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SPEND & SAVE ONLINE CASHBACK SITES

$13,500 IN TAX PERKS WHY IT PAYS TO FURNISH RENTALS

SMALL CAPS PICK OF THE CROP

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EXCLUSIVE

100 SUBURBS SET TO BOOM

• Buy now to cash in by 2020 • Locations for all budgets PAUL CLITHEROE 6 MONEY MIRACLES TO FOLLOW

SUSAN HELY FEE FOR NO SERVICE HITS $1bn: HOW TO CLAIM YOUR SHARE

MARCUS PADLEY MY 20 TIPS TO SURVIVE AS AN INVESTOR

ROSS GREENWOOD WHY SHAREMARKET WILL CONTINUE ITS RUN – FOR NOW

CONTENTS

Top 100 suburbs set to boom

South-Australian winemaker Rose Kentish

From how to choose to what happens if you lose one

COVER STORY

INTERVIEW

ON THE COVER 34 36 48 64 66 70 72 78 85

Money miracles to follow Top 100 suburbs set to boom Online cashback sites It pays to furnish rentals Cost of investing $50,000 Claim your share of $1bn Sharemarket will continue its run Small caps: picks of the crop Tips to survive as an investor

TRAVEL CARDS

UPFRONT 6 8 10 12 16 20 24 26 30 34

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

MY MONEY 48 52 56 59 60 61

Shopping: Richard Scott Cashback sites to help you save Apps & tools: Nicola Field Reinvent the way you save Travel cards 10 questions answered Banking: Effie Zahos Family money: Susan Hely Small business: Anthony O’Brien

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.

It is unjust that sunscreen, folic acid, toothpaste, lubricants, condoms and even Viagra are exempt from GST, but sanitary products are not.

4 MONEY SEPTEMBER 2018

SEPTEMBER 2018, ISSUE 215

ROBO ADVICE

WALL OF WORRY

A range of options to help you get the best price

Cost of investing $50,000: top robo advisers compared

What to expect from the sharemarket

HOW TO SELL

PROPERTY 62 64 65

66 69 70 72 73

IN EVERY MONTH

Robo advice: Susan Hely Cost of investing $50,000 Dividends: Susan Hely Reinvesting is not always best Superannuation: Susan Hely Compensation for “no service” At large: Ross Greenwood Super: Vita Palestrant

Privacy notice Databank The hot seat

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SEPTEMBER 2018 AUS .au www.moneymag.com

INVESTING

Selling: Effie Zahos Five options to consider Real estate: Pam Walkley The debate

7 87 90

$13,500 IN TAX PERKS RENTALS SH WHY IT PAYS TO FURNI

SMALL CAPS PICK OF THE CROP

F COST O G IN INVEST 00 ,0 0 5 $ P6

$7.95 NZ $8.95 ISSUE @MoneyMagAUS

74 76 78 81 82 82 84 85 86

Strategy: Greg Hoffman Checking exposure to property Resources: Gaurav Sodhi Outlook for miners Small caps: Mark Story Pick of the crop Outlook: Shane Oliver What if...: Annette Sampson The challenge: Maria Bekiaris Value.able: Roger Montgomery This month: Marcus Padley Fact or fiction: Scott Phillips

SAVINGS & GIVEAWAYS

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5 13 ,5 -$"0*-,/ '-. "++ #1%(&0/ PAUL CLITHEROE 6 MONEY MIRACLES TO FOLLOW

SUSAN HELY FEE FOR NO SERVICE HITS $1bn: HOW TO CLAIM YOUR SHARE

MARCUS PADLEY MY 20 TIPS TO SURVIVE AS AN INVESTOR

ROSS GREENWOOD WHY SHAREMARKET WILL CONTINUE ITS RUN – FOR NOW

MONEYMAG.COM.AU MONEY SEPTEMBER 2018 5

FROM THE EDITOR

First time buyers jump in t appears first home buyers reckon now is a great time to make their move. The latest ABS housing finance figures indicate that first-timers accounted for 18.1% of owneroccupier loans in June. Numbers haven’t been this good since 2012. Investors, on the other hand, accounted for 41% of new mortgage lending in June, their lowest share in seven years. While the Reserve Bank hasn’t had to move rates to soften the market, other factors have been doing this. And, as Ross Greenwood points out in his column (page 72) , investors are “being diverted to where – for now – there are better returns, namely the stockmarket”. First home buyers are certainly no fools for jumping in. Last month, we saw our population hit 25 million – 33 years ahead of schedule.

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JULY 2018 www mone $7 y

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FACT OR FICTION BONDS ARE SAFER THAN SHARES

REGIONAL REAL ESTATE 6 WAYS TO BUY WELL

As Money’s chief commentator, Paul Clitheroe, points out in his column (page 10): “The long-term outlook for property is, as ever, all about supply and demand. Those able to buy in this downturn are likely to see a continuation of the past. Wealth and population are growing rapidly. This will drive the next upturn in years to come.” Money didn’t want to wait too long so we asked the property experts from LocationScore.com.au to find the suburbs with the best growth prospects. Looking to 2020 and using the nine key metrics in their location score algorithm, they were able to scan over 15,000 suburbs and identify 100 that are set to boom in five price brackets. We hope this cover story takes some of the

Marcus Padle y and son Archi e

ood money habits

“WHERE I ST WOULD INVE” $10,000

I started subscribing to your magazine at the beginning of this year after borrowing several old issues from the local library. I love your research, stock recommendations and financial education for children. But I don’t agree with the general note of blaming someone else (banks in this case) for one’s decisions (In Your Interest, August). Despite banks giving incorrect advice, I firmly believe it’s up to an individual to research credit card conditions and plan accordingly – the information and small print are readily available online. It is also common sense that spending $7000 a

month on a $5000 monthly salary will lead to debt. So we have to take responsibility for our own decisions – it’s very liberating! I used balance transfers successfully when I was left with a $24,000 credit card debt after the sale of my business in 2010, with the new owners still using my credit card from old records. I applied for a new 0% interest balance transfer credit card just before expiry of the previous one every six months and I was able to pay off my debt within two years on a single salary. Monica

AUGUST 2018 AUS $7 95 NZ $8 95 ISSUE 214 www moneymag com au @MoneyMagAUS

Efﬁe Zahos and

DS 2018

A $337k TO YOUR SUPER

UP TO

DIT REPO YOUR CRE IN BANK INVESTING

daughter Nicky UESTIONS ANSWERED AND CONS S EATING YOU R INVESTM N PROPER ENTS TY

PICK THE TOP FUNDS

Exclusive data for 20s, 30s, 40s, 50s & 60s

PAUL CL THEROE HOW TO GENERATE $60k PA

GRAHAM WITCOMB 3 SHARES TO AVOID AT ALL COSTS

GREG HOFFMAN MY 3 FAVOURITE GLOBAL FUNDS

MARIA BEKIAR S 7 WAYS TO BOOST CARD REWARDS

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6 MONEY SEPTEMBER 2018

Kids need money skills

Bring back the passion

As a mum of four, I was pumped to pick up the July issue with its feature on “The advice I give my kids. Guide to good money habits”. How refreshing it was to read how other parents tackle this tough topic. We all need good, basic money skills to survive in this world, most of which are taught at home with little support from the formal education system. We all need to do our kids a favour and teach them the art of making their hard-earned money work for them through investing while avoiding the sharks and pitfalls of our greed-driven world. Margie

Work to live? Or live to work? That is the question. In an era that demands ingenuity, creativity and vision, one must question why Australia makes up no more than 2% of the global economy. As a millennial and son of a sub-continental and immigrant family, time and time again I hear the statement “Go to school, get good grades and get a job”. Despite this, the millennial age group alone has over 75% who are unhappy with their jobs and lack a satisfactory level of financial competence. When we are young we seem to know what we want to do and be. However, take a

guesswork out of picking a property, or at the very least provides you with a good start in your search. On another note, as we were heading to the printers, the fee-for-no-service scandal hit $1 billion in compensation. It’s one thing to charge a massive fee but quite another to charge something for absolutely nothing. On the final day of the two-week royal commission hearing into superannuation, the banks were put on notice that they could face criminal charges. You can read more about this on pages 12 and 70, or you can do something about it by moving your nest egg away from the funds where the trustees, as Susan Hely reports, cannot be trusted.

Beware of little expenses; a small leak will sink a great ship. BENJAMIN FRANKLIN

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quick look-around and you soon realise we are trapped in what we refer to as the rat race and doing something that we don’t love without purpose, meaning and fulfilment. It is time schools change their approach to what they consider the core fundamentals. An approach where ideas are taught based on the extrapolation of a student’s strengths and interests and not the same ineffective and impractical coursework that was created decades ago. It is time workplaces have leaders instead of managers. A place where an employee is treated as an individual and not a statistic. It is time things change, and we start choosing passion over a pay cheque, gratitude over gratification and self-actualisation over a selfie. Jaden

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Money is published by Bauer Media Pty Limited (ACN 053 273 546), part of the Bauer Media Group, 54-58 Park Street, Sydney NSW 2000. The trade mark Money is the property of Bauer Consumer Media Limited and is used under licence. Printed by PMP Moorebank 31 Heathcote Rd, Moorebank NSW 2170 IMPORTANT DISCLAIMER The information provided in this magazine has been obtained or derived from sources believed by Money magazine to be reliable. However, Money does not make any representation or warranty, express or implied, as to its accuracy or completeness. We recommend persons making investment decisions contact their ﬁnancial advisers. Bauer Media Limited, its related bodies corporate, and their directors and employees, do not accept any responsibility arising in any way (including negligence) for errors in, or omissions from, the information provided in Money magazine.

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OUR EXPERTS

What $20 item could you not live without? The Money team EDITORIAL Chairman & chief commentator Paul Clitheroe Editor Effie Zahos Deputy Editor Maria Bekiaris Art Director Ann Loveday Designer Andrew McLagan Senior Sub-editors Bob Christensen, Debbie Duncan Senior Writers Susan Hely, Pam Walkley Online Content Producer Sharyn McCowen CONTRIBUTING WRITERS Alan Deans, Nicola Field, Ross Greenwood, Greg Hoffman, Bryce Holdaway, Ben Kingsley, Roger Montgomery, Anthony O’Brien, Shane Oliver, Marcus Padley, Vita Palestrant, Scott Phillips, Annette Sampson, Richard Scott, Jeremy Sheppard, Gaurav Sodhi, Mark Story CONTRIBUTING ARTISTS Simon Casson, Reg Lynch, Rob Shaw, Jim Tsinganos, John Tiedemann PHOTOGRAPHS Getty Images

8 MONEY SEPTEMBER 2018

ADVERTISING Brand Manager – Specialist Simon Park (02) 9282 8085 PRODUCTION Controller Carly Zinga Advertising Production Dominic Roy MARKETING Brand Manager Rebecca Balkin Subscriptions Ellie Xuereb MANAGEMENT CEO Paul Dykzeul

JEREMY SHEPPARD

BEN KINGSLEY

EFFIE ZAHOS

Jeremy is research director at Empower Wealth and co-creator of locationscore.com.au. Jeremy says: “A tin of coffee goes a long way. It’s saved me many times from getting caught head down on my desk in a post-lunch carb coma or choking on a tie-inhaling yawn in a long meeting.”

Ben is the founder of Empower Wealth, co-host of The Property Couch podcast and co-creator of locationscore.com.au. Ben says: “My headphones. They close out the noise of the outside world and let in a world of learning through podcasts and audio books. Cheap ones, yes, but that’s because I’ve got two kids so they seem to go missing often.”

Effie is Money’s editor and author of The Great $20 Adventure. Effie says: “Santa Margherita Pinot Grigio. This little gem comes in at just under $20 and is the highlight of my Saturday afternoons. Knowing this crisp drop is at home waiting for me makes 7.30am soccer starts and afternoon chem and physics tutoring all the more pleasurable.”

DAVID BONNICI

RICHARD SCOTT

ANN LOVEDAY

David is a motoring journalist at WhichCar.com. au. David says: “Despite my smartphone habit I still can’t live without an old-school Moleskine notebook, which I use to record impressions about the different cars I drive. I’m yet to find an electronic device that lets me access my thoughts so quickly.”

Richard, a freelance writer and former Money staffer, says: “While not strictly a lobster ($20), I’d have real trouble operating without my monthly subscription fees ($11.99) to Spotify. In fact, I’ve become so dependent on the music streaming service that the prospect of them ever going into insolvency fills me with genuine dread.”

Ann is Money’s art director. Ann says: “I make a pilgrimage to David Jones every other week to stock up on Yorkshire Gold tea. This brew is the perfect morning tonic ideally served up in a bone china mug, reassuring me that all is well in the world. It’s the Penfolds Grange of the tea world, a perfect balance of flavour and character.”

Chief Financial Officer Andrew Stedwell Commercial Director Australia Paul Gardiner Syndication inquiries: acpsyndication@ bauer-media.com.au ISSN 1444-6219

BANK OF THE YEAR 2016 & 2017

IN YOUR INTEREST Paul Clitheroe

I am delighted for first-time home buyers. It is about time they got a break.

had a good chuckle recently when I was introduced at a conference as an “industry veteran”. Feeling fit and healthy and full of vim and vigour at age 63, I pondered debating the “veteran” description but it is the truth – not only when I look in the mirror but in reality. It is even more so when I look back to starting ipac in 1983 with my four wonderful partners, who are still dear friends. The revelations from the royal commission are pretty ugly but go back 35 years and the financial services industry was more like the wild west: zero licensing, managed funds with entry fees of over 8% and undisclosed ongoing management fees of over 3%, no consumer recourse for shocking advice except via our expensive court system, mainly retirees devastated by the collapse of fund managers such as Estate Mortgage, Telford Trust and Pyramid Building Society. This is no excuse for bad behaviour today but being an industry dinosaur does also give me the benefit of living through a whole bunch of market cycles. Sure, nearly four decades is not a big deal in the long history of money but I’ve seen a fair bit. Apart from rogues and various other characters, I also watched with amazement the sudden sharemarket collapse of late 1987, with prices falling well over 50%. I didn’t see that coming. But for those investors who hung on, shares recovered with surprising speed. It was the same in 2009

10 MONEY SEPTEMBER 2018

as the collapse of Lehman Brothers started the GFC. I knew not to sell but to see the collapse of blue-chip shares such as CBA, which went from over $60 to around $23, was quite amazing. Of course, a few years later CBA was back above $60. The point here? We won’t pick the big downturns but as they happen we should not be sellers. This takes me to property, our favourite topic. I’ve seen long, flat periods, huge rises and some big falls. My mortgage hit 18.75% in early 1990 and property became unsaleable. What a time for buyers! A potted history may interest you. Vicki and I bought a semi close to Sydney city in 1983 for $90,000. We lucked out and hit a huge upturn, selling for three times that price in 1987, and bought in the same area for $370,000. We took a loss on this one in 1993 when we bought a bigger house in the same area for $503,000. This one sold well in 1997. From there the cycle continues. The house we bought in 1997 and sold in 2014 was OK. The numbers between purchase and sale look good. But add in inflation and renovation costs, plus stamp duty and sale costs, and the truth is it only kept pace with inflation over the 17 or so years. As so many of the ageing baby boomers are doing, we downsized to a suburb very close to the city a few years ago. Price is more an issue for our kids than us, as this will be our final home. We’ll see how that one goes. With population growth, I suspect it will do better than inflation.

Today I am watching the new “down” property cycle with interest. It is about time. I may not know much but I have learnt enough not to be a seller in this falling market unless I have to be. It is fine to sell if you are buying something else but in this cycle, which I think will get worse, I would not be buying without selling first and having a very strong letter guaranteeing my finance. The people I am most delighted for are first home buyers. It is about time they got a break. Sure, we are going to see some pain. As the old saying goes, “You only see who is swimming naked when the tide goes out”. Sadly, some of those impacted will be quite innocent victims but the aggressively geared risk takers may discover the price of risk. Some lesser capitalised developers will go broke. The long-term outlook for property is, as ever, all about supply and demand. Here I am sanguine. Australia's population is projected to be 35 million in the next 30 or so years. Both Sydney and Melbourne are projected to have over 8 million people. Those able to buy in this downturn are likely to see a continuation of the past. Wealth and population are growing rapidly. This will drive the next upturn in years to come. 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.

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NEWS&VIEWS

THIS MONTH

THE BUZZ

Super trustees show they can’t always be trusted Members can hit back by switching to a better fund

hen it comes to trusting your superannuation trustees, it turns out you can’t always. Trustees are supposed to act in fund members’ best interests but, according to the 10 days of Hayne royal commission hearings into the $2.6 trillion superannuation sector, time and again trustees of retail super funds behaved negligently. They turned a blind eye to their members’ needs and favoured the hand that fed them, looking after their big institution’s bottom line. As expressed by Michael Hodge, QC assisting the royal commission, trustees were “alone in the dark with your money”. And some of them couldn’t be relied on to do the right thing. Instead, executives – often paid annual salaries of millions of dollars – plundered retail super funds. They were conflicted and they focused on collecting revenue for the parent company, milking their clients and lining the pockets of financial advisers. The current estimate for the fees that nine institutions charged their clients for no service is $1 billion, according to Peter Kell, ASIC’s deputy chairman (see page 70). Well-paid experts on risk and compliance work for the financial institutions but the serious breaches of

trustees’ duties apparently went under their radar. The list of culprits includes NAB and its MLC business, MasterKey, which was in the witness stand for five of the 10 days. Suncorp, CBA, AMP, IOOF and ANZ also appeared. The two regulators, APRA and ASIC, failed to protect consumers, preferring to take a softly, softly approach with the big institutions. One of the lowest acts was the revelation that Colonial First State lobbied the federal government to keep commissions paid to financial planners for people in the pension phase rather than stop them. “How was it in the interest of members to grandfather commissions from superannuation to pension?” Hodge asked CFS’s Linda Elkins. One way that consumers can protest against these badly behaved institutions is to take their savings out of the funds that have been named and shamed at the royal commission. The line-up is public knowledge and Australians are free to move their super. There are plenty of low-fee, strongly performing funds with good governance (see Money’s August cover story, “Add up to $337k to your super”). SUSAN HELY

ON MY MIND CALENDAR OF EVENTS

Avoid the digital cemetery

Friday, September 7 Balance of trade

ne day Facebook may have more dead “memorialised” members than living ones. Planning for the ownership of digital assets in your will has never been more relevant. Ownership of digital assets is a difficult legal area as legislation and the social media platforms themselves have struggled to keep up. While the motivation is often to ensure that photos and precious memories are preserved on social media platforms, don’t make the mistake of assuming digital assets have no value. Digital wallets such as PayPal can have money stored on

Wed, September 12 NAB business conﬁdence Thurs, September 13 Westpac consumer conﬁdence Friday, September 14 Unemployment rate Thurs, September 20 RBA bulletin

12 MONEY SEPTEMBER 2018

them, internet domain names can have value and sometimes be sold, and the musings of bloggers can even be a type of intellectual property. For investors in bitcoin and other types of cryptocurrency, what will happen if you die is a big consideration. Cryptocurrency is not regulated in the way that, say, a bank account is, and may not be considered in the estate administration process. Your estate plan needs to consider digital assets, with instructions left to the executor on locating and accessing these digital assets, to ensure they pass to your beneficiaries. Anna Hacker, national manager, estate planning, Australian Unity Trustees

NEWS BITES You can now invest in US shares with just $50. Stake, an online broker that offers access to the US sharemarket, has lowered its minimum investment amount from $500 to $50. ING has introduced a transaction account aimed at teens. Available for those aged 15 to 17, the Orange Everyday Youth account has no monthly fees. Any ATM fees in Australia and overseas will be rebated, and the same goes for transaction fees on international purchases. Teens who link their account to ING’s Savings Maximiser will get 2.80%pa interest on their savings. A new travel insurance product has hit the market and it will pay claims in “real time”. With Real Time travel insurance from TravelCard you buy a policy and a card is posted out to you. If you lose your luggage, you have to register it with your carrier and the lost luggage department at the airport, and then contact TravelCard. Within a matter of minutes funds to purchase emergency items will be placed on your card for you to withdraw until a lost luggage claim is able to be made.

Upskilled workers prosper

he fourth industrial revolution is here and rapidly gaining ground. Many jobs are being automated via technologies including artificial intelligence, the internet of things and cloud computing. Research from management consulting firm McKinsey suggests about 60% of occupations could see at least a third of their tasks automated, while a report published by Deloitte claims the half-life of learned skills is now about five years. To stay relevant and employable in the face of such change, constant upskilling is now required. This is supported by a survey of 951 employers we

spoke to, of whom 77% are more likely to shortlist a qualified candidate who regularly upskills. These employers told us that continuous upskilling shows a person is proactive, takes their development seriously, is genuinely interested in their field and is willing to put in the effort to stay up to date. It’s time to get on board with continuous upskilling to remain employable in today’s ever-evolving world of work. Nick Deligiannis, managing director for Hays Australia and New Zealand.

11% of households “typically spend all of their income and more”, and 41% “typically spend all of their income and no more”, according to ME’s latest Household Financial Comfort Report. On the plus side, 48% are able to save each month. The estimated average amount spenders overspent was $625 a month – the highest level in over five years.

MONEY SEPTEMBER 2018 13

NEWS&VIEWS

THIS MONTH BOOK OF THE MONTH

APP OF THE MONTH LOFO COST: FREE OS: IOS 9.0 AND LATER ANDROID 4.1 & UP

THINK AND GROW RICH: THE LEGACY James Whittaker Sound Wisdom RRP $39.99

apoleon Hill’s original Think and Grow Rich has sold more than 100 million copies in the 80 years since its release. This version, which has been endorsed by the Napoleon Hill Foundation, takes a similar approach to the original. Author James Whittaker shares a number of inspirational stories such as a young waitress who created a billion-dollar real estate empire and a 23-year-old with $40,000 debt and a substance abuse problem who became the CEO of five companies with annual revenues of more than $100 million.

Five readers can win a copy. In 25 words or less, tell us what successful person has inspired you. Enter online at moneymag.com.au/win or send entries to Money, GPO Box 4088, Sydney, NSW 2001. Entries open September 3, 2018 and close on October 3, 2018.

hat a forgetful bunch we can be. It’s estimated that Australians lose around $1.2 billion worth of personal belongings each year. And along with the waste of money, the time and frustration involved in tracking things down can quickly add up. The LOFO app aims to help people reconnect with their lost property without the need to post notes on shop windows and neighbourhood trees. It provides a centralised platform where details can be posted of items you have lost or found. Just post a missing object with an approximate location and receive a notification when it is found. Include a reward and the post will appear on the app’s wall. The global platform makes LOFO handy for regular travellers and holidaymakers, and the app also has a marketplace where found items can legally be sold if not claimed. Users can keep the money or choose to donate it to charity. NICOLA FIELD

TAX TIP

Rate increases for car use claims

f you use your car for business or work purposes and use the ATO’s cents-perkilometre method to calculate your tax deduction, the amount you can claim is increasing. From July 1, 2018, it goes up to 68 cents per kilometre. Before that date, the rate was 66¢. You can use the cents-per-kilometre method to claim a maximum of 5000 business kilometres per car. If you use this standard rate, you don’t need to keep a detailed logbook of your journeys or receipts to cover the money you spent on your business journeys. The cents-per-kilometre method can be claimed in place of all the individual claims that you would otherwise make for things such as fuel, servicing, insurance and depreciation. To work out how much you can claim, simply multiply the total business kilometres you travelled by the cents per kilometre rate. For example, Alison travelled 3000 business kilometres during the 2018-19 income year. Alison’s claim is worked out as follows: 3000km x 68¢ per kilometre = $2040. Note that the ATO has concerns that many taxpayers who use the cents-per-kilometre method may be inflating their claims to include journeys which don’t relate to their work or business. If you use this method, make sure you can show the ATO how you worked out your claim, such as keeping a list of all business-related journeys. MARK CHAPMAN, DIRECTOR OF TAX COMMUNICATIONS AT H&R BLOCK. MCHAPMAN@HRBLOCK.COM.AU

SNAPSHOT Second-hand news Savvy Aussies stand to make

$4200 per household from their unwanted items

The main unwanted items are… Clothing, shoes & accessories Books

65% 57%

Music, DVDs & CDs

54%

Games & toys

48%

Electronic goods

47%

Of those selling second-hand…

88% sold online

14 MONEY SEPTEMBER 2018

20%

sold at garage sales

56%

of Aussies have sold second-hand items in the last year

sold at markets

Source: Gumtree, Second-hand economy report

t a e r G e Th Adventure FINANCIAL LITERACY FOR CHILDREN FROM THE EDITOR OF MONEY. What would you do if your Grandma gave you $20 for your birthday? Max and his dog, George, go on a great $20 adventure and learn that there’s more you can do with money than just spend it.

The Great

Adventure

Illustrated by Ilona Tar

“ , editor of Money magazine, is an excellent communicator and makes the complex world of money understandable. Every child, teacher, parent and grandparents should read this book.”– Paul Clitheroe AM

magshop.com.au/the-great-20-adventure

OPEN BANKING

Data sharing is on the way

Urgent warning on airbags

ou may not have heard of open banking – according to a survey of 2000 Aussies earlier this year, 83% were unaware of it or unsure what it involved. But the new regime, which could reshape the financial services landscape, will be on Aussie shores from July next year so it is worth understanding what it will mean. “Open banking will require banks to share customers’ details, right down to transactions, if the customer consents to have their data shared,” explains Azhar Khan, research analyst at RFi Group. “This data will only be shared with approved third parties who will have to take precautions to protect the customer’s information.” Open banking is the first phase of the federal government’s Consumer Data Right and a similar scheme will follow for energy and

X MORE MONEY STORIES ON P48-57

telecommunications. In theory, it is meant to increase transparency and make it easier for customers to find better deals, as competition will be improved, and it will also make it easier to switch providers. It will be phased in product by product, starting with deposit, credit and transaction accounts in July 2019. Mortgage products will be next (February 2020) and then personal loans (July 2020). About two-thirds of Aussies are concerned for security and privac reasons but it will be an opt-in measure and so those who are no willing to share their data will be largely unaffected, says Khan. “Open banking has already been introduced in the UK, and so the Australian bodies involved in its implementation will have systems which they can emulate and look to,” he says.

83%

are either unaware of or unsure about open banking

TOP UNSECURED PERSONAL LOANS FOR $10,000 SCU 7.99%pa advertised rate, $0 establishment fee; Endeavour Mutual Bank 7.99%pa advertised rate, $150 establishment fee; Liberty Financial 7.99%pa advertised rate, $195 establishment fee. Source: Canstar as at 16-Aug-18, ranked by maximum interest, then establishment fee. Excludes peer-topeer loans.

16 MONEY SEPTEMBER 2018

66% are not willing to share their financial data with non-banking organisations

64% Source: Accenture

are worried about sharing their data for security and privacy reasons

ver the past 12 months, 1.1 million faulty Takata airbags have been replaced but, according to the Australian Competition and Consumer Commission, but there are still almost 2 million potentially deadly bags that need replacing. ACCC deputy chair Delia Rickard warns motorists

delay responding to, a letter or phone call from their car’s manufacturer asking them to have their airbag replaced. “The airbags degrade over time and can become lethal by misdeploying and firing metal shards at the car’s occupants,” she says. The greatest concern are Alpha airbags, which are the most dangerous and can still be found in almost 20,000 cars. If you’re unsure whether your car is affected, visit ismyairbagsafe.com.au and enter your number plate.

Escape the mortgage prison

ougher lending conditions mean that thousands of Aussies are “trapped” with their current lender, according to Mozo. “A mortgage prisoner is a homeowner who is unable to move to a more competitive mortgage deal, even if they’ve met every repayment, because they would not pass new affordability tests applied by the banks,” says Steve Jovcevski, Mozo property expert.

“Typically, this is because they took out the loan before stricter lending rules applied.” With an increase in interest rates likely over the next few years, the number of mortgage prisoners is predicted to grow. “If you’re finding yourself ‘stuck’ with your bank, consider other ways to improve an uncompetitive rate. For instance, do your research and ring around as a nonbank lender may be willing to take you on as a borrower.”

COMPILED BY MARIA BEKIARIS

MY MONEY

IN BRIEF

FLIPPING

Higher risks in a cool market Cherie Barber Owner of Renovating for Profit

an you still make money flipping? Absolutely. I have students all across the country who are making great profits with just a cosmetic renovation. But you have to be very strategic about the property you buy and how much you spend on the renovation, and accurately forecast the price you’re likely to get when it’s all done. A much safer strategy is to buy, renovate and hold – that’s the one I’ve been recommending to my students for at least the past five years. It gives you the benefit of long-term capital growth, the instant uplift in property value you get through renovating and rental income over time. If you can hold for 10-plus years, you’ll inevitably ride out the highs and lows that every property market goes through but come out ahead at the end. Flipping works particularly well in a rising market, if you know what you’re doing. You benefit from both your renovation and a nice capital growth spurt. That helps to offset

costs such as stamp duty, acquisition and holding costs, selling costs, any taxes, etc. It gets much trickier in a soft or falling market, as we’ve seen in Perth these past few years or as we’re seeing in Sydney right now following the boom. If you then compound the problem with a poor property choice, or overpay, or overcapitalise on the renovation, you could be in trouble. The market conditions will not be forgiving of mistakes. You have lost that nice safety buffer you have in a hot market. The buy, renovate and hold strategy means you’re largely insulated against market ups and downs. They’re only paper losses or gains. Meanwhile, you increase the value of the property in the initial renovation, the rent rolls in and you’ll benefit from capital growth in the long term. It’s that old saying: time in the market is a surer bet

than trying to time the market. My most important piece of advice, however, is to buy astutely. I always say that 50% of the work you do should happen even before you purchase a property. If you buy a dud or pay too much, then you’ve made it incredibly hard for yourself to make the numbers stack up, regardless of what the market is doing. Flipping works in all property market cycles but you’ve just got to know how to handle each cycle. Great reno profits can sometimes be easier to make when the market is at its worst.

Decade of strong growth

COMPILED BY MARIA BEKIARIS

t’s no surprise that property prices in many capital cities was 56.2% for houses and suburbs have experienced strong growth 42.0% for units while in the regions HOUSE v UNITS: over the past 10 years. houses increased by 20% and units by GROWTH OVER 10 YEARS CoreLogic research analyst Cameron just 0.4%. HOUSES Kusher found that over the 10 years to CoreLogic found that the region June 2018 national dwelling values to record the greatest increase in increased by a cumulative 43.9%. house and unit values over the past Houses performed better than units, decade was south-west Sydney, UNITS growing by 46.9%, while unit values where they jumped by 112.9% increased by 34.2%. and 98% respectively. Capital city values grew at a faster pace Outback (north) Western Australia than regional markets in both house and recorded the largest decline over the decade: unit markets. Value growth in the combined -38.3% for houses and -73.3% for units.

46.9% 34.2%

PROPERTY

IN BRIEF

X MORE PROPERTY STORIES ON P62-65

TOP LOW-RATE LOANS Reduce Home Loans 3.44%pa, 3.43%pa AAPR1; Mortgage House 3.44%pa, 3.44%pa AAPR; Reduce Home Loans 3.49%pa, 3.49%pa AAPR; Easy Street Fin Services 3.49%pa, 3.51%pa AAPR; Freedom Lend 3.49%pa, 3.52%pa AAPR; Homestar Finance 3.49%pa, 3.52%pa AAPR. Source: Canstar as at 16Aug-18, ranked by AAPR. 1 AAPR on $250,000 loan for 25 years.

MONEY SEPTEMBER 2018 17

XMORE INVESTING STORIES ON P66-73

TOP GROWTH SUPER FUNDS, BY 5-YEAR PERFORMANCE HOSTPLUS Shares Plus 11.8%pa; AustralianSuper High Growth 11.67%pa; UniSuper Accum (1) – Growth 11.28%pa; MTAA Super Growth 11.18%pa; CareSuper Growth 10.98%pa. Source: SuperRatings as at 30-Jun-18.

18 MONEY SEPTEMBER 2018

INCAPACITY

How to protect SMSF assets Brian Hor, special counsel, superannuation and estate planning, SUPERCentral

f you have a self-managed super fund, you need to plan ahead to ensure that it can still keep going if you lose mental capacity due to dementia or other reasons such as a stroke. Otherwise the fund’s assets and operations could be frozen, resulting in losses from being unable to buy or sell investments at the right time, control of the fund falling into the wrong hands and even the loss of complying fund status with serious tax consequences. Here are nine things you can do to protect your SMSF from your incapacity: 1. Talk to your financial adviser about what you want to see happen if you lose mental capacity. Think about who should be in control,

what should happen in terms of investment strategy and ongoing management, whether the fund should be wound up, what should happen in terms of your death benefits, and so forth. 2. Put into place an enduring power of attorney, to appoint someone who you trust to be able to handle your financial affairs and to be able to be appointed in your place as a trustee of the fund. 3. Check the trust deed to ensure that it allows for your enduring attorney to be appointed in your place and if it doesn’t then have it updated accordingly. 4. Put into place written instructions outlining that you want your enduring attorney to be appointed in your place, and what their roles and responsibilities will be and what

Super boost for new parents

omen on average retire with nearly 40% less than their male counterparts. Part of the reason is that they take time out of the workforce when they have children. So Grow Super has introduced a feeAverage free parental leave initiative to raise superannuation awareness of this growing super gap. balances at the time It provides fee-free super for new of retirement parents for up to six months after the birth of their child. The offer is available to both men and women as long as they are the primary Source: ASFA carer, and represents a saving of around $500 in fees on a $50,000 balance. More needs to be done to address the gap but there’s no doubt this is a step in the right direction.

Men $270,710 Women $157,050

specific instructions you may wish to give them. 5. Appoint one or more substitute or back-up enduring attorneys. Ideally they should be younger than you (such as one or more trusted children). 6. Put into place an investment strategy that clearly sets out what should happen, both before and after one or more members of the fund lose capacity. 7. Put into place a corporate trustee rather than individual trustees, as this will make things much easier if you lose capacity. 8. Put into place a non-lapsing binding death benefit nomination. 9. Make sure your will is properly updated, because once you lose capacity you can no longer make or change a will.

Online trading sets a record

bout 720,000 Australians placed at least one trade – either shares or exchange traded funds – in the 12 months to May 2018, according to the latest research from Investment Trends. This is up from 645,000 six months ago and is the first time the number has surpassed 700,000, it says. Investors have stayed pretty loyal, with only 4% moving to another online broker in the past 12 months. Frequent traders are more likely to switch.

COMPILED BY MARIA BEKIARIS

INVESTING

IN BRIEF

COMPANY FLOATS

IPOs off to a promising start Marcus Ohm, partner, HLB Mann Judd

COMPILED BY SUSAN HELY

he first half of the year has seen a strong market for initial public offerings (IPOs), setting the scene for what is likely to be a positive 2018 for IPOs. IPOs performed well in the first six months of the year with an average first-day gain of 16% and average gain to the end of June 2018 of 6% compared with the 2% increase in the All Ordinaries in that same period. While there were some good gains, 23 out of 39 companies finished the period below listing price. It is important that investors do their research and read and understand the prospectus, which details the risks of investing in that company. While there were fewer listings

in the first six months of 2018 compared with 2017, when there were 57, this year has still outperformed the previous five-year average of 37 listings. Usually around two-thirds of listings take place in the second half of the year, so 39 in the first half of the year is a strong start. Indeed, 2017 was an anomaly in that the listings were relatively evenly spread throughout the year. In total, there were 110 during 2017. Looking ahead, the small-cap junior exploration companies in the resources sector appear to be the strongest contributors to upcoming 2018 listings in terms of numbers. On July 1, 2018 there were 35 companies that had applied to list

HOLD Domain

ason Pellegrino was due to start at Domain in late August. Assuming the former head of Google in Australasia is still employed on new year’s eve, he’ll receive $500,000 in cash. Two years after he commences he’ll receive $2 million worth of Domain shares. Pellegrino’s long-term incentive – paid on top of his salary and sign-on bonuses – will depend on the achievement of performance hurdles based on total shareholder return over a threeyear period. If Pellegrino fails to generate more than 10% a year in total shareholder return by June 2021, then he won’t receive any of his long-term incentive. It’s been unsettling to hear rumours of cultural issues at Domain in the wake of the former CEO Antony Catalano’s January resignation. Domain has also recently made a number of staff redundant, including the managing director of Domain Victoria, who was reportedly close to Catalano. Consistent with weakening auction clearance rates in Sydney, yearly list-

on the ASX, and 11 of these were in the materials sector. Technology stocks are also showing signs of improvement, with a further 11 companies in technology, biotech, and software and services applying to list. Technology stock activity should be a positive for the ASX, as these sectors often comprise larger companies. Overall there is a broader range of companies planning to list in 2018, with real estate, food, beverages and tobacco, and capital goods each having several listings in the pipeline.

IN BRIEF

XMORE SHARES STORIES ON P74-86

The Intelligent Investor James Greenhalgh RECOMMENDATION

BUY

HOLD

SELL

below $2.75

up to $5.00

above $5.00

Source: Intelligent Investor; price as at 26 July-18 close of business

HOLD at $3.12

ings to the end of May were up 20%, while days on market have risen from 31 to 43. This has been good news for Domain over the past financial year. It met market expectations of around $115 million in earnings before interest, tax, depreciation and amortisation (EBITDA) when it reported its fullyear results in August. The 2019 financial year might be a little more troublesome. Higher-priced houses in Sydney have been particularly weak – and this segment is where Domain’s market share is strongest.

Given Domain is a premium-pr stock (29 times forecast 2019 ear ings), any short-term disappointment could have an outsized effect on the price. For these reasons we’re increasing our margin of safety and reducing our buy price from $3 to $2.75. Our recommendation remains HOLD.

James Greenhalgh is a senior analyst at Intelligent Investor, owned by InvestSMART Group. Disclosure: Staff members may own the security mentioned in this article.

TOP FIXED INCOME ETFS ($A) BY 3-YEAR RETURN BetaShares Active Aus. Hybrids (HBRD) 31.12%pa; iShares Government Inﬂation ETF (ILB) 12.38%pa; Russell Australian Select Corp. Bond ETF (RCB) 11.44%pa. Source: ASX as at 31-Jul-18.

MONEY SEPTEMBER 2018 19

INTERVIEW

STORY ALAN DEANS

Maker of dreams

20 MONEY SEPTEMBER 2018

Fact file

SIMON CASSON

hat’s in a name? A fair time, winemakers in McLaren Vale were amount if you’re South suffering through tough vintages caused Australian winemaker by searing, dry weather. No wine was Rose Kentish. When produced by Ulithorne in 2009 because Rose Kentish she first popped onto Kentish wanted to stay true to her credo South Australian winemaker, the scene in 2008 as someone to be of quality first. Sunburned fruit would taken seriously by winning McLaren not help that cause. Having married mentor for women in business. Vale’s Bushing Queen winemaker of young, she was getting itchy feet and the year title, her label was Ulithorne. wanted to push the boundaries of her Raised on a potato farm; Bachelor of Business degree For 10 years that name, linked to life and career. With husband Sam majoring in marketing; first job at 16 in famed chef her family vineyard, flourished. But and their four children in tow, she Christine Mansfield’s restaurant, Grey Masts, at Robe, then she made the agonising decision set off to learn how to make dry, SA; became a winemaker after buying her father-into sell to her business partner. Her delicate style rosés under the blue law’s McLaren Vale vineyard; has won multiple acclaimed European style of rosés skies of Provence. awards and is a wine judge. Lives in Middleton, and reds remain but now they bear her “Australia has learned to make SA. Invests savings into her business but own name to proclaim the fact that she is rosé based on richer tastes with higher also owns a house in Adelaide for her back to stay. residual sugar; more of the cherry red, four children to live in while “When your name is on the label there is Italianesque style,” says Kentish. “I was at school. nowhere for you to go,” explains Kentish. much more intrigued by the Provencal “I was demanding it of myself this time delicate, dry, rose petal, onion-skin around. There is no way that I’m going to coloured wine. So I sat the family down before them. It’s a tried-and-true marketing and said my dream was to find a family make that mistake again, to let someone strategy across a range of industries that tie where I could buy their fruit, use their else into a creative pursuit of mine. You products with personal values such as care, winery, learn to make this style of wine have to be extremely patient in the wine trust and quality. industry, for returns. I saw it as something and then bottle it, label it and bring it home It says a tremendous amount for I would still be doing when I was 80 and under my own name. Initially they thought Kentish’s commitment and ability that possibly handing on to my children. Being it was going to be a great holiday. Let’s go she has remained in winemaking and is a bespoke maker, across every aspect of for a month and do it. But then I told them excelling at it again. “I learned so much what you do and putting your name to I would need five to six months. I had to through that experience. If you don’t learn, it, I think shows your sincerity and your find the people who I wanted to make wine you can end up bitter and twisted. It has authenticity. Also, there has to be an elewith. I hadn’t been making white wine ment of belief in your ability when you put been quite a grieving process.” in McLaren Vale, so while I was there I your name on the front.” Just one day after selling Ulithorne, she wanted to look at wine varieties. I needed Of course, Australian winemakers have flew to France with her future course as a to build a range, not just one wine. long followed this practice. Philip Shaw, winemaker front of mind. “I found a place to live in the south of Stephen Henschke and Vanya Cullen are This determination had its foundations France, which plonked us in the middle among those who do so, as Wolf Blass and in the late 2000s when Kentish wanted to of three wine-growing regions that were the late Len Evans and Peter Lehmann did push the boundaries of her abilities. At that renowned for rosé, and off we went. By the

MONEY SEPTEMBER 2018 21

INTERVIEW

22 MONEY SEPTEMBER 2018

Inspiration ... Kentish is setting an example for the next generation.

“I’ve just gone really slow and steady on releasing wines. It’s like driving a big ship” er near a town called Mingbool. He had an entrepreneurial mind and loved to tinker. Potatoes were a high-risk crop, so he turned his mind to new serving ideas – potato cake and potato-based pizzas. The other venture is called Sparkke, an Adelaide-based brewer founded on several

core values. It came about after a marketing strategist friend, Kari Allen, was asked to do a deep dive into the craft brewing industry. She quickly found it was a crowded marketplace but there was room for a social enterprise that was committed to inclusiveness and diversity. Sparkke’s core ambition is to give young women and other people who do not identify as males a chance to have a go. “We pulled together an advisory board and really thrashed out the idea,” says Kentish. “We also found a young brewer, Agi Gajic, who was leaving her previous job, and grabbed her as she was leaving to go to the States. We asked whether, instead of doing that, could she come with us and be a part owner of the business? “She did and in December 2016 we crowdfunded with product pre-sales and raised just over $100,000 in four weeks for a company that no one had never heard of before, with products no one had tasted. We used that as proof of concept. We decided if we could do that in a month, then there’s space for this company. “We then, in January 2017, brewed those products, put them into cans and got them to people who bought them. Then we started going around the country to independents and bars, clubs and restaurants showing our fermented products and then moving into wine in a can. We are not even 18 months old, and it has been an extraordinary journey of managing this group of young women who have a lot to give and offer in making and marketing and wanting social change. “For us, raising millennials, we really want to show this next generation that you do have an opportunity to drive change in the world and you can do it from the hip pocket. You can do it from how you choose to spend your money.” A highlight has been selling wine at Elton John concerts with “Say I Do” stamped on the cans to support marriage equality.

SIMON CASSON

end of 2010, I had made two wines, a rosé from Provence and vermentino on the island of Corsica, with a third one on my mind using rare red varieties on Corsica. I could see a range emerging. When we came home, we shipped the wine back in refrigerated containers and I went out to the market with it.” It helps that marketing is another strong point for Kentish. She is back in France right now for her eighth vintage. Her wines from Provence and Corsica now comprise half her sales in Australia. She also buys fruit from private growers in McLaren Vale who she has known for years, and uses a local winery to make four types of Australian red, including a sparkling shiraz. “I’ve just gone really slow and steady on releasing wine. It is a bit like driving a big ship. It takes a couple of years to age wine. It has been very considered and I have done it very carefully. I am very proud of myself. It’s about my gut instinct. I had a good idea from the business perspective, but in the end it had to feel right for me personally. I am out there every day talking about my wine and who I am through my wines. It’s a very personal thing for me. “I won’t buy a vineyard unless it’s a gobsmackingly gorgeous place that I know I can make great wines from. It takes time to find those places. Sam is very open to working with me to tend the wines too, doing the viticulture.” Between vintages, Kentish has plenty to keep her busy. There is the old mill that the family bought in Middleton, on the coast south of Adelaide. Sam is building a high-end retreat in the garden. When she isn’t globe-trotting, Kentish spends her weekends there reading and walking on the surf beach. But there is another venture under way too, one that draws on Kentish’s deep marketing background and sense of entrepreneurship, which she says came from her father, a potato grower north of Mt Gambi-

ASK THE EXPERTS

What to buy with $80k

24 MONEY SEPTEMBER 2018

the NSW south coast, or in Hobart where they can rent out the property or use it as an Airbnb? “Or do we buy a block of land and build?” wonders Alecia. Because they have run their own businesses and Hamish has been studying, they don’t have the financial profile that lenders prefer. So they have been renting. But Hamish’s new electrical business is taking off and his earnings should grow. Is there a lender that understands this type of situation? Alecia says they are saving hard, build-

ROB SHAW

ith tighter lending for property investing, is the “rentvest” strategy still viable for couples such as Alecia and her husband Hamish? They have the perfect skills to be a dynamic renovation duo. Alecia studied design and ran an award-winning interior design business. Hamish has an architectural degree and two years ago qualified as an electrician. “We would love to buy something that we could renovate – even a derelict place as we are both quite resourceful,” says Alecia. But Sydney property prices are so steep that they can’t really afford to buy there unless it is in an outer suburb or a one-bedroom or studio unit closer to the centre. Should they buy in a regional area such as

ing an emergency buffer and paying down their credit cards. Hamish has a big HECS debt of $65,000 while Alecia owes $13,000. They have a deposit of $80,000 and wonder if it is enough to buy a $700,000 unit in a suburb like Campsie in south-western Sydney. Where is the best place to keep the deposit while they add to their savings? Alecia says that they need a financial plan for the future, particularly to consider long-term goals. She salary sacrifices $70 a fortnight to super.

COMPILED BY SUSAN HELY

NAME: Alecia Green STATUS: Married and wants to buy a property. QUESTIONS: With an $80,000 deposit, how much can Alecia and her partner borrow? Is there a lender that is more receptive to lending to a business owner? Should they buy in Sydney or in a regional area such as the NSW South Coast, or in Hobart and rent it out or run it as Airbnb? Where is the best place to keep their savings so they are easily accessed? Is it better to pay down HECS debt or put the money into the deposit? ANSWERS: Rentvesting makes good sense. Jason Petersen suggests a property worth $300,000 while Jane Slack-Smith reckons it could go up to $550,000. Look into the First Home Super Saver Scheme, which allows you to salary sacrifice savings for your home. Don’t worry about your HECS debt.

CASE STUDY

It’s a decent deposit but this couple may have to look further aﬁeld for a property

Consider the risks

Rentvest, then chase the dream

JASON PETERSEN

JANE SLACK-SMITH

Jason is a Sydney-based financial planner and head of wealth management at an independently owned boutique financial planning firm. 5financial.com.au

lecia and Hamish, you’ve built a nice base and are certainly on the right track in recognising that you need a comprehensive financial plan to provide clarity and to guide decision making. By going through this process, you’ll become clear on your goals and it will help ensure you only take on as much risk as you need. This will assist in weighing up your investment options, which include renovating, rentvesting or buying shares (among others). It’s great that expectations for Hamish’s business are strong. As it’s a relatively young business, however, and with the possibility that you may start a family at some stage, you need to be mindful of taking on more risk than you need to. Rentvesting can be OK but tying up all your funds in a single asset – property – breaks a key rule of investing: diversification. You need to be aware of the cashflow risks associated with property, including the outgoings and potential for rising interest rates. I’d recommend borrowing no more than 80% of the property’s value, as mortgage insurance is an expense you can do without – it will eat into profits. Based on your savings of $80,000 and stamp duty and legal costs of around $20,000, you’ll have a deposit of $60,000, so aim for a purchase price of around $300,000. A lot of money can be made in development but, as with any investment, increased return comes with increased risk. This is more so in a declining market, and downturns in the market can have a significant negative effect. You must take into consideration all costs, including your own valuable time, and any capital gains tax. There are lenders that cater to business owners. However, the environment has become a lot tighter with APRA clamping down on (what has sometimes been) lax bank lending standards. Having your financials up to date is key and your business needs to show solid growth. The negative sentiment around renting is unwarranted, as you can choose to rent somewhere you like while still having the capacity to grow your savings. As well, with growing vacancy rates across Sydney, there’s greater choice. HECS-HELP debt only increases at the rate of inflation, so there is no real incentive to pay off more than the minimum required. In the meantime, keep your cash reserve in a high-interest savings account for the short term. With a property purchase in mind, look at the federal government’s First Home Super Saver scheme (FHSS) where you can salary sacrifice savings for your home, and help ensure your financial future is more in your control than a bank’s.

Jane is the director of Investors Choice Mortgages, author and founder of Your Property Success online education. yourpropertysuccess.com.au

hat a great position to be in, Alecia and Hamish: you have built up a great deposit and with Hamish’s skills in construction and Alecia’s artistic flair you are able to look at renovating and restoring properties and growing your wealth. My loan assessment indicates you have enough to buy a home for about $630,000 or an investment for $580,000 with one of the big four lenders. Some lenders, such as CBA and ANZ, will look at the last year’s self-employed business finances (but you do need to have an ABN registered for two years). Other lenders in this situation will typically take the lower of the last two years. So you need to be mindful of the lender you approach and their policies; it would be easiest to put a mortgage broker on the task to steer you to the right lender. You do have a higher borrowing capacity with other lenders but they will not use more than the lower of your incomes (Hamish’s), even with addbacks for depreciations and one-off purchases. As you have indicated, your borrowing ability is a lot less. HECS will reduce your borrowing capacity (by reducing your income, as it is shown on your payslips), as will Alecia’s super contribution. For now, Hamish is below the threshold to pay HECS. Payments for Alecia will reduce your borrowing capacity by only a small amount and if you choose to pay it off completely then it will put your plans on hold for years. A purchase at the top of your borrowing capacity will deplete all your funds and even eat into the buffer that you have set aside, and if you become a one-income family in the future you would want to make sure you can cover your mortgage without financial stress. So this price point, although tempting, could create problems down the track. I understand that you have spent extensive time looking on the NSW Central Coast for a home, having ruled out the South Coast and the Blue Mountains due to travelling time. With that in mind,

I think that for the moment you may need to relinquish the great Australian dream of buying a home first and buy an investment property. Being a rentvestor gets you the best of both worlds – I did this for 10 years while building my portfolio. This strategy makes you geographically agnostic and allows you the freedom to look across Australia for a purchase. I would suggest you look at not just where your money can buy you the best property in the best area but also where there is a high yield, to reduce your out-of-pocket expenses. Hobart seems to tick the boxes (hence the flock of investors who have purchased there) but as you suggest many are on Airbnb. Apparently, there are over 2000 listings, and any changes, as we have seen in NSW, to how this shortterm stay system plays out could leave you with a property that can’t be rented. With all this in mind, I would limit your purchase price to about $550,000. Look again at the Central Coast, this time as an investor, or Brisbane, within 15km of the CBD, not in the outer, lower socio-economic areas. Do a quick cosmetic “repair” renovation and leave the full “rejuvenation” with a new kitchen, bathroom, etc, until you have the funds. Remember that to a carpenter everything looks like a nail, so just because you want to renovate doesn’t mean you need to do it now. Build up your buffer for the time you are out of work and concentrate on the best area that will grow in value and in an area where there is pricing disparity between renovated and unrenovated properties, then plan the full renovation in the future. To help you out on locating and renovating, I am giving you access to my Your Property Success Club. The courses, private Facebook group and monthly Q&A sessions will help clear up a lot of these questions. You will also have access to our new Location Masterclass with the suburb selector software that will give you a framework and suburb information to quickly assess where to buy. MONEY SEPTEMBER 2018 25

SK PAUL

Q &

NEED PAUL’S HELP? Send your questions to:

Ask Paul, Money magazine, GPO Box 4088, Sydney NSW 2001 or money@ bauer-media.com.au. Sorry, but Paul can’t personally answer your questions other than in the Q&A column. By submitting your question to Money, you consent to having your question and the response you receive from Paul published in the print and digital edition of Money.

26 MONEY SEPTEMBER 2018

With a $500k inheritance, Murray can afford to ...

Say goodnight to the mortgage

I’m about to turn 50, and have a lovely wife and two teenage daughters. I recently received an inheritance of about $500,000. We owe about $350,000 on the mortgage and our home is worth about $1 million. Are we best to pay off the home outright and invest, say, $100,000 in a property or in other investments? The remainder will be for minor upgrades and maintenance to the home and a holiday for the family. I only have about $150,000 in super and my wife has $85,000. Murray, I will keep this short and sweet. You have asked a really conservative person, so my answer is what I would do: pay off the mortgage.

I get all the stuff about “gearing up” and I accept that could well give higher returns. But we sleep better in our paid-off house. I’d suggest you use an offset account to pay it off, so the money is accessible to you if needed, but I’d put $350,000 into it. Then it depends if you are a property fanatic, which I am not. I’d sit down with my accountant, adviser or super fund and ensure $25,000 a year is going into super from my pre-tax salary. If you prefer diversified investments inside super, then you could also make an after-tax contribution with the remainder of the cash. This really depends on how you feel about gearing up into property. Personally, if I was 50 I’d go with super – it is very tax effective. Take advice here from a fee-charging professional if you need it.

Glenda should worry because she is ...

Josh is keen to invest but ...

Have some fun as well

More punter than investor

I’m a 20-year-old commerce student, with one year of study left. I work casually, with shifts here and there, and have managed to save $42,000. All of this money is in a share portfolio, with about 80% of it being in small cap, more speculative shares, and at the time of writing it is valued at $58,000. What do you recommend I do at this age in terms of choosing between holding all my money in shares or property? I will be $30,000-plus in HECS debt by the time I ﬁnish university. I don’t want to waste any time and want to buy an investment property as soon as I can but I know I don’t have enough money or a secure full-time job at the moment. I also don’t know if I should start selling these riskier, small-cap shares and take the $16,000 proﬁt to start fresh and re-invest in safer blue-chip companies.

In property, Jake will ﬁnd ...

Capital gain is the goal

I am 25 and looking to begin investing in property but am failing to understand why you would want to negatively gear a rental versus having it positively geared to aid paying it off quicker. Are the tax beneﬁts truly that beneﬁcial over paying off the debt sooner and increasing the portfolio sooner?

Good job, Josh. You are going to do very well with your money. At the age of 20 you are already all over it. Let’s not over-complicate this, though. I think you need flexibility and access to your money until you settle into full-time work. Who knows, you may need capital to start your own business or to travel. Property will really tie you down. The market is also soft and I don’t see it doing much for the medium term. You are also really young. Blue chips are great for oldies like me but if your small caps are doing well I don’t see any reason to change. Please remember to have plenty of fun while you are young!

You are right, Jake. Positively geared property, meaning it makes more in rental than you pay in interest and costs, is a great idea. But it is not just about income; a key issue is capital gain. This tends to come in close to city and public transport locations. Yields are usually low on great property but I would argue the potential gains are higher. So forget tax for a minute. This is about making good investment decisions. If you can find a really well-located property in a near-city location that is positively geared, good luck to you. But I think you will find the market is pretty rational and very competitive. Great property will tend to be low yielding. High-yield properties will be more often in more distant locations. They offer greater yield but poorer capital gain. I’d always go for the best-located property.

My husband and I are retired (69 and 67). We have a SMSF which comprises $650,000 in CBA shares and $615,000 in fixed deposit. I have $80,000 in VicSuper and AustralianSuper. We also have shares in two apartments outside super. These generate only about $5000 each. Our dilemma is whether the shares are going to continue to pay a decent dividend and fixed deposits to pay nothing. We are contemplating keeping the shares, as it is too late to sell at a profit, and putting cash into an industry fund. Is it practical or viable to run two funds paying two sets of fees. Or should we sell shares, cut our losses and put the whole lot in an industry fund. We are sick of worrying over the whole issue of superannuation and its complications, and also paying for advice where everyone has a different opinion. But while we are procrastinating we are not generating enough income. Crikey, Glenda, you are more punters than investors – 50% in one share and the rest in a term deposit is not the way to go. And you are paying high SMSF fees to hold two investments. I also note you are worried about this. I would be too. If my wife Vicki and I were in your situation we would shut the SMSF, after taking advice, and put the money in a very low-fee balanced fund, giving us a terrific level of diversification, very low fees and little worry. Your accountant will hate the idea – he or she will lose fees, so they are hopelessly biased. See an independent person.

MONEY SEPTEMBER 2018 27

ASK PAUL

Q &

To get a better return, James and Kate could ...

Buy shares for son

My wife and I have been putting money aside for our six-year-old son since he was born. Currently, he has around $13,000 in a savings account that pays around 2.4% interest. This is a standard savings account where we have to deposit $100 a month and make no withdrawals. As we don’t plan to let our son have this money until he is a least 18, we are looking at long-term investment plans. What do you suggest we do with his savings, keeping in mind that we will continue to deposit $100 a month into an account for him. Should we explore term deposits or managed funds? Yes, you should. With a 12-year time frame, in my opinion, holding the money in low-interest cash is sub-optimal. My dad and mum also put aside savings for me. They bought shares, which appreciated enormously by the time I needed the money. We did the same for our kids and got the same result. So I think you should look at a low-cost share fund or simply buy a few wellknown shares via a low-cost online broker. In the short term, shares are volatile but your son has 12 years or more.

28 MONEY SEPTEMBER 2018

With $130,000 to invest, Shaun could reap ...

Tax rewards of super

I am 48 and my wife 44. We have two children aged 19 and 17. I earn $120,000 and year while my wife earns $80,000. We own our house valued at about $650,000 and have just sold our investment property, making a handy proﬁt of $130,000. I have about $450,000 in super and my wife has $154,000. I lease a vehicle through my employment – the fortnightly payment is $221 pre-tax and $319 posttax. This is a four-year lease. Looking to the future: 1. Where do I invest the $130,000? 2. My wife’s super needs attention and we are considering salary sacriﬁcing a portion of her salary. 3. I do not really want to buy another property and have a hefty mortgage in my later years. Will shares be the way to go as I would really like to build something for my children?

Both well-located property and shares are likely to continue to be good investments over the long term, Shaun. Property is on the nose now, while shares had a great year. But this fluctuates over time. So I encourage people to spread their risk and hold both asset classes. First up for you is ensuring you are putting the maximum pre-tax $25,000 into super via salary sacrifice. You have given me a strong hint when you say you do not want to own another property and have debt later in life. I am pretty relaxed about this given your relatively young age and many working years to go. But I would be quite happy to see you also make an undeducted contribution to super with your $130,000. This could go to your wife’s fund if you preferred or some in both. The tax benefits of super are high and in a good, low-cost fund the returns in the longer term are likely to be sound. I also love the “no hassle” of super.

Erin’s property is a ﬂop, so ...

Cut losses and run

We are a little bit lost with what to do with our investment property in Morley, Perth. We purchased it back in 2013 for $442,000. At the time we were taking in $450 a week in rent. Now we are down to $310 a week and that is after the villa being vacant for a few months and the tenants basically telling us what they are willing to pay. The villa is now valued at between $350,000 and $440,000. The loan is split between ﬁxed and variable (interest only) and we can pay the principal if we choose. It feels as if we are pouring money down the drain when we could be saving it instead. Most have told us to hold onto it. If we can afford to keep it, we should. But we are at a point where we can’t see any growth with it besides development that is going to happen in the area (cafe, restaurant strip, refurbishment of the shopping centre). Do we keep it and try to pay it down, or do we cut our losses and run before we lose even more money? My husband earns $140,000 a year and I earn $90,000. Crikey, Erin, that is a hard one for me. My obvious question would be, “What are the prospects for the property?” But you have told me quite clearly, and the outlook does not appeal to me. Please note I have never been to Morley, so have no idea about its growth potential. But the rule is pretty simple. Property prices do well when the population grows; it does badly if not. So you need to do further research about the medium- to long-term potential for population growth, and growth in jobs, tourism and development in the area. If this is not positive, unfortunately, I would have to argue it means cutting your losses.

Brendan should recognise that ...

It’s a bad time to sell but a good time to save

My partner and I are looking to purchase our next property together in Melbourne with a budget of around $1 million but have had great debate on the best way to do it. We each have our own investment properties. She has a two-bedroom, one-bathroom, one-garage unit/villa in Melbourne worth about $500,000 with a $400,000 mortgage and I have a two-bedroom, one-bathroom, one-garage apartment in Sydney worth $600,000 with a $450,000 mortgage. I have suggested that we both sell our individual properties so we have enough deposit to avoid lenders mortgage insurance (LMI). She has a view that her property has more growth potential and has suggested that only I sell my property and we pay the LMI as she believes the rate of growth for the property will exceed the cost of LMI. To ﬁnd a middle ground, I’ve suggested that we save for a year or two, then take out the equity on both our properties and pay the LMI (should we need to). Thoughts? I am always a little terrified to step into the world of couples and money, Brendan. However,

I will don my bulletproof vest and helmet and wade in. Technically, who should sell their property is pretty easy and based on the one with the lower growth potential. Capital gains tax on either sale also comes into play. The reality, though, is a lot of emotion, which can involve who brings what into a relationship. This involves a mature conversation and possibly a glass of red wine. The next bit is easier for both partners to digest. As you are both fully aware, the market is very weak in most parts of Australia and most likely to fall further. This is not the time to be selling but a great time to save like crazy, as for the first time in a decade savers are gaining on property owners. This weakness, I believe, will continue for some time. So given it is a bad time to sell and a great time to save, why not go with that for now, continue to openly discuss money and turn your personal goals into joint goals. Having different money personalities is a certainty. That is not an issue; communication is the solution and will strengthen your relationship I do wish you all the best with your relationship and your money plans. MONEY SEPTEMBER 2018 29

30 MONEY SEPTEMBER 2018

Destination: Tiwi Islands

Artistic islands ... from left, Ngaruwanajirri studio; Tarntipi beach; Alan Kerinauia shows off his fabrics; a local painting mud mussel shells; and bird sculpture by Albert Tipiloura.

Five things to do 1. Take: The SeaLink ferry from Darwin’s Cullen Bay ferry terminal travels across the aquamarine Beagle Gulf to the port of Wurrumiyanga, on Bathurst Island, one of the two big Tiwi Islands. Look out for whales (we were lucky to see a pod with a baby) on the 2½-hour trip. 2. Book: Take a tour to learn about the extraordinary rich and unique culture of the Tiwi people from the articulate locals, whose families have lived on the islands for thousands of years. The $295 cost includes the ferry ($120 return without the tour), bus tour of the local sights, smoking ceremony with ironwood leaves, dance performances, morning tea and lunch. 3. Visit: All three Bathurst Island art centres produce beautiful silk-screened fabrics and clothes, ironwood carvings, ceramics, ochre paintings and glass works. Don’t miss Ngaruwanajirri (The Keeping House) with its painted, domed Sistine chapel-style ceiling that has been run by John and Joy Naden for over 26 years and is a studio space for 12 artists and many more part-timers.

4. Hear: Local guides with a sharp sense of humour share stories about their four-clan system (sun, rock, pandanus and fish); the old traditions that include brothers not talking to their sisters once they reach puberty; the bush foods – mud mussels, cockles, ducks, geese, native plums and sugarbag bee honey – that still make up 70% of the local diet; and bush medicines. 5. Check out: Patakijiyali Museum was set up with the help of Sister Anne Gardiner who arrived in the Tiwi Islands 60 years ago and has never left. It spans the dreaming stories as well as the natural flora and fauna. It also documents European settlement and the islands’ sporting heritage. The passion for AFL and the local team, the Tiwi Bombers, runs deep. The museum also looks at the role of the Tiwi Islands in the Japanese bombing of Darwin and the capture of a Japanese pilot by Matthias Ampiyartilawayi Ulungura, the first Australian to take a Japanese prisoner of war on Australian soil. SUSAN HELY

LINTON ATLAS, TIWI DESIGN

SMART SPENDING

THIS MONTH

DRIVING PASSION

WINE SPOTLIGHT

Newcomers are cheap and cheerful

uying a new car on a used car budget usually means having to sacrifice size but it needn’t mean compromising quality. There are still several new cars on the market that will get you change from $20,000, and some of these provide excellent value in terms of quality, performance and safety. Most of the better teen-priced cars are in the light or micro segment, and include models such as the Kia Picanto, Mazda2, Honda Jazz, Suzuki Swift and Toyota Yaris. The sub-$20,000 price point even includes some European metal, with entry-level variants of popular models, such as Fiat 500 Pop, Renault Clio Life, Skoda Fabia 70 TSI and Volkswagen Polo 70TSI, though most of these have manual gearboxes. All of these are a great way for firstcar buyers and downsizers to get into an economical new car with a full warranty, the latest infotainment and, in more and more cases, advanced driver assistance features such as autonomous emergency braking. DAVID BONNICI, WHICHCAR.COM.AU

2016 Peter Lehmann ‘Portrait’ Shiraz $19

$14,990- $14,190$23,680 $17,490

$14,990$22,990

Mazda2

Kia Picanto

Honda Jazz

Half of the Mazda2 range is priced below $20,000. The pick is the Maxx hatch or sedan, which retails for $17,690 (manual) and $19,690 (auto). The Maxx has alloy wheels, a reversing camera and user-friendly infotainment. Autonomous emergency braking is standard. The gutsy 1.5-litre engine is very easy on fuel. Pros: Sedan boot space; styling; equipment; five-year warranty. Cons: Tiny tachometer; firm ride. mazda.com.au

This is an eye-catching city car with a comfortable ride and great steering. It comes with cruise control, a reversing camera and a big touchscreen. Auto-braking is standard across the range, which includes the Picanto S and sportily appointed GT-Line. The four-speed auto is good but sometimes leaves you wanting for a couple of extra gears. Pros: Equipment; handling; styling; seven-year warranty. Cons: Needs a turbo and five-speed auto. kia.com.au

The Jazz is great value if you’re after a practical city car. It seats four adults in comfort and swallows luggage, courtesy of its box-shaped body and flip-folding “Magic Seats”. It has a good infotainment interface, surprising turn of speed and frugal 1.5-litre engine. Pick of the bunch is the base-spec VTi auto at $16,990. Pros: Roomy, versatile cabin; polished interior; five-year warranty. Cons: Ordinary handling; busy styling; no auto braking. honda.com.au

EXTRAVAGANCE

Noble gesture This beautifully crafted woven cane case edged in brass and inset with luxurious burl wood and suede is a testament to backgammon’s 5000-year history as the game of kings. How much: $A3650.45 Where to buy: neimanmarcus.com

The spirit of Peter Lehmann lives on and the Barossa continues to do what it does best, producing affordable shiraz of pleasing quality. This is immediately appealing: soft, supple and fleshy with ripe, blackberry and mulberry flavours. Gluggable and plush with lingering flavours. Delicious.

SPLURGE 2014 McHenry Hohnen ‘Rolling Stone’ $90 Located in the southern reaches of Margaret River and energised by new winemaker Julian Grounds, McHenry Hohnen is demanding close attention. This is its flagship red, a blend of cabernet sauvignon, malbec, merlot and petit verdot, sourced from Hazel’s Vineyard. It’s gently perfumed, restrained yet with powerful blackcurrant and bramble flavours tightly bound and seamless, impeccably balanced in the mid-palate before finishing long and bright. Will repay cellaring. PETER FORRESTAL

MONEY SEPTEMBER 2018 31

SMART SPENDING

THIS MONTH SMART TECH

Computers evolve to survive the smart onslaught

t’s amazing to think that only about a decade ago the sole “computer” most of us owned was, well, a computer: a notebook or desktop PC. Since then, an explosion of “smart” devices has proliferated around us, meaning we’re endlessly surrounded by complex computing things everywhere we go. Smartphones, of course, are the most ubiquitous example of this but far from the only one; there are also tablets, smartwatches, smart speakers ... the list goes on. These days when I “write” my shopping list – a task that used to fall to pen and paper – I do it by dictating items we need to a virtual assistant (Alexa) in our kitchen, before checking the list later at the shops, using an app on my phone. This whole routine (as domestically mundane as it is) was the stuff of science fiction not long ago. But as much as these smart gadgets are changing our lives more every day, the fundamental computer for most of us remains our computers. They're what we get our most serious computing done on, and today they're more varied and capable than ever.

What is it? Intel Compute Stick How much? From $160 Pros: Many used to think that as miniaturisation progressed we’d all be using desktop PCs the size of a stick of gum. That hasn’t happened, although the tech does exist. Meet Intel’s Compute Stick: a full Windows 10 PC the size of a USB key, which simply plugs into your TV or monitor. Just add keyboard and mouse, and you’re away. Cons: Very underpowered, if perfectly portable. Check out the higher-end models if you want more grunt. intel.com.au

PETER DOCKRILL

What is it? Apple MacBook Pro with Touch Bar How much? From $2699 Pros: If you’ve been holding off on a MacBook purchase, now could be a good time. Apple introduced its MacBook Pro with Touch Bar in 2016, featuring a configurable touch display panel on the keyboard (where function keys usually sit). While the feature has had a mixed reception, Apple has just updated those models and they’re the most powerful MacBooks you can buy. Cons: Expensive; Apple didn’t update its cheaper, non-Touch Bar models. apple.com/au

GIVE IT UP

WEBFIND

Buy a bale

AU.ZIILCH.COM

What is it? Buy a Bale is a fundraising campaign run by registered charity Rural Aid to help NSW farmers struggling with one of the worst droughts in the state’s history.

Where your money goes: Anyone who’s taken a flight over NSW in recent months will have seen how desperately dry the state is. In parts of the Hunter Valley and New England, rainfall over the past year is approaching the lowest on record. Many farmers are having to pay for cattle fodder to be transported from as far away as South Australia,

32 MONEY SEPTEMBER 2018

What is it? ASUS Chromebook Flip C302CA How much? From $899 Pros: Chromebooks might not have taken off in Australia to the extent they have in the US but they’re still a worthy alternative to Windows and Mac notebooks, and there’s a range of options for every price point (not just budget models). Take the Flip: a deluxe convertible tablet hybrid with a full HD display, 4GB RAM and 10-hour battery life. Cons: Won’t run Windows or Mac software but great for web apps, writers, and students. asus.com/au

and as the pressure intensifies it is becoming increasingly difficult to track down affordable hay. Rural Aid’s Buy a Bale campaign puts donations to work delivering bales of hay and fuel, water and groceries to farming families. How to donate: Individuals and workplaces can register as a supporter – all donations over $2 are tax deductible. Volunteer your time to lend a hand, or register your truck to be part of a convoy delivering hay to rural communities. For more details see buyabale.com.au. NICOLA FIELD

Ziilch is a community-driven website that offers a treasure trove of free goodies while also minimising waste heading to landfills. Everyone loves a freebie, and at the time of writing some of the free items up for grabs included old wine barrels, leather office chairs, a Persian-style wool rug and an antique piano. NICOLA FIELD

GET ON TOP OF YOUR BUSINESS TOO EASY

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ANZ Business © Australia and New Zealand Banking Group Limited (ANZ) 2018 ABN 11 005 357 522.

PAUL’S VERDICT Paul Clitheroe

It’s in the bag when you build up super

’m a 34-year-old unmarried woman without children. I've been reasonably financially responsible so far in life. (Minus a few years when I discovered the delight of designer handbags and, ultimately, the zero investment value they provide!) I purchased my house at 27. It is occupied by tenants, with a mortgage of $350,000. I started voluntary contributions to my super when I got my first full-time job and have a current balance of $115,000. I also have a small share portfolio of $30,000. I earn a modest salary of $68,000. I’m not quite sure what the future holds for me but don’t see children in my immediate future. Where should I be investing my money for future wealth creation? Should I continue adding to my share portfolio or look for other opportunities? Emily

Paul’s verdict: Make the most of the few money miracles and end up with $868k Balance out the fun spending with wealth creation

i Emily. It is always great to get questions that make me laugh, so I really enjoyed the “delight of designer handbags” comment. They fit perfectly into my “anti-wealth” category. Mind you, I own a yacht, so I can hardly comment! The trick, though, is to try to balance out the anti-wealth spending with building your wealth. Here I reckon you have done a good job. Buying a house at 27 was a great move given the strong returns in most parts of Australia over the past seven years. And despite a few handbags along the way, the fact that you started topping up your super when you first started work shows you have done really well with the balance between antiwealth spending and wealth building. There are few miracles when it comes to money, bar a very small list: Spend less than you earn.

34 MONEY SEPTEMBER 2018

Emily owns a property and is now interested in shares.

Invest for the long term in growth assets, such as property and shares. Eliminate high-interest personal debt. Legally minimise tax using super. Risk equals return. Compound interest.

Let’s combine a few of these. First, spend less than we earn, then top up super via salary sacrifice. At your age, I would think you would go with a balanced or growth fund, meaning we bring two more items from my list into play: investing in growth assets such as property and shares, then compound returns. Your super fund is highly tax advantaged, as returns are taxed at a maximum of 15%. Let’s go with your salary of $68,000 and top up super by $50 a week. Any dollar you earn above $37,000 (up to $87,000) is taxed at 34.5%, including Medicare, so you would take home 65.5¢. $1 salary sacrificed into super is taxed at 15%, so you would have 85¢ invested. This is really important. You would need to grow the 65.5¢ that you get after tax by over 30% to catch up to the 85¢ in super. Meanwhile, the 85¢ in super is working away for you, taxed at a maximum of 15%. With these numbers we can make a guesstimate, based on historical investment returns, as to how much you would have at, say, age 65. We should also allow for inflation. So let’s say your super will earn 4% a year, on average, above inflation. Our calculation is then based on the $115,000 you currently have, plus your

employer’s contributions of some $6460 and then your $50 a week (or $2600 a year) topup. This totals $9060 a year, but after the 15% contribution tax, that’s about $7700 a year going into super. Pop this lot into a calculator and we get $868,000. This is in today’s money so it gives you an idea of what spending power you would have. There is a whole bunch of stuff that can change this number. Your salary may go up, so your employer contributions increase, investment returns may be better than 4% above inflation, or worse! But it gives you a bit of an idea of the power of compound interest. The only disadvantage of super is that you can’t access it until you reach retirement age, so you may wish to stick with employer super contributions and use your own money to invest outside super. A well-located investment property or a share portfolio can also work well. So despite quite a few handbags, you are in a great financial position at 34. The trick is to balance out the fun spending with wealth creation and you are on track.

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QANTAS WALLABIES PLAYER

NICK PHIPPS OPENS UP ABOUT INVESTING +RZ ROG ZHUH \RX ZKHQ \RX È´UVW VWDUWHG VDYLQJ" I used to get paid $2.50 a week as a kid to do chores around the house so I started putting those earnings into a money tin. +RZ GLG \RX OHDUQ DERXW EHLQJ D JRRG LQYHVWRU" Î&#x2013; WULHG WR VXUURXQG P\VHOI ZLWK WKH ULJKW SHRSOH ZKLFK KHOSHG PH PDNH JRRG È´QDQFLDO GHFLVLRQV Î&#x2013; KDG D È´QDQFLDO DGYLVRU Î&#x2013; VSRNH WR P\ SDUHQWV D ORW DQG Î&#x2013; WDONHG WR WKH ROGHU boys at the club to learn from their experiences. :KDW ZDV \RXU È´UVW LQYHVWPHQW" A two bedroom unit in Cremorne in 2012. :KDW KDYH \RX LQYHVWHG LQ VLQFH" Î&#x2013; ERXJKW D VHFRQG XQLW LQ %ULVEDQH DQG Î&#x2013; KDYH UHFHQWO\ just bought a family home in Sydney. :KDW DUH VRPH WRS WLSV IRU SHRSOH ORRNLQJ WR LQYHVW" &KDW WR ORWV RI SHRSOH ZKR KDYH PDGH LQYHVWPHQWV LQ WKH SDVW DQG È´QG RXW ZKDW ZRUNV DQG ZKDW GRHVQÈ&#x2021;W Î&#x2013;È&#x2021;YH IRXQG WKDW HYHU\RQH Î&#x2013;È&#x2021;YH DVNHG LV more than willing to willing to help you out.

SEPTEMBER 8 SUNCORP STADIUM, BRISBANE

SEPTEMBER 15 CBUS SUPER STADIUM, GOLD COAST

TICKETS ARE AVAILABLE VIA TICKETEK

COVER STORY STORY

JEREMY SHEPPARD

BEN KINGSLEY

BRYCE HOLDAWAY

100 SUBURBS

Take heart, property investors! While prices may have soared out of reach in some locations, there are still exciting prospects in others – even in the same city. Using a tried-andtested strategy, our three experts tip the winners for the years ahead.

fyoulistentoorreadanymainstream media, you would think that property values all around the country are falling. But that’s not the full story. The market is broad and diverse, and as such is made up of hundreds, if not thousands, of sub-markets, each subject to a unique set of price influences. Yet given the strong media attention on Sydney and Melbourne, it’s easy to forget this. In fact, right now across Australia there are markets that are booming while, yes, there are others in decline. The true challenge or skill is knowing which one to buy in right now. You’d have to have been living under a rock to not know about the recent boom in Sydney. From 2012 to 2017, most Sydney properties piled on about an extra 70% in value. That’s roughly $500,000. It’s fair to say that during that boom many Sydneysiders earned more from equity growth than they earned from working 9 to 5. But over roughly the same time Perth and Darwin were in price decline.

HOBART TAKES OVER Sydney’s growth stopped at the end of 2017, although to highlight our point about sub-markets within markets, it didn’t happen everywhere. In fact, the median house price in the Waverley local government area to the east of Sydney’s CBD has grown by more than 10% in the first half of 2018. This area stretches from Dover Heights in the north to Queens Park and Bronte in the south. While Sydney prices may have peaked generally and Perth prices look to have bot36 MONEY SEPTEMBER 2018

SET TO BOOM

tomed, the prices in the west haven’t changed significantly so far in 2018. Hobart, on the other hand, has recently rushed to the top of the growth charts. It was almost the perfect baton change, with Hobart starting just as Sydney was stopping. After a long period of stagnant values, Hobart had high double-digit growth in 2017 and this has continued well into 2018. And there is still a chronic under-supply of property that looks some way from being resolved.

EXTRAORDINARY OPPORTUNITIES All this time Adelaide and Brisbane have been relatively flat. Yet the current data suggests both these cities have a few good ducks lined up for some growth in the next couple of years. Canberra has been a consistent and solid gainer – no rapid growth as with Sydney, Melbourne and Hobart but not mediocre like Adelaide and Brisbane. By the very nature of different markets operating to different cycles, you get a greater appreciation of each capital city market beating to its own economic conditions, largely independent of the broader national market. And this isn’t restricted to just state capitals; there are about 100 significant urban areas around Australia that have unique economies. (See table, next page) Not only is there a wide degree of economic independence among significant urban areas but within each area – as with Waverley in Sydney – there are individual suburbs and clusters of suburbs with unique supply and

demand characteristics. Furthermore – and this is what makes picking a winning location that little bit harder – it’s also possible that at any point in time one suburb could have quite different capital growth prospects from those of a nearby suburb in the same area. And the differences don’t just end at the suburb level. Within the same suburb, house prices could be growing strongly while units are static. All this means that there are thousands of property markets, many of which are in different price cycles from the national cycle. And that’s the truly exciting bit. As we lift our eyes towards values in 2020, there are potentially dozens of extraordinary growth opportunities in many areas across the country, even if the broader market appears to be in decline.

SUPPLY AND DEMAND So how do investors unearth these gems? The price for any service or good is determined by the law of supply and demand. Real estate is no different. If demand for property outweighs supply, then the price will increase. Conversely, if supply exceeds demand, prices will fall. Jeremy, Ben and Bryce are the co-creators of LocationScore.com.au, which was born out of their passion for educating DIY property investors to make smarter decisions. Each is a respected expert in his own right yet they regularly collaborate on other projects, such as the Property Couch podcast and Empower Wealth Advisory, as a specialist advisory practice.

AROUND $300k, $500k, $600k, $800k, $1m plus

METHODOLOGY HOW THEY’RE RANKED For property buyers and investors alike, it’s crucial to find markets in which demand exceeds supply. But how is this done? Here is a list of some of the key metrics used to gauge supply and demand for real estate:

AUCTION CLEARANCE RATES

The auction clearance rate is the number of properties that sell at auction as a percentage of all properties auctioned. Imagine a market in which the bidding is fierce for most auctions; the auction clearance rate will obviously be very high. This single metric can be used as a gauge of demand relative to supply. But what if there was only one auction? The clearance rate can only be 100% or 0%. That’s a massive difference for the supply and demand story based on the result of a single auction. This is why it’s important to consider multiple indicators, rather than just one indicator in isolation.

6 DAYS ON MARKET

The length of time a property spends listed for sale before selling is called the “days on market”. Imagine eager buyers ready to make quick offers as soon as a new property hits the market. Properties will sell very quickly in markets where demand exceeds supply. The lower the average days-on-market figure for a suburb, the more likely demand exceeds supply.

6 VENDOR DISCOUNT

This is the difference between the original asking price and the eventual sale price. When demand exceeds supply, sellers are in the box seat and are less negotiable on price. Buyers are forced to make strong offers or miss out, so the average discount rate is usually quite small.

6 RENTER PROPORTION

The renter proportion is the percentage of renters in a market compared with the total number of residents. Investors don’t want to be competing for tenants with other landlords. The proportion of renters should ideally be as low as possible since it is a supply metric.

6 VACANCY RATE

The percentage of rental properties that are currently available for rent is a measure of the demand and supply for rental properties by tenants. When vacancy rates drop, it means rents are likely to rise.

6 RENTAL YIELD

The rental yield is the annual rental income

as a percentage of the property’s value. The yield can sometimes be a precursor to capital growth. But it is also an indicator of the cash flow potential for a property market.

6 PERCENTAGE OF STOCK ON MARKET

The measure is the number of properties for sale in a specific market versus the count of all properties in that same market. Some suburbs are larger than others, so when calculating supply you need to do so as a percentage. The percentage of stock on market is a great indicator of supply. For strong price growth we want supply to be as low as possible.

6 ONLINE SEARCH INTEREST

When a potential buyer examines a property for sale listed on a real estate website, their search is recorded. If we have a count of the number of searches and compare it with the number of properties, we have a rough idea of the level of demand relative to supply.

6 USING THE POWER OF BIG DATA

It’s virtually impossible to manually collate the data to research thousands of property markets around the country in a short time. Fortunately, there’s a shortcut that can be used to cull the list to something more manageable without missing a terrific opportunity – it’s the use of big data. Big data is the new resources boom for property buyers and investors. So instead of buying in risky mining towns, you can now mine data to find safer locations set to deliver quicker gains. Gone are the days of subjective, opinionated research used to find growth hotspots. The experts and their divining rods are being replaced by data science. Big data algorithms have already been outperforming the growth picks of the highest-profile experts in property investment. So in taking up the challenge of predicting the best markets today that we believe will outperform by 2020, we used our demandsupply formula that we call the LocationScore. We score every suburb (by house or unit) out of 100. The higher the score, the more demand exceeds supply, which greatly increases the probability of property value rises in that location for that property type. To determine the LocationScore for each suburb and property type, we combine the eight metrics listed here. Some metrics are more important than others, so we allocate

each one an importance rating. Then we combine all eight metrics based on their relative importance into one overall score. These top 20 lists contain the top markets as ordered by LocationScore for each price range. It’s these markets that, in our view, have a better chance of experiencing immediate capital growth than markets with lower scores, indicating declining or soft demand. Historically, 83% of the top 20 LocationScore markets have outperformed the national average growth rate over the next three years. What is also interesting is that quite often the LocationScore top 20 had growth rates that were double the national average, reinforcing the fact that the law of supply and demand influences price movement in property.

TOP 20 SIGNIFICANT URBAN AREAS by population RANK

SIGNIFICANT URBAN AREA (SUA)

STATE/ TERRITORY

POPULATION ESTIMATE AT JUNE 2017

Sydney

NSW

5,131,326

Melbourne

VIC

4,850,740

Brisbane

QLD

2,408,223

Perth

2,043,138

Adelaide

1,333,927

Gold Coast-Tweed Heads

QLD/NSW

693,321

NewcastleMaitland

NSW

491,183

CanberraQueanbeyan

ACT/NSW

447,457

Sunshine Coast

QLD

375,399

Wollongong

NSW

299,203

Geelong

VIC

260,138

Hobart

TAS

226,884

Townsville

QLD

195,346

Cairns

QLD

165,925

Darwin

146,612

Toowoomba

QLD

145,631

Ballarat

VIC

103,481

Bendigo

VIC

97,096

Albury-Wodonga

NSW/VIC

91,923

Mackay

QLD

91,788

6 6 6 6

Three SUAs cross state borders. Queensland has the most SUAs in the top 20. Wollongong has twice the population of Darwin. Adelaide has almost six times the population of Hobart. MONEY SEPTEMBER 2018 37

COVER STORY 100 SUBURBS SET TO BOOM

Around $300k There’s no need to settle for a poky studio even in one of the bigger cities. If you know where to look, you can ﬁnd great value with the promise of strong growth.

t’s always interesting to watch the expression on people’s faces in Sydney and Melbourne when you talk about being able to buy great properties at this price point. In most cases they think all they can get for their money at best might be a one-bedroom studio in one of the bigger cities. This is so far from the truth and, as demonstrated, you can even buy houses in some of our capital cities, and our data is suggesting this might be worth considering!

Glenorchy, Tasmania 7010 – houses This suburb is about a 20-minute drive north of Hobart’s CBD. Its LocationScore was 82 at the end of June 2018. The LocationScore is considered “good” if it is over 62 and “excellent” if above 77. The LocationScore for Glenorchy houses has risen from the mid 60s about three years ago into the low 80s now. The rise has been an almost straight line with very little volatility. The standout statistics that have led to such a high score include fast selling times, low discounting and high yields. Three years ago it typically took about four months to sell a house in Glenorchy. Now it takes less than four weeks. Discounting is around 0.25%. That means sellers will turn their nose up at anything but the most generous-sounding offers. The yield is over 5.5% and the vacancy rate is a miserly 0.33%. With interest rates being so low, many investors are likely to have a property that is comfortably cash flow positive. One negative about Glenorchy, though, is the higher proportion of renters to owner-occupiers at 43%. The country-wide average is under 30%. It’s nothing alarming but keep in mind that some streets may have trouble spots.

Whittington, Victoria 3219 – houses This suburb of Geelong is about an hour and 20 minutes from Melbourne’s CBD. The house market at the end of June had a LocationScore of 82. From mid 2015 to mid 2017 the LocationScore has been under 75. It’s only been in the past nine months that things have started to really heat up. 38 MONEY SEPTEMBER 2018

None of the metrics were truly outstanding for June but almost all of them were comfortably better than the nationwide averages: quick selling times, low discounting, very healthy yield and a low percentage of stock on market. Auction clearance rates are a bit patchy, with low volumes recently. But they have tripled from the same time two years ago to the end of June, to an impressive 84%. Online search interest has risen from about 30 a year ago to nearly 150 now. That’s more than double the Australian average. The percentage of stock on market has been quite volatile for the past three years. This is normal for thinly traded markets where supply is tight. Stock levels have more than halved from three years ago, now down to 0.36% – well below our benchmark of 1%. However, Whittington does have a higher proportion of renters to owner-occupiers than is considered “good”. Ideally, we want it as low as possible but 30% is the pass mark and Whittington’s is sitting at over 40%. We wouldn’t have cause for alarm unless it was as high 60%. Finding good streets shouldn’t be a problem.

Berriedale, Tasmania 7011 – houses A little further north of Hobart than Glenorchy is the suburb of Berriedale. At the end of June, Berriedale’s house market had a LocationScore of 82. Prices have grown by about 25% in the past 18 months with the LocationScore up from the mid 70s. Although the growth has taken a breather for a few months, the supply and demand metrics indicate there’s even more to come. Houses are selling in about a month on average. Go back just two years and they were taking four months. A vacancy rate of 2% to 3% is considered a balanced market. But the vacancy rate for houses in Berriedale was less than 0.5% at the end of June 2018 – no room at the inn. This helps to explain yields approaching a dizzying 6%. Stock on market is chronically low at 0.42% and the number of online searches conducted in June reached fever figures at 180 per property available. Just a word of warning about the Berriedale housing market, though. It only just squeezed into consideration for this report due to a lower than ideal statistical reliability score of 60%.

Top 20 for around $300k AUCTION DAYS ON DISCOUNT CLEARANCE MARKET RATE

STOCK ON INTEREST MARKET (SEARCHES/ PROP)

PROPORTION OF RENTERS

VACANCY

YIELD

84.1%

41.3%

0.62%

4.95%

0.36%

147

0.27%

Nap

42.8%

0.33%

5.66%

0.54%

147

3.42%

Nap

29.7%

0.46%

5.82%

0.42%

180

$313,114

2.46%

Nap

34.0%

0.31%

6.03%

0.71%

171

$272,963

3.87%

Nap

54.1%

0.46%

5.72%

0.34%

198

$309,173

2.43%

Nap

19.3%

1.46%

5.50%

0.41%

101

BRIGHTON

$321,179

2.58%

Nap

23.1%

0.26%

6.15%

1.79%

151

VIC

SWAN HILL

$264,057

1.94%

71.4%

34.1%

0.25%

5.49%

1.32%

PARA HILLS

$330,544

2.80%

71.5%

19.5%

0.42%

5.14%

1.30%

TAS

SUMMERHILL

$294,949

3.05%

Nap

28.5%

1.27%

5.94%

0.71%

141

BRAHMA LODGE

$263,839

4.08%

Nap

29.0%

0.62%

5.93%

0.51%

150

VIC

WENDOUREE

$270,228

3.13%

Nap

40.8%

0.43%

5.23%

0.36%

VIC

GOLDEN POINT

$309,062

3.45%

100.0%

40.7%

0.69%

5.18%

0.78%

102

QLD

ASHMORE

$334,566

3.23%

Nap

27.7%

0.76%

6.15%

0.83%

143

VIC

IRYMPLE

$306,935

5.28%

Nap

16.8%

0.41%

5.62%

0.94%

179

PARA VISTA

$348,050

2.03%

25.0%

29.9%

0.40%

5.02%

0.63%

264

NSW

GRIFFITH

$325,542

3.38%

58.0%

37.8%

0.20%

5.48%

0.65%

INGLE FARM

$337,145

4.40%

81.7%

25.4%

0.33%

5.23%

1.45%

VIC

HIGHTON

$339,484

3.66%

Nap

22.5%

0.72%

4.66%

0.52%

199

HUNTFIELD HEIGHTS

$285,929

2.63%

Nap

34.4%

0.27%

5.75%

1.16%

STATE

SUBURB

PROPERTY TYPE

LOCATION SCORE

MEDIAN PRICE

VIC

WHITTINGTON

$325,836

1.71%

TAS

GLENORCHY

$336,213

TAS

BERRIEDALE

$339,482

TAS

CLAREMONT

TAS

INVERMAY

TAS

DODGES FERRY

TAS

Berriedale, Tasmania Number of days on market – houses 200 150 100 50 0

2015

2016

2017

2018

2017

2018

Source: DSRData.com.au

Whittington, Victoria Percent stock on market – houses 1.5% 1.2% 0.9% 0.6% 0.3% 0%

2015

Source: DSRData.com.au

2016

COVER STORY 100 SUBURBS SET TO BOOM

Around $500k

n our more populated cities $500,000 is but off a low base of only 30. For a market like this we’d High auction entry-level buying, where at best your option expect it to be at least 100. clearance will be living on the outer fringes if you want Charnwood, ACT 2615 – houses a house or townhouse with land. If you opt rates show for something a little closer in, you may have Charnwood is the next best suburb in the $500,000 that this to reside in a medium- or high-density unit complex. bracket and it’s right next door to Latham. The price In some of our larger regional cities, having $500,000 range is a little lower but the recent growth is similar. “Bermuda could get you into a middle-market or even an upmarThe metrics are pretty much the same as for Latham. ket suburb. This makes sense. We wouldn’t expect the nature of triangle” the market to vary dramatically when the housing stock of suburbs Latham, ACT 2615 – houses and demographics are so similar across this area. The Latham is a suburb to the north-west of Canberra. It’s LocationScore was 82. has what it Auctions are clearing at around 86%. Discounting a 20-minute drive into Canberra central. takes and will Prices for houses are typically between $500,000 is just over 1%. Vacancy rates are ridiculously low, and $550,000. They’ve risen by about 5% over the past as is the stock on market. Even the movement in the continue to Charnwood metrics is consistent with what has been 12 months and were pretty flat for the couple of years be a magnet happening in Latham. before that. But we don’t expect this lacklustre perforAgain, the metric of concern is the online search to continue. for entry-level mance The housing market in Latham topped the Locainterest, which is only in the 50s. But admittedly it has tionScore charts for June with a whopping 85. Over risen significantly in the past year. buyers the past four months the LocationScore has reached a three-year high. One of the startling statistics contributing to this score is a very high auction clearance rate of 97%. That’s one of the highest in the country for a market that has a decent number of auctions. And supply is extremely tight. The percentage of properties for sale at the end of June was only 0.28%. The Australian average was 1.33%. Half a per cent is considered very tight. Vacancy rates are very low too at around 0.3%, which is a tenth of what is considered normal. The past two years have been particularly difficult for renters. Combine this with a vendor discount of 1.2% and you can see why sellers are licking their lips while buyers scramble for scraps. One minor concern would be that the online search interest is not that flash. It’s been around 50 recently 40 MONEY SEPTEMBER 2018

Macgregor, ACT 2615 – houses Macgregor is adjacent to both Latham and Charnwood. The three suburbs form what could be called a “Bermuda triangle” for buyers. There’s no escaping the high demand and low supply in this area. All three property markets have very similar metrics. Macgregor’s LocationScore was 81 for June. The recent history of changes to the key metrics is another ditto. We often credit markets in a cluster like this with more potential for growth than suburbs that are on their own. Isolated suburbs are effectively pioneering growth for an area. That demand may be diluted as buyers look nearby for easier alternatives. But when the neighbouring suburb is just as bad, buyers have nowhere else to go. Quite often they simply dig deep and pay more.

Top 20 for around $500k AUCTION DAYS ON DISCOUNT CLEARANCE MARKET RATE

STOCK ON INTEREST MARKET (SEARCHES/ PROP)

PROPORTION OF RENTERS

VACANCY

YIELD

97.2%

20.5%

0.29%

4.76%

0.28%

1.06%

86.5%

32.2%

0.28%

4.84%

0.29%

1.20%

77.9%

21.5%

0.25%

4.69%

0.48%

$548,564

1.37%

82.1%

22.6%

0.28%

4.72%

0.41%

$482,102

4.29%

Nap

18.2%

0.37%

4.75%

0.46%

173

$455,196

2.86%

82.2%

35.0%

0.63%

4.00%

0.20%

118

BAYSWATER NORTH

$505,776

-0.23%

85.4%

24.6%

0.54%

3.77%

0.58%

115

VIC

SEAFORD

$469,460

1.17%

95.2%

33.9%

0.70%

3.85%

0.32%

117

NSW

CARDIFF

$493,564

2.07%

100.0%

26.0%

0.65%

4.12%

0.52%

VIC

CAMPBELLFIELD

$527,361

2.94%

100.0%

25.5%

0.14%

3.77%

0.66%

128

VIC

DARLEY

$453,057

1.45%

Nap

18.7%

0.58%

4.38%

0.52%

111

VIC

BANNOCKBURN

$469,548

2.80%

Nap

12.8%

0.82%

4.46%

0.52%

153

TAS

LINDISFARNE

$487,287

2.41%

Nap

22.6%

0.51%

4.70%

0.67%

170

NSW

EAST MAITLAND

$460,798

2.27%

67.2%

36.5%

0.37%

4.46%

0.62%

122

TAS

LENAH VALLEY

$545,780

3.25%

70.9%

23.7%

0.44%

4.24%

0.81%

172

QLD

FERNY HILLS

$540,804

2.22%

45.3%

13.9%

0.91%

4.45%

0.84%

158

VIC

SUNBURY

$517,184

2.20%

66.6%

21.4%

0.55%

3.87%

0.79%

118

VIC

BAYSWATER

$544,148

1.18%

87.7%

32.1%

0.47%

3.59%

0.61%

113

NSW

GLENDALE

$478,243

3.90%

100.0%

28.7%

0.69%

4.57%

0.59%

TAS

KINGSTON

$454,460

1.67%

Nap

30.1%

0.29%

4.86%

1.11%

233

STATE

SUBURB

PROPERTY TYPE

LOCATION SCORE

MEDIAN PRICE

ACT

LATHAM

$527,100

1.20%

ACT

CHARNWOOD

$456,340

ACT

MACGREGOR

$504,521

ACT

KAMBAH

TAS

HOWRAH

VIC

TULLAMARINE

VIC

Latham, ACT Vacancy rate â&#x20AC;&#x201C; houses 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0%

2015

Source: DSRData.com.au

2016

2017

2018

COVER STORY 100 SUBURBS SET TO BOOM

Around $600k At this price you can get much more for your money. Although these suburbs have already seen good growth, demand is still strong and supply is limited.

e are starting to push into a price point that offers more bang for buck, as in some locations you are now starting to shop in the upper-class bracket. As per our list, this budget also brings you into a couple of the bigger income cities, such as Melbourne and Canberra, and we are also getting some land as part of this equation.

Dunlop, ACT 2615 – houses One of the best markets around the $600,000 price tag is Dunlop houses. The suburb is about 5km north-west of Belconnen and another 15 minutes’ drive into Canberra central. It sits next to two markets in our $500,000 price range, Charnwood and Macgregor. The LocationScore for June was 79. This is a few points lower than the markets in the cheaper price ranges. But it is still in the “excellent” range, which starts at 77. The LocationScore for Dunlop houses has been steadily rising for the past three years. It spent most of the last year above 75 and has edged into the 80s a couple of times. The standout metric for June was the vacancy rate. It has been better than average for over two years now and finished June at 0.26%. That level is considered extremely tight and can mean only more confidence for landlords. The average discount from the original asking price for June was 4.37%. Our benchmark for “normal” is 5%. However, for all the markets in this report, exceptional statistics are expected and 4.27% isn’t exceptional. Nothing to worry about – just a little mediocre, that’s all. There was one concerning metric, however. The online search interest was only 37, which is about half as good as the national average. Ideally, we’d like to see more searches being conducted per property.

Ferntree Gully, Victoria 3156 – units Ferntree Gully is about an hour’s drive east of the Melbourne CBD. This is the only unit market in our report. As a general rule, investors should favour housing markets for long-term growth. Units have higher risk of poor growth over the long term. It’s too easy for a developer to acquire a house or two nearby and knock them down to replace them with a big unit complex. 42 MONEY SEPTEMBER 2018

Remember that supply is the enemy of capital growth. For the short term, however, unit markets can be lucrative, especially in small boutique complexes, so aim to buy a villa unit with good land content rather than something above ground level. Some properties in Ferntree Gully that look like houses are listed by selling agents as units. They may share a wall with another dwelling in a strata-titled block or be an add-on to the side of a house. The LocationScore for Ferntree Gully units at the end of June was 79. Some of the metrics contributing to this high score include: A vacancy rate of 0.25% – tight! Over 200 searches conducted online per property available. Percentage stock on market of 0.33%. Auction clearance rates above 80%. Properties selling in a little more than a month. However, there could be a problem for investors jumping into this market right now – it’s already had some big gains over the past few years. Prices have risen by 40% in the past three years. Although demand is still high relative to supply, the extreme rate of growth must come to an end sooner or later.

A A A A A

Gladstone Park, Victoria 3043 – houses This suburb is about 45 minutes north of the Melbourne CBD and just east of Tullamarine Airport. Houses in Gladstone Park had a LocationScore of 78 at the end of June 2018. Prices had a big spurt in 2017, piling on around 20%. This market has not been left out of the Melbourne boom but still has some growth left, according to the indicators. Of particular note are the fast selling times, at around 27 days. Buyers have obviously missed out on previous opportunities and now have their finance sorted and are making confident offers quickly. The auction clearance rate was quite high at about 82% at the end of June. Clearance rates have been consistently above 75% for the past three years. Buyers would be frustrated at missing out and might be making strong offers before the auction date.

Dunlop, ACT Vacancy rate – houses 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0%

2015

2016

2017

2018

2017

2018

Source: DSRData.com.au

Ferntree Gully, Victoria Typical value – units $580k $540k $500k $460k $420k $380k

2015

2016

Source: DSRData.com.au

Top 20 for around $600k AUCTION DAYS ON DISCOUNT CLEARANCE MARKET RATE

STOCK ON INTEREST MARKET (SEARCHES/ PROP)

PROPORTION OF RENTERS

VACANCY

YIELD

71.4%

18.8%

0.26%

4.72%

0.33%

3.26%

80.6%

20.4%

0.25%

3.55%

0.33%

217

3.09%

63.6%

21.9%

0.74%

4.02%

0.43%

151

$592,888

1.88%

68.0%

21.8%

0.41%

4.57%

0.46%

$647,137

1.76%

82.7%

19.7%

0.63%

3.21%

0.48%

129

$630,651

1.02%

78.1%

21.1%

0.62%

4.07%

0.35%

FLOREY

$631,538

-1.03%

87.5%

36.5%

0.32%

3.84%

0.27%

TAS

BLACKMANS BAY

$567,576

1.31%

Nap

21.7%

0.35%

4.03%

0.60%

150

TAS

SOUTH HOBART

$622,206

3.60%

Nap

33.0%

0.57%

4.32%

0.28%

301

ACT

CALWELL

$553,782

3.04%

56.1%

19.5%

0.13%

4.80%

0.77%

NSW

KOTARA

$636,738

1.50%

60.2%

16.4%

0.46%

3.93%

1.07%

117

NSW

MACQUARIE HILLS

$560,880

2.00%

Nap

12.3%

0.83%

4.34%

0.88%

ACT

EVATT

$589,029

4.49%

Nap

20.8%

0.26%

4.51%

0.10%

NSW

RANKIN PARK

$609,164

1.64%

Nap

12.1%

1.65%

4.17%

0.42%

125

ACT

RIVETT

$620,661

1.12%

61.3%

27.5%

0.55%

4.16%

0.49%

ACT

ISABELLA PLAINS

$569,805

1.07%

67.8%

24.6%

0.13%

4.53%

0.99%

VIC

LANGWARRIN

$622,324

2.09%

78.1%

19.4%

0.59%

3.59%

0.86%

163

VIC

BALACLAVA

$568,872

2.68%

79.5%

54.8%

0.70%

3.76%

0.22%

131

VIC

FRANKSTON SOUTH

$565,107

4.08%

100.0%

17.3%

0.83%

3.61%

0.55%

VIC

MONBULK

$639,155

3.36%

100.0%

16.2%

0.67%

3.73%

1.38%

295

STATE

SUBURB

PROPERTY TYPE

LOCATION SCORE

MEDIAN PRICE

ACT

DUNLOP

$578,131

4.27%

VIC

FERNTREE GULLY

$559,749

VIC

WAURN PONDS

$554,138

ACT

WANNIASSA

VIC

GLADSTONE PARK

ACT

HOLDER

ACT

COVER STORY 100 SUBURBS SET TO BOOM

Around $800k This kind of money will get you a house on a good-sized piece of land in one of the better locations – perhaps with a decent coffee just around the corner

utside Sydney, $800,000 puts you well and truly in the buying range of some of the better locations in most capitals. In the case of our short list, the Melbourne offerings are out wider but the land portions are sizeable compared with how tightly they carve up land these days in many new estates. Our regional city selection can even put you in a chic downtown area of Newcastle.

Diamond Creek, Victoria 3089 – houses Prices in Diamond Creek – about an hour’s drive northeast of the Melbourne CBD – have been climbing towards $800,000 for the past few years but still have room to go higher. The LocationScore for June was 77. It’s been up in the mid to high 70s for the past couple of years. It appears to be somewhat quarantined from the cooling in the broader Melbourne market. The online search interest at the end of June was 169, which is more than double the national average. The proportion of renters to owner-occupiers is only 10% – a tenant-sparse suburb. Investors won’t have many other landlords to compete with. Combined with a vacancy rate under 1%, this should be a hassle-free investment.

Yallambie, Victoria 3085 – houses About 45 minutes’ drive north-east of the Melbourne CBD, Yallambie has house prices tipping in at over $800,000. There has been good growth during the Melbourne boom. But according to the LocationScore, there is more to come. The LocationScore for June was 77. It’s been a little volatile for this market over the past few years, oscillating between the mid 50s and low 70s. 44 MONEY SEPTEMBER 2018

Yallambie’s metric of note is the percentage of stock on market. At the end of June it was sitting at only 0.33%. This is about four times smaller than the national average at the same time. Another great metric is the discounting of only a little more than 1%. Sellers are in no way desperate. One concerning statistic for investors is the yield, which was only 3% at the end of June. There’s nothing alarming about this but it is going to make it just a bit harder for investors to service a mortgage and they will be more dependent than ever on good growth. The auction clearance rate is pretty healthy too at 78%. It has been above 70% since almost the start of the Melbourne boom.

Hamilton, NSW 2303 – houses House prices in this central suburb in Newcastle are just under $800,000. They’ve risen sharply in the past 18 months from around $600,000, so you might be thinking it’s had its run. But the LocationScore for June was 76. This is just under the “excellent” range and is the highest the score has been in the past three years, so growth appears to be unabated for now. Discounting from the original asking price is at zero. That means the offers above the asking price match with those under. There must be some pretty happy sellers at the moment. The percentage of stock on market is pretty tight too, sitting at just 0.34%. The vacancy rate is under 0.5%, its lowest point in three years. One thing to watch, though: the proportion of renters to owner-occupiers is quite high at 46%. Our benchmark is to have less than a third of all residents as tenants. But in this market it’s nearly 50-50. Investors may need to choose streets carefully. Definitely get a good property manager to help find a reliable tenant.

Yallambie, Victoria Auction clearance rate – houses 100% 95% 90% 85% 80% 75% 70%

2015

2016

2017

2018

2016

2017

2018

Source: DSRData.com.au

Hamilton, NSW Vacancy rate – houses 4.0%

3.0%

2.0%

1.0%

2015

Source: DSRData.com.au

Top 20 for around $800k INTEREST STOCK ON (SEARCHES/ MARKET PROP)

PROPORTION OF RENTERS

VACANCY

YIELD

76.2%

10.3%

0.93%

3.22%

0.51%

169

1.22%

78.3%

26.3%

0.86%

3.02%

0.33%

148

0.00%

77.4%

45.9%

0.46%

3.36%

0.34%

136

$755,688

1.67%

91.5%

14.2%

1.13%

3.04%

0.65%

182

$836,367

2.22%

60.8%

16.4%

0.57%

3.92%

0.58%

$834,046

1.79%

68.0%

17.1%

0.74%

2.83%

0.75%

177

CROYDON SOUTH

$785,844

1.35%

70.9%

18.7%

0.61%

2.80%

0.78%

187

VIC

WATSONIA NORTH

$798,247

2.53%

75.9%

11.2%

1.06%

2.84%

0.67%

170

VIC

WATSONIA

$822,651

2.35%

79.0%

29.6%

0.86%

2.71%

0.44%

183

ACT

FADDEN

$752,334

1.85%

45.8%

8.2%

0.75%

4.21%

0.73%

ACT

MCKELLAR

$806,713

0.00%

86.5%

20.7%

0.32%

4.09%

0.53%

114

NSW

OATLEY

$807,637

3.38%

Nap

20.4%

0.80%

3.19%

0.32%

ACT

FORDE

$786,123

1.55%

49.6%

23.7%

0.64%

4.20%

1.08%

VIC

FRANKSTON SOUTH

$816,007

3.70%

67.0%

17.3%

0.60%

2.96%

0.94%

145

LOWER MITCHAM

$750,523

4.47%

88.1%

17.1%

1.02%

3.23%

0.63%

214

COLONEL LIGHT GARDENS

$756,288

2.69%

88.2%

11.4%

0.00%

3.71%

0.68%

325

VIC

GOWANBRAE

$792,824

2.65%

Nap

13.3%

0.83%

2.91%

0.69%

129

ACT

CHAPMAN

$837,345

1.49%

52.4%

11.7%

0.00%

3.99%

0.42%

NSW

REVESBY

$760,186

4.04%

56.3%

34.7%

1.01%

3.47%

0.28%

VIC

OAKLEIGH EAST

$808,607

104

3.29%

85.7%

36.0%

0.92%

2.82%

0.16%

186

STATE

SUBURB

PROPERTY TYPE

LOCATION SCORE

MEDIAN PRICE

DAYS ON DISCOUNT CLEARANCE MARKET

VIC

DIAMOND CREEK

$782,149

2.63%

VIC

YALLAMBIE

$802,842

NSW

HAMILTON

$771,341

VIC

CHELSEA HEIGHTS

ACT

NICHOLLS

VIC

GREENSBOROUGH

VIC

COVER STORY 100 SUBURBS SET TO BOOM

$1m plus All the major cities can go on the shopping list now and the suburbs get more desirable. But investors will ﬁnd that as values increase the yields tend to decrease.

Park Orchards, Victoria 3114 – houses A 40-minute drive east of the Melbourne CBD, Park Orchards is just north of Ringwood and west of Doncaster. Prices are comfortably over $1.5 million in this market. The LocationScore has spent most of the past year in the mid 60s. It popped up to 77 only in June. The most impressive metric is the proportion of renters to owner-occupiers. It’s one of the lowest in the country at only 3.4%. Other metrics of note include: a zero vacancy rate and online search interest of over 300 per available property. But it’s not all smiles for high-equity investors – the yield is a miserable 2.26%. Even by Melbourne’s standards, that’s low. And the percentage of stock on market is a little high at 1.1%. However, the figure is quite volatile from month to month. A line of best fit might place it closer to 0.5%, which is quite good.

Malvern, Victoria 3144 – houses Malvern is about 10km south-east of the Melbourne CBD. Prices for a house are well over $2.6 million, having climbed by over $500,000 in the past 18 months. The LocationScore for June was 76. It was in the mid 50s just two years ago. Most of the metrics we analyse looked favourable for Malvern. But nothing really stood out, with the possible exception of the rather low stock on market. The figure for June was sitting at 0.43%, which is almost a third of the Australian average. One thing to watch for is the very low yield. There was 46 MONEY SEPTEMBER 2018

insufficient rental data available to publish a figure for the yield for June. But rest assured it would not get above 3% when the median for a house is above $2.5 million.

North Narrabeen, NSW 2101 – houses This suburb is about 45 minutes’ drive north of the Sydney CBD and only a kilometre from the beach. Prices for houses are around $1.5 million. But the term “house” is used a little loosely. Some townhouses and villas qualify as houses. The house price has had some great gains during the Sydney boom and has levelled off a little recently. But this looks as if it might be just a breather because the LocationScore is still pretty high at 76. The chief contributors to the high LocationScore include: a low percentage of stock on market of only 0.32%, discounting of only 1.1% and about 150 online searches for each property. As with all property markets in this price range, the yield is very low. Investors shouldn’t expect much help from rent to service a mortgage. One other caution: the vacancy rate has been rising. It’s still quite low but is something to monitor over coming months. Perhaps lock in tenants for two years where possible.

▼

hile opportunities are available in almost every regional location, yields are lower, placing more pressure on investors to cover the shortfall between rent and expenses. Having $1.5 million opens every major city as a possibility and in most you are shopping in the good, if not great, suburbs.

SPECIAL OFFER LocationScore.com.au was developed by Jeremy Sheppard, Ben Kingsley and Bryce Holdaway. It scans over 15,000 suburbs on a monthly basis and then scores them out of 100 – the higher the score the higher the chance the suburb will experience faster capital growth. A quarterly subscription to the program normally costs $97 but Money readers will get a discount of 20%, bringing the price down to $77.60 – a saving of $19.40. To take advantage of this special offer simply enter MONEY20 as your “promo code”.

Park Orchards, Victoria Percent stock on market – houses 1.6%

1.2%

0.8%

0.4%

2015

2016

2017

2018

2017

2018

Source: DSRData.com.au

North Narrabeen, NSW Vacancy rate – houses 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50%

2015

2016

Source: DSRData.com.au

Top 20 for $1m plus AUCTION DAYS ON DISCOUNT CLEARANCE MARKET RATE

INTEREST STOCK ON (SEARCHES/ MARKET PROP)

PROPORTION OF RENTERS

VACANCY

YIELD

70.9%

3.4%

0.00%

2.26%

1.11%

308

3.78%

70.4%

30.8%

1.01%

0.00%

0.43%

105

1.12%

70.7%

17.6%

1.49%

2.81%

0.32%

152

$1,315,098

3.91%

63.6%

5.8%

0.93%

3.12%

0.49%

148

$1,570,907

4.37%

71.4%

13.0%

1.08%

2.88%

0.30%

158

$2,834,485

2.40%

71.8%

20.2%

1.81%

0.00%

0.79%

242

ALLAMBIE HEIGHTS

$1,686,892

5.33%

82.3%

18.3%

0.95%

3.01%

0.26%

296

NSW

MENAI

$1,064,469

1.56%

56.4%

17.5%

1.14%

3.37%

0.54%

134

VIC

EAGLEMONT

$1,912,635

3.94%

71.2%

18.5%

1.44%

0.00%

0.91%

193

VIC

ASHBURTON

$1,807,492

5.45%

73.6%

25.8%

0.77%

0.00%

0.58%

158

VIC

CLIFTON HILL

$1,397,110

1.47%

76.4%

40.6%

0.50%

2.42%

0.42%

180

NSW

BALGOWLAH

$1,220,307

2.34%

69.1%

31.8%

1.10%

2.79%

0.36%

162

NSW

BANGOR

$1,151,459

4.16%

70.6%

7.1%

1.53%

3.34%

0.58%

185

VIC

FAIRFIELD

$1,426,699

0.00%

75.2%

43.3%

0.40%

2.18%

0.33%

VIC

OAKLEIGH SOUTH

$1,034,368

3.55%

76.6%

22.4%

0.43%

2.56%

0.64%

118

ACT

AINSLIE

$1,059,778

3.57%

80.3%

38.3%

0.29%

3.39%

0.22%

NSW

LOFTUS

$1,106,211

6.16%

84.6%

8.6%

0.87%

3.05%

0.53%

150

NSW

KAREELA

$1,196,382

3.85%

65.0%

3.9%

0.00%

3.23%

0.42%

272

VIC

MURRUMBEENA

$1,391,093

0.71%

72.4%

38.8%

0.54%

2.04%

0.57%

167

VIC

NORTH WARRANDYTE

$1,066,663

3.06%

85.4%

5.7%

0.86%

2.61%

0.46%

223

STATE

SUBURB

PROPERTY TYPE

LOCATION SCORE

MEDIAN PRICE

VIC

PARK ORCHARDS

$1,534,146

2.36%

VIC

MALVERN

$2,673,017

NSW

NORTH NARRABEEN

$1,487,988

NSW

GRAYS POINT

NSW

BEACON HILL

VIC

CANTERBURY

NSW

MY MONEY SHOPPING

Cashback to the future

STORY RICHARD SCOTT

Discount vouchers and reward schemes are so yesterday. Now there are sites that can save online shoppers up to 30% on purchases.

t’s no surprise that, when it comes to retail, the internet is rapidly replacing the shopping centre. Last year the number of Aussies shopping on their phones shot up by 25%, according to the latest Deloitte Mobile Consumer Survey, taking the total of regular online shoppers to almost 80%. And with our shopping habits evolving so rapidly, so too are the ways in which we can save. Cashback sites such as Cashrewards and PricePal are to online retail what loyalty cards and reward schemes have long been for Australian in-store retail. However, instead of the accumulation of points that must be redeemed for prizes or store discounts, cashback sites offer the promise of cold hard cash for purchases made. They are worth, in some cases, up to 30% of the asking price. “Traditional reward schemes like Flybuys and Everyday Rewards were launched decades ago and it shows,” says Rob Wilson, co-founder and CEO of Incent Loyalty. “It’s such an outdated notion that you should have a different reward scheme for every store you shop at. Cashback sites are here to change that and allow everyday Aussies to earn real rewards that actually add up – no more cards or meaningless points.”

48 MONEY SEPTEMBER 2018

How do they work? Essentially, they operate as an upfront discount in reverse, says Bessie Hassan, money expert at Finder.com.au. “Unlike existing loyalty systems at chemists or supermarkets, cashback sites give cash back to shoppers instead of discount vouchers or rewards. That cash is essentially a delayed form of discount on your online purchases.” Each cashback site follows the same process. Once logged into the site or app, simply click on the product you fancy and you’ll be directed to the retailer to shop as you would normally. The cashback company then tracks your purchase and pays a cash rebate (for the percentage advertised) directly into your nominated bank or PayPal account. So, for example, 10% off Australian Post travel insurance (RRP $205, comprehensive) through Cashrewards would earn you $20.50 back.

Where does the cash come from? The concept is fairly simple, says Rebecca Maher, a financial adviser and women’s money coach. “Basically, these cashback providers have gone out to various retailers offering an incentive for purchases made through their website. The retailers pay for the privilege, allowing the cashback site to pass on a saving to their customers. Essentially, it’s just putting

themselves between you and the ultimate purchase, which gives you a reward.”

How many sites are there? Shoppers may already be familiar with Cashrewards, Cashback Club and PricePal but in the past few months we’ve also seen the arrival of newcomers Incent Loyalty and ShopBack. However, comparing these platforms in terms of savings is virtually impossible. Many cashback sites offer roughly the same cashback percentages for many of the same retailers. For instance, almost all of the above offer cashback for fashion retailers ASOS and The Iconic, with percentages fluctuating between 3.5%-7% (ASOS) and 7%-16% (The Iconic). You’ll need to do your own research for the best deals on a particular day.

What sort of retailers are involved? You’ll find big brands for everything from travel, fashion and tech to food and booze, including Expedia, Bonds, Apple, Woolworths and BWS. These tend to overlap between cashback sites. With over 1200 stores, Cashrewards currently has the highest number of retailers but the others aren’t far behind. As a point of difference, Cashback Club also claims to collect your trailing commission payments for financial products, including super, insurance and home loans.

s a working mother of two, Rebecca Maher – aka The Fiscal Mum – is no stranger to nifty ways to save when shopping online. Here are her top five:

TIPS

“Signing up for mailing lists for your favourite online stores directly can see you entitled to ‘subscriber-only’ pre-sales ahead of, or on top of, bigger sales like EOFY or Black Friday [November 23]. Many will often throw in a 10% discount for your first purchase too,” says Maher.

Supermarket apps An increasing number of us are doing the weekly shop on our phones and tablets and having it delivered. “The financial benefits of supermarket apps are quite simple: not only can you stick to a budget, but you can search for special offers, filter products by value and unit price, and also compare deals across all other supermarkets.”

Price alerts “People often associate getting a good deal with doing a lot of work but price alerts can do the work for you,” says Maher. These can be especially handy when looking at bigger-ticket purchases like overseas flights, she adds. “Setting alerts at airline or comparison airfare sites,

such as Skyscanner, is easy. Simply select your flight route, set an alert price and you’ll get a notification the minute that price drops down. Plus they’re free to use and can be cancelled at any time.”

Coupon code websites You needn’t hang on to your old receipts or cut vouchers out of the paper, says Maher. “Browse for discount coupon codes at sites such as Finder, and take them directly to the retailer’s website,” she says. “For example, Finder just listed 35% off a Dyson cord-free handstick vacuum through David Jones. At $349 [RRP] that was a saving of $122.15. What mum wouldn’t want that deal?”

Browser extensions Seeming to combine price alerts and coupon code sites, money-saving desktop browser extensions such as Honey or Coupons can alert you to any potential deals while you’re shopping online. These are available for certain cashback sites too like Cashrewards, says Maher. “As you shop around, the browser extension will flash up in the bottom right corner, telling you what percentage cashback is available. All you have to do is hit ‘Activate now’ and any purchases made will be linked to your cashback reward account details instantly.”

MY MONEY SHOPPING

No, all Australian cashback platforms are free to join and allow you to browse all available offers before signing up. Additionally, many offer a range of daily deals and coupon codes – touting money-off or perks such as free shipping – on top of the cashback. The most generous deals are reserved for first-time customers. For example, at the time of writing Cashrewards listed 40% off your first order with the home food delivery service HelloFresh, plus $40 cashback. These are often daily, one-off or limited offers, so it pays to check in regularly.

How much can I actually make? As a rule of thumb, PricePal suggest that “active members earn hundreds of dollars each per year” but obviously this will vary depending on both your shopping habits and the percentage of cashback offered. While we spotted promo cashback percentages as high as 30%, you’re generally looking at around 5%-7% for most purchases.

Who is using them? Despite Cashrewards advertising its membership as “hundreds of thousands of Aussies”, it’s difficult to quantify actual user numbers. In fact, according to Finder.com.au research, only 17% of Australians currently use cashback websites and 33% have never even heard of them. Further, the experience of users was mixed, according to Finder. While 5% of respondents “enjoyed the savings” another 5% claimed that receiving cashback “wasn’t always smooth”.

When do I get paid? Theoretically once you accumulate a certain “minimum value” (generally around $10), you should be paid at the end of the month. However, there are no guarantees for just how long this might take: Cashrewards estimates a waiting period of up to three months or more and PricePal between four and 12 weeks.

So what’s the catch? “There are obvious perks to cashback rewards but there can also be drawbacks,” says Hassan. “There can be a delay in receiving your cash, sometimes up to three months. So if you’re strapped for cash, that’s a long time to wait.” Always check the terms and conditions thoroughly; there may be certain exclusions or 50 MONEY SEPTEMBER 2018

special terms that could block your eligibility for cashback. For instance, you might not receive remuneration when a gift card is purchased (or used for payment), an unlisted coupon code is used or an order is altered later. You may also need to disable any “ad-blocking” software during your shopping sessions. Cashback is not paid on any freight, delivery, taxes or GST. And you won’t be paid should you cancel or return your purchase. Additionally, there may be limits on the number of claims you can make. For example, Cashrewards restricts you to making just three claims a month (maximum 10 a year), with individual rewards often capped at $30 in value.

Bargain hunter joins the revolution

Are there any other pitfalls to avoid? “This sounds simple but you need to make sure you remember to log into the cashback service before you make a purchase,” says Hassan. This is especially critical with bigger items, such as a fridge, as you cannot retroactively go back and repurchase things for the cashback later if you forget. Additionally, the old adage about shopping around still applies, adds Hassan. “Just because there might be a decent offer on one website, it doesn’t mean it’s the cheapest price.” As with any online deal, shoppers must always be wary of any enterprise that encourages spending more than you’ve budgeted for, warns Maher. “If you’re overspending for the sake of a marginal saving, then are you really saving at all?”

Can you double-dip with other reward schemes? “Absolutely,” says Maher. “There’s nothing stopping you using cashback websites in conjunction with your existing loyalty programs.” For instance, members of Hotels.com could feasibly receive 10% off while booking their holiday accommodation, suggests Maher. “Then, on top of that, Hotels.com are a partner of Cashrewards, which would [at the time of writing] get you 10% cashback. So if you were to start your journey through them, you’d then be eligible for the double-up.” Cashback sites are free and non-exclusive. “So there’s no reason you couldn’t register with a bunch of them and save across the board,” says Maher. “It’s all about finding your little winning moment, your way of making what you spend online work for you.” M

CASE STUDY

Are there any hidden costs?

Rachel Leech (pictured) signed up to ShopBack around four months ago when the platform first launched in Australia. “Since I already do a lot of online shopping, my thinking was ‘Why not?’ I’d be stupid not to, really.’ ” Since June she’s primarily used the app to purchase clothing and accessories through online fashion retailer The Iconic (at a promo rate of 20% cashback) and for Deliveroo takeaways (5% cashback, plus free delivery), seeing around $120 paid back into her bank account. Rachel, 24, says the experience has revolutionised the way she shops. “Previously, I’d waste a fair bit of time on bargain hunting, going to all these separate sites, typing in individual brands. Now I’ve got everything in one spot, the experience is closer to an online shopping mall. I just click on what I want and it takes me right there.” She’s yet to experience any real downsides to the process, other than occasionally forgetting to shop through the platform and missing out on potential cashback. “I’ve told almost everybody I’ve come into contact with to try [cashback sites]. “If you are someone who lives to onlineshop, it’s definitely worthwhile signing up and checking if a product you want has cashback available. Because, if you did buy that elsewhere, you’re pretty much losing out on money that you could easily have gotten back.”

With an Everyday Options Account, you can link up to 9 higher interest sub-accounts. Open an account today!

Banking products are Issued by Suncorp-Metway Ltd ABN 66 010 831 722 (â&#x20AC;&#x153;Suncorp Bankâ&#x20AC;?). Eligibility criteria, conditions and fees apply and are available on request. Please read the Personal Deposits Product Information Document before making any decisions about this product. Contact us for a copy (suncorp.com.au/everyday). Set-up recurring internal transfers in Internet Banking to automatically move funds between accounts.

SPECIAL REPORT APPS & TOOLS

Reinvent the way you save STORY NICOLA FIELD

Stash away the cash with the help of sophisticated budget trackers or even a virtual assistant

he struggle to build savings is real. According to ME Bank’s latesthouseholdfinancialcomfort report, a growing number of Australians are raiding their savings to pay for rising living costs. Jeff Oughton, ME’s consulting economist, says more households are overspending and using savings to fill the gap. We’ve reached a potential tipping point. “At the moment Australians generally can dip into their savings to get by. However, some households may get to a point where there’s no more savings to draw from,” he warns. The bottom line is that we need to look at new ways to boost savings. And it can be done with a host of tools, from free apps to account features that can put the spark back in your efforts. Plenty of banks have mobile apps, and although some offer little more than online

banking, a number have stepped up to the plate with clever innovations that help customers ramp up their savings. Suncorp recognises that the first step to building savings is knowing where your cash is being spent, and so has introduced a “dollar-tracking” feature to its app. Dollar Tracker categorises spending and provides a clearer picture of where your money is going,” says Pip Marlow, CEO, customer marketplace, at Suncorp. “This information can then be used to budget better and save.” Other apps play a similar role. Pocketbook, for instance, links to your bank account and credit cards, tracking spending in real time. Users can set a “safe spending” limit so that the app can signal when it’s time to take a breather from spending. However, the Suncorp app offers the opportunity to pocket everyday savings through SuncorpBenefits.It’sabuilt-inrewardsprogram

You rock. We couldn’t have won the titles of Money magazine’s 2018 Bank of the Year and Business Bank of the Year without our customers. Suncorp Bank is committed to continually improving your experience, with new products, more access and better rewards. Banking products are issued by Suncorp-Metway Ltd (“Suncorp Bank”) ABN 66 010 831 722 AFSL No 229882.

that gives Suncorp customers savings of up to 15% on everyday purchases at dozens of retailers, including Coles and Woolworths. If you’re uncertain how to navigate different app features, Suncorp makes things easier with a virtual assistant nicknamed Scout. “We believe the app is really intuitive. But Scout is there to make it even easier,” says Marlow. “By using artificial intelligence, Scout can provide personalised responses to questions like, ‘How much can I spend from my savings account?’ ” Trying to be too disciplined with savings can be counter-productive. Life is meant to be enjoyed, and we all need some “me money” to splurge on occasional treats. The hard part is knowing how much free spending you can enjoy and still stay on track with savings. UBank, the online arm of NAB, has come up with a solution. The new Free2Spend feature of the UBank app provides a daily spending

SAVINGS TIP: Aim to be digitally, as well as financially, savvy Staying connected can help you grow savings through the use of apps and other online features. But connectivity comes at a cost. According to Suncorp’s Cost of Being Digitally Savvy report, Australians (aged 18 to 64) spent an average of $2465 (or $37 billion collectively) on tech and digital devices over the past 12 months, and we need to be mindful of the impact all this spending on our hip pockets. A potential weak spot is our tendency to underestimate data usage and rack up additional fees that can put the brakes on saving. When it comes to choosing a data plan, Suncorp says that overestimating your data usage can be the smart play. Paying for data you don’t use is often cheaper than paying for a few megabytes of extra data.

figure that adjusts in real time based on personal savings goals and spending habits. Let’s say, for instance, that after entering your savings goal, income and bills, the UBank app shows you have daily spending money of $68. If mid-morning sees you splurge $10 on a latte and muffin, the app kicks in to let you know your daily Free2Spend money has dropped to $58. If you make no further purchases that day, the remaining $58 will be evenly distributed as extra spending money across the rest of the days in the cycle. What’s especially impressive about the Free2Spend app feature is that it helps users adjust spending even if a major cash outlay is coming up. For example, if it’s your partner’s birthday and you spend $100 on a gift, using the above limit of $68 daily spending money, you’ll have blown your Free2Spend number by $32. The app automatically redistributes the $32 overspend to reduce your daily spend

over the rest of the days in the cycle. This way you can make up for extra spending and still stay on track with savings targets. “When developing Free2Spend, we noticed that budgeting tools commonly bring to light negative behaviour like overspending or spending in certain categories, without providing easy tactics to help you re-adjust and recover,” says UBank CEO Lee Hatton. Free2Spend provides a solution and, according to Hatton, it’s working, with some UBank customers checking their Free2Spend balance as much as 10 times each day.

Set and forget A gentle nudge can be handy to grow savings. Sometimes, though, we need a bigger push to keep the savings ball rolling. That’s exactly what ING brings to the table with its “If This Then That” (IFTTT) app function. In what is being claimed as a first for Australian bank-

ing, it allows ING customers to set savings triggers linked to their everyday lives. ING Orange Everyday account holders can nominate an occasion or activity that cues an automatic transfer of funds from their everyday account into an ING Savings Maximiser. If you’re saving for a tropical holiday, you can nominate $20 to be transferred to your savings account whenever the mercury dips below 20 degrees. Or each time you achieve an exercise goal, $5 can be saved towards buying a new pair of joggers. “While there’s no denying that saving makes you feel good, setting up a savings plan can sometimes feel like a chore,” says Chris Barwick, ING’s head of digital and innovation. This new feature is a set-andforget savings function that can be highly personalised, allowing account holders to set rules to save virtually whenever, wherever and however they want.

Tap.Tap. Boom! Suncorp customers, start enjoying discounts on everyday purchases. Download the Suncorp App.

Suncorp MyStyle Life Insurance, health and small business commercial loan bank account customers are excluded. Banking and insurance products are issued by diferent Suncorp Group entities which are not responsible or liable for products and services by other Suncorp Group entities. Apple and the Apple logo are trademarks of Apple Inc., registered in the U.S, and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC. Screen image illustrative only

SPECIAL REPORT APPS & TOOLS The IFTTT feature comes on the back of ING’s Everyday Round Up, a virtual coin jar that allows customers to round up loose change from card purchases to make a deposit into their savings account. According to Barwick, since its launch in August 2017, Everyday Round Up has helped ING customers collectively save an average of $2 million a month – proof that small change really can add up.

Slow but steady Growing savings is good but in today’s low-rate environment don’t expect a generous return on your money. If you’d prefer to give your small change the potential to earn higher returns, the Raiz app (formerly Acorns) could be the answer. Like ING’s Everyday Round Up feature, Raiz collects small change on debit or credit card purchases and invests it in portfolios made up of exchange traded funds listed on the ASX. Raiz charges a $15 annual maintenance fee for accounts under $5000 or SAVINGS TIP: 0.275%pa on balances over $5000. Investing Put long-term goals small change may be the slow road to wealth but the app does enforce dollar ahead of “likes” cost averaging, automatically investing Research by UBank shows a clear link your money no matter whether the between social media and impulse spending, market is up or down. especially among younger Australians. Around 500,000 people have signed Two-thirds of millennials admit they have up to Raiz, of which 160,000 are active purchased over-budget items purely to monthly customers. The average get a response on social media. One account balance of $1250 has achieved in 10 would prefer 1000 likes on Watch for the an annual return of $110 in the past year. a social media post to And as an extra sweetener, investors can app trap $200 in the bank. Apps and account features can tap into Raiz Rewards, a loyalty cashback be very useful for growing savings available to online shoppers, with discounts but there are some that encourage us on brands including BWS, Apple, Airbnb and to spend more. Woolworths Online. ING found two-thirds of app users say their ability For savers who are thinking ultra-long term, Raiz to save is impacted by convenience apps – the sort that round-ups can be added to your super fund as personal provide things like home-delivered food or ride sharing. contributions. In fact, Raiz went a step further in July, “We’reusingtechnologyformorethan70%ofoureveryday launching its own super. “This superannuation product was developed in response to customer demand for an activities. But like anything, people need to be careful that affordable superannuation investment,” says George this ease doesn’t come at a cost they’re not prepared for or Lucas, Raiz’s CEO and managing director. Raiz Invest can’t afford,” cautions Suncorp’s Marlow. The only way to know if you’re overspending on these Super charges an annual fee of around $425 on balancapps is to check your credit card statement or everyday es of $50,000, placing it in the bottom 25% for fees on account. If it turns out the spending is getting out of hand, accumulation funds. think about deleting the app to get your savings back in Pay down debt too line – or at least set weekly limits. It’s one thing to grow savings but if you’re also carrying Ultimately, the ability to save can come down to personal drive and discipline. Marlow says it’s important debt you could still be going backwards financially. That’s that each of us takes responsibility for managing our because the interest rate payable on debt almost always money, regardless of whether we spend online or in exceeds the returns on cash held in a bank account. person. “When we spend well, we can reach our goals Happily, there’s an app to solve this conundrum. Carrott is another micro-saving app that rounds up faster, pay bills on time and enjoy ourselves,” she says. If you can combine better spending with better saving, loose change on purchases. Once the balance reaches you’re on a winner. And as we’ve seen, there are plenty over $5 (or an amount nominated by you), the funds of apps for that. M are transferred to your selected destination – be it your home loan or a student’s FEE-HELP debt. It can be a simple way to reduce debt so you can focus on This report was sponsored by Suncorp but was growing savings. independently researched and written. 54 MONEY SEPTEMBER 2018

The app enforces dollar cost averaging, investing whether the market is up or down

Easy, peasy, The new, simple way to pay with your y iPhone or Apple Watch a dS Vi D bit Card. suncorp.com.au/applepay

Visit suncorp.com.au/applepay for details. Banking products are issued by Suncorp-Metway Ltd ABN 66 010 831 722 (Suncorp Bank).

MYMONEY TRAVEL CARDS

10 THE EXPERTS

Bessie Hassan, Money expert, finder.com.au

MOST-ASKED QUESTIONS

Fair exchange Currencies and card fees are not the only things to consider when youâ&#x20AC;&#x2122;re heading overseas

Kirsty Lamont, director, Mozo

Josh Sale, senior research analyst, Canstar

Sally Tindall, research director, RateCity

56 MONEY SEPTEMBER 2018

What are the main things I need to look for when comparing travel cards?

Make sure you take a close look at fees. Travel credit cards involve purchasing fees, loading fees, reloading fees, inactivity fees and even an account closure fee. Pay attention to ATM withdrawal limits as some cards restrict how much money you can take out each day. If you need a lot of cash or your prepaid travel card charges a fee per transaction, it could quickly get very expensive. Consider your itinerary and the card’s supported currencies. Prepaid travel cards usually support a number of foreign currencies, though the exact ones will depend on the individual card. Check the card’s currencies, and make sure they match your destination, otherwise you’ll have to shell out currency conversion fees each time you spend. BESSIE HASSAN

What fees do I need to be aware of?

Travel money cards come with a range of fees, from loading and reloading to ATM withdrawal and currency conversion fees. Depending on the card you choose, there can also be initial purchase fees and an account closure fee. When choosing a card, consider the main ways you’ll be using it and avoid fees that’ll mostly impact you. For example, if you’re travelling to Japan and know you’ll mainly use it like a credit card, you won’t need to worry about withdrawal fees. But if you’re visiting a country where you’ll need cash for food carts and night markets, look for one with lower ATM fees. BESSIE HASSAN

What is an exchange rate margin?

This is the amount you pay on top of the official exchange rate. It is an invisible charge that is built into the exchange rate by travel money card providers. This is one of the ways they make money. How much you pay differs according to the card provider and the currency in question. Before choosing a card,

The idea of making your dollar go further by locking in the currency in advance is attractive but keep a level head about it compare the exchange rates as some may offer better value than others, which could equate to sizeable savings on your holiday. Start monitoring exchange rates well ahead of time and if you think the currency in question is going to worsen, you have the option of locking in a more favourable rate earlier. KIRSTY LAMONT

Who offers travel money cards and what are the best ones?

Most people will already have a relationship with a travel money card provider, with the major banks, a number of challenger banks, the two major frequent flyer program providers in Australia and even Australia Post all playing in this space. In addition, foreign currency exchange brands such as Travelex and Cash Passport also offer cards. The best card is the one that best suits your individual needs. Important things to consider when shopping for a card are ensuring the currency you need will be available on the card, understanding how you will transact in your destination and the fees that will be applicable, and finding a provider offering competitive interest rates for your destination. It’s also worth keeping in mind that there are multi-currency banking accounts that could provide an alternative to a travel money card. Both HSBC and Citi have recently refreshed their accounts, which can provide many of the same benefits of prepaid travel money cards, such as allowing you to lock in your exchange rate before departing. JOSH SALE

mobile app or online site. If you have opted for a travel money card with a bank, you should be able to load and reload via their internet banking platform. There is also an option of using BPAY to manage your funds and some card providers even have physical branches where you’ll be able to load and reload – just remember to bring your card and ID. Load times vary between card providers but generally it can take up to three days until the funds are available for you to use. If you have completely run out of money on your card, you could be left in a compromising situation so it’s important to ensure you have a backup payment method with you. KIRSTY LAMONT

Is it a good idea to save money in a travel card, ie drip-feed currency before you go on holidays?

If you are planning a holiday a couple of months out, it’s worth having a look at how the Aussie dollar is stacking up against the currency of your destination. The idea of making your Aussie dollar go further by locking in the currency in advance is an attractive one but unless you’re in the forex game, or even if you are, keep a level head about it. Exchange rates can move quickly and what goes up will ultimately go down. If you do decide to preload currency, start by tracking exchange rates regularly to get an idea of what the Aussie dollar is worth. Also check the fees involved with drip-feeding money onto your card. Some card providers charge relatively high reload fees, which could make the exercise cost prohibitive. SALLY TINDALL

How do I load/reload the card and how long will it take for the money to go in?

Usually the quickest and easiest way to load and reload funds on your travel money card is via your card provider’s

Travel money cards will usually be tied to either the Visa or Mastercard programs, meaning they should be accepted by most

Will the card be accepted everywhere?

MONEY SEPTEMBER 2018 57

MYMONEY TRAVEL CARDS

Generally, transferring the money back to Australian dollars and then withdrawing the funds will be a costly exercise

ATMs and merchant terminals (POS) that accept credit/debit cards. While there are some examples of one of the major programs not being accepted – the most famous being Costco in the US, which has an exclusive agreement with Visa – in most instances retailers that accept one will accept both. Keep in mind that certain transactions – such as those with hotels or car rental companies – will require an actual credit card. This will usually be due to their deposit policies, where they want to make sure that if you do happen to incur an extensive bill they can charge your credit card. As travel money cards are prepaid, you might be less likely to have an available balance large enough for them to charge in these instances. JOSH SALE 58 MONEY SEPTEMBER 2018

Can I earn reward points?

Some travel card companies offer a raft of sweeteners to make their card more attractive: everything from cashback to frequent flyer points and complimentary airport lounge access. For example, the Qantas Travel Money card allows you to earn 1½ frequent flyer points for every $1 spent overseas and one point for every $4 spent in Australia. It’s direct competitor, the Velocity Global Wallet card, offers two Velocity points per $1 spent overseas and one Velocity point per $1 spent in Australia. However, it’s important not to choose a card based on perks alone. Before signing up look at your circumstances and ask yourself thesequestions:Am I likely to use the rewards? Will they encourage me to put more money on the card? And does the card come with extra fees and charges? SALLY TINDALL

What happens if I lose the card?

Losing or having your travel card stolen while in some far-flung corner of the world is something every traveller wants to avoid. Some providers pre-empt this by issuing a back-up card that you can activate if you lose your main one. So if you’re someone who has a history of leaving their handbag behind, pick a provider that issues an emergency card and store it in another part of your luggage. If you haven’t been issued with a back-up card, have your bank’s number handy so it

can place a temporary lock on your card and advise you what to do next. Most banks will send you a replacement. NAB’s Traveller card does this free of charge and it generally takes between three to seven business days, depending on where you are. CBA’s Travel Money charges a $15 fee. SALLY TINDALL

What should I do with the card when I return from overseas?

This will depend on the type of card you chose. Some will allow you to keep the funds loaded on the card into perpetuity without fees, so if you find yourself planning your next trip on your flight home, then keeping the money aside for your next trip could be an option. However, other cards will charge inactivity fees on a monthly basis if the card is not used for a period, so keep this in mind. If you regularly shop online in the currency you have on the card, using the residual balance on your travel money card might be a good option to avoid incurring further exchange rate costs with these transactions. Generally, transferring the currency back to Australian dollars and then withdrawing the funds will be a costly exercise, as you’ll pay the foreign exchange rate margin twice and potentially withdrawal fees. This highlights that it’s important to only load onto the card the amount you intend to use on your holiday. JOSH SALE Visit moneymag.com.au/travelmoney for the answers to more questions including what are the advantages of using a travel money card rather than your own debit/credit card, what are the disadvantages, can you and your partner each have a card or do you need separate accounts, and what happens if you are going to more than one country. M

Efﬁe Zahos BANKING

Take care when reversing Retirees who plan to draw on the equity in their home need to run the numbers first

ow bad are reverse mortgages? Let me put it another way. How long would it take for your equity to be completely wiped out because you borrowed money against your home. While there’s no denying that in the right circumstances reverse mortgages may be a good solution for cash-strapped, assetrich retirees, there are many personal and family considerations to take into account before making a decision. Unlike “forward mortgages”, where principal and interest repayments reduce the debt, reverse mortgages keep climbing. They work like this: equity in the home is converted into cash either through the payment of a lump sum, a regular income stream or a combination of both. How much you borrow comes down to the value of your home and your age. Generally, the older you are the more you can borrow. Typically, a 60-year-old is able to borrow around 15%-20% of the value of their home and a 70-year-old around 25%30%. Minimum and maximum amounts apply and they differ among lenders. No repayments are necessary. Interest and fees are added to the debt and the total is taken out of your estate. The downside? The compounding effect of interest charges means the debt will usually double every 10 years. At 8%, a $50,000 loan will become about $110,000. This impact could be reduced if your lender allows you to draw down amounts as needed rather than taking a lump sum upfront. The upside? Property has historically performed at 8%pa (gross) for the past 10 years. Borrowers who are happy to assume long-term growth of around 3% (LVR of 20%) are likely to see the equity in their property remain the same. Of course, the more you borrow as a percentage of the value of your home, the greater the growth needed. Let’s say, for example, you’re a 70-year-old woman who owns a home valued at $600,000. You’re eligible for the

How a reverse mortgage works TODAY You age 70

IN 5 YEARS You age 75

IN 10 YEARS You age 80

IN 20 YEARS You age 90

100%

93%

89%

78%

$600,000

$646,370

$696,324

$808,113

–

-$20,000

$0 $0 $0

-$12,000 -$10,174

-$24,000 -$28,836

-$48,000 -$105,870

-$1000

$0 $600,000

-$43,174 $603,196

-$73,836 $622,488

-$174,870 $633,243

100%

93%

89%

78%

Outstanding loan (what you owe)

Home equity (what is left for you)

Home value Lump sum(s) borrowed Payments to you Interest owing Fees paid Total owing Home equity Equity as % of home Source: MoneySmart

full pension but looking to top it up by $200 a month over the next 20 years. You’d also like $20,000 upfront to cover some much-needed home repairs and go on a little holiday. You apply for a reverse mortgage that costs $1000 upfront with a 6.5% variable interest rate. Now the big question: how fast can you expect your equity to run out? The answer depends on three factors: The future value of your home. How much you borrow and when. Interest and fees. According to the ASIC MoneySmart reverse mortgage calculator, house prices would need to grow by only 1.5% for you to still have more equity in your home in 20 years than you do on day one. On day one you would have $580,000 in equity ($600,000 less $20,000) and after 20 years, with 1.5% property price growth, you would have equity of $633,243 (see graphic). Clearly, what you could do with $633,243 in 20 years isn’t going to be as much but the equity is still there. Of course, if growth was 0% and interest rates jumped to 10%, the scenario would

C C C

be a lot different. Your equity would drop right down to $294,000, meaning your initial loan of $20,000 and $200 monthly payments would total over $305,000. You can play around with the numbers for yourself at moneysmart.gov.au. Take care and get advice, especially around your options if you believe you may need aged care. Discuss the transaction with Centrelink to ensure you fully understand the impact on any benefits. While loans entered into from September 2012 contain a protection clause that means you’ll never end up owing the lender more than your home is worth, your kids may not get as big a dividend cheque as they were expecting. The Australian Securities and Investments Commission is keeping a close eye on these products and is expected to release a report into reverse mortgages this month. 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.

MONEY SEPTEMBER 2018 59

FAMILY MONEY Susan Hely

Beware the pre-grave robbers What to watch for

The elderly can be an easy ﬁnancial target for unscrupulous relatives and friends

5 5 5 5 5 5 5 5 5 5

hen Jane’s daughter told her that she needed a short-term loan urgently, Jane didn’t hesitate. She sold down her small share portfolio and gave her savings to her daughter. Now Jane regrets her generosity. Her daughter has no intention of paying her back, even though she originally promised she would. Jane’s savings helped supplement her age pension, paid the body corporate fees and provided small luxuries. Now Jane worries about money all the time. Her apartment is falling apart and she can’t afford to fix it. She can’t afford little trips with friends. “I should never have helped my daughter,” she says. “She is still working but I am retired and am going into debt. I probably have to move to a cheaper flat away from my friends.” Who would defraud and steal from old, frail people? The very people who offer support: trusted daughters, sons, lawyers, grandkids, friends, nieces and nephews. Older people are often easy targets, particularly with rising rates of dementia. They have savings and often own their own home. At the same time, their adult children and other caregivers are under financial pressure. Elder abuse is becoming recognised as a serious issue in Australia, says Anna Hacker, a lawyer at Australian Unity Trustees. She says that while no one would like to believe it could happen to them, there are many examples of children, other family members or neighbours acting dishonestly and taking advantage of elderly people. There is even an annual World Elder Abuse Awareness Day (June 15 each year). The World Health Organisation estimates that about one in six people aged over 60 will be victims each year. While it can include physical and psychological abuse,

60 MONEY SEPTEMBER 2018

Signs that your elderly relative may be a victim of financial abuse include: Any sudden changes in finances. Unexpected inability to pay bills and buy food or participate in social activities. Withdrawals from bank accounts that can’t be explained. Confusion about belongings and valuables. Missing cash. Sudden worry about money. Large credit card bills. Loss of jewellery and household items. Unprecedented transfer of funds. Can’t find financial records such as cash cards, credit cards, cheque books, title deeds or Medicare cards. Anxiety and depression, which can mean they are worried about coercion and bullying. An additional signature on a bank account. Mismanagement of a competent person's finances by another person. Conversations about their will may mean that someone is pressuring them to change it.

often it is financial abuse by using an older person’s money or assets. “It can happen to anyone, regardless of how much wealth they have, how strong they believe their family ties are, or how capable they think they or their nominated attorneys are,” says Hacker. “We have seen examples of sons or daughters taking their mother into the bank and getting them to withdraw large sums of money, and then hand it over for their own personal use. “In other cases, we have seen adult children forcing their parents to take out a mortgage on their home and then pocketing the money, and the other siblings only finding out when the house needs to be sold to pay for aged care accommodation, or when their parent passes away. “To most of us, such stories seem unbelievable but they are happening and, sadly, they are probably happening more often than we realise. Many elderly parents are either too ashamed to admit what their children are doing, or are cognitively impaired and unable to understand that they are being left financially destitute.” It is important for older people to speak out. To help protect them there is growing number of “elder” lawyers. They specialise in financial and superannuation disputes or when others make decisions that the elderly don’t agree with. They also go through

5 5 5 5

the contracts and legal agreements from nursing homes and help with estate planning, such as preparing a will. Hacker says one of the best ways for the elderly to protect their financial affairs is to set up an enduring power of attorney. This adds an extra layer of safety, as the attorney is then the only person a bank is authorised to deal with, says Hacker. In addition, the attorney would monitor bank statements and would be alert to any unauthorised or unusual activity. It is vital to choose the right person for the role, says Hacker. “We always advise people to carefully consider who they can trust, and not just to choose their oldest child, for example.” If they don’t want to burden a family member with the role, they can choose an accountant or a lawyer or the state public trustee and guardian. Susan Hely has been a senior investment writer at The Sydney Morning Herald. She wrote the best-selling Women & Money.

Anthony O’Brien BUSINESS SOLUTIONS

Energy costs are hard for a cafe couple to swallow NAME: Mel and Frank Pentimalli. BUSINESS: Café Expresso, East Gosford. QUESTION: We’re a husband-and-wife team and have been in business now for 10 years in East Gosford on the Central Coast of NSW. We pride ourselves on our great coffee, which our regular customers tell us is as good as the best brews in Melbourne. We generate great business from our local community through word of mouth, and we’ve built a nice little asset with excellent turnover. However, electricity charges and merchant fees are probably the most significant challenges to our cash flow. Any tips about how we can cut our merchant fees and electricity bills would be appreciated.

Check your power plan

Switch to a new provider

Thanks for your letter and conJust as consumers can shop gratulations on your business around for a better power plan, success. Households are being so can businesses. Along with hammered by rising power costs the big names such as Origin and but so are businesses like yours. EnergyAustralia, there’s a variety According to comparison site of smaller players such as QEnerCanstar, that’s prompted 42% gy and Blue NRG that specialise of small businesses to negotiate in supplying small businesses. the power plan they have with Not every provider is available their current provider. in all areas. However, in East AGL, for instance, offers a Busi- Gosford, QEnergy offers a Flexi ness Everyday plan, which comes Biz plan, which it claims can save with a guaranteed 17% discount a small business up to $6185 in on both usage and supply chargannual power costs. QEnergy also es for 24 months. Or the AGL offers a no-obligation analysis of Business Savers plan delivers a your electricity charges. saving of 24% on usage charges over the first two years. More than 80% of Talk to Canstar Blue research consumers make your shows small businesses contactless payments current spend an average of $1586 at least once a week. Yet proon quarterly electricity international card schemes bills, and power costs vider cost businesses an average are the No. 1 ﬁnancial to see of 0.58% per contactless concern of 44% of small what it transaction. businesses. can offer to help you.

Review your equipment

A quick chat with a licensed sparky confirmed what Mel and Frank probably already know: cafe equipment, notably espresso machines, can pull some serious amps. Manufacturers recognise that energy efficiency is becoming an increasingly desirable feature of commercial kitchen equipment. For example, some of the newer espresso machines from the Dalla Corte range claim to use 50% less power. If you have older, power-hungry appliances, it could be worth upgrading to more energy-efficient models. Yes, it’s a big outlay (and hopefully it won’t compromise the quality of your coffee) but the $20,000 instant asset write-off has been extended for another 12 months, so you could enjoy a tax break now plus longterm savings on power. Don’t just look at specialist cafe equipment. Fridges, your hot water system and even lighting all have the potential to ramp up your power bill.

Smash those merchant fees

Anthony’s tips We’re increasingly using tap-andgo to pay for small purchases like a coffee. It’s convenient for consumers but costly for businesses, which have forked out higher merchant fees for contactless payments compared to when a card is swiped or inserted. That’s largely because the infrastructure that could handle tap-and-go belonged to either Visa or Mastercard, though EFTPOS has recently come on board to boost competition. Specialist bank Tyro, which focuses on small to medium enterprises, has launched leastcost routing via the EFTPOS network, which it claims can save businesses an average of more than 6% on merchant service fees, rising to a possible 8.8% for hospitality businesses.

Anthony O’Brien is a small business and personal finance writer with 20-plus years’ experience in the communication industry.

■ Callout

Are you a small business owner with a challenge you’d like Money to help solve? Email anthony@corpwrite.com.au with your question and contact details. You must be willing to provide a photo. MONEY SEPTEMBER 2018 61

PROPERTY SELLING

Hit a home run STORY EFFIE ZAHOS

Whether you use an agent or do it yourself, the aim is to get the best price for your property. Here are ﬁve winning tips. 62 MONEY SEPTEMBER 2018

If you want to go the traditional route: heyagents.com.au

A good real estate agent can add tens of thousands of dollars to the sale of your home but how do you go about finding the right one? The new website heyagents.com. au does just that! By simplifying the process it helps you find the perfect agent. You tell them about your property and what you’re looking for in an agent and it delivers a brief to the most relevant local agents. From there you’ll receive a tailored proposal that compares and ranks the agents. With over 40,000 agents on its database, co-founder Matthew Gregory likens the website to TripAdvisor for real estate. “You can browse and compare your local agents anonymously,” he says. The service is free for sellers. Heyagents.com.au receives a referral fee from the agent who sells your home.

If you’ve got the gift of the gab: forsalebyowner.com.au

If you’ve got the time and the right personality, you may be able to bypass a real estate agent altogether and sell it yourself. Forsalebyowner.com.au, one of the largest

private sale businesses with around 2000 listings at any given time, offers two packages (Essentials, $699, and Essentials Plus, $969) to help vendors sell their own home. Both packages are “listed until sold” and include listings on property portals realestate.com.au and domain.com.au, plus “for sale” boards, marketing materials and support, if needed. Other portals that forsalebyowner.com.au uses include juwai.com (Chinese), homely.com.au and homesales. com.au. “We give sellers the opportunity to do well and not be prejudiced by not having a real estate agent,” says founder Colin Sacks. “With the property market softening, those who have only recently bought just don’t have the equity to be eaten up by agent commission and marketing fees.”

If you want to do it yourself but with the option of some help: buymyplace.com.au This would suit those who want basic help with the option of extra services. You simple select one of four packages, write your property description, upload your

The clients of a buyer’s agent are very speciﬁc, so you need to have that perfect home 00 home you can expect to save issions would be around $20,000). th less than $400,000, you need to doing all the work, as employing uld cost only around $12,000 in e standard package fee of $9990.

If you want to avoid all fees: visit a buyer’s agent

Something you could try first is to approach a local buyer’s agent to see if they have any clients who might be interested in buying. This way you might be able to sell the property without going through the whole rigmarole of listing it for sale. A buyer’s agent does not sell real estate; rather they look for a home on behalf of buyers whereas the selling agent works for the vendor (seller). By law an agent cannot act for (and accept a commission from) both parties in the transaction. This means that if your house ticks the checklist of a buyer’s agent’s client, you could technically sell it and pay no agent fees whatsoever. Rich Harvey, CEO of propertybuyer.com.au, says you should always get an independent valuation so you’re confident you’re selling it at the right price. He also notes that it’s not as easy as it may sound as the clients of buyer’s agents are very specific about what they are searching for, “so you need to have that perfect home”.

photo and buymyplace.com.au puts your listing on its website and seven others, including the big guns, realestate.com.au and domain.com.au. The basic package starts at $650 and includes a “for sale” board, market comparison report and brochures. The “recommended” package comes in at $1495 and includes four hours of support with a property expert plus a floor plan and professional copywriting. If you intend taking your property to auction, you’ll need to add a further $895 on top of your selected package. Chief executive Colin Keating says that sellers save $17,000 on an average home sale and most are sold within 30 to 40 days, although it’s not unusual for some to be sold within a week.

you have an expensive 4Ifproperty: hello.com.au

The one-size-fits-all model from Hello real estate may be worth investigating if you have an expensive property. There are no commissions or agent fees but rather a fixed fee. Vendors have the option of selecting from three packages – basic $7990, standard $9990 and premium

HOW MUCH IT COSTS AVERAGE AGENT COMMISSION BY CAPITAL CITY Sydney Adelaide Melbourne Canberra Perth Darwin Brisbane Hobart

1.84% 1.94% 1.99% 2.18% 2.38% 2.43% 2.54% 2.94%

Source: heyagents.com.au Advertising costs are in addition to commission fees. Costs can vary depending on state, property, campaigns and agent. Typically, you can expect to pay between $4500 and $10,000.

If these strategies don’t work ... What if your house doesn’t sell? Then it might be time to relook at the home, the price, and the real estate agent or take it off the market. Don’t underestimate how important it is to present your property in the best possible light. Less is always more when it comes to styling, and a clean, shiny home with sparkling benchtops and bathrooms could make all the difference. A different price may also seal the deal. Demand can change so don’t lock yourself in with a fixed number. If you’re using a real estate agency and are not happy with their work you may be able to give them the flick. Take care, though, as you have entered into a legally binding contract. You’ll need to refer to the fine print here. An agency agreement can either be open ended or for a specified period. It is important to properly end your agreement with them before signing up with another agent. Otherwise, as NSW Fair Trading warns, both agents may charge you a commission when the property is sold. M MONEY SEPTEMBER 2018 63

REAL ESTATE Pam Walkley

Extra icing on the cake A furnished rental property can provide the investor with generous tax perks

f you furnish a property with brand new furniture and fittings and lease it out, the depreciation benefits can be huge, says leading quantity surveyor Tyron Hyde, CEO of Washington Brown. But the trap is that since depreciation rules changed on May 9, 2017, you can’t claim for furniture or other plant and equipment, such as ovens or dishwashers, if they’re not brand new. This means investors considering furnished rentals should buy an apartment or house and furnish it themselves with new items. The property’s age doesn’t come into the equation. For those who want to buy new, some developers offer furniture packages. The demand for furnished rentals is growing, given the rise and rise of short-term letting facilitators such as Airbnb, which caters mainly to our growing number of tourists but also to a corporate market. Student accommodation is another area where the demand for furnished rentals is high. With rental vacancies rising in key cities, leading to lower rental income, furnished rentals are likely to gain popularity among investors looking to boost their returns. For example, if an investor furnishes their house with a $50,000 furniture and fittings package, depreciation benefits in the first year would be $13,500, says Hyde. Washington Brown has compiled the table showing the benefits available for different dollar amounts of furniture and fittings over three years. Why three years? “A lot of items may be able to be written off as they are under $300 or can be put into a low value pool and claimed at 37.5% a year. Essentially, you’re fast-tracking the depreciation,” says Hyde. It will take 10 years overall to claim depreciation on the total value. Of course, no one should ever invest in a property just for the tax benefits, which should just be the icing on the cake if a property stacks up in all other ways. Location is vital. Cities and inner-city areas are the prime places for corporate

64 MONEY SEPTEMBER 2018

Depreciation bonanza Furniture value Year 1 Year 2 Year 3 Total1

$10,000 $5250 $2000 $1500 $10,000

$20,000 $7500 $4000 $2750 $20,000

$50,000 $13,500 $7500 $4500 $50,000

Source: Washington Brown. 1 Total depreciation over 10 years.

rentals, student accommodation should be near universities or other large educational institutions and short-term holiday rentals perform best in areas that attract tourists. The ability to attract a premium rental for well-furnished property is one of their attractions. But a downside is shorter leases, leading to higher vacancies and more costly letting fees. If your property appeals to the corporate market you may be able to secure a longer-term lease to a large company to accommodate its visiting executives who prefer not to stay in hotel rooms. Accommodation that is furnished and fitted out to suit its market will perform best. The corporate market demands highend finishes, sleek and modern, so you may have to invest more to secure these types of tenants. Student accommodation requires more basic fixtures but must include desks with good lighting and electrical connections. Tourists are generally looking for more casually furnished accommodation to generate a relaxing ambience. Good wi-fi is

a must for all types of tenants. Smart TVs also add to a property’s appeal. No matter what type of furnished rental you supply it’s important to update it regularly, in particular replacing broken or damaged items immediately. These types of investments are much more hands-on than non-furnished rentals but you can get help. The growth of the short-term rental market has spawned a whole new industry providing all the services you need, including cleaning, changing the linen and taking care of small maintenance issues. Of course, this comes at a cost and needs to be factored in when calculating returns. Furnished rentals also suit owners who may want to use their city pad or holiday haven for short-term stays between tenants. But make sure you understand the tax implications – if a property is not available for lease for chunks of time you will not be able to claim deductions for those periods. If you’re not sure if your property is suitable to let out furnished, you can advertise it as both furnished and not furnished. If there is demand for it furnished and the return is better, go for it! Pam Walkley, founding editor of Money and former property editor with The Australian Financial Review, has hands-on experience of buying, building, renovating, subdividing and selling property.

THE DEBATE

Should real estate commissions be abolished?

YES

DAVID KAITY

BRETT HUNTER

Co-founder, Revolutionary Real Estate

Deputy president, REI NSW

eal estate commissions are unethical and there are three reasons why they should be abolished. First, they don’t incentivise agents to achieve the highest sale price. Using the example of an $800,000 home and a commission of 2.5%, an agency would only forgo $250 for every $10,000 reduction to secure a quicker sale. This phenomenon has been proven by the findings of a comprehensive 2008 study conducted by two economists, Levitt and Syverson. This study, which also featured in the bestselling book Freakonomics, found that real estate agents have an incentive to convince clients to sell their houses too cheaply and too quickly. The second reason commissions should be abolished is that they are an unfair reward and not tied to either effort, expertise, skill or time spent by the agent. As long as they get the listing, an incompetent real estate agent marketing a $1 million home can still earn twice as much in half the time as a diligent agent marketing a

sing a real estate agent $500,000 home at the same always makes absolute rate of commission. sense for owners considering A traditional commission the sale of probably their most is simply a percentage of the important financial asset. sale price of the home but that Agents work full time selling value has no bearing on the and marketing properties in time, effort, skill, knowledge and their nominated suburbs and experience required to market towns, so they know every it. Why should the owner of the street, avenue or crescent like $1 million home be punished by the back of their hands. Better paying twice as much for no still, they can provide a precise other reason than owning a price opinion based on current more expensive home? market conditions, as they know The third reason why commisthe likely buyers for your home. sions should be abolished is that They are expert negotiators, they give an unfair and unearned skilled in traversing the complex pay rise. The same agent can contracts and finance involved sell the same home at the same in a property transaction. commission with the same For our expertise, we are effort and be paid significantly usually paid a commismore simply because the sion calculated on home has increased a percentage of in value. Because WHAT YOU the sale price average NEED of a property. prices have TO KNOW Moreover, outstripped this fee is inflation in Commissions vary from state to only paid by Australia’s state and can be negotiable. Let’s a vendor if capital cities, say you are charged 2% commiswe sell the agents are sion - on a $500,000 propproperty. With unfairly being erty that would add up to a flat-fee model, paid significantly $10,000. the vendor pays more for the same this charge upfront, amount of work.

irrespective of whether the agent makes a sale or not. Therefore, with a flat-fee model, the vendor must be prepared to take on the sizeable risk that he or she could pay a sales fee whether or not the property sells. To earn a success fee, a commission-only agent will work as hard as possible on behalf of the vendor to achieve a sale. The success fee structure used by commission-only agents also ensures they aim to earn the best price possible for the vendor no matter what. With a fixed-price fee structure, the vendor essentially may lose the opportunity to achieve a premium price for their property, as there is no real incentive for the agent. A commission structure aligns the goals of the vendor and the agent. Moreover, I’ve heard stories where vendors even use the commission structure to incentivise agents to chase higher selling prices on their behalf. These conditions are agreed at the outset and often if an agent can achieve an above-market sale price, the commission increases accordingly. MONEY SEPTEMBER 2018 65

INVESTING ROBO ADVICE

STORY SUSAN HELY

Automated ﬁnancial advice is set to enjoy a boost, thanks to disturbing revelations at the royal commission

Robots reach out T

he Hayne royal commission has blown financial planning apart by exposing the industry's high fees, lack of transparency and conflicts of interest. This is similar to what happened in the US after the GFC, says Pat Garrett, CEO at the online financial adviser Six Park. What emerged there – and now in Australia – is a new breed of financial adviser that is disrupting the status quo. These robo advisers use technology to give automated, personalised advice to match you to the right investment strategy. They pick the best low-fee products and adjust your portfolio to match your risk profile. They take care of your annual tax statements as well as broking and trading. Robo advisers have taken off in the US with 1.6 million investors signed up, but they have been slower to catch on here. Only around 66 MONEY SEPTEMBER 2018

22% of Australians are familiar with them, according to research house Investment Trends. Just like Uber or Airbnb, these online disruptors offer valuable, straightforward services for low fees. The royal commission heard how retail super fund MLC MasterKey (owned by NAB) charged a fee of 5.8% plus a planner adviser fee of 1.5%, a total of 7.3%. Annual charges on a $50,000 investment would be $3650. In contrast, robo adviser Stockspot charges $455 a year (0.91%) on the same amount. “We want to do away with the high fees, confusing jargon, endless paperwork and lack of transparency that gives the wealth management industry a bad reputation,” says Chris Brycki, founder and CEO of Stockspot, one of the longest-standing Australian robo advisers, which opened its doors in 2013. After all, not everyone needs or wants a face-to-face meeting with a financial planner,

or a complex plan. Often, like millennial Matt Campbell, they have spare funds, such as $10,000, languishing in a low-interest cash account or term deposit that isn’t even keeping up with inflation. Matt wanted some simple financial advice about diversified investments that are flexible, transparent, easy to use and not too expensive. For the price of a couple of beers at the football – around $18 – he has had his $10,000 managed by Six Park for five months. For many people simple investing is the way to go. “There is a massive misconception that as you get more money you need a more complex and sophisticated investment strategy,” says Brycki. “Over-complicating your investments and over-trading can be detrimental. When it comes to investing, simple almost always wins out. The less you do, the more you get.”

While there are financial advisers who argue the need for one-on-one advice, others are joining forces with robo advisers. “The Australian financial services industry is ripe for disruption as more and more investors take notice of digital advice solutions as an alternative to traditional advice models,” says Recep Peker, research director at Investment Trends. He says many online investors tend to regard themselves as early adopters of innovative solutions, so there is little surprise to see rising awareness and use of providers such as Raiz (formerly Acorns) and Stockspot. Robo advisers use a calculation engine that has rules and algorithms that power its recommendations, says actuarial firm Rice Warner. You are asked about your income, assets, financial goals and risk tolerance. The answers drive automated recommendations that are typically a low-cost portfolio of diversified ETFs that suits your risk profile. Risk has traditionally been worked out as a person’s aversion to capital losses resulting from market volatility, says Rice Warner. But more recently it has moved towards the probability of achieving a targeted objective, such as the level of income in retirement. Robo advisers lay out the information clearly – investments, advice, portfolio management, fees and the team behind the investments.

MEET YOUR ROBO ADVISER

children (18 years and under) can invest free up to $10,000. You can top up regularly without being charged brokerage. No exit costs. Total cost for a $50,000 balanced portfolio $455pa (0.91%). Background: Stockspot was launched by Chris Brycki, now CEO, in 2013. The five core portfolios have returned an average of 5.6%pa to 7.9%pa since inception.

InvestSMART

+ What you get: Through InvestSMART’s robo

advice (it has a range of other services too) you get annual tax statements, daily performance reporting, four diversified portfolios as well as single asset classes. Minimum investment: $10,000 per InvestSMART diversified portfolio. What it costs: Administration fee $5.50 a month or $66pa. Advice fee 0.55%pa. Brokerage, about $60. ETF investment management fee 0.20%pa. Total cost for a $50,000 balanced portfolio $501 (1%) for first year and $441pa (0.98%) for subsequent years. Background: InvestSMART (ASX: INV) is an ASX-listed financial services company with 32,000 clients and $1.4 billion. The four portfolios returned 3.98% to 6.4% over the past three years. As well as robo advice, it offers a separately managed account service as well as an active ETF, Australian Equity Income (ASX: INIF). (Money’s Paul Clitheroe is chairman of InvestSMART.)

+ +

Stockspot

Raiz

What you get: Personalised advice, an investment strategy made up of low-fee ETFs, automatic portfolio rebalancing, brokerage and management of annual tax statements. Five core strategies ranging from a conservative to high growth (Australian, global and emerging markets, bonds and gold). As well Stockspot offers themed investments that include a sustainability ETF and a US shares ETF. Minimum investment: $2000. What it costs: Portfolios under $10,000 are free for the first six months and then cost $5.50 a month. Administration and advice fees range from 0.39%pa to 0.66%pa, depending on how much you invest. Investment management fees are 0.26%pa to 0.28%pa. Clients investing for

conservative growth to aggressive as well as a socially responsible portfolio made up of ETFs listed on the ASX. Minimum investment: $5. What it costs: Administration fee 0.275%pa for more than $5000. Maintenance fee $15pa on amounts less than $5000. ETF investment fee ranges from 0.22%pa to 0.42%pa. Transaction costs of 0.04%. Total cost for a $50,000 balanced portfolio $267pa (0.53%). Background: Raiz Invest Australia was formerly Acorns Grow Australia, which launched in Australia in 2015 as a joint venture with Acorns US. In January 2018, the joint venture arrangement ended and the business changed

+ +

+ What you get: Six diversified portfolios from + +

its name to Raiz. The average return is 10.1% over the year to the end of May.

Six Park

+ What you get: Advice, recommended portfo-

lios, brokerage, periodic rebalancing of your portfolio and reporting. Five portfolios from conservative to aggressive, each made up of up to seven ASX-listed ETFs that include global infrastructure and emerging markets as well as standard asset classes. Minimum investment: $10,000. What it costs: Tiered pricing from 0.5%pa to 0.3%pa plus ETF fees that average 0.25%. Total cost for a $50,000 balanced portfolio $375pa (0.75%). Six Park does not pay or receive commissions from any financial providers. Background: Six Park’s team has more than 100 years’ combined experience in the financial services industry. Portfolios returned between 3.5% and 10.8% in 2017-18.

+ + +

QuietGrowth

+ What you get: Personalised advice and five portfolios, from low to high risk. + Minimum investment: $2000. + What it costs: No fee on the first $10,000, then tiered fees from 0.55%pa to 0.66%pa. Also ETF and buy/sell fees. Total cost for a $50,000 balanced portfolio $350pa (0.70%). Background: Managing investments since August 2015. Co-founders are Dilip Sankarreddy and Krupakara Chinnasani. Partners are Saxo Capital and HLK Group.

Clover

+ What you get: Five risk-profile portfolios

that have a socially responsible investment option as well, giving 10 portfolios in total. Statement of advice is included. Minimum investment: $2500. What it costs: The fee, which includes brokerage, is 0.66%pa plus ETF fees of about 0.19%pa. Total cost for a $50,000 balanced portfolio $425pa (0.85%). Background: Launched in July 2017 by three financial services professionals, Harry Chemay, Sahil Kaura and Darcy Naunton. One-year returns to the end of June were 3.8% to 11.8%. Case studies next page

+ + +

MONEY SEPTEMBER 2018 67

When it comes to trust, algorithms beat planners

As a mathematician and programmer, Lara Jordan, 36, likes the way her robo adviser, Stockspot, uses technology to determine her risk profile and goals, then puts together a personalised portfolio. It also automatically rebalances the portfolio back to her target asset allocation. “I sort of trust algorithms more than financial planners who are linked to the products of their institutions,” she says. “There are independent financial planners but you have to know which one is a good independent planner and I don’t really know how to find one. I’m not really comfortable giving someone my money when I don’t really trust them. The algorithms take the human biases out of the advice. I trust that more.” Certainly the Hayne royal commission showed how too many Australians have had their wealth gouged by poor financial planner practices. It revealed that hundreds of thousands of people were overcharged, received poor advice, paid for advice they never received or were pushed into products that hurt their ability to reach their goals. Lara looked into investing in property but decided the returns weren’t good enough. “Also I don’t want to be tied to a 9 to 5 job for the next 30 years.” Lara, who lives on a houseboat, off the grid, likes to keep her life uncomplicated and flexible. She likes how simple it is to invest 68 MONEY SEPTEMBER 2018

with Stockspot. “It is so simple to set up an account with Stockspot. If you want to withdraw your money, you can. There are no penalties for taking my money out. If I want to change my plan I can. I can invest any time. It is so easy to put money in.” Behind the scenes, Stockspot has a team of people who choose low-fee exchange traded fund investments that are diversified (shares and defensive assets) and ideally weather all sorts of market conditions for the six portfolios it offers. When Lara first signed up, she was matched with Stockspot’s medium-risk portfolio with 50% growth assets and 50% defensive assets. It includes plain vanilla ETFs with exposure to the top Australian 300 companies, global shares, emerging markets, physical gold and bonds. After a while she opened another account with a higher risk profile – 60% shares and 40% defensive. She is considering investing in the aggressive growth fund with 68% growth and 32% defensive. She finds Stockspot’s financial information transparent and a fairly easy way to learn more about her investments. Do robo advisers appeal to tech-savvy millennials? Yes, says Lara. But she adds that her grandparents, who live overseas and are in their late 80s, use a robo adviser for their investments. They find it easy and straightforward in their retirement years.

CASE STUDY

INVESTING ROBO ADVICE

Lower costs and transparency are no small beer

Matt Campbell estimates that for the same price as two beers at the football he pays for $10,000 to be managed by robo advisor Six Park for five months. “It makes use of technology to get costs down and my investments are not being chewed up by fees.” For $18, Matt’s investment is spread across a balanced portfolio of exchange traded funds that hold hundreds of local and overseas shares and bonds. He can access online education and research and receives regular communication from Six Park. Matt was so impressed with Six Park’s low fees, the solid investment performance, the transparency about his investments and the ease of online investing that he added $4000 to his portfolio. He is a good saver. At 29, he is in the accumulation phase of his life. He says he wants to eventually buy a home and has a flexible time frame. Up until Matt signed up with Six Park, he kept his savings in a cash account and term deposit. But he wasn’t earning much interest. He was keen to find a place to invest part of his money to potentially earn more but admits he didn’t know how to find an adviser for a relatively low investment amount. He was also concerned about the costs. He came across Six Park through social media. He and his father are big fans of Ted Richards, who played for

Essendon Football Club and the Sydney Swans. Richards works at Six Park and Matt decided to look into it. He went onto the website and completed a short risk assessment that included answering questions about his age, income and how much he wanted to invest. He had a live chat with a Six Park expert on a Sunday afternoon. He was recommended the balanced option – not too aggressive and not too conservative. “It suited me fine. But a few months in, I got a bit more confident and moved it up to balanced growth.” He admits he is not too overinvested to worry. His term deposit is coming up for renewal soon and he will take out some money to top up his Six Park portfolio. “I find my money is more liquid in Six Park than a term deposit and it will earn more money over the long term. I really get a kick out of earning money on my money.” What has surprised him about Six Park is the quality of the customer service. He even had coffee with CEO Pat Garrett when he was in Sydney. “It is accessible to someone moderately financially literate.” Even though Six Park uses technology to save time and costs, Matt says there is still human contact through online chats. It has been such a positive experience that his father, a retired economics teacher who has held term deposits and bluechip shares, is also interested.

INVESTING DIVIDENDS

Roll in versus roll out STORY SUSAN HELY

Simply reinvesting distributions to beneﬁt from compounding may not be the best strategy

ixteen years ago when I invested $10,000 in an Australian small companies fund, I was asked if I wanted to have the dividends and capital gains sent to me or have them reinvested in more units in the fund. I had bought into the fund as a long-term investment so I opted for reinvestment. I believed this would be the most fruitful way to make my money snowball. But when the fund was wound up recently, I wondered what would have happened if, instead of reinvesting the distributions in this fund, I had taken them as cash and then invested them in the sharemarket, for example, via an index-tracking exchange traded fund. My strategy of reinvesting in the fund by acquiring more units left me with a final redemption of $31,557. But if I had invested the distributions outside the fund, I would have been left with $34,865 based on the S&P/ASX 200. In other words, I would have been around 10% better off by taking my distributions as cash and then buying an index ETF. This is hypothetical because small investments in ETFs aren’t practical on a continuing basis and I may not have had the discipline and energy to directly manage the investment of distributions.

But it does raise broader questions about the wisdom of casually reinvesting distributions. Does it sometimes pay to take your fund manager’s capital gains and dividends out instead of rolling them back into the fund? What I discovered was that my Australian small companies fund was more high risk than I had thought. It was very actively managed, with high turnover of assets. Some managed funds have a less risky strategy – for example, an indexed share fund spread across the top 200 Australian companies. While I was hanging onto the good returns of the early years, this didn’t mean it would continue to perform well. My small companies fund had a revolving door of investment managers, too. It started out as a Portfolio Partners fund and when it closed down it was run by a descendant, Antares. “You do need to review your investments,” says Michael Hutton, head of wealth management at HLB Mann Judd. “We use managed funds quite a bit. It’s not a set-and-forget strategy – you do need to be across the portfolio.” Does he recommend reinvesting? “Broadly speaking it is good to get the cash,” he says. “It gives you the opportunity to rebalance the portfolio regularly.”

For pensioners who need income from their investments and have low tax rates, taking out the distributions certainly makes sense. But I was in the accumulation phase, acquiring wealth for my long retirement years. Hutton says if investors are accumulating their investments, there are advantages to reinvesting, such as: The investing happens automatically and you don’t have to actively invest. There are no entry fees for the reinvested amounts. You are buying additional shares at various prices in what is called dollar cost averaging. You can average out the price per unit over the long term. You are compounding your investment’s growth by adding more shares that will earn dividends of their own over time. “If you take out the cash, you need to use it to build up your investments or else it may be spent,” says Hutton. “You need to keep your wealth ticking upwards.” If you don’t want to add more money to your investment, one of the best ways to make sure you keep your dividends specifically for reinvestments is to put them in a separate account so that when the dividends have built up you can use that money to rebalance your portfolio back to your target allocation at a later date. M

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MONEY SEPTEMBER 2018 69

INVESTING SUPERANNUATION

Sorry, D here’s $1bn Thousands of customers can expect compensation in the fees-for-noservice scandal STORY SUSAN HELY

70 MONEY SEPTEMBER 2018

o you qualify for some of the $1 billion that will be paid out to clients of at least nine financial institutions? It is quite a windfall. The nine have been caught out charging for advice or services that they never provided and $1 billion is the amount being returned to customers. The amount of compensation to superannuation fund members and investors has been climbing – at times leaping – in the past couple of months. It is a monumental stuff-up by the financial groups that has been hidden from public view until recently. But it is now out in the open, thanks to the pressure from the royal commission into financial misconduct, although the regulator ASIC has been investigating planning groups and wealth businesses for charging fees and failing to provide ongoing advice since 2015. ASIC realised it was onto something in 2016 when it estimated that there were 176,000 customers to be paid total fees of $154 million. It now says that the figure is at least $1 billion – and chances are it could be quite a bit more as there are many financial institutions scrambling to finalise figures. The nine groups that ASIC has identified so far are AMP, ANZ, CBA, NAB, Westpac, Bendigo Financial Planning, StatePlus, Yellow Brick Road Wealth Management and NAB’s NULIS Nominees. An indication of the extent of the issue is given in the 3500 documents that NAB provided the week before it was to appear before the royal commission. NAB’s overcharging (and cover-up) goes back 14 years to 2004. The fees-for-no-service scandal has been largely centred on the retail super sector, with the exception of the financial planning division for public servants

in NSW, now called StatePlus. ASIC has also named Police Financial Services, which trades as BankVic. Retail fund fees have always been higher than those of industry funds, which do not use financial advisers as gatekeepers or pay commissions. But one of the worst offenders has been StatePlus. Formerly called State Super Financial Services Australia, when it was set up in 1990 it was meant to protect its members’ retirement benefits from the high fees charged by financial planners. But ASIC says 46,534 public sector or retired public sector members have been charged $92 million in fees for no service and that money needs to be paid back. As well, the royal commission has identified IOOF as another super fund that needs to pay compensation after raiding members’ accounts to pay a tax bill. ASIC had also engaged in extensive discussions and negotiations with Godfrey Pembroke, GWM Adviser Services, JBWere and Meritum Financial Group to assess whether there are breaches or failures in the period between January 1, 2009 and December 31, 2015. This means that if you held your superannuation or investments through one of these institutions you may qualify for a piece of the compensation pie.

What is a fee for no service? If you visited a financial planner, you could well be paying for ongoing financial advice. The advice fee is taken out of your super fund or investments – depending on the vehicle you chose – year in, year out. In hundreds of thousands of cases people didn’t receive any advice. ASIC says there are a few reasons why the advice wasn’t provided. For example, the adviser might have retired or resigned and the AFS licensee didn’t appoint a new adviser to service the client. Or the adviser simply failed to provide an annual review.

How the refund is calculated ASIC says the refund is calculated on the fees paid for each annual review that you didn’t receive. You also receive interest to make up for the lost investment returns on the fees that were inappropriately charged. In cases where it isn’t possible to calculate the exact lost earnings, there is an investment proxy guideline (RG 256) to be used. The regulator says that when the financial institution provides a refund, the licensee should ensure that it does not cause a client further financial loss or detriment – for example, by breaching a contribution cap for a super account.

How do you check if you qualify for a refund? If you are or were a customer of any of these institutions, you would want to know if you qualify for remediation. You want to know how long you have been paying unnecessary fees and how much you can expect to receive. But how do you find out? If you haven’t received any follow-up advice and the adviser fees are clearly set out on your statements, you could work out how much you are owed yourself. There isn’t much, if anything, on the websites of these financial groups to date. A couple have issued a media release but many don’t mention the issue. Trusting the financial institutions to pay back the fees that you have been paying for no service doesn’t sound like a natural response. Why would you trust them? Yet ASIC’s stance has been to ask the financial institutions to pay back the funds. ASIC has told them they “must be transparent with each client about why they are receiving remediation. A licensee should explain to each client how the amount of compensation was calculated and that the client may complain to the licensee (and, where relevant, the

licensee’s external dispute resolution scheme) if they disagree with the remediation offered.” AMP has told its customers that it “promised to move faster to identify and compensate anyone who received inappropriate financial advice or paid for services they did not receive”. By “faster”, AMP says it estimates this will take three years “because we’re assessing advice and fees over a 10-year period across our entire network. We’ll be in touch with any customer who may be affected – there’s no need to do anything.” But for customers who want answers earlier, AMP recommends that if you have a financial adviser and you wish to talk about any advice you’ve received you should contact them, or get in touch with AMP. Every year that these financial groups delay paying back the fees, the more likely members will die and the less they will have to return. Commissioner Kenneth Hayne could help consumers by stipulating a short time line for repayments to be made.

Fees are going down The royal commission’s spotlight on fees has certainly helped reduce some of the overcharging by retail super funds. For example, AMP is cutting fees for 700,000 of its MySuper customers. If you haven’t already heard from AMP about this, the group said in a recent media release that it would communicate with these customers with full details in coming weeks. Another group, BT Financial, announced it would no longer charge commissions on super products from October 1 this year. This affects 140,000 BT-advised clients who have been paying grandfathered commissions since the FOFA reforms of 2013. They hold BT super, investments, insurance and platform products. They will be $14 million better off. The table provided by ASIC is dated June 30, 2018 but the royal commission has brought out more confessions to ASIC. As at August 13, ASIC estimated that the total compensation amount is at least $1 billion. M

Who owes what GROUP

COMPENSATION PAID OR OFFERED

ESTIMATED FUTURE COMPENSATION

TOTAL ESTIMATE

AMP

$5,010,637

$370,000

$5,380,637

ANZ

$50,793,257

$8,443,300

$59,236,557

CBA

$118,040,178

$25,274,717

$143,314,895

NAB

$5,690,797

$1,019,623

$6,710,420

Westpac

$6,896,237

Not yet available

$6,896,237

Bendigo

$2,500,000

$2,5000,000

StatePlus

$37,223,999

Not yet available

$37,223,999

Yellow Brick Road

$101,477

TOTAL

$223,655,105

$37,709,117

$261,364,222

NULIS Nominees (Australia)

$35,900,408

$67,000,000

$102,900,408

TOTAL

$259,555,513

$104,709,117

$364,264,630

(personal advice failures)

(personal & general advice failures)

Source: Data reported by the AFS licensees to ASIC as at June 30, 2018.

MONEY SEPTEMBER 2018 71

AT LARGE Ross Greenwood

Bull run will continue - for now This economic cycle is different but eventually a bust will follow a boom

t always astonishes me how the traditional cycles of economies and markets continue to repeat themselves. It shouldn’t surprise me – it has happened so often – but that’s the nature of investing: people are surprised by booms and surprised by busts. In each cycle there is always a different theme, political narrative or disruptive technology to contend with. And at some stage – generally close to the top of the boom – someone will always say, “But this time it’s different.” But, generally, the same forces of supply and demand, greed and fear always make things the same. For Australia, a conversation about economic cycles must be measured against its performance of 28 years of positive economic growth with no recession. Interest rates also are at historic lows and are likely to remain there for the next 12 to 18 months, if current wages growth and employment data are to be believed. Both these things are aberrations in the traditional theory of economic cycles, yet the patterns of boom and bust seem constant. Take house prices and the stockmarket right now. Melbourne and Sydney prices are falling and are expected to keep falling for the next 12 to 18 months. So where does an investor now put their money? Some of it is making its way into the stockmarket which, as I write, is at an 11-year high. The general rule of the cycle is that at the top of the economic cycle interest rates are raised to curb economic demand, which cools down the stockmarket – initially. Money moves out of shares into property markets but eventually the higher interest rates should have an impact on shares as well, which is the foreteller of an economic slowdown. This cycle is different because interest rates have already been at historic lows

72 MONEY SEPTEMBER 2018

from the last downturn, during the GFC. Other factors have also curbed the supply of money, including regulatory measures by government to limit investment lending and to increase the reserves that banks must keep. But the cycle is still working in the way it would have if interest rates had been raised to cool property market speculation. It also means money is being diverted to where – for now – there are better returns, namely the stockmarket. This makes some sense because many Australian companies are performing better than forecast, which is pushing their share prices even higher. And this is where the cycle is not quite the same as normal. The money moving into shares seeking higher returns might normally move to cash as rates go higher. For the moment, with negligible wages growth and households with massive debt compared with their income, it is hard for the Reserve Bank to move rates anywhere.

And, as I have explained before, this makes it difficult when a global economic downturn eventually comes because, in the normal cycle, you would expect the Reserve Bank to cut interest rates. If it does not have a reason to raise rates now, it has less ammunition to support the economy in the event of a downturn. And bear in mind the Reserve Bank has repeatedly said it will not start to raise interest rates until it sees an improvement in wages growth. This could mean the stockmarket’s run is longer than normal, as companies enjoy low interest rates, relatively slow wages growth and generally buoyant conditions. The only warning for these conditions might be a downturn in home construction, which in turn could impact retail sales (especially in home furnishings and electronics). To combat the squeeze on household incomes, it is also clear that many families are changing their working arrangements. More women are entering the workforce and more seniors are staying in the workplace longer with the direct consequence that they are seeking to take the cost of living pressure off themselves. In other words, they are working longer and harder to alleviate the extra costs of electricity and health insurance and the confronting issue that they have insufficient money to genuinely retire. Many of these trends are new but they should not distract from the obvious point. The economic cycle might be different but it rarely changes. And at this point of the cycle, judicious selling of stocks is a smart strategy to offset any future downturn. The real problem, as always, is the timing of all this. Ross Greenwood is Channel 9’s finance editor and Radio 2GB’s Money News host.

Vita Palestrant SUPER

Early starters win the race Retirement is a long way off for young workers but that’s no reason to neglect super

any casual entry-level jobs are now undertaken by youngsters still studying at school or university. The benefits are obvious: it fosters a strong work ethic and gives them their first lessons in financial literacy. While super might be the last thing on their minds, learning the ropes early is something they are likely to be grateful for when they are older. Thanks to the power of compounding, investing at an early age beats any desperate attempts to make up for lost time later in life. Dean Bornor, head of member advice and education at REST, a large industry fund with many young retail workers, says it puts a lot of effort into encouraging young workers to take their super seriously. “Because they have small balances they might think it’s not important but over the course of the next 35 years it’s going to become tremendously valuable – it’s what we try and educate our younger members on.” The first step is to determine whether you are entitled to the superannuation guarantee (SG). Certain rules apply, and it doesn’t matter whether you work casual, part-time or full-time hours. Those 18 and older must earn at least $450 a month before tax to be eligible for super’s 9.5% of wages. Those under 18 are required to work at least 30 hours each week and be paid at least $450 in a full calendar month. “There are certain rules the tax office stipulates, as far as when an employer needs to pay you the SG,” says Bornor. “If you are paying an employee over 18 $450 or more in a calendar month, then the SG is payable. If an employee earns less than that in a month, there’s no obligation on the employer’s part to pay the SG. If you are under 18, then there is a 30-hour a week rule. If you are working less than 30 hours a week, there is no requirement to pay the SG. If you are entitled to the SG, the next step is to find out where your contributions are going. If you haven’t chosen a super fund

(and filled in a form) your employer will do it for you, with the money paid into a default investment option called MySuper. “Most employees go with the default fund but often don’t know which fund it is so they need to check that with their employer,” says Bornor. “They should also receive something from their super fund acknowledging their membership. It’s important for them to register online because that means they can keep track of their contributions.” By law employers are required, as a minimum, to make quarterly SG contributions but this can make tracking payments difficult. Industry Super Australia (ISA), the umbrella body for industry funds, estimates 2.98 million workers were short-changed by almost $2000 each in 2015-16. Most of those underpaid were casual and part-time workers. There is legislation before parliament to better enforce SG payments. However, ISA says the reform doesn’t go far enough and it would like to see the frequency of SG payments shifted from quarterly to monthly or fortnightly to better align with wages. So what should you do if you think you’ve been ripped off? Raise it with your employer. If that gets you nowhere and you are a member of an industry fund, ask for help. Many have an arrears process that pursues unpaid super. Check with your fund if they have an app that can alert you to when contributions have gone in. Australian Super and Rest are just two funds that offer this. “Where we have been unable to resolve a case of non-payment, we will request our credit manager to engage with the employer,” says Bornor. Often it’s an admin issue. Missed payments are quickly recovered. The tax office can also help.

$500 is up for grabs If you earn $37,697 or less for the 2018-19 financial year and make an after-tax contribution of $1000 to your super fund before June 30 next year, the federal government will give you $500. That’s a return of 50%! Top up year after year and your super will be positively humming. The government co-contribution pays 50¢ for every $1 of after-tax money you put into your super, up to a maximum of $500. Contribute $500 and you will get $250. If you earn more than $37,697, the benefit reduces until it cuts out completely at $52,697. The money for the contribution doesn’t have to be work related. “The person needs to make the contribution themselves,” says REST's Dean Bornor. “If parents put money in their bank account and if that’s what they choose to do with it, then that’s fine.” Ensure your fund has your tax file number. The government will pay the co-contribution automatically after you have lodged your tax return. Bornor urges young workers to use the wealth of information, fact sheets, investment tools and calculators on their fund’s website. More tools can be found at superguru.com.au. They should: Understand the different investment options. Keep an eye on expenses and minimise fees. Review insurance – do you need it? “Before you do anything, get educated. That will give you the basis on which to make decisions,” says Bornor.

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Vita Palestrant was editor of the Money section of The Sydney Morning Herald and The Age. She has worked on major newspapers overseas.

MONEY SEPTEMBER 2018 73

SHARES STRATEGY

STORY GREG HOFFMAN

In view of the warning signs, now is the time for investors to check their exposure to property

Housing on high alert I

recently had lunch with a mortgage broker of some 10 years’ standing. Lately she’s been contemplating giving the game away. “The banks just aren’t approving anything,” she lamented. If you’ve applied for a loan lately, or spoken to someone who has, you’ll probably know what she means. The banks have been tightening their credit standards and this has limited the amount many buyers can borrow and, therefore, pay for properties. Sellers still accustomed to more buoyant times have been reluctant to reduce their offering prices to meet

74 MONEY SEPTEMBER 2018

restricted borrowers. The result has been a sharp decline in the volume of properties changing hands. And, in some key markets like Sydney, prices have been falling. The situation could go a number of ways from here, so I’d like to handicap those scenarios, as I see them, and touch on various stocks that are likely to be affected.

Check the odds First, let’s consider the most optimistic scenario: that property prices and volumes roar back. Perhaps credit is loosened up in some way and the Reserve Bank lowers

interest rates further. Then the next five years might look like the past five, in which case the current conditions represent just another “dip” in a long bull market. In my view, it’s hard to see the banks turning the credit tap back on full stream after some pressure from the regulator and recent revelations at the royal commission. This is the least likely scenario in my mind and I put the chances of it at 8% or less. The next most optimistic scenario would be a more modest but still hefty pick-up in volumes and prices, perhaps with capital gains of 3%-5% a year. This would represent a nice outcome for property investors and related businesses. I put the chances of this at around 20%. Next is a more stagnant outlook with capital growth of 0%-2% for five or more years. This would give rents a chance to catch up with previous years of strong price growth. This is my “base case”, or the most likely outcome in my view – a 30% to 35% chance. Next is a moderate decline of 1%-3% a year for five or so years. This is my second most likely scenario, at a 25% to 30% chance. Finally, there’s a disaster scenario of either a nasty decline over a couple of years or, say, 4% a year for four or five years. I put this around a 12% to 15% chance. Perhaps you disagree with this outlook and place a different percentage likelihood on each scenario. But whatever your opinion, it’s enlightening to review the various alternatives. The next step for share investors is to consider the implications for your portfolio.

Stocks impacted The big four banks are all on the list of Australia’s six largest stocks. As a sector, banking is by far the most important driver of the Australian sharemarket. In turn, Australian mortgages are the most important driver of the banks’ profits. So there’s a clear connection between the property market and the most important sector on the sharemarket. Australia’s property bull market has been kind to our banks. It’s provided revenue growth as the amount of mortgage debt on which they earn interest has ballooned at the same time as bad debts have been low. Those low bad debts have been influenced by falling interest rates and, until recently, a significant amount of interest-only loans. Those factors eased the repayment burden on borrowers. And if a borrower did manage to fall behind on payments and their property was sold, it was usually being sold at a profit, so there was no problem for the bank. And even if there was a loss, in some cases that would be picked up by a mortgage insurer. In other words, it’s been the best of times for the banks. And if you believe the optimistic scenarios for the property market are more likely than me, then bank shares might be rather attractive. Commonwealth Bank shares (ASX: CBA), for instance, are trading at the same price as they were five years ago, yet profits and dividends are around 20% higher. Anything less than the two more optimistic scenarios

(which I put at 28% or less combined) could be challenging for the banks, though. And the more pessimistic scenarios could spell danger not only for them but Australia’s two listed mortgage insurers, Genworth (GMA) and QBE Insurance (QBE). Genworth is Australia’s largest mortgage insurer and is what’s known as a “monoline insurer”. In other words, it specialises in one line of business and that is Australian mortgage insurance. The UK Institute and Faculty of Actuaries issued a report a few years ago on mortgage insurance. It noted that if “there were to be an extreme market event, it appears that monolines are less able to withstand the loss and would be more likely to go bankrupt, or have their credit ratings reduced to junk status”. It also said that the “benefits of the monoline model are not obvious: it abandons the benefits of diversification between different classes of business”. In other words, in any kind of disaster scenario, Genworth could suffer catastrophic losses. That risk is why investors demand a hefty return and the stock currently offers a high 8.6% fully franked dividend yield. In the good years, investors need to make plenty to compensate for the risk of terrible (or even company-ending) years. QBE is a more diversified insurer, by both product line and geography. So it has a greater chance of surviving a property market disaster than Genworth. It could still suffer a nasty knock, though. Another group close to the banks are the mortgage brokers. Shares in Mortgage Choice (MOC) have come under pressure this year as the company has revamped its remuneration to pay its franchisees more. The slowdown in property transaction volumes (rather than prices) is the big concern here. I previously held Mortgage Choice shares but have sold them recently, fearful of a sustained slowdown in volumes. Those with a different view might be bullish on this one. Listed real estate agents McGrath (MEA) and The Agency (AU1) would be hurt by lower volumes and buoyed by a recovery, as would property valuer LandMark White (LMW). The scores of listed property developers would also be affected, from the diversified giants like Mirvac (MGR) and Stockland (SGP) right on down the food chain. There’s also a link between the property and car markets. When we feel wealthier because the price of our house is on the rise, we tend to splurge more on our cars and vice versa. Stocks impacted here are car retailers such as AP Eagers (APE) and Automotive Holdings (AHG), as well as those involved in the financing of vehicles like Eclipx (ECX). Now is an opportune time for sharemarket investors to review their portfolio’s exposure to the property market. Looking through this lens may help you avoid over-exposure to property or, potentially, identify some great investments.

It’s hard to see the banks turning the credit tap back on full stream after recent revelations at the royal commission

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). MONEY SEPTEMBER 2018 75

SHARES RESOURCES

Truck loads of cash STORY GAURAV SODHI

The big miners are leaner and meaner, enjoying boom-time proﬁts without the beneﬁt of boom-time prices

76 MONEY SEPTEMBER 2018

he big miners got lazy amid the riches delivered by the commodity price super cycle. Just how lazy is only now evident in the staggering amounts of cash being generated by BHP Billiton, Rio Tinto and other large miners. How did they do it? The commodity price crash forced them to manage their business not for financial excess but for drought. The result was better capital allocation, tighter management and staggering productivity gains. This has resulted in even better returns on capital than during the boom, even though prices are far from their boom-time highs. BHP perhaps deserves the most kudos. It flipped decades of mining convention by focusing on higher-returning assets and prioritising shareholder returns over company size and production volumes. That model is now being replicated by Rio Tinto and other major mining houses. But it was BHP that got it started, so let’s begin there. BHP is on track to post a net profit of about $US10 billion ($14 billion) this year, 10 times as much as it made just two years ago. No longer the unpopular miner it was when we suggested taking a nibble in January 2015,

it’s also a long way from the distressed, problem-prone business it appeared to be three years ago. If investors should aim to buy miners low and sell them high, with BHP’s share price up over 80% since our last buy recommendation two years ago, surely the mission has been accomplished? It’s not time to move on just yet. While commodity prices have improved, the big miners’ results have recovered and cash flow has ballooned. These businesses are worth more than they were a few years ago; the case for hanging on has strengthened. The mining sector rightly earned a reputation as a capital sink. Losses arose from mistakes of capital allocation rather than operating performance. Buying expensive assets, chasing growth and prioritising volume were the hallmarks of BHP and the rest of the industry for decades. That’s no longer the case. Capital expenditure which, having peaked at over $US22 billion in 2013, has now fallen to a more sustainable $US5 billion to $US6 billion. This has had a tremendous impact on free cash flow. After being negative for most of the century, we expect BHP to generate free cash flow of about $US10 billion in the

2018 financial year, equating to a free cash flow yield approaching 6%. To that you can add a handy franking balance and an expected $US10 billion cash injection from the sale of its US shale assets. With BHP no longer profligate with profits, cash returns are soaring. Shareholders can expect even more debt to be repaid plus higher dividends, despite commodity prices remaining well below previous peaks. This business is now being run for shareholders rather than empire builders. BHP’s glorious asset base can at last shine. Iron ore costs have fallen to less than $US15 a tonne; big spending on the world’s largest copper mine, Escondida, should help reduce costs; and coal has been revived. Having sold assets, BHP is smaller, simpler and more profitable. Over the past 10 years – a period that includes cyclical highs and lows – BHP’s aggregate return on assets has reached over 30% in its best year and less than 10% in its worst. That won’t change: mining will always be cyclical. But the changes to the portfolio – selling shale, spinning off South32, potentially selling nickel mines – mean that higher returns are possible in peak years but low costs should better insulate it from the cyclical troughs. Free from the burden of getting bigger, BHP has become

BHP is now being run for shareholders rather than empire builders

better. We’re raising our buy price from $23 to $25 and sticking with “hold”. What of Rio Tinto, which has enjoyed years of outrageous profitability and recent bumper production numbers? Like BHP, it is a smaller but better business, despite disappointing investors after its latest interim result. Rio generated underlying net profit of $US4.4 billion, up 33% from last year, and announced a 15% hike in dividends to $US1.27 per share, plus additional buybacks. At 43%, Rio’s earnings before interest, tax, amortisation and depreciation (EBITDA) margin are the same as they were at the height of the resources boom, even though iron ore prices are at about half their peak. The company is generating boom-time profits without boom-time prices. Analysts were quick to condemn the result. Despite flat underlying EBITDA, operating cash flow was 17% lower than it was last year and free cash flow fell 38% to $US2.8 billion. That’s understandable. Current costs still reflect cyclical lows even though prices do not. Operating margins are arguably a little generous and there is room to absorb higher costs. This isn’t the problem it was a few years ago. Higher costs were, in any case, overshadowed by prices. Higher commodity prices added $US600 million to EBITDA with aluminium the star. Although with trade wars and tariffs on the agenda that might change in the short term. But an entrenched cost advantage and an enormous resource base will outlast trade disputes. Rio’s iron ore business boasted astounding margins of 67% as unit costs have fallen from over $US20 a tonne to just over $US13 a tonne over four years. On an asset base of over US$15 billion, the division consistently generates returns of over 50%, after tax and capital expenditures. This is arguably the best business in global mining. And yet with about $US5 billion of asset sales announced, Rio continues to shrink. On the chopping block this time is its stake in the world’s largest gold mine in West Papua. What remains are high-quality, long-life, low-cost mines and a company content to milk its assets for cash. Rio’s return on equity – at over 23% – is as high as it has ever been. This may be a smaller, less ambitious business but it is, like BHP, a better one. The iron ore and aluminium divisions alone are worth about $65 a share while the rest of the business – copper, energy and specialty minerals – generated over $US1.4 billion in cash flow. These are also clearly worth a decent sum. That suggests today’s share price is fair or even marginally cheap. Gaurav Sodhi is a deputy head of research at Intelligent Investor, part of InvestSMART Group (under AFSL 282288). This article contains general investment advice only. Find out more about Intelligent Investor and start a 15-day free trial at investsmart.com.au/money. MONEY SEPTEMBER 2018 77

SHARES SMALL CAPS

They can be hard to get to know but small companies represent some of the most exciting long-term growth plays STORY MARK STORY

Stars of tomorrow A

s long as Australian investors remainfixatedontheASX’stop 200 companies, dominated by big banks and miners, they’ll continue missing out on a rich seam of successful yet unknown small caps with strong growth trajectories. The S&P/ ASX 200 Index gets all the attention but at 8.3% its performance over the past financial year pales in comparison with the S&P/ASX Small Ordinaries Index at 25%. The Small Ords Index is an obvious place to start looking for companies that don’t dominate the headlines. But given that it includes everything except the ASX’s top 100, it doesn’t truly reflect the performance of small caps,

78 MONEY SEPTEMBER 2018

which many analysts regard as having market caps below $500 million. Investors wanting to drill even deeper can also find rich pickings within micro caps, with the MSCI Micro Cap Index (average market cap $124 million) returning 17.80% in the 12 months to June 29, 2018. With broking analysts struggling to cover even the top 100 stocks, investors who bother to become stock pickers or hitch a ride with fund managers are more likely to unearth small or micro-cap stocks with untold growth stories.

Off the radar The magic of most small caps remaining off-radar is that they tend to be mispriced due

to an inconsistent interpretation of limited information among investors, says James Spenceley, a former telco boss turned fund manager. He reminds investors that the real excitement is in unearthing smaller companies with the potential to become one of tomorrow’s ASX stars. Dawn Kanelleas, senior portfolio manager (Australian equities small companies) with Colonial First State Global Asset Management, points out that around two-thirds of the companies in today’s S&P/ASX MidCap 50 Index have graduated from the Small Ords index in the past seven years. One small cap that Spenceley is banking on to do just this is the cleantech stock Inte-

Capital, expects RedHill Education to benefit from the surge in Australia’s international student numbers, now nudging 500,000.

Signs of success When running a ruler over small caps, Spenceley, CEO of MHOR Asset Management, a small caps investment fund, wants to know that there’s sufficient demand for a company’s products and that management knows how to execute and grow the business. Looking past investor presentations, he focuses on how well management understands the businesses capital requirements and what growth assumptions they’re based on. As well as focusing on the valuations of comparable stocks, Spenceley likes to compare the multiples that small caps are trading at within the broader market and avoids those where extreme multiples suggest future upside is already priced in. “I also look for disconnects between the triangle of value metrics, growth and the quality of the business,” he says.

Direct shares If you want to invest directly, five small caps with exceptional growth potential are: Green Energy Solutions (ASX: IGE) : Hailed by Spenceley as one of the ASX’s most interesting stocks for 2019, Green Energy is focused on converting waste plastic that’s destined for landfill or discarded into the environment into valuable road-ready fuels. It has sites approved to build plants in China, the UK and the US, and is set to launch its first plant in Amsterdam in November this year, using unwanted plastics from the UK and Europe to create its patented fuel technology. “A company that can solve the problem of plastic waste and turn it into fuel was a no-brainer as an investment,” says Spenceley, whose fund recently invested $1 million in the stock. Assuming Green Energy can fulfil its potential, he expects the upside growth to be between 10 and 20 times what it is now. However, Australian CleanTech’s O’Brien says that once Green Energy gets a couple of plants going, it will be ripe to be taken out by one of the big guys, the same way ToxFree was recently snapped up. “But if they can get the economics working, there should be plenty of demand,” he says. Alliance Aviation (AQZ): The national air charter operates services in various sectors

grated Green Energy Solutions. If you like the idea of cleantech, two more companies in this space favoured by John O’Brien, of Australian CleanTech, are Pacific Energy and waste management company Bingo Industries. As a thematic investor, Spenceley also expects a recovering mining sector to improve the outlook for mining services small caps such as NRW Holdings and Alliance Aviation. He’s also excited about favourable dynamics playing out in the childcare sector and expects Think Childcare and larger counterpart G8 Education to benefit from the overhaul of childcare payments from July 1, 2018. Beyond childcare but still in education, Robert Bruce, portfolio manager at Acorn

including tourism, corporate, sporting, media, education and government. It’s expected to benefit from an uptick in mining, and recently extended contracts with Newmont and Glencore. While the stock is no longer as cheap as it was (forecast 2018 PE 12.60), Spenceley says it’s the kind of investment opportunity he’s constantly screening for, with a strong management team, solid balance sheet, improving earnings and cash flow momentum that’s been completely mispriced by the market. While the share price is up 84% since mid-July 2017, consensus forecasts from three analysts expect 20% annual growth for the next three years, based on an extremely positive earnings outlook. It’s expected to generate underlying earnings of $59 million from operating revenue of $230 million for the full year. Spirit Telecom (ST1): With huge operational leverage, this provider of wireless services is a good way to play the telco sector, without “NBN risk”. The company acquired business telecommunications and phone systems provider Voxcom in 2012, My Telecom in 2015, Phone Name Marketing in 2016 and Queensland-based World Without Wires in 2017. It closed the 2017 financial year with a 30% year-on-year rise in revenue to $11.5 million, and first-half 2018 revenue increased by 54% to $8.1 million, with earnings per share up 83%. According to Dean Fergie, of Cyan Investment Management, Spirit remains an under-researched gem that’s taking advantage of “the opportunity created by the telecom/ NBN stumble”. NRW Holdings (NWH): This is an undervalued global cyclical mining services provider with excellent management, offering a play on the rising quality of commodities required by China for pollution/environmental reasons. Having recently won contracts with Baralaba Coal, Coronado and Stanmore Coal, the company recently released a 40% revenue growth outlook for the 2018 and 2019 financial years, based on an order book now at a record high of over $2 billion. CEO Jules Pemberton expects the company to capitalise on the significant strength in the Australian resources and infrastructure sectors, as well as replacement projects in the iron ore industry. RedHill Education (RDH): Established in Sydney in 2006, RedHill operates school and university courses in business, English language and IT-related subjects for domestic and overseas students. It opened a Melbourne campus in 2015 and owns the student agency business

MONEY SEPTEMBER 2018 79

SHARES SMALL CAPS

Small-cap fundamentals MARKET CAP

ROE 2018

FORECAST ROE 2019

FORECAST CHANGE IN VALUE

ANALYST FORECASTS

DIVIDEND

EPS GROWTH FORECAST

Integrated Green Energy Solutions (ASX: IGE):

$40m

-10.50% (A 2017)

0.00%

Nil

-3.56 (A 2017)

HRL Holdings Ltd (HRL)

$91m

1.40% (A 2017)

0.00%

Nil

110.52

Alliance Aviation (AQZ)

$239m

11.60% (F)

13.60%

17.56%

3.11% (F)

Excellent

13.22

Spirit Telecom (ST1)

$49m

9% (F)

15.30%

200%

Exceptional

42.90 (F)

IPH Ltd (IPH)

$976m

19.30% (F)

21%

9.85%

4.65% (F)

Good

18.54 (F)

NRW Holdings (NWH)

$602m

11.20% (F)

15.50%

48.73%

0.62% (F)

Exceptional

20.83 (F)

RedHill Education (RDH)

$95m

21.40% (F)

25.20%

23.76%

1.61% (F)

Exceptional

26.99 (F)

Supply Network Ltd (SNL)

$181m

22.40% (F)

22.20%

9.63%

2.47%

Good

23.68 (F)

Paciﬁc Energy Ltd (PEA)

$209m

7.90% (F)

12.10%

51.19%

1.79% (F)

Exceptional

17.49 (F)

Bingo Industries (BIN)

$1.12bn

17.80 (F)

18.90%

24.72%

1.85% (F)

Exceptional

22.50 (F)

STOCK

PE RATIO

Source: Skaffold. (A) actual. (F) forecast. ROE return on equity. EPS earnings per share.

Go Study. Operating independently of government funding, RedHill focuses on specialist industries with growing demand for graduates, and receives most of its cash flow in advance. Acorn Capital expects RedHill’s revenue to grow 20%-plus annually over the next two years (to $68 million), with earnings before interest, tax, depreciation and amortisation (EBITDA) rising to around $10 million in full year 2019.

Managed funds In addition to not having to play stock picker, the beauty of investors looking to fund managers to unearth standout small caps is their ability to complete independent and thorough analysis. “They may have participated in capital management initiatives, been a cornerstone investor, or helped to guide the business strategy,” says Kanelleas. “They also have entrenched relationships with senior management, plus a deep understanding of the business and the journey it’s taken.” This is why small-cap fund managers, despite earning fees estimated by Schroder Australia to be around 60% higher than large-cap portfolios, are able to generate favourable long-term returns, and successfully outperform the index. Getting a fund manager to handle their small-caps portfolio also saves investors from reading too much into

Big performance Comparative returns (%) 25% 20% 15% 10% 5% 0% -5% Jul Sep Nov Source: Yahoo

80 MONEY SEPTEMBER 2018

Small Ords Index

All Ordinaries Index

S&P/ASX 200 Index

Jan18

Mar

May

what’s happening on their trading screen and getting it horribly wrong, adds Spenceley. The seven managed funds highlighted by Money here have an average one-year return of 22.5%. These include five small caps: NovaPort Smaller Companies Fund (fee 0.90% and one-year return 10.67%); Investors Mutual WS Australian Smaller Companies Fund (0.99% and 10.61%); Spheria Australian Smaller Fund (1.10% and 21.98%); MHOR Australian Small Cap Fund (2.59% and 24.09%); and Lazard Global Small Cap Fund (1.12% and 19.67%). Then there are two micro caps: the Perennial Value Microcap Opportunities Trust (fee 1.20% and one-year return 50.24%) and Acorn Capital Microcap Retail Managed Fund (2.50% and 20.67%).

Exchange traded funds Another way to gain diversified exposure to small caps is via low-cost ETFs. While some small-cap ETFs in Australia are based on benchmark market cap indices, there’s growing interest in what’s called “smart beta index development” to provide more opportunities to investors. According to a recent VanEck white paper, an index strategy in liquid Australian small companies that pay regular dividends is likely to produce superior returns and lower downside over the long term. With that in mind, here are four ASX-listed small-cap ETFs worth exploring: VanEck Vectors Small Companies Masters (MVS): MVIS Small Companies Dividend Payers Index; 18.51% return in the 12 months to June 30, fee 0.49%. iShares S&P/ASX Small Ordinaries (ISO): S&P/ASX Small Ordinaries Index; 23.31% return, fee 0.55%. Vanguard MSCI Australian Small Companies (VSO): MSCI Australian Shares Small Cap Index; 18.96% return, fee 0.30%. SPDR S&P/ASX Small Ordinaries (SSO): S&P/ASX Small Ordinaries Index; 23.59% return, fee 0.50%. M

I I I

“Getting a fund manager to handle the portfolio saves investors from getting it horribly wrong”

Shane Oliver OUTLOOK

Beyond the wall of worry Global growth is strong but the local economy seems destined to remain subdued

t’s often said that sharemarkets climb a wall of worry. That’s certainly been the case this year as the worry list has seemingly expanded (from the Fed to Trump’s tariffs, Italy and Australian property prices) and volatility has increased, and yet sharemarkets have trended higher. Our assessment is that the trend in sharemarkets will remain up. The big positives are that global growth is strong but we are not seeing the signs of excess (such as surging inflation and over-investment) that precede recessions and major bear markets. This is underpinning strong profit growth at a time when shares, while no longer cheap, are not particularly expensive either and global monetary conditions are still easy. However, there are a few storm clouds globally that warn of volatility at least. In particular, the US economy has little spare capacity and inflationary pressures are building. As a result, the Fed is continuing the steady drip-feed of rate hikes. Trade war risks between the US and China continue to build, and this in turn is putting pressure on Chinese growth. US political risks are increasing – notably around the Mueller inquiry and the mid-term elections – and risks around Italy remain. In this regard there are several things to keep an eye on globally over the next month. The trade war threat risks ramping up with the US threatening tariffs on another $US200 billion ($275 billion) of imports

from China after September 5. How China responds will be critical. The US Federal Reserve at its September 25-26 meeting is likely to hike rates for the eighth time this cycle to a range of 2%-2.25% and will be watched for guidance as to how much further it will go. And Italian budget negotiations risk taking it into conflict with the rest of Europe. September and October are also known for sharemarket weakness and volatility. In Australia, the glass remains half full or half empty depending on your perspective. The huge slump in mining investment is bottoming, non-mining investment is picking up, infrastructure investment is booming and export volumes are strong. But against this, housing construction looks to have peaked and there is

uncertainty regarding the outlook for consumer spending on the back of continuing high under-employment, poor wages growth and falling house prices. These cross-currents are likely to keep economic growth averaging around 2.5%3%, which is a bit less than the Reserve Bank is expecting. This points to ongoing spare capacity in the economy and relatively high underemployment which, along with falling Sydney and Melbourne home prices, makes it very hard to see the Reserve Bank raising interest rates any time soon. Well, at least not until 2020 and it’s quite possible the next move will be another cut. Locally, data for house prices (notably for Sydney and Melbourne), employment, retail sales and June quarter GDP are worth watching through September and early October to see how this goes, although our leaning is to expect more of the same. The likelihood, though, is that with Australian economic growth remaining sub-par, Australian shares will trend up but capital growth is likely to be sub-par compared with global shares. And with the Fed continuing to hike and the RBA staying on hold, the Australia dollar has more downside ahead, probably to around US70¢. Shane Oliver is chief economist and head of investment strategy at AMP Capital.

MONEY SEPTEMBER 2018 81

WHAT IF? Annette Sampson

A favourite stock cuts dividends It’s the total return from shares that matters, not just the dividend IS THAT LIKELY? Finance 101 is clear cut. Dividends are simply a means through which companies distribute their profits back to their owners. So if a company you own shares in is struggling to maintain its profit or, heaven forbid, losing money, its ability to pay out dividends is reduced. In February, Telstra cut its interim dividend to 11 cents, from 15.5c the previous year, after a five-year fall in half-year profits. But here’s the thing: that dividend cut was larger in percentage terms than the profit fall because Telstra also decided to change its dividend policy. For years it had paid most of its profit in dividends. Now it is paying out 70% to 90% and keeping a reserve to reinvest in the company, particularly taking the battle to its competitors. This is where it becomes more complex. While falling earnings can be a warning sign that slower dividend growth or a dividend cut lies ahead, it is not the only factor to take into account.

DIVIDEND PAYOUT RATIOS If you are looking for income from your investments, a key consideration is a company’s dividend payout ratio. This is the proportion of its profits that it pays out in dividends. Thanks to the tax benefits of dividend imputation, Australian investors have something of a love affair with dividends, and companies are more inclined to fund high dividends to keep their shareholders happy. This means our payout ratio is typically much higher than in many other markets. In the US, for example, where investors are more focused on share price growth, a payout ratio of 50% is regarded as normal. While figures differ between companies and industries, many Australian companies pay out 70% to 80% or more. So why does this matter? First, if a company is only paying out 50% of its earnings in dividends, it has more room to dip into reserves to maintain its dividend if earnings were to take a hit. By contrast, a company with a high

payout ratio doesn’t have that sort of wiggle room. Companies with very high payout ratios, such as Telstra until recently, could be forced to borrow to maintain dividends during a bad period – clearly not a sustainable strategy. There is also an argument that companies paying out most of their earnings to shareholders are doing so at the expense of reinvesting to grow the business. Obviously, a more mature company will have less need to reinvest than one that is growing quickly, but some analysts see high payout ratios as an admission that management is not focused on future growth, and so is less likely to reward shareholders with capital gains.

THE CHALLENGE Maria Bekiaris

Inheriting shares An important decision has to be made: hold or sell?

t’s always a sad time when a loved one passes away and if they leave you something in their will often you’re not in the best state of mind to make decisions. If you have inherited shares, though, an important choice you will need to make is whether you will hold onto the investment or sell it. If you have received shares in more than one company you may decide to keep some and ditch the rest.

82 MONEY SEPTEMBER 2018

Look at each company as if you were deciding to buy those shares now. Do you think the outlook is good, how has the company been performing and what’s happening in the market? Also think about how these fit in with the rest of your portfolio. Do you already own shares in the company, for example? You should also take into account the tax implications when deciding whether

DID YOU KNOW? The big four banks have varied their payout ratios from as low as 61% to more than 90% over the past decade. At present, CBA has a payout ratio of 76%, according to CommSec, and has had the most stable payout history over the past decade. The other three had not reported their profits at the time of writing but had payout ratios just over 80% in 2017. BEST-CASE SCENARIO Boards understand that investors don’t like nasty surprises with dividends and will generally articulate their dividend policy. Analysts and the media are also alert to potential dividend cuts, so if you’re prepared to do your research, you should have time to consider your options where a cut is likely. WORST-CASE SCENARIO As the GFC proved, a one-off dividend cut does not mean a company can’t go on to grow its dividends and share price. But if earnings were to remain sluggish for an extended period, a dividend darling of today could be a dog tomorrow. THE WILD CARD The impact of the royal commission is still working its way through the banking sector and while the real threat to bank profits is a slowing economy and rising loan default rates, it remains to be seen whether it will have any lasting impact on profits.

While a solid dividend income can feel reassuring, it is the total return from shares that matters. If a steady dividend is more than offset by a falling share price, you’re still losing money. WHEN CUTS HAPPEN When Telstra cut its dividend, the market sent a strong message of disapproval via an immediate 10% share price fall. But dividend cuts are by no means rare events. In the wake of the GFC, the banks – the darlings of dividend investors – trimmed their dividends to rebuild their financial reserves. Both Rio and BHP were forced to cut divi-

to keep the shares or sell them. You will have to pay capital gains tax if you make a profit when you sell the shares. If the person you inherited the shares from bought them before September 20, 1985, the cost base will be the market value of the shares on the date they died – not the date you received the shares. Also add any related costs incurred by the legal personal representative, says the tax office. If the executor has had the asset valued, ask for a copy of the report. If not, you’ll need to get your own valuation. If the deceased person bought the shares on or after September 20, 1985, the cost will

dends as the commodities boom came to an end. In the first week of this profit season, leading stocks such as AMP and Tabcorp also announced lower dividends. Some analysts had been talking up the risk of further dividend cuts by the banks as a result of the royal commission, though at the time of writing only CBA had reported its results. Despite a drop in annual cash profit, CBA announced a small dividend rise.

grow that dividend. Signs of an unsustainable dividend include a high payout ratio, a declining earnings outlook (especially if it indicates a downward trend rather than just a short-term blip), and changes in company priorities – such as a board that is becoming more focused on investment. * The author owns shares in CBA and NAB.

WARNING SIGNS For investors, the key question is not whether a stock has a good dividend yield but whether it has the ability to sustain and

Annette Sampson has written extensively on personal finance. She was personal finance editor with The Sydney Morning Herald, a former editor of the Herald’s Money section and a columnist for The Age. She has written several books.

be the price they bought them for plus any related costs, as well as those incurred by the legal personal representative, says the tax office. The executor should be able to give you these details. If you opt to keep the shares, then you will need to arrange for them to be transferred into your name. If you’re not the executor of the will, check with that person first to find out about the status of the shares, as they may have already arranged for them to be transferred to the estate. If the shares are CHESS-sponsored, you’ll need to go to the deceased person’s broker to arrange the transfer. You can

identify CHESS-sponsored shares because they will have a holder identification number (HIN), which begins with an “X”. If the shares are issuer-sponsored they will have a securityholder reference number (SRN) beginning with an “I”. This generally means they were purchased in a float or acquired from a demutualisation. An example is IAG shares, which many people acquired from the demutualisation of the NRMA. If they are issuer-sponsored, you can get in touch with one of the stockmarket transfer companies, Computershare or Link Market Services, to help you with the transfer.

MONEY SEPTEMBER 2018 83

ALUE.ABLE Roger Montgomery

SECTOR RETAILERS

Softer furnishings Falling house prices and tighter lending take their toll

❶ Nick Scali

ASX code NCK Nick Scali is expected Price $6.85 to expand into bedroom 52wk ▲ $7.34 furniture, adding 52wk ▼ $5.77 incremental revenue, Mkt cap $555m but the company’s most Dividend 40¢ recent earnings guidance Dividend yield 5.84% implies low single-digit PE ratio 13.54 negative same-stores sales growth. While ■ SELL Nick Scali’s name is being bandied about as the imminent acquirer of Steinhoff Asia Pacific’s Freedom Furniture business, the share price has traded sideways for more than a year and acquisitive growth is rarely as appealing as organic growth.

84 MONEY SEPTEMBER 2018

Nick Scali share price

Harvey Norman share price

Temple & Webster share price

$7.40

$4.60

$0.80

$7.20

$4.40

$0.70

$7.00

$4.20

$6.80

$0.60

$4.00 $0.50

$6.60 $3.80

$6.40 $6.20

$0.30

$3.40

$6.00 $5.80

$0.40

$3.60

N J18 M M

$3.20

N J18 M M

$0.20

N J18 M M

with new and established home sales falling to almost the lowest level in the past two decades. Interestingly, the tightening of credit conditions and falling home prices and sales are only now beginning to impact loan demand for renovations and additions. Owner-occupier loans for alterations and additions collapsed by about 20%. According to APRA data, major banks wrote over $32 billion of interest-only loans in the quarter to March 2017. In the quarter ending March 2018, the same banks wrote just $13.6 billion in interest-only loans. The

corresponding numbers for investment loans were $31 billion and $26 billion respectively. This data indicates that the renovation cycle can reasonably be expected to turn down now. Credit tightening will continue to reduce demand for (and supply of) loans and falling house prices will reduce the incentive for investors to renovate and “flip” properties and for owner-occupiers to “do up” properties.

❷ Harvey Norman

❸ Temple & Webster ASX code TPW The share price of AusPrice 76.5¢ tralia’s largest online-only 52wk ▲ 25¢ furniture and homewares 52wk ▼ 80¢ retailer has tripled in Mkt cap $83m the year ahead of delivDividend ering its first profitable Dividend yield quarter ending June 30, PE ratio 2018, with EBITDA of about $500,000. It has ■ SPECULATIVE a market capitalisation HOLD of $82 million. Thomson Reuters, the only analyst to cover the company, expects Temple & Webster to deliver a maiden annual profit in 2019 of $1.74 million. But as small local websites become more successful, its products hit the radar of Amazon, which offers the same, similar or knock-off items for a lower price.

ASX code HVN Since 1982, Harvey Price $3.78 Norman has not only 52wk ▲ $4.62 been selling appliances, 52wk ▼ $3.31 electronics and furniture Mkt cap $4.2bn but also “land banking”. Dividend 24¢ When land values and Dividend yield 6.35% the potential for rezoning PE ratio 10.54 are considered, investors might be buying the retail ■ HOLD businesses for very little. We don’t believe, however, that the property and retail businesses can be separated easily and that leaves investors tied to the deteriorating credit cycle. One interesting possibility is that Gerry Harvey, being the largest shareholder, might be incentivised to pay a large special dividend if Labor were elected and reformed franking credits.

Roger Montgomery is founder and CIO at the Montgomery Fund. For his book, Value.Able, see rogermontgomery.com.

Prices as at close of business, 17-Aug-18.

hile we visited retail stocks a few months ago, so much has happened that it would be remiss not to provide a timely update in the form of a brief examination of the $7 billion furniture retail business. Most importantly, the housing sector and credit growth are trending the wrong way. Falling house prices have a negative impact on households’ perception of their own wealth. Record leverage also has a negative impact on the capacity to spend more, and slowing housing activity has a negative impact on the incomes earned by tradies and contractors. In the background is the Australia and New Zealand data released by South African-listed Steinhoff, which owns Freedom Furniture, Snooze and Plush furniture stores in Australia. Excluding the more recently acquired Fantastic Furniture, same-store sales growth was -6% in the six months to March. In the March quarter it is estimated sales fell by just over 9%. The value of all home loans (excluding refinancing) fell by 1.2% in June compared with the previous month and by 8.4% compared with the previous year. It was the largest fall since April 2016. Loans to investors falling 18.1% year on year. Housing “activity” (sales) is also decreasing

Marcus Padley THIS MONTH

Truth can hurt Here are 20 tips that will help you survive as an investor

Fifty percent of making money from the stockmarket is not picking the best stocks; it’s avoiding the bad stocks. So why does everyone spend 100% of the time finding the good stocks? Pick all the weeds and you are left with the flowers. Pick all the flowers and you get left with the weeds. Pick the weeds. A small weed is the best weed. Take losses, not profits. Index returns are a fantasy. They are heavily marketed as an expectation but they are a fantasy and the accumulation indices that compound dividends are even more fantastic. No wonder your fund manager underperforms. The index perfectly compounds dividends, costlessly replenishes the bad stocks with good stocks, pays no dealing costs, has no rent, no staff, water coolers or management fees, and is not therefore a reality. I am amazed we all allow ourselves to be benchmarked to it. It is hard to beat. And the relentless sniping from the sidelines that fund managers are idiots because they all underperform the market is not a reflection of the manager’s incompetence but the speaker’s ignorance. Don’t bother predicting anything. Bear markets start and bull markets end when the market says so and it will only become obvious in hindsight. Best you go with the trend until it ends and react when it does, rather than predict the beginnings and ends, which is called guessing. If you have a mortgage, every dollar you lose goes on your debt and you pay interest on it, possibly for 20 years. On that basis, with interest rates at 5% for the next 20 years (generous assumption), every dollar you lose costs you $2.50 and every dollar you pay off is worth over twice as much as it costs. Get on the right side of compounding. Don’t buy a portfolio, buy stocks, and one day your portfolio will miraculously reappear. Focus on stocks, not financial marketing about diversification. The only reason professionals tell you to diversify is so that you can’t sue them.

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Only the unexpected moves a share price. You will make more money guessing what everyone doesn’t know about a stock than you will ever make finding out what everyone knows about a stock. A diversified portfolio of 20 stocks you ignore is more risky than a portfolio with one stock you know everything about. You cannot do it “the Warren Buffett way” or there would be a fund manager doing it, we would all be invested and we’d all be billionaires. Warren Buffett is not reality. Warren Buffett is a marketing tool for people who can’t sell their own products on their own merits. The market never crashes up. It falls three times as fast as it rises because losses have three times the emotional impact of a gain. Fear is a bigger driver than confidence and “it takes five minutes to be fearful but you can’t get confident in five minutes”. Stockmarkets rise slowly and fall quickly. You have to react quickly to losses. In a bull market you have time. In a bear market you don’t. An old one: if you ever find yourself standing up and punching the air in delight, it means “sell”. Catching the knife. There is only one thing a falling share price tells you and it’s not “buy me!” Swim with the tide. In a bull market the core virtue is “participation”. In a bear market the core virtue is “non-participation”. Sophisticated investors: in a bull market you are a sophisticated investor when your accountant confirms you are. It takes a bear market to find out whether you are.

11 12 13 14

Watch the crowd, feed the crowd, manipulate the crowd but don’t be the crowd. Bear markets end when the headlines are terrible. Bull markets end when the headlines are euphoric. The three biggest weaknesses of an amateur investor: not selling, not selling, not selling. The other weaknesses of the amateur investor: not caring, not watching, blaming other people, crusading, being emotional, caring about the purchase price, being long term, being short term, making grand declarations about the future, wasting time on macro rumination, rushing, bothering to run a diversified portfolio you could buy for $19.99, quoting Warren Buffett and thinking you sound clever. The only effortless way to get rich is be born rich. But you only get one shot at it and people far less capable than you always seem to succeed at it. The second best way to get rich – but it requires a little more effort – is to marry rich. The best advice my parents never gave me: if faced with two equally attractive potential mating partners for life, marry the rich one. Be nice to your children. They will be the first generation of investors who have no recollection of the 2008 financial crisis and the next generation capable of a bout of irrational exuberance. It will be these delicate little cherubs who eventually pay top dollar for your assets.

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 marcustoday.com.au.

MONEY SEPTEMBER 2018 85

FACT OR FICTION Scott Phillips

Always buy on the dips Whether we’re shopping for jeans or shares, we have an innate desire to bag a bargain

t’s one of the brokers’ favourite maxims, because it makes so much sense. “Buy on the dips,” they say. And think about it: would you prefer to buy a pair of jeans for $100, or would you rather get them on sale for $80 instead? Exactly. So, buy on the dips, right? It seems so simple. So seductive. So downright obvious. And, unfortunately, it’s awful advice when applied to shares. Let me explain. Yes, the idea of buying things on sale makes perfect sense. And, yes, I’ve used the “on sale” example to stop people freaking out when share prices fall. After all, when the market goes through its periodic ups and downs, there’s no point selling just because prices have fallen, and it can even be a good time to buy more. If you liked the jeans at $100, you’ll love them at $80. But didn’t I just say … ? I did. And here’s where (and why) it’s different: The idea of “buy on the dips” or “buy when the market falls” isn’t bad advice if your intent is to encourage people to be brave after prices have fallen. But it’s terrible advice if applied in advance, and if it encourages you to put off an otherwise sensible purchase. Let’s go back to our jeans. And let’s say the price today is $50 a pair. Your well-meaning fashion broker tells you that, yes, they’re nice jeans. And, yes, they look good on you. But they’re a little expensive. “Just wait,” he says, “and buy on the dips.” You take the advice and, walking past the shop a week later, you notice the price is now $60 a pair. No one wants to chase the price up, so you wait for the price to fall. Over the next couple of weeks the price hits $75, then $100. Finally … finally, it falls. Three months after you first saw the jeans, they’re on sale for $90. “Ah, a pullback,” your fashion adviser exclaims triumphantly. “I knew that if you waited you’d get a chance to buy on the dips!” For something that seems so obvious, and is so firmly rooted in our psyche,

86 MONEY SEPTEMBER 2018

“buy on the dips” is probably the most inane advice you could ever receive. It preys on our innate desire to get a bargain, and to not pay too much. But

Foolish takeaway Contrary to what your broker might tell you, there’s nothing indicative about a “dip” in the share price. It doesn’t tell you whether the shares are expensive or cheap. It doesn’t tell you whether the shares will go up or down by this time next year. Yes, we all want a bargain. But the savvy investor knows that bargains are defined by where the share price goes five years from now, not by whether or not it’s fallen 5% in the past couple of weeks. By all means, buy the dips … just constrain it to hummus or French onion, please.

it ignores completely any objective assessment of value. If a company’s shares are horribly overvalued at $10 each, there’s no point buying at $9.50 on the assumption that they must, by definition, be a bargain now that there’s been a “pullback” in the price. And if the shares are cheap at $5, there’s unlikely to be any harm in buying at $5.50 or $6. Of course, if we knew where the shares would be in one, three or five years, the decisions would be easy – we’d just buy the ones that go up. Unfortunately, investing isn’t that easy. Scott Phillips is The Motley Fool’s general manager. You can reach him on Twitter@TMFScottP and via email ScottTheFool@gmail.com. This article contains general investment advice only (under AFSL 400691).

250 superannuation funds and products. SuperRatings takes into account riskadjusted 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 superratings.com.au.

been deducted. The table here shows performance of fundsâ&#x20AC;&#x2122; 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

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

Top 20 Balanced Options (60%-76%)^ RANKED BY 5-YEAR RETURN RANK

3-YEAR RTN (%PA)

RANK

5-YEAR RTN (%PA)

12.5%

10.2%

11.0%

Platinum

11.1%

9.3%

Industry

Platinum

11.0%

9.4%

Intrust Core Super MySuper

Industry

Platinum

10.4%

UniSuper Accum (1) Balanced

Industry

Platinum

10.5%

MTAA Super My AutoSuper

Industry

Gold

CareSuper Balanced

Industry

Catholic Super Balanced (MySuper)

7-YEAR RTN (%PA)

RANK1

10.3%

10.5%

9.8%

10.4%

9.9%

8.6%

10.2%

9.3%

8.6%

10.1%

9.7%

9.4%

8.6%

9.9%

8.4%

Platinum

10.1%

8.7%

9.9%

9.6%

Industry

Platinum

9.8%

9.1%

9.9%

9.1%

Sunsuper for Life Balanced

Industry

Platinum

10.7%

8.6%

9.9%

9.2%

AustSafe Super MySuper

Industry

Gold

11.4%

8.6%

9.8%

9.3%

Equip MyFuture Bal. Growth

Industry

Platinum

10.7%

8.4%

9.8%

9.4%

VicSuper FS Growth (MySuper)

Industry

Platinum

9.1%

7.3%

9.7%

9.0%

Mercy Super ASG MySuper

Corporate

Gold

10.4%

8.9%

9.7%

9.4%

Energy Super Balanced

Industry

Platinum

8.9%

8.3%

9.6%

9.0%

BUSSQ PC Bal. Growth

Industry Personal

Platinum

8.8%

8.5%

9.6%

9.2%

HESTA Core Pool

Industry

Platinum

10.6%

8.1%

9.5%

9.0%

Vision SS Balanced Growth

Industry

Platinum

10.4%

8.2%

9.5%

8.9%

First State Super Growth

Industry

Platinum

10.2%

8.0%

9.4%

9.0%

Club Plus Super MySuper

Industry

Platinum

10.8%

8.7%

9.4%

8.5%

Telstra Super Corp Plus Bal.

Corporate

Platinum

8.3%

6.9%

9.3%

8.9%

TYPE

2018 RATING

1-YEAR RETURN

HOSTPLUS Balanced2

Industry

Platinum

AustralianSuper Balanced

Industry

Cbus Growth (Cbus MySuper)2

FUND

SR50 Balanced (60-76) Index

RANK

7.3%

8.9%

1 YEAR

3 YEARS

5 YEARS

7 YEARS

SR25 High Growth (91-100) Index

12.1%

8.8%

11.0%

10.0%

SR50 Growth (77-90) Index

10.6%

7.8%

10.0%

9.2%

SR50 Capital Stable (20-40) Index

4.7%

4.4%

5.3%

5.4%

SR50 Australian Shares Index

13.4%

9.4%

10.1%

9.0%

SR50 International Shares Index

12.3%

8.9%

12.5%

12.3%

SR25 Property Index

9.7%

9.0%

9.6%

9.7%

9.2%

8.5%

Rankings are made on returns to multiple decimal points. Interim returns.

SuperRatings indices median returns

DATABANK

YOUR GUIDE TO SUPER DATA

WHAT THEY MEAN Rank Super funds have been ranked by five-year returns. Returns are net of maximum fees. High balances may qualify for lower fees and thus better returns. Rankings for one-, three-, and seven-year returns show the performance of the particular fund compared with peers. NP means membership of the fund is restricted. Pr means performance results are preliminary. Returns are as at June 30, 2018. 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 ladder.

Percentages in brackets indicate proportion of growth assets.

MONEY SEPTEMBER 2018 87

DATABANK

YOUR GUIDE TO MANAGED FUNDS DATA

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 visit morningstar.com.au.

Top 5 retail multisector funds by size Name

APIR Code

ICR %pa

Start Date

Minimum Investment

Size

1-year return

5-year return (%pa)

Star Rating

Advance Balanced Multi-Blend W

ADV0050AU

0.86%

23-Mar-98

$5000

$2518m

11.65%

7.51%

★★★

Advance Growth Multi-Blend W

ADV0085AU

1.03%

18-May-04

$5000

$1894m

13.66%

8.36%

★★★

Summit Select Income Generator

IPA0074AU

NAv

10-May-10

$1000

$1835m

6.04%

6.41%

★★★

IOOF MultiMix Balanced Growth Trust

IOF0093AU

1.05%

29-Apr-08

$25,000

$1768m

12.55%

9.17%

★★★★★

Advance Moderate Multi-Blend W

ADV0091AU

0.82%

18-May-04

$5000

$1570m

8.77%

6.00%

★★★

Top 5 retail Australian share funds by size Name

APIR Code

ICR %pa

Start Date

Minimum Investment

Size

1-year return

5-year return (%pa)

Star Rating

Fidelity Australian Equities

FID0008AU

0.85%

30-Jun-03

$25,000

$5946m

15.68%

10.02%

★★★★

Perpetual Wholesale Industrial

PER0046AU

1.01%

24-Dec-96

$25,000

$2003m

7.84%

8.14%

★★★★

Schroder WS Australian Equity

SCH0101AU

0.92%

1-Jul-02

$20,000

$1882m

13.82%

7.89%

★★★★

Ausbil Australian Active Equity

AAP0103AU

0.90%

31-Jul-97

$20,000

$1754m

17.80%

10.02%

★★★★

Pengana Australian Equities Class A

PCL0005AU

2.11%

18-Jun-08

$20,000

$1414m

8.86%

8.65%

★★★★★

Top 5 retail international share funds by size Name

APIR Code

ICR %pa

Start Date

Minimum Investment

Size

1-year return

5-year return (%pa)

Star Rating

Platinum International Fund

PLA0002AU

1.48%

30-Apr-95

$10,000

$10,729m

12.96%

11.92%

★★★★

Magellan Global

MGE0001AU

1.48%

29-Jun-07

$10,000

$9964m

21.91%

13.54%

★★★★

Antipodes Global Fund - Class P

IOF0045AU

1.51%

26-Jul-94

$25,000

$3279m

14.62%

16.78%

★★★★

Walter Scott Global Equity

MAQ0410AU

1.28%

18-Mar-05

$20,000

$2524m

24.35%

13.87%

★★★★

State Street International Eqs Idx Tr

SST0013AU

0.18%

1-Jul-97

$25,000

$2100m

20.35%

13.95%

★★★★

Top 5 retail multisector funds by 5-year performance

88 MONEY SEPTEMBER 2018

Size

1-year return

5-year return (%pa)

Star Rating

Name

APIR Code

ICR %pa

Fiducian Ultra Growth

FPS0014AU

NAv

1-Dec-08

$167m

15.26%

13.02%

★★★★★

Australian Ethical Divers Shrs Whols

AUG0019AU

0.95%

23-Jan-12

$105m

14.05%

12.06%

★★★★★

BT Class Inv Split Growth

BTA0012AU

1.53%

12-Mar-84

$220m

13.79%

11.11%

★★★★★

Fiducian Growth Fund

FPS0004AU

NAv

1-Feb-97

$118m

14.80%

10.83%

★★★★★

UCA Growth Portfolio

UGL0002AU

NAv

1-Jul-85

$374m

15.95%

10.78%

★★★★

Start Date

Top 5 retail Australian share funds by 5-year performance Size

1-year return

5-year return (%pa)

Star Rating

Name

APIR Code

ICR %pa

Bennelong Concentrated Australian Eq

BFL0002AU

1.41%

30-Jan-09

$691m

31.90%

18.67%

★★★★★

Macquarie Australian Shares

MAQ0443AU

2.24%

29-Nov-05

$127m

18.00%

17.72%

★★★★★

Grant Samuel Tribeca Alpha Plus

ETL0069AU

0.97%

18-Sep-06

$161m

18.93%

15.16%

★★★★★

Platypus Australian Equities - Wholesale

AUS0030AU

1.07%

28-Apr-06

$102m

30.75%

13.57%

★★★★

Bennelong Australian Equities

BFL0001AU

1.00%

30-Jan-09

$449m

29.33%

12.54%

★★★★★

Start Date

Top 5 retail international share funds by 5-year performance Name

APIR Code

ICR %pa

Start Date

Size

1-year return

5-year return (%pa)

Star Rating

Acadian Wholesale Global Eqty Long Short

FSF0788AU

1.27%

20-Jan-06

$33m

27.04%

18.77%

★★★★★

Antipodes Global Fund - Class P

IOF0045AU

1.51%

26-Jul-94

$3279m

14.62%

16.78%

★★★★

Magellan High Conviction

MGE0005AU

2.50%

1-Jul-13

$511m

20.00%

16.00%

★★★★★

Franklin Global Growth W

FRT0009AU

1.13%

1-Oct-08

$110m

23.97%

15.98%

★★★★★

Fidelity Global Demographics

FID0023AU

1.15%

30-Nov-12

$50m

21.58%

15.89%

★★★★★

Top 5 funds by 1-year performance Size

1-year return

5-year return (%pa)

Name

APIR Code

ICR %pa

Perennial Value Microcap Opportunities

WPC3982AU

1.20%

31-Jan-17

$57m

47.53%

NAv

Macquarie Master Small Companies

MAQ0085AU

NAv

4-Jun-98

$23m

34.91%

21.12%

★★★★

Eley Grifﬁths Group Small Companies

EGG0001AU

1.25%

12-Sep-03

$494m

30.92%

12.80%

★★★

CFS Wholesale Future Leaders

FSF0469AU

1.30%

12-Jul-04

$29m

30.83%

10.39%

★★★

Lennox Australian Small Companies

HOW3590AU

NAv

28-Apr-17

$57m

30.53%

NAv

Start Date

Star Rating NAv

NAv

Bottom 5 funds by 1-year performance Name

APIR Code

ICR %pa

Start Date

Size

1-year return

5-year return (%pa)

Star Rating

Pengana Australian Equities Income

HHA0001AU

1.35%

30-Nov-01

$20m

3.63%

5.21%

★

UBS Australian Small Companies SIV Fund

UBS0063AU

1.04%

28-Aug-15

$100m

6.28%

NAv

NovaPort Smaller Companies

HOW0016AU

0.90%

24-Jun-02

$297

8.38%

8.66%

★★★

Australian Ethical Australian Shrs

AUG0002AU

2.50%

19-Sep-94

$559m

8.66%

11.98%

★★★

Perpetual WFIA-Perpetual Small Coms

PER0039AU

1.99%

25-May-95

$213m

8.87%

10.60%

★★★

Value of $10,000 by asset class Growth of $10,000 July 2013 - July 2018 Equities Property Small Companies Multi-sector International Equities Cash Australian Fixed Interest Mortgage International Fixed Interest $10k

$14,865 $17,149 $17,439 $13,498 $18,013 $10,989 $11,852 $10,883 $12,311

$12k

$14k

$16k

$18k

$20k

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 www.morningstar. com.au/s/fsg.pdf. 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.

WHAT THEY MEAN 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 July 31, 2018. Morningstar Rating ★★★★★ very good performer ★★★★ good performer ★★★ average performer ★★ poor performer ★ very poor performer NAp Not applicable NAv Not available The bar chart shows the five-year growth of $10,000 invested in different asset classes at the end of July 2013 until the end of July 2018.

MONEY SEPTEMBER 2018 89

THE HOT SEAT

“Don’t compare yourself with others. It can be a killer.” If you had $10,000 where would you invest it?

What was your first job? My parents were farmers and they grew strawberries, so my first job was to help them sell their product. My role was to wrap the punnets, add the sticky labels and sell them to customers who spotted my homemade “strawberries 4 sale” sign on the side of a main road. I think it was a pivotal time in my life when I gained my basic customer service skills and learnt the importance of product presentation. These talents were definitely key foundations in starting The Daily Edited with my co-founder Tania Liu. So I’ve moved from the side of the road to now selling fashion accessories globally.

What’s the best money advice you’ve ever received? Don’t spend all of your money (even though I still do). I’m terrible at financial planning and saving money! So I wouldn’t go by my advice. Take my mother’s instead: if you earn $10, only spend $4. I’m more of the mindset, though, to own $10 and spend $12.

What’s the best investment decision you’ve made? It was buying my house. Fortunately, my early career success allowed me to enter the market before the boom, when prices skyrocketed.

What’s the worst? Thankfully, I have not ever had too much money to make a bad decision. However, I would say my kryptonite is buying clothes, particularly designer garments. What can I say ... I am a material girl. This may not be considered an investment by many but I am certainly investing a lot of my income into this cause at the moment.

What is your favourite thing to splurge on? I think you can guess … designer clothing. Owning a high-fashion brand, I have to invest (not splurge) in clothing that matches my refined accessories from The Daily Edited.

90 MONEY SEPTEMBER 2018

I would invest that money in company shares, specifically Google. At this point I only have a few shares because they are so expensive but every time I see a little drop in price I buy more. Google is the world’s leading search engine with no competitors. I think the business is dynamic, agile and creative enough to stay on top of innovation and continue to be a leader in the space. I just cannot see a drop in value anytime soon.

Alyce Tran Co-founder of The Daily Edited, an online store offering a range of personalisable accessories and fine stationery. The Daily Edited was originally a side hustle and Alyce worked as a corporate lawyer until quitting her job in 2015 to focus on the store. Alyce is also the ambassador for H&R Block’s Grants for Growth initiative, which is giving away $10,000 to 20 Australian businesses.

What would you do if you had only $50 in your bank account? This is where my splurge – investments rather – would come in handy. I would sell some of my designer clothes to generate funds to get me through until I can hatch another plan. In saying this, though, it would be my final option and my worst nightmare.

Do you intend to leave an inheritance? I’m unsure. I don’t yet have any children so this is a difficult question to answer. I would never expect my own parents to leave me anything. I would rather they spend their hard-earned money and enjoy the retired life. Hopefully, if I have kids, they will feel the same way.

What would be your top tip for budding entrepreneurs? Don’t compare yourself to others. It can be a killer. Run your own race at your own pace and set your own goals.

Finish this sentence: money makes ... .... life easier, not better.

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