolve, there are big benefits in living with family

amily units look very different in today’s society. Gone are the days F where practically every household had a patriarchal structure with a male breadwinner and female homemaker. Now it’s not uncommon to have two working parents, a single-parent household or even a stay-at-home dad. Certainly these cultural changes have had a direct impact on our lives, including our finances. With household debt increasing while wage growth remains at record lows, fam- ilies need to do everything they can to stay afloat. For many parents this means work- ing longer hours or taking on a second job. Earning more to battle the rising cost of living is one solution. However, it’s not always practical, particularly as under- employment continues to be a challenge. tional living. Some of their design features Consequently we’re now seeing a shift include homes with increased privacy, towards living situations similar to those in The family can provide separate living spaces and adaptability to collectivist cultures where family members accommodate more or fewer people. work together to achieve their goals. An more personal and Genliving and Sekisui House, for exam- extended family buying property is a great ple, offer custom-built homes for multiple example of this in action. financial support generations. But other more price-effective Indeed, with house and rental prices so solutions, such as granny flats or the tiny high, many families can no longer afford to having increased from house movement, also exist to make these operate alone. According to the latest cen- J e set to pay up to 20% arrangements work. sus data, there has been a surge in house- s an additional $600 for holds consisting of five or more people. t r, representing a huge Personal benefits While not all of these are multi-generation- i already facing serious Apart from the obvious financial benefits, al households, it certainly indicates that a fSplittingthesebillsasliving as a family can also provide each greater number of parents, kids and grand- a family could be one way to ease the pain. member with an opportunity for greater parents now live under the one roof. Buying in bulk is another smart way that personal and emotional support. Whether multi-generational families can save. While this comes in the form of assistance with Pay together, stay together these savings might seem small, they could child rearing or adult children helping their New information from the Household, be the difference between home ownership own parents, having more hands on deck Income and Labour Dynamics in Australia and renting for adult children and could can only be a positive thing. (HILDA) report confirms that raising a seriously reduce the financial pressures for While our family structures are chang- family is becoming more expensive than parents and grandparents. ing all the time, the one thing that still ever with childcare costs, for example, up stands is the power of unity. If we want to by 75% for couples and doubling for single Homes to suit households be successful, both financially and in our parents since 2002. As our households change, so too must our personal lives, teamwork is key and there’s While there are undoubtedly pitfalls to homes. The rise of multi-generational liv- no greater team than family. living with your extended family, when it ing is beginning to alter the way we build. comes to financial arrangements generally Architects are responding to the needs of Heidi Armstrong is finance expert for Mon- the pros outweigh the cons. And not just this market by designing homes that tackle ey to Love, a TV and radio presenter and a with childcare. the cons associated with multi-genera- thought leadership award winner.

MONEY SEPTEMBER 2017 61 PROPERTY INVESTMENTS

Investment property owners will end up in thesinbiniftheydon't play by the rules

STORY MARK CHAPMAN Taxman is watching

ith steadily rising prices Expenses • Bank or solicitor fees for keeping title in many Australian cit- Theexpensesyouincurinrunningyour documents safe. ies, particularly Sydney investment property are (mostly) tax deduct- • Taxation advice relating to the property. and Melbourne, it might ible, either immediately or over time. • Legalexpensestoejectatenantfornon-pay- seem as if there’s never The biggest expense you are likely to incur ment of rent. Wbeenabettertimetobuyintoresidential is the interest on a mortgage taken out to Hiringadebtcollectortocollectrentarrears. • investment property. With the generous finance the purchase of the property. That • Getting new keys cut. taxregimethatappliestopropertyinvest- interest is generally tax deductible straight • Servicing items such as hot-water heaters, ment still largely intact, despite promises of away. You can also potentially look to claim smoke alarms, air-conditioning systems and changefromtheLaborparty,manypeople the following expenses where you incur them: garage door mechanisms. aretakingadvantageofthecombination • Repairs to the property. • Watersupplycharges(totheextentthat of rising prices and tax breaks to generate • Advertising for tenants (including costs they aren’t paid by the tenant). healthy returns. passed on by letting agents). • Quantity surveyor for assessing depreci- Generous it might be but the Australian • Cleaning at the end of a tenancy (including ation claims. TaxOfficegoestogreatlengthstopolice rubbish removal). • Security patrols and security system mon- the tax system for property owners and • Estate and letting agent fees (including itoring and maintenance. everyyearthousandsofAustraliansfind management fees). You can also claim lenders mortgage insurance themselves audited by the taxman for ques- • Gardening and lawn mowing (including (insurance paid by you but which protects the tionable claims or dodgy deductions. Tax felling or pruning trees). lenderfromyourdefault)overthetermofthe lawiscomplexsowhetheryouhavealready • Secretarial and bookkeeping fees. loan or five years (whichever is the shorter). dippedyourtoeintothepropertygameor • Bank charges on the account used to receive Youcanonlyclaimexpensesfortheperiod are considering making a future investment, rent and pay expenses. thepropertywasactuallyavailableforrentso it pays to understand the basics. • Councilratesandlandtax. youmayneedtoapportioncostsaccordingly. • Insurance, whether for the building, con- Two types of expenses that used to be tax Income tentsorpublicliability. deductible can no longer be claimed (since Therentyouearnonyourinvestmentproperty • Credit checks. July 1, 2017). These are: is assessable income and must be declared • Pest control. • Travel costs incurred in visiting your on your tax return each year. • Strata title/owners’ corporation fees. residential investment property.

62 MONEY SEPTEMBER 2017 resources to policing, and while some of those • How do you advertise your rental proper- focus areas change year to year residential ty? If your property is advertised on a widely investment properties are on the list every seen online site, that’s a good indication that year. So what are the main pitfalls that can it is genuinely available for rent. If your only land you in trouble with the taxman? form of marketing is a tatty card in your front The ATO pays close attention to excessive window, you might need to be concerned. interest expense claims, such as where prop- • What location and condition is your rental erty owners have tried to claim borrowing property in? If it is in good repair, tenants costs on the family home as well as their will want to rent it. If it’s a hovel, chances are rental property. tenants will give your property a wide berth, It also looks closely at the incorrect split of particularly if you are charging rent that’s rental income and expenses between owners. on a par with much more desirable rentals If you own a property as a joint tenant (for in the same area. example with your spouse), you should each • Do you have reasonable conditions for declare 50% of the rental income and claim renting the property and charge market rate? If 50% of the deductions. Some taxpayers try to you set conditions that will deter a reasonable divert deductions towards the owner with the potential tenant, such as rent significantly higher taxable income; that isn’t permitted. above market rates or clauses such as “no The ATO looks closely for evidence that children”, your property may not be regarded investment properties are not genuinely as genuinely available for rent. available for rent. Rental property owners • Do you accept interested tenants unless you should only claim for the periods the property have a good reason not to? If you’re unreason- is rented out or is genuinely available for rent. ably fussy, the ATO might conclude that you Periods of personal use can’t be claimed. This don’t really want to rent to anybody and that is particularly important for holiday homes, your property isn’t actually available for rent. where the ATO regularly finds evidence of The ATO keeps a close eye on incorrect claims • Depreciation on items of capital equipment a homeowner claiming deductions on the for newly purchased rental properties. The which were already part of an existing prop- grounds that it is being rented out when in costs to repair damage and defects existing at erty where it was purchased after May 9, 2017 reality the only people using it are the owners, the time of purchase or the costs of renovation (such as air-conditioning systems, furniture, their family and friends, often rent free. cannot be claimed immediately. These costs carpets or kitchen equipment). Recently the ATO issued a list of four ques- are deductible instead over a number of years tions investment property owners should ask or are added to the cost base of the property Where can it all go wrong? themselves. Consider your answers to these for CGT purposes. Expect to see the ATO Each year, the ATO highlights those areas to determine whether you have anything to checking such claims, typically made within it will be devoting significant compliance be concerned about: the first 12 months of ownership, and pushing back against those that don’t stack up. WIN A COPY OF LIFE AND TAXES If the property is rented out to friends or family at a discounted rate, this will be regarded ark Chapmann, magazine, GPO Box 4088, Sydney NSW as a non-commercial rental. The income will Mdirector of 2001. Entries close October 4, 2017. still be taxable but you’ll only be able to claim tax communica- Money readers can get a 20% discount deductions up to the amount of rent you’ve tions at H&R Block, onanyofthetaxandaccountingand received. You won’t be able to make a loss. is the author of Lifee superannuation titles published by Wolters The ATO has access to numerous sources and Taxes: A Look Kluwer, CCH (including Life and Taxes). To of third party data including popular property at Life Through claim this discount, simply quote the code rental listing sites, so it is relatively easy for it

Tax (RRP $60). We Life and Taxes: MARK20 when you proceed to the check- to establish whether a claim that a property A Look at Life Through Tax have five copies to Mark Chapman out. To order, readers can visit the CCH was “available for rent” is correct. give away. For yourr bookshop at shop.wolterskluwer.com.au, The key tip is to ensure that you keep good chance to win tell email [email protected] or call records. The golden rule is that if you can’t us in 25 words or 1300 300 224. This offer expires October substantiate it, you can’t claim it, so it’s essential less the biggest tax shock you’ve 10, 2017 and cannot be used in conjunction to keep invoices, receipts and bank statements had or heard of. Send your entries to with any other offer or applied to an for all property expenditure, as well as proof [email protected] or Money existing order. that your property was available for rent, such as rental listings. M

MONEY SEPTEMBER 2017 63 PROPERTY RENOVATIONS

How flippers succeed in the real world STORY PHILIPPE BRACH he term “flipping” relates to the action of buying, renovating and reselling a property,allinarelativelyshortperiod. Ignorethehypeandplanyour Forsomethisisavalidandeffective projectcarefully,becauseit's wayofmakingmoney.Butisitaseasy Tas it sounds and what should you consider before going not as easy as it looks down this route? Theincreasingpopularityofflippingisinnosmall part attributable to the success of TV shows about res-

64 MONEY SEPTEMBER 2017 idential renovations, and it seems that they add unnecessary stress and worry, possibly expertise.Itcouldbeacostly,time-consuming keepgettingmorepopularovertime.Mind evencausingtheprojecttostallthrough lack and ultimately fruitless journey if you take you, they make it look like any average person of immediately available funds. onsomethingyouareunabletocomplete. withabitofpersonalitycanmakeheapsof • It is essential to research the property moneyinnotimewithlimitedoutlayandno Findaproperty location to understand the local demographic, specialised skills. • Mostpeoplethinkthattheyneedtotarget current house pricing, sales within the area, Channel 7’s TheAussiePropertyFlippers the right type of dwelling in a given suburb. desirability and so on. Let’s face it, once the recently featured a property in Sydney’s InSydney’sPaddington,terracedhousesare renovation is complete, you want to ensure eastern suburbs that was bought for $780,000 likely to be successful candidates and older it doesn’t sit on the market for any length inearly2016,renovatedfor$80,000andsold apartmentswouldbethemaintargetinPotts oftime.Timecostsmoneyandyouwant to for$1.065million,allin10months. Point. However, the exact type of dwelling realisetheprofitsassoonaspossible. Ofcourse,thekeytosuccessismoreabout youbuy–whetherit’safreestandinghouse, the numbers than the hype of the TV shows. townhouse, unit or duplex – isn’t as impor- Once you’ve chosen ... Don’tgetmewrong–itmaybeaworthwhile tant as the property’s potential. You need • Areyougoingtosellyourownhomeand strategy but there are many variables to attend to assess each property on a case-by-case live in this property while working on it? If tobeforeyoucanmakeitaprofitableventure. basis. Of course, strata-titled units have more you’re single or a couple that might work but if Let’sconsiderwhatisinvolvedintheprocess: constraintstodealwith,asyouneedapproval youhaveafamilyit’sunlikelytobeanoption. thephysicalandmentaleffort,thelengthof from the strata/body corporate manager, • If you are time poor you may resort to time renovating can take, financing, partici- but they can still be rewarding to renovate. engaging a project manager. This will add a pating in and maintaining a family at the same • Analyseyourownskillset.Doyouhave significant cost to the project but will ensure time, probably working full time and so on. the knowledge and experience to assess an you have a professional overseeing every Here are factors that should be resolved olderpropertyandunderstandwhatneedsto aspect. It also gives you someone to chase before embarking on a full-scale project: be done to successfully add substantial value if things run behind schedule. However, to it? Renovations and property make-overs you may decide to manage it yourself and Setupthefinance stretch from cosmetic improvements – bringing engagetradesmenasneeded.Thisreduces • Unless you have several hundred thousand only small returns on investment – to full- costs but adds to your workload as you may dollarslyingaroundyouwillneedbank blownoverhauls.Assesswhereyourlevelof need to be available at short notice during financetopurchasetheproperty.Evenifyou expertisesitsandberealisticwithwhatyou normalworkinghours.Thatcouldbecome havesufficientfundsforahealthydepositit’s canachievewhensourcingalikelyproperty. a problem if you continue to work full time likely that at least part of the initial acquisi- To make good money in renovating, you andneedtoliaisewithonsiteworkers. tion amount will need to be financed. This reallyneedtoknowwhichoptiontotakein • Ifyoucontinuetoliveinyourownhome, raisesthematterofhowthatfinanceisto which areas. For example the closer you are howeasyisittocontinuallytravelbetween be repaid when there is no income from the to a CBD, the more involved and expensive the two locations while the renovation is property during the renovation period. So a renovation will be. This is understandable taking place? What seems like a fantastic youneedtoconsiderwherethesemonthly as property prices will be higher and you investment opportunity may not appear so repayments are to come from and ensure aremorelikelytobeinvolvedinmucholder rosy when you are travelling an hour or more that cash flow is sufficient to cover the entire properties. Paddington, Woollahra and Bondi in each direction in the winter months! And length of the makeover. inSydney,orWindsor,CarltonandSouth this is a consideration easily overlooked. • If you own your own home (mortgaged YarrainMelbourne,wouldbeinthiscategory. or not), is there enough equity to extract for ThefurtheryouarefromaCBD,theless Getontopofcosts theinitialpurchase,orevenforthedeposit? extensiverenovationstendtobe,because • Many renovation experts dictate that you Ifyouhaveonlythedeposit,thentheloan themarketisprimarilydrivenbyinvestors should not spend more than 10% of the current repayment scenario will still apply. insearchofcashflow,meaningtheyalso value of the property on renovations. So the • Oncethepurchaseiscompletedandwork tend to keep the properties after renovation. most common mistake – by a long shot – is is ready to commence, how will the reno- In Sydney’s south-west, suburbs such as overcapitalising. This is especially true when vation be financed? It is extremely impor- Liverpool and Campbelltown are popular youarebuyingacheaperproperty,asyour tanttocreateabudgetandtime-lineplanin forcosmeticrenovations,grannyflatsand budgetonrenovationswillhavetobelimited. advance, detailing when the major parts of adding new rooms. • This is a business transaction, so create a the renovation will take place and funds will • If your career is not in the building/con- budget, investigate availability and pricing need to be paid. Discovering, part of the way structionbusiness,itisworthturningtoan of items and tradesmen and endeavour to through,thatyouhavetopaylargesumsof expert.Considerwhetheryoushouldconsult work within your clear financial boundaries. moneyformaterialsortradesmensimulta- a professional in the industry before com- Blowouts will eat into your financial return neously can create a cash flow problem and mitting to a project that is not your primary and can make the project unprofitable.

MONEY SEPTEMBER 2017 65 PROPERTY RENOVATIONS

• Createaworktime-frameschedule.Whether doing the job yourself or engaging others, costscanseriouslyescalateiftheprojectruns Inarising significantlyovertime. • While there is no hourly pay rate for your market, owntimeyouwillneedtofactorinamounts duetoanyoneelseworkingonyour behalf. the big risk Stateofthemarket • Flippingworksbestinarapidlyrising is what market. This allows for small mistakes to be coveredbythegrowthinthemarket.How- happensifit ever,itisalsohardertofindgoodproperties asalotmorepeoplehavethesameideaas turns while you!Thebigrisk,ofcourse,iswhathappens ifthemarketturnswhileyouarerenovating and you can’t then offload the property at the you are price you want? • In a cooling market, a better strategy is renovating to buy and hold the properties you renovate. Thismeansthatyourprojectmaybedifferent asyouplantokeepthepropertyforthelong term. Your budget should include a cash-flow projection of how much the property is going to cost to run and the rent you will collect. tial amount of time working on the property wayofmakingmoneyfromproperty:buyanew without it affecting others, or you may have or near-new property and treat it as a passive Other considerations a partner who is eager to be involved. investment.Itisnotassexyandtemptingas • If you decide to undertake the renovations Renovations, upgrades and home improve- what the reality TV shows promote, and it yourself, will you continue your normal mentscomeinmanyforms:asimplepaintjob, takestime,butitisatried-and-testedstrategy. occupationatthesametime?Thiswould new interior/exterior fittings, new bathrooms It’s certainly a lot less stressful. M certainlyhelpwithfinancingtheprojectas and kitchens, or a full overhaul including it may aid in securing further loan funds. knocking out walls and rebuilding sections However, how much time and energy will and extensions. So if you decide to go down WINACOPY youbeabletogivetothejob?Willyouspend this route, choose something that fits with Creating Property everyweekendandeveningonitandhow yourstrategyandisachievablebothinterms Wealth in any Market willthatfitwithyourcompletionschedule, of workload and finances: a project you can Philippe Brach, lifestyle and family commitments? jumpinto,workon,finishinatimelymanner CEO of Multifocus • Ifyouproject-manageyourself,beaware andrealisetherewards.It’snotanideato Properties and Finance thatthereareanumberofregulatorysteps takelightlyandyoushouldbepreparedfor (multifocus.com.au), is tobetaken,formstocomplete,surveystobe unexpected hurdles, delays and cost over-runs. an experienced propert undertaken and approvals sought throughout investment specialist therenovationperiod,dependingonthelevel Consider the alternatives and finance broker. He ofworkyouareundertaking.Doyouhavean Asitbecomesmoreandmoredifficulttoferret is author of Creating understandingoftheseimportantaspects? out the ideal property, some renovators are PropertyWealthinanyMarketand we • If you decide to give up work and concentrate lookingatventuringintoareaswithlesscom- have 10 copies up for grabs. For your on the renovation full time, that would enable petition,suchasdevelopingandsubdividing. chancetowintellusin25wordsorless the project to be completed quite quickly but This is high-risk investing. You do not control your best tip for profiting from property. thereisstillthequestionoffinancingthecosts timing as you are reliant on various authorities Send your entries to money@bauer-me- asyouwillhavenoincome. to give you the necessary approvals, and it is dia.com.au or Money magazine, GPO Box Some of these issues may not apply to you: harder to control costs – overall there are too 4088, Sydney, NSW 2001. Entries close perhapsyou’reabuilderbyprofession,haveno many variables. October 4, 2017. family to consider and can spend a substan- You could also consider the old-fashioned

66 MONEY SEPTEMBER 2017 Pam Walkley REAL ESTATE

Wheretolookforabargain The apartment boom has an upside for disillusioned would-be buyers

lthough it is becoming increasing- ly difficult for some buyers to get A their foot on the property ladder, research conducted earlier this year has demonstrated that property ownership remains the great Australian dream. But the Evolving Great Australian Dream report from Mortgage Choice and CoreLog- ic showed that almost 90% of the 1000-plus people surveyed believe that the traditional freestanding house on a quarter-acre block in the suburbs is no longer achievable. But regardless of how difficult property ownership becomes, people still want to own a home, says John Flavell, CEO of since 2000 and now the market is flooded. the long-term debt associated with over- Mortgage Choice. “In fact, our research Many apartments were bought off the valued property. This could present some shows people rate home ownership as more plan with 10% deposits at prices that are bargains for buyers. of a priority than career success, travel or unlikely to be achieved today. For exam- In Melbourne, where there has been a having a luxurious lifestyle,” he says. ple, one-bedroom units that cost $450,000 huge apartment building boom, good buys But there has been significant decline are now being valued at about $320,000, have already been in evidence. According in the proportion of households that are according to industry sources. to BIS Research, in Melbourne city (which owner occupied, from 69% in 2001 to 65% Some buyers may simply cut their losses includes the CBD, Southbank and Dock- in 2014, the latest data from the Household, and forfeit their deposits rather than incur lands), Whitehorse city (including Box Hill, Income and Labour Dynamics in Australia Burwood and Mitcham) and Port Phillip (HILDA) survey reveals. city (including Port Melbourne, St Kilda Given the downward trajectory in own- Head offshore and part of Southbank) more than half the ership rates, more prospective home buyers Want to earn an 8%-10% return and add units bought off the plan since 2011 have are ready to compromise in their choice. offshore property to your portfolio at broken even or resold at a loss. The study indicates that 31% of Austral- the same time? For an outlay of £45,950 Buying with family and friends was ians reduce their spending to save a prop- ($77,700) you can buy a student studio in another solution being considered by 20% erty deposit, 24% decide to buy a smaller Primrose Hill, Huddersfield, in West York- of those surveyed. If you go this way it’s or more affordable place and 20% per cent shire. Huddersfield University is rated as important to clarify and document expec- aim to buy with friends and family. one of the best in the UK for its teaching. tations through a co-ownership agreement, Over recent years there has been a Primrose Hill Student Residence is a fully which sets out the roles and obligations dramatic surge in the number of people operational student property and has been of the parties. It should cover things such embracing apartment living to fulfil their 100% occupied since the development as whether the finance is a joint loan or home ownership desires, says Flavell. “And opened in 2012. separate loans, what happens if one party when you look at the level of apartment Buyers benefit from a 10-year fixed defaults on mortgage payments, what hap- construction taking place across the coun- income agreement, receiving immediate pens if one party wants to sell the house, try, it is likely that we will continue to see 8% net income and contracted yield and how property maintenance and costs more Australians calling apartments home.” growth in year three (9%) and year five are to be handled. Some potential good news for buyers is (10%). The property is fully managed that the glut of new apartments in major and you can resell your unit whenever cities – many of which were bought off the you choose and benefit from as much Pam Walkley, founding editor of Money and plan and are now coming up to settlement – as 40% capital growth, according to the former property editor with The Australian may mean some bargains hit the market. marketing company, Emerging Properties Financial Review, has hands-on experience Take Brisbane. Unprecedented growth in (emergingproperty.co.uk). of buying, building, renovating, subdividing the city’s unit stock has seen numbers triple and selling property.

MONEY SEPTEMBER 2017 67 INVESTING GLOBAL INVESTING Catch the

STORY t’snosecretthattherateofgrowthexperienced MARK STORY by emerging economy powerhouses China and Indiaisnowherenearwhereitwasduringthe Australian mid-noughties, when it nudged 15% and 10% respectively. However, at around 6.7% and 7.2% investors Irespectively forecast for 2017-18 – compared with the can share International Monetary Fund’s forecast of global GDPgrowthof2.7%–ChinaandIndiaoffer the rewards valuable exposure to one massive consumption as consumers frenzy as their middle-class ranks explode. Buoyed by healthy economic data, especially in China and around strong export and import numbers and Indiagoon adecisionbythePeople’sBankofChinatoinject 498 billion yuan ($93 billion) into the economy, there’s aspending renewedinvestorsentimentforChinastockmarkets, whichranoutofsteamafterexplosiveperformances spree in 2009 and then again in 2015. AndwhiletheReserveBankofIndiahassoftened somewhat its hawkish view on economic growth, due to (AAC), Treasury Wine Estates (TWE), Tassal Group declining inflation and lower-than-expected economic (TGR), ANZ Banking Group (ANZ) and Sunbridge growth, there’s still strong demand for consumer durable Group (SBB). and pharmaceutical sector stocks, which has helped to Meanwhile,Australiarecentlymadeitsfirsturanium propel India’s sharemarket forward. shipment to India three years after the September 2014 What makes having exposure to China and India supply agreement, and among stocks that could receive within your investment portfolio a compelling propo- a kicker from the country’s growing energy demands sition are new forecasts by the Organisation for Eco- includeuraniumproducersandexplorerssuchasToro nomic Co-operation and Development that by 2030 Energy (TOE), Energy Resources Australia (ERA) and they will collectively account for a whopping 39% (or Paladin Energy (PDN); and coalminers like New Hope $US25 trillion) of total global spending. (NHC), Whitehaven (WHC) and Yancoal (YAL). Here are some ways you can get a slice of the action. Listed investment companies ASX-listed stocks If owning direct shares into these markets appears a There’snoshortageofstockslistedontheASXwith little scary,there are many LICs that invest in China and sizeable chunks of their earnings exposed to China, India. While Platinum Asia Investments (PAI) has expo- and this can be a less daunting way to benefit from the sure to both countries, PM Capital Asian Opportunities consumption-boom story without being a stock picker (PAF) has both direct and indirect exposure to China. in China or India. Then there are Emerging Markets Masters Fund AgrowingnumberofASXstocksareexposedto (EMF), Asian Masters Fund (AUF) and Ellerston Asian China, and success selling into this market can boost Investments(EAI),whichallofferexposuretoboth theshareprice.Butasinfantmilkformulamarketer China and India markets. Bellamy’s (ASX: BAL) recently demonstrated when TherecentlylistedIndiaFund(INF)alsoofferslocal itwasplungedintoturmoilbyasurpriselicencesus- investorsexposuretoequitieslistedontheBombayStock pension by Chinese authorities, a company’s Chinese Exchange (BSE) and National Stock Exchange (NSE). fortunes can unravel if regulations suddenly change or if key customers withdraw support. Exchange-traded funds IncludedamongASX-listedstockswithstrongChina Traded like any other listed stock, and offering easy upside are: Blackmores (BKL), a2 Milk (A2M), Free- access to a basket of top companies on key indices, ETFs dom Foods (FNP), Australian Agricultural Company let you buy or sell quickly and at low cost. They’re an

68 MONEY SEPTEMBER 2017 next boom

want to be in. For example, the two best-performing India ETFs – Direxion Daily MSCI India Bull (INDL STRONG US) and VanEck Vectors India Small-Cap (SCIF PERFORMERS US)–havedelivered 95.17% and 44.2% respectively (year to date). China-focused ETFs, or popular emerging mar- Direct shares offshore kets ETFs with varying Due to the regulatory uncertainty plaguing foreign exposures to China companies exporting into China, plus unease with (and possibly India), rules governing China exchanges, Andrew Macken, that have performed portfolio manager at Montgomery Global Investment well recently include: Management, favours investing in “Chinese national champions”listedoutsidemainlandChina.“Wefavour • VanEck Vectors qualitynativeChinabusinesseslistedonforeign ChinaAMCCSI300 exchanges, like the NYSE, NASDAQ or HKSE, as (CETF) 12.28% (1 year) opposedtothoseontheFTSEA50Index,”hesays. “There’s greater comfort knowing investors globally • iShares China are looking at these foreign-listed local businesses Large Cap (IZZ) alternative way to get specific exposure to emerging that aren’t exposed to regulatory hurdles confronting 16.32% (1 year), markets within the international component of your foreign companies.” 12.18%pa (3 years) portfoliowithouthavingtobeastockpicker. Montgomery Global Investment Management is Because most aren’t actively managed, Jon Reilly, currentlyinvestedinglobaltechgiantsAlibaba(NYSE: • iShares MSCI CIOwithImplementedPortfolios,advisesinvestorsto BABA), Tencent (HK: 700), plus China Life (NYSE: Hong Kong (IHK) treadcarefullywithETFs,especiallygiventhatthey LFC), the largest life insurer in China which is two- 19.51% (1 year), can’trelyonprofessionalmanagerstolimitlosses thirds owned by the Ministry of Finance. 14.42%pa (3 years) relativetothefund’sunderlyingbenchmarkindex. While Montgomery has no direct investments in “While they’re incredibly powerful, investors must India,ithasleverageintothismarketviaAlibaba • iShares Asia 50 understand that returns from ETFs reflect individual andTencent,whichhavesignificantequitystakesin (A) (IAA) 27.50% (1 companyperformance,plusunderlyingcurrencyrisk,” companiessuchasChinesemobileinternetcompany year), 15.62%pa (3 saysReilly.“WithmostinternationalETFsquotedon UCWeb – where India accounts for around 20% of the years) theASXbeingunhedged,it’simportanttohaveaview monthly80millionglobaluserbaseofitsflagship on where the Australian dollar sits.” UC Browser – and growing Indian companies such • iShares MSCI While Hong Kong ETFs do provide exposure to as Micromap Electronic Systems. Emerging Markets China, Reilly favours those exposed to the top 50 (IEM)19.37%(1year), A-classshareswithamainlandfocuslistedonthe Unit trusts 7.67%pa (3 years) Shanghai and Shenzhen stock exchanges. Morningstardatarevealsathirdoffundsunderman- While there are no pure ASX-listed India-focused agement in Asian unit trusts are, on average, invested • Vanguard FTSE ETFs,Reillysaysinvestorscanstillgetsomeexposure in China. Unsurprisingly, the sectors in which funds Emerging Markets via iShares MSCI BRIC (IBK) (20.92% return over a have higher weightings include technology and con- (VGE) 14.55% (1 year), year, 8.49%pa over three years), or iShares Global 100 sumer cyclicals that directly benefit from the region’s 7.26%pa (3 years) (IOO) (16.83% and 12.52%). consumption boom. However, investors wanting to invest in overseas-listed Top-performing managed funds over the year to • SPDR S&P Emerg- ETFs with an India geographic focus have no shortage June30,2017withastrongChinafocusincludethe ing Markets (WEMG) of ETFs to choose from, with year-to-date returns SchroderAsiaPacificFund(30.62%totalreturnover 15.33% (1 year), fromthe26India-focusedETFs(basedonBloomberg ayear),PremiumAsia(25.26%)andFidelityChina 7.14%pa(3years) data) averaging 27%. (25.77%).Meanwhile,fundswithdirectexposureto * Based on Morningstar data to Rather than just picking any India ETF, Reilly says IndiaincludeFiducianIndia(23.8%oneyear,25.9%pa July 3, 2017 investors have to decide which part of the market they five years) and Fidelity India (16.3% and 20.1%). M

MONEY SEPTEMBER 2017 69 INVESTING FIXED INTEREST

STORY AkeySUSAN HELY role to play

Bonds and cash are out of favour but there are strong reasons to include them in a portfolio

ixed interest is a dilemma yourhighestconcern,youcanprotectyour “Despite this outlook, we encourage inves- for investors. The returns are portfolio,” says Briganti. torstoevaluatetheroleoffixedincomefrom ridiculously low – even slipping Fixedintereststillplaysaclearroleasa a perspective of balance and diversification into negative territory – but diversifyingandbalancingassetclasstooffset rather than outright return,” says Joe Davis, investors are told by experts sharemarketvolatility.Forthisreasonbalanced Vanguard’s global chief economist. Fto keep part of their wealth in these products. portfolios typically hold 25% in fixed-interest “High-grade or investment-grade bonds While Australian and world sharemar- investmentssuchasbondsandcash.Some actasballastinaportfolio,bufferinglosses kets are buoyant, fixed-interest returns are superfundshaveeasedbackonfixedinterest fromriskierassetssuchasequities.Several uninspiring. For example, the Australian and dialled up their infrastructure holdings, segmentsoftheAustralianbondmarket, sharemarket’sS&P/ASX200gained7.33% particularly those utility investments that such as credit and government bonds, have andtheUSmarket’sS&P500jumped16%for deliver a bond-like return. 10-yearmedianexpectedreturnscentredin theyeartotheendofJulywhiletheS&P/ASX Retailinvestorshavegoneunderweight the 2.5%-3.5% and 1.5%-2.5% range respec- Australian Fixed Interest Index lost 0.25% on fixed interest. They favour bank hybrid tively,” says Davis. andtheS&P/ASXAustralianGovernment securities that pay a higher yield but this can The Australian credit bond index is in the Bond Index slid by 1.75%. be risky (see breakout). 2.5%-3.5% range, which is slightly higher But still investors are urged not to dump than that of the government bond index. fixed interest from their portfolios altogether. Bonds Inflation-linked bonds are showing negative “Wearestickingtotheprinciplethatitis Theoutlookforbondsisn’tbright.Infact, returns over shorter investment horizons appropriate to hold a relatively high propor- investment groups such as Vanguard con- becauseoftheirsensitivitytoariseinrealrates. tion of the portfolio in fixed interest,” says tinuetorevisedownfixed-interestreturns. Oneofthemostpopularwaystoholdfixed Riccardo Briganti, investment specialist, Vanguard’s outlook for bonds is the most interest is through a diversified fixed-income appliedresearchandsolutionsteam,atBT guarded since 2006, given the environment managedfundthatinvestsingovernment, Financial Group. oflowinterestratesandlowearningsyields. global, Australian and corporate bonds. (See Ifyoulookatthereturnsofthepast10 It says the expected 10-year median return tables,page72.)Butincreasinglythereare years, fixed interest has beaten shares with for the global fixed-income market is in the other vehicles, such as low-cost, diversified 6.2%pa compared with 3.6%pa for Australian 1% to 3% range. This resembles the historical exchange-traded funds that track a particular shares to the end of June this year. “If risk is bond returns of the 1950s and 1960s. index. These offer wide diversification as a

70 MONEY SEPTEMBER 2017 bufferagainstanydefaultsbyabondissuer.For example, the Vanguard Australian Fixed Interest ETF (ASX: VAF) holds 520 securities. Be wary of ‘ridiculous’ hybrids ybrids are a “ridic- as fixed income. “Hybrids by hybrid securities. Fixed-income ETFs Hulous” product for are a lot closer to equi- LikossaysMedcraft Youcanbuyfixed-incomefundsinthe retail investors, accord- ties. It goes back to what is likely to be thinking of same way you buy shares through ingtoGregMedcraft, is your definition of fixed what happened recently theASX.Around$400million the outgoing chairman of income,” he says. intheresolutionofthe flowed into fixed-income ETFs the Australian Securities Morningstar analyst Banco Popular failure in in the six months to June 30. &InvestmentsCommis- John Likos agrees Spain. “Namely, a non- There has been a spate of sion in an interview with that hybrids are not viability event is likely new fixed-income listings The Australian Financial substitutes for fixed- to lead to the complete andthereare18Australian Review in July. In many income securities or writedownofequity fixed-income funds and five cases,ifabankgetsinto term deposits. “We and hybrid securities global bond ETFs. financial trouble hybrids believe they should be simultaneously. Yet this YoucanbuyAustraliangov- can be converted into treated as a separate is no reason to avoid ernment, semi-government and bank shares, which may asset class with their both equity and hybrid corporate bonds. They can be beworthlessthanthe own asset allocation. securities.Ifanything, fixed, floating rate or inflation initial investment or may “And in our view, their low recovery rates linked.Globalbondsincludeboth be written off complete- hybrid securities should are reason enough emerging and main markets. ly, resulting in a total loss only be the domain of to exercise greater “In lower interest rate environments of capital. the medium- to high- due diligence prior to there is naturally greater enthusiasm for corporate This is what happened risk investor as part of investing,” says Likos. bonds where yields are higher,” says Jason Davis to some hybrids offered a diversified portfolio. ASIC warns that of Strategic Income. “However, there is also less by overseas banks dur- Never the low-risk hybrids’ interest pay- liquidity and greater risk, especially as you delve ing the GFC. investor whose primary mentsarenotguaran- into the BBB part of the market.” The four major Aus- concern remains the teed and are paid at the He recommends that investors check not only tralian banks have issued preservation of capital. discretion of the issuer. the average credit rating but also the composition around $27 billion worth Bytheirverynature On top of this, missed and any credit rating rules in the index specifica- of hybrids, which have hybrids have both debt- interest payments do tionandhowoftenthesearereviewedbetween been popular with retail and equity-like features.” not accumulate. rebalance dates. investors because of LikossaysthatAus- Issuers do not guaran- ThetwomaincorporatebondETFsareRussell thehighyieldand100% tralia’s major banks tee that the investment Australian Select Corporate Bond (RCB) and Van- franking credits. remain among the will be repaid and, unlike guard Australian Corporate Fixed Interest Index Medcraft believes strongest in the world savings accounts or (VACF), the latter covering local companies issuing thebillionsofdollarsof with regards to their term deposits with a corporatedebtaswellastheexpanding“kangaroo hybrid securities issued financial and business bank, hybrids are not bond”market,whichgivesinvestorsexposureto to retail investors by the risk profiles, the former covered by the gov- overseascompaniessuchasApplewithoutthe major banks will eventu- supported by a more ernment guarantee. currency risk. ally cause problems for stringent application of “Your investment is not Jason Davis says that investment fees (MERs) and the financial system. He global capital require- secured by a mortgage spreads for these corporate bond ETFs are higher said it was notable that ments than many of or security over any thanforgovernmentdebtETFs,reflectingthefact hybrids had been banned theirglobalpeers. asset,” warns ASIC. that the provider and market maker have to do more forretailinvestorsinoth- As for Medcraft’s The hybrid will convert work to make these products operate efficiently. er markets like the UK. pointthat“ifabankhas into ordinary shares in “When searching for better yields via corporate BT Financial Group’s any trouble [hybrids are] theissueronafixed andglobalbondofferings,investorsneedtobe Riccardo Briganti says the first line of defence”, date, usually eight to 10 mindfulofpotentialliquidityissuesandthedifferent ASIChasaverystrong Likossaysaglanceat years after issue, pro- economic markets that the bond issuers operate view that people don’t any capital structure videdthattheissuer’s in,” says Davis. “Investors should understand how understand the charac- chartwillshowshare- ordinary share price has rapidlycreditpremiumscanmove,andalongwith teristics of hybrids. He holders will be the first notfallenbymorethan the greater chance of forfeiture these have the does not classify hybrids line of defence, followed 50% in that time. potential to cause nasty repercussions for returns.”

MONEY SEPTEMBER 2017 71 INVESTING FIXED INTEREST

Cash ETFs theASX.Thereisnolocked-ininvestmentperiod, ThesuccessoftheBetaSharesAustralianHighInter- noraretherethepotentialbreakfeesandforfeiting estCashexchangetradedfunds(AAA),whichhas of interest that occur if you withdraw funds before a $1.2 billion under management, has spawned three term deposit matures. newcashETFsthisyear.TheBetaSharesfund,which Withabanktermdeposit,amountsupto$250,000 startedin2012,returnedanet2.05%totheendofJuly areguaranteedbythefederalgovernmentbutthereis comparedwiththecurrentcashrateof1.5%.The noguaranteeforacashETF.Alsotherearebrokerage annual fee is 0.18%. andinvestmentfeesforETFsthatdon’texistwitha “WithAustralianinterestratesstuckatrecordlow term deposit. levels and banks not readily offering flexible and The new cash ETFs include iShares Core Cash commercially priced products to large retail savers, (BILL), iShares Enhanced Cash (ISEC) and UBS IQ it is not surprising that the BetaShares cash ETF has Cash (MONY). been so successful,” says Jason Davis. BetaShares’AlexVynokursaysheexpects ThecashETFsareanalternativetotraditionalcash fixed-income ETFs to continue to grow as investors, investmentssuchastermdepositsandtheytendto particularly self-managed super funds, put together investindepositproductsandtrackcashmarketindices balanced portfolios using ETFs. “Such growth is such as the RBA Cash Rate Index and the AusBond expected to be supported due to the increased product Bank Bill Index. They don’t require you to open bank choice now available across both fixed and floating accounts or roll over a term deposit as they trade on rate bonds,” he says. M TOP-PERFORMING MANAGED FUNDS “With INDIRECT 3-YR 5-YR PEER 1-YR GROUP/INVESTMENT FUND SIZE COST RATIO RETURN RETURN GROUP RETURN (ICR) (PA) (PA) RANK1 interest AUSTRALIAN BONDS rates stuck Perpetual Active Fixed Interest Fund $1.27m - 1.72% 4.94% 5.42% 1 Legg Mason Western Asset Aus Bd A $358m 0.38% 0.75% 4.39% 5.05% 2 at record Janus Henderson Australian Fxd Intst $1116m 0.47% 0.71% 4.01% 4.84% 3 Macquarie Australian Fixed Interest $98m 0.63% 0.61% 4.21% 4.84% 4 lows,it’snot AMP Capital WS Australian Bd $698m 0.36% 0.75% 4.09% 4.74% 5 DDH Fixed Interest $2.52m 0.68% 0.21% 3.79% 4.42% 6 surprising Advance Aus Fixed Intr Multi-Blend W $177m 0.55% 0.42% 3.92% 4.41% 7 that the Macquarie Enhanced Aust Fixed Interest $505m 0.19% 0.31% 4.25% 4.39% 8 PIMCO Australian Bond Fund $4964m 0.45% 0.63% 4.30% 4.39% 9 cash ETF Nikko AM Australian Bond $114m 0.45% 0.37% 4.05% 4.38% 10 hasbeenso GLOBAL BONDS Russell Global Bond $2145m 0.71% 1.96% 6.74% 10.58% 1 successful” Legg Mason Brandywine Glbl Opp Fix Inc A $431m 0.71% 6.47% 5.79% 7.64% 2 Legg Mason Brandywine Global Fixed Inc A $206m 0.69% 5.60% 5.44% 6.99% 3 CFS Wholesale Global Corporate Bond $8.59m 0.67% 3.97% 5.22% 6.97% 4 Russell International Bond $328m - 2.09% 5.28% 6.30% 5 PIMCO Global Bond W $4156m 0.49% 3.39% 5.86% 6.27% 6 Mercer Global Sovereign Bond Fund $780m 0.37% 0.57% 6.22% 6.06% 7 PIMCO Global RealReturn W $12.22m 0.51% 4.25% 7.46% 5.93% 8 Morningstar International Bonds $151m 0.62% 1.71% 4.89% 5.77% 9 BlackRock WS International Bond $102m 0.55% 1.38% 4.77% 5.70% 10 Source: Morningstar. Returns as at 30-Jun-17. 1 Based on 5-year returns.

72 MONEY SEPTEMBER 2017 Make your future SUPER-LUXE

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STORY SUSAN HELY

The more the merrier By putting extra into super now you will be able to enjoy that dream lifestyle in retirement

ou can’t just hope for the Strategists, says young people want the cash best when it comes to having now to fund lifestyle, family and mortgages. “It enough money for retirement. If you start contributing is understandable,” she says. “But I encourage Yet plenty of people do. Sixty- people to make sure they’re salary sacrificing eight per cent of us don’t extra when you are 28, early on, and that they have adequate insur- Ycontribute anything extra to superannuation ance. Making contributions to superannuation and 18% count on an inheritance to fund their is essential. A lot of small business owners retirement, according to this year’s RaboDirect you pay a third of what say, ‘My business is my super’. But that’s not Financial Health Barometer survey. necessarily going to work out if your business A head-in-the-sand syndrome about funding you would have to pay relies on goodwill.” retirement is rife across every generation. If you put more money into superannuation, Gen Y (21 to 36 years) demonstrates the most you will have more income in retirement. So positive savings behaviour, with 40% making when you are 45 you need to look at ways to boost your savings. voluntary contributions to super, followed by 31% of baby boomers (52 to 70) and 25% retirement. But there are plenty of reasons START SMALL AND of Gen X (37 to 51), according to the survey. why people don’t want to make contributions START EARLY But still around 44% of Australians say into super: financial pressures from record If you don’t have much extra money, give up they don’t think they have enough money in high housing prices, stagnant wages and some regular expenses and put the savings super to fund their retirement while 55% of rising living costs. Often people think they into your fund. If you are young and have time baby boomers believe that they will run out will wait until the mortgage is paid off and on your side, then topping up your super with of money in retirement. the children are through school before they small amounts can turn into huge rewards for A common lament of retirees is “I wish I start salary sacrificing. This is common among your future. Think of it as “paying yourself had salary sacrificed more to super”. For a the self-employed and women. But they often forward”. whole lot of reasons, the super guarantee rate don’t catch up. For example, if you cooked an extra meal of 9.5% isn’t enough to fund a comfortable Jenny Brown, founder of JBS Financial at home each week, you could save $1000 a

74 MONEY SEPTEMBER 2017 If you want to boost your super be sure to visit superboosterday.com. au before September 15th. Make thepledgeandyoucouldwin$1000 to add to your nest egg. There are five prizes of $1000 to be won.

EXPERT TIP EXPERT TIP Jeff Gray, Cbus TimNewman,INGDirect IN YOUR 20S IN YOUR 30S Consolidate accounts. Each super fund Makesureyou’reintherightfund.In 1you own will charge an administration 1most cases your super is invested in fee, so consolidating your savings into just afundchosenbyyouremployer(andina one well-diversified account could save lot of cases you’ll be invested in multiple thousands over your working life. Before you funds). Check how much you’re paying consolidate, check on termination fees, that in fees, and whether your current fund youreceivethesamelevelofinsuranceand offerstheoptionsyouneed.Ifyou’renot that your employer can contribute to your surewhereyourmoneyisbeingheld,go chosen fund. to my.gov.au to search where your super is Investment options. It is important to currently invested. As an extra step, check 2understand the difference in longer-term which investment option you’re invested in. results achieved by growth options versus Most super funds offer a range of options more conservative options. After all, you with different levels of risk involved. Gen- could be talking about an investment time erally speaking, the riskier the option then frame of around 40 to 45 years of your work- thebetterthechanceforpotentiallyhigher inglifefollowedbyapotentialfurther20to returns. And if you’re turning 30, you’re still 30yearsinretirement.Timeisonyourside a fair way from retiring and therefore have here and a difference of just 1% or 2% a year plenty of time to take advantage of higher yearandover45yearsyouwouldhaveover in investment performance could amount to return but more volatile investments. $175,000 extra for your retirement. an additional several hundred thousand dol- Topupyoursuperifyoucan.Consider Superfundsofferappsthatallowfund lars or more over your working life. 2making a personal contribution. If you’re memberstomakeflexiblecontributions. Government co-contribution. For lower looking to minimise the amount of tax you Theearlieryoustartputtingextramoney 3income earners (less than $51,813pa in pay, you could consider salary sacrificing to aside through salary sacrificing, the more 2017-18), the government will contribute an help reduce your taxable income. youwillhaveinsuperbecausethepowerof additional 50¢ for every $1 of after-tax con- Get your goals in order. You should start compounding means that the more often your tribution you make to your super fund, up to 3making super a priority. It helps to have interest is earning interest the more money a maximum of $500pa. something to aim for, so setting yourself a you make. If you start contributing when you Salary sacrifice. You simply ask your goal to achieve at retirement is the best way are28,youpayathirdofwhat you would have 4boss (the payroll department) if you can to motivate yourself to invest more of your to pay when you are 45. contribute some of your pre-tax wage into time (and money) into super. your super account before you pay tax on it. As you get older and start accumulating UNDERSTAND THE Whilemostpeoplewillincura15%contribu- 4assets(likeproperty),considerinsur- TAX BENEFITS tion tax, that could still represent a saving of ance and its importance in protecting not Super is the most tax-effective way to save for up to 6%, 19.5%, 24% or 32%, including the only yourself but those who depend on you retirement, with a 15% rate on contributions. Medicare levy, depending on your marginal for financial support. Investment earnings are taxed at 15% and tax rate. Consideradvice.Let’snotforgetthe there is no tax on pension income if you are Tax-deductible contribution: From July 1, 5importantrolethatadvicecanplayin aged over 60. 52017, everyone who is eligible to make your future. Becoming financially savvy is asupercontributioncannowclaimatax one thing but taking the time to plan out SALARY SACRIFICE deductionforit.Thisthenproducesatax your future is another. That’s where a finan- The most tax-effective way to boost your saving that is identical to making a salary cial adviser can help you make a plan and savings is through salary sacrifice, because sacrifice contribution. stick with it. you are putting your pre-tax salary into your

MONEY SEPTEMBER 2017 75 INVESTING SUPER BOOSTER DAY

you how much you have already saved, your salary and when you want to retire. GOVERNMENT CONTRIBUTIONS The government co-contribution scheme rewardsyouformakingpersonalnon-con- cessional (after-tax) contributions. If you earn lessthan$51,813ayear(beforetax)andmake non-concessional super contributions, you maybeeligibleforthismatchingcontribution from the government. Ifyouearnlessthan$36,813themaximum co-contributionis$500basedon50¢from the government for every $1 you put in. It EXPERT TIP doesn’t matter whether you make small regu- Glen Macann, QInvest/QSuper lar contributions or irregular lump sums; the co-contribution is based on the total amount of non-concessional contributions you make IN YOUR 40S over a financial year. Divert your next pay rise. In the spirit of The amount the government puts in reduces 1notmissingwhatyoudon’thave,your superfund.Themoneygoingintosuperis themoreyouearn.However,youcanearnup nextpayrisehasn’tyetbeenallocatedto taxedatonly15%.Youevenmaybeableto to $51,813 and still be eligible for something. living expenses. It could be a good chance slipintoalowertaxbracket. You could also qualify for the low income to allocate it to your retirement each pay Here is an example of how it works. Johnny superannuation tax offset (LISTO). Around cycle instead. earns$90,000ayearbeforetax,excluding 3.1 million people (63% are women) receive Earmarkyourtaxrefund.Hopefully his employer’s super contribution. If Johnny theLISTO,whichhasreplacedthelowincome 2you haven’t yet spent future tax decides to redirect $10,000 of his pay into superannuation contribution. The LISTO refunds either! They can also be a relatively salarysacrificecontributions,hewillsave providesarefundofcontributionstaxfor easy source of super contribution money. more than $2000 in tax, with the extra money anyoneearningupto$37,000,uptoamaxi- It also provides an extra incentive to claim going into his super fund. mumof$500. all your deductions. But the trade-off for salary sacrificing is Low-income earners will typically receive Makeitsmallandregular.Withanoth- that you are locking your money away until around $260 on average, says Martin Fahy, 3ertwodecadesintheworkforce, retirement and cannot access it until you have CEOoftheAssociationofSuperannuation there’splentyoftimeforevenverysmall reached your preservation age. FundsofAustralia(ASFA).Around15%of extracontributions–suchasthecostofa An automatic payment plan is the best way LISTOrecipientsareaged30to39. Netflixsubscription–toreapthebenefits to save because the money is taken from your You can find the relevant information at of long-term compound returns. pay before you even see it. Ask your employ- ato.gov.au. Find some other savings. Along the er or the human resources department to 4line of a Netflix subscription, there may make the deductions. It is best to include the PERSONAL be numerous regular living expenses that detailsinyourtermsofemploymentandget CONTRIBUTIONS youcouldtightenupontousethatmoney the agreement in writing. This ensures your Ifyouhavemadeapersonalcontributionto for superannuation. Check your phone employer calculates its 9.5% super guarantee yoursuperfund,youcanclaimataxdeduc- plans, utility contracts and grocery bills as contribution on your original income and not tion.Itisavailableforanyonebetween18 a starting point. on your reduced salary. Contributions are and75yearsofagewhomakesapersonal Takealookatyourfund.It’snotjust capped at $25,000 a year. contribution, which is a big help because the 5about putting money in, it’s about To work out how much to put aside, look at average super balance of recipients is less getting value back. Check the fees, how much you want to retire on. What are your than $50,000. investment performance and investment expectations? There are plenty of calculators Fahy says about 850,000 people would ben- strategy to ensure that your fund is (moneysmart.gov.au from ASIC or superguru. efitfromtheabilitytoclaimataxdeduction, working as hard for you as you are for it. com.au from ASFA) that will give you different whichiscappedat$25,000ayear,forpersonal levels of income in retirement. Calculators ask contributions. But if you claim a deduction

76 MONEY SEPTEMBER 2017 An automatic payment plan is the best way to save because the money is taken from your pay before you even see it for personal contributions you may not be eligible for the government’s co-contribution. EXPERT TIP EXPERT TIP BONUSES Anne Fuchs, Sunsuper Jack McCartney, UniSuper While you are not permitted to salary sacrifice accrued annual leave or long service leave, you can salary sacrifice your bonus. The catch is IN YOUR 50S IN YOUR 60S that you must come to an arrangement with Combine your accounts. It can make Consolidate your super. If you’ve had your employer before you are paid a bonus, 1sense to combine all your super 1more than one job, it’s likely you have not afterwards. accounts into one – fewer fees, less paper- more than one super account. Yet having This means you must tell your employer work, one larger balance. Many super funds two, three or maybe even more could be that you will salary sacrifice part or all of your offer online services to help you find and costing you in extra fees each year. As you bonus (up to the $25,000 contributions cap) consolidate your various accounts. approach retirement it’s important to con- before you have been notified of the amount Choose the right investments. The solidate your accounts. of the bonus. However, if you want to salary 2investment option you choose can Make extra contributions. In the lead-up sacrifice your bonus after you have been noti- make a big difference to your total balance 2to retirement many people consider fied, it can be a non-concessional contribution at retirement. If you don’t make a choice, making extra contributions to increase their and come out of your after-tax salary. most funds will invest your super in a bal- nest egg. You can make these contributions anced mix of assets. both before and after tax but be aware of HIGH INCOME EARNERS Add to your super. There are a number the various annual limits on each of these If you earn over $250,000 you will pay 30% on 3of ways to add to your super on top of types of contributions. any salary sacrificed amounts. This applies the compulsory contributions from your Have you chosen an investment to only 2% of income earners. employer. Some may even save you some 3strategy? Choosing the right one for tax now or get you an added contribution your age and tolerance for risk can be an CONTRIBUTION CAPS from the government. Talk to your super important factor impacting on your balance. There are restrictions on how much you can fund or employer’s payroll department Have you got a financial plan in place? put into super. You can contribute up to $25,000 about the options. 4You’re likely to need a regular income for concessional (before-tax) amounts. This Look after your loved ones. Insurance for at least 20 years once you retire. It’s includes your employer’s 9.5% guarantee 4through super can be a cost-effec- important you structure your assets to payment. If you go over the contribution cap tive and simple way to give you and your maximise any entitlements you have and you will be taxed at a higher rate. dependants peace of mind should you die or to ensure your money will last. A qualified If you can spare the money, you can really be unable to work due to illness or injury. financial adviser can assist you with this. boost your super by making non-concessional Get some advice. Expert financial guid- Realise that super is complex. It’s (after-tax) contributions. You will usually 5ance can help you picture your dream 5important to understand the opportu- save more by investing through super than retirement and put in place the right strate- nities and possibilities. At UniSuper, we offer by investing in the same assets outside super. gies to achieve it. Most funds offer advice to our members free education seminars and The annual non-concessional contributions their members over the phone or in person, webinars to arm them with the facts needed cap is $100,000, or $300,000 using the three- often at no additional cost. to build retirement savings with confidence. year bring-forward rule. M

MONEY SEPTEMBER 2017 77 AT LARGE Ross Greenwood

A punt at the best of times Trouble at CBA and Telstra shows how hard it is for investors to get it right

f the first rule of investing is to of 7%-9% fully franked were enticing not lose money, and the second but ultimately illusory. rule is the same as the first, then Now a Telstra shareholder must why do so many of us keep break- work out how much the dividend will Iing the rules? be cut by (there will undoubtedly be Hands up, if after the past few guidance for shareholders throughout months of publicity and controversy, the year but until then it’s a guessing you’ve wondered if you should sell your game). But for that income-based Commonwealth Bank or Telstra shares? investor – already staring down a 30% Just about every person who owns cut in their income, with the possi- them, I’ll bet. ble capital loss – it’s an unenviable Notwithstanding CBA CEO Ian decision. What was that first rule of Narev announcing his departure in 15 investing? Don’t lose money? months, a 20% pay cut for the board For many investors, the decision is and short-term bonuses suspended for to hang in there and ride it out. And senior executives over allegations by if you have enough time, that might government agency Austrac that the work. All the bad news might be in bank’s systems failed to report around the market already. Or it might not. 53,700 potentially suspicious transac- You can’t be quite sure. Telstra’s big tions, nothing much happened to the problem is that, having sold off its Commonwealth share price. customer base and copper wires to Yet each breach attracts a maxi- the NBN for a reported $11 billion, it mum penalty of $18 million – a total worth punt at the bottom of it, even in the largest means it also sold off between $2 billion many times more than the bank at $966 of all companies. and $3 billion worth of profit. billion. Tabcorp earlier this year settled for So we go to Telstra shares. Here you per- It says it will give three-quarters of that $45 million after being accused of 236 simi- haps should have got a whiff of something money back to shareholders and will invest lar breaches. That’s more than $190,000 per in the past 12 months. They hit a 13½-year the rest into fresh businesses to try to breach. Apply that to the Commonwealth’s high price of $6.61 in mid-2015 – four years replenish the profit. Some big shareholders 53,000 and you come to around $10 billion – after hitting all-time lows around $2.60. It are saying “which businesses?” and “let’s a year’s profit. Put another way, it’s around rode off the back of its $11 billion settlement hope they pick the right ones”. And that 7% of the company’s market value. with the government on the NBN rollout adds risk to the share price. Can shareholders afford that? Well, and soaring dividends. The company was Just a final one: the real way to judge yes. Should something like that normally so awash with cash that it, unusually, dis- companies is to look at their return on dent the share price? Yes. So why have the tributed 100% of its profit as a dividend. shareholders’ capital employed. In the case shares barely moved? Well, that’s because Well, the past year has been anything of CBA it’s 16% (down from 18% in recent the Commonwealth’s argument is that but impressive, with the shares falling all years) and for Telstra it’s 14.7%. That’s not it committed just one breach (that was the way back to around $3.80 as I write, dividends, that’s the profit generated on repeated more than 53,000 times). One based on worries about its future growth the capital shareholders have put in. Nei- breach is $18 million, which is a far cry and a cut in its dividend policy. ther is shabby though others are growing from $10 billion or so. Telstra CEO Andy Penn, while announc- more strongly. So how does a CBA shareholder work ing the company profit, said that in the But if two of the most popular companies that one out? You’re not a legal expert who current financial year the payout ratio will in Australia have so many questions to be understands the vagaries of the Federal fall from close to 100% to between 70% and answered, heaven help you trying to sort Court. All you can do is follow the crowd 90% of the profit. The shares fell 10% on through your portfolio – and fulfilling the and hope like hell the smart money is right the spot. As with Commonwealth Bank, first and second rule of investment. in not marking down the shares. In other many people receiving low deposit rates words, for all the analysis and smarts that from their bank had piled into Telstra to Ross Greenwood is Channel 9’s finance edi- go into company research, there’s still a chase those higher income returns. Yields tor and Radio 2GB’s Money News host.

78 MONEY SEPTEMBER 2017 2016 RAINMAKER EXCELLENCE AWARDS SUPER Vita Palestrant

Deposits get a boost Every bit helps the first-time home buyer – even $6240

veryone knows first home buyers the high price of property. Still, every bit are doing it tough. Soaring property counts. As with all things super, rules and E prices, savings accounts that offer restrictions apply. paltry returns and low wages growth mean For starters, if you don’t buy a home the their efforts to get a deposit together is a savings must be left in your super until you challenge. The new First Home Super Saver retire. Should you marry someone who Scheme offers some help. already owns a house, your savings still The federal government says the scheme, have to stay in super instead of reducing launched on July 1, will boost the savings the mortgage. for a home deposit “by at least 30% com- There are also limitations on how much pared with saving through a standard you can save each year. While you can deposit account”. At the time of writing the make before-tax contributions of up to If your super fund returns are higher legislation was yet to be passed. $15,000 a year, you nevertheless cannot than the deemed rate, the surplus remains The scheme boost comes via tax breaks exceed the annual $25,000 super conces- in your account. If the fund’s returns are and a deemed earnings rate. The catch is sional contributions cap, which includes lower, the difference is made up from your you can only save up to a total of $30,000. your employer’s 9.5%. account. The deemed rate gives savers’ That’s small bickies when you consider So where’s the benefit? earnings certainty and makes it easier for The deemed earnings rate is based on the super funds to manage. CASE STUDY: HOW 90-day bank bill rate plus three percentage Individuals who are self-employed or MICHELLE AND NICK points – double that of savings accounts. whose employers don’t offer salary sacri- WOULD BENEFIT While contributions and earnings are taxed fice can claim a tax deduction on personal Michelle earns $60,000 a year and wants at 15%, withdrawals are taxed at your mar- contributions, meaning savings in effect to buy her first home. Using salary sacrifice, ginal rate less a 30% offset. come out of pre-tax income. she annually directs $10,000 of pre-tax As the case study (see box) and graph How much you benefit comes down to income into her superannuation account, show, someone earning $60,000 a year your personal circumstances. “If you’re increasing her balance by $8500 after the and contributing $30,000 over three years on the top marginal rate you get a nice contributions tax of 15% has been paid by could save $6240 more in the home scheme kicker,” says Claire Mackay from Quantum her fund. than in a standard savings account. (The Financial. “But you’re not going to be able After three years she is able to withdraw deemed rate is 4.78% compared with 2% for to put much in because if you’re on the top $27,380 of contributions and deemed earn- a savings account.) marginal rate your super guarantee [9.5%] is ings on those contributions. Her withdrawal The scheme is administered by the tax going to be pretty close to the maximum the is taxed at her marginal rate (including office, which will determine the amount company has to make.” Medicare levy) less a 30% offset. After of contributions that can be released and Even if the benefit is fairly marginal it paying $1620 of withdrawal tax she has instruct super funds to make the payments. might be a convenient way to save, says $25,760 that she can use for her deposit. Mackay. “It’s a combination of knowing Michelle has saved around $6240 more FIRST HOME SUPER SAVER yourself, knowing your own strengths and for a deposit through the government’s Amount available for deposit weaknesses, and doing the numbers to see scheme than if she had saved in a standard $40,000 what’s the best outcome. For a lot of people, deposit account. First Home Super salary sacrificing means your employer’s Saver Scheme Michelle's partner Nick has the same $30,000 payroll is looking after it for you. You don’t income and also salary sacrifices $10,000 have think about it. It’s enforced savings.” annually to superannuation over the same $20,000 To work out your savings go to budget. period. Together they have $51,520 that Standard deposit account gov.au/estimator. they can put towards a deposit, $12,480 $10,000 more than if they had saved in a standard Vita Palestrant was editor of the Money deposit account. $0 section of The Sydney Morning Herald 18-19 20-21 22-23 24-25 26-27 and The Age. She has worked on major Source: budget.gov.au/estimator Source: http://budget.gov.au/estimator/ newspapers overseas.

80 MONEY SEPTEMBER 2017 THE DEBATE

Are tax cuts the answer to help stimulate our economy?

YES NO SHANE CRAIG OLIVER JAMES Head of investment strategy Chief economist, and chief economist, AMP Capital CommSec

ow is the ideal time to it’s already running around the don’t believe that tax cuts taxes to boost economic activ- Nconsider tax cuts as part highest it ever gets as a share Iare required to stimulate ity, changes in the tax scales of an overall supply-side boost of GDP. our economy. Not that tax – more correctly, tax reform – is to the economy. While Australia Which leaves tax cuts. The cuts aren’t required in a medi- indeed a worthy aim. has avoided the much-predicted case for action here is high. um-term sense. But they aren’t Australia’s population contin- recession, for several years now The large corporate tax rate of necessary to provide a short- ues to age, thus putting greater the economy has languished 30% is above the OECD average term boost to economic activity. reliance on those in the work- with sub-par growth, poor levels of 25% and the US is heading Actually the economy is force to provide the tax revenue of non-mining investment, much lower. We risk losing cor- travelling very well at present. necessary to cover rising gov- record low wages growth and porates to overseas. We also According to the latest survey ernment spending on health and high underemployment. have a high reliance on personal data, business conditions are the social security. It’s likely this will continue tax collections and our top mar- best in a decade. The aim should be to encour- for a while yet as housing ginal tax rate is high compared Home building is solid in many age more people to enter the construction starts to decline with our neighbours, which is regions, and supported by the workforce and stay in employ- and low wages growth, adversely affecting incentive. lowest interest rates in a gener- ment. And one way to do that surging electricity prices and Ideally both corporate and ation. In fact, building activity is is to lower the top tax rate to slowing wealth gains constrain personal tax rates should be cut especially strong across Sydney 25-30 cents in the dollar and consumer spending. but the key is to do it all fairly, and Melbourne. at the same time increase the Rate cuts from the Reserve and lower income earners And while consumers GST to 15% or perhaps even Bank have done a good job of need to be big benefi- say they aren’t feel- higher. The lower tax rate supporting the economy as they ciaries – not only ing especially increases the incentive to find have put extra cash in the hands from a fairness optimistic, work or to work longer hours. of companies and consumers perspective they are still Because they retain more of and helped lower the Australian but also WHAT YOU NEED spending. the monetary rewards for their dollar from above parity, which because TO KNOW Real retail work efforts, workers then has boosted farmers, tourist they are spending have a choice about whether to operators, manufacturers, and more likely Unemployment rate: 5.6% in the June spend their wages and pay the so on. But rate cuts are getting to spend Inflation rate: 1.9% quarter higher GST rate, or save more diminishing returns. the bulk of Cash rate: 1.5% was the of their income. Government spending has any tax sav- GDP annual growth rate: 1.7% strongest in Tax cuts for business should its merits as a way to provide ings they get. eight years. be part of the tax reform a quick stimulus to the econo- All of which will So while we proposal, again to encourage my but is probably best left to help to reinvigor- don’t need the more businesses to set up and emergencies, and in any case ate the economy. government to slash embrace global opportunities.

MONEY SEPTEMBER 2017 81 SHARES STRATEGY Take it to a higher level Success hange has been a constant within the Trump White House. As I write, tensions in the have been rising between Trump and NorthKoreandictatorKimJong-un.The sharemarket president has also raised the possibility requires ofC military intervention in Venezuela. In response to such uncertainty, investors have recently better turnedtogold,atraditionalsafehaven.Inmid-August, thinking thegoldpricehadrisenaround7%overtheprevious month. And the share prices of Australian-listed gold than many miners – the likes of Newcrest (ASX: NCM), Northern company but everyone thinks it’s a great company, and people bring Star (NST) and Evolution (EVN) – followed suit. it’snot.Sothestock’soverratedandoverpriced;let’ssell.’” Buying such stocks equates to “first-level thinking”, “First-level thinking says, ‘The outlook calls for low to it when sharemarket success demands something more. growthandrisinginflation.Let’sdumpourstocks.’ BillionaireinvestorHowardMarksexplaineditwellin Second-level thinking says, ‘The outlook stinks but his book TheMostImportantThing: everyoneelseissellinginpanic.Buy!’ ” STORY GREG “Rememberyourgoalininvestingisn’ttoearnaver- HOFFMAN agereturns;youwanttodobetterthanaverage.Thus CRUCIAL INSIGHTS yourthinkinghastobebetterthanthatofothers–both Forthoseofustryingtobeatthemarket,theseare more powerful and at a higher level. Since others may crucialinsights.OneedgethatyouandIhaveover be smart, well-informed and highly computerised, you larger, “well-informed and highly computerised” mustfindanedgetheydon’thave.Youmustthinkof professionalsisanabilitytobuysmallerstocksthat something they haven’t thought of, see things they miss, they can’t. or bring insight they don’t possess. You have to react And in Swick Mining Services (SWK) I think we have differently and behave differently.” a situation combining that advantage in small stocks That background explains why “first-level thinking” with second-level thinking. The result is a speculative won’tcutitforussmallinvestors.Markssaysfirst-level propositionthatcouldbepoisedforstrongreturnsin thinking“issimplisticandsuperficial”andthatalmost the current environment. Here’s why. anyonecandoit.“Allthefirst-levelthinkerneedsis Swick provides drilling services to mining companies anopinionaboutthefuture,asin‘Theoutlookforthe in Australia, the US, Canada and Europe. Almost 90% company is favourable, meaning the stock will go up.’ ” of revenue in 2016 came from underground diamond He then differentiates between first-level and sec- drilling. Despite what it may sound like, this does not ond-level thinking using several examples: typically involve drilling for diamonds but drilling “First-level thinking says, ‘It’s a good company; let’s with diamonds. Specifically, diamond-encrusted drill buy the stock.’ Second-level thinking says, ‘It’s a good bits which take long, cylindrical core samples. These

82 MONEY SEPTEMBER 2017 Putanotherway,ifinvestorsweretopayaprice/earnings multiple of 12 at that point, the share price would be 57¢, an84%gainoveracoupleofyearsfortoday’sinvestor. And the potential upside doesn’t end there. Swickrecentlymovedto100%ownershipof Orexplore, which has developed a scanner enabling on-site analysis of core samples. Instead of trucking thesamplestoaspecialistlab–runningtherisk of the cores deteriorating or being damaged – the process can be conducted much more efficiently. TheOrexploretechnologyisalogicaladd-onfor Swick’sexistingclients.Andit’saknownquantityfor Swick, which first invested in the business in 2013 and has fundeditsresearchanddevelopmentinthemeantime. A prototype of the technology operates at the Boliden copper mine in Finland (Orexplore was founded in neighbouring Sweden). Dreamingbigger,it’spossiblethatOrexplorebecomes standardatminesallaroundtheworld.Thatkindof successwouldbenicegravyontopofthisinvestment. But it’s not necessary for things to work out well.

THE INVESTMENT STORY Part of second-level thinking is understanding thedifferencebetweena“businessstory”andan “investment story”. First-level thinkers focus on the business story while second-level thinkers look at the overall picture, taking the stock price into account. For instance, first-level thinkers are focused on the impactthatAmazon’sarrivalinAustraliawillhave onretailers.Nodoubtthisisbadnewsformanylocal retailers. But consider that many stocks in the sector have halved over the past year. These include Baby Bunting(BBN),ShaverShop(SSG),Adairs(ADH),RCG Corporation(RCG),VitaGroup(VTG),TheRejectShop samples are then analysed, typically in a lab, to help (TRS) and Myer (MYR). mining companies plan their mines more effectively. First-level thinkers are running scared and the ques- Swick’s customers mine for nickel, tin, copper, man- tion for second-level thinkers is whether that panic is ganese,zinc,leadandsilver.Butgoldminesarethe an over-reaction, at least in some cases, and therefore largestcustomersegment,makingupalmosthalfof creating investment opportunities. Swick’s revenue, and that’s where the second-level Second- Animportantcaveathereisthatsecond-levelthinking thinking comes in. canonlyeverleadtopotentialinvestmentideas.The Rather than simply buying gold or gold mining level kernel of something that might grow into a fully fledged companies, we can say that if the gold price rises further, idea once researched. then gold miners will be incentivised to mine more thinkers are Atthispoint,forme,theseretailstocksremainjust quickly, explore for new ore bodies and reconsider pre- that–potentialinvestments.Ihaven’tyetconducteddeep viously uneconomic sites. All of this will require more research.ButSwickisastockIhavefollowedformany core samples, which should equal more work for Swick. wondering years(andisownedbyportfoliosImanage).Sowhenthe In May, Swick told investors that it expects rig utili- second-levelthinkingangleofTrump-inspiredhigher sation in its key underground diamond drilling division if the panic goldpricespresenteditself,Iwasinapositiontoknow tobeabout100%byJune.Sowecanassumethatithas thattheinvestmentcasewasalreadyanattractiveone. started the current financial year on a high. over Amazon Atatimewhentheleaderofthefreeworldappears Thecompany’slargestprofittodatewas$11.3million to epitomise first-level thinking, it may pay more than in 2013 and I think it has a shot at getting close to that ever to take our own thoughts to a higher level. figure if conditions remain favourable. Perhaps not quite is an over- in2018buttheyearafterthat. Greg Hoffman is an independent financial educator, Dividing an $11.3 million profit by almost 232 million reaction commentatorandinvestor.HeisalsochairmanofForager shares on issue, we arrive at 4.8¢ in earnings per share. Funds Management. Atthetimeofwriting,Swick’ssharepriceis31¢.Sothat Disclosure: Private portfolios managed by Greg Hoffman would be an attractive price-earnings ratio of 6.5. own shares in Swick Mining.

MONEY SEPTEMBER 2017 83 SHARES MEDIA Paper profits disappear

STORY JAMES GREENHALGH

Newspapers he odd thing about Australia’s two with$US227millionfromthevalueofFoxtel.Abillion largest media companies – News Corp dollars here, a billion dollars there, and soon enough aren’t what andFairfax–ishowthey’renolonger it adds up to real money. they used to really media companies at all. Fairfax’s The legacy news and information services business newspaperbusinessisofmarginalvalue, (NIS) continues to deteriorate. Plummeting advertising be. Now the somethingT that the market has already worked out. revenues–falling10%inAustralia,forexample–explain real money Instead,itsmostvaluableassetisthepropertysales the writedowns. The division may account for $US5.1 website domain.com.au. billion in revenue but, as with Fairfax, the business is in digital Now the same thing is happening at News Corp. upon which the company was founded is becoming The difference is that the opportunity for investors less important. real estate in News is bigger and better. Taking its place is the digital real estate division, NewsCorp’slatestresultwasnotableforthe where chief executive Robert Thomson has promised $US785 million ($997 million) written off from the that earnings will soon overtake those from NIS. value of its UK and Australian newspaper assets, along Here the numbers were impressive. For the year to

84 MONEY SEPTEMBER 2017 Theresultwasalittlebelowthemarket’shighexpecta- tions. Combined with a downturn in the Asian business andconcernsaboutweakeningdeveloperadvertising in Australia as the apartment construction boom cools, REAGroup’ssharepricefell6%aftertheresult. Thisremainsanexceptionalbusiness.Andtheresult from this division hints at the opportunity. REA’s share price has soared over the past few years but News Corp’s hasgonenowhere.GivenNews’smajorityshareholding inREAGroup,itshouldeventuallycatchup. While shareholders wait, the company’s other divi- sions are doing well enough. Book publishing delivered underlyingEBITDAgrowthof9%to$201millionand in cable network programming underlying EBITDA wasflatat$127million. Pay television company Foxtel – 50%-owned by News Corp – continues to be very profitable, even though managementisstrugglingtoincreasesubscribers, whichfellfrom2.9millionto2.8millionduringthe year. The average monthly revenue per user was $86. AnddespitethestructuralchallengesNewsCorp faces, this grab bag of businesses generates lots of cash. Underlying operating cash flow (excluding legal settlements) was $757 million for the year and net cash increasedto$1.7billion.Thatmeansthere’splenty inthekittyforacquisitionsorgrowthopportunities. What about the outlook? The digital real estate business will deliver another year of strong growth inthe2018year.AtNISmanagementisfrantically cuttingcostsbutitwon’tbeenoughtopreventafurther earnings decline. There’s a strong pipeline in the book publishing division,whichwillhopefullyoffsetsomeweakness in cable network programming as higher rights costs for the rugby league contract begin to bite. Allup,webelievethemarketcontinuestounderprice thestock.REAGroupandMovenowaccountforthe vast majority of the company’s value. The legacy media assets may be eroding faster than even we expected but this has been offset by the increasing potential of June 30, 2017, underlying real estate EBITDA (earnings the digital real estate division. before interest, tax, depreciation and amortisation) REA Group should continue to perform well, even jumped44%to$US318millionasMove,theUSarm as the Sydney and Melbourne housing boom subsides, of the business, became profitable. andMovelooksverypromising. ThecompanycontinuestoinvestheavilyinMove, This grab So forget newspapers. News is all about digital real withrecentnewproductsaimedathelpingrealestate estate.Overtimethemarketshouldeventuallyrecognise agents.AlthoughmarketleaderZillowisaformidable thisfact.NewsCorphasbeenonour“buy”listfora competitor, the upside remains significant. bag of fewyearsnowandwe’requitehappytokeepitthere. The62%-ownedREAGroup(theAustralianpart of the digital real estate division, owner of realestate. businesses James Greenhalgh is a senior analyst at Intelligent Investor, com.au) produced another strong result. Revenues and owned by InvestSmart Group. This article contains EBITDAeachgrew16%to$671millionand$381million generates general investment advice only (under AFSL 282288). respectively. Net profit growth was slightly lower at 12% To unlock Intelligent Investor stock research and buy as higher amortisation and interest charges took a toll. lots of cash recommendations, take out a 15-day free membership.

MONEY SEPTEMBER 2017 85 OUTLOOKO Sarah Hunter

Choppy waters lie ahead The economy faces a number of challenges before broad-based growth returns

conomic growth over the past likely to peter out in the next 18 months has been patchy, and three to six months. This will although the fundamentals are also delay any substantial good this is set to continue for increase in wages growth until Ethe next year or so – growth is likely to be 2019-20. around 2.5%pa this year and next. Driving Growth in consumer spend- the economy forward will be exports, with ing has been largely unaffected new LNG installations coming online in so far, with households choos- Western Australia and the Northern ing to save less of their income Territory and Queensland’s to fund spending. But this can’t coalminers recovering from continue forever, and growth in the disruption caused by consumption is likely to fall to less Cyclone Debbie. than 2.5%pa over the next 18 months Tourism and educa- as households tighten their belts. tion exports have also Given the choppy outlook for the econ- come back to the party, omy, it is no surprise that business invest- helped by the fall in the ment has been patchy. We have just about Australian dollar since reached the bottom of the mining bust; the end of the mining spending by coal and iron ore miners has boom and improving troughed out but total spending will fall conditions externally, further as the Wheatstone and Ichthys pro- with short-term overseas jects are finished in Western Australia and visitor arrivals increasing the Northern Territory respectively. We by about 9% year on year for have seen a pick-up in spending by hotel- the last 18 months. Export vol- iers and others connected to tourism, but umes rose an estimated 7% in 2016-17, and by more than 10% a year nationally, with apart from this the growth in investment growth is likely to remain robust this year. the decline concentrated in apartment spending has been tepid at best. This is Governments are also doing more of the blocks and townhouses. As this feeds no surprise given the subdued pace of con- heavy lifting. NSW and Victoria are charg- through the construction pipeline, there sumer spending and residential downturn ing ahead with transport infrastructure will be a natural decline in activity, and but it does mean that it will be a few more projects – wherever you turn in Sydney with all capital city markets now in housing months yet before a broad-based recovery or Melbourne there’s a road or rail link stock oversupply apart from Melbourne in business investment takes hold. being built or upgraded – and the federal (close to balance) and Sydney (small under- So overall, a mixed bag for the next year government is also getting in on the act supply), the downturn is likely to run until or two. If the economy evolves along these with the rollout of the National Broadband the end of 2018-19. lines, the Reserve Bank is likely to stay on Network. The end of fiscal austerity in this Households are also feeling the squeeze. the sidelines until 2019-20, meaning rate year’s budget will also help, with Medicare Although employment growth has picked normalisation here will begin a full three getting additional funding and support for up since January, with the economy adding years after the US (although the Reserve small businesses expanded. 168,000 jobs since then, underemploy- Bank is a lot more optimistic about the out- But this positive momentum is set ment is still a problem and wages growth look). With US rates rising, this will lead against an incoming downturn in residen- remains stubbornly weak at just 2%pa. With to a steeper yield curve and downward tial construction activity. It is likely that inflation running at around 2%, real wages pressure on the Australian dollar, which residential construction bounced back in are stagnant for the average employee. would be a welcome additional support for the June quarter after a rain-hit start to the There is no immediate relief on the hori- the economy. calendar year but it looks as if activity zon. The downturn in the labour-intensive levels are starting to slide. construction sector will weigh on employ- Sarah Hunter is head of Australia Dwelling approvals are currently falling ment growth, and the recent pick-up is Macroeconomics, BIS Oxford Economics.

86 MONEY SEPTEMBER 2017 Roger Montgomery VA LU E .A BLE

SECTOR MARKETING Classified information

Online businesses have diverted print’s “rivers of gold”

s a small boy back in the 1970s I REA Group share price TradeMe share price Carsales share price earned $11 a week delivering papers, $70 $5.80 $14 morning and afternoon, for a news- A $5.60 agency in Melbourne’s West Brunswick, $65 $13 and to this day I cannot forget how much $5.40 I rued rainy Saturdays. You see, back then $5.20 the Saturday paper was enormous and $60 $12 heavy – thanks to the classifieds. $5.00 And back then there was no internet – $55 $4.80 $11 indeed, we didn’t even have the phone on until 1976 and our television was black and $4.60 $50 $10 white. In the 1970s if you wanted to sell $4.40 your TV, car or house, you listed it in the $45 $4.20 $9 Saturday paper. You paid by the line and SJNSJMMJ17 NSJMMJ17 MMJ17N most people were economical with their words, remembering that a three-bedroom fieds have all but dried up for the owners in New Zealand; TradeMe dominates all of house-and-land package could be picked of printed newspapers and now accrue to the above as well as second-hand goods. up for $11,000 or a $1000 deposit and repay- online monopolists or duopolists. ments of $22 a week. REA Group dominates real estate classi- Roger Montgomery is founder and CIO at How times have changed. Today the fiedsinAustralia.Carsaleslikewisedomi- The Montgomery Fund. For his book Value. rivers of gold that were newspaper classi- nates new and used auto trading locally and Able, see rogermontgomery.com.

❶ REA Group ❷ TradeMe ❸ Carsales ASX code REA ASX code TME ASX code CAR Of the more than TradeMe recently fell In a relatively mature Price $68.25 Price $4.55 Price $13.24 $7 billion spent on 7% in a single day on car market, Carsales 52wk ▲ $71.59 52wk ▲ $5.70 52wk ▲ $13.94 marketing residential real the back of a broker impresses with its ability 52wk ▼ $45.50 52wk ▼ $4.16 52wk ▼ $9.57 estate in Australia, we report that downgraded to continue to grow while Mkt cap $9bn Mkt cap $1.8bn Mkt cap $3.2bn believe an undeserving its prospects amid an maintaining impressive Dividend 91¢ Divident 16.5¢ (2017) Dividend 40.2¢ 83% goes to real estate expectation that Amazon rates of return on equity. Dividend yield 1.3% Dividend yield 3.6% Dividend yield 3% agents. Less than 10% will enter the New For 2017 revenue grew PE ratio 43.64 PE ratio 22.68 PE ratio 29.16 goes to REA Group and Zealand market after it is by 8% and EBITDA by we believe the company ■ established in Australia. ■ 4%. The core business, ■ brings more than 10% of BUY The note suggests that, HOLD excluding Stratton HOLD the value to a transaction. to compete with Amazon Finance, increased When REA announced its 2016-17 full-year Prime, TradeMe will need to come up with an revenueby13%andEBITDAby7%. profit of $228.3 million, which was up about “all-you-can-eat” freight offer that will need While profit margins were slightly weaker, 12%, the shares fell 6%. to be partly subsidised. It also suggests that a this was due to the faster growth of lower- We believe that a maturing or flat property loss of share will feed into the virtuous circle margin businesses such as Tyresales and market would bring more vendors listing; low- for Amazon and adversely impact TradeMe’s RedBook Inspect. Importantly, the Stratton er auction clearance rates and therefore longer classifieds and advertising revenues. business returned to growth in the second times “on market”, which in turn means more We don’t disagree that Amazon is likely to half and experienced a strong fourth quarter, listings at any one time; and more aggressive increase its market share in New Zealand. But perhaps leading the company to provide competition among vendors, who will pay up we note that even if TradeMe never sold a guidance of “solid” growth in 2018. to highlight their property and therefore pro- single new product again from tomorrow, its Current prices are somewhat demanding vide a higher average revenue per ad for REA. earnings before interest and tax would fall by for Carsales shares. Longer-term investors Combined, a mature property market deliv- just 13%, which now appears to be more than need to consider the impact of autonomous ers more growth for REA. factored into the share price. electric vehicles on a car classifieds business. g-17. business, 18-Au Prices as at close of

MONEY SEPTEMBER 2017 87 TTHIS MONTH Marcus Padley

Think like a Vulcan Earthlings are terrible investors: their emotions get in the way

10 STOCKMARKET No one ever tells you to sell. The best research, is to improve the probability of LESSONS THAT NEVER 6stock in a bear market is cash but, success, because nothing is 100% certain. CHANGE: amazingly, no one ever tells you to sell and Time is money. “Buy and hold” and this is perhaps one of the most important 8“set and forget” are unrealistic and If you ever find yourself standing up at lessons from the GFC. The finance indus- utopian because they breed inaction and 1your dealing desk and punching the air try is a marketing machine. It is designed denial. Inaction in the GFC cost 54.5% from in delight, it means “sell”. to get you in, not let you out. Anyone who top to bottom and in order to recover that If anyone ever says, “We have entered has ever tried to exit a managed fund will loss the market had to go up 119%. At the 2a new paradigm in equity investment”, tell you. Anyone who has ever rung up a average return of 9.5% a year, were we to be “stronger forever”, “the Chinese economy financial planner and told them they want so lucky, it should have taken us 8½ years has de-coupled from the global economy” to sell will know. The financial industry is to get our money back but so far it has been or “we have no sub-prime exposures”, three not in the business of facilitating the exit of 10 years, and we are still down 15% from stockbrokers list in a year or the ETF indus- fee-paying clients. You have to take respon- the 2007 high. It’s not the money that hurts, try creates an actively managed ETF that sibility for making the decision to sell. It it’s the time. targets a particular theme, sell! is yours to make, and the finance industry The difference between success and There is only one thing a falling share will resist you. 9failure is not what you do before you 3price tells you and it’s not “buy me”. There are no crystal balls. Tomorrow buy a stock but what you do after. Half I don’t know what it is about the Austral- 7is a blank canvas. Investment sails on this game is not picking the right stocks; ian culture but if something falls in price a sea of uncertainty. It is about probability it is getting out of the stocks that you get everyone wants to buy it. A falling share not certainty. The best you can do, through wrong. It is about avoiding losses. It is price means “sell me” not “buy me”. It’s about not cocking it up. It’s almost more technical analysis, page 1. important than getting it right. The market falls three times as fast as You have to time the market. 4it rises. An academic study into behav- 10 If we want to save ourselves 10 ioural finance once concluded that losses years of going nowhere again it is clear have three times the emotional impact of a that occasionally, just occasionally, we gain. It is a lot easier to miss out on profits are going to have to time the market. But you never made than it is to lose profits that let that not dismay you; timing the mar- you did. Fear is a bigger driver than confi- ket is half the fun. Making a judgement dence and, as Warren Buffett says, “it takes and taking a risk is why we’re here and five minutes to be fearful but you can’t get the finance industry would do well to confident in five minutes”. Stockmarkets embrace it rather than hide in the cliche rise slowly and fall quickly. You have to that you can’t time the market. react quickly to losses. In a bull market you Finally, be good to your kids. Those have time. In a bear market you don’t. kids you packed off to primary school Humans are naturally bad investors. this morning are the first generation of 5They are wired for hope, to like, to investors who will have no experience of hate. Because of that they make terrible the 2008 crash and are therefore the first investors. Investors need to think like generation since then who are capable of Spock. Be Spock. Vulcans make much bet- irrational exuberance. ter investors. They are wired to coldly pro- We will be selling them all our assets at cess the information and make a decision, the top one day. So smile and be nice. It’s us while we get confused, depressed, optimis- and them. tic, pessimistic, and worry about whether we are in loss, or profit, anchoring our- Marcus Padley is the author of the daily selves to some previous share price that is stockmarket newsletter Marcus Today. For a now irrelevant to tomorrow’s share price. free trial of the Marcus Today newsletter go None of that helps; it just gets in the way. to marcustoday.com.au.

88 MONEY SEPTEMBER 2017 YOUR GUIDE TO SUPER DATA

hedatainthesetablescompares been deducted. The table here shows 250 superannuation funds and products. Tsomeofthemostpopularsuper performanceoffunds’balancedoptions. SuperRatings takes into account risk-ad- funds. They are a mix of industry funds, Butmostsuperfundsoffermanyother justed investment performance, fees, master trusts and government funds. choices of investment mix. insurance, service delivery, education, Industryfundsaresetupbyemployer The data is provided by SuperRatings, financial planning facilities, employer associations and unions; many are a totally independent Australian superan- support, fund governance and flexibility offered publicly, some have restricted nuationresearchcompany.Itisthelead- oftheoptions.Thejudgingismainly membership(NP).Mastertrusts(corpo- ing source of superannuation information quantitative but does include qualita- rate and personal) are set up by banking, to the Australian media and is renowned tive assessment. insurance or financial planning groups. for its timely commentary and opinions Calculators, fund comparisons, fund Allperformancefiguresareafterallfees, on the various superannuation funds ratings, news and expert opinion can be chargesandtaxappliedtothefundhave available.SuperRatings assesses over found at www.superratings.com.au.

Best super funds: balanced options RANKED BY 5-YEAR RETURN 3 -YEAR 5-YEAR 7-YEAR 2017 1-YEAR FUND TYPE RANK RTN RANK RTN RANK1 RTN RANK RATING RETURN (%PA) (%PA) (%PA) HOSTPLUS Balanced Industry Platinum 13.2% 1 9.7% 1 11.8% 19.9%1 Cbus Growth (Cbus MySuper) Industry Platinum 11.9% 9 9.1% 4 11.4% 29.6%4 AustralianSuper Balanced Industry Platinum 12.4% 2 9.2% 3 11.4% 39.7%2 Industry UniSuper Accum (1) Balanced Platinum 9.6% 34 8.8% 8 11.2% 4 9.5% 5 NP CareSuper Balanced Industry Platinum 11.7% 12 8.9% 6 11.1% 59.7%3 Intrust Core Super MySuper Industry Platinum 12.2% 6 8.8% 9 11.1% 69.1%12 Industry BUSSQ Premium Choice Bal. Growth Platinum 9.8% 31 8.9% 7 11.0% 79.3%9 Personal VicSuper FS Growth (MySuper) Industry Platinum 11.2% 17 8.0% 16 11.0% 8 9.4% 6 Telstra Super Corp Plus Balanced Corp Platinum 11.4% 16 7.5% 27 11.0% 99.3%11 DATABANK Sunsuper for Life Balanced Industry Platinum 12.3% 3 8.5% 11 10.9% 10 9.0% 17 WHAT THEY MEAN Equip MyFuture Balanced Growth Industry Platinum 11.9% 7 8.3% 13 10.8% 11 9.3% 10 Energy Super Balanced Option Industry Platinum 11.7% 12 8.6% 10 10.8% 12 9.0% 14 Rank Super funds have been ranked by five-year returns. AustSafe Super MySuper (Bal.) Industry Gold 11.1% 18 8.4% 12 10.8% 13 9.0% 15 Returns are net of maximum Catholic Super Balanced Industry Platinum 11.8% 10 9.1% 5 10.7% 14 9.3% 8 fees. High balances may qualify for lower fees and thus better 10.7% REST Core Strategy Industry Platinum 11.1% 19 7.4% 28 15 9.1% 13 returns. Rankings for one-, three- First State Super Growth Industry Platinum 12.3% 4 7.8% 20 10.5% 16 8.8% 20 and seven-year returns show the performance of the particular Aon MT Corp Ess Bal. Growth Active MT-Corp Gold 9.7% 33 7.2% 30 10.4% 17 8.4% 23 fund compared with peers. HESTA Core Pool Industry Platinum 11.0% 21 8.0% 17 10.3% 18 9.0% 16 NP means membership of the Kinetic Super Growth Industry Gold 11.9% 8 7.5% 26 10.3% 19 9.3% 7 fund is restricted. Pr means performance results MTAA Super My AutoSuper Industry Gold 11.0% 20 9.4% 2 10.2% 20 7.6% 39 are preliminary. SR50 Balanced (60-76%) Index 10.5% 7.6% 10% 8.2% Returns are as at June 30, 2017. 1 Rankings are made on returns to multiple decimal points. SuperRatings rating Platinum are best value SuperRatings Indices Median Returns for money funds; Gold are good value for money; 1 YEAR 3 YEARS 5 YEARS 7 YEARS Silver, reasonable value; SR25 High Growth (91-100%) Index 14.1% 8.6% 12.5% 9.5% Bronze are below average SR50 Growth (77-90%) Index 11.8% 8.1% 11.2% 9.0% in performance and features; and Blue are bottom of the SR25 Conservative Balanced (41-59%) Index 7.2% 5.7% 7.6% 6.9% ladder. SR50 Capital Stable (20-40%) Index 5.3% 4.8% 5.8% 5.7% SR25 Secure (0-19%) Index 2.1% 2.4% 3.0% 3.4% SR25 Property Index 7.6% 9.9% 10.0% 9.6% Percentages in brackets indicate proportion of growth assets.

MONEY SEPTEMBER 2017 89 THE HOT SEAT

“We have a tendency to not push ourselves as hard as start- ups in markets such as China”

What was your first job? If you had $10,000 where During high school I was a candy bar assistant at Hoyts would you invest it? Cinemas in Sydney’s Chatswood. The job also involved Into a start-up founded by a trusted friend or colleague. cleaning the popcorn popper and hopper and then mak- I would want to bet on the opportunity to make a signif- ing choc tops in the freezer during down time. icant step-change win and to do this I think you would need to bet on a company which is doing something What’s the best money meaningful for the community and society. advice you’ve ever received? Money is worth a lot less than your personal brand and What would you do if you had reputation, so don’t make decisions that might provide only $50 in your bank account? you with a few extra dollars in the short term but will I would look to earn a little more money by leveraging my hurt your personal brand. If your personal brand is skills on Airtasker. I would focus on local tasks including tarnished, you’ll miss out on lots of opportunities. office admin and building Excel spreadsheets and mix it up with some moving jobs to get some exercise! What’s the best investment Tim Fung decision you’ve made? Do you intend to leave While not financial, I believe the best decision I’ve made Founder and CEO of an inheritance? was to work pro bono during a university internship Airtasker, a services It would be nice to leave something behind for my wife at Macquarie Bank and then again scoring a pro bono marketplace allowing Modi and our labradoodle Harvey but at the same time role as a consulting agent at Chic Management. Both people to outsource I think it’s important to invest into enjoying your life, of these time investments helped to build relationships chores and errands. He is which means something different for each person. with great people which have absolutely paid off. also a mentor at Overall, I don’t really believe in the importance of leaving Founder Institute, behind a huge personal legacy in terms of commercial What’s the worst? Sydney and was named success, so I would take a reasonably pragmatic view Not investing more heavily into US tech stocks in 2009. in SmartCompany’s of what I would need to leave behind to make sure Modi In hindsight these bets had really strong fundamentals Hot 30 Under 30 and Harvey could have a comfortable life together. and were really obvious! I believe it’s important to look entrepreneurs and at consumer-facing fundamentals – not just revenue Shoe String’s Startup What needs to happen to help growth and profitability but more importantly aspects Daily Young & start-ups grow in Australia? such as brand loyalty, product superiority and devel- Influential List in 2012. In Australia sometimes there is a tendency to not look at oping network effects. On this basis, it’s really hard to the fundamentals and concentrate on monetisation and see how the likes of Apple, Amazon and Google weren’t extracting profits before we’ve built a strong underlying going to continue to do well. platform for sustainable future growth. I think the main thing that we can improve on is having more confidence What is your favourite and, ultimately, chutzpah. We have a tendency to not thing to splurge on? push ourselves as hard as start-ups in competitive mar- I like to spend money on sneakers like New Balance, kets such as China, where competition forces start-ups Nike, Car Shoes or Alpinestars. I think the most expen- to reach higher. sive shoes I’ve purchased were a pair of Nike Air Max Zeros from eBay. They were originally released as a Tink- Finish this sentence: money er Hatfield special edition so I expected them to remain makes ... a rare find. But due to their overwhelming popularity … more money. Which is a little sad as it seems that in they’ve been released to the mainstream and you can the modern world there is quite a bit of inertia which buy a pair reasonably cheaply at the local store. Luck- hinders the poor getting a little richer and the rich get- ily, I didn’t buy them as an investment and wear them ting a little poorer – and I don’t think this represents any often, so they wouldn’t be worth much today anyway! type of meritocratic system.

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