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CONTENTS

33

20

44

How millennials are tackling life’s big decisions

Luke Anear, founder of a global work safety platform

Is your best asset right in front of you?

COVER STORY

INTERVIEW

ON THE COVER 33 52 56 64 70 74

Gen Y is taking the lead Pick the best person for the task Get to know property cycles Advantages of the FHSS scheme Should you pay off HECS or invest?

Millennials and the stockmarket

INVEST IN YOURSELF

UPFRONT 6 8 10 12 16 20 24 28 31

Editor’s letter Our experts Money talks: Julia Newbould News & views In brief Interview: Alan Deans Ask Paul Smart spending Paul’s verdict

MY MONEY 44 47 48 52 53 54

Your job: Nicola Field on your biggest asset Banking: Michelle Baltazar Book extract: Erin Devlin tells how to get the job you want Mind games: Phil Slade Small business: Anthony O’Brien on the Covid entrepreneurs Family money: Susan Hely on grandparents and childcare

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 whether your decision is appropriate. Rainmaker Information Pty Ltd does not have an interest in the promotion of any company, investment or product featured in this magazine.

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AUGUST 2021, ISSUE 247

56

64

YOUNGER BUYERS

RECOVERY ON TRACK

Get to know the market before you jump in

The advantages of the improved FHSS scheme

Economic growth on an upward curve

RIDING THE WAVE

PROPERTY 56

64 66 70 73

IN EVERY MONTH 8 86 90

SHARES

INVESTING

Property market cycles: Peter Esho on getting started Real estate: Pam Walkley Underquoting: Nicola Field Super: Vita Palestrant

59 60 64

Super: Vita Palestrant Pick of the bunch: David Thornton on best managed funds School’s out: David Thornton on HECS or invest Managed funds: Max Riaz

Privacy notice Databank The hot seat: Michael Robotham

FIRST HOME BUYERS HOW SUPER CAN HELP

STUDENT DEBT INSTEAD PAY IT OFF OR INVEST

CREATING FINANCIAL

74 78 79 80 82 84 89

Starting out: Danielle Ecuyer on millennials and the stockmarket Forward thinking: David Thornton on non-fungible tokens Best in breed: Scott Phillips Strategy: Steve Johnson This month: Marcus Padley Intelligent Investor: Mickey Mordech Outlook: Benjamin Ong

FINANCIAL GAMES RULES TO FOLLOW

SAVINGS & GIVEAWAYS S

FREEDOM

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INSIDE

ion Handles the The Switched-On Generat a Career • Saving Big Decisions • Building ing Somewhere for a Home Deposit • Find ng to Buy • Spending and Savi e Their Way • Investing Thos $3.5 Trillion Inheritances

THE

MILLENNIAL ISSUE

JULIA NEWBOULD MOVE OVER BOOMERS: GEN Y ARE DOING IT THEIR WAY

89

DANIELLE ECUYER TECHNOLOGY FUELS AN APPETITE FOR SHARES

PETER ESHO WHERE TO START ON THE HOUSING JOURNEY

6

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EDITOR’S DESK

FROM THE EDITOR

Feedback

Gen Y forges ahead

Letter of the month

W

Good debt is the key to wealth creation

e are excited to present our special millennial issue, an in-depth look at what makes this impressive generation tick and how that in turn shapes their attitudes towards their finances.

The latest intergenerational wealth report suggests millennials, or gen Y, are poised to inherit $3.5 trillion in assets over the next 20 years, an average of $320,000 each. While there is a lot of debate about how much baby boomers and gen X will pass on to their children and grandchildren, at least half of this amount will grow or shrink, based on the decisions of the millennial generation. By 2025, up to 75% of the workforce will be millennials.

But with great wealth and opportunity you encounter challenges. The first batch of millennials turns 40 this year, a tough time to be taking on the responsibilities of a demanding career or a young family. Younger millennials will need to work harder to buy their first home and those who graduate in the next few years might suffer career setbacks because of the pandemic.

Despite all this, millennials are still well equipped to shape their financial future (see our cover story, page 33). They have given rise to a new breed of money educators called “finfluencers” (financial influencers); they can invest in shares with as little as $50 at zero broking costs; and they can grow their income tenfold in a short time as savvy digital entrepreneurs.

The good news is that what’s great for millennials also works for gen X and baby boomers, and some of the tips in this issue can easily apply to other demographic cohorts. After reading this magazine, you’ll see that building wealth is a family affair involving multiple generations.

There will be speed bumps along the way, but the future is bright for the millennial who wants to become financially independent.

6 MONEY AUGUST 2021

Michelle Baltazar, Editor-in-chief

I smiled as I read in the July cover story, “Good debt, bad debt”, that 30% of new margin loan investors are 18 to 35 years old and 30% of these are women. This was me, over two decades ago!

As I started my investor journey in earnest in my late 20s, a smug comment by a real estate agent that property was the only game in town had me look for an investment approach that I could grow in my own time and at my own pace.

Leveraged investing through a margin loan met both my risk profile and my investment approach, which is taking one step at a time. The advice in your story – ensure good diversification, choose income-producing shares and have plenty of equity via a low loan-to-value ratio – is definitely my lived experience and has ensured I’ve never experienced a margin call, despite the multiple dips and corrections over these 20 years.

I’d add to this advice: be on the front foot with your margin loan provider. My trusted margin banker reminds me that during the height of the GFC, as staff were constantly on the phone chasing customers facing a margin call, I rang the bank with a plan to keep from forced sale of my shares.

It has been a 20-year learning experience that hasn’t leveraged me to huge wealth, but I’m comfortable, with my trusty annual dividend income now three times my interest bill, and an LVR of just 10%.

I was always aware that margin lending was no game. I was close to tears reading in the press about the destruction caused when leveraged wealth creation was handled in such a cavalier way by the likes of Storm Financial. In this, the final word is know your own personal risk profile and understand fully what you are undertaking.

Susan

I was pleased to read Marcus Padley’s column “Golden rules for corrections” (May) that “cash is always king”. You see, I am one of those boring, extra-safe term deposit kind of people, and pre-pandemic I was happy with my $30,000pa return and had locked in some higher rates before the plunge.

In 2021, the bank rates offered were still an insult, so in February I began buying physical gold.

My $27,000 investment would have provided $27.48 interest in a 0.40% term deposit. Three months later, in late May, I could sell back my physical gold for a total profit of $1800.

I own long-term gold but this batch was solely bought to replace lost term deposit income, and I wish I had bought more. It’s possible to be safe and think outside the square to do what you need to supplement your income. So cash and gold could sometimes very well be your king!

Giselle

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GOOD DEBT, BAD DEBT

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CORRECTION Alex – non-bank personal lender of the year Due to a typographical error, the July issue of Money (page 48) stated incorrectly that Alex had “establishment fees, ongoing fees, payout penalties or extra-repayment fees”. The copy should have read “there are NO establishment fees, ongoing fees, payout penalties or extra-repayment fees”.

The article also stated that the personal loans rate is as low as 5.49% for loans up to $30,000; 100% digital. The rate, which was also in the copy, is actually 5.45%.

Money apologises for the inaccuracy, which was unintentional.

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MONEY AUGUST 2021 7

OUR EXPERTS

The Money team EDITORIAL Founder & editorial adviser Paul Clitheroe Editor-in-chief Michelle Baltazar (02) 8234 7500 michelle.baltazar@ moneymag.com.au Editor-at-large Julia Newbould julia.newbould@ moneymag.com.au Art director Ann Loveday Senior sub-editors Bob Christensen, Debbie Duncan Senior writers Susan Hely, Pam Walkley Senior journalist David Thornton Digital editor Sharyn McCowen CONTRIBUTING WRITERS Mark Chapman, Erin Devlin, Peter Dockrill, Danielle Ecuyer, Peter Esho, Nicola Field, Peter Forrestal, Steve Johnson, Mickey Mordech, Anthony O’Brien, Benjamin Ong, Marcus Padley, Vita Palestrant, Scott Phillips, Max Riaz, Phil Slade

“What’s the coolest investment you’ve ever made?”

PHOTOGRAPHS Getty Images PRE-PRESS Peter Suchecki PRODUCTION Head of design and production Tim Verrender tim.verrender@ rainmaker.com.au ADVERTISING Director – head of media sales Stephanie Antonis (02) 8234 7547 stephanie.antonis@ rainmaker.com.au Account manager Sam Starrat (02) 8234 7531 sam.starrat@rainmaker. com.au MARKETING Marketing manager Julian Clarkstone julian.clarkstone@ rainmaker.com.au MANAGEMENT Managing director Christopher Page

NICOLA FIELD

“Around 20 years ago I invested in a rundown, turn-of-thecentury school house in the upper Hunter Valley in NSW. It had been on the market for ages. I picked it up for $85,000 with the intention of using it as a holiday home.

And, yes, I’ve put in some cash (though not a lot), turning the place into a comfortable character home. Today it is valued in the high $400,000s. Who’d have thought?”

Executive director Alex Dunnin Syndication enquiries: money@ moneymag.com.au ISSN 1444-6219

CONTRIBUTING ARTISTS Reg Lynch, John Tiedemann

DANIELLE ECUYER

PHIL SLADE

“An original 1976 “As much as I would Mark 1 Fender Rhohave loved a Tesla des electronic piano. car, the price point It’s a classic instruand lack of a garage ment with a unique meant I bought sound. Purchased the shares instead. for $1800, it’s worth In 2020 they rose close to $10,000 695%, topping out now. I’m always in January 2021, on the lookout for when I took some unique vintage gear profits. Tesla is the that holds nostalgic world leader in elec- and practical value tric vehicles and has with a certain niche a three- to five-year in the community. technological advan- A Theremin persontage on other EV ally signed by manufacturers.

Bob Moog comes It remains my a close second.” largest and coolest investment.”

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ALAN DEANS

“My coolest investment is buying an edgy, architectdesigned house in the Blue Mountains.

Its roof is shaped like a wave, and the building is made of steel and glass to help withstand bushfires. It is next to a national park and rowdy kookaburras often provide a raucous serenade to the setting sun. It is also a building that turns heads because its shape and style are like no other.”

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MONEY TALKS Julia Newbould

Nominating your super beneficiary What you need to know to leave your super to loved ones in the event of your death

A

s we were putting this issue together, the case of the young court clerk who died after being hit by a car was a topic of discussion. Her boyfriend at the time, a retired magistrate, was awarded her death benefit after being named as her superannuation beneficiary by her super fund trustee.

According to reports, the young woman had nominated her mother as the beneficiary of her superannuation and life insurance. However, her partner made a successful claim to the trustees that he was her de facto partner and, therefore, her dependent.

What this highlights is the issues that can arise around who nominating a beneficiary for your super fund.

And typically, this issue mostly affects younger people who are more likely to nominate close family members if they are not yet in a longterm relationship. Unfortunately, when they pass away, their choice won’t necessarily be honoured by the fund trustee.

The safest option is often to nominate for funds to be paid to their estate. To clarify their wishes, their will should be amended to include this nomination.

If you think you don’t have enough in superannuation to worry about who to nominate as your beneficiary, think again.

Your super may also include insurances, which could be considerable.

According to Peter Bobbin, principal lawyer at Coleman Greig Lawyers, everyone should make a will, and everyone should nominate a beneficiary for their super and do whatever they need to do to make sure their super is dealt with in the way they want it to be dealt with.

On a recent visit to Crookwell, in regional NSW, Bobbin says he became aware of lawyers advertising ‘have you been left out of someone’s super’. It used to be ‘have you been left out of a will’,

10 MONEY AUGUST 2021

says Bobbin, but clearly this is an increasingly common area of litigation.

“This is one of the most continually litigated areas in super and succession at the moment – not just in super but in deceased estates,” he says. “Given that we’ve had compulsory super for more than 30 years it applies to the baby boomer generation and every generation that comes after it.

“Super is not part of your estate; and that

name who gets what and how much. There are tax reasons why you might want to keep your super in that structure – for your partner or dependent. It might also speed up the process to give your beneficiary your super benefit without waiting for probate. Choosing beneficiaries for a binding death benefit nomination can be complex. It has to be a spouse, whether legal or de facto, a child or someone who is an interdependent dependent, for example, a parent you might be living with in a co-dependency. But if the parent is not a dependent, they cannot be nominated.

“This is part of the problem, because it’s so rarely understood that a dependent is not necessarily just a loved one. If you want to give super to anyone outside this narrow classification (above) then it has to be done through the will,” says Bobbin.

The bad choice is not making any decision at all, not giving any guidance and letting the trustee of your super fund make the decision on your behalf after you’re gone.

Bobbin says another recent case was about a couple in the Riverina district, where a son’s girlfriend claimed to be his de facto spouse. His parents also made a claim but because he’d made no nomination in super, the super fund ended up giving her all the money.

Not all death benefit cases make it through to the courts, Bobbin says, so you need to consider those that do only represent the tip of the iceberg.

“It’s important for everybody who has superannuation, even a young person who feels they don’t have much super (but will commonly have life insurance), that if they want their super to go to their sibling, parent or other direction, the best thing for them is a binding death benefit nomination that says ‘the money will go to my estate’ and then make a will to say exactly what they want.”

3

is so vital for people to understand. It only becomes locked into the estate if people do something about it. That’s the blunt message people need to understand.”

There are three ways to organise your super, Bobbin says.

Organise a binding death benefit nomination that says “my super on my death goes to my estate”. This is the easiest to deal with because then the will controls it and there’s just one document that deals with your estate.

If you don’t want to do a binding death benefit nomination ‘to my estate’ you can make a binding death benefit, and

1

2

Julia Newbould is Money’s managing editor.

INSURER

OF THE

YEAR

NEWS&VIEWS

THIS MONTH

CALENDAR OF EVENTS Tuesday, August 3 RBA interest rate decision Thursday, August 5 Balance of trade Wednesday, August 11 Westpac consumer confidence Thursday, August 12 Wage price index Friday, August 13 Consumer inflation expectations

12 MONEY AUGUST 2021

THE BUZZ

Keep a cool head when it comes to sustainability

T

he history of investing is littered with periods when investors have become irrationally enthusiastic.

For example, in the 1970s they became transfixed by a group of “bulletproof” stocks, known as the Nifty 50, for which no price was deemed too high. The late 1990s saw the dotcom boom.

The important thing to note is that the investment theme underpinning these moments makes perfect sense; it is the market excess surrounding them that is irrational.

Today’s hot story is sustainability. There are many good reasons to consider ESG factors, but none to disregard the fundamentals that drive returns.

Share prices reflect measurable factors. First, expectations about future earnings growth and, second, the price that investors are prepared to pay

to participate in that growth.

Add in a third key factor, the weight of investment money, and it is hardly surprising that shares spend almost no time at the “right” price but move widely either side of it.

Growth is where the ESG story is on firmest foundations.

The need to combat global heating, even out the inequalities highlighted by the financial crisis and its aftermath and align corporate governance with changing social mores creates many investment opportunities.

The problem is that many investments are being wrongly identified as growth opportunities. Just as adding dotcom to the name of a company did not make it a good investment in 1999, labelling a business as sustainable will not change anything of substance in 2021.

The second driver, price, is

where ESG is on shakier ground.

A key argument for investing in sustainable companies is that directing capital towards them makes the world a better place, by lowering the cost of capital for well-behaved businesses.

But the flipside is a low expected return for the investors who provide it. The more you pay for a given cash return the lower its effective yield to you.

The weight of money is perhaps the most dangerous factor of all. It disguises what is really going on by driving prices higher in the short term.

This matters because ESG matters. When the Nifty 50 or the tech bubble blew up it was not the end of the world. The ESG stakes are higher. A little less exuberance now might not be a bad thing in the longer run.

Tom Stevenson, investment director, Fidelity International.

ON MY MIND

7 common mistakes in wills

I

f one good thing has come out of the pandemic, it’s that more people are thinking about what will happen to their estates when they die. This is welcome news, but many people are making the same mistakes when it comes to planning their wills: 1. Trying to do estate planning by themselves, including drawing up “homemade” wills, which can lead to mistakes and unnecessary costs.

2. Appointing both accountants and lawyers as executors, thereby doubling up on services/costs.

3. Not being fully aware of the personal obligations placed on an executor or trustee, including their

legal exposure if something goes wrong.

4. Putting in place complex estate plans that take months, even years, rather than weeks, to finalise.

5. Not knowing the value of all the estate’s assets.

6. Not understanding how to deal with children equally in a will or trust when one (or more) of them runs the family business.

7. Nominating executors “on the run” without doing the proper homework.

But with proper advice you can avoid these mistakes and protect your family’s future.

Kimi Shah, senior associate and head of estate planning and wealth protection at Melbourne law firm Kalus Kenny Intelex.

NEWS BITES AustralianSuper is planning to merge with LUCRF Super, the Labour Union Co-Operative Retirement Fund. “AustralianSuper and LUCRF Super have great traditions and similar values that will make the combined entity stronger and ensure that members’ best financial interests will continue to be at the centre of all decision making,” says AustralianSuper CEO Ian Silk.

Westpac is offloading its New Zealand life insurance arm for $373 million, having found a buyer in Fidelity Life Assurance, which is backed by NZ Super Fund. “Life insurance products are important for many New Zealanders and we are pleased to be entering a long-term partnership with a life insurance specialist,” says Westpac chief executive Peter King.

ASIC is putting ESG funds under the microscope amid concerns some aren’t as “green” as they claim to be, known as greenwashing. “Misrepresentation of such products poses a threat to a fair and efficient financial system,” says ASIC commissioner Cathie Armour. “It distorts relevant information that investors require to make informed investment decisions driven by ESG considerations.”

Start the super ‘snowball’ rolling

T

his is the story of Carrie and Charlotte. They are both aged 20. Charlotte starts saving $10 a day ($70 a week) and invests it in shares and bonds, earning 6%pa. She keeps doing this year on year, no change.

Carrie decides to wait until she is earning a better income to start saving. At 30, she too starts saving. She puts aside twice as much as Charlotte – $20 a day ($140 a week) – and invests in exactly the same way, earning 6%pa. She keeps doing this year on year, no change.

At age 50, who do you think has more money? Surprisingly, it’s Charlotte.

Even though she has saved less, she has accumulated more.

It takes another nine years for Carrie to “break even” with Charlotte – and she still has to save 50% more.

CHARLOTTE

CARRIE

Regular deposits

$109,200

$145,600

Earnings

$195,503

$134,705

Total assets

$304,703

$280,305

This demonstrates the magic of compounding returns.

Imagine compound interest as a snowball at the top of a hill. As the snowball starts rolling, it picks up more snow and grows bigger. In the same way, money can grow over time as it earns interest on interest.

And the sooner you start rolling a snowball down the hill, the more compound interest you’re likely to earn over time. Time is on your side. Why not get it working for you?

Kate McCallum, a director and adviser at Multiforte Financial Services and co-author of The Joy of Money.

MONEY AUGUST 2021 13

NEWS&VIEWS

THIS MONTH BOOK OF THE MONTH

TAX TIP

APP OF THE MONTH

Deductions for working from home

BLOSSOM IOS or ANDROID blossomapp.com

F

ixed income is a difficult asset class for small retail investors to access.

But fintech start-up Blossom has launched an app giving them the opportunity to save in the relatively low-risk fixedincome market.

The underlying investments of the Blossom Fund are selected as investment-grade fixedincome products maintaining over time an average portfolio rating of A. Targeting an annual return of 3%pa net of fees and expenses, the fund is backed by some of Australia’s largest financial services groups: Gleneagle Securities, Fortlake Asset Management, EY, and JP Morgan.

There are no account opening fees, transfer fees, withdrawal fees or minimum investment.

Blossom Fund is a unit trust, which means you won’t hold individual assets but rather units in the fund.

The fund pledges to plant a tree in a bushfire-affected region when a customer funds their account for the first time.

EMPLOYABLE 7 Attributes to Assure Your Working Future by Roxanne Calder Major Street Publishing, RRP $29.95

I

n times of uncertainty, it pays to be as employable as possible. Roxanne Calder, the founder and MD of EST10, an office support recruitment agency, provides seven attributes to ensure you have a future in the workforce. Her book is equally useful for school leavers and graduates, parents returning to the workforce, people facing retrenchment and those nearing retirement.

She says uncertainty is here to stay and “employability” – whatever your age and education level – should be ongoing and give you control over any opportunities.

JULIA NEWBOULD

Five readers can win a copy.

In 25 words or less, tell us why you would be interested in reading Employable. Enter at moneymag.com.au/win or send entries to Money, Level 7, 55 Clarence Street, Sydney, 2000. Entries open July 26, 2021 and close September 1, 2021.

JULIA NEWBOULD

I

f you work from home, you can claim a tax deduction for the work-related proportions of household costs such as: heating, cooling and lighting; cleaning; depreciation of home office furniture and fittings; depreciation of office equipment and computers; repairing home office equipment, furniture and furnishings; small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately; computer consumables and stationery; and phone and internet.

There are three methods of calculating your claim (in all cases you will need to keep a record of hours worked): The “shortcut method” of 80¢ per work hour. You can make no other claims in relation to working from home.

The 52¢ per hour method. This covers the extra costs of heating, cooling, lighting and the decline in value of furniture. You need to keep a record of the number of hours worked. You can also make separate claims for the work-related proportion of items such as your home internet, mobile phone, stationery, printer ink and depreciation of technology items. These extras often lead to a much larger claim than the 80¢ rate.

The “actual” costs you’ve incurred. You’ll need to work out the amount of your home (by floor area) that you’re using as your work space. You’ll also need to keep all the original bills to prove your claims.

• •

•

MARK CHAPMAN, DIRECTOR OF TAX COMMUNICATIONS AT H&R BLOCK. MCHAPMAN@HRBLOCK.COM.AU

SNAPSHOT Who tips ... and how much Do you normally tip your waiter/waitress when eating out at a nice restaurant?* Yes, always

Never

20% 41%

How much do you normally tip?** Less than 5% 5%

25%

10%

25%

15% 20%

Only if the service was good

39%

Source: Finder, May 2021

14 MONEY AUGUST 2021

14%

More than 20% I just leave a set amount of money#

6% 5% 2% 22%

* n = 1,000 Australians; ** Survey of 1,000 Australians, 592 of which always or sometimes leave a tip; # e.g. $10, $20

Apply for a residential loan and earn 10,000 Qantas Points for every $100,000 borrowed

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MY MONEY

IN BRIEF

 MORE MONEY STORIES ON P44-55

PAYMENTS

Cashless world comes close C

ountries the world over are fast adopting cashless payments, according to a report by the Economist Intelligence Unit (EIU).

The move to a cashless world was already under way, it says, but Covid-19 sped it up. In 2020, only about 72% of respondents believed their country was likely to become a cashless society, but that grew to more than 81% this year.

The past year also saw governments experiment with central bank digital currencies (CBDCs) and companies are experimenting with accepting open-source digital currencies, such as Bitcoin, for treasury or portfolio allocation.

“Only a few years ago there seemed to be very little commercial or popular support for even the idea of a digital currency and within the

past year we’ve seen several governments announce new plans to create digital versions of their currencies,” says Jason Wincuinas, editor of the EIU. “It’s like a new space race on that level. At the same time, we’ve seen interest and trust in

cryptocurrencies grow among consumers. Now that we’ve added perspective from some of money’s heaviest users – corporate treasuries and institutional investors – we have a more comprehensive view of how digital currencies might evolve.”

R

esearch from Finder has found that 35% of Australians – equivalent to 6.8 million people – plan to put their tax return into savings.

Given that the average tax return sits at $2600, Finder estimates that will equate to a $17.6 billion collective boost to savings.

The research also found that 12% of Australians will use the extra funds to pay for household

16 MONEY AUGUST 2021

bills, while 7% will put it towards the mortgage.

“Most people have worked hard throughout the year for this extra cash, so it’s promising to see that just over a third aren’t planning to spend it all at once,” says Kate Browne, personal finance expert at Finder. “I’d recommend using the cash to add to your savings, consolidate debt or get your bills under control.

COMPILED BY DAVID THORNTON

Tax returns to boost savings

DEPOSITS

Cut five years off first-home wait

C

ommonwealth Bank customers have bought property, on average, 4.78 years faster using the first home loan deposit scheme (FHLDS) or new home guarantee (NHG), new data from the bank shows.

“We know that saving for a deposit is one of the biggest challenges facing first home buyers and those re-entering the property market,” says Michael Baumann, executive general manager of home buying at CBA. “Our data show CBA customers who have used one of these home buyer initiatives have been able to enter the property market nearly five years earlier on average than they would if they saved for the standard 20% deposit.”

The scheme has helped buyers access a range of property types of in both rural and metropolitan areas.

“Speaking to our lenders and brokers, we know the schemes have been a great success for a wide range of different customers – both

Time saved by CBA customers using FHLDS/NHG STATE

AVERAGE (years)

NSW

5.05

ACT

4.53

VIC

4.99

QLD

4.20

NT

4.11

SA

4.42

WA

4.50

TAS

4.00

Source: CBA

singles and couples – looking to realise their homeownership goals across the country,” he says. “We’ve helped customers buy everything

from a duplex in Padstow, to a townhouse in Umina Beach, an apartment in Coogee and a newly built home in Box Hill.”

PROPERTY

IN BRIEF

 MORE PROPERTY STORIES ON P56-65

Prices shoot beyond estimates

COMPILED BY DAVID THORNTON

O

nly 19% of Aussies believe you can buy a property for the asking price, according to a national Finder survey of 1012 respondents.

“It’s an agent’s job to garner as much hype as possible on their listed property,” says Richard Whitten, home loans expert at Finder. “This, coupled with the property boom having instilled a fear of missing out among prospective home buyers, means we’re seeing more homes sell for well above their reserve price.”

The research also revealed that 70% expect property to sell for more than what the seller asks, while more than a quarter (26%) think that properties normally sell or 11%-20% over their asking price.

A quarter of respondents also believe they sell for

6%-10% above their asking price, while a further 5% believe they sell for 21%-30% over.

Whitten attributes the supercharged property market to low interest rates, rising land values and easy access to finance.

“This is particularly the case in capital cities like Sydney, where the median house price is more than $1 million,” he says. “If you’re concerned about rising property prices and your ability to enter the market, take a step back, create a savings plan and focus on your goals.” For more on underquoting, see page 60.

MONEY AUGUST 2021 17

INVESTING

IN BRIEF PORTFOLIOS

ETFs find favour among advisers

18 MONEY AUGUST 2021

“Cost-effective diversification is still the number one reason advisers use ETFs. However, the findings support our observation that investors and advisers are becoming increasingly sophisticated in their use of ETFs to achieve more targeted portfolio construction goals,” according to the research.

It also finds that advisers are allocating an average 20% of net

inflows to ETFs, up from 17% in 2019.

Meanwhile, the number of advisers who provide advice on responsible investing has more than doubled in the past five years, from 19% in 2015 to 40% in 2020.

Clients were seeking advice on responsible investing driven by ethical issues such as weapons and animal welfare (37%) and the environment (33%).

Chinese bonds look promising

C

hina’s economy is going through a much-needed slowdown in growth, which could present some opportunities for bond investors, according to Schroders economist David Rees.

Off the back of decisive monetary and fiscal measures, China posted 18% year-on-year GDP growth in the first quarter of 2021.

“Growth in China is going to be slower over the long term, but it will still be faster than other markets in the world,” says Rees. “Building up the high-technology sector should help with this, and this could also help raise the overall income level of the country and its income per capita over the long term. We expect China to be growing at around 5% per year over the next decade, and productivity growth will be key in achieving that.”

Chinese bonds are growing increasingly attractive for fixed-income investors.

“Chinese corporate bonds boast attractive yields and wider spreads with lower duration risks than other global credit markets,” says Angus Hui, head of Asian and emerging markets credit at Schroders.

“Another point to note is that Chinese bonds have low correlation with other asset classes, which means they can offer diversification benefits. China’s economic and

monetary policy cycles will not be perfectly synchronised with other parts of the world but influenced by conditions within China.”

Hui also expects increased issuance of green bonds, both domestically and offshore, as the country’s environmental standards move closer to international levels.

“For instance, green coal projects are no longer considered as green bonds in China anymore, and we expect more companies from the renewable and alternative energy sectors, as well as new economy and tech companies, to issue green bonds going forward.”

COMPILED BY DAVID THORNTON

MORE INVESTING STORIES ON P66-73

F

inancial advisers are increasingly including exchange traded funds (ETFs) in their client portfolios, according to joint research by BetaShares and Investment Trends.

Their survey found that 75% of advisers are now using ETFs in client portfolios or intending to start adopting ETFs during 2021, while 59% of them already use ETFs, up from 27% in 2010.

SHARES

IN BRIEF

GLOBAL TRADES

EV makers put pedal to the metal

COMPILED BY DAVID THORNTON

E

lectric vehicle makers remain the most traded global stocks on the trading platform eToro.

Tesla overtook its Chinese competitor Nio to take top spot.

The two EV stocks have remained in favour with eToro traders despite Tesla falling 6.9% and Nio 0.5% since the start of the year. In Australia, investments in Tesla increased by 6% this

quarter, while Nio dropped 8%.

“Tesla and Nio have both been the two most prominent stocks for Australian investors over the last six months,” says eToro analyst Josh Gilbert.

“We can see that Australian investors are adapting to a longterm buy-and-hold strategy with both these assets, anticipating that the EV space will dominate

T

SELL Washington H Soul Pattinson

he revered Washington H Soul Pattinson likes to break the rules. It’s a conglomerate that doesn’t attract the usual discount, has a lazy balance sheet without the pressure to add debt, and has maintained one of the longest unbroken dividend streams on the ASX, despite its top holdings being a coal miner and brick maker.

We can now add another act of revolt: Soul Patts has just paid a juicy premium for a listed investment company, Milton. The rationale for the merger is weak. It claims that enlarging its asset base and market capitalisation will bring more investment opportunities. If anyone else made such a claim, we would mock it. Acquisitions for the sake of size have a wonderful record of failure.

the automotive industry for many years to come. Tesla has slightly more skin in the game than Nio, and that’s why Australian investors are opting for Tesla shares right now.”

Rounding out the top 10 are GameStop, Apple, Palantir Technologies, Amazon, Bionano Genomics, Microsoft, AMC Entertainment and Alibaba.

MORE SHARES STORIES ON P74-85

(SOL) Intelligent Investor Gaurav Sodhi RECOMMENDATION

BUY

below $22.00

HOLD

up to $30.00

Source: Intelligent Investor; price as at July 6 2021, close of business

Then there is the price. If Soul Patts were purchasing assets at a discount, it could at least claim to be getting bigger cheaply. But that isn’t the case. Milton is being acquired at a 10% premium to its asset value and a 20% premium to its pre-acquisition market value.

SELL

above $30.00

SELL at $33.50

With about 97% of its portfolio in listed equities, Milton isn’t worth a premium.

For investors wanting to generate higher returns, continuing to hold Soul Patts is hard to justify.

GAURAV SODHI IS DEPUTY RESEARCH DIRECTOR AT INTELLIGENT INVESTOR.

MONEY AUGUST 2021 19

INTERVIEW

STORY ALAN DEANS

Daredevil who plays it safe Fact file Luke Anear Founder of workplace innovator SafetyCulture; age 44; lives in Sydney and the Sunshine Coast

20 MONEY AUGUST 2021

MATT JEPPSEN, SAFETYCULTURE

L

Enjoys mountain biking and ocean swimming, and uke Anear reckons that decided there had to be more to life recently took up rally car driving. Most important life driving his rally car than just making money. I had grown lesson is that talent isn’t enough, he prefers to take at breakneck speeds is up with my mother, and never had people along with him. “If you get to the top of the the most fun he has ever any cash. Unless you have friends and mountain and you’re the only one there, it’s lonehad, even compared with family you can share experiences with, ly. Have a bit of fun along the way.” His will other daredevil sports he has tried such as what’s the point?” leaves $500,000 to each of his children.

He plans to give the rest away. skydiving. “I forget about work completely After a stint as a private investigator in and focus on what I’m doing with the car Brisbane, Anear attended a seminar by US self-help guru Tony Robbins. Audience and the navigator and the team,” he says, members were challenged to write down when strapped into his purpose-built Ford Fiesta R5. on the dollar you save. He taught me the something they would never do. Anear It’s about as far away from his day job as importance of building a sound business, came up with making $40,000 in a month. he can imagine, running an online global not having too much debt, and taking care “I had no idea how to do it. I was only earnplatform he founded that helps businesses of customers. I read up on baby boomers ing $700 a week as a trainee investigator.” manage and improve their safety practices. and realised they had created businesses After a couple of false starts, he decided This has been a critical concern for for themselves and were tied to them even Darwin was the place to fulfil his goal, and companies large and small during Covid. though they might want to travel. I pitched he set up his own no-rules boxing compeAnear dabbled in many things before the idea to Bill that I could run the busitition. He drummed up local publicity and nesses for him and split the profit. He let SafetyCulture. Leaving school in Towns1500 people paid to see the show. He made ville at age 16, he worked in a service me down gently. ‘I’ll run them with you, $64,000. “It taught me that I was capable station and car wrecking yard. He credits and we’ll split the profit three ways,’ he of doing more than I had ever realised. It his boss, Bill Smith, with teaching him replied – between himself, his wife and me. has served me for my whole life because most of what he knows about the basics of “By 18 I was earning $120 grand a year.

I know that, if I go out the door with just running a business. “He taught me things All of a sudden, I had more money than all the clothes on my back, I’ll find a way to like ‘A dollar saved is better than a dollar of my friends and lived in a house on my figure it out. It will be okay.” made’, because you don’t have to pay tax own. But I was very lonely. That’s when I He tried several other ventures before

“Unless you have friends and family you can share experiences with, what’s the point of just making money?”

Eat my dust ... Luke Anear in his Ford Fiesta R5 at the Australian rally championship at Symmons Plains, Tasmania.

22 MONEY AUGUST 2021

striking upon SafetyCulture. The main attraction of that idea was it didn’t involve trading his time for money. “I wanted to give people value on a much bigger scale. How could I give millions of people value, and have those millions paying you money in return?” Another criterion was that he wanted to make the world better. Even in his early 20s, making money was no longer his primary goal.

While these notions were fermenting, Anear returned to being a private investigator. “I saw 2500 cases where people had been injured at work, and my job was to spy on them to see the extent of their injuries. I thought, this is part of the problem, not part of the solution. I’m waiting for people to get injured and putting in an insurance claim before I investigate what’s happened. I wasn’t effectively helping them.”

Compensation was linked to specific injuries. The more injuries a claimant had, the more compensation was paid. “They were making decisions, being told by lawyers not to go back to work, because they got more money.”

The idea of SafetyCulture clicked when formal occupational health and safety practices were

required for the service station business once owned by his mentor Smith (later in the hands of Anear’s mother). “They paid $20,000-$30,000 for consultants to print basic OH&S policies,” recalls Anear. “I thought this was crazy, so I wrote them. Then I got former government safety inspectors to write more policies and method statements for high-risk activities in the workplace. I paid $1000 for a statement and put it online for $80 each download.

I sold close to $20 million worth of those Microsoft Word documents with one-and-a-half staff. I had an amazing lifestyle business.”

What gave sales a kick along was a search optimisation strategy he developed while recuperating from knee surgery. “I bought 1200 domain names and set up micro-sites for all the key words that related to workplace safety. That was how I built the business.”

Anear is now a big-time disruptor. “More than 45,000 Australian businesses have bought those training guides,” he says. But not everything he tried in developing workplace safety applications worked.

His first training platform failed to gain traction, and neither did a document management portal.

JARROD LEONARD, ANGRYMAN PHOTOGRAPHY

INTERVIEW

The Covid-19 pandemic has involved the largest retraining of staff in the workplace since World War II for safety checks, he flew to Townsville to see how it was done. “I said to the guys, ‘We’ve got a venture capitalist coming’,” says Anear. “You’re going to have to put shoes on. Let’s look professional.”

It went well, despite a rushed attempt at smartening the office by filling one wall with clocks set to different time zones. Some fell down when their wall mountings failed, and everyone feared they had blown their chance. Baker liked what he saw, however. He jumped onboard and later introduced Anear to Atlassian founders, Mike Cannon-Brookes and Scott Farquhar.

“Scott has become the second mentor in my life, helping me build and scale the technology,” says Anear. “He’s invested personally all the way through.

We’ve raised north of $250 million now in five rounds of funding. We hit breakeven in January 2020.”

Covid has provided unexpected growth. “Customers like Kmart went from 300 store checks a month to 18,000. There was an incredible awareness of what was needed to maintain the highest standard in workplaces. It was the largest retraining of staff in the workplace since World War II. Our customers use our training app, EdApp, to ensure that their teams know what to do. Regulations are changing every week. We’ve been at the heart of businesses re-opening around the world.”

Driving forces ... Luke Anear (right) with Tom Monaghan, a fellow rally driver and director at SafetyCulture.

MATT JEEPPSEN, SAFETYCULTURE

But a flash of inspiration came when he was contacted by a safety inspector investigating the death of a roofing insulation contractor. “I started to ask, what does best practice look like? That set me on the path to building an app based on checklists for use in the workplace. Pilots have used checklists before they take off since the 1930s. Surgeons use them in hospitals to reduce complication rates, and 14-yearold kids use them in McDonald’s to show when bathrooms were last cleaned.” He hired a software engineer to design what became a hit product, iAuditor. “The rest, as they say, is history.” iAuditor is flexible. It allows safety inspectors to set up their own checklists. Given that underpinning, they could more effectively work on different work sites in different industries. It includes a public library, where users can share their own specialised templates. “I didn’t know if that would appeal. But after the first week, people had shared 15 checklists.”

Today there are 130,000 checklists that Anear says covers any job, anywhere. That service has morphed to become an operations platform, but iAuditor remains the heart of SafetyCulture. Last year, a training app was purchased, and an insurance business launched with QBE to cover workers compensation and business insurance. “People are getting reductions on their insurance premiums by taking their safety reports to their insurers to show them what they are doing,” says Anear. “If a restaurant in New York City undertakes checks three times a day, they get an A rating from the New York Health Department. That’s worth $10,000 a week to a top steakhouse. They put a big A in their window to show they maintain the highest standards.”

This edges towards yet another initiative: quality.

“We are giving customers platforms that allow them to build their own workflows. It goes well beyond safety. We have a technology platform that allows people to measure the critical areas in their businesses. It’s not just about keeping themselves and their customers safe. It’s about how they can do their best work every day.”

Anear is partly funded by venture capital. When Blackbird Ventures Capital’s Rick Baker saw a TV program on how Google Glass head-mounted displays (lightweight smart glasses) were being used

MONEY AUGUST 2021 23

ASK PAUL

Q &

A

NEED PAUL’S HELP? Send your questions to:

Ask Paul, Money magazine, Level 7, 55 Clarence Street, Sydney NSW 2000 RU PRQH\# moneymag.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 editions of Money.

24 MONEY AUGUST 2021

Paula’s inheritance could change her life, but ...

Please don’t give $400k to your 13-year-old son

Q

I’m 39 with two children, aged 19 and 13 and I’m on a disability support pension.

My husband works one day a week and is my full-time carer – he receives carer’s payments from Centrelink. I’m saddened to say that my dad passed away in May and my mother passed away in early June. I lost both of them in just 17 days.

My hurt is beyond words.

After the sale of my parents’ house, I would inherit about $400,000. I simply cannot refuse to take this money, but if I accept it Centrelink will stop my DSP and my husband’s carer payments.

My monthly prescription medication for my disability is $153 plus regular doctor visits.

My 19-year-old daughter is not talking to us and can’t be trusted since she left us to move to the US. She is married and has no plans to come back to Australia. Can I give my son all the funds without affecting our Centrelink payments? Can I put my inheritance into my husband’s super since I don’t work? I still have my super with REST. I used to work at a department store but due to my disability I quit last year.

Paula, you have been having a tough time. My commiserations about losing both your parents, in particular in such a short period of time. We have three children, now in their 20s and 30s, so I can also imagine how distressing a rift between parents and a child must be. As your daughter matures, my hopes are that you are able to reconnect in a positive way. Then on top of that you have had to retire from work due to your disability.

In terms of your life, though, the inheritance of some $400,000 is a life-changing amount of money. I do understand the impact it will have on your disability payments and also your husband’s carer payments, but let’s look at the positives.

I will need you to talk to your super fund, as I do not have the detailed knowledge of your situation to

give any specific advice. I would not be surprised if between you and your husband you were able to add this amount to your two funds, but it is essential to get the details correct. If you were to do that and the fund continued to earn around 6% to 8% a year, as super funds have done for decades, then the $400,000 would earn you some $24,000 to $32,000 a year on average. That really is a significant amount.

But we need to consider if superannuation is your best option. First, no, you can’t give it to your son.

Pension payments have “deprivation” provisions if you give it away like this. Regardless of that, giving a huge amount of money to a 13-year-old makes little sense to me. Imagine if you had done that with your daughter? Also, you say you can’t refuse the money, but why would you? Such a large amount, sensibly invested, should provide returns well beyond government payments.

In terms of getting rid of it, you could blow it on lifestyle spending in no time all. Sadly, I have seen this done to preserve pensions, but this seems to me to be madness. About the “least worst” way of getting rid of money without impacting government benefits is to upgrade your family home, put in a new kitchen and so on. This is not “deprivation” of your assets; it is a personal choice. Your home will be an exempt asset. But even investing in your own home, or a better home, just to protect a pension seems really crazy to me if you do not need a new home and your current place is in good condition. If you had a mortgage, paying that off could be a good money decision and reduce your pension assessable assets.

These personal and investment decisions I must leave to you. But my general advice is very clear. Work out your best plan for this money, including your home and possible necessary renovations. Then chat to your super fund and check your options there. Seek independent advice if you think that would help.

My best wishes to you and your family.

If Tony wants to invest for the long term in an ETF …

Manager’s low fees have big appeal

Q It’s a good time for Jess and Calvin to buy another property because …

Such cheap money won’t last forever

Q

My husband and I have saved up around $100,000. We owe $380,000 on our home, which has a current market value of $650,000. We have no other loans or credit cards. We are both 47 and have two children aged 12 and 10. We have about $80,000 in super and some money invested in shares. We both earn about $100,000 a year before tax. We both plan to work until we are 60.

We were thinking of upgrading to a new home worth about $700,000 and using $70,000 of the $100,000 as a 10% deposit, and renting out our current home. Is this a good investment decision? Is taking additional debt in the form of a new home loan a sound decision considering that we are in our late 40s, or should we be contributing more towards our retirement?

A cracking question, Jess and Calvin. At about your age, Vicki and I were scratching our heads about this one, and I know millions of other Australians are doing so right now. As we look back over 40 years of property ownership, all in Sydney, where

we have lived and worked, we only wish we could have kept all of them! We paid $90,500 for our first semi in 1983, then sold it in 1987 for $174,000 to buy a bigger home; today it would be worth $2 million, and on goes this story.

So, in principle, yes. If history continues as it has done in the past, holding a welllocated property as an investment should work. Then again, debt can be a problem if interest rates rise, or if you lose a tenant or your job.

So what you need to do is to write a list of the positives and negatives. The positives are pretty easy: good property tends to do well. But have a think about your job security and map out a plan to cope with higher interest rates and so on.

Total security is impossible – we may get hit by a bus or an even stranger event than Covid. But my view is that with two wellpaid jobs, savings, your super building with employer contributions and a plan to work to at least 60, if property is your thing then keeping one and buying another certainly has merit.

Just ensure you are happy with your debt levels. Money will not be this cheap forever.

I am a fairly new reader of Money and want to invest in Vanguard for a longterm buy-and-hold. What is the benefit of investing in its Australian shares exchange traded fund (ETF) via a brokerage firm such as CommSec or SelfWealth versus opening a Vanguard account and investing directly?

I can see that Vanguard does not charge any brokerage fees, so if I was to put money into this account every week or every fortnight, I’m not slapped with the $19.90 that CommSec charges or the $9.50 that SelfWealth charges.

Should I just invest with Vanguard directly or is there a benefit to investing through the brokerage firm as it is more liquid, meaning you can take your money out at any time?

I think Vanguard may take one or two weeks for a withdrawal, but if I’m investing long term I don’t plan to withdraw any time soon.

If Vanguard is your preference, it seems to me you could just use its personal investor account, Tony.

This allows you to buy and sell Vanguard managed funds, ETFs and, if you want to, ASX shares.

You pay zero to buy Vanguard products.

There are plenty of terrific managers out there, but I must admit to having a soft spot for Vanguard. It was one of the first to come out and say that fees in the financial services industry were too high and to offer really competitive prices. Little to my surprise, investors loved this idea and today Vanguard manages $9 trillion in assets. That is important – size means scale and scale means low prices for investors.

MONEY AUGUST 2021 25

A ASK PAUL

Q &

A

Georgina, like many parents, wants her daughter to be financially savvy, but …

Support, rather than ‘tough love’, is much better for the kids

Q

Our oldest daughter will be starting university next year.

She will be living with us at home as she is going to study in our home city. How do you suggest WKDW ZH WHDFK KHU DERXW oQDQFLDO independence while still living at home? She will be studying a lot, as she is doing a degree with heavy contact hours. She has a part-time job already. She is naturally frugal and very helpful around the home, something which I doubt will change.

We can afford to subsidise her fully, but feel that will not help her prepare IRU WKH LQGHSHQGHQW oQDQFLDO OLIH ZH wish for her.

Ha, ha, Georgina, I know exactly what you mean. This is an area where angels fear to tread. But the good news for us both is that you have already done your job, so I can wade in enthusiastically without causing offence.

You have given me a beautiful snapshot of your oldest daughter. She has obviously committed herself at school to get to

26 MONEY AUGUST 2021

university and tellingly she has chosen a “heavy contact” degree in terms of hours.

This tells me she is studying engineering, a science-based degree, architecture or one of the degrees I avoided as they looked too hard. She is naturally frugal (which, incidentally, is not natural – she has followed your lead), has a part-time job and on top of that is helpful around the house. Now that is impressive. Our three kid stack up OK on the earlier attributes your daughter has. But as they move into their late 20s and early 30s, although we love to see them at home, they still leave the kitchen trashed!

Frankly, I don’t think it matters if you subsidise her fully or not. She already has all the hallmarks of a financially independent young woman. Seriously, you have done your job.

I think parents get it really wrong with kids when it comes to self-discipline and self-reliance. If you can afford to, parental help does not hold them back – it lets them grow. Sure, as we always told our great kids, we’re not funding lounging around on the couch doing nothing. But

(despite the state of the kitchen when they visit) we’ve found that parental support well into their 20s and 30s and a bit of “bank of dad and mum” to help them on the property ladder has assisted their personal and career growth, not hindered it.

I get the whole “spoilt brat” thing and too much support may not be good.

But the argument that giving little or no support may build self-reliance and independence does not resonate with me. I hear quite a bit that the treat-themmean, tough-love sort of stuff may build them into stronger adults.

I’m just a dumb money bloke, but personally I think that is rubbish. Tons of love, support and sensible financial help, if it is available, to support long-term goals such as education and housing are in my view the way to go .

One thing is for sure, if either Vicki or I make it to 90, we see little point in giving money to them when they are around 65. If you are in a position to do so, why not do it when it is most valuable to them?

Sal is nearing retirement and has to decide ...

Should I sell a $200k gold investment?

Q

My husband and I are close to retirement. With that in mind, we bought $200,000 of gold as a mid- to long-term investment hoping to capitalise on the expected price growth in the coming years. My question is, would the growth in the gold price be vastly offset by the strongest Australian dollars we also expect to see in the coming years, making the investment disappointing? It’s now a breaking point to decide whether we should cut the investment if it breaks even in the coming days.

Goodness, you have got me in a pickle here, Sal. First, I have absolutely no idea what the Aussie dollar will do.

I’ve been writing about this for many decades. One of my favourite activities is to keep our leading economists’ predictions of the dollar and reviewing these each year. The reality is no one is consistently correct.

Our economy is tiny and the dollar will bounce around depending on our resource prices, interest rates and general global sentiment. My best guess over the decades has been to buy Aussie dollars when they get close to 50 cents to the US dollar and sell when they get to around $1 to a $US1. This is probably the most unsophisticated plan I have ever heard of, but it is as good a guess as any.

Now to gold. I am a real believer in history and I get the role gold has

played for thousands of years. In a real crisis, I’d certainly hold gold over cryptocurrencies! Many European families in particular have traditionally bricked small gold coins into a wall in their homes to be retrieved during times of war and invasion.

With a growing global population and what is clearly a limited supply of gold in the ground, it is hard to see gold having no value. So I am okay with an argument that it will go up in value over the long term. But in the short to medium term, I have no idea.

What I don’t like about gold is that it produces no income and generally it costs money to store and insure it, so I prefer to benefit from gold by holding gold shares. I accept that holding a percentage of your portfolio in gold is a good hedge against inflation and a portable way to hold wealth in a crisis.

This background information does not answer your question.

The answer is very personal to you.

If your gold holding is a small part of your portfolio, it could stay as a hedge. If it is an important amount of money to you and you would like an income return from your investment, it is pretty hopeless. In terms of the short-term price of gold and movements in the Aussie dollar, your guess is at least as good as mine!

You seek the answer to the question: will the dollar rise or fall and the gold price rise or fall, giving you a very nice profit or a potential loss.

I can only apologise, as I don’t know.

I wish I did – I would be very rich!

Brad is investing for his kids and wants some tips on …

How to choose a managed fund

Q

First, many thanks to you and the team for all the great investment information over the years. I have been looking for a suitable investment for my older teenage kids, but it is easier said than done.

Together with the kids’ grandmother we have saved around $7000 each for then. The kids have also put away a third of their part-time wages. I would like to find a managed fund, predominately Australian investments, at least moderate growth and therefore okay risk, given their ages, and minimum re-investment of no more than around $500.

There are many organisations with a huge number of options, but the assistance they offer is limited, which makes it difficult to select. Any thoughts/ideas to point us in the right direction would be greatly appreciated.

I agree with you in regard to the complexity of what should be a relatively simple process. You’d think that financial services companies would love new, young investors. They are the future for any investment manager. But trawling through their websites is like being in a maze. There are usually many products; confusingly, some are listed, some unlisted, some are ETFs, with all sorts of names and different “series” of products.

Let’s try to simplify this a little. What you need, in my view, is a fund with a long-term outlook, so a growth style-fund makes sense. You need a well-known manager with very low fees and a good track record. You could buy a listed ETF that would do this, but that requires a trading account and it is not so easy for regular top-ups.

It is worth persevering here. It will make such a difference to the kids in years to come. So, if your strategy is to find a large, globally diversified growth fund, with low fees and the ability to make small top-ups, I’d give a few of the leaders a call. I mentioned Vanguard in my answer to Tony (page 25), so maybe you could call it; Magellan is also worth a call; and Perpetual has a good history with broadly based funds.

If you called them with a clear statement that you are investing for your kids, you want a low-cost, broadly diversified fund with the ability to make small top-ups, they should give you a quick, clear and straightforward answer and email you the process you need to follow to invest.

If you have a moment, I’d be really interested in hearing the result of you making a few calls.

MONEY AUGUST 2021 27

SMART SPENDING

THIS MONTH

28 MONEY AUGUST 2021

Destination Orange, NSW

The good life ... clockwise, from above, Heifer vineyard; art deco Royal Hotel; Millthorpe’s culinary delights; begonias in Cook Park conservatory.

Five things to do 1. Drink: Wine. Famous for its cool-climate wines and rich volcanic soil, Orange is a wine lover’s paradise, with over 60 vineyards and 30 cellar doors to choose from in the region. Highlights include a visit to Printhie’s cellar door and apple orchard for its celebrated sparkling Swift Cuvée, and Heifer Station Wines, which has a petting zoo and farm to entertain the kids. You can book a private wine tour guide for an informative and unique experience that allows you focus on the tasting.

2. Eat: The Union Bank. Orange boasts an impressive range of restaurants, farmers’ markets and organic grocers. Located in a historic building in central Orange, the Union Bank is the perfect place to unwind after a long day of exploring. Dine on local seasonal produce in the Schoolhouse restaurant or relax with a creative cocktail or locally brewed craft beer in The Arthouse Bar & Courtyard. Enjoy a post-meal nightcap at the beautiful art deco Royal Hotel a short stroll away.

3. Drive: Millthorpe. Only 20 minutes’ drive

from Orange, the heritage-listed village of Millthorpe is a quaint destination full of antique stores, boutiques, courtyard cafes, charming country pubs and awardwinning restaurants.

4. Shop: Organic produce. Fitting its billing as the food basket of NSW, each April the region plays host to the Orange F.O.O.D Week festival, with markets and events to celebrate its producers, wineries and restaurants. Fresh organic produce and sustainable goods can be sourced all year round at The Grocer & Co Organics, a delightful locally owned shop full of food that is good for us and the planet alike.

5. Walk: Cook Park. Each season brings its own colourful display in the gardens of Cook Park, located a short walk from Orange CBD. Stroll the peaceful, tree-lined paths, take time out on a bench by the duck pond and explore the fernery or conservatory full of hundreds of begonias.

MATTHEW MARTUSEWICZ

DRIVING PASSION

WINE SPOTLIGHT

What you need to know when selling your car

N

eed some tips for the successful sale of a car? All it really takes is a little preparation.

Plan your sale Take a look around and decide if now is now a good time to be selling your particular car. Do you intend to sell a convertible during the depths of winter? Don’t.

How much do you want?

Due to the disruption of supply lines during the coronavirus pandemic, prices for used cars have increased.

It’s now more important than ever that owners thoroughly research what their car is worth. If you don’t, you’ll likely be selling too cheaply. Check your car’s value at redbook.com.au, but also look at what owners are asking for the same variant and age of car on classified websites. Keep in mind that if your car is the “wrong” colour, has high kilometres on the odometer or is a sedan when everyone wants an SUV, you might have to lower your sights to make a quick sale.

2019 Running with Bulls Tempranillo, $23 Preparing for sale If your car is more than five years old, it will have likely suffered minor cosmetic problems, such as stone chips. It may also have developed some mechanical woes, so it’s time to decide whether it’s worth getting these fixed. Repairing dints and scratches or noisy suspension bushes could be costly and could eat into the proceeds of the sale. Talk to your mechanic, explain that you plan to sell and ask for advice on the best course of action.

Lights, camera, action Once the car is washed and you’ve cleaned and polished the interior, choose an uncluttered background to take a photograph. Show the exterior and interior from multiple angles in even lighting. Then assemble all the information about your car and write a clear description to list it online.

Provide up-to-date information on mileage and registration and be honest about any flaws.

Traps and pitfalls If you’ve done everything right, you should get enquiries within a day or two. If you don’t, consider adding more information or adjusting the price. The key hurdles to overcome will be the car’s presentation, price, availability for inspection, proximity to an urban hub and the ease of contacting you, the owner.

The sale process A potential buyer will likely want to test-drive the car and should have done their research and know what to check. Any serious buyer will ask you for your best price, so be prepared.

The handover Once you’ve agreed to sell, arrange for the handover to take place in a safe, public place. And make sure you receive the payment in full before handing over the keys. Then you just have to transfer ownership for registration and insurance, and update or cancel any roadside assistance services or toll accounts. CARSALES.COM.AU

EXTRAVAGANCE

Pump up the volume If you ask the experts which guitar they most revere, the Gretsch White Falcon WRSV WKH OLVW $ UDUH ELUG IRU DoFLRQDGRV the Falcon is priced around $6000-$7000.

Big name fans include Roy Orbison; Stephen Stills and Neil Young, Jack White, Malcolm Young, Brian Setzer, Don Felder, -DPHV +HWoHOG -RH 6WUXPPHU 0DUWLQ Gore of Depeche Mode, and Chris Cheney of The Living End. How much: Starts at about $6000 Where: skymusic.com.au

What better way to celebrate the Festival of San Fermin (apart from being in Pamplona) than to drink some of this terrific Barossa tempranillo with a hearty traditional paella.

This is a powerfully concentrated red with deep black cherry, briar and bramble flavours that is silky smooth and delightfully fleshy as it lingers; long and satisfying.

SPLURGE 2019 Oakridge ‘864’ Henk Vineyard Pinot Noir, $90 The ‘864’ signature is attached to the finest Oakridge varieties. In 2019, the pinot comes from the Aqueduct Block of the Henk Vineyard in the high, cool reaches of Woori Yallock in the Upper Yarra. Irresistibly youthful with soft fleshy texture and a fine backbone, it builds in the glass.

Redcurrant, red cherry flavours and fine balance of bright fruit, lively acid and subdued tannin.

A superb pinot.

PETER FORRESTAL

MONEY AUGUST 2021 29

SMART SPENDING

THIS MONTH SMART TECH

‘Fun’ tablets get more serious

W

hen tablets first emerged as a successful product category about 10 years ago, they were much simpler gadgets than many of the devices on the market today. They were small, relatively light and not overly inexpensive – good for watching TV shows or movies, playing casual games, light web browsing and maybe leafing (or rather swiping) through a good ebook.

In this early heyday, tablets were markedly different from bulkier, costlier notebook PCs, and their convenient, svelte form (and humbler hardware) made them feel better suited to doing “fun” things, rather than for trying to get any serious work done.

Times have changed a bit. While you can still easily find such small, affordable and simple tablets, most of the movement and dynamism in this space is now squarely at the pointy, performancefocused end of the market, where much more powerful and expensive versions now effectively look more like PCs, feel more like PCs, and cost and weigh as much as PCs (if not more). It’s an interesting form of convergent evolution, and one that speaks to the undeniable allure of the touchscreen.

What is it? Lenovo Tab P11 How much? $499 Pros: The Lenovo is a rare example of a solid Android tablet all-rounder in 2021. For an affordable price, you get an 11-inch IPS display, 128GB storage and 4GB RAM, powered by a Snapdragon 662 CPU. A handy couch companion for everyone in the family.

Cons: None, although Android tablets can be bought for less, if budget is a factor. If Android isn’t a priority, Apple’s well-regarded iPad (8th generation) starts at the same price. lenovo.com

What is it? Apple iPad Pro (M1) How much? From $1199 Pros: The Pro has been the dominant force nudging tablets into the “professional” sphere, and the latest models are the most powerful yet, featuring the same M1 chip as in the newest Macs. Truly desktop-class performance in a tablet, but can iPadOS justify it?

Time will tell.

Cons:: Pricey upgrades and accessories. A top-ofthe-line 12.9-inch Pro with keyboard and stylus costs over $4000. apple.com/au

What is it? Samsung Galaxy Tab S7+ How much? From $1199 Pros: Apart from Microsoft’s Surface, nobody seriously takes it up to Apple in tablets apart from Samsung, and the Galaxy Tab S7+ is the closest Android gets to its own iPad Pro, with a 12.4-inch Super AMOLED (120Hz) display, Snapdragon 865 CPU, optional keyboard and S Pen support.

Cons: Just as iPadOS is limited, Android on tablet is a bit ... unrefined, which isn’t a knock on this impressive hardware (but it is a reality check). samsung.com/au

PETER DOCKRILL

GIVE IT UP

WEBFIND

BackTrack Youth Works

TERRACYCLE.COM

What is it? BackTrack Youth Works has three jobs, says founder Bernie Shakeshaft: “To keep kids alive, out of jail and chasing their hopes and dreams.” The stockman turned youth worker and Australian of the Year Local Hero has harnessed his knowledge of the land and skill with working dogs to connect with troubled kids. Since 2006 the program has worked with more 1000 at-risk young people, most aged 12-19. The ultimate aim?

To support them in finishing school or learning a trade in order to secure meaningful employment.

Where your money goes: BackTrack runs a range of programs to develop skills and foster independence in young people, providing shelter for at-risk kids while teaching life skills such as cooking and housework, teaching them

30 MONEY AUGUST 2021

to train working dogs for high-jump competitions (according to Shakeshaft, this program fosters trust, self-discipline and self-confidence), providing kids with training and work experience, teaching them welding and metal fabrication, providing a learning environment for those needing further schooling, and helping young women engage with the local community.

How to donate: While BackTrack boasts a 87% success rate in getting kids into full-time employment or training, less than 5% of its budget is government-funded. Visit backtrack. org.au/donate to make a one-off or recurring donation. SHARYN McCOWEN

Think recycling is just limited to tossing cans into your council bin?

Think again. TerraCycle is a free national recycling program that partners with manufacturers and distributors to divert specific products and waste from landfill. Visit the website to find out how you can recycle your old electric toothbrush, coffee pods, dried-up pens and more.

SHARYN McCOWEN

CASE STUDY

Paul Clitheroe PAUL’S VERDICT

S

Should we set up a self-managed fund?

My husband and I are in our 50s and 60s and we are thinking of retiring from our 9-to-5 corporate jobs in a few years. We have decided to move our retirement savings from our respective superannuation funds onto a self-managed fund. We would like to know how we can best manage our SMSF, and are there any traps or pitfalls we need to avoid now that we are in charge of looking after our savings?

How can we maximise our investments and tax benefits under an SMSF? Can you give me examples of how others have done it? We have been reading reports on the performances of various fund management companies offering regular income payments for retirees. How can I make sure I’m investing with the best ones and that my money is safe?

For example, I am invested in Trilogy but I am thinking of other options in terms of returns, time of redemption and guaranteed safe investments. All our children are financially independent, but we would like to have enough funds to (occasionally) spoil our grandkids. Josie (and Gerry) Musa

Paul’s verdict: Make sure it’s worth the trouble and expense

poiling the grandkids You mention Trilogy, which is a lot of fun, Josie, is a well-regarded propand one of the best erty manager. You could arguments I’ve heard in certainly hold incomea while for putting some producing property assets money aside for the future. in your current funds if But now we need to turn to you wanted to. Big super Alternatively, consider one what, to be quite honest, is managers will have property of the big, low-cost the fairly tedious and boring in all their broad investment super funds bit: looking at your super options optionsand most will allow you to and the possible value of an SMSF. select a property option if you wish.

This, I think, is the big issue in running I typically find employer-type funds are pretty good. They tend to be our larger managers your own SMSF or sticking with a big, low-cost and quite often the employer has negotiated super fund. An SMSF will have set-up costs, a low fee structure for employees; in fact, annual tax lodgement costs and all the usual some employers pay all the fees. running costs associated with your own legal Low fees are critical and so is your selection structure. I reckon mine costs all up about of options inside the fund. A balanced fund is $3000 a year. This is why it is generally said just fine. From here we get very personal, but that you need more than $300,000 in your generally it makes sense for younger people own fund. Personally, I’d hate to pay 1% of my to go with a growth fund and as we age we fund in costs each year, so I would suggest may prefer less risk and move to balanced or double that. There are plenty of big funds conservative options. that will manage your money for under 0.5%.

Where an SMSF works is when you are Check what insurance you are paying for inside your fund. It depends on your own actively managing it. This could be investment situation, but with independent kids (and I property, direct shares or private equity. But suspect you have paid off your mortgage), what I don’t like is people setting up an SMSF, you may need less insurance. Remember, it paying big costs for that and then placing the money with managers who charge more fees! does get more expensive as we age.

It really does depend on your risk profile and What I would like you to do is to look at the the sleep-at-night test, but I hope to be around funds you have now. Review performance, for a while, so my super is still pretty much fees and your insurance. You should look at growth. With the All Accumulation Index a couple of the big funds such as Australian(that is our share index plus any dividends) Super and Hostplus and see if their options up some 29% in the past financial year, it was may suit you in terms of conservative income, a great year for growth funds, but of course but at a very low cost. they could easily go backwards next year.

As you can tell, I am more than happy for The great news is that inside your existing you to start an SMSF, but I want you to get funds you can hold the type of assets you want. value for the costs you pay and I am far from

convinced that for a conservative investor the value is there.

You also ask about conservative income-type options. Personally, I do love my quality Aussie shares for this. Yes, I get ups and downs with the market, but the 3.5% to 4% income comes to us fully franked with no hassle. Property also does this perfectly well, as do other income-type assets such as bonds and fixed interest. I don’t know Trilogy in any detail, but it has been around for over 20 years and, very importantly, its board and executive team have substantial experience. What my eye goes straight to is projected returns. If they are very high, this will always indicate a potential scam or bunch of rogues. I see, for example, that Trilogy is showing a bit over 3% as the annualised return on its “Enhanced Income Fund”, which sounds about right.

So, I think the big issue for you is whether to go with an SMSF or a big, low-cost fund.

This is an important decision, so give it the time and research it deserves. Then I strongly agree with your comment to diversify outside super across income-type funds if these suit your conservative nature and risk profile.

Believe me, the higher the potential returns the higher the risk.

A bit of thought and research about your money plans as you move closer to retirement will pay off big time when it comes to your financial security and, of course, one of the great joys in life – spoiling the grandkids!

Ask your question ,I \RX KDYH D TXHVWLRQ HPDLO PRQH\#PRQH\PDJ FRP DX RU write to Level 7, 55 Clarence Street, Sydney NSW 2000. Questions need to be 150 words or less and you must be willing to be photographed. Readers who appear on this page will receive a six-month subscription.

MONEY AUGUST 2021 31

COVER STORY

The rise of the millennials STORY JULIA NEWBOULD

7KLV \HDU WKH oUVW PLOOHQQLDOV WXUQ 1RZ UDQJLQJ in age from 25 to 40, this cohort is also known as gen Y and follows gen X (from mid-1960s to early 1980s). Parents of millennials are usually gen X or baby boomers (born 1945-1965).

Each generation has had its money issues. Baby boomers were able to take advantage of thriving economies after World War II, buying into the dream of home ownership often as early as in their 20s.

They bought things for the house as they could afford them. Credit wasn’t as easily available as it is now.

Gen X, now aged between 41 and 57, faced high interest rates, recessions and tough job markets.

It’s millennials’ turn in the spotlight. Now facing life’s big decisions, they’re likely to be in the throes of EX\LQJ WKHLU oUVW SURSHUW\ KDYLQJ FKLOGUHQ DQG VWDUWLQJ on their journey of accumulating wealth.

Here we look at what steps digital-savvy millennials are taking to overcome the challenges and thrive.

COVER STORY

New set of challenges – and opportunities According to economist Nicki Hutley, millennials have different economic and financial opportunities and challenges from previous generations. “This is the first generation that is likely to be less well off than predecessors, due to relatively slow wages growth and the ridiculous speed of house price increases.”

There is a bright side, though. Employment prospects are better in many ways.

“Tertiary education has increased, so opportunities and skills have increased. People can move into higher paid work if they have that advantage,” says Hutley.

Real wages have stagnated, so the standard of living is not improving for millennials at the pace it did for many boomers and that affects long-term investing prospects and retirement.

“The issue of housing affordability is the biggest challenge,” she says. “The latest statistics show that for under-35s, the rate of home ownership has halved. It’s down 4% across the board and many millennials believe they’ll never own a house, which doesn’t matter as long as they have other avenues of investing and tenure in renting – but in Australia, that’s pretty poor.”

Many millennial kids live in “shoeboxes” to be close to work and avoid commuting, says Hutley. “The range of so many employment opportunities doesn’t extend beyond the two major cities. The concentration of the servicesbased economy is in NSW and Victoria. If you want to work in certain sectors, you have to work there.”

However, there are options for acquiring that “forever” property: buying an investment property, investing in shares and other assets and rentvesting have all become more popular.

Millennials are challenging the status quo and changing the investment landscape.

Bianca Hartge-Hazelman, chief executive of Financy, which aims to empower women, says millennials have benefited from the financial awareness of the baby boomers, including the need to be financially independent.

Hartge-Hazelman says millennials are the “woke” generation. “They’re awake to social

issues, to what is right and fair. They have a platform to voice that, and they’re aware of financial products that allow them to invest in that way. They know they can have an impact by investing in favour of climate change issues, or a digital currency that can disrupt major currencies.

“There is a major disruption to major ideals.

It’s not totally unique, but this generation has a really loud platform to execute on it and bring more and more like-minded individuals together. They really are a force to reckon with in terms of investing, and there is a need to tailor products that will resonate with them,” she says.

“What is missing is something that allows them to invest in property like many of us have before. In many ways the property boom that gen X and boomers grew up with is at risk of dying for millennials. There’s a level of ‘I’m not interested in that because I can’t get into it’. They’re having to change the way they do things to make it work for them instead of fitting into the status quo – it’s the products and people who are clued into that who can move with that opportunity,” she says.

At the same time, significant changes in technologymeantheirinvestmentmechanisms are easier, faster and more flexible.

“There’sanincreaseinsocialmediaofhowto dothingsonyourphone,”saysHartge-Hazelman.

“You no longer need to engage a broker to invest in shares, making it more affordable to get into the market. It’s not just the platforms, but the type of products available – the Bitcoins and Dogecoins can provide cash windfalls if you get in on the right side.”

Power of the “finfluencer” In the wake of social influencers, we’ve seen an increase in financial influencers or “finfluencers”.

“Some of these finfluencers have thousands of followers and some of the questions are quite basic, but a lot of people are getting the answer they need and that’s good enough to make decisionsformanyofthem,”saysHartge-Hazelman.

Financial adviser Victoria Devine started a Facebook group, She’s on the Money, in 2017 because she noticed women had a lot of questions about money but were too afraid to ask anyone.

“Money was a taboo topic that was ‘unladylike’ and I wanted to change that,” she says.

What started as a network of people she knew personally quickly grew as they added their friends and those friends added their friends.

There are now more than 180,000 people in that community. “I think millennial women

are an incredibly engaged cohort of investors.

They’re ready to take control of their financial future and they know a partner is not a financial plan,” says Devine.

“This generation of women is incredibly smart, driven and fiercely independent and they are hungry for the flexibility and comfort that being financially free will afford them.

They’re eager to learn and they’re making the most of the wealth of information that wasn’t available to previous generations.

Plus microinvesting has entered the game

TOUGH CONVERSATIONS WITH A BOYFRIEND Michelle Stanley, 29, radio presenter

Michelle has become focused on her finances in the past couple of years.

She’s bought an investment property, found a partner and moved up the career ladder.

Although she says she’s always had financial awareness, she didn’t have a grasp on personal finance. “I thought living within your means was living within your income, not living with what you need,” she says.

But when she started seeing her boyfriend, John, she had to become more serious about money.

“My boyfriend sat me down and said financial security was important for him and he wanted us to be compatible. He was so savvy and I was so embarrassed. He was only one year older but was so much more organised,” she says.

“He was always saving, paying himself first and making sure he had a goal of what he wanted to save and then making the rest of his expenses fit. Instead, I thought I’d spend what I wanted and save what was left over. I thought I had enough money in the bank to fund my lifestyle but wasn’t very future focused.

“We had to have a few days to see if we were compatible. He had so much money in the bank and in shares, and I had debt for a car and I only had a bit in my savings. We had to see how it would work.

He’s in a well-paying job, he was building faster than I ever could. So it strained the

relationship at first, and it still does. There are still things that come up – like buying a house together – because we won’t have the same input, but he’s a strong believer in earning your keep and share, and not paying for someone else’s decisions.

“When we talked about it, he was in the frame of mind that if I was happy to try and work on my situation, he’d be comfortable with that even though I would never have the same amount of money.

I became more mindful in tracking spending and thought more about did I need what I was buying. I changed everything and saved so much money.

“I was no longer the young person travelling and living day to day. I had to start realising I was almost 30 and if I wanted kids I needed a stable life and a home, and that maturity all came at the same time.”

Michelle already has an investment property with a mortgage, but priorities in the next few years are travelling and perhaps a home and family.

“He [John] has money to be able to take a year off and travel for a long time and I don’t, but we want to travel together. Longer term I’d say [goals are] buying a house and how we can do that together or not.

Michelle also has a few shares that are managed by her dad. “I’d like to invest more but it’s such a hot market,” she says.

Michelle wants to know more about insurances. “I’m hearing so much about super, shares and ETFs but in my situation, coming up to 30 and thinking of a family, I’d like to know what I need to be insured for and not just dropping money into an insurer’s account where I’d never get anything.”

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CASE STUDY

THE RISE OF THE MILLENNIALS

COVER STORY

and that’s a really hands-on way of teaching people the power of investing.”

Devine also has a podcast, launched in 2019, which demonstrates her great influence in the millennial market. Her audience is most interested in getting better at saving, creating a budget and starting to invest.

James says his audience wants to be given the tools to do it themselves. “They want to know how everything works, how we research it. They want to see under the hood of available options.”

He says the purpose of his podcast is to get people to a point where they are ready to see an adviser, get out of consumer debt, have an emergency fund and maybe dip their toe in Former financial adviser Glen James now the investment waters. works full time as a finfluencer through his James left his own business two years ago My Millennial Money podcasts, which he because he wanted to provide advice to more started in 2018. This was the first financial people. “I hit some of my own personal and careergoals in the financial advice industry advice podcast in Australia – by Aussies for Aussies.

NAB: and wanted a new challenge,” he says.

According to James, his listeners’ “I think it’s easy to help people In Australia, top five issues are: investing in a millennials will inherit en masse to get out of debt and get shareportfolio,buyingafirsthome into their mindset, but we can’t around $3.5 trillion to live in, buying an investment give individual advice in a podcast. from baby boomers People do want professional help, property, getting a cash flow and over the next spending plan under control, and but in the early stages they need 20 years. to get on a self-directed plan to get wanting to increase income. to a point where it’s beneficial to see “It’s the generation that wants it all – an adviser. and knows what ‘all’ means,” he says.

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So, what worries them?

“This comes back to the reason I started my podcast. I met too many people who came to me for financial advice and I said, ‘You don’t need a financial adviser, you need a budget, you need to stop overspending and you need to get an emergency fund’,” says James.

Obsession with property

Paridhi Jain started financial education provider SkilledSmart in 2017 to help people understand finance. Early in her career, she worked as a financial counsellor at the Cancer Council helping people through financial distress, which was her first glimpse of people struggling with finance. Later she realised that many people struggle and don’t know where to start taking control of their money.

Millennials are her core demographic, across a range of occupations including Olympic athletes, doctors, actors, stay-at-home mums and even the unemployed.

“There are three main issues,” she says.

The first is that many millennials grew up in an environment where things like spending

THE RISE OF THE MILLENNIALS

on travel and experiences was a big deal, so it to avoid expensive lenders mortgage insurance took longer for them to get to a point where (LMI) – has increased in many cases. they were focusing on where their money And for the millennials we interviewed, was going. it’s a case of whether they should wait and She says social media has made finansee if conditions improve or risk misscial advice more accessible than in ing out (FOMO) if prices continue the past.

ASX 2020 to increase.

Property is also a focus, but it GlenJamessaystheyareasking: Investor Study: differs according to where they is it too expensive to buy where 27% of intending are in their financial journey.

I want to live? This leads to investors are millennials “I think the obsession with the second question: should and they are the largest property is a legacy of a lack of I buy an investment property adopters of ETFs out financial education. We have a lot elsewhere in Australia and rent of any cohort. of students who come in thinking where I want to live? property is the only way to build wealth James says he tells people it’s and they learn about ETFs (exchange okay to pay LMI if it gets you into your traded funds) and other investments and that property sooner – it’s the price you pay for opens a new area. They realise they can invest playing in this market. today or tomorrow,” she says.

“A lot of my listeners are falling into rentFinally, the concept of retiring earlymakesthe vesting by default. If you are living in a capital millennial generation quite excited, says Jain. city, particularly on the east coast, it’s too With property prices in the capital cities expensive to buy there,” he says. “It’s absomoving more than 10% in most areas since lutely different from other generations. My the beginning of 2021, first home buyers parents didn’t buy an investment property have now another hurdle to clear to access until I was in my 20s.” the market.

They’re finding it tough to put together a decent deposit. Their loan to value ratio The main fail for many millennials – and the (LVR) – which usually needs to be below 80% reason many seek help – is cash flow. “People

Cash flow is king

Advice helps them reach their goals Glen Hare, 34, and his business partner, Jess Brady, met when working in advice at Macquarie Bank and saw a gap in the market.

“We noticed most clients were preretirees and post-retirees. Most people didn’t seek advice until five years before retirement. Jess and I wondered who was looking after the other people when they had to navigate big decisions,” says Hare.

It was then that the pair decided to start their own business, Fox and Hare, targeting the millennial market, which they were a part of.

The first thing they noticed was that a lot of their prospective clients weren’t motivat-

ed by talking about money but more what money could provide them. They wanted to start a family or buy a house and they needed a strategy to reach those goals.

Property is top of mind and comes up in most conversations. People default to property and for a lot of millennials it’s sometimes seen as the only option, says Hare.

And rentvesting is certainly happening.

“One couple live in the eastern suburbs of Sydney and if they bought a property they’re interested in it would cost $3 million. But rent is comparatively low so the conversation we’re having with them is rent in the east but buy a house in Brisbane to make sure the money they have is not just

feel like they live week to week and while they have a good income they don’t have an automated cash flow system in their life,” says James.

He has a budgeting tool – the Glen James spending plan. He set it up because he knew he wanted to make sure his savings were always going up and his bills were always covered. He now sells the budget to others who need help with spending but don’t really need financial advice yet.

Credit cards get the chop Millennials are not big fans of credit cards.

They see them as costly and risky. The proportion of young people with credit cards has fallen from 58% to 41% in the past two decades.

They have half the credit card debt of older Australians as a proportion of their income.

Instead, they are using buy now, pay later products as a cheaper alternative. Almost 70% say Afterpay helps them use credit cards less, so they can avoid interest costs and debt traps.

NAB launched a StraightUp credit card last year for younger customers who wanted simple, transparent and predictable payments. The card allows limits of $1000, $2000 or $3000. There is a fee for each card but if there is no balance then there is no fee. There are no late payment fees.

sitting in the bank but it’s working harder.

“Given the current climate with Covid, people are saving a little bit more. But people don’t know what to do with their savings. They were afraid of doing the wrong thing but they wanted to make their money work harder and didn’t know how,” he says.

Hare says his clients turn to him for any decision that has financial implications – day-to-day cash flow, budgeting, investments, superannuation, personal insurance and tax minimisation strategies.

“They want to know how to drive towards the goals: buying a house, starting a family, establishing a passive income. We talk through pros, cons, risks and potential returns,” he says.

COVER STORY

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CASE STUDY

SAVING FOR THE FUTURE – WHATEVER THAT MIGHT HOLD John Friemanis, 30, engineer “I was pretty fortunate in that my parents encouraged me to save from a young age,” says John. “I would collect coins that we would find from doing chores around the house and Mum and Dad would encourage us to take them to the bank, and for me it snowballed from there.

“There was never a point that I needed to get serious. It was always something that ticked along in the background and I was mindful from quite young. Dad encouraged us strongly to save at least part of any money we did receive.

“I was also influenced by parents to pay myself first.

It’s always been the case when I started to work full time. I took aside what I needed to live comfortably and by default saved the rest. It seemed like the sensible thing to do and put some money aside for whatever I might need.”

John’s financial priority is property.

The high prices are top of my mind.

“I think it’s turned into an investors’ playground in Australia. While housing in some parts is accessible for our generation, I don’t think that translates to affordability.

“It doesn’t worry me about not buying a house. It’s the debt I’d carry

for decades into the future. I’ve been saving towards it for a while.”

John grew up in country Victoria, moved to Melbourne to study and then to the Pilbara for work. But he says he will look at a capital city to buy a home.

“I enjoy living regionally and there have been career benefits, but our next move would most likely be to the city.”

While he likes to keep some money for when he needs it, he also invests in shares and ETFs, which he manages himself through his bank’s investment platform.

At the moment, he and girlfriend Michelle have a longdistance relationship and are financially independent.

They don’t have any specific goals in mind beyond the vague idea of home ownership.

Housing is a big area John and his uni friends frequently discuss. They’ve all settled well into careers they enjoy, so job security isn’t a big issue – it’s just property.

There is a possibility that John may look at rentvesting. “It will come back to the value of the home and whether you can still access first home buyer grants, so I will do the sums on that,” he says.

John doesn’t have an adviser and is reluctant to use one because of recent scandals. “I’m pretty comfortable doing my own research. I enjoy that research rather than relying on opinions from others. There’s a lot of free information and I’m happy looking in shares and companies’ financials myself.”

THE RISE OF THE MILLENNIALS

Matt Heine, chief executive of the investment platform Netwealth, is on the cusp of gen Y and remembers the impact that the GFC had on him and those around him. “Millennials are certainly more debt averse, and gearing is not as key a strategy as it may have been in other generations. Debt is for buying your house but not investing,” he says.

Heine says he’s seen three big themes. An ESG approach (environmental, social and governance) is a huge emerging trend for millennials. Investors now realise you don’t need to forgo returns to invest ethically.

Another trend is investing in ETFs to get broad exposure without necessarily having to pick individual stocks. They also want to invest in tech companies.

Podcaster Glen James says he doesn’t believe Bitcoin and other cryptocurrencies are as popular with most millennials as it might appear. “There’s a lot of interest in non-fungible tokens (NFTs) and cryptocurrencies, but the problem is greed can get in the way, and stupidity and broke can follow greed. I caution people that if they want to put money in crypto and other risky assets it should be well under 2% of their net worth.”

Trust and transparency James says that millennials are savvy in who they trust and what they need to know. They want transparency. “They think, ‘I don’t care if you make money off me – just tell me you’re making money off me.’ They are prepared to pay advisers, but Morgan only after they understand the value of advice and that’s what Stanley: I want to teach them.

86% of millennials “I think that as soon as you are interested in get your first full-time job, see sustainable an adviser to get some income investing. insurance. The first thing people do when they buy a new car is get it insured. That should be a cost of your first job.

“People should also see an adviser when thinking of buying their first property – whether it’s an investment or home to live in – and starting a family.”

James has noticed another growing trend: the transfer of wealth from one generation

Power through education According to research company CoreData, accountants are the number one source of advice, followed by financial advisers and mortgage brokers. Around 40% of this cohort has a financial adviser and might also talk to family and friends about financial issues. They’re happy to pay for the service, but are most likely to use an adviser as a source of information and to explain things to them. They are also likely to use an adviser to help them build and diversify their investment portfolio, organise and review insurance, set up a plan to transfer wealth to successive generations and create and stick to a budget.

Netwealth’s Matt Heine says millennials don’t really know what financial advisers do.

(See charts on page 42.)

“In the past, financial advice was a ‘do-it-for-me’ type of relationship – a total outsource. But as this group is more educated and curious, the role of an adviser is more of a co-creator or coach, more like a personal trainer. Millennials want to be empowered through education, so financial advisers need to embrace this new role.

They need to build out their education services, and make them digital – like short, sharp YouTube videos or podcasts.

COVER STORY

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CASE STUDY

IN CONTROL AFTER A BIG CLEAN-UP Eliot Hastie, 27, broadcast journalist Eliot engaged an adviser to clean up his financial landscape.

“I had lots of accounts everywhere and credit card debt I wasn’t on top of,” he says. “My primary purpose was to fix it all up and feel like I actually had some direction with finance.”

Working as a journalist for a financial broadcast company, Eliot says he had not been making a lot of money, and it was tough living in Sydney, so his aims were to stay afloat and travel when he wanted. Travel is still on hold, but it hasn’t changed his mindset, he says.

Buying a house is not top of his mind. “I’m very against buying a house. I don’t see the value and the market is not positioned for me to enter it. There’s been a soar in prices with no explanation.

Government is doing something for first home buyers but it’s not bringing down home prices.

“For me, it’s about investing to have that second income to supplement my current one – a passive income. I’ve been dabbling a little with apps (Superhero – I love it that it’s low risk, you can deposit a small amount in one day) but it’s good to learn more about the ASX and see what happens. I also use Spaceship, it’s a little bit more secure – not choosing individual stocks.

I’ve also used Raiz in the past, and Coinspot for crypto investments.”

Getting things in order included looking at his income, breaking down expenses and starting to use the three-bucket system: saving, spending and investing. “Even things I don’t normally think about – I have to pay car registration, etc, which I usually think of a month ahead. It was breaking things like that into a monthly (that’s how I get paid) fixed-costs bucket, which includes rent, bills, car and insurances.

“At the beginning, when I was feeling underwater, it was a stress completely gone from my day to day. As time has moved on, it’s nice to know it’s all happening in the background and I don’t need as many check-ins. It’s not a weight on my mind anymore.”

Eliot is unusual for his age in that he has total disability and income protection. “I didn’t have that before a planner explained it to me and that’s why I ended up doing it and it does give you assurances.”

He pays his adviser a monthly fee, books in a regular Zoom call (it was face-to-face before Covid) and if something changes, such as a pay rise, which he received recently, then it will entail another meeting and a new spreadsheet with options for the extra funds.

HOW MILLENNIALS COMPARE Advisable Australians*

Millennials

Bought a property to live in

16.1%

24.8%

Bought an investment property

7.3%

11.0%

Renovated a property

11.3%

6.7%

Sold a property

8.7%

5.8%

Career advancement

18.9%

39.4%

Changed career/job

22.5%

40.5%

Job loss/redundancy

9.9%

11.3%

Retired partially (semi-retired)

4.5%

0.2%

Retired fully

7.8%

0.0%

Family breakdown (eg divorce or separation)

6.5%

8.8%

Got married

5.0%

9.3%

Inherited money from parents and/ or grandparents

8.2%

10.3%

One or more children left home

6.4%

2.1%

Paid one or more children and/or grandchildren to private school or university

5.9%

3.1%

Started/grew a family

6.7%

16.5%

Relocated to a different city/state/ country

9.3%

12.6%

Expanded my business

4.5%

9.8%

Sold a business

1.4%

1.6%

Started a business

5.6%

8.6%

Diagnosed with/suffered from a major health issue

15.2%

9.1%

*47.4% of Aussies who are most likely to use or seek financial advice.

Advisable Australians are the emerging affluent – about 72% are gen Y (age 30-40 years old) and about 28% are gen X (age 41-54 years old).

Source: 2021 The Advisable Australian report, netwealth

THE RISE OF THE MILLENNIALS

priorities: buying a home if they don’t have one already and learning about investing.

Queenie was able to leave her own job a few weeks ago to focus on her YouTube channel full time. “It’s not crazy income, around $2000-$3000 a month, but there’s no point having an emergency fund and passive income if I’m not going pursue my passions,” she says.

Queenie shares a couple of stories to explain why she does what she does.

“I went to a going-away party for a friend and met this girl. She saw one of my TikTok videos on the First Home Super Saver scheme, where you could borrow with only a 5% deposit and no lenders insurance. She said she didn’t realise she didn’t need a 20% deposit and she said before she saw my TikTok she thought she’d never have enough to buy a property, and now she’s bought one. And another girl thanked me for a video where I’d mentioned how to ask your boss for a raise and reach your worth. She got a pay rise and is now one step closer to her home ownership dream, too.”

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FROM A PERSONAL PASSION TO HELPING OTHERS Queenie Tan, 25, Invest With Queenie Queenie Tan is a Sydney-based YouTuber with a passion for making and saving money and investing.

Her channel is Invest with Queenie.

Queenie has worked in marketing since she was 19. She was living away from home and studying full time, with two part-time jobs – one an unpaid internship and the other telemarketing. She was earning $400 a week – not enough to live in Sydney – and she was hoping to get a full-time job in marketing.

At the same time she was passionate about personal finance, devouring finance books and feeling she was getting herself into a good position financially. At 23, she bought an apartment with her partner, who also worked in marketing. Two years later the couple have $200,000 in savings and have multiple income streams. They started side projects – blogs and an ecommerce business.

“During Covid I saw a lot of people losing their jobs and it made me upset. I thought back to when I was 19 and earning $400 – I wish someone had been there to tell me stuff I know now,” says Queenie.

She has a presence on TikTok, Instagram and YouTube. Her Instagram appeals mainly to young women, aged between 18 to 35, who want to know about investing.

Many are studying.

Her YouTube audience is mainly male, slightly older and further advanced in their careers. They typically have high incomes and want to know how to optimise their earnings and save. Many are looking for early retirement and more flexibility in their lifestyle.

“They’re typically not very materialistic, they want time,” says Queenie.

Both audiences have two main areas as

CASE STUDY

to another. “I’ve started to get more leads on people in their 20s receiving inheritances – that’s definitely something new. Some of these kids are getting inheritances of $500,000 to $600,000.”

Investment platform provider Netwealth recently commissioned a report into Australia’s “emerging affluent market”, defined as those people most likely to seek financial advice (see “How Millennials Compare”, left).

The research agreed with James – as long as it was transparent, millennials were happy to pay for advice and didn’t mind how they did it. They might pay by monthly or annual subscriptions, a percentage of funds under advice, or even a performance management fee.

The research highlighted the affluent group as having personal income over $100,000, household income above $150,000, household investment portfolio over $250,000 or residential property equity of more than $650,000, and super greater than $100,000 if under 35 and over $245,000 if between 35 and 45.

It found that there are about 1.5 million “emerging affluent” in the under-45 age group controlling around $2.2 trillion of household wealth.

Typically its members are highly educated, often hold senior management positions, have a good income and are in the process of building their investment portfolios. They have good financial literacy, assess themselves to have a good understanding of investing, and are aware of current market themes and trends. They are also more likely to have life insurance, TPD cover, income protection and trauma cover, and health insurance,” says Heine.

“It is important to recognise that the oldest millennial is already 40. This means they are likely to be paying for their uni, buying a car, planning a wedding, starting a family, changing careers or starting a business, whilst still wanting to go on holidays and have a social life. They need to be saving, investing, taking out insurance, maximising their super contributions, setting up correct legal structures, managing debt and so on.

“Whether they know it or not, they have many financial challenges where good, solid advice could have lasting benefits.”

COVER STORY

THE RISE OF THE MILLENNIALS

Big fans of technology

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CASE STUDY

THANKFULLY, IT’S NO LONGER A TABOO TOPIC Sara Ocean,30, content manager Sara Ocean was frustrated by never having any money and decided to learn more about managing her finances through the online education course SkilledSmart.

“I was quite in debt and had no money education. Basically I decided to make a change and educate myself. I found the course online and enrolled and that was the beginning of my wealth-creation journey,” says Sara.

“Money had always been a taboo topic for me, a necessary evil.

But what really kickstarted her journey was the simple bucket system and automating her income and expenses. “I was also interested in investing and the knowledge the course gave me helped me lose the fear of investing,” she says.

Sara now has stocks in Australia and the US, and a small amount of crypto. She buys her US shares through Stake and Australian shares through SelfWealth.

“My focus now is creating cash flow. I have a diverse portfolio, and my husband and I are thinking about starting a family soon, so my main concern is going down to one income and keeping cash flow. Buying a property is also on the horizon,” she says.

Not all Sara’s friends could understand her wanting to become financially educated. “At first there was a bit of resistance when I said I was doing the personal finance course. People said it was a waste of time and money.

We didn’t have conversations about money – it was all about going out and having a good life.”

However, things have changed and Sara says she now has talks with friends about budgeting and cash flow, and has started surrounding herself with people with the same mindset, helping them create their own spreadsheets with budgets.

“Money and money education is now part of my everyday life with friends and family. I never had money education at home, but now I’ve inspired my mum to start saving, even with a deposit for a house.”

While Sara says her job is important, as she needs an active income and she loves her role, she is also focused on earning a passive income. “I know how much I want to earn a year and the job will be a massive hunk of it, but there are other ways to supplement that income and I have to know that if I lose my job tomorrow I will have that passive income still coming into my bank account.”

What people think a financial plan is…

Investments

What it really is…

Investments

Risk management Credit

Estate planning

Tax strategies

Budget Emotion & behaviour management

SORTING OUT YOUR FINANCES Which of the following areas do you think a financial planner can potentially help you with?

Ensure my wealth is invested/managed wisely Ensure enough money during retirement Plan for retirement Build/diversify my investment portfolio Create and stick to a budget Manage debt Ensure my family have enough money if I got sick/pass away Manage accounting and tax issues Arrange/review insurance Plan for buying property Manage superannuation-related issues Help family to manage wealth if sick/pass away Plan to transfer wealth to the next generation Plan for a major life event Manage the impact of a major life event Source: 2021 The Advisable Australian report, netwealth

42 MONEY AUGUST 2021

Millennials are digitally savvy. They will engage with advisers and with their investments online and make extensive use of apps to organise and track their finances They’ll quite happily transact online, on the go, says Matt Heine.

“They’re almost twice as likely as the rest of the population overall to manage their investments online at least weekly, and they are a lot more likely to manage their super online via a website or app.

“One of the risks for millennials is that they’ve grown up in an environment where cash is increasingly invisible and many have no concept of money or the exchange of money.

The tangibility of cash has disappeared, but technology has given them new opportunities through budgeting apps and platforms and new trading solutions,” says Heine.

“As digital natives, they will also be comfortable trying new online services. They are early adopters of tech services. We have seen this in the rise of the online trading platform Stake in Australia (or Robinhood in the US), which promises free trading and encourages high-frequency and often risky trading.

“There’s the rise of platforms like Coinbase, which supports the decentralised trading of cryptocurrencies, Afterpay, which is the new digital credit card, and platforms like Netwealth, which allows people to invest their superannuation balances in ETFs and international equities,” he says.

According to Hare, some of the investment apps he often sees with his clients are Raiz, Upstreet and Spaceship.

56.0% 45.7% 36.1% 35.3% 28.2% 25.8% 25.1% 23.8% 20.8% 19.2% 19.2% 19.0% 17.5% 10.7% 10.6%

MY MONEY GETTING AHEAD

Meet your STORY NICOLA FIELD

Move over property and shares, your best investment is staring you in the face

I

f you’re looking for a low-risk, reliable investment that will deliver high, predictable returns throughout your lifetime, you’re in luck. The solution lies entirely with you.

Helen Baker is a financial adviser and founder of On Your Own Two Feet, which encourages women to be financially independent. “Your ability to work, is definitely your biggest asset,” she says. Think of it this way. Average full-time weekly earnings are about $1711.60. That’s around $89,000 annually. You’d need to invest close to $2 million in shares, or a whopping $17 million in a savings account, to earn the same annual return. Yet you have the potential to pocket this money, and more, just from your own effort.

It makes your income-earning capacity a strong foundation for building wealth. Even better, it’s something we all have the power to improve.

The question is, how do you maximise your income earning potential? Investing in your own skill set is a good starting point.

“In an increasingly competitive market, candidates with solid technical skills will always have an advantage during the recruitment or salary negotiation process,” says Andrew Brushfield, director of global recruitment firm Robert Half.

In an evolving workplace, skills need to be regularly updated. “Digital transformation will continue to drive immense changes across every industry and role,” he says. “So, millennials looking to increase their earning potential should embrace a mindset of constant learning and focus on upskilling opportunities.

“Mastering technical skills, embracing automation or pursuing emerging technology, will make an employee more efficient and effective at their role and, in turn, more valuable.”

biggest asset It’s about education

Without additional skills and qualifications, it’s easy to be left behind. Census data shows more than one in five (22%) Australians holds a degree – a figure that rises to 39% of 25- to 34-year-olds. One in four (25%) holds a diploma or certificate. That’s over half the millennial workforce with post-school qualifications.

According to Brushfield, the beauty of higher education is that it helps students develop a variety of broad skills – learning experiences that can make it easier to pick up new technical skills in the workforce. “The knowledge gained is valuable even if the qualification doesn’t match the technical skills called for in a job description.” Put simply, it’s the education that matters, not just the credentials.

If university isn’t for you, don’t overlook TAFE courses.

As Brushfield points out: “A tertiary degree may serve to differentiate a candidate’s application. However, there are no vocational qualifications that will devalue or detriment an applicant’s resume.”

Worth the expense

The downside of tertiary study is the cost. It’s not just about missing out on a full-time wage during your student days or forking out for expensive textbooks. Completing a degree can see you saddled with a HELP (formerly HECS) debt. It’s a similar story for VET students.

That debt is nothing to sneeze about. The average HELP debt is about $23,280 and it takes most graduates nine years to pay off. On the upside, it could be one of your best ever spends.

An OECD report found tertiary graduates in Australia enjoy better job opportunities, lower unemployment rates and a significant earnings premium, especially compared with school mates who end their formal education with Year 12.

Tertiary educated adults in Australia earn 40% more than high school leavers. The OECD found Aussie men gain an 8% return from tertiary education, while for women the return is even better at 9%. The most seasoned investor will struggle to find an investment that consistently delivers this sort of reward.

But investing in your skills may not be a one-off

event. “Demographers believe younger generations may have five careers and up to 17 different employers through their working life,” says Baker. “There are job opportunities that will disappear, and there will also be new opportunities, meaning studying is likely for life for some. Staying current and maximising your salary through study should pay for itself, and in some cases employers will contribute to study costs for you.”

Study versus experience

Before committing to a learning program, Brushfield recommends pinpointing the course that will be most relevant for your ideal job. This could include selfdirected learning through online platforms such as LinkedIn Learning, Udemy or Coursera.

“Hiring managers will always prioritise relevant experience over academic qualifications,” he says. He suggests getting some experience through an internship or by volunteering for a role that builds relevant skills.

This can mean raising your hand to be the treasurer for a local sports team, or completing a personal project like building a website using the coding language that your dream IT job may demand.

How to score a pay rise

Investing in your skills and qualifications is a proven way to grow your income earning potential. But it’s up to you to convince the boss you’re worth more money year-on-year. A survey of employers by Robert Half found 70% of workers can expect a pay rise in 2021.

The trick is to make sure you’re among them.

“Getting a pay rise isn’t as easy as telling your boss you deserve one – no matter whether you’re in the office or working remotely,” says Brushfield. “Millennials need to prove they’ve earnt their increased value to an employer and have the facts to back this up.”

He recommends several steps to build a watertight case that you deserve a salary increase: Volunteer to help out on new projects – make a point of participating in forums or meetings.

Set up a weekly check-in with your manager – it’s a chance to explain your challenges and how you resolved them, so your manager is kept up to date with your achievements.

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Younger generations may have five careers and up to 17 different employers through their working life MONEY AUGUST 2021 45

MY MONEY GETTING AHEAD

Make the most of your payday Glen James, host of My Millennial Money, offers nine tips to get more from your income.

Sort your money out – know what you are spending and pay off your consumer debt.

Research your current job salary.

See how it lines up, and figure out where you can increase your value to your employer.

Set a savings goal first, then figure out your financial and investing goals. You may benefit from professional advice.

Be real about needs versus wants – spend where it counts, don’t spend where it doesn’t.

Get clarity on your goals and dreams – live life on your own terms.

Take your time, but also take risks.

Don’t pressure yourself, and make the most of every opportunity.

Use a money system that demonstrates real results for your situation.

Don’t compare yourself to others; compare your former self to the new you instead.

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Record achievements – keep notes of how you supported the business to be more efficient or profitable by exceeding your personal benchmarks, creating new opportunities, or resolving issues.

Treat a pay rise as part of a bigger career plan – clearly communicate your professional goals and aspirations with your manager, so you can work together to achieve them.

At present, you have market clout. ManpowerGroup says seven out of 10 employers are struggling to find talent. So if you’re hankering for a serious salary increase, it could be worthwhile heading off to a new job.

The latest Michael Page Salary Guide identifies the average pay increase you could earn as the newest staff member across a range of industries.

Is it time to switch?

Is a side hustle the solution?

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If the boss won’t, or doesn’t have the budget to, put money on the table for a pay rise, it could be time to explore new horizons.

The latest ABS data show wages have risen just 1.4% over the past year. Inflation is currently 1.1%, so that sort of salary uptick is only putting you ahead by 0.3%.

Who will get a rise in 2021?

Average renumeration increase for potential new hires in 2021 Functions

Pay increase

Technology

4%

Healthcare and life sciences

4%

Industrial and manufacturing

4%

Retail

4%

Transport and distribution

4%

Banking and financial services

3%

E-commerce/internet

3%

Natural resources and energy

3%

Professional services

3%

Property and construction

3%

Source: 2021 Salary Guide Australia, Michael Page 46 MONEY AUGUST 2021

If your 9-to-5 income isn’t helping you achieve personal goals, Glen James, host of the My Millennial Money podcast, says millennials can look to a side hustle to rustle up more cash.

“Figure out how many hours you want to spend on your gig work, and ask others who manage full time workloads as well as side hustles. If you gig full time, maybe you need to benchmark someone with a salary in the same role. They may be making more than you with less stress of managing income,” he says.

If you’re interested in a side hustle, a study by graphic design platform Canva looked at work opportunities promoted by the freelance marketplace Fiverr. It found gig workers in Australia earn an average of $766 for each job spanning a three-day period (what the platform considers to be a typical side hustler’s timeframe). That’s the third highest globally, behind Switzerland and Sweden.

But we’re not talking low-skill tasks like dog walking or car washing. The most popular hustles among the freelancers surveyed are reasonably skilled, with proofreading and editing, 3D and 2D modelling, and blog posting topping the list. Once again it comes back to the value of investing in you – not just at the start of your career, but all the way through. M

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Michelle Baltazar BANKIN NG

Younger savers set the pace $SSV DQG RWKHU YDOXDEOH IHDWXUHV FDQ KHOS DOO JHQHUDWLRQV WDNH FRQWURO RI WKHLU oQDQFHV

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illennials and the younger gen Y are setting a new gold standard in banking. If I could turn back time, I wish I had access to the same banking features that are now the norm. But the good thing is that while banks have purpose-built apps for the younger generations, those of us who are young-at-heart should take advantage of them as well.

Here are six ways millennial-style banking can help you stay on top of your finances.

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Set up fee-free banking and multiple accounts Millennials are challenging the idea of just having one or two bank accounts.

Some have four. This allows you to take advantage of some nifty features that may not be available in your main bank but are available in others. This would have been impractical in the old days when account-keeping fees were the norm.

Today, as long as you follow simple rules such as depositing a minimum amount each month or keeping your account completely digital or mobile (that is, you’re not asking your bank for a paper-based statement to be mailed to you), then you can have multiple fee-free accounts.

KEEPING TRACK OF HIS MONEY Harrison Smith*, a Sydney-based PR account executive in his 20s, has four accounts with different banks and none of them charges him account-keeping fees. His main bank is linked to his broking account, where he can buy an ETF for as little as $50. He has two additional bank accounts to manage his savings and certain expenses separately, while taking advantage of budgeting and spending alert notifications.

Recently he opened another account with his girlfriend to manage their joint expenses.

He says it’s easy for him to track his saving and spending habits through his accounts, which makes him feel more in control of his finances.

What’s on his wish list?

He wants banks to come up with a way to better explain compound interest and help him use the power of time to save more. In the US, some banks offer their customers a free Amazon Prime subscription and he thinks it would be great if Australian banks could give subscription freebies as well. *Not his real name

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Set a savings goal and get extra interest payments Most, if not all, banks now allow you to have multiple sub-accounts, so the bulk of your pay can go into an everyday transaction account while the rest is split up for other savings goals: an investment, a special occasion or future travel. A notification feature tells you that if you reach a certain savings amount by a certain date (usually by the end of a fixed period), you are eligible for extra interest. A little nudge like this can work wonders.

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Link to a trading account Commonwealth Bank, for example, offers its banking customers the CommSec

Pocket account. You can invest in an exchange traded fund (ETF) for as little as $50. When I was in my 20s, opening up a broking account would have cost a lot and the minimum trade is certainly nowhere near today’s $50. Investing always comes with the risk of losing all your money, but in my 20s I did not have the means, nor the understanding, to participate in the sharemarket. These days you can open a broking account and limit your risk to small sums.

4

Enjoy the shopping rewards Most banks offer their customers further discounts if they shop at certain

retail stores or buy gift cards. Reward schemes and cashbacks are not new, but they are still a useful source of instant saving.

5

Buy now, pay later Buy now, pay later (BNPL) providers such as Afterpay and Zip are disrupting the market. Our mantra here at Money is not to spend money you don’t have, but the new thinking around interest-free credit or splitting payments can work in your favour if you’re disciplined enough to make the repayments before any fees or penalties kick in. It’s only a matter of time before the major banks offer a similar feature. CommBank, for example, is launching StepPay while Westpac has launched SmartPlan to help its customers split their personal credit into manageable repayments.

6

Use budget trackers and built-in calculators Again, this is something I didn’t get from my bank when I was backpacking around Europe, but a budget tracker, which helps you monitor your spending and even nominate a limit, is built into everyday banking accounts these days, with an alert feature if you’re about to go over your limit. For example, the Suncorp app has a feature called a Dollar Tracker, which can sort out your Suncorp Bank account transactions automatically. It can organise your spending into 14 categories, including groceries, utilities and entertainment. From this, the app can give you a report on your spending habits so you’re more in control of where your money goes.

Michelle Baltazar is editor-in-chief of Money. She has worked on various finance titles including BRW (now closed) in Australia and Shares magazine in London.

MONEY AUGUST 2021 47

MY MONEY EMPLOYMENT

Nail your dream job STORY ERIN DEVLIN

Whether you’re applying for a new position or seeking a promotion, you need to stand out from the crowd

48 MONEY AUGUST 2021

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ecuring the job that you really want is all important foundation for the next, culminating in your about selling yourself well to an employer. vision for success in your job.

To do that, you’ll need to know what’s great To develop your EVP further, let’s start with your values. about you: your strengths, your values, your achievements, your ideas and why you’d be Determine your values a valuable member of the right team.

These underpin your EVP. They are at the base of the You might have heard of an “employer value proposipyramid because they are the foundation of success in tion” (EVP). It is a combination of benefits and rewards your career. A great way to determine your values is to that an employer offers in exchange for your skills, look to people you admire and note the qualities you experience and hard work. But what like about them. Maybe they have about your value proposition – an qualities that you want to emulate in Employee value proposition employee value proposition? Your EVP your own life. You can also think of a is what you can offer the company, time when you stood up for something.

Vision and it’s what makes you stand out.

Why did you stand up for that cause and how does that play into your value Your EVP forms the basis of your Achievements resume or CV (curriculum vitae) set? Lastly, think of a time when you Skills and how you represent yourself in an really felt like you. What were you interview. It articulates your points of doing at the time and how might this Experience difference, makes you more appealing be reflected in your values? than other candidates and is ultimately Once you’ve completed this exercise Education what can get you the job. you will hopefully have a list of five Values Think of your EVP as a pyramid, or six core values. Here is an example with each layer of brick forming an of what this might look like:

• Giving: giving back and contributing for good • Happiness: enjoying life and work, and always seeing the positive • Achievement: learning, developing, seizing opportunities and continuously improving • Integrity: staying true to what I believe in, and having the courage to advocate • Teamwork: helping and supporting others Your education: what counts?

The next level of your EVP pyramid is education you have completed. You can include high school, university degrees, TAFE courses, on-the-job training, online nanodegrees, short courses, mentoring programs, conferences, industry certifications and any other professional development that you have undertaken.

Focus on and emphasise education that is closely aligned to the positions that you are considering. For example, you might have undertaken a barista course, but now that you’re applying for a marketing assistant position, you’ll want to highlight your communications degree.

What qualifications you include in your CV and online profile depend on the level of education you

have achieved. For example, if you are applying for a job straight out of school, you can include your high school qualifications, even listing the subjects. However, if you have a PhD, you might start with your undergraduate studies.

University degrees can show that you have a highlevel strategic understanding of particular subjects and have completed detailed research too. A nanodegree is typically a course of study that you can complete in under 12 months and is delivered online. Completing a nanodegree or TAFE course can reflect attainment of specific job-ready skills, such as UX (user experience) design, carpentry or data engineering. Mentoring and on-the-job training can also help advance your career in your current job. You can attend conferences or industry events to help reinvigorate, reshape and re-energise your thinking.

What experience have you had?

Paid work is important in developing your career and experience in a variety of settings, but internships, volunteering and extracurricular activities are all valuable experiences too. Employers love to hear about charities MONEY AUGUST 2021 49

CASE STUDY

MY MONEY EMPLOYMENT

Cricket team captain scores the job

Joseph was an accountant who had listed his degree and CPA qualification on his CV. While he was a solid candidate for the position that he had applied for, the client nearly passed up his application because there was nothing that really made him stand out from other candidates.

Luckily for Joseph, the employer did invite him in for an interview and was surprised to learn that he was also captain of his local cricket team. In this position he had shown leadership, collaboration, teamwork, innovation and problem solving, and these were exactly the skills the employer was looking for. Although the accounting degree was important, hundreds of other candidates had this qualification. It was the skills and experience that Joseph brought to the table from his extracurricular activities that got him the job.

you’re involved in, clubs or groups that you’re committed to and where you’ve contributed to side businesses.

This type of experience gives extra insight into a candidate because it can often demonstrate values, proactivity, leadership, work ethic, interpersonal skills and community spirit.

Employers want to know what ideas you’ve come up with, initiatives you’ve sparked, projects you’ve driven and work you’ve completed. They’ll be interested in the scope, size, process, outcomes and results that you’ve achieved. They may ask you about your mentors and your experience working with them, and who you might have led and developed yourself. Your experience may include blogs that you have written, cars or boats that you’ve restored or social media pages that you’ve managed. It depends on the job that you’re pitching for, but more often than not you’ll have much more experience than you think you have.

Get a head start on your EVP and note some of your key experience.

What are your skills?

Having worked with more than 500 professional athletes on career planning and transition, I am always pleased to see how many of their sporting skills are transferable into new professions. However, the number of times I’ve heard an athlete say “I don’t have any relevant skills” is astonishing. Highly trained professional athletes have learnt to work to schedules, push their minds and bodies to the limit, contribute to teams and show leadership on and off the field.

As Justine Whipper, general manager of player development and wellbeing at the Australian Cricketers’ Association, explains: “When athletes transition from sport to another career, they often find the most challenging aspect to be understanding their worth outside of the game (industry).

But by building their level of self-awareness, industry exploration, formal or informal education, work experience and networking, they develop confidence in their unique strengths and realise they are often sought after by employers.”

Whether you’re straight out of university, taking the next career step or changing direction, the chances are that you have more skills than you give yourself credit for.

Here are some examples of relevant skills that any employer would love a candidate to have. Most students 50 MONEY AUGUST 2021

will have already developed these during their studies, and as professionals in their work.

Teamwork Leadership Report writing Generating innovative ideas Research skills Critical thinking Problem solving Flexibility and adaptability Collaboration Initiative Entrepreneurial skills Public speaking Presentation development Creativity Interpersonal communication Technology management Now’s the time to think about your own skill set and what you’ve learnt at work, school, university, or from extracurricular activities like sport or charity work.

Make sure you give yourself credit for all the brilliant skills that you have obtained throughout your employment and life, and articulate these well to an employer.

• • • • • • • • • • • • • • • •

What have you achieved?

Moving up the pyramid, let’s look at your achievements.

When interviewing for a job, it won’t be enough to have relevant skills and experience, and an interest in the position: you need to find ways to stand out. Therefore, it’s critical that you showcase your achievements from earlier workplaces, not just that you attended work.

Often recruiters see on people’s CVs their positions and duties listed, but nothing about their achievements. They don’t just want to know that you were in an outbound sales position for two years – they want to know whether you were good at it or not. Did you hit your targets consistently? Did you contribute new ideas? Were you reliable, turning up on time? Did you operate ethically and with empathy? These are the things that they want to know.

But how do you articulate that in a CV or during an interview? The first step is to think about all of the achievements that you have amassed in your career to date. If your career has been short, or you haven’t had a job yet, then you might want to include achievements from school, university, sport or extracurricular activities. Here are two examples of achievements that you could list on your CV and online profile, or discuss at interview: “As the nurse unit manager for the Wellness Hospital, I designed and implemented a revamped infection control training module which was delivered to all incoming team members upon arrival. This led to a 30% decrease in infectious outbreaks in the unit over a

•

12-month period and was subsequently rolled out across the entire hospital.”

“When I joined Terry’s Trucks as a logistics coordinator, the business was scheduling 30 trucks daily, but only able to deliver 45 loads of goods. In reviewing the driver routes and geography, and rearranging the pick-up and drop-off schedule, we were able to deliver 50 loads per day, increasing our daily delivery output by 10%.”

Often when you think of achievements, you think of awards or formal accolades, but there are plenty of other forms of achievement, including: Ideas you have contributed which have improved culture, performance or efficiency Ways that you have given back to the community, helped to reduce environmental impact or improved diversity within a business Key performance indicators (KPIs) that you have achieved or exceeded, What matters more such as sales results than qualifications Waysinwhichyouhavedemonstrated A candidate who I had referred for the business’s core values Your efforts in helping colleagues; a national sales manager position Projects you have managed sucwas approaching his first interview. cessfully I offered him advice to create a sixPresentations you have delivered well and 12-month strategy ahead of the Problems you have solved with great interview, covering what he would outcomes, such as showing proactivity do in the role if appointed. He not only that improved a situation or achieving took this on board but came back prior a better return on investment to the interview to run me through the Recognising and acting on busion-screen presentation that he had ness-critical trends prepared. He delivered this to great Demonstrating attention to detail success in the first interview. that has had an impact For the second interview he develShowing empathy in interactions oped a tactical strategy about how he leading to a great outcome would launch and roll out the proposed Using influencing skills effectively product in the market, if the company Meeting and exceeding expectations were to hire him. This included a comMentoring or developing someone petitor analysis, prospect list, sales to great success approach, marketing collateral requireThe Collins English Dictionary defines ments and timelines. achievement as ‘something which someone The potential employer was blown has succeeded in doing, especially after away by his maturity, forward-thinking approach and deep level of understand- a lot of effort’. It’s not about what you did in the job. It’s what you achieved. After ing of the market. He’d taken the time to research, plan and prepare a strategy all, an employer wants to know that you will add value to their organisation. that would set the business up for sucIn my experience, when I have worked cess. While he had less management with individuals to flesh out their achieveexperience than several of the other ments, I’ve found that most people shortlisted candidates, it was the way underestimate themselves and what that he articulated his ideas and vision they have achieved. They often dismiss throughout the interview process that results or actions as ordinary, when in ultimately secured him the job. fact they are extraordinary. So, if you’re

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CASE STUDY

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sitting there thinking, ‘This is all well and good, but I haven’t done anything special’, you probably have. You are likely to be more accomplished, more spectacular and more valuable than you think.

Here are some questions to ask yourself. Have you ever: been the leader in a situation? What happened? How did the group perform? offered up an idea that was taken on board and improved the situation? helped someone? hit a KPI? been given positive feedback? stood up for something that you believe in and made a difference? proactively solved a problem that no one else had noticed? improved revenue, finances or return on investment? made a business or environment better because of your actions? improved the customer experience? made a great website, presentation, document or piece of work? noticed and flagged something that was important?

If you answered yes to any of these questions, you definitely have achievements that you should be proud of.

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What ideas do you bring?

The last part of your EVP focuses on the future, and what you are going to do for the organisation and team that you’ll be working in. Your ideas are typically grounded by your values. Your vision might centre around what you want to achieve in the role, but also, importantly, what you believe the organisation wants and why you think they’ll hire you. M

WIN A COPY This is an edited excerpt from Get the job you really want

by Erin Devlin (Major Street Publishing, RRP $29.95).

Erin is the 2017 RCSA SEEK Professional Recruiter of the Year, managing director of people2people Recruitment Victoria, chief executive of Infront Sports Consulting, and a regular media guest and speaker on careers and employment. We have five copies to give away. For your chance to win a copy, share your top job interview tip, in 25 words or less. Enter online at moneymag.com.au/win or send your entry to Money magazine, Level 7, 55 Clarence Street, Sydney, NSW, 2000. Entries open on July 26, 2021 and close on September 1, 2021.

MONEY AUGUST 2021 51

MIND GAMES Phil Slade M

Key roles in the money game Within a relationship, we tend to slip into doing tasks that may not match our skills

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n family holidays we love to play games. Recently, while at the beach for a few nights, someone announced that we should play a card game. As soon as it was suggested there was instant agreement and everyone automatically went into action.

I started to draw up the complicated score sheet, someone else went to make drinks and nibbles, another found the cards and started shuffling, and another cleared the table and set the room ready to play. It was as if we had choreographed the whole thing, but we simply slid into roles as a matter of routine and learned history.

This automatic “slipping into roles” also happens in relationships, where partners create a sense of ownership over certain jobs over time – from who cleans the kitchen, to who mows the lawn, to who takes out the rubbish, to who has the tough conversations with the kids. Couples tend to settle into a routine of who-does-what without necessarily considering who might be more effective at what – it just kind of happens.

Interestingly, this is also what we can happen when it comes to financial tasks.

The four most common roles are: Chooses the long-term investments Directs the day-to-day budgeting and spending Sorts out the tax Instigates and plan holidays and “life” spending.

We all tend to take on some of these roles and leave the others to our partner, perhaps without considering who is best suited to which role. Often these roles are dictated by social expectations rather than capability, or by perceived glamour or status (like long-term investing).

However, problems can emerge through emotional conflict due to perceived imbalances in power, or because of different risk appetites. Status and control are less complicated to deal with in some ways than risk appetite, which has its basis in the emotion of fear. No two people are always going to

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52 MONEY AUGUST 2021

Three tips for assigning financial roles in couples Reduce the status of certain roles. See each of the four roles articulated above as equally crucial to your financial success.

Agree on where you are on a risk appetite scale and your level of attention to detail.

Less risky people tend to be better at longterm investing, and riskier people tend to be better at “life” spending. Those with higher attention to detail tend to be better at tax, while those who struggle with details can be better at creating simple rules to manage daily budgets.

Support and respect each other. Start a gratitude journal and attribute good things to internal characteristics of your partner, and bad things to the external environment.

Things don’t always go to plan, so avoid associating negative outcomes to internal attributes of your partner.

have the same appetite for risk, even if they are relatively conservative. One will always be higher on the risk scale and will tend to take on the role of advocating for riskier adventures. The more conservative will tend to try and avoid pitfalls, and the less conservative will try to avoid missing opportunities. Both are fear based.

An interesting psychological phenomenon is that people change their attitudes, behaviours and even emotional reactions in ways that align with the role they are playing at any given moment. A previously highly conservative person can develop a much higher risk tolerance when coupled with someone even more conservative than themselves. Therefore, agreeing who should take on what tasks, or what roles you will play, becomes really important. It’s not about what you can do, it’s about what would you be best at – what roles would you be better suited to. Doing this effectively will not only improve your financial out-

comes, it is particularly important in sustaining healthy relationships overall.

A comprehensive research project

by Jeffrey Dew, an assistant professor of Family, Consumer and Human Development at Utah State University, revealed that disagreements about money are the most accurate predictor of divorce, and when a spouse doesn’t trust the other partner in financial matters marital unhappiness is much more likely. In fact, another study indicated that perceiving your partner to be a foolish spender increased the likelihood of divorce by 45%.

Put simply, if each of us took on the financial tasks for which we’re best suited within our relationships (and “none” should not be an option), we would all be happier, healthier and more prosperous.

Phil Slade is a behavioural economist and psychologist, and co-founder of decision architecture firm Decida.

Anthony O’Brien SMALL BUSINESS

Success springs from the ‘madness’ For motivated young entrepreneurs, lockdowns present opportunities as well as challenges

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pandemic might seem like a weird time to start a business, but marketing whizz Emma Reeves, from Excelerate Marketing, believes it was as good a time as any to take the plunge.

In June 2020, Reeves decided to launch her own business and by the end of July she was working with several clients in the professional and financial services field.

A year later, the 28-year-old is earning as much as she did as an employee and is paying herself a salary.

Timothy Ferriss, which alerted me to the idea of dropshipping,” says Roller. (In the dropshipping model, a business sends its sales order to a wholesaler, which then ships the goods to the customer.)

Roller has since launched customised bean bag provider Bliss Bean Bags, which took off during Covid lockdowns on the back of demand for chair bean bags for home offices. He is also a co-founder of online dental retailer Mouthwatchers

Check that you’re ready While the commercial world was already obsessed with the benefits of digital marketing such as social media, Reeves identified that pandemic lockdowns would turn the wave of demand into a tsunami. While the millennial marketer saw the immediate opportunity, the desire to start a business predated the coronavirus.

“I would rather make no money and do something I love than work for an employer doing something I’m not passionate about. I had a job, but I felt it was time to follow my passion.

“That said, I had an inkling that with all the changes caused by the pandemic, the whole digital marketing world was evolving, along with the way businesses talk with their customers and how they spend their marketing budgets.”

Serial entrepreneur Dean Roller, who launched Hammock Centre, a “dropshipping” business, as a 28-year-old in December 2010, agrees passion is critical to start-up success. “I also love the freedom to run my own show and be creative.”

Roller, who has a double degree in mechanical engineering and physics from Sydney University, initially took a job with an advertising agency after graduation because he was interested in learning about the dark art of Google AdWords.

“However, I hated working for someone else, and I settled on working for myself after reading The 4-Hour Work Week by

Australia and in April 2018 launched DIY Granny Flat, which helps homeowners add investment value to their properties.

Plan to make a difference “I’m too busy to plan” is a catchcry across all business sectors. It’s easy for owners to ignore planning and focus on activity.

“I didn’t do much planning,” says Reeves.

“It was just a few conversations to check on the concept of the business, scribbling a logo on paper, building a website and evolving the business as I got new clients.”

Roller never troubles himself with formal business plans. “My advice is to do some research. Before Bliss Bean Bags, he road-tested two other businesses – import-

ing blenders from Hong Kong and protectors for the boots of parked cars to guard them against scratches and bingles. He created some simple websites for $100 and for $300 ran some Google AdWords, which he carefully tracked. The research revealed there was little demand for the boot covers or blenders. “So I scrapped these ideas before shifting to bean bags,” he says.

Get the structure right If you don’t choose a business structure, it’s assumed you’ll operate as a sole trader. That said, it’s worth considering what operating as a sole trader involves, along with the other structures such as partnerships and companies, by speaking to a lawyer or accountant. Reeves says that from the outset she determined to operate as a company. Unlike a sole trader or partnership, a company is separate from its owner so you’re less exposed to business-related legal or financial issues.

“I preferred the company structure because it delivers security and reputational benefits,” she says. “In terms of security, by operating as a company I keep my personal assets separate from my commercial interests, it gives my clients the peace of mind that they are working with an entity that has structure and will provide ongoing support, and operating as a company sends a signal that I have plans to grow and expand.”

Companies also generally pay tax at a lower rate, although they cost more to operate than a sole trader or partnership. There is also more administrative red tape, which an accountant can handle for a fee.

On the issue of expenses such as accounting fees, Roller says cash flow management is key to start-up success. “When you start, try and spend as little money as you can because you don’t know if it’s going to work, and you might need money to try again.”

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

MONEY AUGUST 2021 53

FAMILY MONEY Susan Hely F

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am a big fan of grandparents looking after grandchildren. They are parents themselves, provide high-quality care and, best of all, offer unconditional love.

Around 75% of grandparents see their grandkids at least once a month. Around 47% of grandmothers do “grandchild care” once a week compared with 41% of grandfathers.

Often grandparents rearrange their lives so they can spend time with their grandkids. They happily do it for free. This was what my mum did when I returned to work.

She offered me a couple of days a week, which meant my kids only went to formal childcare for two days.

It was a generous act by my mum. My partner and I had bought our first home when I was pregnant and we were paying off an enormous mortgage – though not as big as today’s mortgages. At the same time we were launching our careers. Our employers were typically inflexible and demanding and my mum’s care gave us flexibility.

It also gave me peace of mind to know that my kids were being taken care of by someone who loved them to bits. Her four grandkids brought her lots of joy, but she also found the long days (often from 8am to 6pm) exhausting. It went way beyond the fun stuff of taking them to the zoo, reading books and buying ice-creams. She didn’t really want to be a disciplinarian.

My mum often held our lives together. My employer wasn’t child friendly – nor were my partner’s work circumstances – so I relied on her if the kids were sick and couldn’t go to care or school. Because I had only four weeks of annual leave and nine weeks of school holidays, her help was essential.

When my kids went to school, Mum would often pick them up, take them home, give them dinner and stay with them until I got home from work. My partner’s parents chipped in as well.

While some grandparents happily do whatever they can to be with their grandkids, some understandably resist the role.

It isn’t all joy, and can be tiring and frus-

54 MONEY AUGUST 2021

Grandparents ride to the rescue But looking after the grandkids can come DW D KLJK oQDQFLDO DQG emotional cost

trating. Grandparents do have to push back, otherwise they can be overwhelmed with care requests.

They need to limit their care hours so they can keep working, have a robust social life, look after their health and protect their finances and travel plans.

Government support can help take some of the financial pressure off families in the form of a childcare subsidy that is means-tested and depends on the type of

care, family income, hours of care and the parents’ level of work, training or study. It is paid directly to providers, who reduce fees to the family. The childcare subsidy was recently boosted so that people on incomes above $189,390 are eligible for a higher subsidy and families with more than one child in childcare receive more.

In addition, a birth mother or primary carer can qualify for government-funded parental leave of 18 weeks for a newborn.

SUBSIDY EASES THE BURDEN YOUR FAMILY INCOME

CHILDCARE SUBSIDY PERCENTAGE

$0 to $69,390

85%

More than $69,390 to below $174,390

Between 85% and 50%. The percentage goes down by 1% for every $3000 of income your family earns.

$174,390 to below $253,680

50%

$253,680 to below $343,680

Between 50% and 20%. The percentage goes down by 1% for every $3000 of income your family earns.

$343,680 to below $353,680

20%

$353,680

0%

Source: Services Australia

On top of that, around 50% of employers offer some sort of paid leave – just how long varies from company to company. Typically, it is offered to women as paid maternity leave, but some companies are ramping up paid leave to new dads.

Around 35% of Australia’s top 500 companies offer two or more weeks of secondary carer’s leave, according to a survey by CoreData for the health insurer HBF. Caring for grandkids can be costly.

Grandparents who are working may reduce their employment hours to be available on regular days when their adult kids return to work. This will result in reduced income, with less going into their superannuation, and this can harm their financial security in retirement.

Often grandparents put their own interests and projects on ice to care for grandkids. They lose social connections that are important for their wellbeing.

Grandparents find themselves footing the bill for some of the expenses confronting their adult children and grandkids. It often goes beyond gifts and splurges for the

grandkids to food, bills and the mortgage. If they are at their grandkids’ home, they are on hand to see the bills come in and pile up.

Grandparents worry about their children’s jobs, their marriages and their stretched finances.

The high cost of housing is hurting young families, and grandparents are often the fallback. I know adult kids who have been living with their parents for a decade, trying to save enough for a home deposit, which has been made more difficult this year with house prices jumping by more than 8%. Wages have stagnated since 2011 so it is often hard to absorb the extra costs of young children.

Adult kids and grandkids can boomerang back into the family home in a crisis such as a relationship breakup, a redundancy, a rental dilemma or a medical emergency.

Grandparents who provide lots of support to their adult kids and grandkids are often told by their friends to pull back – that their adult kids are taking advantage of their generosity and it isn’t helping them to stand on their own two feet.

While some grandparents can afford to absorb the extra costs, others are squeezing their own financial resources. You don’t want to run down your retirement reserves, which could have consequences for your own housing or retirement dreams.

Source of conflict

Grandparents have a dilemma if they help one adult child’s kids: what about any others? Often the first grandchild receives a lot more attention than the fifth or sixth.

Grandkids who are closer to grandparents are easier to look after. Is it realistic to provide the same support for each grandchild?

My parents could never agree on how much help to provide to their grandchildren. My father resented my mother’s limitless care and how it derailed his plans to enjoy retirement and the empty nest.

It caused tension and disagreements

about how much help to provide. While mum didn’t give us money, she gave us lots of time and paid for toys, books and food.

Sometimes she would say, “Don’t tell your father about this.”

Also, I know people who have remarried, and their new partner didn’t want his or her money to help out grandchildren who are not blood relatives.

Checklist for ‘grand’ carers How much help do you want to give your adult kids to look after their children?

Set limits. Don’t overcommit so that you are continually exhausted.

If you are still working, are you babysitting grandkids on the weekend? Or is it one full day of childcare when their parents go back to work? Or is it a couple of days? Or do offer to pick up the kids from school, make dinner and wait until the parents are home.

The most valuable gift to give your grandchildren is your love and some time.

You don’t need to buy them expensive electronic gifts or designer clothes, especially if you can’t afford them.

If you want to help your grandchildren financially, work out what you would like to contribute. Will you help pay for childcare or school fees or higher education?

Think through the financial impact before you commit to paying ongoing expenses for your grandchildren. For example, private school fees rise much faster than inflation, so you will be paying more as the years go on.

Do you and your partner both agree about the amount of time and money you will contribute to grandchildren?

Don’t take on debt to help your grandchildren.

Susan Hely has been a senior investment writer at The Sydney Morning Herald. She wrote the best-selling Women & Money.

MONEY AUGUST 2021 55

PROPERTY MARKET CYCLES

Where to start your journey STORY PETER ESHO

Now is not the time to sit back and do nothing, but nor is it the time to make a decision you’ll regret

T

he property market is hot. The worst thing you can do is sit on the sideline and do nothing. The second worst thing is to buy the wrong property and spend the next 10 years regretting your decision. The best thing to do is relax, research, prepare and build a rock-solid plan that allows you to live the life you want while growing your investment portfolio.

Millennials are leading the way with rentvesting, and there are other ways today’s investors are thinking about property compared with their parents or grandparents. But before that, it’s important to understand the cyclical nature of the market. It is imperative to think of investing in terms of cycles. It is an important framework that will save you from making mistakes at the top or bottom.

Even with all the available strategies and tools, if you don’t think in cycles, you’ll be consumed by emotions and eventually succumb to peer pressure, often leading to mistakes.

that has grown by more than 8% in the past decade will probably see a sub-8% compound rate of growth in the next decade as markets revert back to their historical average.

A smart guy, he runs a multibillion-dollar fund. Big investors trust him and his team with their money. So this is really important.

The law of large numbers in statistics stipulates that as you add more numbers to a certain sequence, eventually the trends will revert to the average. If we look at real estate prices over many years, you will see that eventually we move to a certain average when predicting the future. Same with stocks.

The situation is a bit harder with crypto because we don’t have a long time series to measure. It’s a new technology and what we know from history is that new technologies can usually generate exponential returns in their early years before things settle down and trend towards the rest of the world. We saw this when the internet first emerged.

A time for everything

What booms next?

The world moves in cycles. We have cycles of time – days, weeks, months, years. We have different seasons – a nitrogen cycle, carbon cycle, photosynthesis and the water cycle. Around 2500 years ago, according to rabbinic tradition, King Solomon wrote “… there is a time for everything, and a season for every activity under the heavens…” (Ecclesiastes 3). As many of the proverbs borrow from Persian and Greek writing styles, so scholars believe the work could be dated even further back in history.

I’m a big believer in investments also following this natural occurrence and moving in cycles because, at the end of the day, markets are driven by human beings and our natural habitat. I view every investment decision I make in the context of a cycle.

The hard part is picking cycles. It’s very difficult to predict where we are. For example, the residential real estate cycle in Sydney has generally fluctuated between seven and 10 years, when you have a boom at the top and pullback at the bottom. Timing is difficult because booms or pullbacks may last longer or shorter than expected. The same can be said for stockmarkets and movements in the price of gold, silver and other metals.

Some investors like predicting cycles, using technical measurements like charts and data. I’m not completely sold. As an investor, I like to keep things simple. I’m not too worried about being precise; I’m more focused on understanding where my competitors are and what type of market sentiment is prevalent in the current cycle.

So, if you’re young and entering the market, you need to take a step back and understand where the cycle is for the type of property you want to buy. Sydney and Melbourne are booming; Brisbane is slowly catching up; Perth is starting to rise but at a different pace and for different reasons.

If you’re looking at an area like Bondi and the market has risen by 15% over the past year, it’s probably a good bet that growth will moderate in the coming years.

It’s not to say that the market will fall, but the rate of growth will slow. If Bondi has averaged 8% growth in the past few decades and it grew by 15% last year, simple maths tells you that the next few years might see growth below 8%.

On the other hand, you could look at a market like Parramatta, which has been plagued by apartment oversupply in the past few years. All your friends and uncles at a family barbecue might tell you that apartments aren’t the best investments, yet markets that haven’t risen or have grown below their long-term average are probably more likely to exceed their average in the coming years, as long as you do your homework and have all the checks and balances in place.

Land has been hot and will continue to be so in the next few years. But don’t expect last year’s growth next week.

You need to think outside the box and understand that your time frame is different from mine or the next person’s.

Here’s a little side story to further emphasis the point.

I joined F45 fitness a few months ago to start training again and get back into shape. I almost collapsed on the first day. But I left the gym happy. I didn’t care about the other 30 people doing their high-intensity training and barely raising a sweat. I wasn’t comparing myself to others. I was comparing my day 1 to my day 0. I’m

So where are we now?

I recently came across a great note from an experienced investor who pointed out that post-war commercial real estate returns have averaged around 8%, so any asset

Young investors don’t want to necessarily slog it out in the suburbs with a 30-year mortgage

MONEY AUGUST 2021 57

PROPERTY MARKET CYCLES

now three months into my training and looking back at where I started with a great sense of accomplishment.

My physical training cycle is different from that of the guy or girl who has been training for two years non-stop. Therefore my investment cycle, market cycle and property cycle expectations also need to be different if I’m entering the market for the first time. I shouldn’t take advice from my parents or family if they have been in the market for 30 years and don’t have the same pressures and realities that I do.

I don’t know what will happen, but I do know that something will, so I make sure my portfolio is open to different possibilities. I want to make sure I have enough diversification and insurance to benefit from something breaking out and booming.

Focus is important Having too many investments can be a distraction. But having too few investments and limited diversification means you can, and probably will, miss the next exponential growth opportunities. It’s better to have 1% in 100 things, across different asset classes, than 50% in two single exposures unless you are certain that you’re making the right investment decision.

I’ve seen too many friends enter the crypto market by making large bets on single exposures. The rationale goes something like this: Bitcoin has already boomed, so they feel like they need to find the next boom. This line of reasoning isn’t bad. It’s the execution that lets them down.

Rentvesting is a game changer Okay, now it’s time to focus on property opportunities.

Young investors we meet everyday at Wealthi (the business which I co-founded) want two things: firstly, they want to grow their wealth and feel like they are contributing to their future; however, secondly, they value their lifestyle and don’t want to necessarily slog it out in the suburbs with a 30-year mortgage that limits their experiences and ability to travel or move around.

Thankfully, there is a solution: rentvesting. Basically, it involves renting your primary place of residence in a place you want to live while buying an investment property where you can better afford it and renting it to someone else. Rather than buying a place and living in it, buying a place and renting it out to someone else is a lot more tax effective.

Your mortgage, rates, bills, depreciation and other 58 MONEY AUGUST 2021

costs are tax deductible and could see you potentially receiving a refund at the end of the year depending on your situation. It’s one of the best advantages of the tax system.

The government doesn’t give you many free passes, but this is one of them and more than 2 million Australians own an investment property utilising this set-up.

The other part of this strategy is renting your primary residence. I have many friends and colleagues who own multiple properties in areas that give them 4%-5% rental return a year while they chose to rent in places where they couldn’t afford to buy, like Coogee and Bondi in Sydney’s east, effectively paying 1%-2% of what the property is worth. When they get sick of the property, they call the removalists and find somewhere else. If they want to work or travel overseas, no problem. They don’t have an owner-occupied mortgage tied around their necks. Their investment properties are rented out and their rental managers make sure to collect the rent each month.

Think big, start small This is how we think about real estate, as an investment. The team at Wealthi is constantly assessing different market cycles, picking high-quality stock and putting together different cash-flow scenarios so investors can actually simulate what their life and cash flows look like under different circumstances.

We live in a new world where the internet makes many more things possible. Our parents or their parents didn’t have these luxuries, so they made the best of what was normal back then. But the normal way of investing in property in 1970 shouldn’t be the normal way of doing things in 2021.

My parents grew up in an environment where interest rates were going through the roof. My dad was paying 19% interest on his loans when I was a child. Yet since I started working and investing, interest rates have been collapsing and I’m now paying 1.9% on my loans. My reality is different from my parents’. We’re living in different cycles, so it makes sense to use debt in different ways, use different strategies like rentvesting and not compare our growth point to that of others.

If you’re a young investor, you need to think big, start small and keep growing your education, mindset and investment knowledge. Surround yourself with great people who will open your mind to new possibilities. Have fun and make investing enjoyable, because that’s the whole point.

Peter Esho is the co-founder of Wealthi, a real estate investment platform.

Pam Walkley REAL ESTAT TE

Not everyone is a winner Buying at the top of the market can prove costly if you need to sell earlier than planned

M

any people believe you can’t lose money buying residential property, but that’s not the case.

Just ask those who have suffered losses from buying and selling homes and units in boom-bust markets such as Perth, Darwin and the Gold Coast. And real estate losers are not confined to those places – anyone buying at or near the top of a cycle and selling at or near the bottom is likely to lose money, regardless of the location.

A friend’s son lost more than $100,000 as a result of bad timing in Perth, thanks to his bank-based financial adviser suggesting a residential investment in Australia’s westernmost capital when the market was hot because of the mining boom. But homes in Perth were one of the biggest casualties of the boom’s end in mid-2014. Prices fell almost instantly and kept declining for six years, with the average Perth value plunging from $564,000 in June 2014 to $490,000 in December 2020, according to CoreLogic.

My friend’s son sold because the rental income from his investment property had halved, and he could no longer afford the mortgage repayments. Those who believe you can never lose from residential property will say if he had held on, he would be okay – and, yes, Perth prices are rising again – but not everyone’s circumstances enable them to hang on.

Booming prices are defying those pundits who predicted a fall in the wake of the Covid-19 pandemic, so it may be time for buyers to exercise caution. The median price across all capital cities rose 10.6% to $634,355 in the year to May 2021.

Tim Lawless, CoreLogic’s research director, says growth conditions remain broad-based both geographically and across housing types. “Values were up by more than 1% across every capital city over the month, with both house and unit values lifting across the board. Of the 334 sub-regions analysed by CoreLogic, 97% have recorded

a lift in housing values over the past three months. Such a synchronised upswing is an absolute rarity across Australia’s diverse array of housing markets.”

Price rises are mainly due to low interest rates but also, ironically, partly to the pandemic, which has meant people are using money they may have spent on overseas travel to buy property. Investors are well and truly back in the market after a period when first home buyers dominated new borrowing for houses.

Anyone buying in the current conditions, especially investors, has to ask themselves whether they are doing it at or near the top of the market. Sure, many commentators predict rises will continue and probably accelerate, but can you be certain they are right? At the very least this is a time to pay heed to the saying “let the buyer beware”.

In April, 25.94% of all real estate investors were stressed (income from rent is not sufficient to recover the costs of owning and letting their properties), according to Digital Finance Analytics. NSW had the highest number of stressed investors (36.18%), followed by the ACT (35.38%), Victoria (24.13%), Queensland (24.07%),

Western Australia (23.49%), South Australia (15.89%), Tasmania (15.32%) and the Northern Territory (14.05%).

Being very selective in what and where you buy is the key to your new property purchase not ending in tears.

If you are buying a home to live in (it is cheaper to buy than rent around 57% of dwellings across Australia, according to the findings of the REA Insights Buy or Rent Report 2021) timing the market is not so critical, but being certain you will be able to pay your mortgage comfortably when interest rates rise is very important. You don’t want to be forced to sell in a slower market because you can’t afford the repayments, especially if you bought near the top.

With the average mortgage above $500,000, even a small rate rise could put you in mortgage stress. According to the website moneysmart.gov.au, 2.35% was the average interest rate for new mortgages in April. On that rate a $500,000 mortgage over 30 years would require repayments of $1937 a month. If rates rose by just 1% to 3.35%, repayments would rise $267 to $2204.

Even with low rates, more than 230,000 households across the country are in “mortgage crisis” and people risk losing their homes, according to data released by the consumer organisation Choice in late May. If you’re an investor, timing is more critical. If the area you want to buy in has experienced a big price jump recently, look around for nearby places with similar characteristics where rises have been more modest. Buying into really hot markets, especially at auction, often means you end up overpaying; maybe it’s better to wait until things cool a little.

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.

MONEY AUGUST 2021 59

PROPERTY UNDERQUOTING

In a hot market, would-be buyers who do their homework won’t fall victim to an unscrupulous agent STORY NICOLA FIELD

Prices that cause pain 60 MONEY AUGUST 2021

I

n a booming property market, homes are selling at auction for sums that blow the agent’s price guide out of the water. But the issue of underquoting is nothing new. Years ago, my partner and I set our hearts on a rundown (let’s be honest, derelict) house slated for sale at auction in Sydney’s inner west. The agent quoted an upper price estimate, which was within our budget though at the top end.

Hopes came crashing down when the auctioneer opened bidding at the top price we’d been quoted.

After exchanging “What the?” looks, we slunk out of the auction room leaving buyers with deeper pockets to fight it out.

Fast-forward to 2021 and underquoting is once again making headlines as shell-shocked house hunters watch properties sell under the hammer for prices that dwarf the agent’s price guide.

In June, a Toorak mansion sold at auction for $14.25 million, smashing the upper price guide of $11.5 million. In March, a Bondi apartment sold for over $20 million, with the opening bid being a market-whacking $14.5 million though still within the price guide of up to $15 million.

While both homes are prestige properties, underquoting can deliver serious hip pocket pain to buyers with more modest aspirations. Ticking the boxes for due diligence – having the sale contract reviewed by a legal professional, and arranging pest and building reports – has the potential to rack up fees of around $2000, which can prove pointless when a home sells for vastly more than the price guide.

But in today’s hot market, are agents underquoting as a form of bait advertising? Or is competition so intense that it’s becoming impossible for even the professionals to accurately predict what a property will sell for?

Difficult to prove Angus Raine, executive chairman of Raine & Horne Property Group, is a veteran of five property booms.

“Every time a boom comes up, the underquoting debate kicks off,” he says. “There is legislation and fines in place in some states to prevent underquoting, and regulatory authorities do check this. But in a fast-moving market, underquoting is difficult to prove.”

To be clear, underquoting occurs when an agent deliberately publishes a guide that’s below their reasonable estimate of the home’s likely selling price. The key words here are “reasonable estimate”.

“Accurately estimating a property’s likely value comes down to three factors – comparable recent sales,

FOUR WAYS TO GAUGE THE MARKET Attend inspections: “If you arrive at an open home inspection and there are people queuing for a look, it’s a fair bet the property is likely to sell for more than anticipated,” says Angus Raine, from Raine & Horne.

Stay in touch with the agent: Sellers can raise their reserve price at any time.

Raine says agents can alert buyers that price expectations have risen week by week throughout an auction campaign.

Track auction results: Ray Ellis, of First National Real Estate, recommends keeping a close eye on recent, comparable auction results. In particular, he suggests honing in on sales within a two-kilometre radius of your target property.

Make use of freely available house price data: Ellis believes buyers who do their homework can get a feel for whether an agent is “deliberately lowballing a price estimate”.

(See “Tools for researching prices”, page 62.)

an agent’s experience, and market conditions,” says Ray Ellis, chief executive of First National Real Estate.

However, as Raine points out, the downside of basing price estimates on recent comparable sales is that agents are looking at the market in a rear-view mirror.

“In 35 years I have never seen a property boom like the present that extends right across Australia, including regional markets. And, yes, some of the prices we are seeing property sell for at auction are unbelievable.

He says auctions represent only about 20% of the market. “But right now, the planets have aligned for exceptional market conditions across the board.”

That alignment of factors has not happened overnight. Both Raine and Ellis point to a five-year low in the supply of homes for sale. “Since 2015 we’ve seen historically low listings on the market,” says Raine.

“So the demand bucket has been filling for six years.”

He believes this is why agents are seeing queues of up to 50 people attend inspections and as many as 20 registered bidders thrashing it out at auctions.

The upshot is that demand is far outpacing supply.

CoreLogic’s research director, Tim Lawless, sums up the situation: “The sales to new listings ratio remains around 1:1, meaning for every new listing there is more than one sale occurring.”

Overarching all this are interest rates at record lows.

“With finance so cheap, there is no barrier to buyers bidding well beyond expectations,” says Ellis.

Agents face penalties The NSW Department of Fair Trading cautions that just because a property sells for more than expected doesn’t mean the agent has underquoted. Agents need to show their price estimate was reasonable, up-to-date and evidence-based. Those caught underquoting can face strict penalties. In NSW that means fines of up to $22,000 and loss of sales commission.

In Victoria, agents must provide buyers with a statement of information (SOI) that sets out an estimated sale price within a 10% range, as well as details of written offers received – but rejected – by the seller.

Agents who flout underquoting laws risk a penalty of more than $31,000.

Elsewhere the situation isn’t as clear cut. In Queensland, for instance, agents are banned from giving price estimates on homes going to auction.

Despite the risk of penalties, there are clearly rogue agents operating in the market.

In June 2021, a series of blitzes saw NSW Fair Trading issue 137 penalty notices and 224 warnings, with MONEY AUGUST 2021 61

PROPERTY UNDERQUOTING

fines totalling $150,710. “The latest checks uncovered a myriad of non-compliance, and we will continue to conduct these blitzes until the industry pulls its socks up,” says Kevin Anderson, NSW Minister for Better Regulation and Innovation.

Nonetheless, the onus is on buyers to do their own research and develop a sense of what a home will sell for.

Risks in a pre-auction bid

Making an offer ahead of auction day can see buyers avoid a frenzied bidding war. But it’s a high-stakes strategy.

“People who make pre-auction bids tend to be the underbidders who’ve missed out on a couple of recent auctions, so they know the market,” says Raine. “The earlier you put an offer in, the better. The closer to auction day, the more likely the agent will advise the seller to take the property to auction.”

While Ellis believes it can be worth making a pre-auction offer, he recommends talking to the agent to get a feel for the seller’s mindset. “Some vendors are determined to complete their auction campaign because the market is so strong,” he says. “If that’s your vendor’s view, a pre-auction offer, no matter how strong, is likely to do just one thing – reveal your hand.”

If it turns out the vendor is open to an offer, Ellis says: “Make your offer a strong one and be prepared to move immediately should they accept.”

Don’t reveal your hand

In a seller’s market, having finance lined up in advance can give buyers an edge over the competition. The catch is that many lenders are swamped with loan applications at present.

“While some people can have their loan application assessed in a matter of days, the vast majority endure extraordinarily long turnaround times,” says Tim Kerin, principal of Mortgage Choice in Kingsley, Western Australia. “It’s not uncommon to see a lender take two or three weeks to pick up an application and assess it, then another two or three weeks of back and forth until an unconditional approval is actually achieved.”

Given that auction campaigns usually run for just four 62 MONEY AUGUST 2021

weeks, lender delays can see buyers head into an auction without pre-approval. However, there may be a solution.

“When the agent or seller is willing to accept it, we [mortgage brokers] can simplify things by providing a loan eligibility certificate, often called a letter of eligibility, instead of a pre-approval,” says Kerin. “It’s a document I can produce very quickly as a mortgage broker, without sending an application to a lender. It communicates that I believe the buyer qualifies for a loan, having done all the checks necessary to be confident of this myself. The document can cut through the waiting and stress, often resulting in offers being accepted without the need for a pre-approval.”

For buyers who do have pre-approval, it pays to keep your cards close to your chest. Telling the agent exactly how much finance you have is the equivalent of alerting the vendor to your maximum offer, and it can just fuel the seller’s interest in lifting the reserve price.

Buyer’s agent can do the hard work

Engaging a buyer’s agent won’t stop a property selling at auction for more than expected. However, if you’re pressed for time researching the market, sorting through listings or you’re just not comfortable negotiating directly with a seller, a buyer’s agent can do the job for you – at a price.

Fees vary widely, but you can pay around $3700 for single services like research and price negotiations, through to around 2.5% (plus GST) of a property’s sale price for a complete end-to-end service. On the median capital city home value of $715,100 this can add an extra $18,000 to your buying budget.

Sellers are happy, of course

While buyers and buyer’s agents often raise the issue of underquoting, there is one group who isn’t complaining about higher than expected auction results, and that’s sellers. As Angus Raine points out, “agents get targeted for underquoting, but we don’t make the market. People forget that agents are paid by the vendor to get the best price possible. When today’s buyers are ready to sell, they expect an agent to do exactly the same thing to get a great price on their property.” M

TOOLS FOR RESEARCHING PRICES There are various tools to help home buyers research property values.

Mortgage brokers often provide free property price data as part of their service.

It’s typically more detailed than publicly available information, often drilling down to a particular street or property.

The free Onthehouse Property Values app provides value estimates based on location and recent sales. The realestateview.com. au app provides heat maps showing median values and recently sold properties.

A new option is KoalaData, an Australian-made free extension on the Chrome web browser that adds details such as whether the listing price has changed or been removed, how long property has been on the market, search price ranges and more. Data is compiled from regular snapshots of listings, and dates back to April 2020.

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t will come as no surprise to firsttime buyers that home ownership has become a gladiator sport. They know better than most how dispiriting it can be to watch auction prices shoot through the roof, way beyond their ability to buy.

A new report by UNSW puts it in sharp focus. Since the mid-1990s house prices have raced well ahead of income growth, with home ownership levels among the under-35s halved since 1995.

Not all young adults can rely on the bank of mum and dad, which is presumably why the federal government used the budget to announce it would increase the First Home Super Saver scheme’s releasable amount from $30,000 to $50,000.

Pending legislation, this higher amount will apply from July 1 next year. It means couples who combine their FHSS contributions will be able to access a more meaningful $100,00 from super instead of the $60,000 that currently applies.

Voluntary contributions made since the scheme’s introduction on July 1, 2017 will count towards the total amount released. At the time, the prime minister, Scott Morrison, said the FHSS would “provide significant tax incentives for first home buyers to accelerate the rate at which they save”.

How it works Through the scheme you can contribute up to $15,000 a year to super. However, you need to be careful not to exceed the normal contribution caps that apply, which include your employer’s compulsory super.

For concessional (before-tax) contributions, the cap is $27,500 a year and for non-concessional (after-tax) contributions, it’s $110,000. Compulsory super, paid by your employer, cannot be included in your FHSS savings.

If you make concessional contributions (salary sacrifice) it could potentially lower your taxable income.

64 MONEY AUGUST 2021

The federal government estimates the FHSS scheme can boost your savings by at least 30% compared with savings in a standard deposit account.

Concessional contributions are taxed at 15% going into super. They are also taxed on the way out once you withdraw the savings to buy your first home. The withdrawal amount, plus earnings, is taxed at the individual’s marginal tax rate, plus Medicare levy, less a 30% offset.

FHSS savings earn a deemed rate of interest set by the government (currently 3.04%) rather than the full investment returns made by your super fund.

While lower than the typical 8% return on balanced funds, it’s higher than interest rates on bank savings accounts. And, critically, it isn’t affected by falling markets.

The advantage of using the FHSS scheme is the savings you make through super’s low-tax environment, says tax specialist Adrian Raftery.

“For everyone earning over $45,000 it will be particularly worthwhile,” he says.

“For the $45,000 to $120,000 tax brackets, they’re effectively taxed at 4.5%.”

Raftery says the increase in the FHSS limit to $50,000, or $100,00 combined as a couple, makes the scheme a more attractive proposition, but at the same time he worries it might further fuel property prices.

Once you are ready to withdraw your savings you need to contact the tax office through your myGov account. It will determine how much can be released and let your fund know. It can take up to 25 business days for the money to come through.

Colin Lewis, head of strategic advice at Fitzpatricks Private Wealth, says the scheme was previously too restrictive but has been improved. “Initially, when the government put the scheme in place, it wasn’t very attractive. You had to arrange to pull the money out of your super fund before you went to the auction.

“You couldn’t pull it out after you had bought something, which meant that if you went along to an auction to buy something you couldn’t then turn around and pull the money out of super. You had to pull it out before, and then you only had 12 months to buy something. “So the early system was pretty unpalatable for a lot of people, but they have now addressed that.

“But the thing is, you don’t put money into super if you can’t get it out. If you weren’t buying a home you wouldn’t be doing it. Nobody is going to lock their money away for 30 years.”

Apart from being clear about your goals and intentions, Lewis says it’s critical to first check with your super fund that it participates in the scheme.

When every dollar counts

CASE STUDY

After house hunting on and off for the past four years, Sarah Lewis, 28, a brand manager at a large multinational, and her partner, Alain Ducquet, 29 (pictured) have finally bought a place they can call their own.

“Initially we were outbid at all the auctions we attended while the market kept rising in front of our eyes. We managed to stretch ourselves, and have just bought a small house in Sylvania,” says Sarah.

“My partner is a builder so for us, given we’ve looked for so long, we wanted something we could improve on and stay in for a long time. We looked in many areas in Sydney and that was the only one we could afford for what we wanted.”

Sarah and Alain have diligently contributed to the First Home Super Saver scheme since it began, allowing them to save $30,000 each – the maximum currently allowed. This gave them a total of $60,000 towards their purchase.

“The stamp duty alone was over $60,000,” she says. “It was the only government initiative we’ve taken advantage of to enter the market. But every dollar counts so it was good to get the FHSS tax concessions.”

Sarah also points out it beats saving for a home deposit using a bank. “Interest rates are very low at the moment so it’s definitely much better than that.”

But many first home buyers are unaware of the scheme. “My dad works in finance and advised me to participate, but a lot of my friends who are in similar situations had no idea about it.”

However, it’s crucial people first check whether their super fund participates in the scheme before making any

“Before making a super contribution, check with your fund that your money will be released under the FHSS when you need it. The last thing you want is to have a shortfall in your home deposit because your money cannot be accessed until retirement.”

It’s important to be realistic about what to expect from the scheme too, he says.

“In dollar terms, the benefit you derive from using the FHSS is not big, but it’s better than having money in the bank earning next to nothing.”

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

extra contributions. Two of her friends discovered they couldn’t withdraw their extra contributions after purchasing properties because their funds did not participate in the scheme.

“That left them with a funding gap.

They thought they had access to their savings. Now they have that money stuck in super until they retire.”

With years of house hunting behind them, Sarah and Alain have much to look forward to. She’s also glad improvements made to the scheme helped them.

Previously you had to buy a home within 12 months of withdrawing your FHSS savings. Now you can request your money once you’ve bought a property.

“Imagine withdrawing the savings, and then having the clock ticking, feeling you have to buy something within 12 months.

At least now you can request your withdrawal once you’ve signed the contract,” says Sarah.

MONEY AUGUST 2021 65

INVESTING MANAGED FUNDS

STORY DAVID THORNTON

What makes a top performer A

Picking the promising stocks, rather than following an index, is paying off for small-cap managers

66 MONEY AUGUST 2021

ctively managed funds are facing stiff competition from passive exchange traded funds (ETFs), with the latter consistently outperforming the former.

But that doesn’t mean that actively managed funds can’t outperform. So, what sets apart the funds that do generate returns consistently above the market?

Fund managers and their critics consistently measure performance against benchmark indices, but getting overly caught up in performance relative to an index might be what holds many fundies back from achieving consistent outperformance.

Australian Ethical and Cyan Investment Management are two small-cap fund managers that consistently outperform the index.

Australian Ethical’s emerging companies fund has averaged a return of 19.5%pa since inception compared with the S&P/ASX Small Ordinaries Industrials index’s 10.9%, while Cyan’s C3G fund has returned 15.4%pa since inception compared with the Small Industrials’ 9.6% over the same period.

But in terms of how they invest, the index means very little. “We’re completely benchmark unaware,” says David Macri, Australian Ethical’s chief investment

officer. “And that’s genuine. Because of our ethical guidelines, we have to be different to the market.”

Instead, Australian Ethical focuses on stock picking, not trying to replicate an index. “We think these companies have a competitive advantage – they’re undervalued, so we’ll hold a position.”

Graeme Carson, a director and portfolio manager at Cyan, has much the same mantra. “We don’t benchmark against an index because that’s not how we think. We’re bottom up – we want to find businesses that are growing or about to reach an inflection point to clear growth.”

Up close and personal

Investing in companies at the smaller end of the capitalisation spectrum poses a range of opportunities and challenges.

Carson takes a more holistic approach to picking companies, based on a broader understanding of the business model and the people who execute it. “You need to meet the business, meet the management, have a holistic view of the numbers now and find out what they can look like if all the other pieces of the puzzle fall into place,” he says.

After that, Cyan looks at the financials, in particular: the return on investment capital.

Carson. “At the smaller end of the market you can’t rely on quantitative analysis or broker research. And the numbers often don’t reflect the position the company is currently in.”

The adage that past performance cannot predict future performance rings especially true here – first, because there isn’t a lot of past performance to go by and, second, because young companies function in a way that is often very different from how they function when they’re much bigger.

That puts the onus on understanding the qualitative factors, namely getting to know the management.

“We have a head start over retail investors because we get to meet companies,” says Carson. “Company management will give you time, which is access you just don’t get at the bigger end.”

Access to management can also be an advantage, says Carson, because even if he doesn’t end up investing in a company, he may walk away with a nugget of information about the sector or a competitor.

“It’s hard to understand how bigger companies operate, the accounts are very complex and corporate governance is such that you often get fed a company line.”

If done correctly, small-cap companies can outperform their bigger-cap peers as they embark on growth, ideally through investor money that’s put back into the business.

“If they’re successful, the value of capital flowing through the business in the future will far outweigh the initial investment,” says Carson.

This means dividend-paying companies are out of the question. “People want to chase yields because they think yields are good, but we don’t think they are,” says Carson. “Yield means that the profits are getting paid out rather than reinvested back into the company to grow it.”

It comes back to getting to know the business and the management to then be comfortable that they are going to reinvest the capital in a prudent way. “If they do that, the valuation is going to grow much more than a company paying out dividends.”

Only once all qualitative and quantitative aspects of the company are understood does Cyan then pull out the wallet. “We figure out if we like their strategy, whether they can execute, what their competitive position is, what the financial position is like, and then if we’re comfortable with all that, it comes down to the price.”

Big returns in small caps

Small caps are often viewed as a riskier investment because of “information risk”. Because they’re newly listed, or soon to list, they don’t have the research coverage as bigger-cap companies, like the miners or banks.

“People say it’s risky, but if you filter out the things you view as risks, then we believe it’s easier,” says

Ethical factors

“Yield means that the profits are getting paid out rather than reinvested in the company”

Environmental, social and (corporate) governance (ESG) investing is going from strength to strength, no matter which way you look at it.

An ISS Market Intelligence report found that 55% of responsible funds outperformed the average return achieved across the combined responsible and nonresponsible market within their asset class over 2020.

What’s more, 80% of funds outperformed the market based on three-year compound annual growth rate, while 76% and 70% of funds outperformed the market based on five-year and 10-year CAGR respectively.

This outperformance was both domestic and global.

The Australian equity asset class showed collective outperformance through the year, with 88% of responsible funds outperforming the market with an average return of 6.4% above the benchmark.

Responsible international equities funds have been long-term performers. Over the past three years more than 79% of these funds outperformed the market by an average of 3.1%.

As the name suggests, ethical investing is the heart and soul of Australian Ethical’s investment process.

“Whether a company or sector is in our investible MONEY AUGUST 2021 67

INVESTING MANAGED FUNDS

COMPARE THE RETURNS Australian equity returns (% p.a) 10% Average responsible Average market

8% 6% 4% 2% 0%

1yr

3yr CAGR

5yr CAGR

10yr CAGR

International equity returns (% p.a) 10% 8% 6% 4% 2% 0%

1yr

3yr CAGR

Source: ISS Market Intelligence, data to end of Dec 2020.

universe depends on whether it passes our ethical charter,” says Macri. And most don’t pass. The ethical filters screen out about 60% of the market. “If they pass that, they’re in our investible universe.”

That investible universe is by nature a new-economy universe, dominated by healthcare, technology and renewable energy. Off the table are sectors such as iron ore mining, consumer staples and consumer discretionary.

Australian Ethical also filters within sectors.

Take mining, for instance. While iron ore is out of the question, it can invest in lithium mining due to the role it plays in renewable energy, provided the company actively manages its social and environmental impact.

All told, the companies that are left envisage the kind of world you’d want to leave to your grandkids.

This vision tends to lead to higher performance. “It leaves an investible universe that is forward looking, which tends to be more growth-focused than what’s left behind,” says Macri.

A forward-looking investible universe is, by virtue of the nature of progress, generally higher performing than companies that make up the so-called old economy. “The areas we’ve focused in have benefited, such as tech and healthcare.”

While this may give Australian Ethical a 68 MONEY AUGUST 2021

leg-up when it comes to performance, it still then has to do its financial due diligence to find high performers. Just because a company is ethically or environmentally healthy doesn’t by default mean that the returns will be equally healthy.

“I look at how well we’ve done within our ethical investing universe,” says Macri. “We’ve managed to outperform in good-performing sectors. But I don’t agree that a company that passes our screen will by default perform better.”

Keeping cash to invest An underappreciated aspect of actively managed funds is the amount of cash they keep on hand, rather than having it invested.

At first, it might seem that is a wasted opportunity. After all, money that isn’t invested can’t make a return, at least beyond bank interest.

But there are reasons why a fund may hold cash, such as to meet shareholders’ redemption needs, pay management fees or, if it’s an income fund, to distribute yield to investors.

Holding cash can also be a way to protect capital when the market turns sour.

But Australian Ethical and Cyan hold it for another reason – to respond to market opportunities. “If we have a portfolio of companies and we sell out of one of them, we won’t automatically put that money towards other investments,” says Cyan’s Carson. “At times

5yr CAGR

10yr CAGR

CAGR: Compound annual growth rate

we’ll have 30% cash and at other times we might have 10% cash.”

Instead, Cyan holds cash as a bullet in the chamber to invest when opportunities arise without the need to sell out of other investments.

What it did during the pandemic is a case in point. “Going into Covid, we had about 30% cash and we put that capital to work over a three-month period, which brought us down to 10% cash,” says Carson. “We saw fundamental value as all stocks fell, and luckily we had some cash on the sidelines to put to work.”

Australian Ethical holds cash for the same reason. “The Aussie shares fund has historically held 5%-10% cash, but that’s more because we like to be opportunistic,” echoes Macri.

“We don’t want to hold that up just because we don’t have the cash.”

While Australian Ethical and Cyan have consistently provided their investors with above-market returns, there are other models that work too.

What is clear, however, is that choosing a fund manager should take much more than deciding whether you like the companies in which they invest. Nor is it simply about looking at the three-month return and nothing else. It’s about understanding the path they take to get to those returns. M

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INVESTING STUDENT DEBT

It’s essentially an interest-free loan, so you may be able to get a better return elsewhere STORY DAVID THORNTON

Pay off HECS or invest Y oung people earning money aboveandbeyondtheirliving expenses face a choice: pay down their tertiary education debt or invest?

While everybody has their own unique circumstances, there are a few key things to keep in mind.

If you undertook your tertiary education on a Commonwealth-supported place (CSP), you’ll likely have received a helping hand from the government in the form of a HELP

70 MONEY AUGUST 2021

loan. Your HELP debt is the money borrowed from the government to undertake tertiary education. That covers loans labelled as HECS-HELP, FEE-HELP, VET FEE-HELP, OS-HELP, SA-HELP and VET student loans.

This money is paid back depending on your level of taxable income. If you earn less than $47,014, you don’t pay anything.

Between $47,014 and $54,282 you’ll pay back 1% of your taxable income annually, which increases incrementally through to a 10% for those earning over $137,898.

According to the Australian Taxation Office (ATO), almost 3 million people had an outstanding HELP debt at the end of the 2019-20 financial year. The average amount was $23,280, up from $22,425 in 2018-19.

The time taken to repay HELP debts has also been increasing, reaching 9.3 years in 2019-20, up from 9.2 years in 2018-19. See table, page 72.

HELP debt is cheap, maybe the cheapest debt you can get. Unlike other types of loans, HELP debt does not incur an interest charge.

But the amount owed does increase. HELP debt is indexed to inflation, as measured by the consumer price index (CPI). CPI is currently 1.1%, next to nothing, so in a way this figure could be treated as the annual interest charge on the loan.

“Paying down a HELP debt has very little merit at all, because the amount that comes out of your pay is very low, and the amount by which that debt grows is negligible,” says Nicole Pedersen-McKinnon, author of How To Get Mortgage Free Like Me. Nor will HELP debt affect your credit score.

“But it will form part of getting a home loan because you will have to service that debt at different thresholds.”

Financial experts often talk about good debt and bad debt. HELP debt is certainly good debt. Not only is it contributing towards your future earnings, by aiding a career and the money you get from it, but it costs next to nothing.

“If you invest that money elsewhere, you hope that you stand to gain more than you save,” says Pedersen-McKinnon.

Calculating the investment return should also include the tax you pay on earnings. “You have to factor in that when you earn money, rather than save money. You pay a tax on those earnings, while paying down debt is tax free,” says Pederson-McKinnon.

All this is easier said than done. For some people, leaving a big HELP debt alone to instead invest their hard-earned dollars can be challenging.

“A large debt can be scary,” acknowledges PedersenMcKinnon. “But if that large debt is stagnating, you can use your spare money to invest elsewhere.”

At the other side of the spectrum is credit card and personal loan debt, which does exceed the 5% threshold.

Upfront discount

The upfront discount was reinstated on January 1, 2021, after being removed in 2017. You will receive a 10% discount if you make upfront payments of $500 or more for units of study with a census date on or after January 1, 2021.

No discount exists for paying off existing debt. It’s a one-time offer for current students, hence “upfront”.

While the upfront discount may be enticing, Lorenti says the same 5% rule applies. “Most of the time, though, university students don’t have a lot of extra cash flow available to be able to do this.

Weigh the rates

You should work out what position you would be in if you pay down debt versus the position you would be in if you invest that spare cash.

“If we look at it from a return perspective, it comes down to the interest rate,” says Elysse Lorenti, a senior financial adviser at Perpetual Private.

“When the interest rate is more than 5%, you’re likely to be better off making additional payments on your debt. But if the interest rate is less than 5%, you’re often better off to invest your surplus income rather than paying down debt.”

Compare that to a diversified share portfolio, which has historically returned around 7% over the past 10 years.

In this situation, you can generate a much higher return through investing than you would by paying down debt.

“That return means you can accelerate your wealth faster, and add to that the benefit of compounding year on year,” says Lorenti. “You’ll be in a much better position investing over paying down your HECS debt.”

For these reasons, Perpetual recommends using extra cash to first pay off debt that has an interest rate greater than 5%. However, if it’s less than 5%, which HECS debt most certainly is, then it’s more effective to use any extra cash to invest.

Perpetual reasons 5% is an appropriate threshold to draw the line between the average interest rate of debt and the average interest generated by the sharemarket.

Given that HECS debt is indexed to inflation, which at the time of writing was 1.1%, then it makes financial sense to invest your surplus cash.

“A mortgage is a good way to force financial discipline as it’s a regular commitment”

Too much of a burden

Given the choice between paying down HELP debt and investing, it makes sense to do the former rather than the latter. But paying down any debt is still good in itself.

“The amount of the debt can play a part,” says Lorenti.

“If someone has hundreds of thousands of debt, they might prefer to put that debt behind them.”

In this case, paying down a large HECS debt may be a burden worth removing. You will end up with more take-home pay. “If someone wants more cash flow, more money in their pocket, that’s when it might be better to pay off the HECS debt.”

Moreover, some people undertook their studies on full fee places. These amounts don’t involve any government loan and need to be paid upfront. Often that money is borrowed from family, with an agreed timeline for paying it off.

Paying down a home loan faster is also a good idea.

According to National Australia Bank, paying off a $160,000 loan with a 4% interest rate in 30 years will MONEY AUGUST 2021 71

INVESTING STUDENT DEBT

cost you about $115,000 in interest. However, paying it off in 15 years brings interest down to around $53,000, saving just over $61,000.

Habits for success

OUTSTANDING HELP DEBT Total $70b $60b

$66.6b

$66.4b

FY19

FY20

$61.9b

$50b

$54.0b $47.9b

$40b $40.2b

$30b $33.8b

$20b $10b

$29.0b $22.6b

$25.5b

$0b FY11

FY12

Source: ATO (2010-11 to 2019-20)

72 MONEY AUGUST 2021

FY13

FY14

FY15

FY16

FY17

FY18

Choosing the investing path over the debt reduction path also instils good financial habits. “If you set up an investment plan, you’re setting up the habit of putting aside some take home pay for investing,” says Lorenti.

Millennials are already ahead when it comes to budgeting.

According to research by UBank, millennials (70%) are most likely to use budgeting tools at least sometimes, ahead of baby boomers (66%), gen X (62%) and gen Z (60%). They’re also more likely (56%) than gen Z (46%), gen X (46%) and baby boomers (41%) to have implemented new spending and budgeting strategies in response to how the economy is faring.

Pedersen-McKinnon suggests splitting your investment dollars 50-50 between safe and riskier investments.

“A mortgage is a good way to force financial discipline, because it’s a regular commitment you must meet,” she says.

If you can’t trust yourself to regularly invest, consider borrowing to invest in an asset.

“Investments made young grow to be the biggest,” says Pedersen-McKinnon, due to the winning combination of compounding returns and time.

“The sooner you start, the more you’ll end up with and the less it will cost you.”

Lorenti notes that good financial discipline has aspects of both saving and investing. “When you combine the saving aspect with the investing aspect, that will set you up financially for the future.”

She suggests earmarking 20% of your earnings for investment. “Obviously, if you’re earning surplus to your needs you can set aside more,” she says.

But the investing piece should come into play only once you set up an emergency cash fund to meet unexpected expenses.

“Typically, we recommend having three to six months cash set aside in that emergency fund. Once you have that, you then start investing.”

Paying down debt and investing is a personal choice, and one that should take into account your personal circumstances.

But one thing is clear. HELP debt may be one of the only debts you can, and in many cases should, set and forget. Consider investing it instead. Your future wealth will be all the better for it. M

‘Factors’ that can boost returns Instead of investing by asset type or region, there’s a promising new way to diversify a portfolio

M

ost investors have traditionally thought about diversification of risk and returns in their portfolios by asset type – bonds, equities, alternatives or exposures by a range of sectors and geographies. But in recent years there has been a relative new theory on the block for achieving portfolio diversification. It calls for constructing diversified portfolios by use of “factors”.

A factor is simply a characteristic or trait that is shared or exhibited across a group of investible securities and has shown consistency in delivering above-market returns. And the idea is that one can mix different factors together in a portfolio to get better diversification in an era when most asset types have become highly correlated and investors have nowhere to hide when there is a general market sell-off. Factor-based investing strategies have also been supported by academic research.

I will concede that if you start going through the range of factors available to build a portfolio, then you are sure to be spoilt for choice – probably too much choice. Academics and investment managers have developed more than 600 factors over the past decade, leading some commentators to refer to these available choices as a “factor zoo”. But the efforts of Andrew L. Berkin and Larry E. Swedroe, through their book Your Complete Guide to Factor-based Investing: The Way Smart

Money Invests Today, is worth a mention.

They made a painstaking effort to simplify the process by filtering down to a handful of effective factors necessary for diversification. Their criteria were that the final set of factors must be “persistent” across long periods of time and economic conditions; they must be “pervasive” across regions, asset classes and sectors; they must be “robust” in the basis of their definition – for example, based on a quantifying measure such as price-to-book ratio, cash flow or the like. The factor must be “investible” in practice. And, finally, it must be logical in its explanation.

On these sets of criteria, they were able to distil down to eight factors that matter in the end: market beta, the size factor, the value factor, the momentum factor, the profitability and quality factors, the term factor, the carry factor and the research coverage factor. It is exposure to these factors that determine the vast majority of a portfolio’s risk. Investors can mix and match assets held in their portfolio according to the abovementioned factor category they belong to. And a diversified portfolio can then be developed by carefully assembling the factors and their known correlations to each other and adjusting the portfolio’s tilts to certain factors over others to achieve a desired risk-adjusted return. I will throw in a word of caution here that all factors, including the ones mentioned, have experienced long periods of underperformance.

3 FUNDS TO WATCH

Max Riaz MANAGED FUNDS S

1 Perpetual Diversified Real Return Fund

The strategy aims to deliver rolling five-year returns of CPI plus 5%pa. As a guide, the fund aims to deliver an asymmetric outcome of two-thirds of the return of a typical balanced fund in strongly rising risk markets with one third of the drawdown in falling risk markets. The fund provides investors attractive exposure to asset classes that are otherwise difficult to access, especially around hedging strategies.

2 BMO Pyrford Global Absolute Return Fund The fund aims to provide a stable stream of real returns over the long term, with a focus on low absolute volatility and significant downside protection. It employs a global multi-asset strategy to achieve its target of total return of 4% or higher versus the Australian CPI (before costs and tax). The fund has three goals: preserve capital (not to lose money in a 12-month period); beat inflation by a significant margin over the long term; and deliver returns characterised by low absolute volatility.

3 Janus Henderson Global Multi-Strategy Fund This will suit investors who are concerned about price volatility risk in traditional asset classes and who wish to reduce correlation to equity markets, bonds and certain alternatives asset classes in their portfolio. This fund is absolute-return focused and seeks out cash plus 7%pa (gross of fees) and has achieved this since 2012.

Therefore, before investing you must convince yourself of the rationale behind the factor(s) you have chosen for your portfolio and why you believe these will persist in the long run. And chopping and changing between factors is probably not the best idea; discipline is one of the keys to being a successful investor.

Max Riaz is an investment manager and director at Banyantree Investment Group, with responsibilities across equity and multi-asset strategies.

See banyantreeinvestmentgroup.com.

MONEY AUGUST 2021 73

SHARES STARTING OUT

Beginner’s luck STORY DANIELLE ECUYER

Thanks to technology, it’s never been cheaper or easier for young investors to launch into the stockmarket

T

he combination of a sharemarket boom, ultra-low interest rates and Covid-19 has created periods of working and staying at home, combined with that I have not witnessed for decades.

Take it from a late-stage boomer – millennials are the lucky ones when it comes to investing in shares. You will benefit from digital and technological innovation that makes share investing more accessible, and the advent of multiple online platforms allows for easy and affordable investing, regardless of budget.

Add to that the excitement of living in a once-in-ageneration period of change: think about what we call the “mega secular” growth trends such as green energy, electric vehicles, decarbonisation, data, ecommerce, digitalisation, gaming and cybersecurity, to name just a few opportunities.

And you have far greater choice. You can invest your money in a way that aligns with your ethical values, meaning your investment decisions may even effect change, if you follow an ESG (environmental, social and governance investing) approach. You can also invest outside Australia, in the booming US stockmarkets or pretty much anywhere else in the world.

74 MONEY AUGUST 2021

Take your pick

Traditionally, share investing was transacted through a private client stockbroker, who was not only an adviser but someone who you would meet for a friendly annual catch-up to discuss your blue-chip portfolio. More often than not the amount of cash needed was higher than most of us could afford and the fees reflected the company research and advice we received.

Technology advances in the past decade mean you can now invest small amounts of savings as regularly or intermittently as you want via online platforms and apps that can be easily downloaded.

For most of us there are three ways to invest.

You can invest directly in shares both in Australia and overseas and you take responsibility for picking those shares. Investing directly is for those of us who love sharemarkets and are happy to read, listen and research. Direct investing is not necessarily for the newer investor or those who have yet to build their confidence.

The second way to invest is through exchange traded funds (ETFs), which are financial products that are listed on the sharemarket and represent an underlying basket of shares.

The third way is through managed funds, which are also listed, but the costs tend to be higher than for ETFs and there is an expert who selects the basket of stocks you invest in.

All three options allow you to choose whether you buy shares according to various criteria, including: Sectors, such as technology, energy, health, financials, energy, property.

Performance factors, usually growth or value and/ or income.

Indices, for example, the S&P/ASX200 in Australia), or the S&P 500 (US) or NASDAQ (US/global technology).

Regions and themes, for example electric vehicles, cybersecurity, space, life sciences or genomics, China, emerging markets.

• • • •

Apps make it easy

Micro-investing apps such as Raiz allows you to invest your change from daily purchases into a variety of ETFs for a $2.50 monthly fee. Stockspot starts at a minimum $2000 investment across 10 possible ETF portfolios that can be selected based on your risk appetite and growth potential.

The CommSec Pocket App starts with a purchase as

small as $50 and a $2 fee, compared with the usual $500 minimum trade and a fee of $10 to $29.95 if you were to invest via the CommSec online platform.

The app offers seven ETF investment options, including a good range of international funds.

Spaceship is a robo advice wealth manager that allows you to start by buying units in two managed funds (which hold a group of international and Australian shares). For amounts under $5000 the fees are zero and for over $5000 they are 0.05% to 0.10% depending on the amount invested.

As a rule of thumb, you don’t want to invest less than $1000 in any one share (that is a personal choice), so if you are starting with smaller amounts it is best to invest in ETFs or managed funds (keeping an eye on the costs). If you have $5000 or more and are looking at owning shares directly, there are low-cost platforms such as Stake (which allows you to invest in US stocks), eToro, CMC, Saxo Markets, IG, Bell Direct and then the more traditional platforms such as CommSec, nabtrade and Selfwealth to name a few.

It’s easy to research the options online and it’s always worth asking your friends.

If you have less than $1000, it’s best to invest in an ETF or managed fund MONEY AUGUST 2021 75

SHARES STARTING OUT

Five rules to follow Rule 1: Time matters and allowing compounding to work will grow your savings more than just spending the capital gains or dividends. Reinvest them to increase your wealth.

Rule 2: Invest regularly over time.

The amount will depend on how much you have from your savings. Weekly, fortnightly, monthly or quarterly works.

Rule 3: Know yourself, your risk tolerance and your companies (shares).

Rule 4: When you find the winning shares, you don’t just sell them, and if you do take some profits be sure to buy into the next price dip. Keep an eye on your shares, as some will not make the long term – think AMP, for example.

Rule 5: Beware of stop-losses and averaging down.

Little and often

There is no hard-and-fast rule on how much and how often to invest, but most experts advocate you spread your buying over a period regardless of the amount.

The reason is that it allows you to dollar cost average, which is investing through the sharemarket cycles. It also works well with your budget: as the money comes in you can invest the savings.

Shares represent a small percentage of a company that you own. The share is not the value but a price that is created through the demand and supply for it at any one point in time. Sometimes what looks like good value to me may seem like poor value to you, and that is what makes a market. This is why share prices fall when they are out of favour and increase when they are “hot”. If you buy the same share or basket of shares through an ETF during the highs and the lows, then on balance you will buy at a average price.

Why time matters

The more you save and invest when you are young, the longer it will stay in the markets and the more you will have in the future. As the genius Albert Einstein reportedly said, “compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

Compound interest works for shares and it’s why people always advocate “time in the market” not “timing the market”. Assets like shares generate capital (price gains) as well as dividends (income). The more you reinvest your capital gains and income, the more your gains can be used to create more gains. Compounding is the basic premise of why people invest over time.

Millennials are young, with years ahead of you for compounding to do its job and for you not to be spooked by the short-term roughs in sharemarket cycles.

Take charge of emotions

As with learning to swim: you can practise all you like on land, but you won’t know if you can stay afloat until you actually get wet!

The same applies to share investing; you must bite the proverbial bullet and start the process. I always suggest to newer investors with smaller amounts of money that they can start with an ETF until their savings have reached a certain goal (such as $5000) and then they can invest directly in shares. If that amount is too much to start, you can invest in a broader index ETF or a thematic ETF until the pool reaches a higher amount. You can either cash that in and invest across five shares, for example, or start adding shares to the portfolio.

76 MONEY AUGUST 2021

And when you get started investing directly in shares, opportunity awaits. If you had been lucky enough to buy 100 Afterpay shares on March 23, 2020 at $8.90 (the low point of the corona stockmarket) then you could have made as much as $15,800 if you had sold at the top of $158 on February 10, 2021. How easy was that?

Well, that’s the point. If picking the winning shares at their low point were that easy, we would all be multi-millionaires.

But you must be brave to buy in at lows in the market – even after a crash – and that requires strong control of your emotions. The human emotional response to volatility (up and down movements) means we must know ourselves – and our ability to tolerate fear and greed – as well as the companies whose shares we are buying.

If you understand how much risk you can take and you know the company well enough, then you can see through the sharemarket’s volatility.

Your tolerance for risk as a younger investor is by default higher. Compounding and time in the market will smooth over some of your poorer or badly timed investments, and you have an earning capacity that allows you to continue to save to add to your investing.

Myth or winning strategy?

I recently read a great investing tweet: “10% of successful stock picking is picking a great stock – the other 90% is not selling them.”

So, having just told you that you have plenty of time in the market, that’s not to say that you never sell a stock.

If you’ve picked winning stocks such as an REA, Xero, Afterpay, CSL or Amazon, Apple and Microsoft, and held onto them and added more when you had more cash or dividends to invest, then you’d be on your way to being a minted millionaire.

The problem is that not all shares are long-term winners. Most shares have a period when they do well and then the company’s business model comes under pressure, or the great CEO moves on.

Holding a share portfolio for the long term requires more than just a set-and- forget approach. You need to monitor what is happening to your shares and remember even the best long-term performers and wealth creators do not go up in a straight line every day, week, month or year. You need to understand why you are holding the share, and whether you see it as a standout in 10 years. Controversially, I would put a stock like Tesla in that category (not that I am recommending you race out and buy it), but I mention it to give you the flavour of a stock that is changing how we create and use energy and software for mobility and transportation.

As share investing can be challenging, some experts have strict rules on when to sell and they do this by setting stop-losses. A stop-loss rule is triggered when a share price falls by either 15%, 20% or 25%, for example. When the loss is reached the owner automatically sells the share without considering the reason why the price is falling.

A stop-loss confuses the share price with the reason you own the share. Never forget the price is not reflective of how the share (company) is doing operationally. Of course, the two can overlap: for example, a price will go up when the company is growing fast, or the opposite can happen if it is struggling. But a falling price can happen for many reasons, none of which may be related to the company’s earnings.

My decision to sell is often based on whether there are better opportunities elsewhere, if the reason I bought is no longer valid or if a company has downgraded earnings on a few occasions. Stop-losses mean you sell a winning stock for no good reason, except a falling market.

Some investors follow the averaging-down approach, buying more shares as the price falls. Just speak to a few experienced investors and you will discover that averaging down can just increase your losses.

Unless you fully understand why a price is falling, then averaging down can be fraught with risk. As a rule, I prefer to miss the first 5% upward move after a share price bottoms and then I feel more confident to add to the position. Catching a falling knife is risky.

Do it your way

Whether you start investing directly or indirectly, just start. It’s not an either/or decision. If you can use one platform or app to save up to a certain amount and buy into shares through ETFs, for example, that’s awesome. Then you can move to picking stocks directly when your savings and your confidence have grown.

Investing is a journey and you cannot expect to be an expert overnight. Know your limitations and your strengths. Your journey will not be the same as your friend’s and the longer the time in the market the more your wealth can grow. M Danielle Ecuyer has been involved in share investing in Australia and internationally for over three decades, both professionally and personally, and is the author of two books Shareplicity: A simple approach to share investing and Shareplicity 2: A guide to investing in US stock markets.

MONEY AUGUST 2021 77

FORWARD THINKING David Thornton

Add a tweet to your portfolio Non-fungible tokens represent the newest chapter in the blockchain story.

They can cost a fortune, but are they really worth anything?

N

FTs are non-fungible digital assets, which means they are unique and therefore not interchangeable.

They’re essentially a digital record that confers ownership of any digital item. That could be digital art, an MP3 or even a tweet.

“It can’t be altered, so you can’t delete any information or data, you can only add data,” says Ralph Kalsi, CEO of Blockchain Australia. “You can’t swap it, but you can trade it, because every NFT is unique.”

Herein lies the touted benefit of NFTs. Other people can view or listen to the digital asset, but they can’t prove ownership.

Anyone can hang a print of the Mona Lisa on their wall, but only the French government can claim ownership rights.

This system, it’s claimed, allows owners of NFTs to protect and potentially commodify their digital asset. Imagine, sometime in the future, houses with paper-thin monitors hanging from the walls, projecting digital art for which the homeowner pays a nominal fee to a licence holder.

They are already big business. In March, an NFT was sold by Mike Winkelmann – the digital artist known as Beeple – for $US69 million ($92 million) at Christie’s.

But it’s not all smooth sailing. NFTs have drawn widespread criticism for a few reasons.

One is the amount of energy it takes to verify an NFT, through a process known as “proof of work”. Using this method of verification, a computational problem needs to be solved by miners – the blockchain participants who verify crypto assets – and this uses energy, a lot of energy.

Research from Digiconomist has found that one Ethereum transaction uses the same power as an average household in two-and-a-half days.

But NFTs can also be validated using “proof of stake”, whereby blockchain participants mine or validate NFTs according to their quantity of holdings

78 MONEY AUGUST 2021

Paintings still sell for millions despite hundreds of thousands of copies adorning walls all over the world in the blockchain. It still requires a computation problem to be solved, but ultimately it uses a lot less energy.

“That is where we could solve the problem of high electricity usage,” says Kalsi.

But another, more fundamental problem is whether NFTs protect creators of digital

art at all. Anyone can view or listen to a copy of digital art, and the experience is the same.

It’s really no different from the problem faced by movie studios fighting counterfeit DVDs. As we’ve seen with movies, legally fighting copies is a mug’s game.

So, practically speaking, owning an NFT confers little more than bragging rights.

But this isn’t a new problem. Indeed, paintings still sell for millions despite hundreds or thousands of copies adorning walls all over the world. The value comes not in the act of looking at a painting in and of itself, but in the claim of ownership.

So, what’s stopping people from creating an NFT of copied art? Technically nothing, but it won’t be “authentic”.

“If I’m creating a fake digital art and create an NFT, you need to still verify it,” says Kalsi. “Imagine I try to tokenise someone else’s tweet; it won’t be verified by other people in the community that it’s authentic.”

As law firm Bird & Bird puts it: “Acquiring ownership of an NFT representing a work in which copyright subsists does not, without more, grant the new owner of the NFT copyright in the underlying work.”

“More” could include a smart contract.

For instance, Mike Shinoda, the co-founder of the band Linkin Park, outlines on his website that: “Only limited personal noncommercial use and resale rights in the NFT are granted and you have no right to license, commercially exploit, reproduce, distribute, prepare derivative works, publicly perform, or publicly display the NFT or the music or the artwork therein.

All copyright and other rights are reserved and not granted.”

In the end, whether the protection offered by NFTs will be worthwhile will depend on the value people give to original ownership. Either it goes the way of the art world, or it suffers the same fate as the music and film industry.

Scott Phillips BEST IN BREED

SECTOR FINTECH

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ast month we looked at the technology sector of the ASX, and I made the point that adding the suffix “tech” seems to be good for business – and for share prices.

I stand by that, but – in part because it’s a growing sector, and in part because its prominence earns it a separate review – this month we’re taking a deeper dive to find the best financial technology (fintech) company on our market.

Befitting a term that is three parts marketing and one part investing, fintech covers a lot of ground. Banking, funds management platforms, app-driven financial services and neobanks have all claimed their place in this sector, with sometimes dubious credentials. After all, it’s arguable (perhaps self-evident) that Commonwealth Bank, say, is as much a technology business as your favourite buy now, pay later player.

Am I being a wet blanket? Perhaps. But I’d rather call a spade a bloody shovel, even as we then move into this sector to are worried about branches, legacy softfind our favourite. And not just out of pure ware and modernising their cultures (and pedantry, either; it’s important to realise are still dealing with their labyrinthine that investor sentiment is heightened – to structures, poor behaviour and regulatory put it politely – in the fintech sector, so you missteps), they’re also trying to protect should expect share prices and investment profit margins and deliver growth and returns to be volatile as a result and you dividends for shareholders. should be careful to separate hype, hope By contrast, the new players tend to be and honesty. small, agile, laser-focused and blissfully With that out of the way, let’s get into free of the calcification that plagues the companies themselves. What this even the most culturally aware new breed of financial techFoolish nology businesses have in legacy business. In a very takeaway common is that they all simple analogy, while When settling on our Best in Breed, have their sights set on Woolworths is busy we’re not looking just for the biggest, innovating to disrupt trying to be (almost) fastest growing or most profitable, though the status quo in everything to those are all attractive traits. We want the what is a very large (almost) everyone, company with impressive products, deeply and potentially very Aldi is succeeding embedded customers and a long runway. In lucrative sector of by offering someother words, we’re looking for staying power. thing very specific our economy. While and very targeted.

Funds management platforms tend to probanks, brokers and vide all of that, and for both quality and The online-only insurance companies runway we’re tapping Netwealth as our fintech Best in Breed.

BEST IN BREED’S TIPS SO FAR SECTOR

STOCK

ASX CODE

Discretionary retail

Kogan

KGN

Consumer staples

Treasury Wine

TWE

Resources

South32

S32

Financials

Macquarie Bank

MQG

Healthcare

Cochlear

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Xero

XRO

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NWL

banks are another example. Finding and exploiting a niche, while your competitors are trying to cover the waterfront, is a very smart strategy for a would-be disruptor. It also tends to be true that, like Kodak, which invented the digital camera but buried it to “save” the film business, incumbents tend to want to take less risk and stay with their core operations.

These disruptive businesses also tend to be characterised by having very keen and supportive customer bases. When you do something more quickly, efficiently, easily or seamlessly than your competitor, your customers notice … and love you for it. Those customers, then, tend to be quite “sticky” – they hang around for a long time – and tend to be evangelists for your business, too.

While, as consumers, our minds immediately (and reasonably) turn to the phalanx of buy now, pay later providers, business customers overwhelmingly feel the same about payments providers, funds management platforms, financial dashboards and payment solutions.

Scott Phillips is The Motley Fool’s chief investment officer. You can reach him on Twitter @TMFScottP and via email ScottTheFool@gmail.com. This article contains general investment advice only (under AFSL 400691).

MONEY AUGUST 2021 79

SHARES STRATEGY

STORY STEVE JOHNSON

L

ike many people, I’m itching to go on an overseas holiday again. I’m writing from a lonely room in locked-down Sydney.

My phone keeps tormenting me with “remember this day” notifications.

Midnight meals in Milan with my work colleagues. Aperitifs in Cape Town with my wife’s South African family. Once Australians are allowed to travel again, I will be on one of the first planes out of here. And I won’t be alone.

As a fresh-faced uni graduate I worked on Macquarie Bank’s bid for Sydney Airport. We had a beautiful chart that showed historical airline travel growing at 1.5 times the economic growth rate in almost every country around the world. That relationship has held up nicely in the two decades since, and it’s a fairly safe bet that the trend continues after the world puts Covid-19 behind it. As humans get richer, they travel more.

That’s a bet we are explicitly taking in our Forager Australian Shares Fund. Its investments include three listed tourism stocks that we expect to do well when inbound tourism returns to Australia and New Zealand.

But, unfortunately, successful investing isn’t quite that simple. If all we had to do was identify a fairly obvious theme and invest in it, our lives would be a permanent holiday.

Investing is not about what you know. It’s about what you know that others don’t.

Mr Market isn’t stupid Investing legend Ben Graham introduced Mr Market to investors in his 1930s classic The Intelligent Investor. His personification of the stockmarket illustrates how the rational, sensible investor can take advantage of irrational, emotion-driven moves in market prices. Some days Mr Market is depressed and wants to sell you his stocks at absurdly low prices. On other days he is wildly optimistic and wants to buy your shares for a fortune.

Here is the thing I have learned about Mr Market, though. He might be capable of irrational behaviour. We have seen plenty of that over the past 18 months. But he’s not stupid. In fact, most of the time, Mr Market is an incredibly prescient character.

His prices for your shares are the result of hundreds of thousands of investors expressing

their views about the future. There’s plenty of research,bestsummarisedbyJamesSurowiecki in his book The Wisdom of Crowds, showing that the crowd gets it right far more often than any individual expert.

As a general rule, you won’t make any

Thanks to the work of Mr Market, big investment themes – such as a travel recovery – are already reflected in prices

Why predicting the future isn’t enough 80 MONEY AUGUST 2021

with a working lab with marine biologists to share scientific knowledge, and will be built with sustainability as a focus, in particular the use of solar and wind power.

Experience is surviving off domestic tourism alone. And the share price, too, has recovered to the levels of early 2020. But when international tourists return en masse, hopefully in 2023, it’s our belief that this lean, restructured business will be significantly more profitable than ever before.

Campervan rental companies Apollo Tourism & Leisure and NZ-listed Tourism Holdings are the other two tourism-related stocks. The thesis is largely the same. Mr Market is anticipating a recovery, but he’s underestimating the amount of structural change both companies have made to their businesses.

Roughly right, mostly money predicting things that Mr Market already knows. And a travel recovery is the perfect example.

While its share price has been heavily diluted by an emergency share issue, the total market value of online travel agent Webjet, for example, is higher than it was before any mention of Covid-19. Flight Centre, too, is trading back near peak valuation levels. Travel will recover, but the market prices of these companies already assume that this is the case.

Successful investments, then, don’t just require an insight. They require an insight that is unique. When it comes to Forager’s three travel-related investments, we aren’t just predicting that travellers return to our shores.

We are predicting that these three companies will be bigger and better than before.

Transformative Experience Experience Co is an adventure tourism company. Adrenalin junkies’ favourite activity, skydiving, is offered across the country, but Experience also offers tours of the Great Barrier Reef and of the oldest rainforest in the world, the Daintree. Recent acquisitions include the Maria Island walk and Wild Bush Luxury, a company with walks and lodges in South Australia’s Flinders Ranges and in the Northern Territory.

We bought the stock a few years ago when the company was going through some difficult times. Previous management made a number of large investments in far north Queensland that predictably soured. The share price tumbled and we started buying some shares.

Around mid-2019, the board brought in a new management team with some seriously impressive tourism experience, including the former managing director of Tourism Australia, John O’Sullivan, as chief executive.

O’Sullivan and his team set out on a business simplification process that saw the divestment of a number of assets and a significant reduction in the cost base. Luckily, as it turned out.

The sale of these assets reduced the business’s net debt from $30 million to $2 million.

It allowed the business to survive the summer of rampaging bushfires and the impact of the current international tourism drought. While other tourism businesses were haemorrhaging cash and undertaking emergency capital raisings, Experience didn’t need to issue a share.

The company recently announced a $6 million venture with the Queensland government, investing in a pontoon on the Great Barrier Reef. The pontoon, to be opened by 2022, is to be built around the concept of science, sustainability and sea country. It will offer an indigenous experience through sea rangers

A year ago, all three of these stocks were trading at fractions of today’s prices. The prices offered up by Mr Market were so low that the only question you needed to answer was will the business survive?

Today’s argument, as I have laid out, is far more nuanced. I think those three travel stocks will be good investments from today’s prices. But I am far less confident of exceptional returns than I was just 12 months ago.

And this is true across the wider stockmarket. Many high-flying growth stocks have seen their share prices come back to far more reasonable levels. Companies selling commodities and other traditional value stocks have performed well over the past six months, making today’s prices a far better reflection of their future prospects.

There are pockets of opportunities. Most of our Australian Fund portfolio consists of businesses that we think have made permanent structural improvements that have been masked by the impact of Covid. But most prices today reflect a fairly sensible view of the future. He will get depressed again, but for now Mr Market should be getting the respect that he deserves.

Steve Johnson is chief investment manager at Forager Funds.

MONEY AUGUST 2021 81

THIS MONTH Marcus Padley T

Be a polite and patient investor - it will pay off Hollywood would have us believe the gung-ho Wolves of Wall Street rule the stockmarket. But the stereotype doesn’t hold up in the real world. In fact, there are eight personality types – and only two succeed

82 MONEY AUGUST 2021

I

t has always irked me that books with titles like How to make a million dollars in the stockmarket and Ten things you must know about the stockmarket probably sell more copies than my book.

It’s my own fault, Stock Market Secrets by Marcus Padley is hardly exciting by comparison and, let’s be honest, if they were really “secrets”, well, they’re not anymore.

But the get-rich-quick books do sell, presumably because there are a lot of financially anxious, unrealistic, desperate and frantic people buying books as a solution to their money problems. But if you think about it, in a sort of Catch 22 for get-richquick books, anyone buying that sort of book probably shouldn’t be responsible for money because anxious, unrealistic, desperate and frantic are hardly the right personality traits for a successful fund manager, and when it comes to investment success personality is everything.

Give 100 people $100,000 each and ask them to invest it on a five-year timeframe and, like the Parable of the Prodigal Son, come back in five years, and I can guarantee that apart from the people with zero who spent it, and those with exactly $100,000 who did nothing, there will be no two investors with exactly the same sum of money, which is odd when you consider that the market conditions were utterly identical for each.

The reason, of course, is that investment outcomes are not a function of method or approach but a reflection of personality.

It doesn’t matter whether we all adopt the “intrinsic value” approach, or trade on Gann principles, or use closing price line charts, or intraday candle charts, because every single one of us is going to do something different, because we are all unique and every one of us is going to experience our own “special” outcome.

Even identical twins will fare differently because each investment path is a complex series of multiple micro decisions with varied outcomes based on actions and reactions dictated by genetics, personality and experience. There will be as many investment outcomes as there are humans, because humans are human. They give in to the illogical, to hope, faith, bravery, courage, cowardice, confidence, belief and conviction.

Because of that – and it has to be said – humans are not wired to invest. They destroy reason with emotion. Independ-

ence with bias. Maths with passion. None of us is Spock. We do not live on Vulcan.

And thank goodness for that.

Imagine the stockmarket on Vulcan, operating on cold, unemotional logic, maths and probability. No speculation, no guesswork, no assumption, just facts, with prices going straight to intrinsic value without pause. No trending. No charting.

Just fact and price. A planet run by value investors. What a bore.

Thankfully, then, we are all stuck on Earth with other humans and their defective investment processes, processes that create a world of entertainment for investors, which means an embarrassment of opportunities. It’s a lot more fun on Earth.

Key personality traits It’s a daring task, but Earth hasn’t given up trying to understand investor complexity completely. On Earth we have these people called psychologists who attempt to apply logic in our space by breaking investors into groups. One of my favourite attempts to do this is contained in a book called The Psychology of Investing by Colin Nicholson in which the writer, an investor quoting a psychologist, helps us break down investors into general personality traits.

The key to it is putting people into groups depending on how they handle uncertainty or, more obviously, risk.

In brief, the breakdown is that people come in three general temperaments, each with two extremes, including “unpleasant” or “pleasant”, “arousable” or “unarousable”, “submissive” or “dominant”, and the eight various combinations of those three pigeonhole investors produce eight investment personality types: exuberant, axed, docile, hostile, anxious, red.

Humans are not wired to invest. They destroy reason with emotion.

Independence with bias.

Maths with passion.

None of us is Spock.

Turns out the relaxed (pleasant, unarousable and dominant) and the docile (pleasant, unarousable and submissive) are the most suited to investment success and the rest, anyone unpleasant or arousable, is at a disadvantage.

Armed with this information, you now have to take a good hard look at yourself and, for that matter, your adviser. Are they aggressive or docile, pleasant or unpleasant, dominant or submissive, because, odd as it is, the traditional image of a successful Wolf of Wall Street, Bud Fox type-A broker displays all the wrong personality traits for investment success, because aggressive and unpleasant is bad or, in the words of the Desiderata, beware loud and aggressive people, they are vexatious to the spirit.

And the bank balance, it turns out.

All that shouting, swearing, phone slamming, rude, bad-mouthed, uncouth, belligerent, coarse, egotistical, crudeness is not, contrary to Hollywood generalisation, the sort of personality trait you want in an investor or, if you use one, a broker.

What you want is someone laidback, reliable, emotionally stable, cool under pressure, someone with that Dunkirk spirit, the sort of person who goes to the running of the Pamplona bulls and walks. Someone who is pleasant without being obsequious, agreeable without being subservient and decisive without being overbearing.

Fortunately, this also describes the bulk of those patient long-term investors who form the core of most full-service brokers’ client bases, because pleasant and patient people are psychologically suited to the stockmarket.

In which case, even if there has been a disturbance in the force, like the GFC or the pandemic, you are probably going to be better off retaining your pleasant and patient temperament rather than attempting something radical and new. Being pleasant and patient may not have worked well in a bear market but becoming loud and aggressive will accomplish even less.

So don’t change, all you nice and pleasant clients out there. Your odds are much better if you can stay just the way you are.

As for the rest of you … are you sure you should be in the stockmarket?

Marcus Padley is the author of the daily stock market newsletter Marcus Today. For a free trial of the Marcus Today newsletter, go to marcustoday.com.au.

MONEY AUGUST 2021 83

SHARES INTELLIGENT INVESTOR

Still churning T Macquarie, known as the “millionaire factory”, has consistently rewarded shareholders as well as employees, but there are challenges on the horizon

84 MONEY AUGUST 2021

STORY MICKEY MORDECH

he last time Macquarie Group’s shareholders endured a recession, earnings halved and the share price fell 85%. It took six years for earnings to fully recover, and a decade for the share price to follow.

The pandemic has panned out differently. Macquarie’s share price still fell 54%, but this time it has only taken a year for it to surpass its all-time high. At least for now, government support has helped borrowers, restored confidence in markets and kept asset prices afloat, which is good news if you’re in the business of packaging up funds, selling home loans and flogging initial public offerings.

In the most recent result, the strongest performer in Macquarie’s stable was its commodities and global markets division, where profit rose 50% to $2.6 billion in the year to March, as clients in the agricultural, resources and energy sectors ramped up hedging activity in response to market volatility. Oil, gas and metals clients also sought more storage solutions to combat unprecedented declines in demand.

Macquarie’s other large division – asset management – saw profits hold up well, falling just 5% to $2.1 billion.

This lines up with a decline of 6% in average assets under management, itself caused by the full-year impact of 2020 withdrawals, a stronger Australian dollar (which makes its foreign assets relatively less valuable) and the realisation of profits on assets within its fund.

The banking and financial services division recorded a $770 million profit, in line with 2020, although there were encouraging signs: the loan portfolio grew by 24% and the business continues to take market share from the big four banks in home loans. Meanwhile, investment bank Macquarie Capital saw profit fall 15% to $650 million as investment-related income fell and lower merger and acquisition income was offset by more capital raisings.

The end result was a 10% rise in group profit, taking earnings per share to $8.43 and lowering the priceearnings ratio to around 18.

The company is yet to record a loss in its 52 years and while earnings have been lumpy and dependent on the economy, on average they’ve trended steadily higher (per-share earnings grew 9% annually and dividends 8% over the past 20 years).

If we assume the current 3.6% dividend yield is

sustainable and that dividends will keep rising by 8% each year, at today’s prices an 11% or 12% long-run return might be achievable.

But can Macquarie keep it up?

The affirming argument might go like this. Its perceived prestige – and reputation as the “millionaire factory” – attracts a pool of talented and determined candidates from which it picks the best. Combined with savvy and well-connected directors, a wealth of global relationships and a brand that opens doors, good ideas come to fruition quickly.

The result is an entrepreneurial culture where promising new ventures are given every chance to flourish; it’s how Macquarie has established profitable niches in everything from used phones to renewable energy. As former chief executive Nicholas Moore put it in 2011: “As far as the Macquarie model is concerned, it continues to be driven not so much by a single industry focus

out the profits home loans, investment banking and commodities trading, today’s earnings may not be as sustainable as they seem if all of this freshly issued debt comes back to bite.

In addition, parts of the business – like commodities and global markets – are opaque, which makes it difficult to quantify risks or judge the sustainability of profits.

We’re not privy to all the risks stemming from entering derivatives, selling financial protection and making markets, but history shows counterparties can fail and rogue traders have wiped out big banks. Macquarie can mitigate these risks but not completely eliminate them.

Balancing these two arguments, Macquarie’s historical 8% annual growth is probably closer to a best case.

Something around 5% should be achievable (which also aligns with today’s payout ratio of around two-thirds and a return on equity of 14%).

Our new buy price, therefore, settles at $110, which is a starting dividend yield of about 5% (and assumes we’d be seeking a double-digit return before upgrading). A quick sanity check shows that any time you bought the stock on a 5% yield, you made a return better than 9% (including just before the GFC in 2007, assuming you held until now). But usually it was far better than that.

With the share price now square between the two, hold.

Mickey Mordech is an analyst at Intelligent Investor.

Disclosure: The Intelligent Investor Equity Income fund owns Macquarie.

or a single product focus, but by a culture of always trying to find something that the market is missing and providing that on a medium- to long-term basis.”

Macquarie also has strong positions in sustainable growth markets. Asset managers tend to benefit as markets compound higher and the company is rapidly taking share in Australian home loans.

We expect these forces to continue, allowing Macquarie to diversify earnings and keep growing. Better still, the company’s head count has barely changed since 2011, so expenses aren’t growing as quickly.

On the other hand, Macquarie is much bigger now, so new ventures need to be larger to move the needle. It’s hard enough to find small profitable niches; how many global opportunities can it identify and succeed in?

Macquarie’s prospects also remain tied to the health of the global economy and financial markets. With international interests spanning asset management,

MACQUARIE’S VITAL STATISTICS Macquarie’s price-to-book value and return on equity 6x

30%

5x

25%

Price-to-book value (LHS) Return on equity (RHS)

4x

20%

3x

15%

2x

10%

1x

5%

0x

Jul 2000

Jul 2005

Jul 2010

Jul 2015

Jul 2020

0%

Source: Capital IQ

MONEY AUGUST 2021 85

DATABANK

YOUR GUIDE TO MANAGED FUNDS DATA

T

he tables on these pages contain data and information to help you compare managed funds, which are pooled funds managed professionally by investment experts.

Managed funds displayed in these tables are multi-sector or asset class specific. Multi-sector managed funds invest across a diversified mix of asset types spanning equities, property,

bonds, cash, infrastructure, private equity and alternatives.

Managed funds are normally set up as unit trusts. You may be able to invest in them directly or through a platform.

Top 5 Multi Sector funds by size Size

1-year return

1-year rank

5-year return (pa)

5-year rank

Name

APIR code

Mngmnt fee (pa)

Vanguard Growth Index Fund

VAN0110AU

0.29%

20/11/2002

$6,688m

20.7%

30

9.3%

16

Vanguard Balanced Index Fund

VAN0108AU

0.29%

20/11/2002

$6,380m

14.3%

69

7.6%

35

QIC Long Term Diversified Fund

QIC0002AU

0.60%

6/03/2002

$5,675m

16.5%

57

7.1%

45

Vanguard High Growth Index Fund

VAN0111AU

0.29%

20/11/2002

$3,962m

27.4%

7

11.0%

3

Vanguard Conservative Index Fund

VAN0109AU

0.29%

20/11/2002

$2,881m

8.3%

94

5.7%

63

$563m

16.4%

111

6.8%

97

AVERAGE*

Start date

0.73%

Top 5 Australian Equities funds by size Name

APIR code

Mngmnt fee (pa)

Start date

Size

1-year return

1-year rank

5-year return (pa)

5-year rank

Vanguard Australian Shares Index Fund

VAN0002AU

0.16%

30/06/1997

$15,762m

31.6%

66

10.5%

49

Fidelity Australian Equities Fund

FID0008AU

0.85%

30/06/2003

$5,692m

35.7%

35

11.3%

37

Plato Australian Shares Core Fund

WHT0068AU

0.41%

30/10/2006

$4,604m

34.0%

44

11.1%

41

Bennelong ex-20 Australian Equities Fund

BFL0004AU

0.95%

2/11/2009

$3,632m

56.4%

2

16.2%

5

Dimensional Australian Core Equity

DFA0003AU

0.28%

3/07/2006

$3,264m

36.8%

31

11.1%

40

$691m

33.7%

112

10.6%

98

AVERAGE*

0.80%

Top 5 International Equities funds by size Name

APIR code

Mngmnt fee (pa)

Start date

Size

1-year return

1-year rank

5-year return (pa)

5-year rank

Vanguard International Shares Index Fund

VAN0003AU

0.18%

30/06/1997

$19,165m

23.3%

85

14.1%

40

Magellan Global Fund

MGE0001AU

1.35%

1/07/2007

$14,240m

7.3%

131

13.7%

49

Platinum International Fund

PLA0002AU

1.35%

30/04/1995

$8,657m

24.2%

72

10.4%

80

T. Rowe Price Global Equity Fund

ETL0071AU

0.94%

15/09/2006

$5,836m

36.3%

14

21.5%

4

MFS Global Equity Trust

MIA0001AU

0.77%

24/04/1997

$5,726m

23.8%

78

14.1%

42

$866m

25.7%

140

13.4%

103

1-year rank

5-year return (pa)

5-year rank

AVERAGE*

0.91%

Top 5 Multi Sector funds by 5-year return

Source: Rainmaker Information.

Data sourced as at April 30, 2021. *Numbers stated here depict averages, other than the Rank column, which is the total number of funds in the category. For any queries on these tables, please contact info@rainmaker.com.au.

86 MONEY AUGUST 2021

Name

APIR code

Mngmnt fee (pa)

Fiducian Ultra Growth Fund

FPS0014AU

1.45%

1/09/2008

$262m

42.7%

1

12.1%

1

MLC Wholesale Horizon 6 Share

MLC0397AU

0.95%

1/07/2001

$319m

29.0%

5

11.2%

2

Vanguard High Growth Index Fund

VAN0111AU

0.29%

20/11/2002

$3,962m

27.4%

7

11.0%

3

Perpetual Split Growth Fund

PER0066AU

0.55%

31/03/1999

$43m

26.0%

12

10.9%

4

BT Multi-Manager High Growth Fund

BTA0246AU

0.88%

1/11/2002

$10m

29.8%

4

10.8%

5

$563m

16.4%

111

6.8%

97

AVERAGE*

0.72%

Start date

Size

1-year return

taking into account taxes paid by the unit trust and investment fees.

Research was prepared by Rainmaker Information. For more information, visit www.rainmaker.com.au

Top 5 Australian Equities funds by 5-year return Size

1-year return

1-year rank

5-year return (pa)

5-year rank

Name

APIR code

Mngmnt fee (pa)

Bennelong Australian Equities Fund

BFL0001AU

0.95%

30/01/2009

$851m

50.2%

4

18.0%

1

Bennelong Concentrated Aust Equities

BFL0002AU

0.85%

30/01/2009

$1,583m

44.0%

13

17.5%

2

Australian Unity Platypus Australian Eq. Fund

AUS0030AU

0.76%

28/04/2006

$241m

36.2%

32

16.3%

3

Bennelong ex-20 Australian Equities Fund

BFL0004AU

0.95%

2/11/2009

$3,632m

56.4%

2

16.2%

4

Hyperion Australian Growth Companies Fund

BNT0003AU

0.95%

31/01/1994

$2,250m

46.1%

10

15.5%

5

$682m

33.7%

111

10.6%

97

AVERAGE*

Start date

0.80%

Top 5 International Equities funds by 5-year return Name

APIR code

Mngmnt fee (pa)

Start date

Size

1-year return

1-year rank

5-year return (pa)

5-year rank

Hyperion Global Growth Companies Fund

WHT8435AU

0.70%

1/06/2014

$1,172m

56.1%

7

25.3%

1

Fiducian Technology Fund

FPS0010AU

1.36%

1/05/2000

$189m

35.4%

25

24.4%

2

Zurich Concentrated Global Growth

ZUR0617AU

1.11%

19/10/2015

$68m

31.6%

41

21.6%

3

T. Rowe Price Global Equity Fund

ETL0071AU

0.94%

15/09/2006

$5,455m

41.3%

13

21.3%

4

CC Marsico Global Fund – Institutional

CHN0001AU

1.03%

10/12/2015

$41m

28.9%

45

20.7%

5

$866m

25.7%

140

13.4%

103

AVERAGE*

0.91%

WHAT THEY MEAN

Top 5 funds by 1-year performance 5-year return (pa)

5-year rank

2

9.2%

168

84.0%

3

19.7%

7

$450m

57.6%

4

15.1%

36

$3,632m

56.4%

5

16.2%

27

$757m

25.0%

332

10.4%

280

1-year rank

5-year return (pa)

5-year rank

1.0%

296

Name

APIR code

Mngmnt fee (pa)

Start date

Size

1-year return

1-year rank

Ausbil Global Resources Fund

AAP5928AU

1.35%

31/05/2018

$84m

124.9%

1

Auscap Long Short Australian Equities

ASX0001AU

1.54%

30/11/2012

$277m

111.8%

Forager International Shares Fund

FHT0032AU

1.25%

8/02/2013

$256m

PM Capital Global Companies Fund

PMC0100AU

1.09%

28/10/1998

Bennelong ex-20 Australian Equities Fund

BFL0004AU

0.95%

2/11/2009

AVERAGE*

0.81%

Bottom 5 funds by 1-year performance Name

APIR code

Mngmnt fee (pa)

MFS Prudent Capital Trust

ETL3276AU

0.90%

18/12/2018

$31m

-6.2%

362

Invesco Global Targeted Returns Fund

GTU0109AU

0.95%

28/02/2015

$948m

-2.4%

361

Robeco Multi-Factor Absolute Return Fund (AUD) – Class B

ETL6152AU

0.78%

9/09/2019

$0m

-1.2%

360

Magellan Infrastructure Fund (Unhedged)

MGE0006AU

1.06%

1/7/2013

$1,062m

0.4%

359

6.0%

252

ClearBridge RARE Emerging Markets Fund

TGP0015AU

1.23%

15/08/2008

$121m

2.1%

358

0.7%

297

$720m

25.3%

362

10.3%

297

AVERAGE*

0.82%

Start date

Size

1-year return

DATABANK

These products may be recommended to you by a financial adviser.

The performance results displayed are the annualised investment returns each managed fund has delivered after

Performance after investment fees.

Investment returns after investment fees annualised to describe each fund’s returns per annum. But if your managed fund achieves a high return and charges you an extra “performance fee”, Rainmaker has not taken this into account.

Past performance is not an indicator of future performance.

Rank. Funds are ranked against all managed funds in each segment, not just those included in each table.

Indices and averages.

Arithmetic average investment returns or average fees for all fund investment options within each category, that is, not fund size weighted.

MONEY AUGUST 2021 87

T

he table contains information to help you compare super funds. It showcases publicly available MySuper investment options offered by some of Australia’s biggest funds. Rainmaker categorises them into risk options based on percentage of growth assets in their portfolio. The high-

growth risk option has more than 85% in growth assets (growth has between 75% and 85%), balanced has between 55% and 75%, and capital stable products have less than 55% growth assets.

The performance results are the annualised investment returns each option

has delivered after taking account of all taxes and fees. Past performance is no indicator of future performance.

The table only lists funds designated AAA, Rainmaker’s Super fund quality rating.

Rainmaker Information prepared this research. www.selectingsuper.com.au

Best Super Funds: Top 20 MySuper – April 30, 2021 RANKED BY 3-YEAR RETURN Strategy

Growth assets

Risk category

1-year return

1-year rank

3-year return (pa)

3-year rank

Virgin Money SED – LifeStage Tracker 1979-1983

LC

90%

High Growth

22.1%

8

9.5%

1

Australian Ethical Super Employer – Balanced

S

70%

Balanced

18.5%

19

9.5%

UniSuper – Balanced

S

68%

Balanced

18.5%

20

Mine Super – High Growth

LC

89%

High Growth

25.7%

Active Super Accumulation Scheme – High Growth

LC

95%

High Growth

smartMonday PRIME – MySuper Age 40

LC

86%

AustralianSuper – Balanced

S

Telstra Super Corporate Plus – MySuper Growth

5-year return (pa)

5-year rank

2

8.6%

20

9.2%

3

9.3%

7

2

8.9%

4

9.3%

6

23.7%

4

8.9%

5

10.1%

1

High Growth

22.1%

9

8.8%

6

9.5%

4

66%

Balanced

20.4%

10

8.7%

7

9.7%

2

LC

89%

High Growth

23.6%

5

8.4%

8

9.5%

5

ANZ SCSE – ANZ Smart Choice 1980s

LC

80%

Growth

22.4%

6

8.3%

9

9.0%

12

Vision Super Saver – Balanced Growth

S

70%

Balanced

19.4%

14

8.2%

10

9.0%

11

QSuper Accumulation – Lifetime Aspire 1

LC

61%

Balanced

16.4%

38

8.2%

11

8.4%

24

Lutheran Super – Balanced Growth – MySuper

S

75%

Balanced

18.4%

22

8.2%

12

8.7%

15

Aware Super Employer – Growth

LC

68%

Balanced

18.3%

24

8.1%

13

9.2%

8

Cbus Industry Super – Growth (Cbus MySuper)

S

73%

Balanced

19.4%

13

8.1%

14

9.2%

9

VicSuper FutureSaver – Growth (MySuper)

S

68%

Balanced

17.2%

34

8.1%

15

8.9%

14

Mercer CS – Mercer SmartPath 1979-1983

LC

89%

High Growth

22.2%

7

7.9%

16

8.7%

16

Sunsuper Super Savings – Lifecycle Balanced Pool

LC

77%

Growth

19.9%

12

7.8%

17

9.0%

10

HOSTPLUS – Balanced

S

81%

Growth

24.4%

3

7.7%

18

9.6%

3

Media Super – Balanced

S

67%

Balanced

16.0%

42

7.6%

19

8.7%

18

HESTA – Balanced Growth

S

69%

Balanced

18.4%

23

7.6%

20

8.6%

19

FUND & INVESTMENT OPTION NAME

Rainmaker MySuper/Default Option Index

18.7%

7.4%

8.3%

Rankings are made on returns to multiple decimal points.

Rainmaker Benchmark Indices – Workplace Super INDEX NAME

Performance to April 30, 2021 1 year

3 years (pa)

5 years (pa)

Rainmaker MySuper/Default Option

19%

7%

8%

Rainmaker Growth

23%

8%

9%

Rainmaker Balanced

17%

7%

7%

Rainmaker Capital Stable

9%

5%

5%

Rainmaker Australian Equities

30%

9%

10%

Rainmaker International Equities

27%

11%

12%

Source: www.selectingsuper.com.au and Rainmaker Information

88 MONEY AUGUST 2021

DATABANK

YOUR GUIDE TO SUPER DATA

WHAT THEY MEAN

Performance after fees: When calculating fees, Rainmaker assumes a member has $50,000 in their account.

Strategy: Some MySuper products invest your superannuation based on age and are known as lifecycle funds (marked LC). The table includes the LC option for 40-year-old members. Non lifecycle funds are known as single strategy (S).

Rank: Funds are ranked against all MySuper investment options available in Australia.

Indices and averages: To produce these indices, Rainmaker analyses the results of more than 3300 investment options.

Benjamin Ong OUTLOOK

Rally makes it really super 2XU DQQXDO VXSHUDQQXDWLRQ VWDWHPHQWV ZLOO UHpHFW WKH XQH[SHFWHG UHFRYHU\

A

ustralians all, let us rejoice for we are richer thanks to the rally in the domestic stockmarket that most of us are invested in through our super.

FactSet figures show that the All Ordinaries index appreciated by 26.4% in the 2020-21 financial year, more than making up for the 10.4% loss recorded in 2019-20.

Big-capitalisation stocks, as measured by the ASX 100 index, jumped by 24% over the past financial year (from an 11.1% drop in 2019-20) while the Small Ordinaries soared by 30.2% (from the previous year’s 8.3% fall).

This comes as no surprise given the stronger-than-expected recovery in the domestic economy and continued monetary and fiscal largesse.

The Australian Bureau of Statistics’ national accounts show the economy expanded by 1.8% in the March 2021 quarter – the third consecutive quarter of growth since the pandemicinduced recession in the March and June quarters of 2020 – taking the annual growth in GDP up to 1.1% and national output above the level it was before the coronavirus struck.

Labour market stats indicate that economic growth will continue to progress.

Employment increased by 115,200 in May – way above consensus expectations for a 30,000 gain and more than offsetting the 30,600 lost in the previous month.

It was 1% higher in May 2021 than at the start of the pandemic. The unemployment rate dropped to 5.1% in May – the seventh straight month of decline – from 5.5% in April and 5.3% in March 2020, when lockdowns started.

Record or near-record business conditions and confidence and above-average

consumer confidence readings indicate that Australia’s good fortune will continue.

Then again, as we say in financial markets or in terms of asset allocation, “it’s all relative”. The domestic bourse’s performance leaves much to be desired compared with our peers. America’s S&P 500 index skyrocketed by 38.6% in the year to the end of June 2021 and Japan’s Nikkei 225 outperformed the ASX with its 29.2% return. Not to mention, emerging markets – as measured by the MSCI

emerging markets index – which popped 33.4% over the same period.

The question now is, will Australia have another happy year?

For now, the spread of the Delta coronavirus variant – and the consequent re-imposition of lockdowns and restrictions and interstate border controls – presents a near-term risk.

A survey by The Australian Financial Review revealed that economists expect the recent shutdown in Sydney, Darwin, Perth and Brisbane would subtract between $2.5 billion (0.5% of GDP) and $3 billion (0.6% of GDP) from the third quarter’s national output.

The longer the lockdowns remain, the bigger the hit to Australia’s growth.

Then again, the Reserve Bank remains unperturbed. At its July 6 board meeting, it kept the cash rate unchanged at 0.1% and retained the April 2024 bond as “the bond for the yield target,” while at the same time scaling back its $5 billion weekly bond purchase program to $4 billion until at least mid-November this year.

The RBA would have rolled over its “bond target” from April 2024 to November 2024 (as some speculated) and/or kept its weekly bond purchases at $5 billion at the very least if it didn’t believe its own prognosis for the domestic economy to bounce back quickly after the outbreaks are contained and restrictions eased.

There’s also the government’s increased efforts at lifting the rate of vaccination and hopefully prevent a recurrence of the rolling lockdowns we’ve seen over the past 15 months.

Here’s looking forward to a happy rest of 2021-22.

Benjamin Ong is director of economics and investments at Rainmaker Information.

MONEY AUGUST 2021 89

THE HOT SEAT

“I write because I love books nd have a story to tell” I was so sports mad as a teenager, playing cricket and golf that I didn’t have time for part-time jobs, which means my first ever paid gig was as a cadet journalist, working for The Sun in Sydney. I had just turned 18 when I secured a coveted cadetship on the afternoon newspaper, starting my career alongside other cadets such as Geraldine Brooks, who went on to become a brilliant foreign correspondent and Pulitzer prize-winning novelist.

When did you know you were a novelist and able to make a good living that way?

I quit journalism to become a ghostwriter and was in between projects when I penned 117 pages of my first novel The Suspect.

The part-manuscript triggered a bidding war at the London Book Fair in 2002. I was back living in Australia when the phone began ringing from my UK agent at three in the morning. In the space of three hours, the novel was sold to be published in more than 20 languages and every dream I had ever had of becoming a full-time novelist came true. My wife and I lay awake for the rest of the night, and by 8am we had spent the money and cast the Hollywood film and the sheer terror began to sink in. All of those people, all over the world, thought I could write a novel. Were they crazy?

Is it your dream job?

I have dreamed of being a writer since I was 12, when I fell in love with the short stories of Ray Bradbury and wrote him a letter.

He wrote back to me and my fate was sealed. Although some days are hard, and it is nowhere near as glamorous as people imagine, I wouldn’t swap my job or my life.

90 MONEY AUGUST 2021

What is your favourite thing to splurge on?

Michael Robotham

No question – holidays, particularly to Africa. We have three girls, who were born in different parts of the world, including Zimbabwe. We love the people, the wildlife and the lifestyle.

Best-selling author Michael Robotham was an investigative journalist before becoming a crime writer, but it was his experience working with clinical and forensic psychologists in this role that gave him insight into his future writing genre. Robotham’s first thriller, The Suspect, sold 1 million copies worldwide and his novel The Secrets She Keeps was recently aired as a series on television. He remains the only Aussie to win the UK’s prestigious Gold Dagger Award twice. His latest book, When You Are Mine, has just been released.

How many of your books have been optioned – and what does this mean for your success?

Pretty much all of my books have been optioned for films or TV. The Germans have made six Joe O’Loughlin films, and last year Network 10 aired a six-part series based on The Secrets She Keeps. A second series of the show is being written now.

In other breaking news, World Productions, who made Line of Duty, plans to begin shooting a Joe O’Loughlin TV series in London in September. The making of a film or TV series is a bonus, but not a motivation. I write because I love books and I have a story to tell.

What’s the best money advice you’ve received?

My wife taught me that experiences are more valuable than material things. That’s why we care more about travel and adventure than cars and boats. This advice has taken us around the world many

If you had $10,000 where would you invest it?

Renewables. Solar farms, green steel, hydrogen vehicles, wind turbines – the future is coming.

Get in early.

What would you do if you only had $50 left in the bank?

I would buy a few notebooks, a pen and write like crazy. times over and hopefully many times more to come.

What’s the best investment decision you’ve made?

When that first novel triggered the bidding war, I refused to get carried away. I reasoned that I might never earn that sort of money again, so I put the funds into a house for my growing family, and into a self-managed super fund. It created a safety net that protects us still.

What’s the worst investment decision you’ve made?

Many people think that property is a failsafe investment, but I lost money on the first two properties I ever bought. The first was in 1988 when interest rates hit 18% and I was forced to sell after the market had peaked and crashed.

The second purchase, a house in London, was in negative equity for five years before clawing its way into the black. It taught me an important lesson about diversification and timing.

Do you intend to leave an inheritance?

As a writer, my works will outlive me, which means my three daughters will inherit the copyrights. I have thought about setting up family education trusts, or making bequests to charity, which may still happen, but I trust them to use the money wisely.

What’s been your best money-making career move?

I took an enormous leap of faith when I quit a highly paid position on a UK national newspaper and decided I would try to make it as a writer. I was 43 years old, with a pregnant wife and a house in negative equity in London. Everybody thought that I was crazy, except for my wife, who believed I had the talent. There were many doubters, but with each new book I have proved them wrong.

Finish this sentence: money makes … the road smoother, stairs less steep and life easier.

TONY MOTT

What was your first job?

Now 9GB For $14.90

PER month for 6 months ON AUTO RECHARGE *Includes 3GB standard data + 6GB bonus data for 6 consecutive 30 day periods, from activation of auto-recharge before 01.09.21 and next 5 auto-recharges. Visit lebara.com.au for all Ts&Cs. For personal use in Australia. 6GB bonus data provided for 6 consecutive 30 day periods, commencing on auto-recharge activation. If auto recharge is deactivated at any time, bonus data will not be applied (even if reactivated). Available to existing auto recharge customers and customers who activate auto recharge before 01/09/21. Standard $14.90 Extra Small Plan includes: Unlimited standard national talk, text & MMS (including 13, 1300 and 1800 numbers; excludes Pivotel); $3 international standard talk and text credit; 3GB standard data. All inclusions (incl. total data) expire after 30 days, but up to 200GB of unused data may be rolled-over if eligible plan is recharged before expiry. Visit www.lebara.com.au/30-day-plans for all terms and conditions. Lebara reserves the right to amend or withdraw any plan inclusions, promotional offers and/or pricing.

Bank of the Year.

For Value.

For Service.

Money magazine named us Bank of the year and Business Bank of the year for an incredible fourth year in a row. Further proof of the continued value we offer our customers.

That’s the Suncorp Spirit

Suncorp Bank