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2018-04-01 Money Australia

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Why dowlessen
c o u l d ea l t h
your w
APRIL 2018 $7.95 ISSU
UE 210
IN 10
SEPTEMBER 25 2017 AUST $4 50
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Nic & Keithh share
their doublle joy!
Over after
Meet the woman he’s
really in love with
George finally reveals
his bundles of joy!
the secrtret
w eklyy
woman he’s
allly in love with
William Tyrrell’s
mum’s anguish
Nic & Keith share
their double joy!
eorge finally reveals
his bundles of joy!
W ll am Tyr e l’s
mum’s angu sh
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60 smart choices
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German invader takes on Holden’ ho
Is it worthy of the Commodo
Inside Toyo a’
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740kW racer
German invader takes on Holden’s home grown hero
Is it worthy of the Commodore badge?
More than forty titles available!
An army marches on its stomach, sure,
but in restaurants staf meals are about
more than mere fuel. We visit top Sydney
and Melbourne restaurants before
service to find out what’s for dinner.
“All the staff from the Grossi sites at the top of the city (Ombra,
Grossi Florentino, Grossi Grill and Arlechin) get together
at 4.30pm every day. Most days it’s an Italian meal such as
chicken on the spit, pasta or risotto, but on Saturdays we’ve
devised a roster for the chefs to each have a turn creating
a dish from their own culture. We’ve had Korean, Malay and
Vietnamese, and a couple of Italian meals and it’s becoming
a bit competitive. Sta
nourished, but sta
nourishment. A g
Guy Grossi, exec
Bourke St, Melbou
SEPTEMBER 25, 2017. AUST $4.50
Nic & Ke h share
their do ble joy!
Meet the woman he’s
really in love with
0 smart choices
for every budget
ge finally reveals
bundles of joy!
IImport Aussie!
erman invader takes on Holden’s home-grown hero
IIs it worthy of the Commodore badge?
Ins de Toyota’s fina
days as an Auss e
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with Chris’
A G bolts plates
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How to retire in 10 years –
early retirement strategies
CEO of Birdsnest
Jane Cay
An important tool to teach
children financial skills
How to retire in 10 years
Buying a home before it’s listed
$300K super dilemma
Holding onto first home
Invest in start-ups with $50
8 investing themes to act on
Take profits when you can
20 lessons from 20 years
Editor’s letter
Our experts
In your interest: Paul Clitheroe
News & views
In brief
Interview: Alan Deans
Ask the experts
Ask Paul
Smart spending
Paul’s verdict
Payments: Richard Scott
New wearable options
Pocket money: Amy Koit
10 questions answered
Banking: Effie Zahos
Family money: Susan Hely
Biz solutions: Anthony O’Brien
The debate
What if...: Annette Sampson
The challenge: Maria Bekiaris
Disclaimer: The information featured in this magazine is general in nature and does not take into account your objectives, financial situation or needs. You should consider the appropriateness of the information having regard to your own circumstances. Before making an investment, insurance or financial planning decision you should consult a licensed professional
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.
APRIL 2018, ISSUE 210
Is the “crisis” all a storm
in a teacup?
8 key themes investors
should consider
20 lessons from
20 years
Buying & selling: Pam Walkley
Buying a home before it’s listed
Affordability: Luke Harris &
Matt Bateman
Downsizing: Susan Hely
The $300k super dilemma
Real estate: Pam Walkley
Privacy notice
The hot seat
Start-ups: Vita Palestrant
Invest with just $50
Retirement: Alex Dunnin
Income stream options
Forward planning: Mark Story
8 key themes to act on
At large: Ross Greenwood
SMSF solutions: Sam Henderson
Super: Vita Palestrant
Strategy: Greg Hoffman
Smart tip from a rich lister
Intelligent Investor: John Addis
20 lessons from 20 years
Outlook: Craig James
This month: Marcus Padley Roger Montgomery
april_cmyk_nobar 2018-03-19T
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APRIL 2018 5
Fired up for early retirement
here’s an entire community dedicated
to FIRE – financial independence, retire
early. In some ways you could say that they
act and live like a cult, quietly going about their
business of sticking to insanely high saving
and abnormally low spending.
It’s a movement that is gaining momentum
but it’s not for the faint-hearted. As Susan Hely
points out in this month’s cover story, those
working towards early financial independence
typically save 60% to 80% of their salary.
Of course, our seven case studies would
strongly disagree about FIRE not being for the
faint-hearted. Pat, who plans to retire at 35,
actually flips the notion of how most of us live
on its head when he tells Susan that “I would
consider the way in which most people live
Contact us
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their lives to be extreme – paying much more
than they need to for just about everything
and spending their entire pay cheque, regardless of how large those pay cheques may be.”
Could you follow a FIRE plan? To be honest,
the answer for me would be no. For a start, I
love my job. I’m also more of a balanced player,
spending without guilt while saving for my
future. I also worry too much about how much
I may need in retirement. Will my health be
OK? Can I really live on $1 million (the investment portfolio of some of our case studies)?
What works for each of our case studies
may not necessarily work for you and me but
that’s the beauty of personal finance – it’s personal. Each of these people are forging their
own plan and sticking to it.
Letter of the month
Shop around and reap the benefits
I read with interest your article “Loyal borrowers pay a high price” (March issue).
While I’m usually the money-savvy partner in our marriage, my husband had been
nagging for years to haggle for a better rate
or switch our CBA home loan. In recent
years I have ditched loyalty on most of our
utilities as well as our insurance – and I’ve
saved thousands. For whatever reason, I
always had it in my head that it was too
hard or our loan was too small to bother (we
had less than $50,000 owing at the time).
When we were in the market for a small
investment property, I finally had the cour-
age to find a new lender and chose UBank
purely for the lowest rate, which was
3.89%. CBA’s best offer was nearly .05%
higher – and we’d had all our banking with
them for over 20 years!
We paid off our piddly loan with CBA
within nine months and moved all our banking, apart from the investment loan, to ING.
I found that it’s really not that hard; all the
barriers were in my head. The smaller players were falling over themselves to get us
on board. We became someone else’s
“new customer” and reaped the benefits!
Sandra, NSW
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Downsizer gets ready
for the big move
The countdown is on! We retire to our new unit
on the lake in 12 to 18 months.
I have been a Money reader for many years
and have gained all my frugal tips from it.
My new best friend is Sell Buy Swap. I am
amazed at the things people want and, what’s
more, the price they are willing to pay. I am
putting this money away for possible new
furnishings for my new unit.
Over many years one accumulates so
much that one does not need. I have donated blankets and towels to the homeless, I
have shared items with my family and the
rest is being sold. Looks like I will be ready
to downsize from a five-bedroom house to a
three-bedroom unit.
Terrie, Qld
Centrelink overpayment
With reference to a question put to Paul
(“Bankruptcy should be a last resort”, February), I feel that we don’t know the true facts
regarding the overpayment to Helen by
Centrelink for the amount of $30,000.
It is quite an amount for Centrelink to have
overpaid Helen and if this were the case I feel
sure Centrelink would work with Helen on a
solution. However, if Helen has made a false
I have a lot of respect for their discipline but
if, like me, you’re unsure of the FIRE philosophy, Paul Clitheroe offers his insights on how
to retire at the ripe old age of 60-plus. Whatever you do, both approaches work on the
formula of actually having a plan. As Paul
says, “having no plan is planning to fail”.
We’d love to hear your thoughts. You can
keep the conversation going at
MoneyMagAUS or If you're looking for some inspiration, our free 8-Week Savings Challenge may
be just the driver you need. According to ING,
the average level of savings that could make
us happy is a lazy $350,000. How close are
you? You can register at
Investing should be more like
watching paint dry or watching grass
grow. If you want excitement,
take $800 and go to Las Vegas.
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Effie Zahos,
Editor, Money
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statement, thereby causing this overpayment
of $30,000, then she should do the honourable thing and start paying the money back.
In fact, if the latter is the case then Helen
has been fraudulent in her claim for financial
assistance and I would find it somewhat distasteful for her to even consider bankruptcy.
Helen may not realise that her welfare
payments don’t just come out of government
coffers; it is all those hardworking people
who pay tax who are the ones subsiding
her lifestyle.
Yvonne, NSW
On page 19 of the February issue it was stated
that Kmart is owned by Woolworths but it
is actually owned by Wesfarmers.
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What is your
biggest money
fear or worry?
The Money
Chairman & chief
Paul Clitheroe
Editor Effie Zahos
Deputy Editor
Maria Bekiaris
Art Director
Ann Loveday
Heather Armstrong
Senior Sub-editors
Bob Christensen,
Debbie Duncan
Senior Writers
Susan Hely, Pam Walkley
Online Content
Sharyn McCowen
John Addis, Matt
Bateman, Alan Deans,
Alex Dunnin, Ross
Greenwood, Luke
Harris, Sam Henderson,
Greg Hoffman, Craig
James, Amy Koit, Roger
Montgomery, Anthony
O’Brien, Marcus Padley,
Vita Palestrant, Annette
Sampson, Richard Scott,
Mark Story
Simon Casson, Reg
Lynch, Jim Tsinganos,
John Tiedemann, Richard
Getty Images
National Brand &
Partnership Manager
Isabella Severino
(02) 8116 9389
Brand Executive
Melanie Savvidis
(03) 9823 6382
Carly Zinga
Advertising Production
Dominic Roy
Brand Manager
Gemma Harland
Ellie Xuereb
Susan, a senior writer at
Money for more than 10
years, says: “When I was
eight my father encouraged me to save my pocket money. I had two boxes,
one for travel and the other
for old age. I’m still fearful
of being old and poor but
having watched my own
mother live an unnecessarily frugal life I want to
enjoy my old age.”
Alex is director of research
at Rainmaker Information,
publisher of SelectingSuper. Alex says: “My fear is
not for me but for younger
people. Don’t let yourself
be frightened by things like
home prices and changing
technology. Sure, there
are big challenges but also
huge opportunities. If you
don’t seize them, someone
else will. It may as well
be you.”
John is the founder and
editor-in-chief at Intelligent Investor. John says:
“Inflation? A property crash? Not having
enough? I’ve found if I’m
sensible with money and
managing these risks,
that’s enough. Worrying
won’t stop a recession or
a market crash.”
Luke is co-founder of the
Property Mentors. Luke
says: “I don’t particularly
have any big fears or worry
about money personally.
I guess my biggest fear
about money is seeing
good people have to go
without things in life or
struggle because they
didn’t plan out their
finances properly.”
Matt is co-founder of the
Property Mentors. Matt
says: “As a professional
investor I aim to make
commercially driven decisions, not emotional ones.
I have concerns over things
like potential trade wars
and possible sharemarket
sell-offs, for example, but
I also have strategies available to me should any of
these events unfold.”
Amy is a lawyer, accountant, lecturer and the
founder of website
Amy says: “My biggest
money worry: not knowing when I am wasting
money. As the saying
goes, it’s a problem when
you don’t know what
you don’t know.”
CEO Paul Dykzeul
Chief Financial Officer
Andrew Stedwell
Commercial Director
Australia Paul Gardiner
Syndication inquiries:
ISSN 1444-6219
winning on the pitch was one
thing, watching my investments
score is even better.
– ian healy
Realise your dreams with
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Information Booklet should be read in full, particularly the risk section, prior to lodging any application. Investments involve risk which can lead to loss of part or all capital. Investments in Trilogy Enhanced Cash are not
bank deposits and are not government guaranteed.
Treat it like a
business, because
having no plan to
fund retirement
is planning
to fail
ight, we need to carry on from
last month. I don’t want to waste
too much space repeating that
column but in summary we were looking
at how much you need to be financially
independent. The key issue is to take a
look at how you would want to live and
put an annual cost on it. I looked at a very
comfortable $100,000 a year but only as an
example. What you plan to spend when you
stop work is very personal to you.
Whatever the annual amount you project you will need, multiplying by 17 at
around age 60 to 65 will do the trick. So for
$100,000 a year you will need $1.7 million
in investment capital; $50,000 would need
$850,000. The investment return numbers I
used were a historically realistic 4% to 5% a
year above inflation.
Another challenge was whether you wanted to leave anything at your death – your
money less inflation, or your money with
inflation. Pretty obviously you need much
less capital if you are happy to run it down
to zero. The aged pension would cut in to
help out here. My experience is that most
people are happy to aim to leave some cash
and a home. Trying to leave everything you
have built up, plus inflation, is a pretty big
task. Using a conservative long-term investment return projection, to do this you could
really only spend $40,000 to $50,000 a year
per $1 million of investment capital.
Anyway, these issues are for you to
ponder. Once you have worked out how
much you will need to spend at a date in
the future when you want to be financially
independent, multiply it by around 17 and
you have a target. Let me stress, your target
must be realistic. In an income sense, your
home is a liability, not an asset. It costs you
to live there. A basic car, according to our
motoring bodies, will cost you around $200
a week to run, maintain and in depreciation. That is $20,000 for two cars.
A prestige car costs close to $400 a week.
So don’t decide you will need $50,000 a
year to be financially independent if you
and your partner both have a flash car.
There goes $40,000 a year already! Also,
it does not cost $50 for you both to eat out,
with wine. Your golf club fees do count
in your planned spending. So does health
care. Yes, manicures, haircuts and shoes
also count. As does Foxtel.
Despite increased blood pressure, you
will soon have worked out your projection for spending in the future, at a time
in your life that you nominate. For those
of you near my age of 62, a shortfall in the
amount of capital needed to fund financial
independence will be very common. The
solution, of course, is to cut your target
spending, or do what most of us do and
work longer if you are able.
A few decades ago many of my mates
were rambling on about retiring at 55. At
that stage, I knew I would still have kids
at school and university, making it highly
unlikely. The reality is that none of my
mates stopped work at 55. Quite a few of
us have gone part time with our current
employer, or picked up new part-time work.
As we approach our mid 60s, a few have
retired – mainly those with the older-style,
If there is a shortfall
it’s better to know now
rather than later
wonderful government defined benefit
pension funds.
A quick look at the website “Death
Clock” gives me over two decades, and my
wife over two-and-a-half, so we need our
money to last. Winning the lottery would
be helpful but is statistically unlikely, so it
seems to me that the only options if there is
not enough capital are to plan to spend less
or work on.
If you are in the age group a decade older
than me, this information is pretty useless.
The opportunity to work becomes harder
due to age and health and our businesses
failing to embrace older workers. Around
my age I do think there is a fair bit that can
be done in terms of reviewing our annual
spending, now and in the future. You may
not be at all happy with me asking you to
put hard numbers around your future life-
style but if there is a shortfall better you
know now rather than later.
For you younger readers, there is a lot
you can do. Most of us throughout our “mid
life” will be way short of the capital needed
to allow for us to be financially free. I know
that I was in my 30s, 40s and early 50s.
With three kids and a mortgage, the future
target that my wife and I hoped to reach by
60 looked very distant indeed. Clearing out
the mortgage was huge for us – our savings
popped up by thousands of dollars a month.
A variety of good and bad things happen
to us as we travel through life. Ill health,
redundancies, and divorce can all take their
toll. But then again, inheritances happen
to many people. In our case, our financial
target was met when we sold our business.
That was never built into our plans. With
my partners, we started the business in 1983.
Obviously we hoped it would do well but the
sale of a business decades after you start it
is really hard to plan for. So we always had a
strategy to meet our financial goals by using
our surplus cash flow to reduce debt and
build assets. I suggest you do the same.
It is pretty easy to work out how much
you will need in the future. You can use
this to come up with a capital target. You
can then build a plan to get you from where
you are today to your target. As with any
other business plan, you will need to revise
it, you will have your ups and downs, but
having no plan is just hopeless.
As the old saying in business goes,
“having no plan is planning to fail”. I wish
I could give all readers a magic pill that did
this for us but like anything else that looks
too good to be true it will be a scam. I just
ask that you treat yourself as a business
and have a plan to succeed.
Paul Clitheroe is Money’s chairman and
chief commentator. He is also chairman
of the Australian government’s Financial
Literacy Board and a best-selling author.
Beware the consumer
credit insurance rip-off
The pokies have a better payout ratio than this product
t’s Saturday afternoon
and you’re celebrating the
purchase of your dream car.
You were able to stitch up the
financing on the spot. Along
with it you bought some
insurances – one for tyres and
rims, one to extend the warranty
and something called CCI. They
were all rolled into the loan.
You can see the problem:
months spent choosing the car,
a morning spent on Canstar’s
website checking car loan
interest rates and zero minutes
spent researching CCI.
CCI is consumer credit
insurance. Most of it is sold
when you take out a car loan,
personal loan or credit card.
It is sold by car dealerships,
banks, credit unions and building
societies. It is bought without
thought by consumers caught
up in the excitement of getting
“approval” for the car or loan
they wanted.
It is meant to cover your
repayments if you lose your job
or can’t work due to illness. Like
all insurances, there are terms
and conditions and exclusions.
Chances are the deal isn’t
great. Yes, some people make
claims but the Productivity
Commission, which is looking
into competition in the financial
system, estimates the payout
ratio is 21¢ to 28¢ in every dollar
of premium. The pokies pay
out better! By comparison, the
payout ratio for car insurance is
83¢ to 98¢ per dollar.
A huge number of policies
have been sold to people who
were never eligible to claim
or who became ineligible but
kept paying. The watchdog
ASIC estimates that 257,000
consumers will receive refunds
amounting to $122 million for
this reason!
There is a proposal for a
deferred sales model that will
not allow CCI to be sold until
four days after the loan is made.
It’s welcome, as consumers will
think twice; providers will see
sales plummet.
ASIC and the Productivity
Commission have investigated
the product, and it’s on the
banking royal commission’s list.
Interestingly, Commonwealth
Bank withdrew its product in
the week leading up to
the commission.
Canstar lists 69 brands of
car and personal loans on its
website and all but nine say
they provide CCI. We expect
that number to fall.
Steve Mickenbecker,
Canstar’s group executive,
financial services
Tuesday, April 10
NAB business confidence
Thursday, April 12
Westpac consumer
confidence index
Thursday, April 19
Unemployment rate
Tuesday, May 1
RBA interest rate decision
Tougher data law needed
ustralian businesses must
notify their consumers when
a data hack, security threat or leak
has occurred at their organisation,
now that the Notifiable Data
Breaches amendment has become law.
Until now, organisations have been able to keep
security threats a secret. Now they will be under
a legal obligation to disclose all breaches to the
Office of the Australian Information Commissioner
within 30 days.
It’s a huge win for consumers but it is still not
enough. Businesses should be doing more to
secure their customer data. In my opinion the new
law is not stern enough and is simply paying lip
service to the problem. It is vague and a lot of it is
still open to interpretation for the businesses.
It remains to be seen whether businesses
get their act together but you wouldn’t want to
deal with any organisation that has leaked your
personal information.
As a customer you also need to be more vigilant
about your data security. Every time you fill in a
form online or manually, think about how that
information is going to be used by that organisation.
So the good news is that they will now be held
accountable; but more could be done.
Emy Carr, managing director, EC Integrators
Woolworths has scrapped the
expiry date on gift cards from
March 31. This comes just after
the NSW government introduced
a mandatory minimum expiry
period of three years for gift
cards and gift vouchers sold to
consumers in NSW. Let’s hope
other retailers follow suit.
The Victorian government has launched
HomesVic – a pilot shared-equity
scheme for first-home buyers. HomesVic
will take a proportional beneficial
interest of up to 25% in the property.
It is available to those with incomes
of up to $75,000 for singles, or up to
$95,000 for couples or families. Buyers
will need at least 5% deposit from
genuine savings and will have to pay for
“acquisition costs” such as stamp duty.
Call 1800 290 780 for more info.
A number of new exchange
traded funds have hit the market.
BetaShares and Legg Mason have
teamed up to introduce two new
income-orientated active ETFs
(ASX: EINC and RINC). VanEck
has launched an international
sustainable equity ETF (ASX:
ESGI) and is set to launch the
first smart beta emerging
markets ETF on the ASX.
Bitcoin is here to stay
o call cryptocurrencies a hot
topic would be an understatement. Bitcoin prices soared
6000% between 2015 and 2017
although at the time of writing
they have more than halved from their highs.
But cryptocurrencies are here to stay, according to everyday Australians at least. The recent
explosion in interest prompted Investment Trends
to investigate how investors truly view the role
of digital currencies. While our large-scale online
survey is ongoing, thousands have already shared
their thoughts.
Preliminary results reveal a positive sentiment.
There is strong belief in the power of
blockchain technology to facilitate greater ease in payments and transactions
but not without a greater degree of regulatory oversight. While many Australians believe that cryptocurrencies are
currently overvalued, most agree that
they will grow in importance over time.
While bubbles come and go, innovation and progress are inevitable. Australians believe cryptocurrencies are here to
stay, in one form or another.
Recep III Peker, research director,
Investment Trends
This is the difference between the highest
(5.73%) and lowest (3.52%) standard variable
rates available for owner-occupiers paying
principal and interest (P&I) during February,
according to Canstar. The average rate was
4.45%pa. Investors with a P&I loan paid
on average 4.91%pa while those
with an interest-only loan
paid 5.17%pa.
Jamie Pride, Wiley, RRP $29.95
ou often hear the scary statistics
about how many start-ups fail in the
first three years. If you’re thinking about
taking a risk and going out on your own,
then it’s important to give yourself the
best chance of success.
Author Jamie Pride is an entrepreneur
and venture capitalist with more than 20
years’ experience in start-ups. He identifies the 10 main reasons why start-ups fail,
looks at the myths surrounding start-ups
and outlines the “Hollywood Method” for
success, which is based on the formula
Hollywood uses to make movies that
are hits around the world.
10 readers can win a copy.
In 25 words or less, tell us what you think
the secret to a successful start-up is?
Send entries to Book of the Month, Money,
GPO Box 4088 Sydney, NSW 2001 or
email Don’t
forget to include your name and postal
address. Entries close May 2, 2018.
t’s a shame for
good food to go
to waste. Ian Price,
CEO of Y Waste, has
that in
Australia retailers throw away
over 3 million tonnes of processed/edible food every year,
80% of which is thrown out
because it’s simply not sold.
This relatively new app is a
win-win for restaurant and cafe
owners as well as consumers
because it allows consumers
to buy food that would otherwise go to waste for a
discounted price.
You can search for food
that is available near you and
it could be a good way to pick
up a cheap dinner after work.
Obviously, as it is “surplus”
food, you can’t pick from the
menu and you’ll have to settle
for what is available at the time.
Food is paid for via the app
and you are given a specified
pick-up time.
Act quickly on
instant write-off
he instant asset write-off has been a
boon for small businesses across Australia, but with the tax break set to become
much less generous from July 1, 2018 there’s
limited time left to take advantage of it.
As a reminder, the law allows businesses
to obtain an immediate tax deduction for the
whole cost of capital items purchased for
use in their business provided the cost of
the asset is less than $20,000.
That could include computer equipment,
office furniture, plant and machinery or even
a new car.
Only small businesses can claim the
deduction. So to qualify, your business
needs to have an aggregate annual
turnover of less than $10 million.
Only assets valued at $20,000 or less
qualify for the instant deduction. So if the
value of the asset is greater than $20,000,
the asset must be depreciated over a number of years.
To claim the full deduction, the asset has
to be used in the business. If there is personal use of the asset, such as a computer that
you use privately as well as in your business,
the deduction needs to be pro-rated to
reflect this.
From July 1, the cost threshold for the
instant asset write-off will fall from $20,000
to $1000. So if your business needs to invest
in capital assets, make sure the purchases
are made by June 30.
SNAPSHOT Super’s long-term performance
balanced fund over
the past 10 years
Growth of $100,000 balance since the
sttart of the bull market
Dispersion between best and
worst performing funds over 9 years
SR50 Growth (77-90) Index
SR50 Balanced (60-76) Index
SR50 Australian Shares Index
SR50 International Shares Index
09 10 11 12 13 14 15 16 17 18
Source: SuperRatings
Best-performing balanced fund
Worst-performing balanced fund
09 10 11 12 13 14 15 16 17 18
Reasons to
Invest with
For over 65 years we have
built wealth for investors.
Consistent performance and recognised
Australia’s Best - 9 years in a row. #
Connect with Australia’s Best
call 13 80 10 or visit
La Trobe Financial Asset Management Limited ACN 007 332 363 Australian Financial Services Licence 222213 Australian Credit Licence 222213 is the issuer
and manager of the La Trobe Australian Credit Fund ARSN 088 178 321. It is important for you to consider the Product Disclosure Statement for the Credit
Fund in deciding whether to invest, or to continue to invest, in the Credit Fund. You can read the PDS on our website or ask for a copy by telephoning us.
La Trobe Financial’s 12 Month Term Account was judged 2018 Best Mortgage Fund by Money magazine.
*Returns on our investments are variable and paid monthly. Past performance is not a reliable indicator of future performance. The rates of return from the
Credit Fund are not guaranteed and are determined by the future revenue of the Credit Fund and may be lower than expected. Investors risk losing some
or all of their principal investment. An investment in the Credit Fund is not a bank deposit. Withdrawal rights are subject to liquidity and may be delayed or
suspended. Visit our website for further information.
ON P44-59
FOR $10,000
Summerland CU
Equity Plus Unsecured
6.22%pa advertised
rate, $60pa ongoing
fee, $175 establishment
fee; Liberty Financial
Personal Best 7.99%pa
advertised rate, $195
establishment fee;
MOVE - People Driven
Banking 8.97%pa
advertised rate, $195
establishment fee.
Source: Canstar as at
15-Mar-18, ranked by
maximum interest.
Excludes peer-to-peer
How to beat the
overseas sting
f you have bought something
from an international
site, withdrawn money at
an overseas ATM or made a
purchase in another country,
then you will have been
hit with an overseas
transaction fee. Almost
half (49%) of all
Australians have been
charged an overseas
transaction fee in the
past 12 months,
according to
Almost half
research by HSBC.
With HSBC’s
new Everyday
Global account
dollar, US dollar,
you can avoid
of all Australians have
British pound,
these fees.
been charged an overseas
transaction fee in the
Euro, Japanese
The account
past 12 months
yen, Chinese yuan,
lets you bank in
Canadian dollar,
10 currencies with
Singapore dollar, Hong Kong
no overseas charges
dollar and New Zealand dollar.
and fee-free ATM withdrawals
HSBC says the account will
around the world, and no
self-select the correct currency
minimum monthly deposits
to use and revert back to the
or transactions. It’s like an
Aussie dollar account when
everyday account and travel
there are insufficient funds
money in one.
in the nominated currency,
ING’s Orange Everyday
without charging an overseas
account is a similar product,
transaction fee.
offering fee-free international
Watson warns that you need
transactions provided you
to think about foreign exchange
deposit at least $1000 a
rates if you’re transferring
month from an external source
back and forth. “If you transfer
and make five or more card
Australian dollars to US dollars,
purchases in a month.
don’t spend it all on your trip
Mitch Watson, Canstar’s
and then transfer back from US
group manager for research
dollars to Australian dollars, you
and ratings, says that while the
could end up losing the foreign
HSBC account is not the first
exchange margin on both
in the market to offer fee-free
transactions,” he says.
transacting while overseas, it
“Also, the trade-off with
is the only one that also gives
locking in the exchange rate is
you the ability to buy and store
that you could end up missing
multiple currencies in the
out on a more favourable
account, providing consumers
exchange rate down the track
the additional benefits afforded
should the Australian dollar
to travel money cards users.
appreciate. But this can go
The currencies on the
both ways.”
account include the Australian
There’s hope after
the warranty
period ends
t might surprise you to hear that just
because a product is out of warranty
doesn’t mean you don’t have a case to
take it back for repair or replacement if
it breaks down. “Many consumers often
assume that the so-called warranties
they are offered by a retailer are their only
protection. This is not true, as consumer
guarantee rights are separate from any
warranty that comes with a product,”
says ACCC acting chair Michael Schaper.
“The length of time these rights apply
is also unrelated to the manufacturer’s
warranty period.
“For example, if you buy a new TV that
breaks down after the manufacturer’s
warranty expires, you may still be entitled
to a remedy under your consumer
guarantee rights, including a repair,
r l
rr f
Simply take the product back to the
retailer and explain the situation. And
don’t listen to them if they say you need
to take the faulty product back to the
manufacturer. “If you return a faulty
product to the retailer you purchased
it from, they must provide you with a
remedy and cannot direct you to the
manufacturer instead,” says Schaper.
“One common tip we recommend is
saying the three magic words, ‘Australian
Consumer Law’, to let retailers know you
understand your rights. This can help
resolve an issue quickly.”
Visit for more details on
your consumer guarantee rights.
Apartments also feel the zoning
effect. In Sydney it’s equivalent to
an extra $399,000 on top of the
marginal cost while in Melbourne
it is $120,000 and in Brisbane it
is $110,000.
oning restrictions are
driving up house prices by
as much as 73%, according to
new research by the Reserve Bank.
Its report The Effect of Zoning on
Housing Prices says that although
zoning regulations provide benefits,
they also restrict housing supply and
hence raise prices.
Zoning restrictions added
$489,000 to the price of a detached
house in Sydney in 2016, which is
effectively 73% above the marginal
cost of supply, according to the
report. The number is $324,000 in
Melbourne, $159,000 in Brisbane
and $206,000 in Perth.
Master Builders Australia, says its
research has shown that reforms to
these “restrictive and inefficient”
zoning laws could improve
supply by more than 20,000 new
dwellings over the next five years.
Master Builders Australia has
called on governments at all levels
to reform their planning and zoning
regulations to improve housing
push up
The authors of the Reserve
Bank note, though, that these figures
are not the amounts by which
housing prices would fall in the
absence of zoning.
Denita Wawn, chief executive of
and land affordability and reverse
the trend of deteriorating home
ownership rates in Australia.
Underperformer’s sunny outlook
risbane is well placed to take over as the bestperforming capital city housing market over the
next five years, according to CoreLogic.
There are a number of reasons this is likely and
one is that the Brisbane market has previously
underperformed. “Dwelling values across Australia’s
third largest capital city have risen at the annual rate
of 1.2% over the past decade. That’s half the pace
of inflation and dramatically lower than Sydney or
Melbourne, where annual gains have averaged 6.3% and
5.9% over the past 10 years,” says CoreLogic.
Although this isn’t the only reason, CoreLogic says the
relative gap in pricing between Australia’s largest cities
is likely to be one of the factors that attracts housing
demand to the city.
It says other reasons why Brisbane is likely to be a
strong performer include:
Households aren’t as affected by affordability as
significantly as they are in the larger capitals. In Sydney,
the dwelling price-to-income ratio is 9.1 compared with
7.5 in Melbourne and 5.9 in Brisbane. Similarly, the
proportion of gross annual household income required
to service an 80% loan-to-valuation mortgage is now
48.4% in Sydney compared with 39.9% in Melbourne
and 31.7% in Brisbane.
A variety of economic and demographic factors are
likely to support improving market conditions across
Brisbane, including economic and demographic trends
as well as a worsening performance in Sydney and
Melbourne, which will provide a lower relative
benchmark for Brisbane.
Population growth from both overseas and interstate
is ramping up into Queensland, with most of this growth
being experienced in the south-east corner. Net overseas
migration remains well below that for NSW and Victoria;
however, it’s the highest in just over three years. Net
interstate migration is where Queensland is demonstrating
its pulling power, attracting the highest number of
residents from other states in 8½ years.
Freedom Lend
3.84%pa, 3.58%pa
AAPR1, $20,000 max
lump sum payment;
Pacific Mortgage
3.82%pa, 3.61%pa AAPR1,
no additional repayments
allowed; Australian
Unity 3.79%pa, 3.87%pa
AAPR1, no limit on
additional repayments;
ING 3.89%pa, 4.04%pa
AAPR1, $9999 max lump
sum repayment.
Source: Canstar as at 15Mar-18, ranked by AAPR.
AAPR on $150,000 loan
for 25 years.
Plus 11.2%pa
3-year return;
AustralianSuper High
Growth 10.3%pa 3-year
return; Sunsuper for
Life Growth, 10.1%pa
3-year return; Catholic
Super Moderately
Aggressive 9.8%pa
3-year return; MTAA
Super Growth 9.7%pa,
3-year return.
Source: SuperRatings as
at 31-Jan-18.
Cash flow of
will be hit
ill Shorten’s proposal to
scrap cash refunds of excess
franking credits if he becomes
prime minister has caused quite a
bit of outrage on behalf of retirees
who would be hardest hit. Money
contributor Sam Henderson went
as far as calling Shorten a goose on
national TV.
“Regardless of the rights or
wrongs of the way dividend
imputation now works, if the
proposed change was introduced,
many retirees will suffer a
significant drop in their personal
cash flow,” says Jonathan Philpot,
wealth management partner at
HLB Mann Judd Sydney. He warns
that the change in the way franking
credits are treated is more likely to
be felt by low-income retirees than
anyone else.
“With expected future earnings
for pension accounts of about 6%
to 8%, any change in dividend
imputation will translate into a drop
of nearly 10% of future earnings
over a lifetime. This will eat away at
pension balances at a faster rate,”
says Philpot.
“This is more significant for
retirees with lower pension account
balances than those with the
larger balances, as they are more
likely to be withdrawing above the
minimum pension requirements.
Their pensions will now erode even
more quickly.”
Philpot adds that retirees who also
have Australian share investments in
their own name will be “double hit”.
“Those pensioners who are
mostly reliant upon the age pension,
but also have a proportion of their
wealth in Australian shares, will feel
the impact of any loss of the tax
refund more than most,” he says.
“As it is, the tax return they now
receive each year typically helps
with an annual holiday or some other
major expense.”
It’s a waiting game. Time will tell if
Shorten wins the election and if the
proposed changes become a reality.
Super ideas for women
Top of the returns
Average historic yield, Dec 2017
here are plenty of good
things about Australia’s
superannuation system but
there’s still a lot of room for
improvement. Women suffer in
particular and the rise of the gig
economy also poses a threat to
retirement incomes.
A new report, Super Ideas:
Securing Australia’s Retirement
Income System, from the John
Curtin Research Centre and
Vision Super offers seven key
recommendations to enhance
super for everyone. The
recommendations are:
Incrementally increase the
super guarantee (SG) rate
from 9.5% to 15% by the
end of the next decade.
Source: InvestSMART Australian ETF Report,
December Quarter 2017
• Remove the $450 monthly
threshold for paying staff super,
or introduce a pro-rata model.
Working women (and men)
should by law be paid the full
SG for the first six months of
paid parental leave.
A zero-tolerance approach
towards employer noncompliance in payment of
compulsory contributions.
Governments to desist
from undermining the crucial
role played by industry super
Reduce super account fees.
Incorporate the study of
financial literacy, including
retirement incomes, into our
national school curriculum.
World’s biggest
dividend payers
Miners’ profits
boost payouts
investors are reaping the benefits of
rising dividends, with pleasant surprises in the latest reporting season from
Star Entertainment, Alumina, ASX, Woolworths, BlueScope Steel and Perpetual.
Dividends paid by Australian companies were up 9.7% – to $53.3 billion – in
the 2017 calendar year from the year
before, according to Janus Henderson’s
global dividend index.
One of the main reasons for the jump
was the strong performance of the
mining companies, with rapid improvement in their profits and balance sheets.
“Between them, BHP and Rio Tinto added $2.9 billion, accounting for two-thirds
of all Australia’s dividend growth,”
says Henderson.
Among the high-paying Australian
banks, which account for more than half
of all Australian dividends, only the Commonwealth increased its year-on-year
payout slightly. Henderson says that no
Australian company in its index cut its
dividend, though QBE Insurance further
reduced the tax credit it was able to
provide, meaning that investors received
less year-on-year after tax.
The Australian trend was mirrored
around the world as strengthening economies and rising corporate confidence
pushed dividends to a new high in 2017.
They were up 7.7%, the fastest rate of
growth since 2014, reaching a total of
$1.252 trillion.
Every region and almost every industry
saw an increase. Records were broken in
11 of the index’s 41 countries, including
the US, Japan, Switzerland, Hong Kong,
Taiwan and the Netherlands.
Royal Dutch Shell
China Mobile
Exxon Mobil
HSBC Holdings
China Construction Bank
Verizon Communications
Johnson & Johnson
General Electric
Commonwealth Bank of Aust
Wells Fargo
JP Morgan Chase
Procter & Gamble
Source: Janus Henderson global dividend index
Robotics fund HOLD QBE Insurance
spreads risk
The Intelligent Investor: Graham Witcomb
Advances in robotics, automation
and artificial intelligence (RAAI)
are evolving rapidly and investors
are weighing up whether to include
RAAI companies in their portfolios.
Their scope crosses almost all
areas of life and we are just at the
beginning, with the industry set to
grow from $200 billion today to
trillions by 2025.
But selecting a single company
to invest in can be fraught with
risk. One way to reduce the risk,
while still gaining the exposure,
is to consider a diversified
robotics and AI fund.
There is one listed on the ASX,
the ETFS ROBO Global Robotics
and Automation ETF (ASX ROBO),
which invests in about 80 companies across the sector in equal
weights, providing good diversification in an industry where backing a winner is very difficult.
Kris Walesby, CEO of ETF
Securities Australia
up to
Source: Intelligent Investor;
price as at 28- Feb-18 close of business
HOLD at $10.22
his reporting season was never
going to be pretty for QBE, Australia’s largest insurer and one of the top 20
in the world.
QBE operates in 37 countries and
many of them were affected by unusually
large natural catastrophes: hurricanes in
the US, earthquakes in Mexico, wildfires
in California and cyclone Debbie in Australia. QBE is still tallying the final cost
but so far it has recorded catastrophe
losses of $US1.2 billion in 2017 compared with $US439 million in 2016.
Gross written premium (an insurer’s
measure of revenue) rose a paltry 1% to
$US14.2 billion, with all regions posting
lacklustre numbers. QBE’s local oper-
ations increased premiums by 6% but
lower volumes meant that overall gross
written premium was down 1% after
adjusting for currency swings.
QBE’s Latin American division had
a poor year. It is QBE’s worst performer
in terms of profitability: the insurance
margin fell from a meagre 6% in 2016 to
negative 7% due to higher than expected claims. QBE has agreed to sell the
Latin American operation to Zurich for
$US409 million, which should allow
management to focus on core markets.
QBE trades on a forward PE of around
15 based on consensus estimates for
2018 earnings and a partially franked
yield of 2.5%. We’re sticking with HOLD.
Sandon Capital
Investments (SNC)
94.29%; PM Capital
Asian Opp. Fund (PAF)
48.88%; CMI (CMI)
39.81%; Platinum Asia
Investments (PAI)
39.29%; Arowana
Contrarian Value Fund
(CVF) 33.07%.
Source: ASX as at
A smart
s towns go, Cooma distinthe internet was for nerds and boys and
guishes itself in several
that no creative career could come out of
ways. It’s the gateway to
it. I quickly learned it would transform the
the Snowy Mountains ski
way we did everything. Particularly in the
Jane Cay
fields, the base for the
way that we did business but also the way
CEO and founder of Birdsnest,
nearby Snowy hydro-electric scheme
we learned, shopped, dated and the way
and it lies one hour south of Canberra
we were educated.”
an online fashion retailer. Age 40.
along a straight, smooth highway.
Her scholarship required that she
Lives in Cooma. She and her husband
Farming is big. So, too, is online shopstudy IT, and e-commerce and marOli have three children.
ping. We’re not talking about isolated
keting subjects provided a spark.
country folk eager to buy the latest
The internet’s potential to change
gear from Amazon or Net-a-Porter.
business became a particular focus.
We’re talking their own home-grown
After graduating she was hired by
Business philosophies are to spend money to
internet star, Birdsnest, selling its fashIBM for its e-business consulting
make money, you can’t sell out of an empty
ion to the world.
team. She was by far the youngest
barrel and, if generous, good things will
It seems incredible that one of Ausmember of a swat team that worked on
come. First job, at 12, was cleaning at
tralia’s major online retail successes hails
problems that clients didn’t even know
Toyworld on Saturday mornings.
Pastimes are limited to yoga
from sheep country and employs nearly
existed and where no known solution
and skiing.
150 townsfolk. Just one person, its buyer
existed. Anything goes, in other words.
and production manager in Sydney, lives
Hospitality was a focus, working out how
elsewhere. Birdsnest is one of the largest
supply chains would be impacted by the
employers in a town with a population of
an accountant servicing farming clients.
internet. Macquarie Bank was also a cussome 6700, and it plans substantial growth.
Cay saw the hardship that country folk
tomer, developing an intranet before the
“We are lucky because we are here,” Jane
endured when, as a girl, her family moved
bank knew it needed one.
Cay, CEO and founder, says about Cooma.
to Moree and Dubbo as her father set up his
Five years on, Cay’s wedding to a Cooma
“While we work hard at our culture, the
business. “My mother grew up on a farm,
sheep farmer, Oliver, led a shift to IBM’s
other part is there’s a great lifestyle. To live
and I thought I am never going to marry a
Canberra office. She commuted from the
in place like this and come into a workplace farmer. It looks so hard, financially, emofamily farm.
that feels international and creative and
tionally, physically. I remember saying that
Cay didn’t take long to buy a local shop
innovative is what makes it.”
to mum. The city held all of the opportunicalled High Country Outfitters. “I looked
A lively, upbeat workplace is important.
ties career-wise, I thought as a naive teenat Subway franchises and got a long way
But there are other attributes. One is the
ager. I saw the bright lights of Sydney and
through that process. There were lots of
said, ‘I’m off.’ ”
location. Another is that Cay jumped
different types of businesses that we ran
First step was a commerce degree at the
online in 2008 when most other Australthe numbers on but this one was estabUniversity of NSW starting in 1995, just
ian fashion retailers were still focused on
lished, turning over a good amount and
as the internet age was emerging. “People
their big city stores. It helps to know her
had a customer base.” It sold RM Williams
were getting their first email addresses. I
boots, saddles and workwear but 60% was
couldn’t turn a computer on, and thought
Born in Cooma, her father Michael was
women’s fashion. Birdsnest came along
Fact file
“I initially
thought the
internet was
for nerds ...
but I quickly
it would
we did”
Happy shopping ... Cay says
word of mouth is a strong
marketing tool.
“We have to make sure
we understand what
our customer wants,
then do it better than
anyone else”
another five years after that. If you wanted
to buy Esprit, we were the only ones. We
were an official stockist.”
Cooma’s proximity to Canberra, 116km
down the Monaro Highway, has a big part
to play too. It’s easy to jump to the conclusion that the logistics of running an online
business must be hard in a regional centre.
Costs of shipping can be high and transport
service difficult.
“We warehouse everything here and ship
it from here,” explains Cay. “We are only
an hour south of Canberra, so we have the
same postage service that they have. We
can overnight to every capital city. That has
been a huge part of our success. When a girl
orders a dress today, she pretty much wants
it yesterday. It has to get there tomorrow.
“Our partnership with
Australia Post has been
critical to our success. If
we hadn’t had that, we
definitely would have
been playing in second
grade. Still now, to stay in
first grade we have to look
at more innovation in our
supply chain.”
A Washington-based
operations expert has
just been hired, and he is
moving to Cooma with
his family.
What about Amazon?
Cay prefers to look at the
positive side of its arrival
in Australia. “We pull up our socks and
make sure that we understand what our
customer wants, then do it better than anyone else. My dad has a lot of sayings, and
one of those is, ‘Businesses spend way too
much time worrying about the competition,
just focus on your own game.’ ”
Birdsnest has bumped up its service
offering, allowing shoppers to order up to
$1000 of clothing, trying them on at home
and shipping back those they don’t want.
And while there are no plans to open stores,
they will be rolling out pop-ups in all Australian capital cities this year so that people
can “feel the brand”.
Cay’s life centres on Birdsnest and her
family. She plans to meet a long-term goal
of buying her father’s 25% stake in the business at the end of 2018 when the oldest of
her three children starts high school. She
loves living in the Snowy Mountains but
doesn’t ski much. She also enjoys the family
farm, and says that yoga has been her saviour – “discovering how to quieten down”.
When it comes to her money, mostly it
gets ploughed back into the business.
Birdsnest expects sales to hit $30 million
this year, 95% from online. Cay recently
bought the building they operate in, a traditional old shopping mall called the Hain
Centre, and has plans for a major renovation. She says it will be a “really innovative
retail space in the middle of nowhere”, perhaps becoming an incubator. Crazy? Maybe
but she says she will do anything to put
Cooma on the map.
after Cay later bought a
local menswear store and
converted the first shop
to be entirely for women.
“When we got into the
business I knew nothing
about fashion. We added
lingerie and other lines
that we needed, and I
started working on the
shop floor. Then I realised that there was a thing
called retail therapy. It
happens with women.
They have a retail experience, and it [helps if] they
get great service and support. It is great fun. It is
real. I am not a big shopper, so for me to see that
happening and be part of
it was great. The buzz!”
When Cay started talking about selling
online, she had some convincing to do.
“People were pretty much ignoring me.
They thought it was a crazy idea. I found
a guy who was doing second year software engineering at ANU and, from the
garage at his parents’ house in Canberra
we worked on it. We didn’t meet for the
first year, and it took another year to make
it operational. It was not how IBM would
have done it.”
From the outset Birdsnest’s website has
been bespoke. “We needed to do it with
the customer in mind, so I had to study
women and what drove their purchasing
decisions. Sometimes she is driven by
an occasion, like being the mother of the
bride or a school reunion. Sometimes it
relates to her body shape that is driving
that. Our whole site was based around
shop by colour, shop by body shape. It
didn’t look at dresses (or other product
lines). It was about her going shopping.
Her path to purchase.”
Three important factors led to Birdsnest
becoming what it is today. “We didn’t have
big budgets, so we focused on every person
who had a relationship with us to make
sure that their experience was incredible.
We wanted them to spread the word. Word
of mouth was our strongest marketing tool
and probably still is.”
The second was the brands sold on the
platform. “No one else was online. We
took brands like Esprit and Jag online, and
they weren’t online (in their own right) for
Decide what
you want and
shop around
Why a bond
would be the
best choice
Sandra is a professor of accounting at The University of Sydney
Business School. She has studied and written reports on particular industries (such as funerals) and how they impact society.
Steve is a certified financial planner and the founder of Wealth
On Track, an Adelaide-based financial planning firm.
he first thing Yolande needs to decide is what type of funeral
she wants to have. This helps in considering what the appropriate options and financial arrangements might be.
Funeral directors are often criticised for charging high costs.
However, these costs relate directly to the contract written with
the deceased’s next of kin. At this time, the consumer of the
funeral “product” is usually vulnerable and shopping around isn’t
an option. So my first piece of advice would be, once the type
of funeral is chosen, to shop around! Prices vary dramatically
between operators for the same service.
The two main products on the market (unless you do it yourself)
are a direct committal or a full-service funeral.
A direct committal is just that: the service provider picks up the
body and disposes of it directly (usually via cremation). No service
or flowers etc are provided. So you are paying for transport and
disposal only. Around Sydney currently you can access this type of
service for less than $2000.
A full-service funeral ranges from as little as $4000 (depending
on the extras you buy) to anything up to $20,000 or more. And that
doesn’t include the burial site or memorial “place”, such as a plaque.
The average basic funeral in NSW currently costs about $5000.
However, this is all a different question from that of financial
arrangements for a funeral. The person who signs the contract
with the funeral provider is legally responsible for payment.
Funeral insurance is just low-value life insurance. The benefit does not usually need to be spent on a funeral. With funeral
insurance, and at age 50, you are likely to spend a lot more on
premiums than the cost of a funeral – probably many thousands
of dollars more than the funeral if you live to the average life
expectancy. While new, more consumer-friendly products have
appeared on the market recently, funeral insurance generally is not
a great product in terms of value for money.
There is more certainty with pre-paid (pre-need) funerals. You
have more control over the product you are buying, and government controls over the management of these funds provide
certainty for consumers. Many funeral directors offer instalment
options for pre-paid funerals, including direct committals.
In terms of superannuation or life insurance payouts, you will
find that funeral directors do not submit their invoice until after
the death certificate has been issued. Usually the funeral director
supplies a death certificate as part of their service. Additionally,
at this point many funeral directors will allow the family to pay for
the funeral by instalments. Delaying the full payment with a small
deposit until superannuation and life insurance can be accessed is
also possible.
Finally, a savings or term deposit account for the express
purpose of a funeral is always possible, and other more complex
financial products such as funeral bonds are also available.
olande, I believe you would be best off by starting a funeral
bond. Funeral insurance is not a good idea for you. You are
probably too young to be paying premiums for the rest of your life.
Also, some of the funeral insurance products can increase in cost
over time, and you could end up giving the insurance company
premiums that may be far in excess of the cover (which is normally capped).
Pre-buying a funeral plan may also be inappropriate for you.
You may move away from where the funeral provider is. Also, the
funeral may be many years away – what if the provider goes broke
or closes in the meantime? Your ideas about what would be a good
funeral may change over time, as new trends (organic funerals?)
and new technologies emerge.
Here are the benefits that a funeral bond will provide you and
your children:
You can choose how your money is invested. This could be a
capital-guaranteed product for absolute certainty or something
with some growth element. This will depend on the length of
time it will be invested (hopefully it’s long for you) as well as your
appetite for risk.
You can open an account with a relatively small sum (say
$500) and make contributions over time. I suggest setting up a
regular payment from your pay or bank account that will build up
over time. If you have the money, you could simply transfer the
amount required into the product.
The first $12,750 (for the 2017-18 financial year) will not be
counted in the means test for any Centrelink payments. Of course,
you can have more if you would like a more lavish funeral but then
the whole sum will be assessed.
There are the potential tax benefits and ease of administration.
The funeral bond will have a maximum internal tax rate of 30%,
possibly significantly less if in receipt of franking credits from
Australian shares. When paid out upon death to cover funeral
costs, the benefits may be received tax free with any surplus
balance after payment of costs remaining within the estate for
future distribution to beneficiaries of the will.
The product I have in mind now only requires a non-certified
copy of the medical certificate regarding the death – that is, it no
longer has to go through the registry. So your executors should
have the money quickly (within two working days of providing
the certificate).
Funeral insurance may be appropriate for someone who is
much older than you. This could be someone who did not have the
financial resources to save for a bond. In this event, ensure that the
provider has level premiums (the cost does not rise with age), and
that puts a cap on the amount that you have to pay in. Remember
to ensure that the actual payout is not capped at an amount below
what you will need.
With assets of $2.9 million, Bindi is ...
On track for retirement
sooner rather than later
Send your questions to:
Ask Paul, Money
magazine, GPO Box
4088, Sydney NSW
2001 or money@
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personally answer your
questions other than
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you consent to having
your question and the
response you receive
from Paul published
in the print and digital
edition of Money.
My husband, 47, and I, 40, have
three investment properties: one in
Sydney (worth $950,000), another
in Melbourne ($600,000) and the third in
Brisbane ($600,000). They provide 3.3%,
3.8% and 3.6% rental yield.
Our loans amount to $972,000 with an offset
account of $972,000, therefore there is no
interest payable.
Combined we have $340,000 in super, shares
worth $5500 and savings of $400,000.
We move with work, therefore currently
rent. Our annual expenditure is $140,000 and
savings $100,000. Our goal is to have $140,000
passive income after tax. We want to spend more
time with our two school-aged kids. Our risk
profile is low to medium.
Both parents are on pensions and do not have
the knowledge to guide us financially, although
they are beautiful people. We feel we could
retire sooner but are not sure how. What do
you recommend and in what time frame?
The sooner the better!
Good work, Bindi. A key to financial success is goal
setting, and I love the idea of retirement “as soon as
possible”. Coincidentally my column in this issue is
about exactly this situation, so do take a look at that
(page 10). But in your case I can be more specific,
as you have given me a fair bit of detail.
You have total assets of about $2.9 million, which
at your age is fantastic. But as you need to plan for a
lifespan of around 40 to 50 years, you really need to
have an amount of money that gives you the $140,000
a year you need, plus inflation, for many decades. History says that it is realistic to assume that you can earn
about 4% to 5% above inflation on a well-diversified
portfolio, so to have $140,000 a year plus inflation,
while your capital keeps pace with inflation, you really
would need about $3.7 million to $4 million and a home.
So you are very much on track. The next step is to
decide on where you would live in the long run. This
could be one of your current properties or one you buy as
an investment now and move into it when you stop work.
I reckon you need about another $1 million in investment assets, plus a home, before you will have that
“inflation-proof” $140,000 a year.
By saving one income, Sean has a ...
creator of
I am 38 years old and my wife
and I have two young kids, aged
four and two. Currently we are
living off my wife’s income (not much,
as she is only working two days a week)
and paying the maximum we can off our
mortgage with my pay ($98,000). We
still owe about $100,000 and should
have it paid off in another two years. We
then plan on renovating, which will cost
about $300,000. Are we doing the right
thing financially?
Sean, you certainly are. You get quite a
number of big ticks!
First, living on your wife’s income and
saving yours is a huge wealth creator.
Second, you plan to pay off your mortgage in
two years and then renovate. This shows me
you have clear goals and a plan. Finally, I am
sure that in your planning you will both be
back at work full time as the kids get older,
which is another wealth creator.
I like the renovation idea as it will give you
the house you need for growing children and
will also add value. As you are well aware, the
value you add is protected, so if you ever sell
your family home it is an asset free of capital
gains tax.
The other good thing is that your compulsory super will see a growing balance invested in local and international shares, property
and fixed interest, which starts to spread
your risk. So, in summary, all good!
Jan wants to invest $2500 in shares as ...
Son’s 21st birthday gift
Love your Q&A section and,
of course, Money mag overall.
My husband and I have given our
youngest son a choice between a 21st party
early next year or a more substantial
present. At 20 he has managed to save in
excess of $30,000 working part time one
day a week while studying at university,
and we are very proud of his efforts in
this regard.
However, all his money is currently just
sitting in a bank account (not even fixed
term!) and we have been encouraging him
to look at alternative avenues to make his
money work for him. I have suggested he
read my back issues of Money to get an
understanding of what options there are to
increase his wealth and set himself up.
Our thought was to buy him shares
so our gift can grow and benefit him in
the future. I am thinking shares in a
(safe-ish) exchange traded fund would be
a good, solid start for him. Are we on
the right track and what fund/s would
you suggest (preferably ones with a
dividend reinvestment option to give a
compounding effect)?
Our gift will be “investing” $2500,
and we expect he would not touch this
investment (other than hopefully to add
to it) for at least 10 years.
Your son has done really well to save
$30,000 before his 21st, so please pass my
congratulations onto him. He has clearly
developed terrific financial habits that will
be with him for life.
Yes, an ETF is a good idea. I’d go with
a good global fund – take a look at those
offered by managers such as Vanguard
and Blackrock. Adding to this as he can is a
great plan. Cash is great if you need it in the
short term but, as you know, in the longer
term growth assets are a better option.
Jason wants to buy a home but faces the perennial ...
Shares v property dilemma
My wife and I want to buy our
first house. We plan to spend
about $450,000 and put
down a 20% deposit to avoid lenders
mortgage insurance and we will also
be exempt from stamp duty as first
home buyers (Newcastle, NSW).
Currently we both work and earn a
combined income of $140,000pa. We
have been saving for the past seven
years and have built a stock portfolio
worth about $150,000. Currently our
overall portfolio is 3% in the red.
Some of the shares in my portfolio, I
believe, have exciting potential to rise
in the next two to three years.
My question is, should I sell about
$100,000 worth of stock to put down
as a deposit and buy a house now or
should I wait for two to three years
for my portfolio to grow before
buying a property?
Crikey Jason, you are really challenging
my crystal ball with your question. Sadly,
I have to tell you that my crystal ball is
very flawed and I cannot give you any
certainty about shares versus property
over the next two to three years.
Peering through the flaws, my best
guess is that property is likely to be pretty flat. Shares are not cheap but with a
strong local and global economy I expect
to see reasonable returns over the next
few years.
Then we have specific factors. As
I have been arguing for some years,
Newcastle is an excellent area for people
to live, work and retire. So I have positive
views on the property market there. I also
do not know which shares you own.
So this is going to be a personal call
for you to make. Owning a home is an
important step and one I encourage you
to take. While the sharemarket is highly
unpredictable in the short to medium
term, it seems reasonable to assume that
the property boom of the past few years
is unlikely to continue.
Susan is nervous about buying an apartment but ...
Inner city is a good place to start
I am 29, living in inner-city
Melbourne and am single,
working in a full-time job
earning $85,000 plus super. I have
$35,000 in cash savings, about
$21,000 in shares and only $15,000
in my super (due to living overseas
for a few years). The only debt I
have is HECS-HELP.
Looking to the year ahead and
turning 30, I am drawn to wanting to
purchase an older-style apartment
in the inner-city area but can’t help
feeling a little nervous given the high
property market and dramatic media
coverage surrounding apartments.
Would you recommend I continue
looking towards this goal, or continue
renting for a few years and purchase
an investment property in a more
affordable growth area such as
Bendigo, Ballarat or Echuca.
I feel equally as nervous focusing
on shares, as it seems this market
would also be impacted by an economic downturn.
Hi Susan, maybe you could help Catherine (see page 29), who is also interested
in properties in Victoria. I agree with you
that an inner-city investment is a great
idea. I understand your nervousness
regarding the negative media coverage
but with population growth a well-located property is unlikely to do badly.
If you decide to go with a regional
area, that is fine; the ones you name are
growth areas with a great lifestyle. But
from a pure investment point of view, it
is hard to go past great locations close
to our big city centres. I cannot disagree
with you about older-style properties
– you tend to get a really solid building,
high ceilings and a larger amount of land.
Shares will always be volatile in the
short term but I do like your current plan
to save for a deposit while building your
share portfolio, mainly via super.
For Aaron’s share investing ...
Robo advice
is the way of
the future
My wife, 36, and I, 33, own our
home with no mortgage and
want to start building savings
over the long term (at least 10 years). I
want to invest in shares and have been
considering options such as Stockspot.
What do you think of digital investment
advisers? What are the advantages and
Yes, Aaron, the world is changing and doing so
very rapidly. Stockspot is certainly part of this
new world.
I need to let you know that I am chairman of
one of the leading robo advisers, InvestSMART,
a listed company. So my views are biased! The
reason I got involved with InvestSMART as
chairman and a shareholder is I firmly believe
that digital advisers will boom.
The revolution towards low-cost investing
is compelling. And digital advisers do this well.
They tend to offer online tools, research information and access to local and global markets
at a very cost-effective price. InvestSMART
offers a free online platform to keep track of
investments with access to information when
you want it and how you want it.
Now I am still a big supporter of faceto-face advice. There is nothing better for
complex issues. But for a large majority of
people who want to make investment decisions using powerful online technology, the
digital advisers just make a lot of sense.
In Catherine’s investment property choice ...
Population growth is the key
super is in shares and therefore I am not
keen to allocate more savings into the
sharemarket unless perhaps it is through
a blue-chip managed fund invested in real
estate (Vanguard?).
I bought a house in Newton,
South Australia, in October 2012
for $470,000 plus government
charges. It is on 757sqm of land with a
floor area of 136sqm. The land cannot
be subdivided. The house is 40 years
old. I own it freehold but I do not wish
to live in it.
For four years it has been rented out at
$400 a week. In hindsight I think I overpaid $20,000 for the property and
it has provided little growth in value
since this time.
Should I sell it and find a property in
a higher-growth area? I am keen to buy
another investment property – either
a beach house or around the Adelaide
Hills. If a beach house, the plan is to
rent when possible and use it myself for
holidays. Can you suggest some highgrowth areas both beachside and in the
Adelaide Hills? (Encounter Bay?)
Alternatively, I am keen to retire
in Victoria and would consider buying
a property there. Again I need some advice
on what suburbs are still good value and
would provide reasonable growth.
Can you recommend legitimate associations I could join to learn more about
investing in property? I am single, aged
51, pay a small amount of rent and earn
$45,000pa. I have savings of $60,000
and super of $70,000.
I am happy to take on a mortgage. My
I am sorry to say, Catherine, that I am not
going to be terribly helpful. My knowledge of
the Adelaide property market is very limited.
But if I was buying there I would be looking
carefully at the population growth numbers,
which are freely available from the Australian Bureau of Statistics. I would then look at
areas with those key facilities for modern life.
That means easy access to lifestyle options:
things like entertainment, restaurants, public
transport, parks, beaches, medical facilities,
schools and so on. This would take me pretty
quickly to North Adelaide. I really do prefer to
buy very close to city centres.
There are few organisations, if any, that
offer unbiased property advice. Many will
“educate” you but really prefer to sell you
their own properties.
So my advice is to go with self-education.
It is not hard to work out where the population is growing. Melbourne, for example,
is predicted to have over 8 million people in
three decades, so I can’t see how a welllocated property there would do badly.
So your best plan in my view is to get out
and look at suburbs and many properties!
Destination South Coast, NSW
Natural appeal ... clockwise, from above, Poole’s Beach; Narooma Golf
Course; lunch at The River, Moruya; distinctive architecture of Tilba Tilba.
Five things to do
1. Road trip: As you motor south from Sydney
down the Princes Highway, Milton is the perfect
lunchtime rest stop. Pilgrims Cafe serves up the most
delicious vegetarian burgers, wraps, fresh juices and
coffee. The Millennium burger bulges with curry lentil
patty, fried onion, avocado, lettuce, beetroot, cucumber,
sprouts, tahini dressing and sweet chilli sauce on
a toasted wholemeal roll.
2. Dine: The French-inspired restaurant The River,
nestled on the bank of the Moruya, is an absolute treat,
with locally sourced seafood, organic produce and an
extensive wine list. It’s on par with the very best dining
experience anywhere. Open for lunch and dinner.
3. Stroll and stay: The historic town of Tilba Tilba is
full of boutique craft stores, including leather and woodwork artisans showcasing wares ranging from furniture
to handmade rocking horses. A cute old timber pub, the
Dromedary Hotel has a relaxed beer garden full of locals
and travellers. There are plenty of bed and breakfast
places in and around the town. Indulge in the wide range
of dairy products at Tilba Real Dairy with cheese tastings,
ice-cream and milkshakes from jersey cow to you.
4. Swim: Poole’s Beach, Mystery Bay, is a gorgeous,
quiet spot to cool off and float in the shallow rock
pools – it’s like being in a gentle, salty washing machine.
Boardriders surf the adjoining southern beach, called
1080, all part of the Eurobodalla National Park.
5. Golf: Book your 18-hole golf experience at one of
Australia’s most picturesque courses, Narooma Golf
Club. The course runs through forest sections, by a lake
and clifftops overlooking the ocean. Two rounds of 18
holes cost $165 a person. There’s also a great club bistro
overlooking the ocean. Flexible packages for golf plus
accommodation are available online. ANN LOVEDAY
SUVs have all
the right stuff
he rising tide of SUVs washing up on
our shores shows no sign of abating,
with the first weeks of 2018 shoehorning
even more new models and reinvigorated interpretations of old favourites into
already crowded showrooms. All-new
SUVs that have arrived, or are expected,
for the 2018 model year include the Ford
Endura, Holden Equinox, Jaguar E-Pace,
Mitsubishi Eclipse Cross and Skoda Karoq.
Meanwhile, some familiar names have
morphed from frumpy old also-rans into
fresh new generations brimming with the
latest turbo engines, active safety equipment and infotainment systems. They
include the BMW X3, Jeep Compass and
Wrangler, Peugeot 5008, Volkswagen
Touareg and Volvo XC40.
While the class of 2018 will showcase
the latest and greatest of what’s available
right now, it’s likely it will be the last to
feature exclusively combustion engine
ranges. Tough Euro emissions standards
being imposed on carmakers from 2022
are set to bring electrification to our
everyday cars sooner rather than later.
2017 Margan
Semillon $20
$30,500- $27,990- $28,850$38,500 $46,290 $44,750
Mitsubishi Eclipse Holden Equinox
The Chevrolet-built
The smallish urban-focused SUV bridges
the gap between the
ageing ASX and the
bigger Outlander. It has
a stylish, roomy cabin
and decent equipment.
All versions have the
same 1.5-litre turbo
petrol engine, coupled
with a CVT automatic
gearbox, with a choice
between front- and allwheel drive.
Pros: Safety and
equipment; rear-seat
Cons: Not exactly
quick; poor rear vision.
medium SUV replaces
the less-than-acclaimed five-seat Captiva in Holden’s fleet. Its
relatively dowdy look
hides a huge boot and
stealthily disguises its
excellent performance.
Aussie engineers at
Holden re-engineered
the suspension and
steering for local conditions and the Equinox
is a significantly better
car to drive as a result.
Pros: Performance;
cabin and cargo space.
Cons: American hire
car looks; inconsistent
interior materials.
Jeep Compass
Jeep’s mid-sized SUV
has been transformed,
with a rugged new
look, new engines and
improved handling,
all of which mean it is
expected to overtake
the Cherokee as Jeep’s
biggest seller here. The
Compass range has
something for everyone, from the sharply
priced city-focused
Sport to the roughstuff Trailhawk.
Pros: Great new look;
excellent on- and offroad handling.
Cons: Petrol engine
lacks oomph; optiononly safety features.
Lap of luxury
Nothing is too good for your
pampered pooch. The Letto
dog settee’s unparalleled
design and comfort will keep
your Number One in the
style he is accustomed to.
How much: $1490
Where to buy:
Margan is a
popular family
winery with
an impressive
reputation for
new varietals
as well as
with regional
Hunter Valley
This wonderful
quaffer makes
an ideal start
to a meal: bright and
pure with intense,
zesty lemon juice
flavours and a clean,
crisp, gentle finish.
2015 ‘Farrside’
By Farr Pinot
Noir $80
Nick Farr and
his family’s
pinots lead
the way in the
Geelong region.
This wine and
the ‘Sangreal’
are among
the country’s
finest in 2015.
It’s wonderfully
textural with a
plush feel that seduces the palate, ripe,
sweet succulent flavours that linger, with
a fine tannic slick that
promises long life.
Just what we want
from Aussie pinots.
Amazon has come
a long way
elieve it or not, Amazon actually
launched way back in 1994, meaning the world’s largest online shop has
been shipping products for well over
two decades now.
In all that time, taking advantage of
Amazon’s vast catalogue – originally
books, now almost anything – has come
with a pricey penalty for Australian
shoppers: shipping costs. Freight from
the US often negates the benefits of
Amazon’s considerable deals.
So anticipation was heavy last year
when Amazon finally opened in full,
significantly expanding its departments
and wares. So far, the response has
been mixed. Yes, it now offers a large
range of departments locally (electronics, fashion, cosmetics, homewares and
more) but many users complain that the
product diversity and deals are lacking.
Case in point: in the US, Amazon sells
no fewer than five versions of its Kindle
Fire tablets, and even though competitors sell them in Australia, Amazon
doesn’t. Still, it’s early days, and while
the local branch finds its feet we’ve
highlighted a few of the company’s
most appealing gadgets that are on
sale right now.
What is it? Fire TV Stick
How much? $69
Pros: If you’re interested
in peripherals that can
smartify your TV, chances are you’ve already
invested in Google’s bargain-priced Chromecast
or the more premium-oriented Apple TV. Amazon’s
own version, called Fire TV
Stick, is an HDMI dongle
that plugs into your telly,
giving you easy access to
streaming services such
as Netflix (and Amazon’s
own Prime Video), plus
Spotify and its kind, plus
games and apps. Fun,
cheap, easy.
Cons: Good but not as
strong as the competition.
What is it? Echo Dot
How much? $59
Pros: We covered smart
speakers in our February
issue but suffice to say,
the category as it stands
wouldn’t exist without
Alexa, Amazon’s virtual
assistant. While Australians are more familiar with
Apple’s Siri, Alexa – and
the Echo devices it features on – have taken voice
control in the home to a
new level in the US, and
now here too. Play music,
check news and weather
and much more, all by
just speaking to this little
paperweight cylinder.
Cons: Upgrade for better
audio quality.
What is it? All-New
Kindle Oasis (pictured)
How much? $389
Pros: The original Kindle
was Amazon’s first step
beyond shipping printed
books, and a decade
later it’s still refining the
e-reader concept it basically invented. This top-ofthe-line ninth-generation
model offers the highest
resolution yet at 300ppi
with adaptive brightness –
the closest mimic of actual
paper you’ll get. Designed
for one-handed reading,
it’s a lush escape from
your smartphone (and its
incessant notifications).
Cons: Almost $400. The
cheapest Kindle is $109.
Fitted for Work
What is it? Fitted for Work helps
women experiencing disadvantage get
a job and keep it. This includes survivors of domestic violence, single parents, women with a disability,
culturally and linguistically diverse
women as well as mature-aged and
young women.
Where your money goes: The
charity offers a number of programs
and services. These include a personal
outfitting and interview service, presentation workshops, a résumé hub to
get help with résumés and cover letters, mentoring and training as well as
the option of applying for a role with
one of the corporate partners through
Fitted for Work’s social enterprise,
SheWorks. After they secure a job,
women can participate in the Staying
Employed Program. Services are currently only available in Melbourne
and Parramatta, NSW.
How to donate: You can donate
money online at,
organise a fundraiser or even donate
good-quality second-hand clothes. You
can also volunteer your time and services. The website lists a range of
available volunteer positions.
This is a great site for anyone
who loves ebooks. Sign up,
answer some questions about
the types of books you like
to read and you’ll get daily
emails containing info on free
or discounted ebooks from
retailers including Amazon
Kindle and Apple iBooks.
Paul Clitheroe PAUL’S VERDICT
City change frees up capital to invest
y wife, aged 54, and I, 57, recently relocated to a bayside suburb of Brisbane
from the Blue Mountains. This move was both
for a lifestyle change and to realise the capital
gain from the difference in house prices. We
purchased a home for $900,000 and we have
no debts. I am seeking employment and expect
to earn $65,000-$70,000 a year and my wife
would continue to stay at home and care for her
disabled brother. We have combined super of
$150,000 and have about $600,000 in cash
sitting in a bank earning only 2.8%.
We are seeking advice on the best way to
invest the cash for retirement. One plan is
to invest most of it in super and maybe
$100,000 in Australian shares. Our
original thoughts were to invest
in several Brisbane properties
as Brisbane seems to have
missed out on the boom
that most other major
cities have had. What
are your thoughts?
Ken and Marilyn
i, Ken and Marilyn, you
Tax-friendly super is the
are part of a big wave
investment properties.
best place to hold
of people doing exactly what
I assume you are looking
you have done. I have heard from
at using about $200,000 as a
Money readers and my own friends who
deposit and then borrowing to allow
have made the move from a really big city such you to buy. I imagine you would be buying places
as Sydney or Melbourne to a smaller city or worth around $600,000, with three properties
regional area.
giving you debt of $1 million or more. If you are
Brisbane is a popular choice, as is Adelaide. correct and the property market is undervalued,
I’ve also followed with interest people moving this strategy could greatly increase your wealth.
to Newcastle, Wollongong, Bendigo, Ballarat, But if interest rates go up, prices fall and tenants
Albury, Port Macquarie and Orange. Some are are hard to find, your cash created could disappear.
even moving to Bali or Thailand.
I have no reason not to be positive about Brisbane
Those who have made an economic move property over the coming decades. But buying
tend to tell me that the kids are pretty spread out several, in my opinion, puts you at far too much
and moving for work, or are themselves looking risk. How about you consider a “blended” strategy?
for more reasonably priced housing. They also
Once you have a job, I would suggest you make
tell me that with cheap flights and the wonders sure the maximum $25,000 a year is going into
of FaceTime, Skype and so on staying in touch your super fund. This would be your employer’s
is really easy.
9.5%, and you salary sacrifice the rest. If this
My wife and I can certainly vouch for that. Our leaves you with take-home pay less than what
oldest child and his wife are working in Singapore. you need, leave some of your cash aside to top
Compared to my day of sending blue aerogram up your take-home pay. The idea here is that you
letters from overseas once a month to my parents, only pay 15% tax on money going into super.
the family WhatsApp, plus regular Skype calls, With the Medicare levy you would be paying
keep us closely in touch.
some 34.5% tax on the part of your salary above
Your move has also allowed you to own a $37,000. It is much better for you to pay 15%
home debt free and to have investment capital tax on contributions to super and use some of
of $600,000. Risk becomes a key factor in your your cash for spending if needed.
decision about where to invest it. Gearing into
I am strongly in favour of you adding some of
several Brisbane properties is certainly an option. I your own cash to super as a non-deductible conwonder, though, about having a fully paid off home tribution. Please talk to your super fund about this
Paul’s verdict:
Gearing into
several properties
in the one market
is risky
but my view would be to put in around $400,000
(by using the bring-forward rule you can contribute
more than the annual $100,000). Just remember
that when it goes into super, your access to it is
restricted by age and retirement rules.
I think super is the place to hold your share
investments. The returns have been over 9% a
year for the typical fund over many decades. You
would pay a maximum of 15% tax on investment
earnings inside super; on retirement you would
pay no tax and also have access to your money.
If a Brisbane investment property is something
that interests you, I am leaning towards just
doing one property. It may well be your best
investment or your worst but given you already
own one Brisbane property I would argue that
two is enough exposure to any one market.
My preference is to see you diversify your risk.
By holding some cash, topping up your super and
potentially buying one investment property, I
would argue you have a good balance of Australian
and international shares, fixed interest and infrastructure that comes with any good super fund.
If you have a question, email money@bauer or write to GPO Box 4088,
Sydney NSW 2001. Questions need to be 150
words or less and you must be willing to be
photographed. Readers who appear on this
page will receive a six-month subscription.
While most Australians soldier on working, earning – and spending
– well into their 60s, a growing number are deciding that there's
more to life. By saving hard and investing wisely they are retiring
early, even in their 30s, and following their interests and passions.
Our cover story, with seven case studies, shows how it can be done.
f you believe retirement only happens when
you reach your 60s – and you want to retire
earlier – then read on. There is a growing
band of retirees in Australia and overseas
who are hitting retirement in their 30s or
40s. No, they aren’t rich kids living on an inheritance
or technology whizzes who have sold an app. They
are followers of the FIRE movement – that stands for
“financial independence, retire early” – who rigorously
save, invest sensibly and enjoy a modest, agreeable life.
It is the opposite of working flat out throughout
your life, piling on debt, living beyond your means and
consuming voraciously.
While most Australians rely on compulsory superannuation and its 9.5% contribution rate (capped at
$25,000 a year) to fund their retirement, FIREs don’t
want to wait until they are in their mid to late 60s. They
want to pursue interests, have a more balanced life and
enjoy more family time.
For example, Pat Seyrak has an ambitious plan: he
wants to have $1 million in 10 years. At 30 he is half way
there and aims to reach his goal in the next five years.
Our other case studies include:
Kate Campbell, 19, plans to save $1 million over the
next 20 years and live on $40,000pa;
Alisha and Leo want to retire at 32 and 34 with
$2 million, giving them $80,000pa;
Tom is 32 and aims to retire at 42 to 48;
Serina Bird, 45, plans to retire at 50 on $40,000pa;
Jason, 45, wants to retire in the next few years,
generating income of $58,000pa rising to $80,000pa
in later years; and
Joanna Jones, 60, retired at 51 with $1 million in
super and lives on $18,000pa.
The FIRE trend is still in its infancy in Australia
but it has taken off in the US and Canada thanks to its
most high-profile supporter, Peter Adeney. He and his
partner, now his wife, worked as software engineers
in their 20s, and by living a frugal life and saving they
had enough money to leave the workforce at 30. They
have one son and the family spends around $US25,000
($32,000) to $US27,000 a year.
Keep it simple
Adeney, a Canadian expatriate who lives in Longmont,
Colorado, started blogging about his life in 2011 at
His message is straightforward: reject consumerism, pare down your life to live simply with fewer
possessions, save as much as you can and live a frugal
"badass" life of leisure. Adeney says it delivers greater
financial freedom and happiness as well as a smaller
environmental footprint. It resonates with many people
and Mr Money Mustache now has a cult following,
reaching 23 million people and attracting
300 million page views. Adeney has posted
400 wide-ranging articles and there are 37,000
members on the Mr Money Mustache forum
with 1.7 million posts.
“Our situation was a bit unusual by today's
than inspired by an existing movement like
this financial independence thing is becoming,” Adeney told Money from Longmont. “I
just had a natural love for solving problems
efficiently, and to me I just figured having a
super fun life could be another one of these
problems. So I found ways to spend money
on creating a joyful life, while seeing less of
it go to waste.”
He calls his approach “mustachianism,”
an idea he put into practice by living “a lifestyle about 50% less expensive than most of
our peers and investing the surplus in very
boring, conservative Vanguard index funds
and a rental house or two”.
Mr Money Mustache has inspired many of
our case studies, who are working towards
an extreme early retirement and sharing
their journey. Some were well on their way
before they found him and others started after
reading his articles. One has already retired.
“Nowadays, all the same options are open
to everyone but there is more awareness and
community support for this type of joyful,
efficient living,” says Adeney. “So you don't
have to be as much as a stubborn weirdo as I
was to make these big jumps ahead to financial
independence while you're still young.
Mustachianism is the belief that “consumer
insanity has taken over people’s minds”, Adeney
told Tim Ferriss, the American self-improvement
guru, on his radio show. “It is causing people
to act in an irrational way. It has sabotaged
people’s own ability to have a good life. For
example, they are working way longer than
they have to because they are consuming
way more crap than they have to without
getting any life benefit from it. Everyone is
very inefficiently going about their lives. It
affects their health. They are not getting fun
out of their lives.”
Adeney says that if you save 50% of your
take-home pay from the age of 20, you can
retire at 37. If you can save 75% of your salary,
you can retire in seven years.
Just as heavy spending means low saving,
frugal living means high saving. The more
extravagant your lifestyle, the more you’ll
need in retirement and it will take a longer
time to accumulate your required wealth
because your savings rate is low. But if you
can live simply, you will need less to retire on
and you will acquire it more quickly.
How can you save that much? The people
who responded to a call-out from Money and
are working towards early financial independence typically save 60% to 80% of their
salary. Over the next eight pages they share
their strategies, including their investments.
While there are plenty of people who scoff
that FIREs are living miserable, deprived
lives, our case studies suggest it is quite the
opposite. They are having fun and they feel
empowered by their savings and plans.
“I decided that I could easily live a great life,
and in many ways an even better life than I was
before I had this goal, all the while reducing
my expenses, consumption and waste and
doing more things for myself,” says Seyrak,
who is on track to retire at 35 (see page 39).
Experiences come first
“I see high consumption as an unconscious
habit. Most of the time it is completely automatic
and so it is rarely thought about critically,” he
says. “Much of it is also keeping up with the
Joneses. One should not base their self-esteem on how wealthy they can appear to be.
By eliminating this habit, a large amount of
money can be saved.”
People like Pat value their time much more
than they value their possessions. FIREs have
a long list of experience-based activities and
interests, including family time, that they
want to pursue. They usually don’t rule out
part-time work either.
Most of our case studies are well-qualified
people with good jobs that pay well. This does
make it easier to save but people with lower
salaries will also see great benefits from frugal
Face of frugality ... Peter Adeney, aka Mr Money
Mustache, believes "consumer insanity" is ruining
people's lives.
living although it will take longer. Leo, who plans to
retire in three years at 34, describes early retiring as
spending your money and buying back time.
Travel is at the top of the list for most early retirees.
Not a short trip to fit in with corporate holidays but
long, slow explorations of continents. When you aren’t
working you can take advantage of special deals and
offers. Joanna drove an RV from Seattle to Anchorage
for a quarter of the usual price as part of the owner’s
relocation move.
These are some of the key FIRE savings strategies:
Get out of debt. Make paying down any credit card
debt a No. 1 priority.
Live close to where you work. Walk, cycle or take
public transport. For example, if you live a long way
from your work, car costs can really add up. If you are
driving 20 kilometres, you could be easily spending
$120,000 over a decade and if you drive a family sedan
it’s probably $150,000.
Become a great cook. A $100 per week restaurant
habit is $52,000 every 10 years. A $12 lunch, bought
twice a week, adds up to $12,480.
Stop buying stuff. Don’t spend your weekend browsing the shops or searching online.
If you have a mortgage, make extra payments.
Cut your grocery bills. Buy whole ingredients instead
of packaged meals. Stock up at the cheaper supermarkets.
“So I found ways to spend money on creating a joyful
life, while seeing less of it go to waste,” says Adeney.
“My usual example is that by choosing to live closer
to work and biking there (which also allowed us to live
with just one older car), we saved $US10,000 per year
on car expenses while also getting the fun and health
benefits of year-round cycling. It was already a win-win
situation, so there was no need for a support group or a
community. But very few of my co-workers were able
to understand how big this win was, so I was often still
the only one on a bike.”
such as hedge funds, private equity or the hottest active
fund managers. These sorts of investments need constant
monitoring and, as Adeney told Ferriss: “There’s so much
more to concentrate on in your life. If you retire early
you are most probably wanting to be a great parent or
aiming for physical fitness.” You are better off using
basic, plain-vanilla index funds.
Where to invest
Retirement formula
Instead of paying a financial planner to help you work
out how much they need in retirement, FIREs have a
formula: take your annual expenditure and multiply it
by 25. “This will keep you going for the rest of your life,
even if you retire young,” says Adeney. This assumes a
conservative return or income of 4% a year.
FIREs aren’t spending down their capital. They’re
simply living off their investment income. If you can
live off a third of your income, and devote the other
two-thirds to saving, you would reach 25 times in 12 to
13 years. Then if you continued to live that way, 4%pa
investment income on your nest egg would provide
your living expenses for the rest of your life.
For example, if a couple earn $121,700 a year after
tax and live on $40,000, they can save $81,700pa. The
savings earn a real rate of return of 4% after inflation.
In 10 years they will have $1 million, which can be
invested earning 4%, generating $40,000pa to live on
for the rest of their lives.
Most FIREs don’t pursue “super kickass” investments
it feels like
fate to talk
too much
about my
Each of Money’s case studies has its own investment
strategy but it's certainly not to be taken as a failsafe
plan for retirement. (And of course, if you retire early
you won’t be able to access your super until you reach
your preservation age.)
Most have some Vanguard funds and Jason, for
example, has made them the lion’s share of his investments. Some strategies involve owning an affordable
home while others are put off by high real estate prices,
a housing market under pressure and a fear of rising
interest rates. They prefer to rent and watch the market.
The Australian approach of negatively geared property
investment is very dependent on where we are in the
property cycle. Certainly, real estate prices in Adeney’s
hometown of Longmont, where he has bought, aren’t
as expensive as properties in Sydney or Melbourne. He
paid $US200,000 for his house.
“Accommodation in some form has to be part of any
plan to retire early. Ultimately, you have to live somewhere,” says our case study Serina, who has bought
her own home and likes investing in property. “Maybe
you can use your home and be a grey nomad and rent
it out while you travel in a caravan while blogging or
Instagramming away, but most people at some stage
want a roof over their head for a period of time.”
Saving is not easy in this world of rampant consumerism but it helps if you have a support network of other
FIREs via websites, blogs, podcasts and calculators.
There are meticulous websites with details of financial
aims, savings patterns and portfolios. Four of our case
studies run their own websites.
While some FIREs such as Kate Campbell, Pat Seyrak
and Serina Bird are happy to reveal their identities,
many who lay out their financial details for all to see
don’t want to use their real names. They are cautious
about their employers finding out about their plans.
Pat says he was a bit nervous going public because
he thought he may appear to be less committed to his
job. “In the end it turns out my fears were unfounded,”
he says. “My boss and colleagues have responded
positively to my early retirement journey. I’m now
happy to continue to talk about my plans to retire early
as it has brought some attention to this movement in
Australia, which has grown by leaps and bounds in
recent years.”
Jason, who runs the website, didn’t
want his real name used and says he is apprehensive
about talking to his work colleagues about his plans to
retire early so he avoids it. “Life and markets can throw
a lot at people, so sometimes it feels like tempting fate
to talk too much in advance about my plans.”
Kate Campbell, 19
AIM: retire at 40
INCOME NEEDED: $40,000 a year
high-interest savings account, shares,
diversified exchange traded funds and
tech companies (10%).
hen you are 19 it is easy to blow
your full pay on going out and
socialising. But Kate is setting herself up
for financial independence in about 20
years when she will be 40. She is saving
60%-70% of her salary from a full-time
job in IT. “If you are financially independent, going to work is a choice. It changes
your mindset. You can look at what you
are doing differently,” she says.
Living at home certainly helps her
save. She recently got rid of her old car
and catches public transport. As well,
combining study with a full-time job and
being time poor is a great way to slash
her weekly social schedule to one event,
with a budget of $20 to $30. She has
cut her spending on clothes to one item
a month.
Her major expenses are gym fees and
train fares.
Kate admits she doesn’t want to be
super frugal and believes she needs
$40,000 a year to live on when she
retires. “The big question is, how do I
balance how much to save and how
much to spend?”
She reads widely about investing and
checks out low-cost robo advisers such
as Six Park and Stockspot. She is a fan of
dollar-cost averaging.
Kate has an emergency fund in case
anything happens and is building a longterm portfolio of solid company shares
and diversified ETFs. “Because I work in
the IT industry, I am placing a small portion of around 10% in tech companies.”
She is putting aside money to travel
at the end of her university degree when
she hopes to work overseas and keep
costs down by using the sharing economy to travel and find accommodation.
To keep her on track she listens to
FIRE podcasts about women such as
herself who are striving for, or have
reached, financial independence and
are living incredible lives.
Kate’s parents have successfully
become semi-retired through saving
and living off their investments. “It’s a
very empowering feeling and I see how
it helps my parents,” says Kate. “If anything happens – such as the company I
work for goes bankrupt – I will be fine.”
She doesn’t want to be in her 50s
with debts and feeling stressed.
Podcasts: Radical Personal Finance
at; Fire Drill
run by Gwen from
and J from
Websites: Six Park, Stockspot.
Off to an early start ...
Kate sees financial
independence as
being "very
Alisha, 29, Leo, 31
and baby Dom*
AIM: retire in 2021
shares, particularly A-REITs; Vanguard
index funds; managed funds that align
with their principles; fund managers EGP
Capital and Packer & Co; ETFs; 20% of
their wealth to be held in Sunsuper and
REST super funds.
hen Alisha and Leo go shopping,
every purchase has to pass the
happiness test. “What gives us the
most happiness for our dollar?” they ask.
“I would love designer clothes but I don’t
think they will give me that much happiness,” says Alisha.
The strategy has worked. They are
married with a baby boy and are on
track to retire in 2021, aged 32 and 34.
They are targeting a passive income of
$80,000 a year based on their understanding of what they need when they
have more kids and the higher travel
costs that come with a family.
They have studied research from
groups such as the National Centre for
Social and Economic Modelling on the
living costs for different life stages.
They’ve used early retirement tools
like cFIREsim to work out how big their
retirement portfolio needs to be to support that level of income and not go bust
when the market crashes. cFIREsim lets
aspirational early retirees see how their
portfolio would have fared historically.
For example, would it have survived in
1929, right before the market crash?
Before Dom arrived they were living
off Alisha’s low salary from working for
a small charity and saving all of Leo’s
income. He has been getting better-paid
jobs over time in the resources area. “My
work income has gone up significantly
over the last five years,” he says. “However, we were already targeting early
retirement before this happened and this
has simply brought the date forward.”
Alisha could afford to stop work when
Dom was born and they are still saving
about 70% of Leo’s salary. “It is quite a
luxury to stay at home with your children,” she says.
They live frugally but Leo says not
overly so. “We are a nomadic family with
three suitcases, a backpack and a pram.
No house, no car, no debt. We live wherever I’m sent for work.”
Not being too attached to their possessions has been liberating but hard
at times. Leo recalls a favourite leather
couch that almost split the family. “The
biggest thing that was holding us back
from travelling as a family was the leather lounge,” he says, noting how ridiculous
it sounds. He would travel for work and
Alisha would stay in the house with their
furniture and possessions, seeing Leo on
the weekends.
But they decided to sell everything
and travel together as a family. They
were surprised that people didn’t want
to buy their perfectly good furniture,
whitegoods and deluxe coffee machine.
“It was a little tough. We ended up giving
most of it away for free. We realised that
once it is secondhand it doesn’t have a
lot of value,” says Leo.
They spend $100 a month on clothing.
Alisha cuts Leo’s hair. They have a grooming budget that includes cosmetics. “We
dropped back the alcohol budget. A beer
is fine not a $15 cocktail.”
They have been industrious and entrepreneurial all their adult life. Leo paid his
uni fees by being a DJ while studying. Alisha decorated cakes. They love their jobs
and get caught up in them, often working
nights and on the weekends.
They hold most of their portfolio in
shares. Most of their funds are invested
with small active fund managers with
“skin in the game” like EGP Capital and
Packer & Co. The rest is in Vanguard
index funds.
They plan to hold 20% of their net
worth in tax-effective superannuation to
cover the second phase of their retirement. They plan to rent when their kids
start school and they settle down.
In retirement they aim to spend more
time together as a family and pursue
whatever interests them without having
to consider whether it works financially.
“It is doing simple things like what
you do on a Saturday or Sunday – having breakfast with the family and reading the newspaper and getting fresh
produce that day to cook. As well as
exploring interests such as craft and
having a healthy life with time to exercise,” says Alisha.
Leo would like to help people with
financial literacy and perhaps volunteer
as a financial counsellor.
You Need a Budget (YNAB) app – an
envelope approach to budgeting.
National Centre for Social and Economic Modelling research.
cFireSim retirement calculator.
GoCurryCracker, another nomadic
family’s blog).
Mr Money Mustache.
* Not their real names.
Nothing extreme ... Pat,
with friend Steph, says
he won't be slaving for
30 years to pay off
a mortgage.
Pat Seyrak, 30
AIM: retire at 35
INCOME NEEDED: $40,000 a year
and ETFs.
at has a firm number for his financial
independence: $1 million. He plans to
reach it by December 2023 when he is 35.
So far the millennial is almost a third of the
way there, hitting $300,000 and aiming
for an investment portfolio of $1 million in
today’s dollars to provide him with an annual income of $40,000 for the rest of his life.
Pat, who sets out how to “buy back your
life” on the website,
kicked off his mission to retire by going
through his bank statements from the previous year to understand where his money
was going. “Like a leaky bucket, I worked to
plug all the holes,” he explains.
He has cut three big spending areas:
accommodation, transport and food. “This
is where the 80/20 principle applies. For
example, 80% of your savings can come
from optimising just these three areas of
your life. Everything else is just icing on
the cake.
“I decided that I could easily live a great
life, and in many ways an even better life
than before I had this goal, all the while
reducing my expenses, consumption and
waste and doing more things for myself.”
He rents a small home close to work and
walks and cycles whenever possible. “Cars
are enormously more expensive than most
people realise,” he says. “Ideally, everything
should be within walking or bicycle distance, such as work, children’s schools
and a supermarket.”
Pat learnt how to cook well: “I prepare
the vast majority of my own dinners and
lunches and this saves me a fortune compared to eating out often.”
He has also learnt to do his own repairs.
Pat’s investment plan is simple. “The
only way I know to build wealth is to do
it slowly and methodically. Dollar-cost
averaging into diversified broad-market
exchange traded funds over an extended
period of time.”
Saving hard now means that he can
reduce the amount of money he needs in
the future because his savings are earning
an income.
He doesn’t like the word frugal to
describe his life. “Because many people
seem to associate it with self-deprivation,
which is simply not how I like to live. Nor
do I feel anything I am doing is extreme.
“If I were to be honest, I would consider the way in which most people live
their lives to be extreme – paying much
more than they need to for just about
everything and spending their entire pay
cheques, regardless of how large those
pay cheques may be.”
Slaving for 30 years to pay off a mortgage isn’t part of Pat’s plan. He prefers to
spend time with friends and family.
Pat has a retirement plan that includes
plenty of energetic activities such as playing music, learning a language and joining
the State Emergency Service. As an engineer he is interested in the practical side of
building. “Mostly I just want the freedom
to live each day as I see fit and dedicate as
much time as I would like to my passions
and hobbies. I would like to be able to balance productivity and free time and not be
forced onto a schedule.”
Mustachians Australia Facebook group.
Tom*, 32
AIM: retire at 42 to 48
INCOME NEEDED: $45,000 a year
INVESTMENT STRATEGY: buy a commercial property for
work; half a dozen small-cap shares; listed investment companies
such as Barrack St Investments and Cadence Capital.
enchmarking your own spending with the average in your age
category can be telling. This is what Tom has done and recorded on his blog on
Tom found out that a 35-year-old (or younger) living on their own
spends an average of $42,640 a year, from numbers compiled by
the Australian Bureau of Statistics. “In terms of income, the median
disposable income for under-35-year-olds living alone is $50,388.
“Australia is a wonderful country but, damn, is it expensive at the
moment! According to consumer surveys it is 20% more expensive than Vienna, 13% more expensive than Nagoya and 10% more
expensive than Toronto.”
How did Tom compare with the average? His total expenses for
the year were a bit higher at $46,125.
Currently working on his PhD, Tom admits years of study means
he only started saving seriously for financial independence in 2012.
One of the reasons that Tom blogs about his journey towards
financial independence is to keep himself accountable and think
things through. It is easy to get dispirited but Tom says there is a
great online community and he chats with people in different parts
of the world.
Tom has taken a close look at where his money goes. His top
10 expenses in 2017 made up around 96% of his spending. He
worked out that he spent $9748 on food and groceries in 2017,
excluding alcohol.
“I live in what I’d define as an expensive suburb but this still seems
a lot. It works out at $6.67 per meal per day, assuming four meals
per day.”
Tom says it is important for early retirees to:
Aim for a savings rate after tax as high as comfortable and
invest the proceeds wisely (ETFs or index funds, super, direct shares,
real estate, etc).
Invest for passive income, both inside and outside super.
Try to save enough so that you can cover your annual expenses
comfortably, from early retirement onwards. The formula used in the
Food &
& insurance
Air travel Gym & fitness
*These made up 96% of expenses in 2017
FIRE community is annual expenses multiplied by 25 as the amount
of capital required.
Know your income and expenses and create a positive cash flow
each pay day.
Reduce your expenses – there’s a lower limit on what’s possible.
It’s important to try to increase sources of income, preferably
recurring/passive (investment properties, shares, Airbnb).
Start today – it’s not the first year of investment returns you
miss out on but the last, and with compounding in play that’s a lot.
There’s a common calculation, known as the “4% rule”, in the FIRE
community assuming that if you can earn an average 7%pa from a
relatively conservative investment, after inflation of 3%, you have
the remaining 4% to spend without reduction of capital.
The maths are based on a 30-year retirement but the assumptions are so modest (for example, not relying on a government
pension, earning an income intermittently during early retirement or
being able to reduce your expenses as you grow older) that it works
for a 60-year retirement too, with just a little tweaking.
Books: A Random Walk Down Wall Street by Burton Malkiel
(excellent for those starting out); The Millionaire Next Door by
Thomas Stanley and William Danko; The Barefoot Investor by Scott
Pape; The Intelligent Investor by Benjamin Graham; The Defensive
Value Investor by John Kingham; Value.Able by Roger Montgomery,
Irrational Exuberance by Robert Shiller; Reminiscences of a Stock
Operator by Edwin Lefevre.
Podcasts: Value Investing series by John Mihaljevic.
*Not his real name.
Micro view ... Serina says
all the little bits of money
add up.
Serina Bird, 45
AIM: retire at 50
INVESTMENT STRATEGY: properties that could potentially be short-term
rentals; passive investment in Vanguard
funds; Acorns investment platform.
ome “frugaleers” eat up the challenge
of finding better, cheaper ways of doing
things. They see it as liberating, not a deprivation. Take Serina, also known as Ms Frugal
Ears through her website. She is a single
mother with two young boys who likes to
take on budgeting challenges such as keeping her grocery bill down to $50 a week,
including cleaning products and toiletries.
She did it for a year.
“Yes, it is achievable. No, I am not starving,” she says. “But it does help me pay half
of my annual mortgage and it does dramatically reduce the amount of food waste.”
Serina insists her frugal lifestyle is a fun
and empowering choice. She blogs about it
on her website
“Life is abundant. And when you respect
and understand money, it almost magically
transforms itself into something that grows
and grows and grows. In financial terms it is
called compound interest,” she says.
Serina took on the $2-a-day challenge to
live below the poverty line for five days. “I
cook meals that cost less than $5, I do a lot
of home fermenting and pickling, I cycle to
work, I’m about to sell my car and most of
my clothes are free or from an op shop.”
She negotiated a better deal on her electricity just by asking for it and ditched her
credit card. She makes her own kombucha
for 10¢ a litre instead of paying $7.95 for a
750ml processed version at her local supermarket. She even forages for wild food such
as salad greens and blackberries.
Her lounge room is full of things that have
a frugal story: the lounge set from the Salvos; artwork by a talented high school student friend and from garage sales; the free
bookcase from someone in her Buy Nothing
Project group.
She says it is important to acknowledge
that we don’t really need too much stuff.
“Most of it is just unnecessary clutter.”
Serina says her divorce set her back on
her goals but she is rebuilding. She has taken on students in a granny flat (when she
lived in a house) to boost her income.
To cut costs and get fitter she has moved
into an inner-city apartment, in spite of
expensive body corporate levies. But it was
a lifestyle decision; it reduced her car commute and has allowed her to cycle to work.
“I offset some costs through energy and
transport savings but the big reason for the
move is that I believe it will add years to my
life as it allows me to be more active.”
But Serina insists she also budgets for
plenty of fun, including cruises, skiing and
going to concerts. She loves family holidays, searches for bargain airfares and likes
affordable Airbnb-style accommodation.
She has always practised “paying herself
first”. “Each fortnight I was making 10%
additional payments into super. I am a public servant on a defined benefit scheme,
and a feature of that is that after 10 years’
employment my work will match additional
contributions up to 10%. So it made sense
to do that.”
She doubled her mortgage payments
each fortnight. “Then any additional savings
went onto my mortgage. For instance, if I
stood in line for a coffee and then decided
not to buy one, I would go back to my desk
and transfer that $4 to my mortgage. That
was my way of incentivising savings.”
The key to saving more, says Serina, is to
keep a record of what you spend. “Just like
going on a diet, saving is about all the little
habits you have.” She likes micro-savings
apps like Acorns. “It is a great way to see
how little bits add up.”
Serina likes to invest in property for
income and capital growth. She has two
investment properties and plans to accumulate more to put on Airbnb.
While it has worked for her, she admits
property income can be uneven. “A complication with the budget is that I have investment properties. Although I have factored
in rents and indicative costs, the costs are
unpredictable. It is difficult to be precise but
I factor in more outgoings just to be safe.”
To provide a stable income, she is beginning to build up passive investments in
Vanguard index funds.
Serina loves her full-time job but in retirement she would love to have a balance
between doing more writing and pursuing
her entrepreneurial ambitions. She hopes to
transition to part-time work.
Mr Money Mustache, The Simple Dollar
and Simple Savings websites.
Noel Whittaker’s books; articles by Paul
Clitheroe and Suze Orman; The Australian
Financial Review.
Barefoot Investor for Travellers Facebook group.
Jason*, 45
AIM: retire in the next few years
INCOME NEEDED: $58,000 in stage 1,
$80,000 in stage 2
INVESTMENT STRATEGY: diversified asset allocation held across Vanguard
funds plus shares; gold, Acorns; Bitcoin.
ason is close to having enough money
to retire. He admits he wasn’t always
driven to retiring early. “In my 20s I considered it completely normal to spend a part of
every weekend in a shopping mall, buying
books, DVDs, electronics, clothes. It was a
habit, pure and simple,” he says.
Looking back on those years of spending,
he says he thinks about the stress and lack
of flexibility as the invisible cords that a
high-consumption lifestyle represents. They
are “tying people to stressful jobs they don’t
like, or to work longer than they prefer”.
Jason took control of his savings and
investing about 17 years ago. He automatically invests around 60% of his salary
from a corporate job, including any raises
or bonuses. “The focus is on working hard,
but for a purpose, to create a portfolio that
starts to slowly break the link between
time spent at work and income.”
He has saved $1.3 million and is close
to his initial goal of $1.47 million, which he
hopes to reach by December. It will produce
a passive income of $58,000 for the rest
of his life. He likes to share what he learns
about investing for financial independence
by listing his investment portfolio, its assets
and the monthly change in values on his
blog The FI Explorer at
Jason also has a longer-term objective to
hit a passive income equivalent to an average full-time salary of around $80,000.
He admits he doesn’t have the patience
or practical skills to be particularly frugal
like many other early retirees. “Probably the
most extreme things I have done is record
my net worth and every single investment
account balances in an increasing lengthy
Excel spreadsheet every single week for
the past 17 years.”
Jason says those snapshots have been
invaluable in seeing progress over weeks,
months and years.
Crucial to his savings plan is buying an
affordable house and not upgrading as
his income goes up. “Plus paying off the
mortgage as quickly as possible, and
regular saving and investing.”
He says clothing used to be a big blind
spot in his spending. “But now I tend to
shop less, and would describe my fashion
style as Target chic.”
He doesn’t eat out much. “As experiences
go, eating out leaves less impression on
me than others, so I tend not to spend very
much on eating out.”
Jason’s approach is all about saving and
investing intensively while continuing to
work in a corporate job, with an ultimate
target of a portfolio that produces a passive
income sufficient to make work optional.
He has been interested in personal
finance over a couple of decades and tried
various ways to work out how much to
save. He looked at his past expenses but
over time he has shifted to measuring his
income needs by referring to good research
such as the ASFA retirement standard.
He invests automatically in the broad-
As for life in retirement, Jason says: “I love
learning, writing and travelling. I’d like to live
at a slower pace, have more time for family,
travel, writing and just following interests. I
enjoy the freedom and different experiences
and perspectives that come with travel, so
I aim to be doing a lot more of it, before and
after I hit my financial independence target.
“I am a few years away from retirement,
and am slowly building a list of things I’d like
to experience overseas, like visiting Machu
Picchu, taking the Trans-Siberian railway
and exploring Europe more.”
Jason’s portfolio at February 2018
• Vanguard LifeStrategy High Growth
• Vanguard LifeStrategy Growth $42,310
• Vanguard LifeStrategy Balanced
• Vanguard Diversified Bonds $102,353
• Vanguard Australian Shares ETF (VAS)
• Telstra shares $4652
• Insurance Australia shares $20,358
• NIB Holdings $8436
• Gold ETF (GOLD.ASX) $77,905
• Secured physical gold $10,684
• Ratesetter (P2P lending) $48,179
• Bitcoin $154,110
• Acorns app (aggressive portfolio) $9895
• BrickX (P2P rental real estate) $4370
Total value: $1,339,424
based Vanguard LifeStrategy High Growth
fund. The money is swept from his account
on his pay day. “So it is as if I never had that
amount,” he says.
As his earnings rose, he increased the
amount going to Vanguard. “Over time
that has become a powerful tool to push
closer to financial independence.” Another
strategy has been “exploration” of markets,
financial products and technology. “They
are always changing and improving. There is
significant benefit in having an open mind,
even as you do your homework on risks and
costs of different types of investments.”
He has 11.5% of his portfolio in Bitcoin,
which has been a wild ride this year. “It is
a completely different asset, uncorrelated
to anything. One of the interesting things
about investing in Bitcoin is looking at my
own reaction.”
Asset allocation
Shares: Australian 32%, international 18%,
emerging markets 2%, international small
companies 3%. Total 55.4%.
Property: Australian securities 3%, international securities 3%. Total 6.2%.
Bonds: Australian 10%, international 9%.
Total 19.6%.
Other: cash 1.3%, gold 6.6%, Bitcoin
11.5%, gold and alternatives 18.1%.
A Random Walk Down Wall Street by
Burton Malkiel, The Four Pillars of Investing by William Bernstein, Your Money or
Your Life by Vicki Robin; John Bogle’s many
books, such as The Little Book of Common
Sense Investing.
Mr Money Mustache; Australian FI
bloggers such as Pat the Shuffler; Australian
FI themed discussions on
* Not his real name.
Joanna Jones*, 60
INCOME: $18,000 a year
her own home; employer share plan; maximising her superannuation.
oanna’s first step towards early retirement was to set down a five-year plan.
“I decided what I really wanted my life to
look like in five years. I wanted to own a
house and a car and to have won awards
for my craftwork.”
Joanna mapped out where she wanted to
live based on public transport and narrowed
down her search to part of one suburb. “I
bought a cheap, unrenovated house in the
inner city. It was a dump and I lived in it and
gradually fixed it up as I had extra money.”
She lived for years with cracked walls
and an original kitchen and bathroom. “I
fixed one room at a time, living in the other rooms,” she says. "One day I climbed
up my ladder to knock off the plaster in
what had been my bedroom, hit the plaster once, and the whole wall collapsed
– nothing was holding it on. I had been
sleeping in that room for four years since
the restumping, and the plaster could have
collapsed at any moment.”
She also participated in an employee
share plan and hung onto the shares for
many years.
Her first set of wheels was a small secondhand car that she kept until it stopped
working one night at roadworks on a freeway in the pouring rain. “I keep cars until
they become unreliable, despite regular
services and being well maintained.”
She was retrenched at about the same
time as she paid off her home loan. Part of
the retrenchment deal included some financial advice. “I went contracting and started
a business and an SMSF. I paid myself only
as much as I was spending and I kept my
spending low. The rest, about 70%, went
into superannuation.
“Each time I moved jobs I added the
super into my SMSF because no workplace
would put money directly into an SMSF
then. Many corporate jobs had defined benefit superannuation anyway, so when I left
there wasn’t much to transfer.
“I was spending around $18,000 a year.
I went to a seminar about my superannuation scheme, and there was a financial
planner there. I told him what I had and
how much I spent, and he said I could retire
tomorrow. It took a while to believe him. I
got a few months off work and spent that
time making really sure all the figures were
right, and then retired at 51.”
Joanna keeps her spending low but
doesn’t think she does anything extreme.
“I never had a television – I think that helps
enormously, as you aren’t continuously
bombarded by the latest and greatest
gadget, and you have time to develop skills.
I have found that since leaving work my
spending has gone down.
“I make most of my clothes, so I don’t go
clothes shopping. Clothes are more expensive to make but if you don’t go clothes
shopping you are much less likely to have
far too many clothes.”
Joanna also grows her own food. “I have
enough fruit trees in my garden to never
need to buy any fruit. I grow vegetables. I
love soup, and in winter hearty soups are
my main meal. I have cheap hobbies, and
when I worked most holidays were spent
volunteering at exhibitions or doing other
things related to my hobbies, rather than
having an expensive trip.”
Joanna remembers that when she
was a child her pocket money lasted
longer than anyone else’s. “So I guess I
was always frugal.” She says she finds it
bizarre that people believe they can have
everything. “No one can. But you can have
a lot. I was always amazed that all my work
colleagues could afford to go overseas
every year. I decided that I was no good at
finances, and they were much better than
me. I also think that, even now, I do have a
high consumption level.”
In Joanna’s retirement she looks after her
parents, who have had some health issues
and are becoming more fragile. “There is
no way I could have done that and still be
working. They started to be ill occasionally
before I stopped working and the stress of
trying to both work and look after them was
too much even then. I am really happy that I
retired because I can do things for them.”
She admits she has one luxury: travel.
“Each year I work out how much was left
over from last year, decide where I want to
go and plan an itinerary accordingly.”
She looks for special deals. For example,
she once drove an RV that had to be relocated from Seattle to Anchorage in the US for
25% of the regular price.
Joanna gives to a charity every year too.
She makes sure that she gives more than
what she spends on travel, or one tenth of
her “income”, whichever is greater.
* Not her real name. M
The future
Watches, rings and even sunnies take tap-and-go to the next level
ustralia loves a good tapand-go. In fact, we make the
payments in the world. A
recent Reserve Bank survey
found 85% of us hold a contactless card, with
tap-and-go accounting for 66% of all card payments made Down Under. But what happens
when the exertions of digging out that card
from your wallet become too much to bear?
Welcome to wearables – watches, fitness
trackers, wristbands and jewellery that let
you pay over the counter using the same
pay-pass technology as your contactless card.
Currently only 16% of Australian consumers
own a smartwatch and 20% own some wearable device, according to research from RFi
Group. But that could all change as Aussie
banks join the party.
In the past year Westpac, Bankwest and
Heritage have all offered a wearable payment option (wristbands, rings) linked to a
customer’s everyday account. Could we be
looking at the future of banking?
“It’s an introduction to the future, yes. But
it’s only phase one,” says Joe Hanlon, publisher
of tech comparison site WhistleOut.
All you need for contactless payment is an
NFC (near-field communication) chip and
somewhere to store it, says Hanlon.
devices – your smartphone, your smartwatch
– is the sheer amount of effort we must put
into just keeping them alive. A [Bankwest]
Halo ring, for instance, is waterproof, you
can’t drop it, you don’t have to charge it – it’s
passive. You just tap your knuckle and go,”
says Hanlon. “That’s really quite cool.”
The main selling point for this first round
of bank-affiliated wearables is on-the-go
convenience. Westpac, for example, markets
its PayWear range as “perfect for the beach
… or your morning run,” citing a survey in
which 49% of female respondents admitted
to stuffing cash into their bras and 39% of
males to filling their undies or socks.
Wearables come as wristbands (Westpac,
Heritage), a personally sized ceramic ring
(Bankwest) or a “keeper” that attaches to your
current watch or fitness band (Westpac). Each
device operates as an extension of your contactless debit card; your purchase limit is still
$100 and any higher amount requires a PIN.
The Heritage Hova wristband was originally
released as a limited run in December but
the bank looks sets to roll it out again soon.
While not strictly a wearable, CBA has the
CommBank PayTag, a small sticker ($2.99)
that attaches to the back of your smartphone.
Are the other banks likely to follow suit?
“Yes, I think over time each Australian
bank will have a wearable offering available
to their customers,” says Alex Boorman, head
of payments at RFi Group.
“There’s really only a small segment of
the population using wearables to make
payments right now. But ultimately what
the banks and card schemes aspire to is to
give consumers the greatest choice when it
comes to making payments, and wearables
could well offer a more seamless payment
experience down the line.”
a range of contactless solutions: the Original
Curl ($19.95) can be attached to your existing
watch or fitness band, the Wave ($24.95) on
your keychain. These are waterproof, prepaid
NFC-enabled tokens with a maximum top-up
of $2000. Bank transfer load time is two days.
from Frank Green ($39.95). Powered by Visa,
this prepaid reusable “keepcup” let’s you tap
for your morning coffee, and anything else
up to $50, with a maximum balance of $200.
So should we rush out to splurge on a smartwatch or fitness tracker to keep pace?
“We’re certainly seeing more people using
Fitbit or Garmin – to pay for things on the go,”
says Hanlon. “But generally no one is buying
a $400 Fitbit Ionic to pay for a coffee – the
fact they can is an added bonus.”
Aside from their more obvious functions
(time and date, step counters and heart-rate
monitors) certain smartwatches and fitness
trackers can now act as mobile wallets, allowing
customers to store multiple debit and loyalty
cards within one app. Simply log in to tapand-pay, view your balance or, in the case
of Commonwealth and Westpac customers,
make cardless cash withdrawals.
Australia has an ever-growing list of compatible devices. These include, but are not
limited to, the Apple Watch 3 (from $459),
Fitbit Ionic (from $369), Garmin Vivoactive 3
(from $437) and Samsung Gear S3 (from $329).
However, the biggest hurdle is knowing
whether your bank supports the payment
system for your device. In Australia, only
Fitbit Pay is accepted by the big four. Apple
Pay boasts plenty of other banks and credit
unions but only one of the top four (ANZ).
Check with your bank first.
What about your mobile? Given that 88%
of Australians today are smartphone users,
surprisingly few of us are using our phones
for tap-and-pay. In fact, only 26% of us are
even aware that we can, according to the
2017 Mastercard Digital Purchasing Survey.
“The utility of paying with a phone hasn’t
really been demonstrated to consumers very
successfully,” says RFi Group’s Boorman. “The
consequence being that we don’t really see
contactless payment with a phone as better,
or quicker, or more convenient than making
a contactless payment with a card.”
Using your mobile may be a smart way
to test the wearable waters, says Hanlon.
“Start with what’s in your pocket,” he says.
“The major banks all have apps that support
contactless pay for smartphones. Set it up
and test it out to see how comfortable you
are using it at the checkout.”
Android Pay
Apple Pay
Fitbit Pay
Garmin Pay
Samsung Pay
is wearable
Weird and
Grin and wear it ... right, the PayWear chip goes in a
keeper or band; centre, the Halo ring; far right, the
Heritage wristband.
But do advancements in payment technology present greater security risks?
cards, including zero liability policies protecting
cardholders from fraudulent or unauthorised
transactions, multiple fraud detection systems,
$100 transaction limits, a short read range and
sophisticated encryption.
“New technologies bring convenience but we
need to be aware of new fraud vulnerabilities,”
says Leila Fourie, CEO of Australian Payments
Network. “Just like contactless cards, consumers
still need to keep their wearables safe and treat
them as if they were cash.”
Protections such as low transaction limits are
an effective protection, says Fourie. “Typically
fraudsters target opportunities involving higher
values. It’s just too much hard work and too little
gain for fraudsters to target smaller values.”
Hanlon says that as long as the financial institution is willing to safeguard our money, then
we have little to worry about. “The changes in
tech aren’t amplifying the risk; the same risk
was present before the tech arrived. The tech
just makes it cooler to use.”
Could wearables kill off cash?
In 2017, according to Australian Payments Network, cards officially took over from cash as our
most common payment method, owing in large
parttothe ubiquityofcontactlesspay.Crucially,we
also lead the world in point-of-sale (POS) terminals
with 39,337 per 1 million residents, according to
the Bank for International Settlements.
As such, the scope for wearables is infinite –
from ski gloves to sunglasses and even, dare we
say, bodily implants (see breakout).
You might be able to do away with your wallet
faster than you think. Contactless payments can
now be made on all Sydney Ferries services and
on the inner west light rail; South Australia has
had digitised driver’s licences (plus proof of age
cards and boating licences) since October; the
Service NSW app supports licences for boating
and fishing.
“Although contactless is deeply penetrated
here, mobile wallets at the moment only account
for about 2% or one in every 50 in-person card
transactions made,” says AusPayNet’s Fourie.
“In saying that, it’s an exponential technology.
We expect that the growth rate for wearables and
mobile wallets will be considerably higher in the
next few years in this country.” M
ings and wristbands are
just the tip of the iceberg.
For instance, Visa released three
contactless pre-paid devices for
spectators and athletes at the 2018
winter Olympics in South Korea.
These included gloves, commemorative stickers and badges.
Closer to home, Inamo trialled
its Visa WaveShades (prepaid
Wayfarer-style sunnies) at last
year’s St Jerome’s Laneway music
festival. Likewise, organisers at
last year’s Byron Bay Bluesfest
replaced drink tickets with radio
frequency identification (RFID)
wristbands, and Splendour in the
Grass introduced Visa payWave
terminals at all bar tents.
In the UK, Barclaycard and Lyle
& Scott released a contactless
payment jacket for £150 ($267)
featuring a chip in the sleeve. And
in 2015 the UK animal charity Blue
Cross launched a contactless dog
jacket, allowing anybody willing to
donate to simply tap the dog.
Perhaps the most intriguing of all
these trends would be implantable
wearables. For instance, Sydney
biohacker Meow-Ludo Disco
Gamma Meow-Meow had his Opal
travel card’s NFC chip implanted in
his left hand by a piercing expert.
(Transport for NSW later took him
to court, where he was fined $220,
plus $1000 legal costs, for breaching the card’s terms of use.)
“We’re moving towards a time of
empty pockets,” says Joe Hanlon of
WhistleOut. “The moment convenience and functionality outweigh
the fear of putting a chip in your
body, I guarantee that stacks of
people would join in.”
Parents have an important tool
to teach their children financial
skills that can last a lifetime
hese days, giving pocket money is controversial. It has remained popular with
some parents but others have moved
away from the belief that pocket money
is the best way to improve children’s
financial literacy. Everyone has reasons for giving
or not giving.
So should you give your children pocket money? Yes.
Despite objections about giving pocket money, I think
pocket money has a place in children’s financial literacy.
Correctly given, pocket money can be a very effective
tool in teaching lessons about earning money, saving,
spending, donating, investing and even budgeting.
Receiving pocket money may not be the first time your
child is exposed to a money transaction but it’s likely to
be the first time the transaction affects them directly.
Unlike going to the grocery store and paying for
the groceries with money given by mum and dad,
receiving pocket money is real because the child gets
to keep the money. The child gets to decide what to do
with the money later. If they have to save to buy their
favourite toy, children also learn delayed gratification
in the money context.
When these skills are developed over time, your child
will cultivate good money habits that will help them
make good money decisions in the future. I’m a firm
believer in giving children pocket money but I don’t
agree with the conventional way of giving pocket money.
If we want to realise the benefits of pocket money, we
must be prepared to put some thought into it.
The conventional way is flawed
After overcoming the hurdle of deciding whether to give
pocket money, many parents will then go through what
I went through when I first gave my children pocket
money. I call this the conventional way.
I decided on an arbitrary amount to give. We live in
one of the most expensive cities in the world (Sydney)
so the dollar doesn’t buy much these days. The amount
of pocket money I gave my children was dictated by
money. Miscommunication is the underlying cause of
a lot of angst between parent and child. We have not
set boundaries for the money, we haven’t explained
why we’re giving them the money and we haven’t set
our expectations about what happens to that money
once it leaves our hands. Maybe it’s because we are
not sure why we’re giving them pocket money. If this
is the reason, then we ought to clarify the reasons for
ourselves first, before we give pocket money.
The better way to give
Giving pocket money is more than handing over an
arbitrary amount every week while espousing words
of wisdom to the children. If you decide to give pocket
money, there are a few things you need to think about.
When to start giving
Most children start receiving pocket money from the
age of six. This is not to say that money is taboo for
children under the age of six. The earlier children are
exposed to money concepts, the easier it is for them to
learn more complex money lessons as they grow older.
Up until the age of about six, children’s exposure to
money should be fun. They learn about money in the
abstract – what it looks like (notes and coins), where
to keep it (money box) and what they can physically
do with it (spin it, roll it, fold it).
From about seven years old, children begin to understand the concept of money as something valuable. It’s
no longer about seeing money as an object. Now they
begin to understand money as a valuable commodity. It
has the power to make things happen, like buying things.
how much I thought they would need to buy ordinary
items at the shops. I then went through the weekly ritual
of handing over the money to my children. Sometimes
this might be accompanied by words of wisdom such as:
spend it wisely; don’t go spending all of it; don’t spend
it all on junk; and save some for a rainy day.
Parental duty done, what’s next on the list?
If this sounds familiar, I’m afraid I have bad news for
you. This is not the most effective way to give pocket
money. I learned this the hard way. A fundamental
problem with this approach is that I allowed society’s
spending habits to dictate how much pocket money I
give to my children. Instead of choosing an amount
that made sense to me as a parent of young children,
I allowed the price of goods and services to influence
the amount my children ought to receive.
Another problem with this approach is that we have
simply thrown money at the children and hope they
learn to be sensible with it. But we can’t explain why
one child gets a certain amount and another child gets
another amount. Or why both children should get the
same amount. We also haven’t defined exactly what is
“sensible”. What may appear sensible to the child may
be irresponsible by adult standards. Similarly, what
is sensible in the adult world may appear nonsensical
for the child.
To achieve a common understanding, we need to
have a conversation with our children about pocket
Don’t forget
the conversation
The problem I
is I allowed •
the price of •
goods and
services to
how much
they got
t’s time to have a conversation with your children
about pocket money when you:
Know what money lessons you want to teach
your children;
Are clear on the rules for giving, using and
stopping pocket money; and
Have decided to use pocket money as the tool to
teach them those lessons.
Every week or fortnight, when you hand over
the pocket money to your children, check that they
understand the lessons you want them to learn.
Have a conversation with them each time you give
them pocket money. Ask them questions to get
feedback that they understand what you’re teaching.
For younger children, it’s important that they are
having fun with the pocket money tool. Lots of praise
and encouragement in the beginning is the key to
sustaining their habits.
Any conversation, no matter how brief, is still a
conversation. It can be as short as a few minutes
or it can be a few hours – be guided by your child’s
response and interest in the topic.
So it’s now time to teach them how to be responsible
with money. It is also from this age that money lessons
are dictated by the child’s maturity and understanding
about money rather than the age of the child.
How much to give
money is
one of the
tools we
can use
to teach
about money
One good formula to follow is to give the child $1 for
each year of age: a six-year-old will receive $6; an eightyear-old will receive $8; a 12-year-old will receive $12.
This takes away any perceived unfairness that can arise
if an amount is picked arbitrarily and randomly. By
the time the child is working age, you should consider
stopping or reducing the amount you give to encourage
them to get a part-time job or find other ways to legally
earn money outside the home.
How often to give
Weekly pocket money works best for children up to the
age of 10 years. Decrease the frequency to fortnightly
or monthly for older children because from the age of
11 children are able to exercise delayed gratification.
Children in this age group should be taught how to
budget to make their money stretch before they receive
their next “pay”.
Pick a day of the week where the family is not busy
and spend some time talking to your children about the
money as you hand over their pocket money.
What lessons do you want
to teach?
Every exchange of money is an opportunity to teach
or reinforce a money lesson for the children. You have
the power to decide what money lessons your children
will learn when you hand over their pocket money.
Here are some money lessons you may wish to teach
and the conversations you can have with your children:
Earning. Ask your child questions to gauge their
understanding of why they are getting pocket money.
Ask them how else they can fill up the money box.
Saving. Encourage your child to keep their money
away safely in a money box (or bank account for older
Spending. Help your child decide how much of
their pocket money they should set aside for saving
and how much for spending.
Donating: Philanthropy is an important lesson
to teach children that money can be used for a greater
good. Decide as a family which charity you will support.
Older children can decide if they want to support their
own charity. Encourage your children to set aside some
money to donate to charity.
Investing: For children 11 years and older, delayed
gratification is the cornerstone of teaching the child
about saving and investing. Mid-teen years are the best
years to start teaching children about the concept of
investing, using examples of delayed gratification. Help
your child understand investing in shares by speaking
to them about buying a share of the shops your family
frequently visits. Online share investing games tailored
to teenagers are a great way to spark their interest in
investing in shares. You could also show them how
compounding works by using compound interest as an
example and explaining the bank statement to them.
What rules will you have?
Now that you have empowered your child with money,
decide what rules you will have. What limits will you
set to their use of the money? Discuss with them what
they are allowed and not allowed to spend their money
on. It’s their choice but you have the right to veto. For
example, they cannot spend all their money on lollies.
Writing down these rules can be useful to resolve
any future disagreements. You can add to or modify
the written rules as needed. If you have more than one
child, these rules serve as the consistent approach to
pocket money for every child in the family.
Tying pocket money to chores
Despite it being a foundation for understanding money,
opinion is divided as to whether pocket money should
be tied to chores. Some parents give pocket money
with no strings attached. Other parents give pocket
money on the condition that the children complete
household chores.
they are part of the family and doing chores is helping
out the family. There are also parents who believe that
relating chores to pocket money teaches children the
concept of working for money. Just as parents work to
earn money, if the children want money they must earn
it by doing work around the home.
The approach you choose depends on what money
lesson you want to teach your children. Remember, pocket
money is one tool you can use to teach children money
lessons. If you want your children to learn about earning
money, then giving pocket money for doing housework
is one way of teaching them. If you want to teach your
children other money lessons that do not involve the
exchange of time, skill and effort for money, then don’t
link pocket money with completing housework.
There is, in fact, a happy medium to this debate. It’s
one that works brilliantly for my family. We identify
“family chores”, “contribution chores” and “individual
chores”. Individual chores are those that must be completed by the child as a personal responsibility. These
chores generally benefit the child only – keeping their
room tidy, making their bed, etc – and should not be paid.
Contribution chores are chores the child completes
as a contribution towards the family. These are chores
which benefit another member of the family and can
technically be categorised as family chores. However,
these chores are not paid.
The third category, family chores, are chores which,
if completed by the children, will relieve the parents
from doing it. Family chores in my household include
feeding the family pet, doing the laundry, loading and
unloading the dishwasher, etc. The latter category of
chores is one that we tie to money. This is because it
relieves mum and dad from doing the chores, therefore it
frees up mum and dad’s valuable time. The time it takes
a child to complete these chores ought to be exchanged
with money – these are paid chores.
Whether you have an open market for paid chores
(that is, anyone can do them and whoever does it gets
paid) or allocate certain family chores to each child is
up to you. I prefer to allocate certain family chores to
each child because I have found that sometimes the
open market doesn’t work – none of the children want
to do it and I end up having to do it. When I allocate
specific family chores to individual children, these
chores get done. I also have a rule which requires the
child to pay whoever completes the chore for them if
they don’t do it. This can include paying mum or dad
if we have to do it.
If a child is saving up for a goal and is asking for ways
to earn more money, you can then find other family
chores for them to do to help them reach that goal.
This would be akin to a child asking to do overtime in
a real job. I also had instances where one of my children
offered his allocated family chore to his sister so that
his sister could reach her savings goal earlier.
When to stop giving
Pocket money is not supposed to go on forever. We don’t
want pocket money to hinder children from finding ways
to earn their own money. Nor do we want to be raising
“kidults” or funding their adult lifestyle. It’s important
that you decide, at the outset, when you want to stop
giving your children pocket money.
This should then form part of the conversation
you have with the children at the start of giving them
pocket money. This sets the expectation for both the
parent and the child as to when they can expect to stop
getting pocket money. If you are not ready to cut off
their pocket money supply on that future date, you can
extend this date. It’s always easier to extend the time to
inflict financial pain than it is to inflict the pain itself,
so setting up the expectation of an end date at the outset
will minimise any angst later on.
Pocket money is one of the tools we can use to teach
children about money. The timing of when to stop
giving pocket depends on the lessons you want to teach
your children. Money lessons that are learnt over time
become a habit. Once your child has developed the
habit, it’s time to move onto other tools to teach other
lessons and develop another habit.
Whatever your time frame to stop giving pocket
money, you should be reducing the amount you give to
your child once they are old enough to work. This will
encourage them to get a part-time job. M
Kids Money Habits
This is an edited extract from
Kids Money Habits by Amy Koit,
founder of
Money has five copies of the boo
to give away. To win a copy tell us
in 25 words or less your best tip
for teaching kids about money.
Send your entries to money@ or Money
magazine, GPO Box 4088, Sydney,
NSW 2001. Entries close May 2, 2018.
We don’t
want pocket
money to
their own
The need for
rollout has
had its
but it’s a
of our digital
Harrison Astbury,
telco specialist,
Canstar Blue
Kenny McGilvary,
manager, WhistleOut
Natalie Pennisi,
Do I have to connect to
the NBN?
The short answer is no, not right away. In
most cases, you have 18 months to switch
before your old broadband connection is
switched off, be it ADSL or cable. Your current provider in most cases will provide an
“NBN transition” service, which basically
means you don’t have to lift a finger. Still, it
can pay to look at the type of wi-fi router/
modem you have – if it’s more than a few
years old it could be time for an upgrade.
How do I know if NBN is
available at my property?
The easiest way is to visit NBN Co’s website
(, which has an address checker
on its home page. Simply enter your address
to find out if NBN services are available
now, or when the NBN rollout is planned
for that area.
You’ll probably already know if the NBN
is about to come to your address because
service providers typically drop leaflets
in neighbourhoods in advance, while your
existing internet provider will very likely
contact you about switching. Just remember
it pays to compare. If you don’t check what
different NBN providers have to offer then
you won’t know if you’ve chosen a good deal.
How much will the NBN cost?
Are the plans more expensive
than what I am paying now? Are
there set-up fees as well?
Well, that really depends on the type of plan
that you choose as well as your choice of
provider. NBN internet is priced on speed
tiers, and there are a number of them to
choose from. It really depends on what’s
important to you – speed, data and other additional bundled items. A standard
installation of NBN equipment is currently
free of charge; however, activation fees can
vary depending on the term of the contract
and service provider. Higher-speed plans
are priced from $70 to $100 a month for an
unlimited NBN plan, depending on where
you’re located, which is only a little more
than average non-NBN offerings. Plans with
a longer contract may be cheaper. Your best
bet is to get advice from experts who know
what’s available in the market and can talk
directly with you about the options available
at your address, providing recommendations
on which provider and plan best suits your
individual or family needs.
What is the $300 new
development fee? If I own
an investment property, do I pay
it or does the tenant?
The $300 new development fee is a charge
issued by NBN Co to a phone and internet
service provider that places an order for an
NBN network service to premises in a new
development. This is a one-off charge which
service providers have the option to pass on
to end users, and most do.
While rental tenancy acts change from state
to state, typically, if you own an investment
property then you aren’t legally obliged to
pay the new development fee.
However, in practice, it’s more often a
negotiation process between the landlord
and tenant, where landlords pay the fee
most of the time. Mainly because it’s so
closely entwined with property, it’s largely
expected from prospective tenants, who can
always choose somewhere that does cover it
(which is easier within new developments).
Not having to pay the new development fee
will make an investment property more
attractive to
o a potential tenant.
What do I need to get started –
any particular hardware?
The first thing to find out is when your home
will be ready for NBN installation. More than
50% of Australian homes are already NBN
ready, and it is expected that the rollout will
be completed by 2020. When your home is
ready, you will need an NBN compatible wi-fi
router/modem, which your provider will
provide. Depending on the terms, this may
be at a cost for month-to-month plans or free
with a longer-term contract. That’s why it’s so
important that you check with an NBN expert
who has visibility over all the providers and
plans available to get the best deal.
Will I need a new phone
and can I keep my current
phone number?
By and large, most people won’t need a new
phone. NBN Co tells us most current phones
should work with an NBN fixed-line service,
unless it’s a rotary dial or pulse-dial-based
phone. Some old phones may need a new
cable or converter but your phone provider
should be able to confirm this.
You can also keep your current phone number
when moving to an NBN service. Make sure
to tell your service provider that you want to
keep your number when transferring across
to the NBN and it will help you.
What does evening speed mean?
And how do I know what speed
is right for me?
Much like road traffic slows down during
busy peak hours, so too can the internet,
Make sure you tell your service provider that
you want to keep your number when transferring
across to the NBN
Try a no-contract plan first and see what the
experience is like rather than committing to
a 12- or 24-month contract
and internet service providers have had to
change the way they advertise to reflect this
reality. Instead of listing their theoretical
maximum service speeds, they now list the
speeds you can expect during the peak hours
of 7pm and 11pm.
These are being referred to as “evening
speeds” and are a much more accurate indicator of how fast your internet will be.
Knowing which NBN speed is right for you
and your household will likely only become
fully apparent once you start using a service
Currently most NBN providers are selling
their NBN50/Standard Plus Evening Speed
services for the price of NBN25/Standard
Evening Speed ones, and we’d suggest this
is a good place to start. It should mean most
users really experience the uplift in speeds
that the NBN promises, with prices starting
at about $60 a month.
What happens in a
One of the most notable things about some
NBN connections is that in the event of a
blackout your internet connection could
keep soldiering on. This applies to fibreto-the-premises (FTTP) customers
who as part of their NBN set-up get
access to an NBN battery. Popular
providers such as iiNet, TPG and
Telstra provide an NBN battery
that can keep your broadband
connection alive.
If you have medical needs,
arrangements are usually made
with the telco to keep emergency alert systems alive even
during blackouts.
The NBN battery lasts up
to five hours and costs around
$40 but stock NBN batteries are
covered by a two-year warranty,
where telcos reimburse you for the
cost of your battery. How much you
arereimbursed varies from telco to telco.
because everyone has different usage habits
and technology mixes. Our advice is to try
a no-contract plan first and see what the
experience is like rather than committing
to a 12- or 24-month contract. That way, if
a lower-speed service doesn’t cut it for you,
it’ll be easy to upgrade to a faster one until
you find one that’s right for you.
I have heard people complain
that their NBN is slow. Why
does that happen and is there
anything I can do to speed it up?
Your connection speed will depend on your
NBN plan and NBN technology available
in your area. The faster the speed that you
select, the more you’ll get out of your connection. We would recommend starting at
the 25/5Mbps speed tier as a minimum unless
you only use the internet for basic browsing
(no streaming) and emails. 12/1Mbps is not
considered superfast by NBN and many
customers who have connected on this speed
may experience slow internet compared with
faster plans that are available.
There are a range of factors that can affect
your NBN experience, one being network
congestion, which can slow down your speed.
If you think of your NBN connection as the
highway and your provider as the gateway,
your internet experience can be influenced
by how your provider constructs its gateway.
During off-peak hours, much like road traffic,
speed flows quickly; however, some providers
may have less capacity during peak period
such as the evening. “Evening speeds” are
used to refer to the speeds you can expect
between 7pm and 11pm when more people are
online. If you use your internet more in the
evening, that’s a big factor to consider when
choosing the speed for your NBN service.
I have NBN and I’m not happy
with the service. What can I do?
If you are unhappy with your service, NBN
Co instructs you to raise the issue with your
telco and not them. If unsatisfied with your
telco’s response, you can then raise your
issue with the Telecommunications Industry
Ombudsman (TIO). If speed is the main concern, you usually must run a series of speed
tests at different times of the day to satisfy
your provider. If successful with your claim,
you may have the opportunity to get out
of your contract at no penalty or even receive
compensation. If on a no-contract plan, you
can also simply switch providers.
Visit for
the answers to more questions including:
What should I consider when comparing
NBN plans – how do I choose and what’s
the difference between all the NBN
connections – eg FTTN, FTTC and
satellite – and do I get a choice? M
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BANKING Effie Zahos
Share the housing pain
A new online platform
could eventually make
co-ownership easier
he world’s first co-ownership
platform, Kohab, was launched last
month amid claims it could be the
answer to Australia’s home loan
affordability issue. It’s a big call given
people have always been able to buy
property jointly. One could argue that it’s
more of a marketing initiative – a very
clever one at that – than a solution to
home unaffordability.
Even Darren Clark, co-founder of Kohab,
told 9Finance in March that “Kohab
facilitates something that has existed for a
while but there hasn’t been a public forum,
a process, an education that makes sure
you’re doing the right thing”.
Essentially Kohab is an online
marketplace that matches people who want
to co-own a property, either to live in or
rent out as an investment, or for lifestyle
reasons, where two or more parties may
want to share a holiday home or a second
home. In addition to matching buyers, the
platform provides property listings, legal
documents and access to mortgage options.
Kohab operates through a tenants-incommon arrangement, rather than the
more popular joint tenancy. Under tenants
in common each party holds an individual
interest in the property. It can be equal or
unequal. If one person dies the deceased’s
share becomes part of their estate, whereas
with joint tenancy their share is transferred
to the other owners.
The biggest issue with co-borrowing is
preparing for worst-case scenarios. As a
co-investor myself the two main issues I see
from a lending point of view are a restriction
on borrowing power for each party and the
ongoing liability that if one party stops
making repayments, for whatever reason,
the other one is still responsible.
Kohab claims to have solved the first of
these two issues, which would indicate it
just may be more than a marketing
initiative, although it’s important to note
that at this stage it still appears to be a
work in progress.
“There are mortgage products in the
market currently being developed that are
changing the way banks address the credit
scenario and split loans,” says David
Dawson, Kohab’s CEO and joint founder.
Let me give you an example. Let’s say a
brother and sister purchase a $1.4 million
property together. The siblings own it
50-50 and they purchase the property
through tenants in common.
Both parties have a $200,000 deposit
(plus savings to pay statutory expenses).
They borrow $500,000 each, which means
lenders mortgage insurance is not needed.
Now there’s nothing new here and, as
Dawson agrees, banks have given loans in
this type of scenario for decades. Lenders
would require both borrowers to prove they
could service the whole loan. This is where
the issue of reducing your borrowing power
comes in. If one party wanted to take out
another loan in their own name, then more
than likely the lender would include the
joint loan as a whole liability for the one
party ($1 million in this example), thereby
reducing their borrowing power.
Through Kohab – and my understanding
is that this offering is still being developed
– the siblings would need to demonstrate to
the bank their ability to service their part
of the loan only.
As for the issue of one party not keeping
up with repayments, Kohab would fall in
line with the usual protocol that the other
party would be held responsible. While
there is no new development here, Dawson
does say that there is an insurance policy
under development that should solve this.
“There is a bespoke insurance policy
currently being designed exclusively for
Kohab co-owners. A policy is taken out on
the other co-owner for the purpose of loan
repayment in case of default – for example,
six-, 12- and 18-month mortgage coverage
payment if a co-owner can’t pay due to
loss of income, disappearance, death,
plus other features.”
I suspect that this would add to the cost of
the loan. Right now the only fee that applies
to this platform is the $660 to download the
co-ownership agreement, developed by legal
firm Sparke Helmore, to accommodate some
of the issues of co-buying a property.
Kohab receives a commission from this
and on lead referrals from any properties
sold through its website (about 80,000
listings on the site through onthehouse. or mortgage loans written.
Clearly there a few details that still need
to be sorted out for Kohab to move from
marketing initiative to real game-changer.
Once rolled out completely, it will certainly
make the idea of co-borrowing far more
flexible and easier than it is today.
More a case of watch this space.
Finance expert and author of The Great
$20 Adventure, Money’s editor Effie Zahos,
appears regularly on TV and radio. She
started her career in banking.
Cut the legal red tape
After the celebrations, if you’re part of a same-sex couple you need to
get to grips with some boring but important paperwork
Power of attorney and
n all the excitement around celebrating
a same-sex marriage, probably the last
thing on your mind is safeguarding
your wealth as a couple. But if you haven’t
already discussed finances with your
partner, it is always a good idea to clear the
air. There are a number of legal documents
to draw up that will help protect each
person’s assets – and the dependants – in
case of any unforeseen events.
Having a marriage certificate makes it
easier for same-sex couples to explain their
relationship to a super fund, lawyer or doctor. Without a certificate, you can spend
more time and often more money providing
documentation about the de facto relationship, such as how long it had been going.
De facto relationships aren’t as clear-cut
as you would expect, says Anna Hacker,
estate planning specialist at Australian
Unity Trustees, even though they have
been formally recognised by the Australian government and the Family Court. For
example, each Australian state has slightly
different definitions of a de facto relationship, with some providing an option for
same-sex couples to register their relationship. This can complicate the laws around
the definition of de factos and ultimately
the rights people have.
A marriage certificate is more straightforward evidence in legal processes involving
children, says Hacker. “It will help simplify
rights and kids,” says Hacker. “If they weren’t a biological parent, before same-sex
marriage it was quite difficult. Same-sex
marriage will make all the difference.”
What should be on a same-sex couple’s
to-do list?
The will
When you say “I do”, it’s time to draw up
a new will because your previous will is
revoked. That is unless you made the will
in contemplation of the marriage. So it is
best to draw up a new will when you get
married. If you don’t and you pass away,
While you are updating your will, Hacker
says it is a good idea to go a step further
and upgrade the estate plan, which includes
looking at any trust structures such as a
family trust if you have one. The family
trust might not have included partners and
may be set up only for blood relatives.
Perhaps the most important documents
are a power of attorney and an enduring
guardianship. While a power of attorney
involves appointing someone to have the
legal authority to look after your financial
affairs on your behalf, an enduring guardian is appointing someone to make lifestyle,
health and medical decisions for you when
you are not capable of doing this for yourself. These are vital for unforeseen events
such as an accident or medical emergency.
you are considered not to have made one.
This means your assets will be distributed
according to the legislation and perhaps
not in line with your wishes.
So if you want to leave your estate to
your children rather than your new partner, you may not be able to if you don’t
create a new will after marriage. The laws
around estate planning differ from state
to state, making it hard to generalise.
Prenuptial agreement
Hacker says couples in a de facto relationship typically didn’t consider drawing up
a prenuptial agreement as it tended to be
done before the wedding. But given
Australia’s high divorce rate of 28% of
marriages, it makes sense to consider it.
Prenups are a binding financial agreement that can be drawn up by both samesex couples and de factos.
They can be a straightforward way to
split assets and cheaper than going to court.
They are fairly watertight as they have
been around for 20 years and there is now
a large body of legal precedent to provide
them with some certainty.
The developments in Australia raise
some interesting questions about the
recognition of same-sex marriages that
take place overseas and the legal rights of
the partners. “They will now be recognised
but when are they valid from?” asks
Australian Unity Trustees’ Anna Hacker.
The Marriage Act recognises existing
and future same-sex marriages carried
out overseas under the law of a foreign
country from December 9, 2017 but Hacker
expects this to be challenged.
She says there will be some legal claims
arising from divorces or deaths from the
partners of overseas same-sex marriages.
For example, if the same-sex couple who
married overseas has separated and the
marriage is recognised in Australia, then
there could be some retrospective claims
on property.
Susan Hely has been a senior investment
writer at The Sydney Morning Herald. She
wrote the best-selling Women & Money.
Time is wasted on
doing the salaries
NAME: Stewart Harrington
BUSINESS: Owner of Metcalfe
Automotive Centre, Northmead,
QUESTION: What accounting
software could I use that has
payroll built into the functionality?
acquired Metcalfe, a
Repco-authorised service
centre, in 2010 after working for the previous owner as a
motor mechanic for three years.
We use an accounting software package favoured by
motor mechanics. The subscription is $1400 annually,
which includes some phone
support. However, the software
doesn’t offer a payroll function
integrated as part of the package, which means my bookkeeper spends two to three
hours a week manually calculating, recording and paying
salaries for my staff of nine.
Moreover, we can’t create
individual PDF versions of
some financial reports such
as debtor statements to email
to our clients. These reports
must be printed out manually,
scanned and then emailed.
Should we be checking out
some of the general business
cloud accounting services?
One can
help you grow
to mechanics
save $1268pa
Great question, Stewart, and
Most MYOB products come with
A Reckon One subscription will
you’ve come to the right place.
a payroll function. All are available
cost you just $11 a month, saving
Not long ago Canstar Blue found
your business $1268 annually.
online and comply with taxathat 78% of business owners and tion requirements. It seems the
You’ll get GST, budgeting and
decision makers said that using
reporting functions, invoicing and
most suitable product for your
an accounting software program
billing and, importantly, payroll.
business is MYOB Essentials,
was critical to their operation, and costing from $50 a month, which
Moreover, Reckon One will quick39% admitted to making finanly address your report-generating
is significantly cheaper than your
cial mistakes before going online.
issues. You can create individual
current software provider. It can
Also, 42% of users, myself includ- assist with GST and BAS bookPDF versions of financial stateed, believe accounting software
ments, or export them to XLS
keeping and features unlimited
has contributed to the growth of
and CSV files. These files can be
payroll, as well as bank feeds
their business.
emailed to your clients.
and limitless invoicing.
The research also found the
On the issue of payroll, you
MYOB Essentials also offers
ability to log in any time, using
can automatically calculate and
Mechanic Desk, an add-on that
any device, to check vital inforrecord salaries for your staff. This
enables you to issue invoices
mation such as outstanding
functionality, more significantly,
faster and more accurately. It also
invoices, profit and loss statewill give your accounts departlets your employees know what
ments and cash flow was a valument back the two to three hours
their work schedules are, and
able aspect of using
a week it’s losing to manual
it can notify your customers
a cloud-based
payroll processes.
when their vehicles are
With Reckon One
due for a service.
you can have an
unlimited number
will cost an
of business owners
of business owners
such as
of employees on
extra $35
say that using an
admit to making
the books for the
a month
accounting software
financial mistakes
Reckon or
same price, makabove the
program is
before going online
ing it ideal for a
Source: Canstar Blue,
Source: Canstar Blue,
growing business.
August 2016
■ Callout
August 2016
with the
Anthony’s tips
Xero has about 500,000 subscribers and is the pioneer of
cloud accounting software. You’ll
pay $70 a month for a Xero subscription to achieve the payroll
functionality you require. This will
allow you to pay up to 10 employees as well as electronically send
customised debtor statements to
multiple customers at once, send
online quotes, sales invoices and
set up invoice reminders.
In summary, MYOB seems
geared towards assisting
mechanics build their businesses
long term, Reckon is exceptional
for price and Xero scores well for
user-friendliness and functionality. However, before making a
move I’d be inclined to talk to
your accountant about the
accounting software that will be
the best fit for your business.
Anthony O’Brien is a small business and personal finance writer
with 20-plus years’ experience in
the communication industry.
Are you a small business owner with a challenge you’d like Money to help solve? Email with your question and
contact details. You must be willing to provide a photo.
Should Australia move
to a four-day work week?
Truby Williams, professor of economics,
University of Melbourne
Chair of discipline, business analytics,
University of Sydney
he hours and days of work
regarded as necessary for
a decent standard of living have
varied profoundly over time and
across countries.
From the early 1800s until the
late 1970s, the required number
of working hours to earn a decent
income fell as productivity rose.
Today more attention is devoted
to the “flexibility” – not reduction
– of working time. As a society we
have lost the basic vision of earlier
generations. In the past, society
believed that as we became more
productive we should spend less
time working and more time with
family and doing what we enjoy.
The challenge is not to go back
to an assumed past golden age.
Times have changed. We need
new standards for new times, not
no standards for new times.
Today the only reference point
for working time standards is
the old model of eight hours a
day, five days a week. This is still
used when assessing whether
enterprise agreements provide
minimum acceptable wage rates.
We need a new reference
point around which to negotiate
flexibility. Given that the average
Australian worker now produces,
per hour, about 60% more than
they did 30 years ago, there
is plenty of capacity to work
less and still enjoy good living
standards. It is time that the
mployers already have
reference point for negotiating
considerable flexibility to
working arrangements is eight
choose their employees’ working
hours a day, four days a week.
hours. If they are deciding to have
How this standard was
some employees work more than
implemented could be
four days a week, it’s safe to
negotiated. But the reference
assume it’s the most efficient
point should be that as we are
way to run their organisations.
now more productive we do not
This might be because
need to work as long to earn
productivity in many jobs is
a decent income. This would
highest where the same worker
raise base rates of pay and the
can do that job for a whole week,
point at which overtime rates
without the need for a handover.
kicked in. To be effective this new
As well, a restriction on hours
standard would require stricter
worked by each employee might
enforcement of labour standards
make it difficult for employers to
and stricter scrutiny of enterprise
get all the work done.
agreements. Applying it to the
With a four-day week
gig economy would also require
appearing likely to reduce national
new mechanisms for monitoring
productivity, only if workers
hours worked and pay.
gained even more from its
When Australians first
introduction would the policy
confronted the issue of the
be worth considering. This seems
eight-hour day and the 40-hour,
five-day work week, naysayers
said it would never happen. But
it did come to pass. The fact
standards have been rolled
back does not mean
Australia used to be a world leader
they are impossible to
when it came to work hours. This reputaachieve – just that the
tion was achieved as a result of huge social
forces committed
and workplace campaigns. These included
to their reduction
the long struggle for the eight-hour day in the
have prevailed. This
latter half of the 1800s and subsequently for
will not last forever.
the Saturday half-day holiday and then the 40Such forces have
hour week in the first half of the last century.
been defeated in the
The last big push to reduce hours of work
past and they will
necessary for a decent weekly wage
be defeated again
occurred in the late 1970s and
in the future.
early 1980s.
First, most employees who
currently work more than four
days a week are happy with their
hours, and would be made worse
off if forced to work less. Second,
many workers who want to work
four days or less can already do
so with part-time employment.
So the argument for a four-day
week becomes even more
stretched. Suppose the work time
freed up by the policy goes to
people looking for more work.
Extra hours for jobseekers or for
underemployed workers would
undoubtedly make them better
off. But the question is whether
the extra work would bring such
an improvement as to offset all
the other adverse consequences.
As well, if the objective is to
achieve a redistribution of
income, a four-day week is a blunt
tool for doing this. There are other
policies that can do that, without
the negative side-effects.
A final doubt is whether it is
even feasible to mandate a
maximum four-day week.
Enforcing the policy would require
a major addition to government
monitoring of employment
arrangements. How the policy
could be applied to the selfemployed is unclear, and
preventing workers from taking
multiple jobs that would provide
them with more than four days of
work seems a problem.
WHAT IF? Annette Sampson
numbers are cut
With a net gain of about 200,000 people a year,
population growth is likely to remain a hot topic
Former prime minister Tony Abbott upset
many Coalition members when he called
for lower immigration recently. But he is
not a lone voice. Entrepreneur Dick Smith
has been campaigning for cuts, even taking
out ads in mainstream media. And in a survey last year by the Australian Population
Research Institute, 54% of respondents
wanted a reduction in our migrant intake
and a whopping 74% believed Australia
does not need more people.
Immigration has emerged as a hot
political issue in part due to the extraordinary growth in recent years. Since 1990
our population has grown from 17 million to almost 25 million, or around 50%
,with much of that growth coming from
immigration. According to the Australian
Bureau of Statistics, net overseas migration
grew by 27% to 245,400 people in the year
to June 30, 2017 with most of them going to
NSW and Victoria. It has averaged around
200,000 a year since 2005, up from half
that in the previous decade.
By 2050 the population is projected to
rise to 38 million. So while even his own
party was quick to stomp on Abbott’s calls
for reduced migration, it is likely to attract
ongoing debate.
High immigration rates have been blamed
for everything from pressure on infrastructure and the health system to fewer
jobs for younger workers and higher
housing prices.
In its recent report, Housing Affordability: Re-imagining the Australian Dream, the
Grattan Institute said several studies had
shown migration increases house prices,
especially when there are constraints on
building new homes.
In Australia, 86% of immigrants live
in the major cities and it is no coincidence that the pick-up in immigration has
occurred at the same time as the latest
housing boom (which has only started to
ease as more homes have been built to try
to meet the extra demand).
In a 2016 report, the Productivity Commission found immigration had a negligible effect on jobs for the local workforce
though evidence on the impact on younger
workers (who arguably compete for jobs
with overseas students, working holidaymakers and so on) was inconclusive. It said
ready access to temporary skilled workers
THE CHALLENGE Maria Bekiaris
Contest a traffic fine
You may be able to have the penalty downgraded
o you open a letter to find that you’ve
been done for speeding or running a
red light. That comes with a hefty fine and
loss of points. After you’ve let out a few
expletives you may start wondering what
you can do to get out of it.
The first thing you should do is to make
sure you are the one actually responsible.
In NSW about 1260 fines are issued by
mistake each year, which is 0.2% of total
fines, according to an article on
au. It could be something as simple as your
number plate being similar to the offending
car and the fine being sent to you by
mistake. You can take a look at the camera
image online to make sure it was your car.
The NSW Office of State Revenue says:
“The camera is aimed at the vehicle and
registration plate. The photo is not intended
to, and may not, identify the driver.”
nomic management, the commodity boom
and the growth of China. Put simply, it said,
At last count, in June 2015, almost 30%
our population has grown so rapidly that
of the population, or 6.7 million people, were
population growth has overwhelmed
born overseas. The UK was still the most common
the normal business cycle.
place of birth (5.1%), followed by New Zealand (2.6%)
A Migration Council Australia
and China (2%).
report has estimated migration
will have increased our popuBEST-CASE SCENARIO
lation by 14 million people by
The Productivity Commission recommended the government develop
2050, contributing $1.6 trillion
a population policy to be published every five years taking into account
to GDP.
the economic, social and environmental impacts of immigration and
With our population ageing,
population growth on the wellbeing of the Australian community.
immigration also has benefits
in bringing in younger workWORST-CASE SCENARIO
ers to offset those moving out
Politicians from all sides like to score political points when it comes
of the workforce.
to immigration, especially the sensitive area of border protection.
Knee-jerk policies are unlikely to address the big issues.
The problem is that immigration
There are plenty but let’s pick climate change, which
has both benefits and drawbacks.
could see a massive growth in “climate refugees”
The Productivity Commission found
and affect the ability of other countries to
that while it was likely to benefit the
deal with population numbers.
country over the long term, the gains
depend on having a system that attracts
younger immigrants with more skills,
and policies that take into account
also reduces the incentive for employers
changing economic, social and environto invest in skills development, but more
But here’s the flip side. The Lowy Institute
mental conditions.
research was needed to determine whether
argued in its paper on Economic MigraEnsuring social cohesion and the acceptor not this is a genuine problem.
tion and Australia in the 21st Century that
ance of our immigration intake is also key
The commission also found poor
immigration has produced real economic
to getting it right.
planning by government to deal with
benefits in terms of contributing to higher
population growth could also contribute
levels of GDP, improving labour productivi- Annette Sampson has written extensively on
personal finance. She was personal finance
to congestion in cities, and pressure on
ty and helping to offset population ageing.
both natural and other resources. Where
Forbes magazine last year attributed Aus- editor with The Sydney Morning Herald, a
former editor of the Herald’s Money section
resources are in limited supply, such as
tralia’s “economic miracle” (we’ve avoided
and a columnist for The Age. She has
water, a bigger population can add to the
a recession since 1991) to immigration rathwritten several books.
cost of living for existing residents.
er than the usual arguments of good eco-
If it was your car but you weren’t the
one driving it at the time, you can transfer
the fine to the person responsible. It’s best
to tell the other person first and you will
probably need to complete a statutory
declaration naming the person responsible.
Don’t pay the fine if you are transferring it
to another licence holder.
Beware if you give false or misleading
information because penalties do apply. In
NSW, for example, you may lose the right
to drive and individuals could be fined up
to $11,000.
If you were the one driving but think
there are special circumstances, you may
be able to request a review. Again in NSW,
for example, if you had a clear driving
record for at least 10 years before the
offence your penalty may be downgraded
to a caution, which means you won’t have
to pay the fine and demerit points won’t
apply. But a caution will be recorded on
your driving history.
In Victoria, you may be able to get a
fine downgraded to a warning if you
were speeding less than 10km over the
limit and have had a clear driving record
for the past two years.
Check with your state office to see if
you can apply for leniency based on a good
driving record.
If there were other extenuating
circumstances – for example, you were
on your way to hospital for a medical
emergency – you may also get your fine
reviewed. You may be required to provide
a medical record or statement from a
medical professional at the emergency
hospital you attended.
In NSW, less than 4% of penalties are
downgraded to a caution or withdrawn as
a result of a request to review the fine. So
although it is worth a shot, don’t get your
hopes up!
You can then elect to take the matter to
court but if you know you were speeding or
ran a traffic light, the best course of action
is simply to pay up.
Buyers and
sellers are
together in a
more private
ould you like to be able to secure the
property of your dreams without having to compete with other buyers?
Being able to acquire a property “off
market” is seen as the holy grail by
many real estate buyers but it doesn’t always work that
way. “More often than not you’re going to pay over the
odds to secure a property before it goes public,” says
Patrick Bright, founder of buyers agent EPS Property
Search and author of several books on real estate.
In Bright’s 18 years of experience, off-market or pre-market offerings – where the property is not publicly advertised
on the open market – often occur when a vendor has
an unrealistic price expectation for their property. The
agent – realising this but not wanting to lose control of
the listing – suggests trying a softly, softly approach,
hoping to snare an ill-prepared or ill-informed buyer
without wasting too much time. If the agent doesn’t get
lucky, eventually the vendor may be willing to accept a
lower price. But if the seller is unmotivated he or she may
just withdraw their property from sale.
The number of properties selling off market is estimated at 10% to 20% and is on the rise, says Liane Fletcher,
co-founder of Property Whispers, a matching site for
buyers and off market property that real estate agents list
on the site ( These listings
can’t be browsed by prospective buyers but both the agent
and buyer are contacted if a match occurs. The site has
been likened to Tinder, the popular site
for matching people looking to hook up.
(See breakout.)
Bright agrees that the number of properties
not going to open market has increased, and
he says the more expensive the property the
more likely the vendor is to opt for the strategy. He estimates that once the price gets to
$5 million about 50% of those in Sydney’s
inner ring are sold off market.
Another place where buyers can get access
to off-market opportunities is Soho, a property discovery and management app, launched
in Australia and Singapore last September
by Jonathan Lui, who co-founded Airtasker
in 2012. The idea came to Lui when selling
his Sydney home and he realised the whole
process of buying and selling was very restricted. “The only time properties were visible
to potential buyers was after owners made
the decision to move and were 100% committed to selling,” he says. There were so
many buyers who had no way of proactively
contacting owners with their offers besides
door-knocking; they just had to wait for the
next property to come online, says Lui.
Soho’s approach is to enable owners and
agents to use the app to create and manage
online profiles for each of their properties.
The properties can be managed either
privately or publicly, the latter allowing potential buyer and renters to reach out for details.
“Making a property discoverable on Soho
is essentially just placing your front door
online, allowing others to ask any questions
regarding these properties," says Lui. “You’re
not explicitly asking for offers, in the same
way as when you have a profile on LinkedIn
you’re not saying you’re looking for a job.
You’re simply saying, 'this is how you can
contact me via a digital door knock about
anything regarding my property'.”
You can download the free Soho app at
What’s in it for the seller?
It's usually vendors who suggest selling their
properties off market because generally sales
agents prefer the competition and promotion
that come with a normal campaign.
Fletcher says there are myriad reasons sellers go off market. Some are worried auction
clearance rates are falling, some don’t want
their properties exposed to open inspections
and neighbours trawling through, and others
don’t want to spend the money on a big ad
campaign. The cost of advertising on the two
big real estate sites, and,hasrisenovertheyearsasthey
have tied up the market for online property.
As a buyer’s agent, Bright says he gets at least
one or two calls or emails weekly from vendors
who want to sell directly, not only avoiding
advertising costs but also real estate agent
commission. With these typically between 2%
and 3%, this can represent a saving of between
$20,000 and $30,000 on a $1 million sale.
If Bright thinks the property might be
suitable for a client but feels the price is too
high he’ll suggest to the vendor they get an
independent valuation and negotiate around
that price. The vendor and prospective buyer each pay half the valuer's fee, which, says
Bright, would usually be around $1000. The
vendor saves their advertising and commission
costs and the buyer pays a realistic price, so
everyone wins, says Bright.
Of course, as real estate agents warn, the
competitive nature of an open market sale is
unlikely when selling off market. A big decision facing vendors who consider selling this
way is whether they could achieve a better
result by listing on the open market.
Bright, however, is critical of just how well
auctions work for many sellers, saying the
“lotto outcome” is not known until auction
day. Potential buyers are often enticed by
agents underquoting, which can result in a
dismal result for vendors, he says. Buyers
who do decide to go on the open market
should pick the actual real estate agent rather than the agency, because a good agent can
make a big difference to whether you are a
winner or a loser, says Bright.
What’s in it for the buyer?
Some buyers, especially those who have had
bad experiences at auctions and open houses,
are desperate to buy a property and they’re
keen to find out about properties that are not
exposed to the general market, says Fletcher.
Those who already know about off-market
properties want to find out about them without having to go to every single agent in their
area and they can do this through the Property Whispers site. And those who can't afford
or don’t want to pay for a buyer’s agent can
access the whole secret world of off-market
properties, says Fletcher.
Purchasers can also sometimes get more
flexible terms on these properties, such as
less rigid settlement times, says Bright.
And sometimes they do score a bargain but
in their rush to not have to compete in the
open market, buyers need to make sure they
are not paying over the odds. You need to do
a lot of detailed price research and also be
confident you can negotiate a fair price. If
you don’t have the time or inclination to do
this, you might be better off using a buyer’s
agent who will have access to both on- and
off-market properties in your area. M
In search of the
perfect match
on PropertyWhispers,saysco-founderLiane
Fletcher. Since launching in April 2017 there have
been about 4000 matches but how many have
the matching platform’s job stops when a match
takes place. But even if a sale doesn’t eventuate,
the agent knows what a particular buyer wants
and can add that to their database.
This is how it works:
1. Buyers register their property requirements
for free.
2. Agents currently register and upload off-market properties for free. After the start-up period
they will be charged a subscription fee.
3. An instant match occurs when a buyer’s
property requirements match an off-market
property. An email with contact details is sent to
the buyer and agent.
4. The buyer and real estate agent speak, view
the property by appointment and hopefully
a sale follows.
The ‘crisis’
in perspective
he so-called property “affordabilitycrisis”isthrownaround
in the media to capture our
attention and tug on our
heartstrings. But as investors,
and developing an investment plan based on
facts, data and research is often a better way.
The reality is that purchasing property as
an investment or a home has always been an
expensive and challenging exercise and most
likely always will be. We just need to put
the affordability argument into perspective.
Think about all the things that have happened economically and socially over the past
100 years or more: the Great Depression, the
Buying property
has always been
expensive but
investors with a
social conscience
can help solve
the problem
Hawke-Keating “recession we had to have”
and at least five major stockmarket crashes,
including the GFC.
Yet throughout all of this property has
shown to be a steady performer, according to a
report released in October 2017 by the Swissbased Bank of International Settlements (BIS),
which looked at 20 advanced economies and
27 emerging market economies from around
the world. In fact, the report showed that in
Australia property prices have climbed a
whopping 6556% since the 1960s. That is the
equivalent of an average increase of 8.1%pa.
Now, if we were able to fast-forward 10, 20
or 30 years into the future we would most
likely look back to the “good old days” of 2018
when property prices were “cheap”. Why do
we say that?
Australia is blessed with a stable government, strong economy, well-regulated banking
system, a largely inclusive and multicultural
society, healthy employment numbers and an
increasing population. Digging into all the
economic and social factors that have led to
rising house prices, a report by Marion Kohler
and Michelle van der Merwe, published by
the Reserve Bank, has shown that long-term
Australian house price growth can be best
attributed to inflation in the 1980s, ease of
access to credit between the 1990s and up
until the mid 2000s, and strong population
growth ever since.
Two points we need to highlight here are:
1. Affordability is relative.
2. Accessibility may be a more important consideration
than affordability.
A problem with media reports is that they usually use
a rather simple calculation to measure affordability.
They take the median property price and divide it
by the median income. For example, the often quoted
Demographia International Housing Affordability Survey defines “affordable” as a multiple of 3.0 and under
and “severely unaffordable” as multiples of 5.1 and over.
This simple metric, however, does not take into account
factors such as interest rates, the size/style of the house,
the quality of the property or the ownership structure.
The most recent 14th annual Demographia survey
has again scored Sydney as the second least affordable
capital city in the world, according to this methodology,
with a multiple of 12.9. (The Sydney median house price
was $1,177,600 against a median income of $91,600.)
Melbourne was dubbed the sixth least affordable
city with the median house price sitting at $817,000
against median incomes in that city of $82,800 for a
multiple of 9.9.
Bear in mind, though, that Sydney and Melbourne
are big places and its residents enjoy a range of different
income levels and housing outcomes.
Within both these cities, and around the country,
there are many affordable places to live or invest. Just
take a look at the table below.
When looking to secure your next property, it is often
not affordability that is the issue but rather accessibility – the debilitating upfront costs such as the deposit,
stamp duty, lenders mortgage insurance and legal fees.
With interest rates at historic lows, if you are able
to convince a lender that you are a good bet, your loan
repayments are likely to be comparable to your rent.
For example, if you rent a $500,000 unit at, say, 4%pa
you would pay $20,000 a year for the privilege. Let’s
say you wanted to buy the same property, assuming
you had saved up $100,000-plus.
Using an 80% loan-to-value (LVR) ratio you would
need a $400,000 loan and if you were paying, say,
5%pa interest, your mortgage repayments would also
be $20,000. The right borrower can get rates as low as
3.59%pa today and in some areas rental yields are as low
as 2% or 3%, so we are using a very general example here.
There will always be a section of the population that
does not want to or does not have the ability to live in
their own home. For many, securing long-term and
stable tenancies in the private or public rental markets
has its own challenges.
As suburbs become more and more expensive, how
do you maintain the key workforce required to serve the
suburb? This is a social and economic issue and one that
both state and federal governments are trying to find
solutions to now via various tax exemptions and grants.
For example, first introduced by Kevin Rudd in 2008,
the $3.2 billion government National Rental Affordability
Scheme (NRAS) program accounted for around 34,000
properties purchased by investors willing to take a 20%
haircut on rent in return for a healthy tax deduction.
In principle, it was a great initiative to boost supply
and provide more housing solutions for low to middle
income workers as well as providing good long-term
tenancies and tax advantages to investors. In practice,
it suffered from some poor property selection at times
(low capital growth), valuation issues (banks would
not use the government subsidies in their servicing
and valuation protocols) and issues pertaining to some
suppliers delaying investor payments.
The NRAS scheme is under review and is scheduled
to cease in 2026-27.
Some investors like the idea of investing in Defence
Housing Australia properties for the benefits of longterm, fully maintained leases, with zero vacancy periods. However, like some of the NRAS properties, they
suffer from being in areas that may not exhibit the best
long-term capital growth characteristics, and management fees are high at up to 200% of “normal” property
management fees.
The Property Mentors are working with governments,
not-for-profit groups, community-housing providers and
developers to provide investors with a social conscience
who want to become a part of the solution to housing
affordability in Australia.
In essence, we are creating a turnkey investment
solution that will provide zero-vacancy, fully maintained
properties on 10- to 25-year leases, with fair management
fees to provide new housing for key workers such as
teachers, nurses, police, fire and emergency services
workers to live in areas with good capital growth
prospects. Qualified investors will also benefit from an
additional 10% capital gains tax (CGT) exemption. To
qualify for the additional CGT discount, housing must
be provided at below market rent and made available
for eligible tenants on low to moderate incomes. M
Let’s Get Real
Matt Bateman and
Luke Harris, from
The Property Mentors, are authors of
a new book Let’s
Get Real (Major
Street 2018, RRP
$29.95). Money
has 10 copies to
give away. For your
chance to win a
copy tell us in 25
words or less the
best way to get on
the property ladder.
Send your entries
to or
Money magazine,
GPO Box 4088,
Sydney, NSW 2001.
Entries close May
2, 2018.
North Dandalup
Vale Park
North Fremantle
Chapel Hill
West Perth
Source:,, Australian Tax Office income data
Downsizing and putting the extra funds into
super may not leave you better off
f you are weighing up the federal
government’s new downsizer incentive, to start on July 1, take care. The
new measure encourages people
aged over 65 to sell their home and
park $300,000 each, or $600,000 for a couple,
in their superannuation fund.
It looks like a great way to boost low super
balances, particularly as there are now strict
limits on how much you can put into your
fund, with caps of $25,000 for concessional
(before-tax) contributions and $100,000 for
non-concessional amounts.
But for the 80% of retirees who fund
their retirement years with a combination
of superannuation and the age pension, it
is important to assess the impact of downsizing on their pension eligibility, as
the extra money will be counted in the assets
and income test.
Retirees will certainly get more money to
spend. But in many cases they will lose part
or all of their age pension. The government
tightened the assets rules last year and the
eligibility for the age pension tapers off quite
sharply for homeowning couples with a super
balance between $380,500 and $830,000 and
for singles with a balance between $253,750
and $552,000.
“For many people it is not worthwhile to
take money out of the home and be assessed
under the age pension and assets test,” says
Jonathan Philpot, financial planner with
HLB Mann Judd.
The problem is that you lose $3 a fortnight
($78 a year) of the age pension for every $1000
above the threshold. It was $1.50 a fortnight
before the changes. This means that for every
$1000 you would need to make a return of
7.8%pa to compensate. “Getting 7.8% is quite a
difficult hurdle rate to get over in the current
low-return environment,” says Philpot. “It is
quite steep.”
There is a no man’s land where your ability
to access the age pension plunges and your
superannuation income is not high enough
to replace it.
Our experts – Louise Biti from Aged Care
Steps, HLB Mann Judd’s Philpot and Craig
Day from Colonial First State – look at three
different downsizing case studies:
Jack relies on the age pension, with
only $100,000 in super and a house
worth $800,000.
Monty and Mavis have $500,000 in super
and a house worth $1.3 million.
Ben and Bridget aren’t concerned about
the age pension as they don’t qualify because
they hold more than $1.6 million in super.
What are the advantages of selling their
family home and putting $600,000 into their
accumulation fund, or is there somewhere
better to put the money to boost their wealth
in retirement?
It is important to consider that if you stay
in your home you may qualify for a bigger
age pension. You can still sell your home and
move at a later date.
Or if you do decide to downsize and put
the money into super, then draw down on it
heavily, you will be eligible for the age
pension again when you reach the right
assets threshold.
Lifestyle decision
With house prices reaching an average asking
price of $973,500 in capital cities, or $584,600
for units, according to SQM, the home is the
biggest asset for most people, outstripping
superannuation. But selling the family home
is an emotional decision with wide financial
Biti says it is important for retirees to
work out their motivation for selling and
moving. Do they want to have a better lifestyle and spend more money? What sort
of lifestyle do they want?
In her experience, Biti says retirees are often
too caught up in thinking that the house is an
inheritance for their kids. “I don’t think people
Philpot says he has found that few people successfully downsize. “They often move to a better suburb
or decide to go for more luxury. They really don’t
pull a lot of equity out of their home. It has to be done
carefully,” he says.
What do retirees need to consider to make downsizing
to a smaller, less expensive home work out?
High transfer costs
One of the big stumbling blocks to moving is how expensive it is to sell. There are plenty of costs: sprucing up
your home, stamp duty, removalists, agents and lawyers.
Then there is the temptation to upgrade the furniture as it doesn’t look right in the new place and to
rip up the carpets. “It is a time when people spend
a whole lot of money,” says Philpot.
You can expect to pay 5% to 6% of the value of
your property. This means for a property worth
around $1 million, transfer costs will be $50,000
to $60,000. That can buy a lot of maintenance and
modifications to your original home.
Will you make money?
Fortnightly age pension reduced by $3 for every $1000 of
assets above thresholds (family home excluded from assets
but lower thresholds apply)
Thresholds (effective from September 2017)
Couple combined
Source: Department of Human Services
Emotional price
Moving to a cheaper place can be lonely if you leave
behind your social network. Not surprisingly, people
have a significant emotional attachment to their home
and community.
It is always a good idea to rent out your home and
live in your potential retirement location to see if you
like it and if it has good facilities such as medical and
community services. Timing the property market can
be tricky: if you sell up and later change your mind you
could be caught out and be unable to buy back into
your old area.
If you own your home
and want more money for your golden
years, there are several ways to free
up capital apart
from downsizing.
One is to take out
a reverse mortgage,
where you borrow
against the value of
your home. Another
is to rent out a room
to provide an income.
If you don’t want
to move, you can borrow against the value
of your home and
take out a reverse
mortgage. This
allows you to stay
where you are and
gives you extra cash.
Or your can sell
part of your property
through what is
known as an equity
release product.
The Department of
Human Services has
a Pension Loans
Scheme that allows
people to use the
capital they have tied
up in real estate as a
non-taxable loan. It
can be for a short
time or an indefinite
period, and is paid in
fortnightly non-taxable instalments.
Consider aged care
There is no point in going through the stress of downsizing and then a few years later moving into aged care.
Work out if moving into aged care is appropriate for
you and when you may do this. M
See page 66 for case studies
are going to race out and sell their home so that they
can put more into super,” she says. “However, the new
rules may spark the conversation that it doesn’t make
sense to live in a big house with no money.”
Often the decision to sell and move isn’t a financial
one but is based on how the house doesn’t work for
them as it once did. Typically the grown-up children
have moved out and the large, empty family home and
garden have become too much work to maintain. Or
stairs can be hard to navigate in old age. Accidents can
trigger decisions to move.
Biti says moving is always stressful and always
expensive. Often the prospect of de-cluttering,
packing and moving is overwhelming.
If you want to live in the same area, smaller properties
aren’t always cheaper.
“Sometimes when you buy and sell, you may buy
something smaller but it can be more expensive,”
points out Biti, whose company, Aged Care Steps,
provides aged care support to advice experts such
as financial planners, accountants and lawyers.
She says retirees often want a property with level
access or a lift. Comfort is a high priority and this can
mean newer and better facilities that are more expensive. “People often don’t release much equity,” she says.
However, if you downsize from the city to a lower
priced regional or coastal area, there is the opportunity
to buy a cheaper home.
Unlock the
ack is single with $100,000 in super
and a house worth $800,000. Ignoring
the value of his car and home contents,
Jack would be entitled to an annual age
pension of $23,254.
After selling his home and purchasing a
$500,000 unit, he has $300,000 to put
into super as a downsizer contribution.
Jack’s assessable assets have increased
by $300,000 to $400,000 and therefore
his annual pension entitlement has dropped
from $23,254 to $11,847. If he starts an
account-based pension, which would pay
an annual minimum of 5% or $20,000, this
would more than make up for the $11,407
reduced pension entitlement.
“This could be a good outcome for him
where he needs more. He just needs to be
aware that he is now drawing on his own
savings to fund part of his retirement,”
says Craig Day, executive manager,
FirstTech, Colonial First State.
He says Jack wouldn’t get a tax benefit
from contributing to super. If he invests
the money outside super, assuming a 5%
rate of return, the income would be less
than Jack’s effective tax-free threshold of
$32,279 (from the general tax-free threshold of $18,200, the low-income tax offset
and the seniors and pensioners tax offset).
“By investing in super, Jack could invest
part of the proceeds in a financial product
designed to provide retirement income and
would result in him not needing to lodge a
tax return every year where
he had no other assessable
income,” says Day.
As Jack spends his super,
he will be able to increase
his age pension.
onty and Mavis are over 65 with
$500,000 in super and a house
worth $1.3 million. They receive an age
pension of $25,737 combined. The couple
sell their house and buy a $900,000 apartment. They each make downsizer contributions of $200,000.
Their assessable assets would increase
from $500,000 to $900,000, which
exceeds the current assets test cut-off
threshold of $830,000. As a result they
cease to qualify for any age pension and
lose the pensioner concession card.
“The loss of the pensioner concession
card can be a big blow,” says Day.
Monty and Mavis wouldn’t get any tax
benefit from contributing the proceeds to
super and commencing an account-based
pension, as assuming a 5% rate of return
the income they would receive from investing the $400,000 outside super would be
less than their effective tax-free threshold
of $28,974 (each), taking into account
the general tax-free threshold, the lowincome tax offset and the seniors and
pensioners tax offset.
“I can’t see a lot of benefit for them to
downsize and put the money into super,”
says HLB Mann Judd’s Jonathan Philpot.
“They need to generate 7.8% on their
investments. It is not an attractive
scenario and they need to be really careful
about the impact on their age pension.”
elf-funded retirees Ben and Bridget
aren’t on the age pension and own a
four-bedroom house worth $1 million, plus
a residential investment property worth
$1 million generating net rent of $40,000pa
(4%). They have other non-super investments of $1.5 million generating net
income of $75,000 (5%).
Their superannuation fund’s accountbased pension of $800,000 generates
tax-free income of $40,000.
They sell their home and purchase a
two-bedroom apartment with lifts and
views for $1 million. They make $300,000
downsizer contributions from non-super
investments and commence a second
account-based pension – the investment
income and pension payments are tax free.
Their assessable income is reduced by
in a tax saving of
“The loss of the
pensioner concession
card can be a
big blow”
Source: Craig Day, executive manager,
FirstTech, Colonial First State.
Pam Walkley REAL ESTAT
There’s no room for emotion
Holding onto your original home may not be the best investment strategy
uilding a property portfolio
to pay for their retirement
dreams is the aim of lots of
Australians. Many have more faith
in bricks and mortar than in shares,
a mindset reinforced when the
sharemarket experiences a period of
volatility, as it has recently. In reality, a diversified portfolio that blends
property, shares, fixed income and
other assets is usually the safest
way to steadily accumulate wealth.
When it comes to your property
portfolio it’s easy to kickstart it
by simply keeping your first home
when you upgrade. But if this is
your strategy make sure you’re not
hanging onto your old property for
emotional reasons. It also has to
stack up financially.
Andrew Zbik, a financial planner at
Omniwealth, has crunched the numbers
and found keeping the original family
home isn’t usually a smart financial move.
To illustrate his point, he uses an example
of a family who have lived in a unit for 10
years. It cost $500,000 and is now worth
$850,000 with an outstanding mortgage of
$367,000. Drawing equity from this property to buy a new home for $1.5 million, the
couple would be able to borrow around
$313,000. The additional loan on the new
home, including purchase costs, would be
around $1.269 million.
A big snag is that the debt drawn from
the equity in the unit is non-deductible, as
is the home loan. This would mean weekly
repayments of $2211 at 5% (principal and
interest), an amount beyond most families.
Add to that the $82 a week holding costs –
after tax deductions – of keeping the old
unit as an investment property and the
family is up for a staggering $2293 a week.
If instead they sold their unit, net proceeds would be around $457,500 after
deducting selling costs and paying out the
loan. This can be used as a 30% deposit on
the new home, bringing down significantly
the amount they need to borrow. The home
repayments would be $1589 – a saving of
$622 a week.
“Remember, too, that selling the old unit
is capital gains free as it has always been
their primary place of residence,” says
Zbik. And by selling they will also save a
“whopping $890,000 in non-deductible
home loan repayments”.
Rents take a hit in
inner Brisbane
Rental returns and vacancy rates for
inner Brisbane apartments have been hit,
with the supply of those available for rent
doubling in three years. And the trend
is expected to continue, says respected
researcher Michael Matusik.
A total of 4670 new apartments have
been added to the inner Brisbane rental market over the past 12 months, an
increase of 14%, says Matusik. He expects
another 5000 to be available by the end
of 2018, a further 3500 in 2019 and about
2500 more in 2020. It’s likely to be several
years before inner Brisbane apartment
rents start to rise again, says Matusik.
And as their loan-to-value ratio is
under 80% the bank may to be able
to lend them more money, which
will be deductible, to continue a
separate investment strategy.
While this example shows why
financially it’s usually better to sell
your first home, if this family had
set up their original purchase with
a mortgage offset account the difference between the two strategies
wouldn’t have been as great.
Mortgage offset accounts offer
the same benefits as paying off a
mortgage with one major difference: the money deposited in the
account can be withdrawn at any
time. And as the name suggests,
the interest credited on the
deposits in the offset account directly
reduces the amount of interest payable on
the outstanding mortgage.
Withdrawing money from the mortgage
offset account to help fund the new residence will increase the interest payable on
the original mortgage. All of this interest
cost will be tax deductible because the loan
was taken out to buy the property now
being used for investment purposes.
And by keeping the property and running it as an investment, homeowners don’t
need to pay for stamp duty, marketing,
building inspections and conveyancing,
which can add up to about 10% of its value.
When it comes to capital gains tax, the
old family home can be nominated as your
main residence and be sold CGT free for up
to six years after you move out.
But, of course, you can’t have two main
residences at the same time (only for a sixmonth changeover period) so you will have
to nominate one when you sell the first
of the two.
Pam Walkley, former property editor with
The Australian Financial Review, has
hands-on experience of buying, building,
renovating, subdividing and selling property.
gives investors
the opportunity
to back the next
big thing from as
little as $50
of the
tart-ups can now raise capital
directly from the public through
equity crowdfunding portals.
While you may be tempted to
invest in what you believe is
the next Seek or Atlassian, it’s worth noting
that these types of ventures typically carry
greater risks.
In a significant milestone, ASIC, the corporate regulator, issued its first batch of
equity crowdfunding licences in January. The
government hopes the new source of funding
will lead to greater Australian innovation and
help start-ups develop and grow.
ASIC commissioner John Price says the
platforms have been added to its register of
Australian financial services licensees. “Intermediaries have an important gatekeeper role,
which will be key to building and maintaining
investor trust in crowd-sourced fundraising.”
Start-ups developing neo-banks, drones,
biotech engineering, robotics, medicinal
cannabis, gin distillers and more can be
found on platforms such as Equitise, Big Start,
Billfolda, Birchal, Global Funding Partners,
iQX Investment Services and OnMarket
Eligible companies can raise up to $5 million a year using crowdfunding and must be
worth less than $25 million. Investors can
invest from as little as $50 up to a maximum
of $10,000 per company per year and in return
they will receive shares.
To invest you need to apply through the
crowdfunding website. You can look at the
The basics
ach offer is unique, so read the offer
document carefully. There are no
fees or brokerage. The company pays the
platform a percentage of the funds raised.
There is no secondary market. If you
want to sell your shares you may have to
wait until the company lists on the stock
exchange or another company buys it out.
Also, the value of your investment may
fall, and the return may be reduced if the
company issues more shares.
Xinja’s Eric Wilson says that with
an unlisted share you don’t know on a
day-to-day basis how much it is worth.
“Confirmation of valuation only comes at
irregular events like further capital raisings,
sale or listing.”
As the shares the founders and staff
hold are identical to those of other
shareholders, it’s in everyone’s interest the
company succeeds, he says.
“When the shares increase in value
everyone makes money. The ability to
realise that value comes from being able
to sell those shares. That doesn’t, however,
have to come from a listing on the ASX. A
partial sale of the company to a partner,
for example, might allow that. Or if we are
able to facilitate private sales. So there
probably won’t be one ‘big bang’ moment
where everyone makes money.”
company’s offer document, disclosure
statement and agreement. Previously,
these kinds of early-stage investments were
only available to high-net-worth individuals
and venture funds.
Xinja, which is building a neo-bank, got off
to a flying start in January, raising $1.6 million
from small investors after just a few weeks
on the Equitise platform.
A neo-bank is a new breed of mobile-only
banks. Its app has a powerful set of banking
functions that are designed to allow consumers
to interact entirely on their smartphone. Its
disruptive technology allows it to challenge
traditional banks with disaffected customers.
The company raised $8 million last year
from high-net-wealth individuals and venture
capital funds and is seeking another $5 million. It aims to launch a prepaid debit card
first, followed by home loans and deposits.
It follows overseas disruptors such as
Monzo in the UK, which has over 500,000
customers. Its founder, Jason Bates, is on the
Xinja board.
“We want to build an ethical bank that
works for its customers,” says Xinja’s CEO
and founder, Eric Wilson. “Part of that is
we want our customers to own us and have
a chance to get the digital revolution upside
and be a part of it. But there are investor
risks as well.”
Being required to carry an ASIC risk warning is appropriate, says Wilson. “It’s not the
same as buying a share in NAB or CBA. Many
start-ups fail and the stocks are illiquid. If you
Or you could buy a
lottery ticket instead
rowd-sourced funding is subject
to fewer regulatory requirements
than other forms of public fundraising.
It is a high-risk, high-reward proposition. Before you invest, make sure the
company has a strong management
team and achievable plans.
Be aware that:
Most early-stage businesses fail.
Companies often have no track
Shares are highly illiquid, so you
may not be able to sell them.
If the platform goes broke, you may
lose your money.
Don’t invest with money you can’t
afford to lose.
Adrian Raftery, associate professor
at Deakin Business School, says there
will no doubt be stories about how
someone invested $10,000 and
turned it into $1 million but they will be
few and far between. “The odds are
probably just as good with Lotto if you
spent $10,000 on different potential
winning combinations.
“ASIC’s MoneySmart website provides a number of great alternative
ways to invest $10,000 that I would
endorse well ahead of largely unregulated crowdfunding.”
buy the shares now and want to sell them next
week, like you can with NAB, it’s not going to
happen. You’re making an investment for three
years. It is important that people understand
there’s a difference between a listed share on
the ASX and crowdfunding.”
The start-up was recently granted a credit
licence by ASIC. Wilson says it hopes to offer
home loans in the next few months. It has
applied for a financial services licence from
ASIC and a banking licence from the Australian
Prudential Regulation Authority, which will
allow it to start offering deposit products.
While some of the crowdfunding platforms
are yet to build their technology or conduct
any transactions, Equitise is no novice, having
launched in New Zealand
three years ago. “We used
that experience to provide an even better
platform and even better service to retail
investors in Australia,” says Chris Gilbert, its
co-founder and director.
small investors to share in any potential upside
in these high-growth companies. “The businesses that use equity crowdfunding are early
stage, they’re innovative, they’re disruptive.
You don’t see corner stores and car dealerships
on these sites. Crowdfunding is usually more
about drones and neo-banks. You’re more likely
to see opportunities people don’t ordinarily
hear about.” M
aving worked in London’s fintech sector
in the mid-2000s, John
Gargan, 41, is no stranger
to disruptors. He worked
for foreign exchange startup FairFX, now a listed
international payment service
provider. It allows customers to
make low-cost, multi-currency
transfers through digital and
mobile platforms.
“It was my first experience of
a disruptor in the fintech space,”
he says. “The whole premise is
about giving fair exchange rates
to the UK public and UK companies. They’ve done really well.
It’s a shame I missed out on
getting shares.”
The company listed after
Gargan, a sales manager, left it to
return to Australia. But he’s maintained a keen interest in the area.
He found out about Xinja through
a fintech email subscription service and investigated it further.
“We lag behind the UK and US
so I’ve been following them for
some time. Their strategy is rele-
vant to the smartphone revolution and when I met their team
and heard their plans it reinforced
my view that it’s a good outfit
with good management.
“The big banks have been
around for a long, long time and
are held back by their legacy systems and large staff numbers.
It’s a drag on their earnings and
a drag on future profits. They
are ripe for disruption.
“Xinja doesn’t have to deal
with that legacy stuff. It’s doing
what FairFX did – they didn’t
have to deal with the legacy stuff
either. I saw how they built it up
from scratch and it’s the same
situation here. It’s about seeing
a gap in the marketplace and
exploiting it.”
Gargan, who invested $5000
in Xinja, likes the way equity
crowdfunding can give small
investors exposure to start-ups.
“Being a first mover gives Xinja
a major advantage and although
they’re not re-inventing the
wheel they’re changing how
banks engage with customers.”
A mix-andmatch strategy
tailored to
your situation
will help your
savings last
the distance
ou’ve saved hard all your working life
to build up your super and now you
want to turn your savings into a regular
retirement income you can live on.
But choosing between the different
types of retirement income products has left you dazed.
The problem is that this simple decision puts you
right into the thick of having to make up your mind
about how to structure your retirement income streams
to maximise your Centrelink entitlements, minimise
your tax liabilities and ensure that your money lasts
as long as possible.
The first thing you should do is contact Centrelink
and arrange to speak to one of its Financial Information
Service officers. These specialists are not financial advisers but they will explain to you what your Centrelink
entitlements are, how the various assets and income
tests work, what retirement income stream options
you might have and how you might wish to structure
things to maximise your entitlements regarding the
age pension, health care and other assorted benefits.
The second thing you should do is talk to your super
fund, because it probably already has a range of products
designed specifically for people who have retired and
you need to understand how they work and which ones
are most suitable.
The third thing to do is arrange a meeting with your
financial adviser, if you have one, because choosing the
right retirement product can be complex. It may also
be a good idea to road-test several financial advisers.
Most good super funds now have their own advisers.
Account-based pensions are likely to be the main
income stream used by many retirees but some may
benefit from a mix of income streams. The challenge
is to remain aware of product developments and pick
the right mix of products to generate a secure income
to meet basic daily needs and maintain flexibility for
other irregular and unexpected expenses.
In most account-based and non-accountbased income streams you get access
to your regular income when
the income stream provider transfers money into
your nominated bank
The Good Super Guide
• TTR pensions are
being phased out.
From July 1, 2017 the
government removed
the tax-exempt status
of earnings from
assets that support a
transition to retirement
income stream or
pension (TRIS) that is
not in the retirement
phase. Earnings from
assets that support a
non-retirement phase
TRIS will be taxed
at 15% regardless
of the date the TRIS
Alex Dunnin is research director
at Rainmaker Information. This
is an edited extract from the
16th edition of The Good Super
Guide (Wilkinson Publishing, RRP
$39.99), which he co-wrote with
Christopher Page, managing
director of the Rainmaker Group
of companies. For your chance
to win one of five copies, tell us in 25 words or less
what your perfect retirement would look like. Send
your entries to or
Money magazine, GPO Box 4088, Sydney, NSW
2001. Entries close May 2, 2018.
account each week, month or quarter. And just as you
compare investment performance for regular super
funds, you should do the same for retirement products. According to SelectingSuper, at December 2017,
the average retirement balanced investment product
returned almost 10% for the past 12 months and about
9%pa over five years, remembering that the lower the
performance the quicker your retirement savings will
run out. Retirement products earn slightly more than
regular super investments because they don’t have any
tax deducted.
A pension is a type of plan that provides monthly
income in retirement. If it’s paid by a life insurance
company it’s called an annuity.
Account-based pensions are investment-linked income
streams where your account balance is determined by
how much you invested, your investment income and
your regular payments.
Non-account-based income streams are ones where
there is no account balance because you receive your
payment at the agreed amount every week, month or
year regardless of investment market conditions.
When you were still working you were only concerned
with what is known as the accumulation phase of superannuation, meaning how to pick the right investments
to help your super grow as fast as it could without taking
too much risk. When you retire, the game suddenly gets
more complicated because this is probably the last pot
of money you’re likely to come across and you need to
make sure nothing goes wrong.
Account-based pensions and
The most flexible type of income stream
products are account-based pensions and
annuities. Account-based pensions are updated
versions of what used to be known as allocated
pensions. These account-based pensions are the
most flexible because they usually give you a full
range of choices about how often you want to receive
your regular payments and whether you would like
to withdraw lump sums from time to time for special
purposes (like going on a holiday, repairing your
house or buying a car), and they let you choose from
a broad range of investments. These can include
managed funds, term deposits, shares and exchange
traded funds.
Retirees reap the rewards
Investment performance benchmarks, Dec 2017
SelectingSuper Balanced Retirement Index
SelectingSuper Balanced Accumulation Index
Lifetime income streams
These are where the provider guarantees to pay
you a regular income until the end of your life. To get
its calculations right it is actually betting that you
will die early while you are betting that you will die
later. In other words, it’s a bet around your health
and lifestyle.
1 year
3 years p.a.
5 years p.a.
7 years p.a. 10 years p.a.
Source: Rainmaker Information
Fixed-term income streams
With these income streams you are specifically
agreeing with the income stream provider about how
long you wish to receive regular payments, say for
five, 10, 20 or 30 years. Their advantage is that you
know exactly what to expect and for how long. And
even if you die before the term is completed, your
estate or your preferred beneficiary will usually be
allowed to keep receiving the regular payments.
Market-linked income streams
Market-linked income streams are like
account-based pensions where the value of your
account changes according to the value of the
underlying investments.
The type and amount of fees you are likely to pay your
income stream provider depends on who the provider
is and how many and what types of features it has.
As with regular super funds, the main types of fees
are contribution fees, ongoing management fees, member fees and investment fees. But because your income
stream product is quite different from a regular accu-
Life expectancy income streams
These are like a mix between lifetime and fixedterm income streams where you will get a payment
each week, month or quarter until you reach your
expected age of death.
Types of retirement income streams
For people who want low risk
Guaranteed level of regular payments
Can vary payments to suit requirements
Depends upon returns
Can draw down extra capital
Can choose investments
Can transfer residual capital value to estate
Preferred beneficiary can get reversionary payment
Some choice available
mulation phase super fund, in that you now receive
regular income, there will often be a regular extra
administration fee associated with your provider having
to make these payments.
According to Rainmaker’s latest retirement income
stream fee survey, for 2017, the average total fees
you should pay will be around 1.5% each year
though many are now much cheaper. This fee
level will vary considerably depending on the
capital value of your income stream and which
provider you choose.
Other factors that will impact your
fees are things like the more investment
choices that are available and which
you choose for your portfolio, especially
in account-based and market-linked
income streams, and how often you wish
to receive payments.
For example, you should expect to
pay higher fees if you wish to receive
12 monthly payments rather than just
one annual payment.
Income streams have implications for estate planning.
These are what options are available, what is payable
and how death benefits are taxed.
On the death of the owner of the income stream, the
balance of an account-based income stream, including
term allocated pensions, can be paid to a dependant or
to the deceased’s estate.
The death benefit of a fixed-term income stream is
the discounted value of the remaining income payments. A lifetime income stream has no death benefit
unless the death occurs within the guaranteed period.
In this case, the death benefit is the discounted value
of the income payments payable within the remaining
guarantee period.
The main estate planning issues you need to consider
are who the death benefit can be paid to and what type
of death benefit nomination is required.
Death benefits can only be paid as an income stream
to a person who qualifies as a death benefits dependant
(under taxation law). If paid to a child, the pension must
be commuted to a tax-free lump sum by the child’s
25th birthday unless the child meets the disability
From July 1, 2017 death benefit income can only be
commuted to pay a lump sum that is withdrawn from a
superannuation fund or rolled over into another super
fund to directly start a new pension with a new provider.
If the pension is commuted outside a six- or threemonth period, it is a superannuation lump sum of the
beneficiary. A spouse can roll over this amount to the
accumulation phase of super or another income stream.
It remains an unpreserved amount.
The flexibility of
the outstanding paymentreferstohowsome
income stream products
may allow a preferred beneficiary to nominate whether
they wish to either continue
receiving the regular payments
or whether they wish to receive
theoutstandingamountas cash.
The good news is that modern
retirees are living longer than ever.
The bad news is that it means their
money is more likely to run out as they
get older. One way to protect yourself against
this happening to you is to invest in what is
called a longevity pension.
These are new types of income stream products that
you buy when you initially retire but where you don’t
start receiving its income stream payments until you
are, say, aged 85 or more. Only a few income stream providers offer these at the moment but they are expected
to become more common soon. M
• Ensure you will have enough money to maintain
your lifestyle in retirement.
• Will you qualify for the age pension or any other
• How can you maximise your social security
• Business succession planning issues, especially
The good
news is that
are living
longer. The
bad news is
that their
money could
run out
the CGT exemption on the sale of small business
proceeds invested in superannuation.
Re-evaluate your living arrangements and
whether you need to downsize your home or move
into an assisted-care environment.
Estate planning, especially for retirees with
children from a previous marriage, former spouses
or disabled children, and for those relying on social
security benefits only available with assets test
limits for a couple.
Pre-retirement review of insurance needs to
ensure retirement funding is preserved if redundancy, illness or accident prevents the client
reaching normal retirement age. This is especially
relevant for those in defined benefit schemes.
Making sense of mixed and
often contradictory signals
remains a key challenge for
investors and consumers
dd an interest rate upcycle to unprecedented household debt, then toss in
wage compression, declining property
prices and gyrating sharemarkets and it’s
easy to see why uncertainty reigns over
what’s in store for 2018. In an attempt to make sense of
market dynamics, Money has identified the key themes
likely to impact investors and consumers this year, plus
another 10 drivers to watch closely.
Global growth
The greatest level of synchronised global growth in
almost a decade bodes well for sharemarkets, including
Australia’s. Based on IMF figures, global and Australian
GDP will reach 3.9% and 3.1% respectively. Add low
interest rates – which make for a very low cost of capital
– to accelerated profit growth for global corporations
in general and the sharemarket is again shaping up as
a good place to invest.
◆ TAKEAWAY: That’s great but with sharemarkets
having already priced in a lot of future growth, the
trick for investors, says Andy Macken, portfolio
manager at Montgomery Global Investment, is to
avoid the collective insanity around fads like cyber
currency and return to the time-honoured fundamentals on which all decisions should be made.
While holding more cash within an increasingly
fickle market makes sense, so too does being adequately diversified and investing in quality assets
rather than buying on price momentum, he says.
Synchronised global growth also bodes well for a
long-awaited round of mining infrastructure investment, but Tim Reardon, principal economist with
the Housing Industry Association (HIA), suspects
this could take another three years to materialise.
Market volatility
The unexpected sharemarket sell-off in early February,
following panic over the future impact of rising interest
rates and bond yields in the US, marks the return of
greater volatility. Despite a major rebound in the US,
Macken expects the local sharemarket to experience
more pockets of volatility, especially as the US bond
yield moves through 3%.
“Before February 6 the global sharemarket had been
going up an average 1.7% a month for the last year-and
a-half,” says Macken. “But while the markets were
spooked merely on the fear of future interest rate hikes,
there remains as much uncertainty over when or if it
will actually happen.”
What could further ignite volatility, adds Macken, is
the smouldering tit-for-tat trade war between the US
and China, from which there will be no clear winners.
◆ TAKEAWAY: While rising bond yields in the US could
lead to some rotation out of shares, Chris Weston,
of IG Markets, reminds us that volatility brings with
it buying opportunities for discerning investors and
traders, plus the return of short-selling opportunities
for more hardy souls. Plans by the Federal Reserve to
raise US rates in March, June and December shouldn’t
be lost on investors looking to time future spikes/dips
in the market.
Pressure on mortgages
Interest rates in Australia aren’t under the same pressure
to rise as they are in the US. However, what’s overlooked
is the link between how local banks – especially the
big four – fund themselves and mounting interest rate
pressure in the US.
It’s this nexus that could lead to a further decoupling
between the Reserve Bank of Australia’s official cash
rate and the dynamics on which local banks push mortgage rates higher. The net effect, says Macken, could
leave Australian banks with no choice but to increase
mortgage rates.
“Further fiscal stimulus, via tax cuts to a US economy, which was operating at capacity in 2017, plus the
need to accelerate their interest rates, means higher
mortgage rates could be a very real outcome here in
Australia,” says Macken.
◆ TAKEAWAY: While higher mortgage rates could put
downward pressure on property prices, Macken says
it would heighten mortgage stress and make it harder
for first homebuyers to get a toehold on the property
ladder. Given that Australians already have the world’s
highest debt-to-income levels, he suspects a 2% rise
in mortgage rates would cause a tonne of stress for
household budgets.
“Assuming mortgage rates rise, mortgagees should
look to fix interest rates and pay off as much as they
can,” says Macken. “As well as ensuring they can
service their obligations today, borrowers should also
ensure they can do this over the longer term.”
With about 20% of Australian bank funding
subject to offshore influences, Shane Oliver, AMP
Capital’s chief economist, suspects offshore interest
rate pressure could force the big four to push up
fixed-rate loans by an initial 10 basis points (0.1%).
“While that could mean a 20 to 25bps increase for
interest-only loans and investors, this could be as
much as 40bps based on any additional pressure
from the regulator APRA.”
level of
in almost
a decade
bodes well
for share
Rising interest rate cycle
No one expects an interest rate rise tomorrow. However,
HIA’s Reardon says markets are already pricing in at
least one interest rate rise by the end of 2018.
Rising rates will clearly slug borrowers with higher
loan-servicing costs, and Oliver expects them to contribute to a fall in Sydney and Melbourne property prices
by around 5% or so this year, and rope in property price
expectations for investors.
◆ TAKEAWAY: On a more positive note, Oliver reminds
first homebuyers that the best time to buy is typically when rates are rising. “If you can get used to
higher rates, things will only get better when they
inevitably come back down again, and it’s when rates
are rising that the best opportunities can be found.”
Relief for fixed income
such as credit cards. “Try and avoid front-loaded
loans, where there are no savings on interest payments for early payment,” he advises. “As well as
dialling down your risk exposure, keep a cash buffer for a rainy day and unexpected cost blow-outs.”
Global inflation
Deeper in debt
Australia’s annual inflation rate, lifting to 1.9%, above
the 1.8% level of the September quarter, hardly ignites
an argument for a runaway interest rate hikes. However,
we’re in the middle of an inflationary up-trend globally,
thanks to further strengthening of the US economy –
where core inflation is up 1.8% year on year – and at
some stage Australia is expected to join in.
What’s driving Australia’s current move back to
the mid-point of the inflation target is evidence of
inflationary pressures coming from domestic
factors, including housing and utilities,
with inflation on non-tradable goods
rising by 3.1% over the past year. But
most of that pressure is coming
and that without a lift in wage
growth inflation isn’t going
anywhere fast. “While rising
inflation is a theme for global
investors, locally it’s more of
an issue for next year or 2020.”
◆ TAKEAWAY: Over the shorter
term, it’s likely that low inflation will
continue to stretch what little discretionary income consumers have a little
further. Weaker-than-usual changes in the prices of clothing, furniture and household appliances
will, at least for now, give consumers a bigger bang
for their buck, and any falls in the Australian dollar
against the greenback may help keep them down.
Record high levels of household indebtedness, plus wage
compression and high energy prices, will continue to
dampen household spending. According to Australian
Bureau of Statistics data, households saved on average
about 3.2% of their income in October, compared with
the long-term average of around 10%.
With less money left over for consumers to go
spending, Reardon expects the retail sector to be the
single biggest casualty. “While household spending will
rebound at some stage, it won’t be until 2019,” he says.
◆ TAKEAWAY: With household spending being continually squeezed, Wayne Leggett, of Paramount
Financial Solutions, recommends consumers
improve their personal cash flow management
and have flexibility within their banking arrangements to pay down debt faster.
In addition to having an offset account, he suggests paying for insurance via super contributions
and using the extra cash to clear expensive debt
While the outlook for corporate earnings is encouraging, it is unlikely to be reflected in wage growth,
which was just 0.6% in the December quarter and
2.1% year on year.
According to RBA assistant governor Luci Ellis, with
many enterprise agreements now locking in pay rises
lower than the agreements they replaced, the strong
pick-up in wages over the next two years referred to in
the federal budget may struggle to eventuate.
◆ TAKEAWAY: Without better employment figures,
there’s nothing to the staunch broad-based declines
in wage growth outcomes experienced by workers
in recent years. With the slowest wage growth on
record only accentuating mounting household debt,
a notable change in spending habits means more
Australians are expected to put life’s essentials
ahead of eating out or holidays. M
Given that the Reserve Bank cash rate is the primary
anchor for the Australian yield curve, the prospect of
even a modest (0.5%) rate rise, potentially as soon as
May, offers some upside for fixed-income investors
reliant on interest from bank term deposits, currently
running around 2.2%. While there may be only one
rate rise this year, cumulative hikes that see the RBA
broadly match rate hikes by the Fed could see the cash
rate increase by between 2.5% and 3.5% in 2019.
◆ TAKEAWAY: To capitalise on a rising
interest rate environment, fixed-income and bond investors will
want to look to shorter durations. However, given that
interest rates are likely to
remain historically low for
longer, Oliver says it makes
sense to continue looking
for alternatives to bank
deposits for a stable monthly
income stream: for example,
exchange traded managed
funds (ETMF commercial), unlisted property and infrastructure. Given that it will be difficult to find yield in
2018, investors may need to look to new and
riskier parts of the market for attractive returns,
including ASX-listed and hybrid securities.
Wages lower for longer
10 key
drivers to
closely this
1. Future plans to tamper
with negative gearing,
and what that would do
to investors’ ability to
fund acquisitions and the
impact on property prices
resulting from a flood of
rentals coming to market.
2. Future plans to ensure
access to super is split
between lump-sum cash
and a guaranteed fixed-income stream to avoid
retirees blowing the lot.
3. Signs of a new up-cycle
for commodity prices due
to synchronised global
4. Major reliance on net
overseas migration to
maintain Australia’s robust
population growth at
around 1.6% or 380,000
people annually.
5. The eventual flow-on
effect from auto industry
closures on Melbourne’s
burgeoning employment
6. Reliance on net overseas migration to sustain
demand for new builds,
especially apartments.
7. Lower energy prices
encouraging renewed
investment in manufacturing.
8. The impact that a major
growth slowdown in China
would have on Australia.
9. The net effect of a
major withdrawal of
foreign buyers (notably
Chinese) from Australia’s
residential property markets, especially in NSW.
10. The Australian dollar
is weakening from its last
US81¢ high but solid commodity prices may provide
a floor closer to US76¢.
Ross Greenwood AT LARGE
Take the money and run
The rules have changed in a volatile market fuelled by short-sellers
’ll try to explain something that
may sound heretical to many
investors – perhaps even contradictory to what I have thought about
investment for a long time.
The idea that patience is a virtue, that you must take a long-term
approach to investing, I’m coming
to think is wrong.
Now don’t for a moment get the
impression I want you all to turn
into day traders. Nothing of the sort.
But the more I watch markets, the
more I see violent swings in stocks
that otherwise should be reasonable
performers over the long term, the
more I think you should take profits
when you see them – or swallow a
loss when you have to.
The reason is not only the volatility of the markets, which I think
is only going to intensify in the next
12 months as the US market reaches
progressive highs, and as doubts will
creep in about the impact of higher interest
rates, but also because of the way information is reported in the market as well.
The classic examples from the recent
interim profit reporting season showed so
many companies that produced exceptional
profit results, only to see their shares fall
(in some cases hard) because the market
expected more. If the earnings result was
even mildly surprising on the downside,
the shares were instantly punished.
I have no problems with this. The longterm saying in the market, especially with
mining stocks, is that you “buy the sizzle
and sell the sausage”. In other words, buy
and take profits when the market is expecting good things but be well clear when the
reality of an earnings announcement (or,
in the case of spec miners, the drilling
results are released).
But over time what’s happening is that
short-selling is so prevalent in the market
that so-called solid industrial blue chips are
displaying some of the characteristics of
mining spec stocks by being highly volatile,
especially around earnings season.
A quick look at the listings of the most
shorted stocks on the market gives you a
hint about what’s going on.
On the latest snapshot I’ve seen, for this
column, Syrah Resources, a graphite miner
and explorer, is top of the list. As I write,
more than 20% of its issued capital is shortsold. In other words, someone somewhere
has taken a highly negative view of this
company. Now they might be wrong, in
which case the shares will jump. Graphite,
which is highly sought after for new-age
battery technology, has seen Syrah shares
jump from a low of $2.26 to a peak of $4.83
in the past year. But the short-selling has
seen the price now fall to around $3.85.
As I say, short-sellers are not always right
but they are analysing the risks inside businesses and so many of their prophecies can
come true, especially if enough pressure is
placed on the selling side.
Other companies on the short-selling
top-of-the-pops chart
include (and no surprise
about some of these) Domino’s Pizza, Healthscope,
Vocus, Myer, Mayne Pharma, JB Hi-Fi and Harvey
Norman. Consider that
four years ago you might
have conceivably built a
portfolio around one or
several of these companies.
Yet any slip in sales, earnings or profit margin and
the weight of short-selling
will push these shares
down rapidly.
If I go to the other end
of this list – to the least
short-sold companies on
the market – it is equally
instructive but also not
especially helpful. Companies such as Nick Scali,
Woodside, Breville and
AP Eagers are among some of the better-known stocks that have relatively few
short-sellers. But one profit slip, one missing result compared with earning guidance, and these companies could easily
join the most-shorted-stocks list.
And it’s for this reason I think that now,
more than ever before, if you are making
decent money out of a company you should
cash some in along the way. Yes, it is often
hard to find alternative companies to buy
and sometimes you might need to park
your cash in low-interest accounts to wait
for the next opportunity.
But the risks from increased volatility
are real.
I have sometimes told you in this column
that I consider myself to be a better buyer
of shares than I am a seller. But I am determined that if I am to be a better seller I
should actually do more of it.
Ross Greenwood is Channel 9’s finance
editor and Radio 2GB’s Money News host.
Be prepared to do the work
There is a price to pay for the greater control and flexibility offered by a DIY fund
uane, there’s never a silly
question when it comes
to your money. And well
done on your retirement savings
– you’re doing great!
There’s certainly plenty of talk
about self-managed super funds,
and their popularity has grown
substantially over the past decade
– in fact, they are now the largest
sector of superannuation.
Despite the $600 billion sitting
in SMSFs, which have over 1.1 million
members, they’re not for everyone. The
fund drops and with a balance of around
$500,000 research supports SMSFs as being
the cheapest option for many investors who
are willing to take on the responsibility of
managing their own fund.
And this is the important thing: you
take on the responsibility for compliance
and there are ramifications – such as fines,
loss of super and even jail – if you do the
wrong thing. So you need to be prepared
to do a little work.
Now that I’ve put the fear of God into
you, I should add that most SMSF trustees
do a sterling job in staying compliant, and
finding a good accountant will play an
important role in this practice.
Most people start an SMSF because they
want more control, flexibility and choice
within their super fund. Direct share ownership, self-funding instalment warrants,
commercial property and borrowing for
residential property are just some of the
core reasons for setting up an SMSF. For
these and other reasons, we’ve also seen
younger people under 40 setting up funds
as more people want to control
their destiny.
If there’s no real reason to
of a control freak
your existing fund,
I’d never have my money in a
then don’t. Having more
retail or industry fund because I
money and salary sacjust don’t have the control or flexibility
to buy direct assets, such as shares or
rificing are redeeming
property, and I can’t borrow money to
activities to build your
leverage those assets. I’m also a control
tax office recommends a
super but they’re not
freak but I could never get the sorts
combined super balance
reasons to start an SMSF.
of returns I get from my SMSF in a
in excess of $200,000.
Many industry and
retail fund. But you’ve got to be
The reason for this is
retail funds are perfectly
prepared to do some work
based on the idea that you’ll
fine and adequate for their
or to outsource it.
pay around $2000-$3000 a
intended purpose. Many are
year, or about 1%, for the adminalso cheap and well performing.
istration (tax returns, audit, member
Sam Henderson is a CEO and senior adviser
statements, etc) of the fund, which is what
at the multi-award winning accounting and
you’ll pay in an industry or retail fund for
financial planning firm HendersonMaxwell.
a similar account balance. You’ll pay extra Sam is host of Money Manager on
for financial advice.
Sky News Business Friday nights at 6.30 and
That said, as your account balance
specialises in managing money for SMSFs.
rises, the percentage cost of running the
Hi, this may be a silly question. Is a self-managed super fund for us? We have about
$460,000 in super and a couple of neutrally geared investment properties, on which
we owe $420,000. We own our house outright, with no kids. My wife is salary sacrificing about $18,000 a year into super while I’m at about $5000. What are the
advantages/disadvantages over our normal funds? What are the yearly costs of
an SMSF for people in our situation? Duane
Vita Palestrant SUPER
Sole trader’s Catch-22
It’s a big risk relying on the sale of a business to fund retirement
ole traders are often so stretched
juggling cash flow and business
pressures that super is the last thing
on their mind. It is not compulsory for
sole traders to pay themselves super but
neglecting it comes with risks.
Many sole traders hope to fund their
retirement from the sale of their business.
However, in reality there is no guarantee
they will find a buyer.
Max Newnham, an accountant and
certified financial planner at TaxBiz, says
many sole traders face a Catch-22 situation:
“To pay proper attention to super they
have to have the cash flow to make the
contribution. In a lot of cases, the cash flow
isn’t there. If they stay in that stage, where
it doesn’t really pay a proper salary and
enough to put money into super, that business is not a business. They’re not going to
have a business to sell.”
But if they are able to grow the business
and are getting enough cash flow to receive
reasonable remuneration, they should contribute to super. The benefit of that is not
only are they building savings, they’re
also reducing their tax, he says.
“As long as they’re still able to put bread
on the table, they do really need to look at
that because, if they’re not going to be getting the big dollars out of selling their business – it may not be worth a lot – how the
heck are they going to end up funding their
retirement? They’ll end up with nothing.”
Dominique Bergel-Grant, a financial
planner and director of Leapfrog Financial,
agrees. “Super is often very low on their
priority list. They’re trying to work out
how they are going to fund the next staff
member or how they’re going to meet their
creditors’ requirements.
“It’s always great to think you will sell
your business to someone but 80% of busi-
Many self-employed people find they have
little in the way of savings when they retire
because they haven’t paid themselves super
throughout the life of their business.
Relying on the sale of the business to fund
your retirement may not go according to
plan. For that reason, you should do what
you can to make contributions.
You can make payments to your fund
through “personal super contributions”. To
claim a tax deduction, you’ll need to fill out a
notice of intent form, which you can get from
your super fund or the tax office.
Remember to stay within the contribution
caps. Concessional (before-tax) contri-
butions are restricted to $25,000 a year.
Non-concessional (after-tax) contributions
are capped at $100,000 a year. If you are
under 65 you can bring forward up to two
years’ non-concessional caps, allowing you
to contribute up to $300,000.
For more about claiming a deduction for
personal super visit
To figure out how much you need in
retirement go to
nesses in Australia close their doors
without a sales transaction happening. It
is a horrific statistic but most people are
unaware of it, particularly sole traders.”
She encourages her clients to put super
into a special savings account and only
make the contributions toward the end of
the financial year once they have a handle
on any changes to the rules and their likely
tax position. “We’ve got the cash there and
we’re not scrambling for it at the end of the
year,” she says.
Also check existing super accounts
and whether unnecessary life insurance
premiums are coming out. “They may no
longer be contributing to that account but
the premiums are nevertheless eating away
at it. It’s about being smart about whatever
account they are contributing to.”
Bergel-Grant says many sole traders were
put into self-managed funds in the early
2000s. “Rightly or wrongly, accountants set
up the structures, which have no benefit for
them apart from another set of tax return
fees that they probably don’t need. How
much time do they have to be looking after
their investments? Having the right advice
is critical to relieve those pressures.
“The attitude I try and instil in them is
that they may have a brilliant business idea
today but it could become the Kodak processing centre of the future and be worth
absolutely nothing. So it’s about futureproofing yourself. It’s about saying, ‘I will
run a successful business but if something
unexpected happens at least I have put
money aside in super.’
“And if for whatever reason you were
made bankrupt in the future, super is treated differently in bankruptcy court. In most
cases it is fully protected. It does at least
allow you to build a nest egg with some
safety from creditors,” she says.
Vita Palestrant was editor of the Money
section of The Sydney Morning Herald
and The Age. She has worked on major
newspapers overseas.
Smart tip
from a
rich lister
A company
by one of
is set to turn
the corner
magine you’re at a nice backyard barbecue
and recognise a fellow guest as one of Australia’s wealthiest people (likely a billionaire
but certainly worth more than half a billion).
You strike up a conversation and relive the
successful businessman’s early memories of the technology business he co-founded in 1978 and floated in
1994 with a value of less than $50 million. That company
today is worth more than $9 billion.
After that impressive story, he mentions that in recent
years he’s become involved with another exciting technology company. It’s only relatively small, with his 30% stake
worth around $40 million. Nevertheless he’s investing
something arguably more valuable than money in this
smaller business, his time as chairman of the board.
He then asks whether you’d like to take a look at the
company’s numbers with a view to investing alongside
him. What would you do? I’d jump at the chance.
Now, apart from the backyard barbecue and the
imagined conversation, the facts in the above scenario
are true. The successful businessman is Chris Morris,
co-founder of global share registrar Computershare.
The smaller company is Smart Parking (ASX: SPZ).
Let’s take a closer look at it.
Smart Parking has spent much of the past five years
And the revenue and net profit figures in the first table
don’t inspire much confidence at first glance. Perhaps
the best that could be said is that revenue has ended
up higher over the period and the loss has narrowed.
Yet there’s more to the story when you look deeper. The
company has two main divisions. The first is “parking
management”, which operates in the UK and manages
car parks for retail customers, land owners and managing
agents (clients include Hilton, Mercure and Ibis Hotels).
It currently generates the lion’s share of revenue but until
recently had a couple of problematic contracts that were
holding back its profitability. You can see in the table
that as management resolved the problem contracts,
the division’s revenue fell but profit rose.
Signs are good that this part of the business can
continue on its profitable way. In the most recent halfyear, revenue rose by 29% to $16 million and adjusted
earnings before interest, tax, depreciation and amortisation (adjusted EBITDA – a kind of profit measure
used by management) soared 79% to $4.3 million. This
should put the division (and overall company) on track
for a record year of profit in 2018.
“Technology” is the second division. It sells hardware
and software solutions such as parking sensors and
systems with associated apps to help drivers locate
available parking spaces and potentially pay for their
parking automatically.
Clients include the company’s own parking management division, Wilson Parking, local councils, shopping
centres and airports. Recent encouraging client wins
include Moonee Valley and Adelaide councils. For the
half-year to December 31, revenue from external clients
doubled to $3.2 million. And although the division still
lost around $500,000, that was an improvement on the
$1.1 million it lost in the same period the previous year.
Management reported that its sales pipeline for this
$22.1m $23.8m $31.8m
Net profit
-$6.4m -$4.6m -$2.5m
division was a record $36.2 million at the end of February. I’d expect the division to tip into profitability over
the 2019 financial year. In the meantime, the company
is well financed with virtually no debt and more than
$14 million of cash and bond investments to draw on.
And that’s before considering the potential financial
support of its wealthy chairman, if required.
Global growth
The company’s recent success is set in the context of
the global smart parking industry, which is forecast to
grow at double-digit annual rates for the foreseeable
future. So it’s no wonder the industry has attracted the
attention of giants like Siemens, Bosch and Cisco Systems
as well as more specialised players like Smart Parking,
IPS Group (American) and Spanish companies Urbiotica
and ParkHelp (which claims to be the “global leader”).
It’s possible that one of these players could look to
acquire Smart Parking at some stage. Meanwhile, my
view is that there is a global “land grab” going on with
client understanding now at a tipping point in relation to
the benefits of parking technologies and the importance
of relieving traffic congestion in cities. It’s estimated
that up to 30% of traffic in busy CBD areas is due to
drivers circling around looking for a car space.
Smart Parking already has more than 60,000 sensors
installed across 17 countries. If it performs well for
existing clients, then I expect that credibility to lead
to marketing success with other councils in Australia, New Zealand and the UK. Councils are typically
conservative and inclined to go for a proven solution
if it’s working in similar situations elsewhere.
Up to 30% of
CBD traffic
is due to
looking for
a car space
$19.3m $21.4m $28.4m
-$2.6m -$2.5m
There are always risks in owning a smaller stock
like this and it’s difficult to predict the potential
upside in this case but Smart Parking has a lot of key
factors lined up. These include a credible board, a
strong balance sheet, increasing success in winning
new clients and a growing, profitable business within
a growing industry.
Morris has already overseen one international success
story and there’s some chance that Smart Parking is on
its way to being another. Computershare’s stock price
has risen more than 100-fold in the 24 years since it
listed. But I’ll be happy enough if I make three times
my money in Smart Parking over the next five years or
so. And if I receive a parking ticket at Sydney’s Bondi
Beach (where Waverley Council uses Smart Parking’s
technology), at least I can feel a little better about it.
Greg Hoffman is an independent financial educator,
commentator and investor. He is also non-executive
chairman of Forager Funds Management (not involved
in Forager’s investment process).
Disclosure: Private portfolios managed by Greg Hoffman
own shares in Smart Parking and Computershare.
Hold onto your fundamental beliefs as you
climb the stairway to investing heaven
20 lessons
20 years
fter setting out to write interesting, profitable research on
Australian listed stocks, this
month marks the 20th anniversary of Intelligent Investor.
I’m going to try to distill the past two decades
into 20 brief lessons. Here goes:
You will never stop losing money. Everyone starts ignorant, which means you
will lose money. Your aim should be to
reduce your losses, not eliminate them entirely.
It’s the averages that matter, not the losses on
individual stocks. You will be wrong. Don’t beat
yourself up. Learn the lessons and move on.
The game is to stay in it. Never take a
bet big enough to take you out of the
game. Diversify your portfolio and fight
over-confidence. The most successful strategy
for you is not necessarily the highest returning or
the most conservative but the most sustainable.
Build a portfolio that lets you sleep.
There’s nothing wrong with average. If
you invest in index funds over the long
term, salting money away each month
over the decades, you’ll do just fine. And you
won’t have all the hassle of trying to beat the
market. As Ben Graham, the renowned value
investor, said: “To achieve satisfactory investment results is easier than most people realise;
to achieve superior results is harder than it
looks.” If you’re happy with average, take the
low- cost easy option (and correct for the ASX’s
over-exposure to banks and resources). Just
don’t panic and sell in the next crash.
You can’t beat the market by following
it. If you want “superior” returns, you
have to do something different from the
market. That’s different and right, not different
and wrong. The business media and stuff like
brokers’ 12-month price targets reflect the market. If everyone knows the same thing, copying
it will get you the returns everyone else gets.
The worst person to manage your money
may be you. Most professional investors
underperform the market. Ask yourself
why you think you can beat them. If you lack
the analytical skills and psychological fortitude
to go against the market, or the time needed to
overcome these barriers, invest in a low-cost
index fund and get on with your life. You may
be wasting your time (and money) trying to
beat the pros.
What happened today probably doesn’t
matter. News is designed to excite our
synapses, triggering our fear and greed.
This encourages unnecessary activity. If you’re
investing for the next 20 years, what happened
Understand your edge. Small investors
aren’t judged on their quarterly performance or penalised for sitting on cash.
We don’t lose our jobs after a bad year and we
can pick stocks professional managers don’t
touch. This is our edge. If you take a genuine
long-term view, shares aren’t as risky as bonds
or cash because they keep pace with the real
economy. Lose that long-term view and you
lose your edge.
Find your religion; pray regularly. Value
investing was the only approach that
made sense to me, although it helped
that successful people like Warren Buffett,
Ray Dalio and Kerr Neilson practised it. Once
you’ve found something that makes sense to
you, stick with it. Jumping from one style to
another only increases your opportunity to
lose money. To get to investing heaven, find
your religion, then study and practise it.
Be your own shrink. Most mistakes
are ego driven. Ego gets many of us
started in investing but it also brings
us undone. Our brains are wired to make
poor financial decisions. Make sure you
understand how, so you can work on these
flaws. (Reading Daniel Kahneman will help.)
Stop watching share prices. Share
prices get too much attention;
the underlying factors that drive
them over the long term never enough. Focus
on the long-term value of a business, not the
collective expression of what day traders,
insider traders, dumb money and speculators
think it’s worth from one moment to another.
Share prices are useful indicators but only in
relation to value.
Value investing is easy to explain
and hard to do. The principles are
straightforward enough: adopt
independent thinking, focus on value and
think with a long-time perspective. This is
easier said than done. Herd animals do not like
being out on their own, which is why value
investing is so psychologically demanding.
The market is mainly rational.
Understand and act when it isn’t.
Markets are largely efficient,
which is why over the past 20 years the number of “hold” recommendations we’ve made
is many times that of our “buys” and “sells”.
Successful investing is all about spotting the
inefficiency – a mispricing – and acting on it.
The best opportunities hurt the
most. Just because you’ve bought a
cheap stock doesn’t mean it won’t
become cheaper still. Good opportunities can
become great after you’ve invested much of
your spare cash in them. That’s one way they
hurt (the solution is to buy in parcels). The
other is in the growing suspicion that the
market is right and you may be wrong. You
won’t get an amazing return from a stock
without enduring a lot of pain along the way.
Read widely. There are no secrets
to successful investing waiting
to be written. Everything you
need to know is already out there (we have
four reading lists to help). Investing is both
a science and an art, which is why a basic
understanding of disciplines like history,
psychology and economics will make you a
better investor.
Shut out the noise. Better environments make for better decisions.
Turn off your phone, shut down
your computer and silence the kids. Try to
remove “you” from your decision. Write
down the reasons why you think you favour
one course of action over another and then
write the opposite case. Now reflect on it.
Then, after you’ve acted, keep quiet about
it. Discussing your decision with others will
make it harder to change your mind.
We’ve broken this rule too many
times. Had we not done so our
record would be even better than it is. Good
businesses usually appear expensive. But they
also tend to deliver pleasant surprises, proving their worth. Sell high-quality, apparently
expensive stocks slowly and reluctantly. A
high price-to-earnings ratio does not mean
a stock is necessarily expensive.
Learn to do nothing. Some of
the biggest mistakes we’ve made
over the past 20 years were in
recommending low-quality, smaller stocks
at apparently cheap prices. We slipped down
the quality curve because high-quality businesses were too expensive to justify buying.
We should have sat it out but we got restless.
It didn’t work out well.
Put business models before balance sheets. It’s better to spend
hours thinking about a company’s
strengths and weaknesses than poring over
its accounts. Once you’ve got a grip on how
a company makes money and its competitive
position, the accounts will make more sense
anyway. Business models first, details later.
All the usual rules apply, even
to you. You will never outgrow
the need to follow the basic rules
of diversification and not having too much
money in one stock. Don’t think that as you
grow as an investor the rules no longer apply.
Don’t make your life about
money. Money is a means to an
end, not an end in itself. Don’t
get lost along the way. M
John Addis is the founder and editor-in-chief
of Intelligent Investor, part of InvestSMART
Group (under AFSL 282288). This article
contains general investment advice only. Find
out more about Intelligent Investor, part of
InvestSMART Group, and start a 15-day free
trial at
OUTLOOK Craig James
Portfolios due for a check-up
This is traditionally a good month for investors – but don’t be complacent
quarter of the year is over. Yes,
the first three months of 2018
have gone and most investors are
probably asking what they have actually
accomplished over the period. New Year’s
resolutions are all very well and good but
if you don’t put them into practice what
value do they serve?
Well, a new quarter is a time of fresh
beginnings. A time when you can indeed
determine how well your portfolio is
serving you; whether loans need to be
refinanced; whether new opportunities
should be explored.
Traditionally, April is a good month for
the Australian sharemarket. In the past six
years, the sharemarket has fallen only once.
Go back 30 years and you’ll discover that
the All Ordinaries has fallen only eight
times in April. Go back 70 years and
average returns in April are 1.8%,
well ahead of the 0.6% average
monthly gain for all months of
the year.
Few major companies
go ex-dividend in April
(that is, trade without
the benefit of their dividends). Also important
is the fact that companies are still in the
practice of paying
out dividends.
While over
$14 billion in dividends was paid
out by ASX 200
companies in
March, a further
$7.6 billion will
be paid to shareholders in April
and the early
days of May.
As always,
have options. They
can reinvest the returns back into their
chosen investment, plough it back into
other companies or use it in other ways
– such as spending it.
Of course, dividend payouts cannot fully
explain the above-average sharemarket
returns recorded in April. In late September and October, companies with either a
June or December year-end also pay out
dividends. Still, the proximity to Christmas may tempt a number of investors to
boost their seasonal spending power
with the dividends.
Of course, one event that happens every
month, except for January,
is a meeting of the
Reserve Bank board.
The May meeting
actually occurs on
the first day of the
month and only a week after the March
quarter inflation figures.
In the past seven years the board has
lifted or cut rates on 14 occasions and five
of those times were in May. A key reason
for the high hit rate is the proximity to the
release of the inflation figures.
Philip Lowe, the Reserve Bank governor,
has made it clear in recent months that
any change in rates is still some way off.
He has noted that the next move in rates
will most likely be up. That is because he
believes the economy will gain pace over
2018 and that will lead to a tighter job
market, pushing up wages and prices and
thus necessitating a less expansionary
monetary policy.
But Lowe has been at pains to stress
that this lift in the pace of the economy,
followed by wages and prices, will be a
gradual process. And economic forecasters
are taking the governor at his word.
More economists have been pushing
out the potential timing of a rate hike
into late 2018 or 2019.
It would take a surprise and a significant lift in prices in the March quarter
to prompt the Reserve Bank to lift
rates in May. Most likely the inflation
rate will still be stuck near 2% or just
below. The Reserve Bank aims for
inflation to average 2.5% over the
medium term. The last time inflation
was at or above 2.5% was just under
four years ago. Inflation is the most
restrained it has been in almost a
century of records.
The other things to watch over
April are in the US. Will there be
more protectionist-type announcements from President Trump? And
will Federal Reserve policymakers
be happy with just three interest
rate hikes over 2018.
Craig James is chief economist
at CommSec.
Marcus Padley THIS MONTH
Turn on the brain power
For young would-be property owners, your career is your greatest asset
have been conducting education courses for active investors and beginners.
The beginner's course is called “An
Introduction to Finance and the Stockmarket”, and I have found myself in front of an
audience that includes a number of assetless 20-year-olds trying to play catch-up
with the older, seemingly luckier but
certainly richer generation.
It is irritating to them that seemingly less
gifted people than themselves fluked 40
golden years of extraordinary property and
stockmarket appreciation. Golden years
that, since the GFC, are by no means
guaranteed to repeat.
The older generation, like myself, took
out a mortgage the moment they could
afford to. The advice at the time from our
parents’ generation was to get on the first
rung of the property market as soon as
possible. Of course, this was 1982, 10 years
into the credit boom or, more accurately,
the “debt boom” that started somewhere in
the early ’70s. The availability of debt has
not been eternal – in those days you had
to suck up to the banks, wear a suit to the
interview and promise them that your parents would repay every dollar if you didn’t.
Only then would they begrudgingly open
their wallets.
At the time I was working for an investment bank in the UK which, unprovoked
by me or any other employees, suddenly
offered us all flash company cars on a salary
sacrifice basis, and three times our salaries
in mortgage loans at a discounted interest
rate with fast-tracked approval. We all suddenly went from poor renters in the scruffy
outer suburbs of London, driving beaten up
Mark 3 Cortinas, to property-owning new
Golf GTI drivers living in Chelsea. I have
been living with debt ever since.
But it has paid off enormously. Since
1974 the property market, if you believe
the numbers, has possibly returned around
10% a year. A 10% return over 36 years,
compounded, will turn $100,000 into
$3,090,000. If you had bought a house in
Australia in 1974 for $100,000, then that
equation is probably about right. The bloke
who lives over the back of my fence did a
bit better; he bought two blocks for £450 a
bit earlier than 1974. Inflation has paid off
that mortgage.
Of course, some Australians got on the
property ladder a little bit later than 1974,
and you can now basically measure the
wealth of an Australian by their age, which
dictates when they started to take responsibility for themselves and, as a consequence,
bought a house. They are now sitting on a
handsome asset, and while it may appear
effortless to the new generations, there is a
lesson for younger people in their success.
The reason the Australian property
buyer has made money stems not from the
property market itself, although that has
helped enormously, but from the enforced
attitude to money that comes with a large
debt. Property has forced property owners to be disciplined, to pay off capital, to
control their spending but, most importantly, to get out of bed in the mornings
with purpose. A mortgage, school fees and
not enough super (compulsory super only
started in 1991) are tremendous motivators.
In fact, there is an argument, as evidenced
by the miserable state of some of the very
wealthy, that the more liabilities you have,
including mortgages, debt, family dependants and particularly kids, the more you get
out of life because the more you are driven
to succeed through effort.
Now translate this to a generation who
haven’t fluked the property boom, and
don’t have enough capital to exploit the
synchronous stockmarket boom, and you
have a conundrum. Do they now borrow
$1 million and get their foot on the first
rung of the property market, or do they
embark upon aggressive stockmarket
speculation in order to even things up
between them and the lucky generations
that went before them?
My suggestion is this. Neither. Your best
investment in your early 20s is not property or stockmarket speculation; your best
investment is in your brain, your career
and, if you are half smart, the business you
build that into.
As any business owner will tell you, and
as Robert Kiyosaki’s book Rich Dad Poor
Dad will confirm, real capital is created
by building assets, your own assets. Plan
on that, because there’s a little-known fact
about the stockmarket you won’t get told.
The stockmarket is there to invest money
you’ve made, not make money you haven’t.
Go and make some money first.
Marcus Padley is a stockbroker with
MTIS Pty Ltd and the author of the daily
sharemarket newsletter Marcus Today. For
a free trial go to
ALUE.ABLE Roger Montgomery
Groceries in the
firing line
espite more than eight years
of economic growth in the US,
retailers there have been going out
of business at a rate normally reserved for
very deep recessions.
Until now the e-commerce apocalypse
that has decimated retailers has largely been
concentrated in apparel, which has also suffered from a growing share of spending on
recreation such as restaurants and travel.
It seems the growing earnings power of
millennials is simply driving more sales
online. Amazon’s sales have grown almost
tenfold in the past decade, from $US15 billion ($19 billion) in 2007 to $US178 billion in
2017. Amazon was also responsible for about
44% of all US e-commerce sales in 2017,
or about 4% of total retail sales, according
to One Click Retail, a market researcher.
In less than five years, 20% of the US’s
$US3.6 trillion retail market will have
migrated online, and Amazon is expected to
capture two-thirds of that trend.
While luxury retailers have beaten a
retreat from expensive real estate sites,
retail jobs are plunging even ahead of automation and retail real estate is being vacated at the highest rate since 2008, grocery
has largely been untouched.
But it is only a matter of time before
Amazon’s purchase of upmarket grocer
Whole Foods for $US13.7 billion is integrated with its logistics and delivery systems,
including Dash Buttons, supporting a private label push whose wave could eventually hit Australia’s shores.
According to the industry website Food
Dive, grocery store openings in the US
declined 28.8% as major chains shuttered
stores. News website Curbed NY has
reported and mapped New York’s disappearing grocery stores, Convenience
Store News has reported a decline of
mid-size chains across the US, and
Lidl’s US expansion has slowed amid
aggressive pricing by competitors.
The US, however, is behind many
parts of the world when it comes to
the penetration of online grocery shopping. While 4.3% of domestic grocery
sales are conducted online in the US, that
number is 19.7% for Korea, nearly 6% for
China and over 7% in the UK. And in Australia, according to the discount coupon
site CupoNation, Australia’s online grocery
sales are growing seven times faster than
the total market.
The shift is already triggering brands
to change their strategies. Retailers are
looking to private labels to retain margin.
Overseas, mega retailers such as Kroger
To reorder a favourite
product, just press the
Dash Button once
are making private label growth a top
priority in 2018, while Walmart’s
rolled out its first private label, Uniquely
J, while simultaneously purchasing Shoes.
com, Bonobos and ModCloth to compete
directly with Amazon.
In response, established brands, which
have been removed from shelves and pressured on margins, now see grocery stores
as their biggest competitors, not their big-
gest clients. They are taking
control of their distribution
channels either by building their
own platforms using Magento and
BigCommerce, or initially partnering through competitor Amazon until
they launch their own strategy.
Meanwhile, tech start-ups are looking
to serve brands in their attempts to regain
share by offering assistance at every step of
the supply chain, from subscription to packaging, delivery, search and social media.
In Australia, Woolies and Coles have all
this ahead of them so they’re not standing
still. Already Woolworths serves more
than 9 million visitors each month on its
e-commerce platform and Coles 7 million.
Woolworths is expanding its click-andcollect service to more stores nationwide
while Coles dominates social media with
1.2 million followers versus Woolworths’
1.05 million and Aldi with almost 600,000.
In the US, Whole Foods is a case study in
building a fan base through social media.
Australia’s incumbent retailers will have
to do more. In the US, Amazon Dash Buttons are product-branded, thumb-sized,
wi-fi devices that can be attached to the
door of the pantry or fridge. To reorder
a favourite product, just press the button
once, without ever looking at an app or
searching on a website.
Trying to win back a customer who has a
pantry full of these devices may be a challenge. Of course, the batteries will eventually go flat!
Roger Montgomery is the founder and
CIO at the Montgomery Fund. For his book,, see
Prices as at close of business, 16-Mar-18.
Australia’s big supermarkets
will have to fight harder to resist
Amazon’s onslaught
Woolworths share price
Wesfarmers share price
Costa Group share price
❶ Woolworths
ASX code WOW
While Woolworths’
Price $26.78
share price is virtually
52wk ▲ $27.97
unchanged over the past 52wk ▼ $24.45
year, perhaps the biggest Mkt cap $35bn
news for Woolies was
Dividend 93¢
the ACCC’s decision to
Dividend yield 3.47%
block BP from buying
PE ratio 19.4
the supermarket’s chain
of petrol stations, which
would have grossed
$1.785 billion in proceeds and reduced
Woolworth’s debt levels further.
Selling petrol stations is a curious strategy
because one might assume the network
provides an excellent additional channel for
click-and-collect convenience, and the debt
is easily supported by long-term cash flows
generated from working capital.
The first-half underlying profits of just over
$960 million were in line with the market’s
consensus expectations and were driven
primarily by growth in Australian food (up 11%
and like-for-like sales up nearly 5%) and hotels
(up 17%) and slightly offset by New Zealand
supermarkets (down 11%) and reducing
losses at Big W.
Meanwhile, the share price reflects positive
sentiment towards CEO Brad Banducci,
who has done a solid job turning around the
business sooner than many anticipated.
Nevertheless, management has indicated
that sales growth in Australian food may
moderate as research analysts compare
sales stats with stronger numbers from
comparative prior period.
While there is little to suggest the
turnaround momentum won’t continue, we
note that the longer-term outlook for investors
is somewhat clouded by the ever-present
possibility of a derating associated with the
eventual concentration of Amazon’s focus
on grocery in Australia.
❷ Wesfarmers
ASX code WES
The market saw
Price $43.80
the writedown of
52wk ▲ $45.60
Wesfarmers’ investment
52wk ▼ $39.52
in its UK expansion as a
Mkt cap $49.66bn
negative, and the spin-off
Dividend $2.23
of Coles supermarkets
Dividend yield 5.09%
from the Bunnings
PE ratio 32.9
hardware chain as an
even bigger one. But the
first-half result was better
than expected and the market quickly retraced
the losses inspired by the UK writedown, which
had been flagged.
Bunnings generates much higher returns on
capital than Coles, which has probably inspired
the spin-off. It has grown tremendously during
Australia’s two-and-a-half decade run without
a recession. It is a case study in the power of
monopoly and retail execution.
Until recently the major issue for
supermarkets has been that EBIT was under
pressure from “price investment”, which is
a euphemism for cutting prices to maintain
market share. For as long as Aldi and Amazon
remain on the doorstep of Australia, Coles and
Woolworths may not be able to rest but the
recent move by Coles away from its “Down,
Down” advertising campaign suggests more
rational competition between Coles and
Woolworths may now prevail irrespective of
whether Coles is part of Wesfarmers or not.
Before the proposed spin-off, Wesfarmers
was not a company whose shares could be
expected to double any time soon. At best a
mature supermarket should be expected to
grow no faster than the economy. Following
the announcement, however, it is likely the
market will focus on the much higher returns
on capital being generated by Bunnings. Before
the announcement Wesfarmers represented
marginally better value than Woolworths but
the gap has now narrowed.
❸ Costa Group
ASX code CGC
Costa Group is not a
Price $7.39
supermarket but the
52wk ▲ $7.68
largest grower, packer and 52wk ▼ $4.25
marketer of fresh fruit and Mkt cap $2.36bn
vegetables in Australia.
Dividend 12¢
It supplies supermarkets
Dividend yield 1.62%
with a range of fruits
PE ratio 21.84
and vegetables including
berries, tomatoes,
mushrooms, avocados,
citrus, bananas and table grapes.
The company has invested significantly
in production techniques and varietal
developments that mitigate the adverse
impacts of seasonality and bad weather.
Without Costa, even Amazon may not be
able to help someone who needs
blueberries and avocados.
Costa’s shares have risen 80% in the past
12 months.
For the first half of 2018, operating
earnings were up about a quarter to $60.9
million, which was ahead of several analysts’
expectations. EBITDA margins were also up
materially by 1.40% year on year. The produce
division was particularly encouraging, with
citrus and snacking tomatoes offsetting a
flat result from berries.
The company’s growth runway remains
long. Costa has invested more than
$100 million in acquiring avocado producers
and through geographical diversification seeks
to be able to supply avocados 52 weeks of
the year – currently it’s 10 months.
Currently, the company produces 800,000
trays from 680 hectares and is forecasting
1.9 million trays from more than 1000
hectares within five years.
The share price implies that strong
growth will be delivered so it is important for
shareholders that these expectations are
met without interruption.
he data in these tables compares
some of the most popular super
funds. They are a mix of industry funds,
master trusts and government funds.
Industry funds are set up by employer
associations and unions; many are
offered publicly, some have restricted
membership (NP). Master trusts (corporate and personal) are set up by banking,
insurance or financial planning groups.
All performance figures are after all fees,
charges and tax applied to the fund have
been deducted. The table here shows
performance of funds’ balanced options.
But most super funds offer many other
choices of investment mix.
The data is provided by SuperRatings,
a totally independent Australian superannuation research company. It is the leading source of superannuation information
to the Australian media and is renowned
for its timely commentary and opinions
on the various superannuation funds
available.SuperRatings assesses over
250 superannuation funds and products.
SuperRatings takes into account risk-adjusted investment performance, fees,
insurance, service delivery, education,
financial planning facilities, employer
support, fund governance and flexibility
of the options. The judging is mainly
quantitative but does include qualitative assessment.
Calculators, fund comparisons, fund
ratings, news and expert opinion can be
found at
Best super funds: balanced options
Intrust Core Super MySuper
UniSuper Accum (1) Balanced
AustSafe Super MySuper (Bal)
Sunsuper for Life Balanced
VicSuper FS Growth (MySuper)
Catholic Super Bal. (MySuper)
MTAA Super My AutoSuper
Equip MyFuture Balanced Growth
Energy Super Balanced Option
First State Super Growth
BUSSQ Prem. Choice Bal. Growth
Telstra Super Corp Plus Balanced
Vision SS Balanced Growth
HESTA Core Pool
REST Core Strategy
TWUSUPER Balanced2
AustralianSuper Balanced
Cbus Growth (Cbus MySuper)
CareSuper Balanced
Rank Superfundshavebeen
Pr meansperformanceresults
SuperRatings rating
Platinum are best value
for money funds; Gold
are good value for money;
Silver, reasonable value;
Bronze are below average
in performance and features;
and Blue are bottom of the
SR50 Balanced (60-76) Index
Rankings are made on returns to multiple decimal points. 2 Interim returns.
SuperRatings indices median returns
SR25 High Growth (91-100) Index
SR50 Growth (77-90) Index
SR50 Capital Stable (20-40) Index
SR50 Australian Shares Index
SR50 International Shares Index
SR25 Property Index
Percentages in brackets indicate proportion of growth assets.
he data in these tables provides
information on several asset classes
– Australian equities, international equities and multisector funds (sometimes
called balanced funds).
Funds have been ranked by size or
performance as listed on the top of
each table.
The returns published are net (after)
the annual management fee but do not
take into account any transaction (entry/
exit) fees an investor may have to pay.
The returns are before tax.
Morningstar, a leading global provider
of investment research, supplies our managed funds data.
Funds smaller than $10 million and
with a minimum investment of more
than $25,000 have been filtered out.
Morningstar relies on the fund managers
to supply data monthly; if updates
have not been provided, a fund may
be omitted.
Morningstar has developed a star
rating system to help investors identify
quality funds. Morningstar calculates and
publishes star ratings for more than 7000
funds monthly using the latest fund performance data.
Funds less than three years old are not
rated. The ratings are not for predicting
future performance. Take a look at "What
they mean" for an explanation of the
star ratings.
For more news, research and video content on investing, as well as screening and
portfolio management tools on managed
funds, ETFs, stocks and credit securities
Top 5 retail multisector funds by 5-year performance
Star Rating
Start Date
BT Class Inv Split Growth
Fiducian Ultra Growth
Australian Ethical Divers Shrs Whols
Perpetual Wholesale Split Growth
Australian Ethical Divers Shrs
Top 5 retail Australian share funds by 5-year performance
Start Date
Bennelong Concentrated Australian Eq
Macquarie Australian Shares
Grant Samuel Tribeca Alpha Plus
Spheria Opportunities
Third Link Growth
Star Rating
Top 5 retail international share funds by 5-year performance
Start Date
Star Rating
Antipodes Global Fund - Class P
CFS FC W Inv-PM Capital W Glb
Acadian Wholesale Global Eqty
Long Short
Arrowstreet Global Equity
Franklin Global Growth W
APIR is the identification
number of the fund.
ICR: Investment cost ratio,
which includes the annual
management fee paid to
the fund manager as well as
indirect costs such as the
performance fee.
Returns are as at
February 28, 2018.
Morningstar Rating
★★★★★ 0000029 good
★★★★ good
performer ★★★ average
performer ★★ poor
★ very poor performer
NAp Not applicable
NAv Not available
Disclaimer: © Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate,
complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544,
AFSL: 240892), a subsidiary of Morningstar, Inc., without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information
at You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any
decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. The Morningstar Rating
is an assessment of a fund’s past performance – based on both return and risk – which shows how similar investments compare with their competitors. A high rating alone is
insufficient basis for an investment decision. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation,
contact a professional financial adviser.
“You have to spend money
to make money”
What was your first job?
Technically it was as a contractor’s labourer for
a kitchen and bathroom remodelling company
in North Andover, in Massachusetts. I was in
high school. It was my summer job. I did a lot
of demo, flooring and even some roofing!
What’s the best money
advice you’ve ever
Don’t buy what you can’t afford.
What’s the best investment
decision you’ve made?
I invest back into my business every day. Most
salespeople don’t do that but you have to
spend money to make money.
What’s the worst?
Knock on wood but I haven’t made a bad
investment decision yet. Unless we’re talking
about my suit and shoe obsession ...
Ryan Serhant
Ryan Serhant is an American real estate broker.
He is one of the real estate agents featured on
Bravo’s Million Dollar Listing New York and will
star in the upcoming spin-off Sell It Like Serhant.
What is your favourite
thing to splurge on?
Suits and shoes.
Where would you invest
I would invest into a charity called Save the
Children. That’s the best investment I can make
in my, and our, future. That’s what I would personally do. The alternative is a tax-free bond.
What would you do if you
had only $50 in your bank
I would force myself to wake up from whatever
nightmare I was having!
Do you intend to leave an
If I haven’t spent it all by that time, then Emilia
and I will leave something to our children,
grandchildren and our favourite charities.
What changes in the property market do you think will
make a big impact on the sector over the next five years?
The trend towards efficient spaces has not
waned, and I expect it to continue over the next
five years. Simply put, that means less square
footage used for hallway spaces, separate dining
rooms and separate living areas. The days of
excess square footage have passed us, and in
five years I believe we will all be living in more
efficiently spaced homes.
Finish this sentence: money
makes ...
... money.
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