Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the Wealth editor at the Australian. Welcome aboard everybody. I imagine you're galloping towards the end of the year. Certainly I am, and so is the show. We have a few episodes left. And also, of course, folks remember that over the summer break we will be running the series on the Outlook for twenty twenty five and we will cover all aspects of what you need to know next year with shares and ETF and property and super
It's a very good series. I'm able to tell you that because we're halfway through recording it and look out for that. Now today, I want to just talk about I imagine looking back over this year, you've had a couple of issues. I'm sure in your efforts to build wealth and create a portfolio, create an investment portfolio for you and for anyone else that is linked with you,
and it's the same for advisors. And I wanted to talk to a regular guest on the show, Tim McKay of Quantum Financial, about the key issues that's come up for him and for advisors this year. And I imagine that will give you some insights and useful pointers for your own endeavors. How are you, Tim H.
Jones? Thank you very much for having me.
Lovely to have you on the show. So I don't want to guess, right, I mean, I sent you some notes where I guessed what derusions might be. But I'm thinking for an advisor like yourself, just tell me about how what are people A are people feeling about everything as they come in the door. It's almost like it is the touch of it, it's all too good to be true. Is there an element of that in terms of returns this year?
Potentially? I mean Trump two point zero is obviously loomed large over markets throughout the year, even though he wasn't president, in some ways it felt like he was. And his action in November certainly put a rocket under US markets and other markets followed suits. So that has been obviously a key issue through the y plus falling interest rates in the US and Europe, which again has helped support markets.
So you have these two enormous sort of thematic issues. Which is a republican president coming in the US, A republican president like quit knobs On, who's going to do. Who's going to do all the things you would expect a Republican president to do, deregulate car taxes, stimulate the market. You wouldn't expect a Republican president necessarily to be procrypto
what they are. And also, as you say, just in time for that, you have a sense that US rates will fall, So these things, of course will really push They have pushed markets higher. Is there a risk, as there always is, that everyone's getting too excited too quickly?
Undoubtedly. I mean for the last two we've had what the US has had the dollar returns. Is that Can that keep going on forever? No? No, certainly, but there's probably enough drivers for to keep going for you know, probably another six twelve months at least, the optimism around Trump coming in and he, as you said, deregulating lower taxes, Those sorts of significant actions stimulate economic activity.
So if I did come into you and said, look, it's great, and I'm delighted, and hey, gosh, I never expected to get, you know, ten percent plus on my Australian shar's total return, and I sure said I didn't expect to get twenty on my US ones. Again, and property has been direct property, that is, residential property has been ticking along solidly. Everything else is going up. Crypto's going through, the roof gold has been going up. My alternative assets perhaps are going up, though I can't see
how because it's entirely opaque. I don't mean to be cynical there, But tell me if I said all that to you, what would you say? Would you say to your would you say to clients? Look, this year market, You just said that there. You can't expect it to keep going. So what does somebody do in that? What does someone do about that?
We encourage our clients to focus on ass allocation. So if your target ass allocation is, say seventy thirty seventy percent growth and thirty percent offensive assets. If because the markets have gone up, which they have, it's changed your portfolios changed to seventy five twenty five, then take some of that money off the table, so rebalance back to your target. Take some of that cream, and that way sort of de risk your portfolio On an ongoing basis, do.
People find it hard to sell a share that's been going great Psychologically?
Yes, for the same reason that they when markets fall, they psychologically find it difficult to buy right. So by having a very stringent approach and sticking to it, then you take those emotions out of it. So yes, it feels counterintuitive to be selling when it's high, but that forces you to sell high, and then again when markets fall,
it forces you to buy low. So if you can adopt that strategy and adhere to it, come hell or high water, then you'll be better for it in the longer, medium to longer term.
So in some ways it's easy to The easy part is to sell. It's what you do with the It's what you do with the money that you've raised. What I know, we can't talk individual terms and everyone's different, but very broadly speaking to our audience, which are active investors in Australia of all ages. If someone was to do that, where would you be looking to reallocate that money?
Well, in the defense, if it's going from growth to the defensive, there's only a couple of places it can go to. I mean, some people define hybrid's's defense. I personally don't.
Do you mean, but hybrids aren't hope it's gone.
Well, exactly right. That was my point that they're being phased out. They're not gone yet, but over the next couple of years they will be phased out. So that's an asset class, an Australian asset class that's disappearing cash. Yes, it's quite attractive rates, but we know for a fact that they're going to go down in the coming years. So it might feel good now, but if you keep it in cash for the next two or three years,
you'll probably go backwards. Potentially bonds, if we are in a falling interest rate environment, then potentially bonds could give a higher return than cash on that defensive portion of the portfolio.
They're disappointed regularly, haven't they They have.
But interest rates have been going up, right, so in recent years until recently when the FED dropped rates. In a rising interest rate environment, bonds are not going to do particularly well. But again, on the flip side, in a falling interestrade environment, they can do better.
Right. Do you include bond ETFs in that yes? Okay, yeah? Do you see them as a realistic proxy for actual individual bonds?
Bond ETFs aren't necessarily as good as equity ETFs in the sense that an equity ETF will reflect say it, for instance, the S and P five hundred or the ASX two hundred quite well, whereas a bond ETF will only represent a portion of a bond index. So in many ways it's much easier for an active bond manager to outperform the bond index than it is an equity I.
Hear what you say. Would you explain to our listeners why that is? Because most of them, I imagine, you know, their first step into ETFs exchange traded funds or index funds as we used to call them, would have been in shares, and now they're probably thinking, oh, you know, these are really good, broaden my diversify. I'm a portfolio. I'll get some bonditfs. Could you explain to listeners why they're not quite so but not as good basically a proposal as a share ETF.
But they're good, They're just not as good a proxy in the sense that the IX two hundred is made up of two hundred stocks. So to mimic that with an exchange threaded fund is quite easy. You know, basically you need a spreadsheet. It's not done in a spreadshee.
But yeah, it's an incredibly elaborate spreadsheet with hundreds of people employed to run.
It exactly right. Christmas Elves Wavering way. But a bond ATF if you think of the bond universe either more far more issuers. The US bond market, for instance, there's thousands of issuers, but then even one issue will issue bonds a different times for different maturities, right, so there's not one. The universe is so much greater. So for a bond ETF they will take a portion of those bonds.
They can't replicate the entire universe, and so there will be good bonds in there that they miss out on by definition because they just cannot capture the entire universe. So hence my point that active bond managers have more scope to outperform their index.
Because there's more price discrepancies in our attractation, there's more opportunity, more opportunity exactly to pick.
But as an individual investor, potentially a bond ETF is better than just buying one or two bonds yourself. At least you get a far degree more diversification at a low cost.
And being honest about most Australian investors', retail investors, including listeners to this show, would never have bought bonds anyway.
No, it's a cultural thing. In the US, they do buy bonds in the US and smaller in smaller lots, we don't have that cultural sort of approach to having direct bonds in your portfolio.
Apart from cash and bonds or bondiefs. What else might someone look at?
Is there well, term deposits, but I mean that's a cash proxy. I mean, yeah, you might want to look if your view is that injurest rights are going to fall in the next six to twelve months in Australia as the ABBI feels like it's getting inflation under control, then perhaps locking in money for six to twelve to eighteen months maybe a win if rights are going to.
Fall, yes, okay, right, and of course the bank's move. The thing about this, listeners, is the banks move faster than you'll move. Just as you think, just as you think, gosh, I might lock in that term deposit, someone in the bank has already dropped the race in my experience anyway, Yeah, okay,
very good. Now on as an advisor again, and I imagine you had a lot of people, not a lot of people, but I imagine you had a significant number of people in all sorts of angst about the potential what seemed at one stage, like the for sure arrival of a new super tax, which was to kick in at the three million level, which was meant to be another fifteen percent on top of the fifteen percent youupee if you're over one point nine million in assets, that
is the earnings on assets over that number. One of the things that that also had was a plan to tax on realized games, which was daft, and everyone knew it was daft to mention ghastly and how they might actually practically do it. But here's a million. The other question is that gone or will they try again?
In some ways, I liken it to waiting for Gotto, the play where everyone's sitting around waiting for gotto, and Gotto doesn't seem to ever turn up. This tax might turn up ten yes and no. It didn't get passed. It got passed by the lower House, it didn't get passed by the Senate, and that has that has closed for the year now, so their ability to get that
past has gone for twenty twenty four. They do have the potential ability in February to pass it, but their focus will more than likely shift to the election, not horse trading with the cross benches over a policy which is probably not one of their high priorities, so it's probably buried but not dead. It remains on the statutes in the sense that it's still in their budget, so they're still projecting the revenues from it, so they're sort
of being optimistic. It's still Labor Party policy, and if they win the election, it will probably come back onto the agenda. So there's a lot of ifs in there. But again, if they do win the election, that also presupposes that they control the Senate again, so they could be forced back into the same situation they are now.
Yes, that's a very practical observation, Yes, of course, but they could go to the election with it. It could be a number of six hundred and sixty unders.
And they could claim a mandate. But then the crossbenches could say the exact same thing we opposed. It went to the election with an opposition to this, and so we have the exact opposite mandate to negotiate in good faith about the things we objected to, being the lack of indexation, being the taxation on unrealized capital gains.
Yeah, okay, so I think folks, you can put it in the bottom drawer for the moment because what the government is doing. But don't assume it's gone. I certainly don't assume that new taxes and super are gone because the system is so fabulously rich now that it is a revenue potential revenue earner for any government and will always continue to be so for governments of either stripe. By the way, either stripe and it was the Coalition that brought in the original taxing of super at one
point six yes APRO, which was at Morrison government. Okay, take a short break, we'll be back in a moment. Hello and welcome back to The Australian's Money Puzzle podcast. I'm James Kirby, the Wealth editor at The Australian. I'm talking to Tim McKay of Quantum Financial Advisor. I'm sure many of you know Tim. He is quite a high profile financial advisor, very experienced financial advisor. As I've mentioned
on the show before. His sister is a financial advisor and his dad was a financial advisor or second generation financial advisor. We haven't had any of them on the show, Tim, I wanted to ask you about one of the things I imagine people have been bringing up with you, or if they haven't you've been bringing up with them. Is the part that, hey, you're probably paying less tax than you were. What are your plans for it? Did you
do anything about it? Because everybody is and some that means you're eight it means you're paying less tax, and b it means tax effective strategies mightn't be as effective because you weren't paying as much tax as you were. Is there anything that we're worth telling listeners about that? Even still because it was still only six months into.
It, ye hundred seid I mean, so reminded to listeners. On the first of July the new tax rates came in, the tax cuts across the board. For someone on one hundred thousand dollars, they effectively had a tax saving of just over two thousand dollars a year, which if you equate that to a weekly basis, it's just forty two dollars. So for me, a man, if I had haircuts, it'd
be basically a haircut sort of thing. So it's not the largest sum in the world, but my anecdotally and speaking to clients and with regards to their children, most of that money has gone to in a cost of living crisis, has gone to supporting their lifestyle. Most people haven't saved it or invested it. They literally have just used it to prop up their ongoing expenses and inflection.
In a way, it says something of a cushion against three three percent infleation from most.
People exactly, so supporting so basically treading water.
So yeah, to keep the exact same spending power as you had a year ago, it helped.
Yeah, and to be honest, it probably stimulated economic growth a little bit as well. So if people are spending it, then it helps the economy.
Is there's something that you found yourself continually seeing to tanus this year that is worth telling our audience in terms of opportunities that they may have missed or dangers that they are facing.
Two things. A for the last two years, we've had higher US exposure than Australian exposure on our equities portfolios, and that has put our clients in a very good position. Trump is coming in, we know that in January he's being inaugurated. If you believe in the American exceptionalism sort of that sense that America first, then he will implement policies potentially that will protect those companies even more to the detriment of Europe to the detriment of China detriment
of Australia. So one thing is to just focus on how much Australian exposure have versus the US. The other key thing to note is try not to panic when geopolitical events happen. If you look at this year, we had some remarkable things happened. We had martial law declared overnight in South Korea.
For six hours.
Yeah, we had Syria overthrow its government. We had Israel firing missiles at Iran and Iran firing missiles at Israel. In each of those three absolutely bizarre cases, the markets did nothing, if any, and they went up.
There was no response, There was no negative response on the market.
So next time next year there will be out of the blue events that happen. Don't immediately panic about your investments.
It sounds like you're also saying it's not too late to lift your exposure to US series.
Well, todate the US. A lot of that growth has come from those magnificent seven tech stocks, right, So the hope of the belief is that growth will then spread across the other stocks. So perhaps don't overindulge in the tech exposure given how well it's done. But certainly the rest of the US economy can probably keep growing quite well under this new deregulated Trump environment.
I saw even the most not even the conservatives. The consensus estimates on the six are basically zero plus dividend yield. But the consensus estimate in the US is eight percent. Would only be about a third of what they're going to rump home with this year. But eight percent they have a lotter than nothing.
Yeah, exactly. And if you believe that Trump is going to come down hard on China, then that will have an indirect flow through to Australia as well.
Right, yeah, right, And in your clients what they normally would it be through passive ETFs are active funds that they go through there?
Yeah, both. Well, I've been on a journey. I used to be a seal side analyst for Deutsch and Ubs in London, New York, and so I've come from a completely active background and gone one ady to focusing on passive and asset allocation. So that's been a journey for me. And so most of our clients are invested in you know, broad based ATF's US Australian European unlike.
It's funny. I won't say who, but I was reading this morning about a well known important fund manager fund that had fond of funds that had announced that they're going with a certain small to mid cap fund manager. And this particular fund manager was delighted obviously with this, and was announcing this and telling everybody and putting out press statements and had mentioned, you know, also in passing how much what their percentage return was on in their
area of activity. And I looked and I said, that's really good. And then I said, yeah, it's more. That's the same as the ETF in the same space. I mean, it's cruel. But you've got to be not just good. You've got to be like dynamite, I think inactive now to be passive.
It's even more than that. As an investor, you have to be a brilliant fund manager picker to pick which of those fund managers going to be that a performer. So it almost doubles or reduces your odds by half.
How do you think they how do you think you can do that? Is it old people?
I think it used to be. Increasingly we're saying with the fall of you know, some of these previously great houses. Perhaps we're starting to see that, you know, they didn't wear the Emperor, didn't wear the clothes that we thought they did.
Well, maybe they were. I mean, I think we can name them. I mean, obviously Magellan had Haimish Douglas, who was a marvelous front person for that group, and in its day Platinum At Karen Nelsen, who was a marvelous front person. But I'm not really talking about that where you have a charismatic sort of leader of a fond. I mean, I mean, I think it's teams of spot stop pickers. And there are people who can do it, and there are people who can do it year after year.
But how do you find out about them?
Well, I suppose you focus on the areas where you think that they can outperform. So, for instance, small caps. You know, again it's hard to mimic an ATF for small caps, so there is a.
So you're saying small caps has more chance of a better active manager, an active Andrew has more chance in small caps, just like we were saying about the bonds.
And emerging markets is another area where he excentraated funds can't mimic the entire universe, and so there is the ability of active managers to outperform and do so quite well.
Yes, that's a very good point. Okay, keep that in mind, folks, and I would tend to completely agree with that. And from the figures I see that we're always saying ETFs
are good, and they are, of course they are. But there's always individual shares that are going to beat the daylights out of your ETF and funds, and the likelihood is that those funds will be in areas like Australian small caps, global small caps, emerging markets, and to an extent, bond markets for the very reason that Tim outlined at
there a few moments ago. Okay, I think, just while we have you before we go to questions, is there an area of investing that you find that your clients are resistant to and should consider crypto being the obvious one because it is now well it is now the us SEC chief investment is. I mean they're talking about not just kind of ticking the boxes and saying cryptos okay, they're talking about putting it into your strategic reserves and everything.
Is it time to is it time to look again with new eyes at this what we have to call an acid class.
Well, for younger tech savvy investors, you know a fair few of them already have direct exposure to that. I wouldn't recommend most older, more traditional investors sort of go out and set up a tether account or a bitcoin account.
No, but what we have all we have all ages listening, and I will say that the correspondence, I guess, aren't crypto goes it escalates with the price. Yes, when it goes down. Guess what, we don't talk about it as much. But so I go into you, right, and I said, and you've said to me, James, you know crypto, you don't understand it, blah blah blah, you're skeptical about it. So you know. But now I go back into you and I say, okay, yeah, that the Titans of Wars
tuots are interested in this. The US SEC Commissioner is pro crypto, so is the President. Should I have it?
Well, I suppose in some ways it's like gold, right, So my.
Problem I don't think it's like gold. Actually, to be honest, I don't think that because gold, I think is non correlated, and I think bitcoin is correlated.
Discuss well, the way I like in it to gold is the sense that neither of them throw off yield. Right, there is no India. Yeah, So traditionally, as a cell side analyst, we'd build valuation models and it would be based on the yield these things would throw off. So if there's no yield, how the hell do you value it? So that's my starting point that that's why I liken
it to gold. Having said that, there is obviously an flight to safety for both of those investments, and I think a lot of the people who invest in cryptocurrency today if it didn't exist, would be invested in gold the similar sort of mind frame.
And you're thinking that that is generational demographic.
And so if if crypto didn't exist, those people would probably be investing in gold. So you can get exposure to it via ETFs. I hate to say it, but again exchange traded funds here now launched in Australia actively on the market. They will hold the bitcoin, you know, they'll have a custodium that looks after it. And so if you are going to go down that route, that would probably be the safest and less tech exposed to hacking and the like routes. So for many of our
clients who operate through a financial plan. You have one of those large organizations, that firm will not allow it. Their mandate will not allow those people to be put into those investments. Yes, but they might not have that ETF on their allowed list of approved products, right, so it won't be an open gam But of all ETFs allowed, so you'll probably find that retail investors are bigger users who directly investors than through the large institutions.
You can put them in your et in your SMSF.
Depending on your investment strategy if it allows it or not, So check that first.
If it allows an ETF, then it surely allows an ETF on crypto.
No, it depends on the asset class, right, so your investment strategy may be written around asset classes rather than investment types. For instance, you can get an ETF that has one stock in it. You could have in VideA in three times leveraged in it. So not all ETFs are vanilla.
Sure I'm talking about.
Yes, but again I wouldn't describe a cryptocurrency ETF as a vanilla ETF. Maybe in ten fifteen years time it may be, but at the moment there's still new cabs off the rank increasingly accepted from our perspective. Some of our younger clients we do it on execution, so they want to get that exposure, so we'll facilitate that, but we're not actively recommending.
That you're in the camph You see, if you want to do it, we won't stop you. But you're enough it will help you.
On instruction, yes, yeah, under.
Instruction Yeah, okay, very interesting. Under instruction you see, they're the important words there, folks. Okay, we'll take a break and we'd have some questions from Lisa and Imran and and Lofty Big Chopper whoever Lofty Big Chopper is. Okay, back in a moment. Hello, Welcome back to The Australian's Money Puzzle podcast. I'm James Kirby Wells edit show at The Australian. I'm talking to Tim McKay of Quantum Financial.
Tim Acourse is financial advisor, well known financial advisor's been on the show several times and delighted to have him on the show today. Okay, what we might do? Why don't we just read them out alternately if you like, And I'll read the first one, which is from Lisa. Hello, Lisa, I will be looking to invest outside of Super until twenty twenty seven. This is a very precise reason for this,
which Lisa explained. As I mentioned on the last show, we have some very long questions which I have to edit, so this is just a distillation of Lisa's issue. There we go again. I will be looking to invest outside of Super until twenty twenty seven, when I can again contribute to my SUPER account. I am not in need of an income from this amount, as I am still
able to draw down on an adequate income stream. After a recent podcast outlining the history of share market corrections and crashes, my gout feeling is to put the cash into a savings account, and she mentions one from a regional bank where she says she can earn four point eight five percent monthly with no terms or conditions. Lisa, I would love to know if that has no terms or conditions, because that would there would be would be
a new one for me. But in any event, Lisa's question, obviously is having heard the history of crashes and corrections, she thinks maybe she should put more into cash. This has never advised its information only maybe if you didn't know the history of the point of that show was to tell people who hadn't recalled experience to crash that they happen, and not only can they happen like COVID where it's short and sharp, but they can happen over
an agonizingly long period of time. GFC two or seven to two or nine, where our market fell fifty percent, but it didn't do it fast. It did it in a painfully glacial fashion over two years, and when we hit the bottom, we didn't know it hit the bottom either. So that was the reason with with Alex Muffett that we did that show on the anniversary of the Great Crash of eighty seven. But what do you think of Lisa's disposition to say, well, I've only got a two
year timeframe, I have a certain amount of money. I mean, you shouldn't do anything. I should put it in cash.
It's a valid position. But to counter it, I would say, over the next two year depends on you whent in twenty twenty seven. If it's midyear, when the first of July twenty twenty seven, that's two and a half years away.
Markets will more than likely be up over the next two and a half years, whereas we know interest rates will likely be down over the next two and a half years, right, so four point eight five percent day potentially dropping by twenty five BIPs, you know, next quarter after, So that four point eight five certainly is not locked
in over that period. We know if inflation is sort of coming under control and interest rates will come down and potentially significantly, so potentially that could start going backwards at some stage over that and a half year period. Also, it's not binary, it's not like that money either needs to be in cash or to market. You could put a portion of it into the market over the next two years and keep some in that cash earning interest.
So that's not the worst idea in the world. And the other point to reiterate is your point about buying into the dip. It sounds rational and sounds so sensible, But when the market falls, that is the hardest time to actually make that emotional decision to invest it, because the fear at that time.
Is that it keep falling.
It's palpable, yeah, utually, and to make that to remove yourself from that fear and just to step around it or step over it and make that decision is so hard. So it sounds like a wonderful plan, but it's so hard to execute when emotions come into the story.
Okay, very interesting and to Lisa and all the Lisa's out there, diversify. It's always a useful way to approach any investment amount, be it bigger, small, long term or short term. I don't think that's that's individual advice. I think that's very instructive general observation and information for everybody. Okay, Imran, a financial planner on one of your episodes mentioned that some super funds behind the scenes link spouse accounts to
reduce fees if the combined balance was substantial enough. In other words, as a couple, whatever they've got, you know, two hundred grand each, suddenly it becomes four hundred grand. Their fees drop. But IMA's experience with his industry fund and he names UNI super and they had no idea about this, and he's wondering what funds do it. Okay, Imran, I'll have to come back. You really have to do this. But I couldn't immediately record who said it? Tim, do you know anything about that?
Industry funds typically don't offer this service. They have low fees.
It's not typical.
No, they don't. Having said that, retail fund Some retail funds do so. For instance, Colonial certainly offers it. So if you've got you know, a couple with various accounts or with their kids, you can link that family group and reduce your fees. So that optionality is there, But not across the board.
Why don't they all do it? Is it too hard?
Well? Industry funds evolved out of employment arrangements. You got into Australians because you worked in a particular industry sort of thing, so they were never family focused in that sense, whereas retail funds made more of an effort to sort of serve client groups.
Do you think there's minimums on that?
Yes, there is that one hundred percent, so that it's an encouragement to put more towards that platform. So it's linked to fun is there?
Amum, Yeah, you don't know what it might be the tope. Okay, very good answer to thank you for that, and I imagine is you've got to answer their m round from Tim from me, which was very good. O.
Key listener Carl has a wonderful question as well, So I'll read that one out. Whenever I buy or sell shares, I still receive by post a new holding statement in hard copy format. These are dispatched in the month following the relevant share transactions. I cannot see the purpose of these pieces of paper. They are not proof of current share ownership, as there may have been further share trades between the last end of month's statement cutoff and the
current day. Have not computerized share registries accessible online, made shareholding statements redundant, just like hard copy bank statements.
Good on your car. You really want to help those broker save money. It's really funny though, it's so true. I mean I get them too. They come in on the post I look at them, Oh this post Oh yeah, well I know that, you know I put them in the bin.
Yeah, it does my head into I mean, if you think of the cost of the postage in the printing. But I'd put one caveat on that. There are some older investors who perhaps not as tech savy, who, if you think about it, you place your instructions or your orders through your broker. This is coming from a third party. This isn't coming from your broker, This is coming from the the the registries, right, so in some ways it's
a third party confirmation of what you've done. Orbit coming not via pigeon, but carry pigeon fire the male the snail mail. So I think for some of the older clients they probably appreciate the validity of what. And to be honest, it's really hard to hack.
Put them on a put them on a nail. What they used to call those fires that had the spike file exactly spike f parl.
But it's pretty hard to hack a lesson.
Yes, it's hard to hack a letter. And you made me think of something they're reading about the early days of wiki leaks and all that and how they operated and often how international clandestine groups do operate. But wikedis everyone thinking thinking of it in its day? I've been this sort of really interesting high tech. You know, they use the post, They use the post to correspond to
each other. Good nothing beat of the computer, nohing beat the posts because because it wasn't intercepted, ah compared to over the internet. So there you are. So there is a sense to it, Carl. I'm sure the register's enough to stop it. I'm sure Australia Post would think it's a really good idea that we keep getting those vetters. But you can see that, you can see the sense of it, but a really good question. Thank you okay the last one from Lofty, big chopper, he asks.
He thanks us for our great show. I have a question about tax in super I'm invested primarily in low cost index funds Australian and International through an industry superfund. I've heard recently that tax is worth held from returns to provide for future capital gains. Is this true? And would this not cause a measurable tax drag on the portfolio over the longer term, enough to make a mockery of all the squabbling about saving X basis points investing
in this fund over this one. I've recently hit one hundred five hundred thousand dollars. Well done, and I'm wondering if I should start an SMSF to gain more control over what is sold and win. It is my understanding that if I don't sell anything until pension phase, there will be no capital gains tax to pay.
Yes, okay, well, Lofty, couple of things there. Oh, First of all, you've got it all I think you've you've got it all right, and he has it squared up pretty accurately. Let me tell you something about all this. So this is how it goes. In the big industry funds, they do snip the ticket, not to step the ticket, but they collect what capital gains tax that you may be exposed for, and they collect it as you go, as the years go by, on the basis that they
may somehow have to pay it someday. Now, someone awfully clever one time came up with this idea, and it is common in the big funds. When you go to retire. If you say, by the way, look thanks for everything, and I'm leaving the fund, they say, oh, that's a pity. Oh and also, by the way, we think collecting your potential tax capital gath gains tax liability and it's worth whatever. Let's pick a number. It's worth six thousand dollars. So if you leave us, unfortunately you won't be getting that.
But if you stay, you'll get it. All perfectly legal, all perfectly sensible, and a ruse I reckon which works very well for keeping people in funds. It's controversial. I've tried to do something about it. I've tried to explain to people, I've written stories about it. But that's how it works.
Yeah, it's a switching cost. Effectively, they're trying to make it's sticky to stay in their fund.
Well, who's going to say, I'll tell you what, I don't want that six grand I'm going to leave. Who's going to say that.
I mean just to put a caveat on that, in the sense that Australian super taxes at the fun level, not at the individual level. Right, So that's the key difference. Having said that industry funds right there is not I raised Australian supers because they and others have a memo direct option right where you can invest directly in your own shares, your own atfs and like, and in that option you do get the direct taxation implications of your
own transactions. So even within industry funds, they have a service that mimics the same.
Sort of well, but that would be a minority on tiny minority, but they're trying to mimic the benefits of a self managed super fund.
So if you think taxation is going to be a key driver of your returns for whatever reason you might want to invest in a property that's going to have a substantial gain, then yes, the self managed super fund could be the option to derive some tax savings rather than an industry fund. Where you have no control over it whatsoever.
The taxation of your super is hardly a reason to switch to SMSF.
It's the toile wagon the dog if you think tax.
Yeah, it's you know, if you want to do SMSF after you, you want to do it because you reckon you can do better than the funds and that you're pay less fees, that you'll be more nimble and reactive and have more control. And that might be the case, or it may not be the case. You're caught, Okay, terrific. Well, thank you very much, Tim McKay of Contum Financial for today. Lovely to see you, love you to have you in the studio.
Thank you, James,