If Trump wins...what would it mean for sharemarkets?

percent mark, maybe higher. If you've any decent fund at all, and if you were looking at how your shares went, my, oh my very very good year, you would expect on the Australian market that you did at least twelve percent. I'm talking your shares doing about eight percent and your dividends doing maybe four and a half thereabouts, So you get a total return on twelve ish good year by Annie's Andrew's historically comfortably ahead of inflation. And then the

US markets absolutely wonderful. I mean they are wonderful. Returns from the US markets. Are you looking at in the order of twenty percent plus on world indusies. You're looking at more like mid twenties on US induses. The US indicies are now so powerful, are so successful that they are representing seventy percent of the world stock market as represented the Morgan Standy Capital International Index, the MYSKI as

they call it. So the question we ask is is this as good as it gets both on your super and on your share market return. We had actually own on the show last week, of course, needless to say, as I expected, as I predicted, we had a big response to that. And as I said, we could almost do that show every single month of the year and we'd have avid listeners every month of the year. How

much should you have in super? And I thought actually was quite good in how he it really got into the tickets there on the basis that you know it is different for everyone. A lot of it is your own expectations. There are forming as you can follow you mister show, make sure you listen back to it. My guest today is, of course James Girard of Financial Advisor dot com dot you friend of the show, best friend of the show. How are you, James Gerard?

return over a negative return. But I guess from here is just about will it continue, which I think will public explore a little bit today.

rather than twelve on the local market. And I was talking to someone last night and they were saying that when is the Australian market ever going to come around? When is it ever going to be better than the US, because it isn't year after year, year after year after year. Half far back. You want to go. When they go really well, we go okay. When they fall, we fall

with them. It's a difficult one. So in terms of just super returns and super returns being let's see there nine percent for everybody, and then let's see that they are heavily underpinned. No matter who you're with, buy share markets, and the share markets were exceptionally good. I imagine the danger with an advisor is that people start to expect that this is normal, that this is what they should get each year.

Where all asset allocations are forming well, because usually where the share market's doing well, you're not getting that match on cash and property markets are doing greater. Share markets doing well, but everything across the board has been going great over the past fourfronds. So you are absolutely right. Investors shouldn't get complacent because it's not always going to be like this.

absolutely everything. And what people forget is not just that it felt, but it was so grindingly difficult because it fell by nearly fifty percent between the top of two oh seven and the very bottom of two oh nine. And I think, just as a word of warning for anyone who gets a little bit too excited about the returns they've just had, there are periods where it is gruelingly difficult to be exposed to shares, and there is

a sense of it will never turn. It always does, but it can take But the COVID crash didn't take that long in it James and be six months, but the GFC crash took two years to happen, that was the hard part, and maybe two years to recover there thereabouts. So you really have to have a strong constitution to

go with it, especially as an independent investor. But structurally, I wonder if it's the case that the conditions last year that drove such a good share market return would seem to be perfect again this year and we don't

see anything yet that would change that. So is it the case that people probably could be confident on shares and if they are, should they have more overseas because we know independent Australian investors still have not much overseas compared to successful institutional investors such as the Future Fund.

or inflations falling. It's come down from nine percent it's now three percent, So that means that the Fed Reserve should decrease interest rate or cash rates, which would be good for share markets in America. If you look at the political situation, it's looking more likely with a Trump win, and that seem to be good for share markets because Trump is a pro business so that should be a shot in the arm for share markets and corporate earnings.

They've been strong and it looks like they will continue to be strong. So on one side, everything looks good, ticking the boxes for share markets to keep going up. But on the other hand, we always have to have regard to valuations of share markets. How expensive or cheap is the share market compared to historical averages. And one of the very crude metrics we have a look at

is what's called the price to earning ratio. And at the moment, the US share market is traded on a price to earnings ratio of about twenty nine times earnings, which is higher than the historic rate of eighteen times, which means that share markets historically more expensive now compared to historical averages. And what I've observed is that share

markets always go back to the long term average. So on one hand, there's room for more games to be had, but on the other hand, at some stage in the future, there will be a drop to go back to the long term average.

see some shocks to market. He may reignite a trade war with China, for example, or it could be something outside of Trump's controller, might be a geopolitical event with Russia or Ukraine flaring up. So something will happen. Because the more expensive share markets are, the more sensitive share markets are to negative news. Because the investors are just looking for a small piece of information to go Aha. This is a signal we need to take our profits and start selling.

the great drops. They always happen in September October. It's late July. We're only about six or eight weeks off from that patch. Personally, I'm always very very careful of bank shares before that patch because there's often a drop.

the market. Just quickly, in the stockbroking world and in the advisory world, there's a format for investors that has become very popular and it's growing very very quickly called self managed accounts SMAs. And everything I've read about sma's talks about how great they are and how they're growing so quickly. And you said to me, I don't like them at all. I wouldn't go near them, and I

wouldn't put anybody into them. And then I said to you, well, why don't you say that loud and clear and to a pie supplouded in the Australian, which you did, which was great. What do you think now about those SMAs? Do you think people are starting to become a little

skeptical about them? And just if you would for the listeners, should they be approached by anyone with the self managed accounts, which are, as I said, the hottest thing you've seen for a long time in the local market in terms of a structure for in the independent investors, just encapsulating you would what you thought was wrong with them.

That fund is then investing into other managed funds in ets and shares, and that's all you usually wrapped up inside of a platform. So if you count the laser fees, you have financial advisor feed, you have separately managed account manager fee, you have fund manager fee, you have ETF manager fee, and then you have platform feed. So there's like four or five different types of fees in there, and the financial advisor, at the end of the day has no control over whether BHP is being sold or

Rea Tinto's being sold because he's outsourced that responsibility. So I have no issues with separately managed accounts if it's made very clear that the investment management part of the service that the financial advisor is providing has been outsourced,

and if the advisor is truly providing other services. So I've got some friends who have financial advisors and they operate SMAs very legitimately because they're focused on clients with say disabilities, and they're helping the family set up trusts, and they're giving advice around how to deal with indis

and other things like that. But if it's a run of the mill financial advisor who's hanging their hat with regards to what they do for you on investment management, and they're putting you into an SMA, you're paying them a fee basically for nothing, and there being among themselves in industry conferences about how easy it is to manage clients money.

not gonna work anymore for our audience. Okay, look, just before we go to the break, one last thing, really interesting about that concept about if Trump wins, because it is elections are so important now, and they are so we're getting very extremes right to the middle of the road is gone. As we know just now. In elections we find there's a labor government in Australia, there's a labor government, quite a left wing labor government replacing quite

a right wing Tory government. In the UK, there's a surprise rebound of the left against the right in France. And then of course in the US the ultimate market and this is why we're interested in it because it's not a show about politics, it's about show about markets. But if Republicans win, and if Trump wins, the last time he won, the market government big lift. Paradoxically, the economy is very good under Biden, but he's not getting any of and he kudos on that front. And Trump.

You see even the big players on Wall Street who would say they don't like him and don't like aspects about him, in recent times our curring favor. And there's lots of stories about the big War Street leaders going back to Trump and forgiving Trump. And basically they're pragmatic. They're saying, discuss going to win we better be on

site with him. But I wanted to ask you, was if Trump wins, then do you see that as something that would extend the bullmarket basically that we've been seeing on the US.

And that'll start to happen once Trump comes out with his quite extravagant policy decisions, off the cuff comments, and so markets will start to then pull back because although share markets like Republicans because they're more pro business, share markets like stability as well, they don't like it when the politician comes out with an unexpected policy announcement, which

Trump has done historically. So I think that short term boosts, but then sometime between three months and maybe nine months, we might see a pullback as reality sets in of who they've actually elected.

dot au. One of the more interesting things I saw this week a couple of things happened. The ETF industry hit two hundred billion in the local market and on they go, and they are steaming along with the big players, particularly you would know Vanguard and the domestic sort of champions Beta shares both becoming stronger and stronger in recent times.

As all the ETF players doing fairly well, Global X etc. People going in there as the market comes to understand that ETFs that amazing proposal they offer an investor, which is that you will do as well as the market. You won't do any worse, and you won't do any better. You will not shoot out the lights, neither will you do terribly because you will just do whatever the market does.

So if the ASX did twelve percent last year and you had an ASX ETF, you did twelve percent, and a lot of people are perfectly happy with that, certainly

as a core of their portfolio. Now one of the things we've got to be careful about is, just as we're starting to understand ETFs, the goal post move and financial people being what they are, they can never leave things alone, and they are starting to create things called active ETFs where they change, but they don't offer what they used to right, So what they do is they say, yes, we have two ETFs. We have the traditional mirror ETF where we just whatever the ASX does, we will get

exactly that. But then they have active ETFs and they say something like it's the exact same it used to be. Accept we're doing something slightly different whatever that might be equally weighted. We're trying to balance the share portfolio so certain things don't happen, and that's called active ETFs, and they are very, very different, and I wish the industry would make it more clear to the everyday investor that

they are not what we regard as ETFs. And this is leading me into the first question, which is from Daniel, just wondering if you are able to provide an overview of the best performing active ETFs listed on the Australian Stock Exchange over the last five years. I am thinking it might be a good time to move from non active. Right, that's passive, that's the traditional mirror etf. I was talking about our index fund, which just matches a market too active. Daniel,

it's a great question. I bet we'll get a damn good answer from James because he's actually gone and taking the trouble to look at this. And James, I wonder, I'm only going to guess now, but I'm the best performing active ETF on THEESX will be something utterly obscure like a NASDAK options driven something or other. I don't know the answer. Tell me what, Tell me what it is. I'm not completely wrong, tell me that's right.

Now the bigger question is Daniel, and this is never advised. This is to all the Daniels in the world. If you're thinking it's a good time to move from traditional ETF to active ones. I wonder what James Girard has to say.

So what they're doing is saying, okay, we've sort of done all of the passive ets we can. We've got baskets for share markets, property markets. We've even narrowed down ETF baskets to countries. You can invest in Japan versus India. You can invest in bank stocks as a ETF. So now they're saying, okay, we're going to offer active ETFs, which sounds great, but really it's a bit of spoken mirrors because they're really just going back to managed funds.

And the problem with managed funds active managed funds, which are now being called active ETFs, is that seventy percent of them will underperform the index on a twelve month period. So just let that seit with few. If you invest in a share market ETF and Australian share market ETF a passive one fine, your average return over a tenu

period is going to be around nine percent return. If you invest into an active ETF that targets Australian share market, seven out of ten of those managers are going to underperform the index ETF on a twelve month period, and over a ten year period, nine out of the ten active ETF managers are going to underperform the index. There.

the index. That's all we promised, no more, no less, And they have collected two hundred billion dollars from Australian investors because everyone loves the idea, and believe it or not, the same people who invented them have gone off and created active ETFs, which are stocked pickers basically. And it turns out that those active btfs they're is as bad as the old managed funds, that they don't match the index. I actually didn't know that, you know, I have only

heard this this morning. I actually didn't think that they would be so bad, yep, But they are. Is that amazing?

I overdoing it? Is that more or less that? Yeah?

it really nice when your shares come right? I'll tell you what, folks, anyone who's a long term investor, if you through those dog years where the market goes backwards, it breaks your heart.

and have slowly been tightened. Already we've seen the one point nine million dollar cap come in on the maximum amount that you can have in the pension phase tax free and then from next year if it gets legislative, there'll be that all for thirty percent tax on unrealized gains and income above three million dollars inside a super So as a plan in strategy to mitigate the risk of a higher super account getting tax because who knows, twenty twenty five years down the track, they may have

brought that threshold down to a million dollars and start to tax that higher account balance. More won't be tax free in retirement, so you should start to do that now. A few things that you can consider, and again not advice, just general information. There's contribution split in, so that's where eighty five percent of a spouse's super contribution can be

sent to the other spouse's account. So let's say partner number one has ten thousand dollars as a super contribution into their account, they can actually pick up eighty five hundred dollars of that contribution and send that across to partner number two's super account, and they can do that on a yearly basis. So that's great to boost the balance of the lower balance spouse. The other thing that they could have a look at, depending on income levels,

is what's called the spouse contribution. So that's where lower income spouses and generally lower income correlates to lower superbalances because of lower super contribution. So I've just made an assumption here that the spouse with the lower super balance has a lower income. So the higher income spouse puts three thousand dollars into their lower income spouse's super account, and that means that the higher income spouse gets a

five hundred and forty dollars tax offset as well. So not only are we boosting the lower super balance by three thousand dollars, the higher income spouse gets a five hundred and forty dollars tax offset. So that's great. And then this is this is a few other little things like government code contributions, salary sacrifice, cash up, concessional contributions

for the spouse with the lower super balance. But because we have taps with how much money you can put into super, it's not something that you can just approach age fifty nine and go, okay, great, we're gonna equally this million dollars one hundred thousand dollars too late. You have to do it well in advance.

planning way, I had great idea. Okay, that was Dan. There's a few of them, so we'll try and get through them before the end of the show. Hi, James, regular listener. I've learned a lot from it, so thank you, Thank you, Neil. I'm semi retired. Just move my super into a pension account. Investments earnings are now tax free. Yeah whoo. But wondering if this should modify my investment strategy. Capital gains are not a concern now, so our growth

stocks more attractive. Okay, it's very quickly, James. We're always told about growth, lots of growth when you're younger, move it towards income when you're older. Neil is challenging that to a degree. He's saying, hey, you know I could I don't have to worry about tax now, maybe I should have more growth. He's kind of upending the textbook principles.

be probably looking at staying that type of arrangement. And for all the nails in the world, as we get close to retirement, generally we want to be more defensive. We want to put in more blue tip stocks, more

bonds in there, focus on capital preservation and income. So yeah, I probably wouldn't be going for all out, let's go growth strategy, because if we have a snap event and something that block blacks one event, as you coined earlier, James, we could see Super accounts dropped by thirty percent and that would just send peace people who were in that transition to retirement phase back five or ten years with their super balance. So we definitely don't want that to happen.

make any difference? It makes a difference, Christine, probably because your Australian chairs have a four and a half percent evidential than your American ones have not have the bugger rold basically, isn't it what is it? Is it even two percent? James? I'm not sure? Very low? So what's the you might give give Christina some guidance there.

So you almost need to draw out like a little matrix and go all right, Well, Christine's basically asking between super and non super, and she's also asking between Australian shares and international shares, So just looking at the characteristics of each of those and as you said, James, Australian shares higher dividends, lower growth compared to international shares, and international shares higher growth historically but lower dividends. And then

with superinnuation. When you're working, the maximum tax that you can pay in your super account is fifteen percent, but if you're retired it's zero percent tax, and with your employment income where personally you can pay up to forty seven percent tax. So you have to sort of like consider all those things and then work out what's the best approach is. There's no one single answer for that one, unfortunately.

the case in recent times. They do, however, have a four and a half per cent of evident deal and that is nice because when things go down, you still get that need and that is what a lot of people depend on for income. Okay, James, read the last two questions. I'll just introduced into questions. There are two questions on the same thing, folks, and everyone's always asking about this. If you're moving money around in your super fund in any fashion, do they sell the shares and

then do they buy them back? And does that cost you? That's basically what these two questions are about. But James, if you'd like to read the two of them, one from Luke and one from Chris, and we'll deal with.

Super account you have. If you have a self managed Super account, you will maybe able to do what's called an in specie transfer, so you sign a piece of paper, you do what's called an off market transfer, the share of transferred from Super to your personal name, and then you can do another transfer and put them back again. Whereas if you're with a retail or industry super fund, they're more likely to say no, sorry, we can't help

you with that. That's not one of the features of our fund, and you have no option other than to sell, send the cash out to your personal bank account, send the money back into the super fund, repurchase the shares. Last thing I'd say with that is just be careful of what the tax office coin as wash sale rules. So if you sell the one hundred percent of say BHP from your super, you cash that out, and you put that cash back in again, you buy BHP again.

Although this is not the same purpose. For tax purposes, the tax office may have a look at you, particularly if you have a self managed to per fund, and say, why exactly did you do that transaction where you're trying to dodge tax them. So you need to be careful about maybe not buying exactly the same shares back that you sold as part of that recontribution strategy.

bit of trouble. It sounds like a lot of trouble. Actually, I never knew that, all right, And I suppose also, you know, you don't have to be so if a person was doing something like that, you don't have to.

You could buy, for instance, an ETF from one company on the Australian share market, and then you could sell one and then and buy another ETF from another company, which is a completely different investment for tractors doing the same thing in the unlikely event that the ATO would be so ab third as to try and challenge you on what is a legitimate strategy. Okay, what about the question from Chris.

Every day, in the unit price of your balance option, your growth option, you Australians, your option, they continuously factor in capital gains tax into that unit price at the end of the day. So if you're to sell down to cash,

there's no capital gains tax hit. So it's more if you run your own self managed super fund, that's when you crystallize the gain or loss on the individual stock et for managed funding your self managed super fun So in most cases know that's not an issue at all, but it's best just to check if your super fund because some retail funds in particular, they do calculates capital gainst tax separately, but from ninety percent of them, they're

all built into the unit price of the day. So what if you see on your balance, that's what you're going to get if you cash it in.

the two questions. First of all, we're on a similar theme about moving money around, and it's interesting there were very different answers for self managed super funds and retail funds, and that's a really interesting dimension to it, and I thought that's an interesting the recontribution strategy, by the way, folks, just one last thing if you don't understand those and it's loopy, but it works, and it's entirely legitimate if you have super and you leave it in an inheritance,

the taxable component being the part where you had some tax concession. For most people is the vast majority of their super right because it was composed three, you actually pay seventeen percent tax. Your inherent tours would pay seventeen percent tax on that super if they were adult children. Is that it James who are who are the ones who have to pay seventeen percent tax?

Can you believe this? And when each time you put that for every dollar you take out, when you put the dollar back in, that dollar is reduced from the taxable component of the inheritance.

annual contribution as well. So at the moment, it's a maximum of three hundred and sixty thousand dollars that people can pull out of SUPER, which will have a mix of taxable and tax free component, and then they could go to their personal bank account and then they put that back into SUPER. And when it goes back into SUPER, it goes in as that non concessional contribution up to three hundred and sixty thousand, and that increases the tax free component, so less tax to non dependence later on.

the family home. Okay, terrific. Hey, there's really good James, quite technical of times nature of it. I hope it was useful to you all. I'm sure it was. You were interested in how much you should have in Super. Maybe you might also be interested in how much Super you might leave someday to somebody if you don't spend it all. Okay, Hey, thank you James.