Finance & Fury Podcast

Today we're looking at the market environment for Facebook, Google, Twitter, YouTube etc… their costs are going to far outpace what their revenues will be. Are they on their way up, or on their way down? EU copyright laws affecting business models Proposal for online forums to be banned The difference between a 'platform' and a 'publisher' and how the law treats each of those definitions Facebook is down 30% - and have advised that revenues would continue to slow down and its costs rise. Market cap almost half of Australia's GDP (1.2tr USD) Loss equals the total GDP of Kuwait - some $120.3 billion in 2017 last year Indeed, over the last three months alone insiders - including Zuckerberg - have sold off $3.8 billion worth of stock in the company. Earnings per share (EPS) actually were a little ahead of forecast at $1.74 versus $1.72 that had been projected. And, revenues were only a tad shy at $13.23 billion compared to the $13.36 billion that had been expected. Trend analysis - middle of a very wide and falling trend in the short term with a further fall within the trend is signalled. Stock is expected to fall -18.53% during the next 3 months and, with 90% probability hold a price between $120.68 and $156.81 Three risks for social platforms – FB, Twitter, YouTube (owned by Google) EU Copyright changes – Article 11 (link tax) & 13 (meme ban) Copyright directive - potential memes banned and platforms will need to pay publishers to link to their websites The European Parliament has voted in favour of a controversial new copyright directive that could force tech giants to do much more to stop the spread of copyrighted material on their platforms. designed to update existing copyright laws for the internet age Directive on Copyright places more responsibility on websites such as YouTube, Facebook and Twitter to make sure that copyrighted materially isn't being shared on their platforms. Until now, the onus has mostly been on the copyright holders to notify the platforms The article intends to get news aggregator sites, such as Google News, to pay publishers for using snippets of their articles on their platforms. Legislation: "may obtain fair and proportionate remuneration for the digital use of their press publications by information society service providers" Nobody knows how these will work – The EU politicians voting on this haven't even read it. They have their assistants read it and they tell them how to vote. The Directive does contain an exemption for "legitimate private and non-commercial use of press publications by individual users," this is open to interpretation - someone with a huge following on social media, who posts adverts to that audience, a "private and non-commercial" entity Article 12a might stop anyone who isn't the official organiser of a sports match from posting any videos or photos could put a stop to viral sports GIFs and might even stop people who attended matches from posting photos to social media all of this depends on how the directive is interpreted by member states when they make it into law UK – Online Hate Bill Want to ban private chats and forums on FB and other social media sites All that it will do is make hate filled groups go underground and punish those who are part of funny cat meme groups Irony is that there is no public forum for their policies They are allowed to meet in private and make decisions that affect our lives Platform vs Publisher Platforms are not responsible for content uploaded As Facebook does control and edit content, they run the risk of losing platform status – and can be sued for content Publishers are liable

Today's question is from Declan, "What advice would you give your 21-year-old self?" To my 21-year-old self I would have the following advice: Life is a series of challenges, the more you solve the better your life becomes. Always continue learning - I thought after Uni I was done studying, but realised that the more you know the more you can solve. The more you learn the more you earn - By investing time and money to pick up new skills, you become a more valuable member of your company or organisation. Value my time more - Think of time as a compounding factor, like an investment – The more you can do earlier, the more the effort will compound over time. Plus, opportunity cost now can be represented by putting a dollar value to each hour of your time. Failure only means there is something else needed - The only shame in failing is if you give up. Failure comes from defectum in Latin, which translated in another way is deficiency. The word failure just means that something else is needing to be done to achieve you goal.

Today we're talking about a news article that came out highlighting that young Australians' are experiencing either zero, or negative income growth. Stats throughout history How to increase your income - whilst this is a real issue, there are real ways of actually getting around it. The 'Smashed Avo' reference - the idea young people can't afford to buy a house because they're living large. The origins of 'smashed avo' as a reference to millennial laziness, meanwhile, go back to a column by a middle-aged man named Bernard Salt, who is a partner at one of the big four accounting firms. Living an easy life of brunch, Instagram and maxing out their credit cards. Then they have the audacity to complain about the price of housing! Let's look at the stats… Sources: Productivity Commission estimates using Australian Bureau of Statistics (Microdata: Household Expenditure, Income and Housing, 2015-16) and ABS Household Expenditure Survey basic confidentialised unit record files 88-89 through 2009-10. The graph Shows "real" income Shows age groups and time periods of 5 years During the 10-year period between 1988-1998, those aged 25-34 saw the largest increase in wage growth. But that that all stopped in 2009-10. Since 2009-10, growth in real income has been OK for other age brackets. An individual will still normally gain income as their age increases from 25 to 34. But that income gain will be swimming upstream against a general downtrend in real income for people of that age group. In previous eras, the income gain associated with gaining age and experience was boosted by a general uptrend. Businesses and wage growth also go through cyclical change, which needs to be considered when looking at these figures. Currently Those over 65 are having the highest increase of income of around 2% (in line with increases of Age Pension) Below 35 are experiencing low to negative income growth Grow your income Increasing your income is a long-term journey and doesn't happen overnight. Employment - Starting early to maximise lifetime earnings, review your pay with your current employer, upskill yourself to provide real value to employers. Investments - Increase your income personally and reinvest the income from property and shares Higher disposable incomes - Getting out of bad debt or reducing discretionary expenses

Today we're talking about the markets, how CEOs affect share price and how public perceptions can make or break. We look at Elon Musk. Musk is a business magnate, investor and engineer. He is the founder, CEO, and lead designer of SpaceX; Co-founder, CEO, and product architect of Tesla, Inc.; Co-founder and CEO of Neuralink; and co-founder of PayPal. In what has been a pressure-filled year for Tesla, the company's third-quarter performance might be its most important test in 2018 – Musk said it will be great - "most amazing quarter in our history." But – JRE - Musk was filmed drinking whiskey, briefly smoking marijuana It was the latest in a string of unconventional behaviour and bizarre acts by the billionaire He has a very high IQ – Those people can come across as bizarre to some who don't have high IQs Even before Musk's surprise August 7 tweet that he had funding "secured" for a go-private deal, Tesla had been under scrutiny from investors, Analysts and short-sellers - it works to hit production targets and slow its cash burn. Constant pressure from shareholders and analysts regarding near-term performance He has said he wants to preserve a broad ownership of Tesla as a private company. That might be impossible for the mom and pop investors in the stock now who don't qualify to invest in private companies as accredited investors. If they want to keep their ownership, it might have to be through a special purpose fund, something Musk has mentioned. "Issues around regulatory approval - unclear how Tesla will allow retail investors who are not accredited investors to own stakes in a private Tesla Musk stunned investors a month back with tweets saying he had funding to take the company private for $420 (A$589) per share. Several followers questioned if it was against the company's policy, while others mocked the CEO's initial $420 bid, a number that has become code for marijuana He then backed off from his plan, saying Tesla was better off as a public company. Taking a company private - how it's done Simply going dark is a multistep process. The exchanges need several days' notice of the plan, The public has to be informed at the same time. Forms are filed with the regulators, one to notify it of the delisting and another to deregister the shares if the company has 300 or fewer shareholders. Going private requires cash to buy out the minority shareholders, usually through a merger, tender offer or reverse stock split.

The political spectrum and where we line up, plus a look at what we know so far of Bill Shorten and Scott Morrison's policies. Everything is portrayed as a 'cost', which is ironic. "Costs" from the Government's perspective is simply NOT charging you tax. Not taking all income earned is a trillion-dollar cost to them. Shorten's Policies Lowering 50% CGT discount to 25% (for assets purchased after 1 July 2017) People will potentially hold onto assets longer because they will be taxed so much if they were to sell. Negative Gearing – Removal of negative gearing (grandfathering existing) (ABS Stats) 21% of households own a second home as an Investment property 35% of dwellings are investment properties (rental properties) Can't offset more tax than is paid What if property is not rented for a while? People may not buy highly leveraged – high growth properties What if rates go up? A lot of properties in the past were negatively geared Depreciation already gone, property may become less attractive Less incentive for investors to hold an investment property, less available to renters, so therefore with the decreased supply the price of rent increases. Family Trusts Implement a 30% floor on the taxation that applies to distributions made by discretionary trusts Distributions cost $3.5bn to government in lost tax revenue The removal of Franking Credits Australian Market - unfranked 5.5% to 6.5% dividend yield on major bank stocks still smashes the 1.8% yield on US equities Change of company behaviour The American model – Reinvestment of funds is better for companies than double taxation of income for shareholder (reduced shareholder value) Remember, the Government might say that this is costing them money, but really, it's just money that they aren't able to collect in taxes! Health Funding – additional $2.8 billion funding for hospitals Additional money doesn't equal additional efficiency, it depends on how the money is spent. Throwing extra money at a problem doesn't necessarily solve it. For example, the hospital in Adelaide. Help reduce emergency department and elective surgery waiting times and provide more beds, doctors and nurses Education Scrap upfront fees for 100,000 TAFE students and to spend $100 million modernising TAFES around the country. Promised about 200,000 extra places at universities He did not give a costing for the extra university places Increased funding for even further regulation and red tape ASIC - lambasted the Government for cutting funds to AISC as a "disgrace" and "immoral" and pledged a $25 million taskforce for public prosecutors ASIC has gone industry funded - their revenue has gone up and just moved away from tax payer funding How all of this can be funded? Can afford the extra spending because he would not "spend" $80 billion on big business tax cuts. Extra government spending enabled by this revenue-raising – think back to past public works programs, like the NBN or pink batts, or solar panels Morrison Retirement age to 67, not increasing to 70. Whilst it's not nice to have to increase the eligibility age for the pension, life expectancy has increased by 25 years since the age pension was introduced…and eligibility age has only gone up by 2 years. Cuts for small and medium businesses will cost up to $3.6 billion over four years $7.6bn on infrastructure spending Increasing rails and road networks etc Not sure about what the details or other polices are – nothing is clear at this stage.

In this episode we discuss Cash. We will run through what type of asset it is, how the currency system works, and how it can be manipulated! We also discuss: The good old days of the Gold Standard What the real uses for cash are What are the uses for cash, and how you can improve your position. Why you can get a 60% interest rate in Argentina, but it may not be worth it! What to do with cash and the potential negatives of doing so!

Today's episode is a Market Update and we look at a few of the factors that affect our market. We will discuss why these things matter, and why we are in the state we are in! In this episode we discuss: Consumer confidence – Look at the savings ratios Business Confidence – what factors are affecting it and what this means for the economy. Australian Wages and labour - Unemployment and underemployment and how it is correlated with difficulty finding labour Housing Market - House process going through a bit of a down cycle – We run through the Supply to demand ratio – And also look at the homes vs apartment market. Also, here are the graphs that we discussed:

Australian motorists are suffering the biggest annual increase in petrol prices in 9.5 years as global factors combine to slug drivers at the bowser. ACCC - 2017-2018 financial year petrol prices on average rose by 10 percent, resulting in drivers struggling to make ends meet with the price of fuel. Add on people living further and further away – Adds to the weekly budget – making it harder to save! But motorists can manage this cost by using fuel price apps and websites to reward retailers offering the lowest price. In the episode we cover the following: What is causing the rise: Supply and Demand of course The global oil markets Geopolitical and currency pressures Greedy retail margins How to try and save at the pump

The decline of auction rates and confidence in the market The number of homes being put up for auction across Australia has plummeted as falling property prices and fewer cashed-up buyers shake the confidence of owners looking for the right time to sell. CoreLogic - properties taken to auction last weekend was 1,909 - down from the previous year - 2,270. The number of homes being taken to market is down on average by 20 percent. Sydney, the preliminary clearance rate was 59.1 percent, indicating a classic "buyer's market". Property values plummeted by 5.6 percent to record over the past 12 months to a median house price of $863,769. Melbourne, the preliminary clearance rate was just 58.6 percent. House values have fallen 1.6 percent over the last 12 months to record a median house price of $709,568 The Analysis Coming down from the top - Last year was at the peak of the market Long term normal averages Why is this happening? Consumer confidence Prices are too high Property Clock Link: https://www.htw.com.au/month-in-review/ Things move in Cycles Residential property market goes in cycles Supply and demand Supply – Properties being built Demand – Interest rates, credit availability, population increases Demand may be dropping as auction set prices are too high People may just not want to pay what people are asking for in the price Especially Sydney and Melbourne Don't panic Be aware, but don't be alarmed News stories are crafted just to sell A few weeks is not a trend – Takes some time and may have just been a rainy day Won't see a massive drop Investment properties will go first Expensive to own property

Last episode we ended with Lenin's death. The roll out of Communism was well underway and it was time for new leadership. One his last policies before he died in 1924 was the New Economic Policy (NEP) in 1922… A mixed economy put in to place in order to reintroduce a level of private ownership into the economy. Individuals could own small enterprises and some private property. Tax in the form of 'Quotas' were introduced with people getting to keep and trade what they produced over and above their quota. Lenin had a stroke not long after this, leaving him partially paralysed. This is when Stalin really stepped up being a regular visitor, and Lenin didn't like Stalin – or his "Asiatic manner". Stalin was Georgian and a bit of a racist. Lenin wrote to his sister that Stalin was 'not intelligent'. Regardless, Stalin had support of a large chunk of the Bolsheviks. So…he was needed. Joseph Stalin ruled from Lenin's death in early 1924 to 1953 when he too died. What life was like under Stalin was brutal The movie The Death of Stalin is a black comedy about the power grab in the wake of Stalin's death. The level of paranoia and fear seems a little hysterical (overacted) however it was pretty true for the time. There is a scene Stalin wanted the recording of musical group. It was a horrible event, but it makes light of the oppression people were under. Between 1924 – 1927 Stalin spent most of his time killing off any challenges to power. Then by 1927, power was consolidated. He saw the solution for getting rid of the dissidents was to imprison them – in the Gulags. There were a few of these operational under Lenin. The number of concentration or forced labour camps grew from about 87 to over 350 Communist Party and The Soviet State considered repression to be a tool of control and enforcement. Securing the normal functioning of the Soviet state system (people toe the line) Preserving and strengthening their policies (redistribution) Keeping control of their social base - the working class (keep them in fear) The GULAG system was introduced in order to isolate and eliminate anyone not toeing the line Class-alien, socially dangerous, disruptive, suspicious, and other disloyal elements, whose deeds and thoughts were not contributing to the strengthening of the dictatorship of the proletariat. Forced labour as a "method of re-education" was applied. This theory based on one of most famous Marxists in history – Leon Trotsky. Trotsky came up with the solution for dissidents. He was a Russian revolutionary, Marxist theorist, and Soviet politician – He was one of the 'old Bolsheviks' – and mates with Lenin. The Prison Camp idea was based on Trotsky's experiments with forced labour camps for Czech POWs from 1918 He wrote about "compulsory labour service" in his book - Terrorism and Communism Why does all of this happen? Why am I talking about this part in a show about personal finance? These violent social policies have to go hand in hand with the economic policies of a Socialist or Communist society. It is about the collective and 'Equality of Outcome'. With force being the only true way to guarantee the outcome. The economic policies of socialism have to be enforced by the State. Follow the logic – Say you don't pay taxes, you would get notices from the ATO, eventually criminal charges and eventually you get taken away to jail Now imagine you went to the fields (which are meant to be the peoples' anyway) and picked some left over grain for yourself. People were shot for doing this Or, you made a joke about Scott Morrison – That is 3 years in the Gulag! Any speech or action against the collective is a crime – and it has to be. No freedom can be present if equality of outcome is desired. Aleksandr Solzhenitsyn, "Gulag Archipelago". A recount of stories from these camps from memory with first hand testimony from 227 fellow prisoners…it's a looooooong book, around 70 hours of audio book. What landed him in jail? He was fighting in WW2 and wrote a letter to his friend about conditions on the front – that was his crime. It wasn't until 1973 when this was published that the world got to really learn about this. This caused the western world to start to wake up to the lies of communism. Before this, the Socialist plan was also lauded by some members of the Western media, and although much of his reporting was later disputed, New York Times reporter Walter Duranty received the 1932 Pulitzer Prize for Correspondence for his coverage of the first five-year plan. Back to Stalin's policies 1927 - 1931 Collectivization and industrialisation – The core of all Socialist policies The word 'collectivisation' sounds technical, a little dry, even boring. But, it's the process of taking what people have, and spreading it around Human consequences were profound and dramatic. How does one achieve this? It is an impossible problem to solve to keep everyone equal at all times – So the only solution is to remove those who are on higher wealth posit

Welcome to Say What Wednesday! This week the question comes from Sean, "You spoke about Education Funds in a recent episode, I'm just wondering if you can explain this further?" In this episode we discuss What Education Funds are, The pros and cons of using Education Funds When and how to use them

In this episode we discuss the magic trick to paying off a mortgage in a shorter time frame, to save thousands in interest costs. The trick is that there is no magic trick - plain and simple. Like the dream of 7-minute abs, or 6-minute abs.... (but what about 5-minute abs!) it takes a bit of work to get it done. In this episode we discuss: One simple strategy is to make your mortgage payments weekly, in addition to increasing your repayments. With this formula you can halve your mortgage from a 30-year term into 15 years. We'll deep dive into ways to do this, but start with the single simplest and most effective way to crush debt. Doing this can save literally thousands in interest payments and increase your financial freedom. We also discuss different interest rates. Obviously with higher interest rates, you save a lot more. Finally, we run through whether it's worth investing the money instead, or repaying your debt. Here's a link to the Pay Yourself First Episode

Today we're going to run through the very first implementation of Communism on a mass scale. Our last few Furious Friday episodes are a lead up to this. If you didn't catch those episodes, it's not the end of the world but if you did manage to have a listen it will provide a bit of context to this episode. Russia – 1917 under Vladimir Lenin & the Bolsheviks (Spoiler alert! It didn't end well!) Firstly, it's important to understand Russian History, pre-1917, as a prelude to the events that occurred. 1861 - Tsar Alexander II passes the Emancipation Edict, ending serfdom in Russia Alexander II was a pretty good guy (as far as leaders through history go) Sold Alaska to the USA 1867 for $200m in today's dollars. Favoured an economic system similar to that in other European countries; Capitalism and free trade. Promote development and to encourage the ownership of private property, free competition, entrepreneurship, and hired labour Most Serfs were free (a third of the Russian population) They had rights (marriage, ownership of property, freedom) 80% of the population were peasants, substance farmers. Peasants were to receive land from landlords (though they had to pay for this eventually with money, or working it off through labour obligations) Landlords were paid 75% from the government upfront, and the peasants paid it off over time. This was abolished later on, so the full payments never really came through to the land owners. Changing the system so significantly is a very complex problem to solve. However, by all metrics it seemed to be working well as far as increasing the prosperity of the population. The land ownership changed hands significantly Previously there were the Gentry class – A social class whose land ownership provided their incomes (Mr Darcy from Pride and Prejudice). Land ownership by the Gentry class fell from 80% to 50% as the mobility of wealth under a freer society increased. Serf land ownership rose - 5% to 20% Substantial rise in the amount of production of grain Surprise, surprise! When people are allowed to keep what they produce, and are incentivized, there is an increase in goods produced. Rise in the number of hired laborers Rise in technology needs - machinery Remember: This was set up to be a free market economy – Efficiencies started to happen! Those who were more entrepreneurial could do more than just farm land as well 1890s - Industrial development A large increase in the size of the urban middle classand of the working class. This saw the emergence of the Kulaks, who were essentially the wealthy peasants By this time the second generation were entering adulthood. There was a 35% chance that their parents had been slaves. This gave rise to a more dynamic political atmosphere - the one downside of freedom Previously there was no hope of rising up, peasants were peasants. But, with freedom comes choice, and with choice comes wealth… You either chose to own something/keep what you earn, chose to work where you want Inequality is created. But this is then used as a tool to mobilise the masses – to create an equal outcome – where everything was utopia and everyone has the same amount of wealth During this period is when Vladimir Lenin was born – 1870 to be exact Wealthy middle-class family. His father was a serf who was freed, did well and became wealthy I'll skip forward through Lenin's life to 1917 when things pick back up – Spent most of time between being expelled from University, exiled in Siberia, then living in Munich, Geneva and London, or holidaying in French or Italian Villas WW1 was going on around this time Unrest is growing. The First Revolution: Disaffected soldiers from the city's garrison joined bread rioters and industrial strikers on the streets. More and more troops deserted the front lines and with loyal troops away at the front things fell into chaos, leading to the overthrow of the Tsar. In all, over 1,300 people were killed during the protests of February 1917 Didn't solve the fight for power Enter, The Bolsheviks – A second revolution Bolsheviks - majority faction of the Russian Social Democratic Party, which seized power in the October revolution of 1917 Lenin came back to Russia in October 1917 – From Finland (wasn't even there until the end) 1918 - Russian Soviet Federated Socialist Republic Lenin gets to work on the new Government The first was a Decree on Land, which declared that the landed estates of the aristocracy and the Orthodox Church should be nationalised and redistributed to peasants by local governments. Decree on the Press that closed many opposition media outlets deemed counter-revolutionary The courts were replaced by a two-tier system: Revolutionary Tribunals to deal with counter-revolutionary crimes, and People's Courts to deal with civil and other criminal offences. They were instructed to ignore pre-existing laws, and base their rulings on the Sovnarkom decrees and a "socialist sense of justice" Decree limiting work for everyone in

Welcome to Finance and Fury's 'Say What Wednesday'. Today's question comes from Braden, "What are the tools for young people to invest in exchange trading funds or the wider share market? Can I only use Commsec or Nabtrade, or are there better options out there?" Let's start by considering the following features of competing online share brokers; Fees You're charged brokerage for every buy or sell transaction, with many fees around the $20 mark. Fees may be calculated as a percentage of the transaction amount for larger trades. Also charge an ongoing annual or monthly fee on top of this, especially with the more feature-dense platforms. What can you trade? Shares – Australian and International shares (Direct, LICs, ETFs) Others - CFDs, forex, indices, currencies and much more, so look for this functionality if it's important to you. Research & Access to market data Daily market reports, buy and sell recommendations and company financial reports can all provide useful information. Trade options You place orders at market and/or at limit, and are stop loss orders an option to add more flexibility to your trading? Some accounts allow short selling Reporting. Check what reporting tools each platform offers to help you track your trades, record dividends and pass on any relevant information to the ATO at tax time. Margin loans. A margin loan lets you borrow money to invest and uses your shares as security. If you're looking to borrow money to build your portfolio, check to see whether the platform provider offers margin loans. Don't forget, this does comes with additional risk. Education Does the platform also feature a range of educational tools and resources, such as how-to guides and webinars, to help you get more out of your trading account? PlatformsSo, let's look at some of the platforms available. Which one is right for you depends on what you want to achieve. Either you will be a fulltime trader, or a casual investor Different types of accounts will suit each Traditional (the banks) CommSec – Below $10k, $10, Below $20k, 0.11% above nabtrade Westpac Your needs If you're just a casual investor, do you really need a share trading platform that offers a whole lot of complicated bells and whistles? Some platforms targeted at entry-level traders may not have all the features an experienced investor needs. For larger trades – Self wealth is good – Flat for $9.50 Important: Doesn't matter massively – it's not where you buy, it's what you buy! Thanks for the question Braden! Any other questions go to https://financeandfury.com.au/contact/

Welcome to Finance and Fury In today's episode we're talking about property - Commercial vs Residential. It's often a question people ask when they're looking to start investing in property and considering which is the best type to get in to. What is best to buy? Residential or commercial? What do you want to achieve? They aren't the same beast – Whilst they're both 'property' they aren't really the same thing and behave quite differently Residential Property Homes or apartments Rent to individuals Commercial property Three different property types Office Retail Industrial Rent to businesses Commercial property to residential Pros Costs – Commercial can have lower costs Upfront – Technically cheaper per square meter than residential Ongoing – Tenants cop some of the costs (maintenance, etc.) Higher Rental Yields 8-12% on yields Residential has about 3-4% on yield Long leases Leases for 3-5 years are more common. Can go to 10 years. Provides certainty Cons Lower capital growth Supply and demand: If populations are growing (immigration) – prices go up Businesses aren't growing in number at the same rate as residential Higher risk of vacancy – Often untenanted for long periods Got to have enough other cashflow to cover any costs on the property. Resale challenges Again, supply and demand Important to select property that will be demanded in the future – Rise of share office blocks Economic changes – Business don't do well when the market is experiencing an overall decrease in demand. Residential property – you only have to look at individual demand – Places people want to live Commercial – Two-fold – Individuals need to demand business, and then business need to demand property Lending – lenders require 30%-50% deposits for property Relationship for supply and demand Fundamental driver for property growth – demand compared to supply Residential demand is driven primarily by population growth commercial demand is driven by both population growth and economic factors. Often in the 'not so nice' parts of town It is important to understand these growth factors when deciding where and when to investment. Risks No growth – Demand to buy doesn't do up No income – Nobody wants to rent Commercial – Works if: Low maintenance Desired part of town for business to operate Strong cashflows Residential – Higher capital growth – Plus more leverage Summary Residential – Good for long term growth – Leverage helps Commercial – Good for incomes – But has its risks

Welcome to Finance and Fury! If you haven't listened to last Friday's episode go check it out, it's a prelude to this episode. Today we are going to discuss the founder of Communism – Karl Marx, along with his ideas. 1848 – Karl Marx, along with Friedrich Engels, brought the philosophy of Communism to the masses. We'll start with a brief outline of his life. Whilst we could go on for a while about him, I'm more interested in looking at his ideas, which are more important. We will talk more about he and Engels' character, too, to form a good understanding about their ideologies. Why is this important to cover? The Communist Manifesto is one of the most read books – still today. Research conducted by the Open Syllabus Project - 15 years of over 1m course curricula in Colleges and Universities The Communist Manifesto is number 3 in most assigned, 2nd in History, Number 1 in Sociology The top 10 Economics books are written by New Keynesian Economics Assumes rationality and economic efficiencies – Wants to achieve macroeconomic stabilisation through; Fiscal policy – Taxation and redistribution – GPD from government spending Monetary policy – Printing money to stimulate economic growth This is a problem that there is only one way of economic thought being taught I know – I went through it. I didn't learn anything about the Austrian school of economics which focuses more on individuals rather than the state as a solution Used to be more socialist and thought that printing money for economic stimulus was good Especially reading articles by Economic Writers We need to try to get the complete picture out there though There is no perfect theory or method, but only seeing one may lead people to think that Who was Karl Marx? Either the saviour or the devil depending on what side of the political compass you lie. Born 5 May 1818 – Trier, Germany – father was a la He lived a relatively wealthy existence, growing up in a 10-room property, with his family owning a number of vineyards. His mother was from a wealthy Jewish family of businessmen. They later founded Phillips Electric. His sister-in-law married Lion Philips, a Dutch tobacco industrialist Why is this important Karl wrote that the working class needs to revolt He never worked a day in a factory Education years 1830 - Trier High School - police raided the school in 1832 - discovered that literature espousing political liberalism was being distributed and taught to the students. This is another important point. The authorities instituted reforms and replaced several staff during Marx's attendance. Early education revolved around one ideology of liberalism 1835 - at the age of 17 Karl attended the University of Bonn. He wanted to study philosophy and literature but his father insisted on law as a more practical field. Karl was excused from military duty when he turned 18, due to a condition referred to as 'weak chest'. While at the University at Bonn, Marx joined; The Poets' Club, a group containing political radicals that were monitored by the police. The Trier Tavern Club drinking society In August 1836 he took part in a duel with a member of the University's Borussian Korps. His father forced him to transfer to the more serious and academic University of Berlin. Marriage 1836 - Married Jenny von Westphalen – An educated Baroness of the Prussian ruling class Work 1837 – 1845 – Between Cologne and Paris writing for socialist newspapers by German and French radicals Engels 1844 – Met German Socialist Fredrich Engels whose father was the owner of a large textile factory. Do you see a trend here? 1848 – Co-authored Communist Manifesto The ideology Marx's quote – 'The history of all hitherto existing society is the history of class struggles' The class you belong to is determined by; If you own the means of production and control labour power, or, if you are the labour power – the workers Sees everything as either "Oppressor" or "Oppressed" with all business owners exploiting workers Oppressors – The Bourgeoisie (capitalists) who are the owners of production and always working in self-interest, exploiting the working class. Oppressed – Proletariat – the working class. They are the ones selling their labour power – remember: voluntarily – awful conditions but thanks to the free market this improved. Class is solely determined by property ownership – not by income or status What the Manifesto contained: Ten major points in total, almost like the "10 Commandments of Socialism" Abolishing ownership of all private property – i.e. the people now own everything collectively and nothing privately Businesses: Assumes that capital just appears. Marx theory is that the labourers are the one that produce everything, so they should own it as well But where did the factory come from? Someone took a risk to create these things. A Tragedy of the Commons situation – which turns into social loafing Living: You are taken from your home and put in the lodgings assigned to you by the govern

Today's episode is just a quick one. I'll be going over a couple of questions I have had over the past few weeks about the personal finance course we're launching. Plus, we have an exciting announcement at the end. First off, why does the course exist to begin with? There is almost no financial education at any level of the schooling system. Unless you teach yourself, or someone else teaches you, it is almost impossible to completely understand personal finances or investments. This has created a problem where something that we all rely on very heavily has become misunderstood, and underutilised. We will all encounter money at some point in our lives, or pay taxes, so why not do everything possible to maximise the former and minimise the latter? I want to create a platform with everything you will need to know, or may ever want to know. Plus, tools that go along with each topic to put your newfound knowledge to use. Most of these things seem complicated – until it is explained I had great feedback from those who I have taught in person so know that it really does help. What I hope this course will achieve Give you the skills and knowhow to make smart money decisions Help you create a plan to secure your financial future, removing uncertainty and financial fears Remove money stress and fear Put strategies in place to manage your money, taking the hassle out of it When is it coming out? Sorry for the delay – tax changes meant I had to change the content and re-record Website be up in a week or so How does it work? Giving you the knowledge, but also what to do with that knowledge. 8 Modules to complete at your own pace Complete each module to build a complete picture Online content delivered in lecture format Practical strategies and tools to help implement them in your own lives Community support You will join the community of people signed up for the complete course to help discuss ideas and learn from shared experience as well. What is included? Eight Modules, designed to provide the knowledge and how to use it to your advantage. Each module then builds upon another to provide a complete picture of the economy, investments and your own finances. Some modules have tools to help implement strategies that you learn and manage your own financial freedom. Financial Goal Setting First mod is about goals – how to work out and set financial goals, plus how to achieve them Understanding your cash flow, lowering taxes and reducing debt Personal Finance Basics Economic terms, along with Supply & Demand Designed to help you understand the jargon / economic terminology Price mechanics behind the free market Economics 101: Returns Risks (volatility and how it's measured) Risk / Return ratio Investment Theory Asset classes Cash Fixed Interest Shares Property (direct and indirect) Risk profiles Portfolio Construction – Growth vs Defensive Investment Basics Learn how to invest in Trusts or fund your retirement through Superannuation Structures & Environments: Build Wealth Reduce tax Asset Protection Strategies: Investment and Personal protection Risk management By working through the lectures and tools in every module, you will be able to build your own financial plan to help secure your future. And our surprise announcement After his hiatus – Jayden will be coming back I'm excited about my partner in crime being back – even if you aren't I won't feel like I'm just ranting at myself I'll let you know once it is all up and running, thanks for listening!

Today we will talk about the fundamental principle of being wealthy. It's very basic, and, if you get it right, you will start to accumulate wealth…which is the whole concept behind actually being wealthy. You don't get dumped with a truckload of cash and all of a sudden find yourself wealthy – those who are wealthy tend to have accumulated their wealth over their lifetimes. It's about keeping more of your money, and investing it to grow over time. The big dream: Have millions of dollars and being able to purchase anything. This revolves around spending money You need the money in the first place to do this though I want to talk about the allure of getting everything that we want in one go – the get rich quick schemes Lottery winners, or massive inheritances – do they never have money worries again? Well, it's been shown that they do. And this goes back to the fundamental principle of spending more than is sustainable. The money is going to run out pretty quickly if you don't have any discipline. People develop bad spending behaviours, so it doesn't take long to go through $100m This extreme example is important – the mobility of wealth is massive – the "1%" is a very mobile group, people move in and out of it throughout their lives – Generational wealth All have the same sort of decline – 3 generations on average to spend through wealth We all spend money and it goes hand in hand with modern life Basic needs (housing, food, transportation, etc.) Modern day – Easier to spend money than ever before. There is additional choice. Credit availability – CCs, Loans, cashless Online shopping – Amazon, delivery with minimal effort Advertising – constant stimulus, triggering of dopamine Why we spend money? For things we need For things that we want! Gives us some other gain – there's a dopamine release The hedonic treadmill, and always needing to increase how much you're spending to get the same feeling What we could be doing with our money – Opportunity cost Short term – What could you have done with the money spent? Long term – Is it the best thing now, or could I buy something bigger later How we grew up – Dopamine addicts Neuropathways are developing under constant dopamine stimulation Phones, Internet, Facebook, TV on demand It's then very hard to find something to fill the dopamine gap when a lot of effort hasn't previously been put in to doing this – Spending money easily fills this How we decide – For financial spending It's usually not cold and calculated It's really, "Pain versus gain" – 'cost v benefit' mental accounting – use pain and gain constructs Pain – Will spending this money hurt in a certain period of time If you focus on the pain of not having the money, less likely to spend Gain – Good feeling and anticipated future benefit Anticipation – excitement for imagined future benefit Unpredictability – When we work for something and there is no guarantee of reward It is hard to qualify spending money as a 'pain' The pain is not realised now – for example with a Credit card with a bill which is delayed for 60 days. The pain is in the opportunity cost, which is hard to qualify. You don't conceptualise the pain of opportunity cost with any immediacy Hyperbolic discounting Time – the longer the time delay, the less we tend to value the gains Would you rather receive: $100 today, or $110 in a week? $100 in a year, or $110 in a year and one week? In the world of instant gratification there is easy reward with no anticipation or uncertainty – it's important to find meaning in delaying spending, but it gets harder and harder Spending money wont help in the long term – hedonic treadmill The Imagined Future Benefit problem – The Gain has been experienced before you finish Dopamine's release changes based on two factors – Many people think that dopamine is released when the brain receives a reward, but dopamine is actually released in anticipation of a reward. It's done to keep motivating us to work towards what we are trying to achieve. You don't actually get much of a release when you finish working on the project – not sustainable long term to only have one goal, or none. That makes it release while we are doing the activity Anticipation – excitement for imagined future benefit Unpredictability – When we work for something and there is no guarantee of reward Human behaviour – How do we act when we have something we didn't work for (or earn?) It won't make you happy – without the ongoing work for something, dopamine release isn't going to be as great Working on the goal is what provides longer sustained releases of dopamine My experience – Sanding a deck – if I had paid someone to do it then there wouldn't be that feeling of achievement Beyond dopamine Serotonin Status – our position in a hierarchy - spending money on nicer cars, suits, watches – Trying to live up to an ideal image. This doesn't actually increase serotonin Fake it till you make it doesn't work here if your brain knows that you are just flashy/s

Welcome to Finance and Fury, Furious Friday Have a think about how much you know about history? Are you familiar with the big events, like WW1 and WW2? Events that have been re-enacted in movies like Saving Private Ryan? Did you study it at school? Have you done your own research and study on these events as well? I've been listening to a lot of history podcasts: Dan Carlin's Hardcore History is one of the best, the History of Rome podcast, as well as History on Fire… basically anything with 'history' in the title. The more I listen to these podcasts, the more I realised that even the general gist of an event in my head was way off in terms of accuracy. It's eye opening learning about history from the view of those who were actually there. Soldiers on the front-line writing home about conditions, speeches from leaders and their political dealings behind the scene. This seemed so different – When was the last time you listened to a news story that shows you more than a 5 second clip of what someone said? The news anchor will spend the remaining time telling you a recount of what happened (rather than hearing it directly yourself Why am I going on about this? The more I listened, the more I learned of the same horrible events repeatedly coming up in the past One thing that was surprising is that most seemed to have the same elements as each other More surprising: I had no idea that most of them occurred - especially from the firsthand accounts We all know about the atrocities of the Holocaust – Approx. 6 million Jewish people lost lives Hitler established first camp in 1933 - Dachau Most of the killings occurred between 1941 to 1945 BUT did you know about the famine in the Ukraine between 1932-1933: when millions of peasants were forced off their land and made to join state farms under the Soviet Communist Party Leadership Throw in a bit of bad weather – 6 to 7 million Ukrainians died of starvation during this 1-year period Any food that was produced was taken by the state for the collective Remember: Ukraine was trying to fight for its independence from 1917-1921. They lost as Russia Invaded Ukraine with the Red Army in 1919, but they were still causing issues a decade later. Economists and Historians have painted a pretty clear picture that it was to punish the Kulaks (wealthy peasants) who were the most productive. What makes this story worse is that it isn't an isolated incident – however it is not well known. Since 1848 the same thing has been tried and tried again. It may have involved different countries, during different times, and given different 'names" …yet with the same results It's almost like that episode of Rick and Morty – Morty's Mind Blowers, where he keeps having a memory removed. He says– 'How many of these are just horrible mistakes I've made? Maybe I'd stop making so many if I let myself learn from them!' Within Western culture there seems to be some Morties present, who are ready to repeat more horrible mistakes again The drug of Marxism and Socialism: A bad habit that humanity has picked up with the Communist Manifesto being published in 1948. Like with a lot of bad habits - people can 'relapse' back into them regardless of the negative consequences Socialism seems to have the characteristics of a drug addiction when applied to a democracy The first time someone does a drug they don't do it thinking it is going to ruin their life The ideology of socialism has those warm fuzzy feelings as well, initially…until it ruins your life. When I look at political candidates in Australia, the UK, America, Canada, New Zealand there seems to be a rise in Socialist policies again - like a drug coming back! Socialism is a moral philosophy posing as an economic system. It's a cancer for economic prosperity People think that the benefits of socialism (in theory) are that its greatest goal is that of common wealth; As the collective (State of people) controls everything, it can allocate resources to maximise every individual's need best. And who doesn't want to have all their needs met. Everything's provided for you, it's nice and safe. This is one reason why it's hard to kick this habit – it tells a compelling story. Everything is free (healthcare, education, housing, loans, food, power, etc) Everyone puts in the same effort and gets their fair share It seems great at first, and this is what makes it addictive People wouldn't do drugs if they had a bad experience first time round (or have the side effects up front). Once hooked it is hard to kick the habit Addiction, dependency and enabling Addicts who have someone enabling their behaviour will likely not stop – change is more likely if they hit rock-bottom When we become dependent on the government, it is hard to become independent again. We adapt well as humans, which has allowed our species to thrive when there was a race to the top Like all addictions though this one can ruin your life…through poor policy Since the abolition of Monarchies, Oligarch

Today's Say What Wednesday question is from Linus. Linus asks, 'I was just wondering what you think the ideal weighting of Australian (ASX200) ETFs, similar international ETFs and Bonds is in an investment portfolio? Love the show, thanks.' There're a few things to cover off here! The ideal weighting of Asset allocations; that is, how much you have allocated to Australian Shares, to International shares, to Bonds, etc. To determine the ideal weighting there are 3 questions that need to be asked: What is the purpose of the investment portfolio? What are you trying to achieve? Long term growth – Trying to maximise the balance Short term stability – Well diversified portfolio with low exposure to growth Drawing an income or reinvesting – which determines the type of investment held How much time do you have? Longer timeframes allow for more planning and take advantage of long term growth How much risk do you need? Returns come in two parts = Income + Growth If there is growth in the equation, the investment can lose value – this is where risk comes in. But, it can also help long term. Portfolio construction – What you need to know Which asset classes you need? How much should you allocate to each of these asset classes? Which investments should you choose within each asset class? No. 1. Asset Classes Selecting the correct mix of Income and Growth Five main asset classes – the core to most portfolios (doesn't include direct property) Each has their own purpose For example, if you need to draw a consistent income, you won't want much volatility Defensive (No growth) – Low chance of capital loss, don't increase or decrease in value over time Cash – earns interest Fixed Interest – receives coupon payments (receive the Face Value back at the maturity) Growth – Has chance of capital loss (riskier) Australian Shares – Dividends and Price gains (generally higher dividends than International shares) International Shares – Dividends and Price gains Listed Property and Infrastructure – Dividends and Price gains No.2 Risk profile To determine the allocation to each class, you need to determine your capacity to deal with risk. The traditional way - Risk Profiles (which provides an outline but is not a perfect science). These help to get an idea about how much growth is acceptable. High Growth – 100% to Growth investments like shares and property – Longer term 8+ years Growth – 80% to growth – Longer Term – 7+ years Cash, Fixed Interest of 20% Balanced – 65% to growth – Min timeframe of about 6 years Cash, Fixed Interest of 35% Conservative – 50% growth Cash, Fixed Interest of 50% Defensive – 30% growth – Good to minimise volatility, shorter term investments or those from which you're drawing an income Cash, Fixed Interest of 70% No.3 Selecting the investments within each asset class Defensive Generally for either income or capital protection Cash – How much income do you need? Do you have a need for reserves? Fixed Interest – Australian or International. Credit, Alternatives, or Bonds Higher risk (e.g. Corporate debt) - higher yields Growth Australian Shares – Market caps – Selecting a good weighting between asset classes ASX200 – Large Cap allocation Small cap ETFs – Issue is when they are passive International Shares – different countries and market cap Balancing your desired return with how much risk (volatility) you can afford Risk - Volatility - Potential movements in price around a mean average High potential for movements, considered higher risk Speculative risk - Can become absolute risk (i.e. losing everything) but can be avoided through proper diversification (which is the whole point of asset allocation) Returns - The higher the levels of volatility, the higher the expected return should be Risk-return relationship – Less invested in assets that can lose value, lower the allocation to assets that don't grow in value If something can't gain value, it is harder for it to lose value Back to Linus' question: Ideal Weighting / Perfect allocation What is the purpose, timeframe and return needed? Example #1 – purpose is to invest for the long term to maximise wealth, investing every few months You are tolerant to risk (not spooked out by volatility) and have about 20+ years to invest, plus you're going to make ongoing investments Allocation – Growth to high growth may be appropriate. For example, 0-20% Fixed interest (cash can be minimised) Allocation: 20% to FI, 20% to LargeCap Aus shares, 10% to MidCap Aus shares, 10% to Smallcap Aus shares, 20% to LargeCap International shares, 10% to Emerging Market International shares, 10% to Infrastructure What this is looking to achieve – Large long-term returns, leverage volatility to take advantage of ongoing investments, have best chance of maximising the balance Example #2 – Purpose is to invest to generate a passive income with minimal volatility Pretty scared about volatility, you want to achieve a better income return than your cash, but don't want to see portfolio drop

To start today's episode, I want you to think about if there is something that you keep putting off. A nagging little task, like paying a bill, lodging a tax return, doing a budget and so on. Does this cause you stress? Little things in the back of your mind actually tend to build up over time, taking up your brain function bandwidth. When you actually get around to doing it though, it's never as bad as what we think. We build things up to be a big problem in our minds, but they really aren't. Once it's done it wasn't as bad as we thought. Today we are going to talk about financial stress, and what can be done to avoid it and prosper. Financial stress is a major issue for many Australians – We worry about money more than anything The Australian Psychology Society- research shows financial issues are the leading cause of stress - Stress and well being in Australia Survey (2015) Financial issues - leading causes of stress (49 per cent in past five years) Others items included: family issues (45%), health issues (44%), workplace issues (32%). What causes financial stress Causes - really comes down to one thing: not being able to pay the bills. People tend to spend what they earn, or more than what they earn Maintaining a lifestyle – Debt or pay cheque to pay cheque Uncertainty – Not having enough to cover what we spend Financial Stress – The definition Struggles of meeting day to day costs – Bills, utilities, rent, mortgage Worries about upcoming costs – next week's bills or upcoming expenses Anyone can feel it - Even high-income earners can suffer from financial stress Stress arises when they spend their money on discretionary items Stress – Why is it bad? Impacts health – Cortisol and bad habits to cope Cortisol (Hormone) – Created when under stress as one of the body's short-term coping responses But when you are always under stress it isn't good – decreased immune system, depression, weight gain, weakness/fatigue Over eating to deal with stress – Dopamine release to get some feeling of achievement Impacts our relationships Shorter fuse and more conflict, which creates additional stress Lack of sleep – Of those who are financially stressed, 7 in 10 people lose sleep over about it (compared to 1 in 10 for non-stressed) Compounds the issue – A study found that financially stressed people drink more, sleep less, have worse mental and physical health, and more conflicts in relationships Compounding Effects Decreases ability to make decisions – Can lead to worse financial decisions Bandwidth – Additional stress reduces ability for other tasks Ever had something on your mind (breakup or another stressful event). How well can you concentrate on what you need to do? This compounds the financial issues, like getting into more debt due to coping behaviours which aren't helpful Drugs/alcohol – CoreData: Financial Mindfulnessin 2017– 35.2% people are likely to use alcohol/drugs to manage negative feelings Those not financially stressed – 2% Continue spending Spending more gives a good feeling, and helps to ignore the negative feelings Makes it all worse – If you are in a hole, stop digging, digging 'up' doesn't help What are the elements that help? Regaining control Finances shouldn't control you – Get the finance monkey on your back Having control/certainty reduces stress – Knowing what you are in for helps, but being able to control it works better Tail wagging the dog – Financially stressed people spend to feel better Have $10k in CC debt, so spend $300 on a night out to make it better – spending gives control But, you can get control over the debt – forming good habits and increase certainty Ways to solve these issues Three time frames to focus on; Now, medium term and longer term Build the basics now - Short term What you can do right now – gaining control immediately Get disciplined – Stress comes from the unknown – Get a budget – Get to know what you are spending, and when you are spending it Set aside money to cover this – Aim to have your own left over as well Make it a habit – Direct debits - Once you know your costs and incomes, you can pre-plan. You can "set and forget" to remove the stress Get apps to track it for you Very simple to do – yet it can be a very harsh reality – 'hard truth' Example - Once you are covering your bills with ease, start managing your money to get ahead…and ready for next stage Medium term – Once you are feeling less stressed you'll be feeling more in control you can plan for the future Start planning! Savings targets to be achieved need longer term planning You need to have covered the basics before moving on to stage two Examples – Wants: Holidays, new cars, home deposits Long term Start Investing – Long term goals normally include having debt paid off or generating a passive income Long term goal of reducing financial stress for your future. Why are all three important? The long term will become the short term if you aren't careful Short term - Stress occurring now – Meeting the

Welcome to Finance and Fury, Furious Friday! I saw an ad this week for a movie called 'Wizard of Lies' – Bernie Madoff movie – 2008. He was a stockbroker, investment adviser and financier who made headlines around the world when he was arrested for one of the largest accounts of financial fraud in U.S. history. What he was operating was known as a Ponzi Scheme (named after Charles Ponzi, who became notorious for using the technique in the 1920s) For those who aren't aware the definition of a Ponzi scheme is a form of fraud marketed as an investment – the usually have high, guaranteed returns – "too good to be true" Fraud - a thing intended to deceive others through wrongful or criminal deception intended to result in financial or personal gain. The success is reliant on new inflows from investors, as that is where returns come from. In other words: A Ponzi scheme is a system where the investor thinks their money is invested in something which is generating the returns, but are actually just used to pay other investors When the scheme runs out of new investors it then collapses – it's doomed to fail The Ponzi scheme generates returns for older investors by acquiring new investors Warning signs of a Ponzi scheme High investment returns with little or no risk. Be highly suspicious of any "guaranteed" investment opportunity Overly consistent returns. Investment values tend to go up and down over time, especially those offering potentially high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions Unregistered investments. Ponzi schemes typically involve investments that have not been registered with regulators. Registration – this provides investors with access to information about the company's management, products, services, and finances. Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms. Secretive and/or complex strategies. Avoiding investments that you do not understand, or for which you cannot get complete information, is a good rule of thumb. Difficulty receiving payments. Ponzi scheme - People think they're investing in something, but their money is actually being invested in nothing. This is why a Ponzi scheme is Fraud: Act of deceiving others for financial gain The only winner is the one who runs the scheme Why have I been jabbering on about this? I was thinking that social security has a lot of similar characteristics Is social security a Ponzi scheme? First – we need to look at social security Social security is 'any government system that provides monetary assistance to people' Social security is enshrined in Article 22 of the Universal Declaration of Human Rights (UDHR) – Adopted by UN General Assembly in 1948: Consists of 30 articles affirming individual's rights It's not legally binding but sets guidelines for countries to follow Expenditure includes a range of payments and services: Income support payments such as pensions and allowances (Age pension, Newstart, Veterans) Family Payments, paid parental leave, child care fee assistance Funding for aged care services and disability funding Put simply: Social Security is a transfer payment - transferring income from one person to another Transferred from: The younger working individuals (generation of workers) Transferred to: those who have ceased work - generation of retirees How does this compare with a Ponzi scheme? Current Welfare Payments in Australia - $164bn p.a. now and looking to reach $191.8 billion in 2019–20. Income tax levied total is $390m, MTRs, payroll taxes, GST others Of this, $195bn is from individuals 84% of income tax paid goes to pay for social security The scheme – Payments (returns) are reliant on new money coming in. Warning signs High investment returns with little or no risk -"guaranteed" opportunity For any return, some risk needs to be present The risk here: As long as taxpayers still are around it will be fine – 84% of income tax paid goes to paying Government benefits. Overly consistent returns – payments go up in large consistent annual growth Refer to previous – tax payer reliant – As long as the income tax increases over time, welfare can continue Unregistered and Unlicensed investments. No Regulation over the regulators - Registration is important because it provides investors with access to key information – how much do we get? There is nowhere near the level of reporting regulation imposed on CBA for example. That is, we have a good idea about the financials of CBA – We have a choice, so they need to be transparent…and it's in their best interest to show off as well. When there is no competition or if you aren't doing what you say, less transparency works best. Let's use tax savings for example – When the government forecasts tax revenue based on policy changes, it is wishful thinking a

Today's question comes from Richie, who asks, "Have you been following the Bitcoin ETF at all? If so, are you able to do an episode on this and if it is worth looking into?" Thanks for the question, Richie…and yes in fact I actually have been following it. I noticed that the price jumped up about 20% on the news that the SEC in the US was considering allowing ETFs for Bitcoin. Crypto currency fascinates me, but not as an investment option. That is, I like the technology but haven't bought any as an investment option. To start with why, I want to break down the 'currency' part in crypto currency – Currency is money: Comparing Bitcoin to money Functions of money Unit of account – Divisible, identifiable amounts Medium of Exchange – Can you use it for transactions for the purchase of goods and services Store of value – Is worth something now and will be in 10 years (food isn't a good currency long term). Can I hold onto this to be able to exchange it in the future? Characteristics of money fall under this Durability – Want money to last Portability – Need to be able to take it with you Divisibility – Units to break it down into – or have many 1s Uniformity – Same consistency – Helps avoid risk/time/effort in barter Limited supply – Needs to store value – Endless supply devalues Acceptability – Widespread use and people want to take it – this isn't the case when there's hyperinflation How does crypto fall into this? Crypto currency is a decentralized monetary system There is no central authority that regulates the monetary base. Currency is created by the nodes of a peer-to-peer network. The algorithm that generates Bitcoin defines how and when the currency is created (methods and timeframes) Currency can be generated by malicious users (does not follow the rules) but will be rejected by the network and thus is worthless – this does affects the Spendable Supply How does bitcoin fair? Unit of account – yes Has divisibility Uniform as well Medium of exchange - Transactional Portability - Bitcoin whitepaper makes it clear that it will be one day: A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. — Satoshi To be unit of transaction, need available supply - people holding it though (54% are holding for longer than 3 years) Acceptability – Wider spread acceptance – not 100% Store of value – Price isn't value – Fiat (current system isn't great) Volatile and inconsistent without any underlying value Limited supply – Not really Durability – as long as computers last Another comparison – Time people expect to hold it – good measure of investment or medium of exchange Shows that Bitcoin is seen as an investment 12% think longer than 10 years, 10% for 7 to 10 years, 46% expect up to 3 years It doesn't look so compelling as a medium of exchange How will the ETF pan out? - History of bitcoin Back in the early days: Bitcoin was flat for a long time. What causes price rises? People buying bitcoin. The price spiked when then even more people bought it – which seems super obvious This also comes back to Supply and Demand – and there was high demand while supply was only slowly increasing. What caused the sudden rise in demand? Technology making it easier - Buying Bitcoin 2009 was almost impossible unless you had computer smarts March 2010 – Price of $0.003 – Someone auctioned 10k bitcoin for $50 ($111m today) – Was $240m at the peak – Stories like this increased the hype/demand for coins – But the technology barrier stemmed a lot of demand potential Now – Currency trading platforms do it for you - Very simple – Almost like buying foreign currency – Massive spike in buyers New regulation being discussed – Bitcoin Exchange Traded Fund What will the ETF achieve? The ETF will simply help to increase demand in bitcoin - as people buy the ETF, the ETF needs to buy the bitcoin ETF – Success depends on underlying assets – NTA Remember you are really buying the underlying asset when buying an ETF Designed to track the yield and returns of the benchmark ETFs are an easier way to buy Bitcoin – but may not be the best for the future It solidifies it as an investment Reduces the quality of the currency as you technically cannot trade the ETF for something else - This diminishes the medium of exchange potentials for Bitcoin Market state Supply - Bitcoin is capped at 21M total circulating supply. Current: 17.2 million mined coins (but 4M BTC lost or dormant) = 13.2M available to trade How is supply created – mining increases the overall supply This can be manipulated – bitcoins can be lost/destroyed I like the concept of it: What I like Supply – Supply is capped, but only due to the programming Alternatives (substitutes) are available Example – The Gold Standard – Capped Supply, until more was mined (Ever wonder why increasing supply in crypto is dubbed 'mining'?). But gold has no close substitutions in terms of the qualities

Today's episode stems from the question last week from William about investment bonds (an investment vehicle, kinda like a life insurance product). Today however, we're talking about the asset class of Bonds What are bonds? A bond is a debt instrument - a form of lending. Part of the 'Fixed Interest' asset class (ever seen a multi sector asset allocation, like inside a Super Fund) Financial Product designed to raise money for the entity that issues the bond I liken it to an interest only loan – If you need money, you borrow it (like a mortgage) which you pay back along with interest too. When a company or the Government needs money, someone (you) purchase that bond – Essentially loaning money to the issuer who then pays you interest (coupons) At the Bond Maturity – you get the initial loan back (unlike a PI loan) Basic Terms Face value: This is the nominal value of the bond, typically $100. It also refers to the principal lent to the bond issuer which they commit to repay to investors when the bond matures. NOTE: This is not the price – but we'll come back to this a bit later Coupon rate: The annual interest paid to the investor and is calculated as a percentage of the face value. 5% Rate = $5 p.a. on a $100 FV bond, or $50 on a $1,000 FV bond 6% rate = $2.6 on a $100FV Maturity date: This is the date the bonds effectively expires and final payments are made to investors. These payments include the initial loan and the final coupon Types of Bonds – Who needs to raise money? Government 1988 to 2008: $50-100bn on issue Since 2008 has risen - $500bn Corporate – Since 2000 gone crazy - $200bn to $1.1 trillion Total Market Size = $1.8 trillion – About the size of the ASX300 on any given day Designed to be a defensive asset Due to the fixed rate nature of a bond and lower level of risk they carry in general, bonds are considered a defensive asset. They are debt – but creditors are paid back before equity holders If a company defaults they will pay back the debt holders first before share holders The Risks - risk does lie is in the chance of the bond issuer defaulting on the loan The levels of risk vary – e.g. The Australian Government is safer than a small mining company Typically, government is considered safe compared to corporate Unless government is Greece and are at risk of defaulting on debt Where the bond is being bought is also a factor. That is, the Primary or Secondary market Primary - Buying bond directly from issuer - When a bond is first issued you can purchase it directly from the company Price here will be the Face Value e.g. $100 FV = $100 price Secondary - afterwards, they are listed on the secondary market where investors can buy and sell their bonds. Price – Remember the Face Value, it is not the price once it has been listed on the secondary market Face value of a bond remains fixed for its lifetime Price/value of the bond fluctuates due to changes in market conditions, particularly changes in interest rates Mechanics Interest rates – Given that bonds are debt, they are related in pricing to interest rates Interest rates rise – Bond price goes down Interest rates fall – Bond price goes up Negative correlation with Interest rates Example: FV of $100 on a bond Bond has a coupon rate of 5% and the interest rate in the economy is 5% The Price = Face Value at $100 – That is due to interest and coupon being the same Falling interest – Interest rates go to 3% - Bond price might go to $108 from $100 Bond is more attractive now – Better coupon than cash – the value of it is better now Rising interest – Interest rates go to 7% - Bond price might be $92 from $100 The bond will be less attractive as it is slightly riskier than cash, so the price will go down as why by a bond when you can get 2% extra in cash? How much will the price change when interest rates change? This is based on Duration: How sensitive a bond will be to interest rate changes? Measured by technical term called duration – slightly confusing as it is based around time to maturity, but isn't the only factor: The duration is based on the time until maturity – Longer duration more sensitive to changes in price Rough rule of thumb – Per number in the duration = 1% interest change = 1% price change Duration of 5 = 5% price change for every 1% interest rate change Duration of 20 = 20% change in price When is higher duration better? When interest rates are expected to drop – As the rise in bond prices will be greater Long duration bonds are typically shunned if rates are going to rise Where Bonds Fit in? Typically form a defensive component of a portfolio Depending on tolerance to risk (Volatility) – They can be good Uncorrelated asset – Performs in opposite direction to shares/property Shares Crash (2008) then bonds typically rise The negative aspects of bonds No growth to offset inflation Can get inflation linked bonds – But they still may fail outpace the traditional growth investments over the long term AUD gov bonds pay about a 2.6% yield

Welcome to Finance and Fury! The main aim of our Furious Friday editions is to clear up misconceptions. We've been seeing a lot of news stories lately about companies underpaying staff – 7-Eleven, hospitality businesses, celebrity chefs etc. The incidence of this has risen over the past few years – why can't these people just pay the legal wage? This episode may be a bit upsetting depending on what side of the coin you're looking at…we're talking about wage controls, that is, Minimum Wages. Are they good or bad? What are minimum wage laws? Regulation/body of law which prohibits employers from hiring employees for less than a given wage Australian History Basic Wage since 1907, which wasn't quite as strict as what it is now. More of a prescription, or suggestion, rather than enforced legislation. 14 December 2005, the Australian Fair Pay Commissionwas established The Australian Fair Pay Commission was replaced by Fair Work Australiain 2010, and since then there's been a significant rise in the minimum wage level. Base rates October 2007 - $13.74 per hour 1 July 2018 - $18.93 per hour Casual rates get an additional 25% loading GRAPH: Wages normalised to 2018 value So, is this good or bad? – There's always two sides to every coin The minimum wage law does not create any new jobs. Prohibits employment relationships that offer wages within a certain prescribed range (low paying jobs, for instance) – sounds awful to say but some jobs are worth $18.93 per hour This prohibits employers and employees deciding between them as to what the pay rate should be Employment is mobile – people in high demand are headhunted for higher wages Commentators argued - contrary to prevailing economic theory, minimum wages increase overall employment Money in pockets of workers flowing to greater spending in economy Greater demand for goods and services, therefore there should be more employment to meet this demand…. But what about supply? That may have the opposite effect, as labour costs go up Less potential labour used And/or, as costs go up, so do prices Let's unpack this by looking at the two sides; Employees (those who are getting paid), and Employers (those who are doing the paying) Employees - The effects: What happens when minimum wages are introduced For existing employees The employer decides to either raise wages, or to terminate the employment It's easier to raise the wage, as it is actually quite costly to terminate in Australia So, it's good for existing employees What about Future employees Creates productivity bar (employers need to make sure that employees are worth it) This is an issue for two groups of employees – Young market entries, lower skilled positions who are priced out of a lot of roles in the economy. The productivity bar: You need to get what you pay for The prerequisites for employment increases – how is this measured? By a piece of paper, known as a Degree. But when everyone has something, it becomes less valuable – this is the same with education and means a devaluation of education in the long term. Higher wages increase need for competition in your skills (or perceived skills) Not everyone can be employed – if an employer has $60,000 for wages the want to make sure they get the most qualified person that amount. Need to get a degree for what used to be an entry level position without one 2011 to 2016 saw massive jump in education levels Grad Diplomas (28%) Bachelor degrees (24%) Biggest increase is in post grad degrees (46%) – It seems bachelor degrees are now the new high school diplomas But if there is no employment that matches your degree – you feel like doing something else is beneath you My example: Studied for 5.5 years – being naive, I thought this put me above the curve. After searching around, I came to realise that I was still entry level. So, I started on $50,000 – working about 60-70 hours a week - $14.88 per hour Some other examples, like some of my friends: Grads in Law and Audit - $40-50k as well and working similar hours This is where those who are young, without degrees, will struggle to find work. Skipping back 20-30 years ago these entry level positions didn't require you to have a degree. What the stats say - Employment levels Lot of studies find that minimum wages are statistically insignificant regarding their effect on employment overall – that is, they don't create much of a change. This is true when you look at it in aggregate. As we just touched on, it's hard to fire existing employees when minimum wages go up. But… The employment rate only factors in those who are looking for work Those who can't get a job in the existing job market and so stop looking for one, are no longer are counted as unemployed Underemployment – Those who are employed, but can't get enough work – are still counted as employed Employers cut their hours Unemployment rate around 5.4% - Includes those actively looking for work Underutilisation rate includes underemployment – 13.7% Including unemploymen

Welcome to Finance and Fury's 'Say What Wednesday' where we answer your questions on personal finance. Today's question today comes from William who asked us to do an episode on Investment Bonds. Investment bonds - What are they? Investment vehicle - Not to be confused with bonds which are a (Debt instrument) investment (just in case the question was asking to cover these, I'll do another episode on these too) An investment bond is technically a life insurance policy Nominate a beneficiary It is a long-term investment with features similar to a managed fund money is pooled with money from other investors and invested Designed to be held for at least 10 years Types Traditional Investment Bonds – what we will focus on in this episode. There are also, Education Bonds, and Funeral Plan bonds Tax Treatments Tax effective for individuals with higher Marginal Tax Rates Internal Tax of 30% - Tax paid at company rate by the insurance company Net income reinvested If no withdrawals are made in the first 10 years earnings will be tax free Investment options Investment options such as cash, fixed interest, shares, property, infrastructure or a range of diversified investment options Risks range from low to high – Depending on the requirement and timeframes, different investments will be better serving your situation Withdrawals You can withdraw money at any time, BUT it comes at a cost If you withdraw before 10 years, tax may be payable 9th year: 2/3 of earnings on the investment are included in your assessable income and a 30% tax offset applies 10th year: 1/3 of earnings on the investment are included in your assessable income and a 30% tax offset applies After 10 year: All earnings on the investment are tax free and do not need to be included in your assessable income The 30% offset is due to the company already paying tax. Investment Bondage Bonds 😉 ...There are strict, strict, rules and you really are tied up; 10-year rule - If you need to withdraw some of your money before the 10-year period is reached some of the tax benefits will be lost If you hold the bond for at least 10 years the returns on the entire investment, including additional contributions made, will be tax free subject to the 125% rule. 125% rule – You can make additional contributions each year of any amount up to 125% maximum i.e. $1,000 year 1, $1,250 year 2, $1,562.5 year 3 These are still treated as initial contributions – Allows each contribution to receive full tax benefits after 10 years But don't exceed 125% of previous year's contributions – Otherwise your 10-year period restarts Also, don't forget to make a payment. 125% of $0 is still $0. If you miss one year's payments you wont be able to contribute anything further in the future – and if you do it will start the 10-year period again. The Pros: Can be a tax effective long-term investment Follow the 10-year rule and 125% rule Can be an effective way to save for a child's future. Especially with Education bonds which are similar. You can only use these funds for education but there is no "125% rule" Can be used as an estate planning tool Beneficiary benefits received tax free Alternative to super caps $1.6m in pension (tax free) – Start planning out from retirement > 10 years Investments are not normally subject to capital gains tax due to ongoing tax treatment The Cons: The costs - You will pay fees, and they are fairly costly Investment options – MERs are higher up to around 1-2% Investment bond – admin fees of around 0.6% To make it tax effective, it is locked away Limited investment options – Multi managed and often limited to the company offering the bond. Also, lower levels of transparency due to the pooled nature of investments In Summary: You need to think about some things to determine if investment bonds are right for you Are you in it for the long haul? - The tax benefits from investment bonds are only realised if no withdrawals are made for 10 years and you comply with the 125% rule. Are you able to make regular contributions? - These investments are particularly tax effective for people who make regular contributions over the life of the investment. What investment options are available? - It is important to choose a product that offers investment options that are aligned with your risk tolerance and investment goals. What are the fees on the investment bond? - Common fees you may pay include establishment fees, contribution fees, withdrawal fees, management fees, switching fees and adviser service fees. Shop around and compare the fees to similar products in the market. Are you using the product for estate planning purposes? - Make sure it fits with your estate planning goals. Thanks for the question William! I will do another episode on Bonds (the debt instrument kind) to make sure we're covering off on that as well. Do you have any questions or have a topic in mind you'd like to know more about? Head to https://financeandfury.com.au/contact/

It's no secret that property is expensive in Australia – it can be pretty disheartening for those trying to get into the property market especially if you're trying to buy your first home. So, in today's episode we'll be covering off how to buy property using what's called a fractal investment. It's about getting into the property market in small increments rather than the traditional way. Getting into the property market can be risky, costly, time consuming. Rather than buying a full property yourself, you buy a portion (fraction) of a property – "Fractal property investments" There has been an increase in fractal investing over the past few years as people have been having trouble getting into the property market by buying property outright. People struggle to Build deposit – most cases $60k to $100k in cash savings Getting a loan – banks are tightening requirements Have time to find property (want to make sure it returns) or manage it Option of Buyers agents Property managers All of these together go in the too hard basket What are the alternatives? Online property investment platforms Allow for the investment into property for around $100 at a minimum, rather than buying the property outright Two companies doing this - Brickx, CoVesta How do they work? Unit Trust Structure Trust is created with 10,000 Units - Trust buys the property Gearing – Generally levels don't exceed 50% Select a property you like Buy your Bricks/Blocks Transaction fees: 1.75% Earn rental income - Distribution payment calculation Gross Rental Income – (strata levies + water rates + council rates + maintenance + management fees + annual audit and valuation fees + property taxes + debt interest + principal repayments + other costs) = Net Rental income Capital returns Valuations Independent external property valuations are performed semi-annually Serves as a price guide – Not what the units are sold for Valuations go up – Guides for what bricks should sell for does as well Shares example – Almost like valuations vs price Price of the units – Based on supply and demand Sell the Bricks at a later date If you want to sell – list your units for sale Members have to then buy this off you What you sell for – Brick Price is determined by Member Supply and Demand Selling Brickx – List the Brickx sell price and number you want to see Average sale time is about 22h 1m. Whilst these investments are quite liquid, it can be a double-edged sword; The Pros Start building a property investment portfolio Diversification – Buy units in a range of properties No hassle – Easy to purchase and takes care of management Structure – Unit trusts are transparent No risk to you if other owners going default The Risks: Run on property – If lots of people list and no buyers, then values go down Someone has to be willing to buy you units (brickx/blocks) Unit trusts can be frozen if too many people try and sell Gearing – Capped at 50% in most cases Good for protection against declines Bad against Interest only loans You don't get any of the tax offsets Trust structures don't allow the losses to flow through Summary Good way to get a toe (or toe nail) into the property market Easy way to start the property investments Not without risks though – Likely to be more volatile if everyone tries to sell Thanks for listening!

For the last few weeks we have been talking a lot about the economy; the Reserve Bank, printing money, and now we will be finishing off by talking about the final effect of this – Interest Rates. Today, we ask the question; Are low interest rates actually a good thing? Well, I guess it depends on who you're asking… The Economy as a whole e.g. Business The population – you and I Retirees – Low rates don't look so good – they're trying to save money in cash to live their lives out. But they're not really getting ahead when accounting for inflation – the real return on money is close to zero. They're actually going backwards Younger people – it's great for borrowing because it's cheap to do so. But in the long run it's not so good for affordability. As people borrow more money, they can artificially afford to buy more…affordability over all isn't as good, so the real value of money decreases. Interest rates Nixon in 1971 – Ended the Bretton Woods system and the last days of currency being tied to gold. The Reserve/Central Banks can just go ahead and print more money and control interest rates that way. Monetary system – Fiat currency – printing money and control of the supply (interest rates) We have talked about the control of money supply by the reserve banks in this other episode Our economy over all doesn't operate as a purely free market as rates are very heavily controlled - the free market for interest rates is gone Interest rates are no longer allowed to fluctuate naturally. The central banks, in their wisdom, have capped them! What are interest rates currently? 50% Interbank rate – set by the RBA Then separately, there is the rate that banks lend out at: the commercial rate. Low rates means we can borrow more – Simple! In the Economy: What do low rates lead to? Price rises Inflation – More money, more being spent, increase in prices of goods When money is printed at high rates, with no domestic and/or international demand for that currency to suck it up, the result is Hyperinflation (real devaluation) Asset bubbles - Transfer of assets Artificially higher overall asset values (e.g. property) Low rates lead to an artificial share market rise Valuation of shares is based off the risk-free rate – Bonds and long term cash rates When rates go up, shares go down – Free cash flows Currency When domestic rates are high compared to those of other countries, it attracts foreign investment – Back in 2012 – High rates, high demand on the currency, high AUD They don't determine fully, but play a role Savings: Where is the incentive to save? If you can only earn 2% interest on your cash savings, and inflation is at 2%, then why bother saving? Increase of money supply = Banks lend more = Increase money (our last episode). Cheap money = Increase in credit = No savings If you could earn 10% interest on your savings you'd likely save more because your money is working for you, as opposed to going backwards. Savings (deposits) can then be loaned out rather than the Reserve Bank printing money to prop up lending (Deposits at banks being the cash reserves) Savings are declining: Back in the 1980's savings were about 20% of disposable income 0% in 2002 At the end of 2009, this increased to about 14-15% However now we're back down to close to 2% There's no savings and people are putting their lives on credit Only way to increase the supply of savings is to increase rates Need to increase supply through higher rates incentivising people to save Let's take a look at what happens in very low interest rate environments. A good example is Japan, and their current zombie economy; Late 1980s – Japan went through massive growth periods, but it was a bubble. There was a tripling of land prices and stock market prices during the prosperous 1980's. Post-WW2 they were one of the most productive economies in the world. The Bubble burst around 1991 Liquidity Trap A situation in which monetary policy is unable to lower nominal interest rates because these are already close to zero, and there is no control in this way to stimulate the economy. Therefore, you can't stimulate the economy and you can't drop rates further Negative interest rates mean it actually costs money to keep your savings in the bank Interest rate has remained below 1% since 1994 The financial institutions: They have been bailed out through capital infusions from the government, loans and cheap credit from the central bank (we have talked about this time and time again) This postpones the recognition of losses, ultimately turning them into 'Zombie' Banks Zombie Banks are essentially dead – no real asset value – very, very, low economic growth When low growth occurs, there are lower tax revenues for the government, which is a problem because they have debts! For example, government bonds (which are just debt instruments). These are bought by the RBA, banks, other countries, or by individual people. One solution is to raise taxes to try and pay back Gov Debt Stimulus leads

Welcome to Say What Wednesdays – Where we answer your questions about personal finance and the economy! This week's question comes from Michael. His question related to interest rates, and to not give away his details I'll paraphrase: "With interest rates at the moment being currently fairly low on my personal home, do you think it is a good time to lock in a fixed rate, or should I keep it variable? I can't give a yes or no answer on this one without knowing more about your personal situation, but can speak generally. To answer this, we will run through three players in the game; RBA Cash rate Interest rates of the banks Deposit rates of the banks All three of these are related RBA cash rate is the core, which then leads on to what banks lend out at, and then also what they offer on deposits placed with the bank. RBA Cash rate – what the RBA set as monetary policy through OMO and the supply of money We have been talking about this in recent Furious Friday episodes. We are coming up to 2 years of having the RBA cash rate at 1.5% - Aug 2016 has been on hold since While 1.5 per cent is historically low, is it helping? Unemployment is not falling at the anticipated rate. Inflation is below the [RBA's] target range and has been for three years Wages growth is at record lows Economic benchmarks to start a cycle of rate rises are straight forward. Annual GDP growth above 3.25 per cent, the unemployment rate falling to at least 5 per cent, wages growth lifting to 3 per cent and beyond underlying inflation increasing to 2.5 per cent. We're not ticking any boxes – and this is a bit of an issue for the RBA Bank interest rates These are related to the RBA cash rate, but can move out of 'cycle' The do follow one another, but the banking deposit rates are what the cost is for lending The two go hand in hand - Banks use deposits to lend (went through this in last Friday's episode) Big Four Deposit rates ANZ Deposits: 12m - 2.3%, 24m - 2.6%, 36m - 2.5% Lending: 36m 4.14% CBA Deposits: 12m - 2.2%, 24m - 2.6%, 36m - 2.4% Lending: 24m – 4.04% NAB Deposits: 12m - 2.4%, 24m - 2.6%, 36m - 2.7% Lending: 1 year - 3.89%, 36m - 3.94%, 5 years - 4.09% WBC Deposits: 12m - 2.3%, 24m - 2.4%, 36m - 2.5% Investment and interest only rates – March banks dropped these by 0.3% to 0.5% on average. What this means: Anticipation for rates going up isn't high If lending rates were high in 3-5 years, the anticipation from the banks would be that rates are going back up The bank isn't going to lose out on money here RBA Rate indicator – this keeps sliding further and further into the future Has been for the past 12 months: Shows steady for 12 months, then slight change of increase All the way through to end of 2019 – 50/50 chance of raise to 1.75% The signs: GDP – better growth but still below long-term trend Retail sales – May be going backwards But…this isn't the whole story: Interbank credit spreads are a powerful leading indicator of where mortgage rates are heading. Spread: Difference between banks offer of their borrowing vs lending out money Interbank spreads are getting wider, so mortgages rates may go up. But competition between lenders is high, so this keeps them honest. Other option: They might to decrease the deposit rates The take away: Getting back to the question of 'locking in rate now' Locking in a whole loan on fixed interest can be risky Breaking costs – Rates go down then you are stuck Limits debt repayment options While rates are low there is the chance to pay debt back Doesn't have much of a benefit now, as rates are low i.e. you save more paying debt off when rates are high If you are worried: Look at what you can afford to pay back in a time frame: Potentially lock in a portion at a lower rate But make sure it has a 3 in the front of it! (Or, at least, a very low 4% range) All indicators show that there is unlikely to be a raise Nab has 3 years for sub 4% - this is in line with variable rates – Shows low anticipation of raise in rates

Alternative investments and what they can mean for property and the economy Classical Car Index The CommSec Luxury Vehicles Index lists the following as luxury vehicle makers: Audi, Aston Martin, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, Maserati, Maybach, Mercedes-Benz, Morgan, McLaren, Porsche and Rolls Royce Wine index – Liquid assets Art or Luxury Property Characteristics Almost like an asset backed security - No income, gains come from the increase in price of the good that backs it Capital growth focused rather than income Pretty volatile – Based around demands Luxury Investment Index Subjective pricing – Good example of 'elastic' and 'inelastic' demand Imagine Demand supply cure Demand slopes down, supply up Demand – very vertical = Inelastic (remember through I being vertical) Inelastic – necessities, price changes don't affect demand Elastic – horizontal – responsive to changes in demand, change in price, due to close substitutes Financial crisis – luxury declines – elastic good Small change in quantity demanded, big change in price So... what does this have to do with property? In economics no relationship is perfect - but they can be related. Lead-lag relationship Historically: slowdown in sales of luxury vehicles = a slowdown of upper-end property prices. This infiltrates the broader market. Luxury vehicle sales are still good - growth of sales is coming down from high levels All about consumer confidence Confidence is demand: more confidence, more demand This is why there is a relationship in most assets that work off supply and demand – Types of assets that are risky = Drop when confidence drops People sell so the price drops Confidence (demanded) affected by many factors, a few factors: Affordability – Wage growth Plus, low inflation – 3% wage growth with 0% inflation better than 12% with 15% Car affordability has never been better – Lower car costs, wages increasing Anticipated environment – Prices continue to go up Confidence – Self-fulfilling prophecy – If people think that the economy is doomed, they run! Components of the index – Micro and Macro Estimates of family finances compared with a year ago – up from 12.9 to 15.2 Looking back – own personal finances Estimates on family finances over the next year – down from 29.3 to 29.00 Looking forward Economic conditions over the next 12 months – up from 13.7 to 15.3 Economic conditions over the next 5 years – down from 15.2 to 14.6 Good time to buy a major household item – rose from 38.6 to 43.3 The current state ANZ - Consumer sentiment – Rose 1.2% to 123.5 – Highest in 4 years (long run average = 112.9) WBC – Consumer confidence – Rose 3.9% to 106 What will impact the future confidence and overall economy Wage growth – 2% wage growth required some adjustment after years of 3-4% per cent annual wage growth. But more people are realising that prices are growing at a slower rate than wages or are even going backward. Affordability – interest rates – Current borrowing to finance expensive goods is low External factors – market crashes in shares/business Individual demand dried up Leads to companies not earning as much (people are buying) Leads to companies having to cut costs (affects supply potentially) Leads to further demand drying up as people lose jobs Incomes go down (or are expected to) All of it has a similar pattern and is a chain of events. Everything working together leads to an increase Everything working against one another out of fear leads to an inevitable decrease The take away Not designed to profit off – relationships aren't perfect Correlation doesn't equal causation! When luxury car sales are in retreat – higher probability that home prices aren't far behind. This episode was to give a better understanding about how the economy works Economy is a collective of millions of people Bacteria – Growth Microcosm where one good can show a trend for the overall health of the economy Thanks for listening!

Welcome – Last Friday we looked at the stock market crashes of 1907 and 2008 Difference between them was the crash of 1907 had no intervention by any central bank in the USA – because no central bank actually existed yet. But this crash lead to the creation of the US Central Bank (Federal Reserve). This made way for the intervention by central banks in 2008 to try to advert more of the crisis in the banking sector than what was experienced in the past. So, today we will be talking about Central Banks, and more importantly, the interventions they take in the economy. Why? Some economists put banking crisis (estimated around 100) at the feet of Central Banks and not banks. Let's look at if it is the case or not: Central banks – responsible for monetary policy Monetary Policy: (Central Banks) Money supply, interest rates and inflation Fiscal policy: (Government) Govt. spending and taxes Every country has one, but not many people know what they do! Almost like a brain, everyone has one, but few know how it actually works. Continuing with analogies of human body parts – If an economy was a human body Central bank – Heart – Pumps money into the economy to help it flow and stay healthy, and keep growing Commercial banks – The veins – what spreads the money around This is the circulation of money! And the role and function of the two! Monetary policy - Why the Quantity of Money Matters The quantity of money circulating in an economy affects both micro and macroeconomic trends. micro level - more personal spending - Individuals also have an easier time getting loans macroeconomic level - affects GDP, interest rates, and unemployment rates. Maintain price stability (Inflation of 2-3%), exchange rate, employment & Economic prosperity What is involved with monetary policy Print More Money Money is no longer pegged to anything – Like in the gold standard – since 1971 USA: 1950s to 2008 – Hundreds of mil to $1trn, 2008 to now $4trn. It basically quadrupled in 10 years. Central banks can increase the amount of money in circulation by simply printing it. More money printed = less valuable due to inflation Influence Interest Rates cannot directly set interest rates for loans (mortgages, personal loans) the central bank holds the key to the policy rate—this is the rate at which commercial banks get to borrow from the central bank banks borrow from the central bank at a lower rate - pass savings on by reducing the cost of loans Lower interest rates tend to increase borrowing – increase quantity of money in circulation Engage in Open Market Operations (OMO) The reserve bank affects the quantity of money in circulation by buying government securities from (or selling to) banks - called OMO Increase quantity of money - purchases government securities from commercial banks and institutions. frees up bank assets—they now have more cash to loan. Set the Reserve Requirement Sets how much banks can keep in reserve versus lend out more money circulating - reduce the reserve requirement. bank can lend out more money. How this works – Very simple example Bank A - Suppose a person in another country sends $1,000 and they deposit it into the bank. This becomes a NEW deposit for the bank (a PRIMARY deposit). The bank will now Keep their desired target reserve ratio (10.5%) – Covers consumers' cash demands Lend the rest out to borrowers – Bank A lends $895 (keeps $105) This $895 will hit another bank at some point Spent on a mortgage off someone else, who puts that $895 in their bank That bank can lend $801 of the $895 (retaining the 10.5%) The process goes on and on Technically doesn't create money out of thin air – The loans are assets for the banks This is called the Deposit creation multiplier If nobody keeps cash under the mattress: 10.5% per $1,000 = $9,524 (approx.) Slippage or currency drain: 5% + 10.5% = $6,450 (approx.) But is this the truth? Professor Werner - Chair of International Banking at the University of Southampton - bring attention to the fact that banks loan money into existence Campaigns to get rid of cash - Indiaand Australia to get rid of cash are coordinated attempts by central bankers to monopolise money creation. Professor Werner: the death of cash and the rise of central bank - controlled digital currency. This will further centralise what he describes as the "already excessive and unaccountable powers" of centrals banks, which he argues has been responsible for the bulk of the more than 100 banking crises and boom-bust cycles in the past half-century. Werner says: "To appear active reformers, they will push the agenda to get rid of bank credit creation. This suits them anyway - the central banks want to be the sole issuers of money." "This sudden global talk by the usual suspects about the 'need to get rid of cash', ostensibly to fight tax evasion etc, has been so coordinated that it cannot but be part of another plan by central bankers" he says. Why does this change in policy matter? Australian economists, Stev

This week's question is, 'do I need a family trust?'. I have had a few questions about this over the past weeks, however in order to avoid making this 'personal advice', I thought I'd just talk about it in more general terms. What is a family trust? Family Trust refers to a Discretionary Trust set up to hold a family's assets or to conduct a family business Established by a family member for the benefit of members of the 'family group' Established to hold assets for mainly two reasons: asset protection or tax purposes (will come back to this) The Trust Settlor - settlor executes the trust deed and then, generally, has no further involvement in the trust Appointor – Has the power to add or remove trustees (controlling power) Trustee Role – the trustee is responsible for the trust and its assets broad powers to conduct the trust and manage its assets Types Individual – Can be mum and dad for instance, in a family situation Corporate – Company acting as trustee – Directors Additional layer of protection and flexibility Beneficiaries Named (Primary) – receives the benefits Secondary – Spouse, de facto, children (generally family members) Company – Corporate beneficiary How a trust works Assets are owned by the trustees, held in the trust A separate environment, even if transferring from individual to same individual as a trustee, it's still a transfer of ownership Types of assets Shares Franking credits received by beneficiaries Property in trusts Loss of negative gearing, unless income can fully offset Property taxes Trust income - Distributions All distributions must be made only to people who qualify under the terms of the trust deed to be beneficiaries of the trust. Distributions are not payments! - completed on tax returns but don't actually have to be physically paid out Forms part of a beneficiary's assessable income - taxed at personal marginal tax rate Trust does not have to pay income tax on income that is distributed to the beneficiaries Trust pays tax on undistributed income Where distributions go wrong If a family trust makes a family trust election and then pays out to someone not a member of the family group, they will be taxed at the maximum rate possible Undistributed income is taxed in the hands of the trustee at the top marginal tax rate of 45% Penalty tax rates can apply to distributions made to minors Benefits Flexibility – Tax planning favourable taxation treatment by ensuring all family members use their income tax "tax-free thresholds' Capital gains tax can be distributed – split between beneficiaries Asset protection protecting the family group's assets from the liabilities of one or more of the family members (for instance, in the event of a family member's bankruptcy or insolvency) Estate planning provides a mechanism to pass family assets to future generations Trust life of 80 years Helps avoid challenges to the will following a death of a senior member of the family Situations where it will work Wanting to invest and accumulate wealth OR, own a business Asset protection – Are you in a situation you will be sued Taxation planning – Will you have people to distribute to? What is important for a trust – Long term Planning! Transferring owned assets in has problems CGT – The transfer of assets from your own name into a trust is a sale Stamp Duty (For property) – The trust would need to technically buy the property off you Thanks for listening…if you have a question or want to provide any feedback, go to https://financeandfury.com.au/contact/

Though banks bear much of the blame for previous financial crises, ordinary investors play a more central role than most people realise… …through greed, and fear. Ironically, it is likely to occur through a vehicle which has been created with just that in mind – exchange-traded funds, or ETFs Listed funds are passive by nature, designed to track the performance of an index of stocks, bonds, currencies or commodities, rather than to pick and choose among individual companies. The ETFs are very popular; The simplicity and low costs But they could be a time bomb for global markets. Australia – Only listed in Australia in 2009, when it was cheap to buy shares (after the GFC) The popularity of ETFs has soared in the past decade. Passively managed have nearly doubled = 40 per cent of Funds under management (in America) Vanguard alone owns a position greater than 5 per cent in 491 of the stocks on the S&P 500, adding up to nearly 7 per cent of the index's total market cap. Japan, where the central bank owns big stakes in ETFs, passive investors hold over half of all share market assets. It's easy to see why such funds have thrived. ETFs, invested in indices that are theoretically diversified, have consistently outperformed active managers. There are more fund managers than shares because there are a limited number of shares. Their simplicity is appealing to lay investors, who can focus on broad asset-allocation strategies rather than guessing at individual winners and losers. Hidden risks ETFs, however, are riskier than many investors appreciate. With cap-weighted indices - funds have no choice but to load up on shares that are already overweight (and often pricey) and neglect those already underweight. As prices rise, investors may become overexposed to a few large shares That's the opposite of "buy low, sell high." ASX 300 ETF - $12.5 Bn – One fund is 1% of Aus market cap ASX 300 - Market cap of $1.5 trillion Commonwealth Bank of Australia BHP Billiton Westpac Banking Corp. CSL Ltd. Australia & New Zealand Banking Group Ltd. National Australia Bank Ltd. Wesfarmers Ltd. Woolworths Group Ltd. Macquarie Group Ltd. Rio Tinto The top 10 holdings represent 42.8% of the total ETF. ETFs can replicate indices in complicated ways. Rather than purchasing all the assets consistent with index weights, some funds use a sub-set, thus exposing investors to tracking error. ETFs must be fully invested and therefore hold minimal cash, which could limit flexibility in a downturn. The rules governing indices can be changed, sometimes arbitrarily. ETFs – by their design and their sheer size – ETFs encourage concentration in a few liquid, large-cap stocks, creating homogenous and momentum-following markets. To have low costs: ETFs to emphasise scale, further exacerbating concentration to the top heavy in the ASX Risk of bubbles Markets become susceptible to flows from a few, large, passive products. Artificial factors, such as inclusion or exclusion from an index, forces buying and selling; this can lead to misallocations of capital. In the current equity cycle, for instance, over-weighted, liquid, large-cap stocks have benefited disproportionately from forced buying. This increases the risk of bubbles, as in 2000 with the dot-com crash. ETFs may even distort valuations outright. They don't analyse prices, meaning that they don't contribute to price discovery. They weaken corporate activism, as passive owners have little interest in corporate governance. ETFs increase volatility and shrink liquidity. Passive funds exhibit significantly higher intraday trades and daily volatility, driven by arbitrage activity between ETFs and the underlying stocks. With ETFs increasingly important as the marginal buyers and sellers of securities, this may increase volatility in periods of instability. From passive to panic Index funds lock up a large percentage of shares that can only be traded on changes in market capitalisation or other index metrics. Number of shares available to trade may be a lot smaller than investors realise. Especially when dealing with small-cap shares, liquidity will be lower on these assets If a crisis does arise, this is likely to exacerbate the downturn. ETFs will have to sell quickly what they've disproportionately bought; Passive indexers may become panic sellers. But they may have trouble finding anyone willing to purchase the holdings they're trying to liquidate. Example: Imagine that an investor in an ETF with, say, a 10 per cent stake is forced to sell a large part its holding in a single day, such as an industry fund If there are no ready buyers for such a large holding, causing the ETF to fall to a price below the value of the assets it owns. This price impact may be exaggerated, as ETF activity intensifies both upswings and downswings. Crashes, when they happen, may be bigger. Take advantage How resilient you will be when conditions change. Untested structures have revealed hidden weaknesses which have threatened

This week we continue with where we left off last week's episode - is it the Banks, or Government Regulation and interference, that causes financial crashes. Let's take a look back on America and their financial crashes through history 1873 – 1907 – Financial panic was common 1983 a bank panic triggered worst depression US had seen – Stabilised after J.P. Morgan stepped in – P. Morgan – The monopoly man, founder of J.P. Morgan Bank Speculation that J.P. Morgan caused this through spreading rumours 1907 – Speculation on wall street ended in failure – bank panic History: speculation that went awry - "stock operators" borrowed huge sums of money to finance an effort to manipulate a stock price In October 1907 - Mercantile National Bank attempted to corner the market of a copper mining stock. The operation failed, and the stock, which reached a price of 60 during the attempted corner, almost immediately collapsed to 10. Mercantile National Bank, was feared by the public to be bankrupt. The bank was still solvent, but in banking, perception can become reality, and as depositors pulled their money out, Mercantile needed an emergency loan to stay alive. The prospect of a small bank failure shouldn't have been more than a blip on the economic radar. But, there was no central bank to act as a lender of last resort, and no deposit insurance, which would have calmed the nervous savings account holders The next victim: failure of the Knickerbocker Trust company in New York Drained cash reserves from the financial system and created a shortage of liquidity all over the city and, eventually, in the broader economy. Businesses couldn't use credit to pay for inventory, cash wasn't available to pay workers, farmers couldn't sell their crops, and the economy entered a recession. The Cabal - A group of bankers, led by J.P. Morgan himself, They went over the Knickerbocker's books to determine whether or not it should be saved or not. In the end, the bankers, who were essentially acting as a central bank of sorts, decided to let the Knickerbocker go down (technically, the trust didn't fail, it just closed its doors for six months and locked out depositors; but practically speaking, it was bankrupt). This failure sparked massive fear all around New York Morgan and his cohorts quickly reversed course by extending a lifeline to The Trust Company of America and a few other major financial institutions in the city. But just like in 2008, the bailouts didn't stop the crisis from spreading. Depositors continued to ask for their cash back, and the banking reserves of the entire financial system rapidly evaporated. 48% of the deposits left New York trusts and found safety in mattresses and dresser drawers. It meant that businesses didn't have enough cash to finance their operations or pay their workers, and many had to close their doors and halt production lines. The share market plummeted 40%. The Panic of 1907 and the crisis that occurred 101 years later in 2008 were remarkably similar. Mercantile National Bank failure was like Bear Stearns - it was the first domino, but on its own it should have been manageable. But the Knickerbocker - just like Lehman in September 2008 - was the catalyst that accelerated the crisis and nearly brought down the financial system. In both instances, the men in charge (Morgan and his syndicate in 1907; Bernanke and Paulson in 2008) decided against saving what turned out to be a systemically important bank. And in both cases, this decision led to panic, crashing stock prices, and additional bank runs. Everyone wanted their cash in hand. Both bank failures also caused the decision makers in each case to reverse course and save other teetering institutions - in 1907, Morgan saved the Trust Company of America, and in 2008, the US government saved AIG The practical takeaway - asset prices can be impacted by sheer emotion and herd behaviour The greatest investors are usually the ones who capitalize on such panic Morgan was making loans and buying banks for cheap when no one else was in 1907 Buffett (and JP Morgan Bank) were providing capital and buying stocks 2008 The factors that are the same in financial crisis Fear and panic Depositors around New York City wondered if their own deposits were safe It was a classic run on the bank - fear begets fear, and everyone wanted their cash back at once Run on the bank created further panic, people demanded cash above any other asset, liquidity dried up, causing businesses that relied on credit to suffer Liquidity Banks have 30% of funding from short term liquidity 60% from Deposits The Aftermath - The More Things Change, The More They Stay The Same… The general result of every crisis is always the same: finger pointing…but then… The remedy is new legislation and increased regulation - all designed to prevent the next crisis. The merits of this is debated, but the common denominators are in human behaviours Given the fact that human nature doesn't change, the next cris

Why has Telstra tanked? For so long, Telstra has been a Market Darling … a great dividend-paying share, almost like the world's best term deposit…but what has happened? They are out of favour with investors for the past 3 (or so) years… What has gone wrong: Telstra has warned investors to brace for a profit level at the lower end of its guidance range, but remains committed to a 22-cent total dividend payment. Telstra has blamed "challenging trading conditions" for a pre-tax and interest profit that is now expected to come in at the bottom end of a previously stated $10.1-$10.6 billion range. CEOs and price - History: Ziggy Switkowski – 1999 to 2004 – Oversaw the transition from government sector to privately owned, started in 1997. Went from $9 to $5. Sol Trujilo – 1/7/05 Went from $5 to $3.5 in his first year Back to $4.8 the next year, then down to $4.2 the next year Just before he left - $3 David Thoedy – May 2009 From a price of $3, it went to around $2.50 18 months later (at a low), but from there it rose to $6.50 at the start of 2015 – 5 years of positive gains Andy Penn – April 2015 Dropped from $6.60 to $2.70 2016 Aug – momentum has been on the oversold side Sentiment Competition - last 12 months alone - facing a fourth network operator entrant in mobile, an increasing number of MVNOs [mobile virtual network operators — basically companies that provide services through another telco's network] NBN – The Delays are having a negative effect on expected earnings Aggressively cut costs, with "core fixed costs" expected to decline around 7 per cent this financial year, with about $300 million in restructuring costs. Telstra is ramping up its capital spending on new technology, especially its 5G mobile rollout – 2016 – Announced $3bn in capex (capital expenditure) Fines - $10m of fines, but that is nothing Outages – Few outages nationally in the past few months Financial metrics were near the bottom end of targets Revenue expected to be around the middle of the $27.6-$29.5 billion range Free cash flow near the top, or even above, its $4.2-4.7 billion guidance. Big one: The decrease of dividends Raised Dividends, then cut by 30%! Earnings per share (EPS): Average about 32c per share for 10 years 2018: 29.3 EPS, 22 dividends per share (DPS) – 75% dividend payout ratio (DPR) 2019 – 27.5 EPS, 18.3 DPS – 66% DPR 2020 – 25 EPS, 22 DPS – 88% DPR History has been about 90% DPR The fundamentals Price/earnings ratio (PE ratio) – 8.99 – But what is the future earnings versus current prices? 2019 – 9.8 PE 2020 – 10.8 PE Yield – 10.1% plus FCs Income Coverage 8.96, Debt/Equity – 118.9% Financials – We are back to revenues of 2011 How much of the price is moved by fundamentals – very little! It's really our response to the drop in dividend payments which has created such a massive decline in the price itself. Telstra are in and out of favour with the market Is it overhyped? They need to turn themselves around in terms of management decisions go, because their success lays in what they are spending the capital expenditure on They are a decent term deposit – Though the price could go down more Will it ever grow again? Competition – Telstra still have a pretty decent market share and are semi protected through regulations

Welcome to Finance and Fury Welcome to the New Financial year – looking back on the year, are you in a better or worse financial position than you were this time last year? Today's episode we'll be looking at how to be in a better financial position this time next year. Ways to get ahead in your finances The compounding effects of the little changes in behaviour and things you do everyday What does a "better position" actually look like? In general terms – there are categories we can look at Build wealth – start investing Reduce tax Save money Increase income – Salary, investments Hard to generalise with these broad goals: That is where having predefined, specific goals comes in What are your goals? "New Year's Resolutions" Not many people stick to new year goals – Why? There can be too many. Normally people think this is good, to have a lot of goals But if these are similar to last year and you didn't make it, why might that be? Hard to go from 0 to 100 overnight – Inertia – something continues in its existing state (rest or in motion) unless it is changed by external force Hard to start a train and get it to top speed – takes a while. This is similar to investment or a personal finance strategy Example: say you have 10 goals – all new things that you're trying to implement, maybe its investing in shares, reducing tax, buying a property, generating $50k of income in 5 years from investments, etc. …but, where do you start? And how? Information overload sets in and you go back to your old ways pretty quickly – It is safe and easy Finding "motivation" is rubbish What people search for is a moment of inspiration to get the ball rolling It never comes – Why? Motivation comes from a positive feedback loop – do something good, dopamine is released in the brain, you then want to do this again Think about it, you don't need to find motivation to indulge in anything Part of the problem is that bad things compound as well What you can do to get ahead now How do you motivate yourself to invest? Motivation is a lie, there will always be something better to spend your money on than your future security and financial independence. How to start? Sometimes there can be too many things to change at once Start small – pick one thing What is ONE financial behaviour you would change? Small action = dopamine = larger actions. The best way to get over slumps – a little momentum to start and it takes off. Once you get enough of a craving for the feeling of saving/investing, it is hard to stop Remember: Almost impossible to go from 0 to 100 – like the train, it starts off slowly, but then don't get in its way once it's going. My personal habits: Wanted to share the things I have done to help for 14 years now – it didn't happen overnight Chipped away – little things over time – Easy and sustainable way From about age 16 I wanted to be able to save $10,000 p.a. to invest Living at home and working at a pizza shop while at school this was fairly easy Minimum wage of $14 per hour at 14 hours a week Went to uni – it got a bit harder to save that much Studying engineering at the time before changing to Economics and Commerce, playing rugby with UQ – 3 training sessions a week and most of the day Saturdays – Lost time working, plus weekly physio visits Tearing my knee for the 3rd time – Gave it up, started working more, labouring as well When working: was earning much more full time in financial services – I upped the saving target to $25,000. I needed to change some habits to increase this. Preparing lunches for work - $20 for meat, $3 sauerkraut, $3 on feta, $5 on avo, olives and nuts $30 per week, versus $75 ($15 min per day) – Save $45 per week How it got there? Took a plan What was something I could eat – every day? Would it save money and time? Total time – 2 hours to prepare per week – But I eat at my desk, 30 mins a day for lunch = 3.5 hours per week Salary Sacrifice into super - $100 per week since 2011 Save for long term - Invest $85 instead of $65 per week after tax. Hitting Saving targets each year but reinvesting the income That grew over the years - compounding returns when income reinvested That is the process to improvement – one small thing at a time. Financial habits are built through the positive feedback of cue, action, reward. These decisions years ago have improved my position now. That is the relationship with good habits – Keep improving slowly over time Pareto distribution – 80/20 rule. 20% who have 80%, they have been able to grow good habits, compounding effects It is as simple as investing and waiting - $20k today would be $80k in 14 years at 10% The past determines your present – all actions Your future is determined by your actions from now up until that point You can negotiate with your long term, or "future-self" Bank hostage negotiation – But it is all inside your head– The desired outcome is hostages survive, bad guys give up and that you don't lose money You don't want to have the future outcome with no

Welcome to Finance and Fury, the Furious Friday edition! Today's misunderstanding is about the "Too big to fail" myth. I want to tell you a story. It's probably a relatively unheard-of story… of our "Big 4" banks and their recent history. The whole point of this is to answer: Are financial collapses created by too many regulations, or not enough? The answer seems to be that more regulation is the only way to solve future financial crashes and any financial collapse has had some form of regulation come out of it as a result. But, the aim of this episode is to see if this has helped or hurt the economy and the banks overall Warning: The banking system is pretty complicated, so there's some points in this episode that might be pretty in depth. But that seems to be the whole point of the financial system: Make it so complicated not many people know what is going on. I have tried to make this as simple as possible so hopefully it isn't a bore. In this episode: What we will go through Banking sector: Vertical integration – One single company controls several others along the supply chain = profits come from different activities in different areas Look at history repeating itself – Comparing Australia to the US between 1999 and 2008 What really lead to the GFC, and how we may be blindly following the same path The big 4 banks - market share of the economy – the effects on the Stock Exchange and the population Timeline: How did we get where we are now? Banks listed: early 80s to 91 for CBA - No guarantee on deposits at that point APRA Australian Prudential Regulation Authority – Regulation for Banks - has only been around since 1998 Before this: The riskier banks wanted to be, the higher the interest rate they would need to offer Under tighter regulations, risky banks had to comply to less risky standards Goodbye risk premium on interest Regulations continued as normal for a while, until financial crisis: We had a scare in 2008 – during the GFC banks stopped lending to one another for short term funding for their expenses Banks who can't operate shut doors. Lehman Brothers for instance Bank runs – Great depression in the US 4,000 banks closed from 1929 to 1933 US banks started doing 'bailouts' – In essence, printing money to buy Mortgage Backed Securities off the banks (we'll come back to this) Fearing a bank run in Australia - October 2008, right at the peak of the GFC, the Australian government decided to guarantee bank deposits This is new-Australian Deposit Insurance – Guaranteed for the public (ironically by the public as well) History has shown Government can't risk the market effects of wiping out people's bank deposits – especially when voters money was on the line A guarantee helps to calm the public – if a policy says the money is secure it must be! The Financial Claims Scheme (FCS) was created - emergency measure to secure the banking system. Who is eligible: Authorised Deposit-taking Institutions (ADIs) - bank, building society or credit union. This means that this money is guaranteed if anything happens to the ADI. It applies to all ADIs incorporated in Australia, including Australian-owned banks, foreign subsidiary banks, building societies and credit unions. ADIs insured for up to $1m Feb 2012 – Dropped to $250,000 Sounds good right? Nice and safe! Safety has a dark side – It isn't really safety for us, but the Banks! Removes incentives for depositors to review a bank before depositing – Onus is taken off us Some banks could offer higher returns, if riskier. But with this it is all the same – almost zero risk – removed risk premium on interest What behaviours it incentivises Increased risk Insurance creates moral hazard – Insurance to cover risky actions Maximise profits as the risks are covered for the most part It really provides safety to banks, and they can increase their risks – like giving a gambler a guarantee on his losses if he made a risky bet? Increased incentives to maximise profits But where from? Derivatives, asset backed securities and covered bonds – these can be risky Massive spike since 2011 of bank profits coming in the form of derivatives Derivatives: Complex financial bits of magic The options – Forward & Future Contracts, swaps, etc. Locking in rates now for the future Asset Backed Securities – Investment with an underlying asset - MBS – CBA: in one security - $2.65bn in mostly AAA rated Covered Bonds – Change in regulation in 2011 = AAA rated bonds issued Debt instruments covered by mortgages Sitting at over $80bn in value since 2011 One difference is issuer covers bonds if they default, not on securities though What stops this all going wrong: APRA has to overregulate in response – Strong regulatory intervention through the (APRA). Australia has strong regulation but even the best regulation can be gamed. They have to be closely monitored by APRA – But banks are still incentivised to take on more risk Derivatives are held 'off the books' and very hard to regulate NAB and CBA s

Welcome to Finance and Fury, "Say what Wednesday" Where we answer questions about the world of personal finance. This week, the question isn't from a listener but a common one recently from people I have been meeting with. Best strategy for surplus cash: to reduce debt or use it to build wealth? Why is it important to ask this first? Finite resources – economic problem Wants and Needs – We have a lot of them Physical things Experiences like travel or going out Resources – A lot of things cost money – Which is typically more limited than our imagination Balancing act – Use what you have to get where you want to be Budget and Cashflow – What is left after everything is paid for? Things that reduce your cashflow Taxes – Decreases what you have left Lifestyle costs Debt – Mortgage What is spent on each, versus what is important Now versus future needs – Your now needs will seem more important Uses of disposable income – A hard decision Factors that should help to determine: Stage of life and the timeline Priority The options of cashflow Reduce debt – More defensive Build wealth – More expansive Breaking down the options for each Types of debt Bad – Something against a non-investment asset which doesn't generate an income Good – Is it against something increasing in value, and can I claim the expenses? Yes to both = Good debt which is a form of building wealth Build wealth – Investments Monthly investments Salary sacrifice - Super Using leverage = More debt What to focus your cash flow on Goals How long until debt has to be paid off Savings Good – Pay down in time to retire, but wait until the last minute to start Bad – Pay down ASAP, but not at the expense of investments Investment – What are the income needs in retirement? Hard to work out: Rough guideline – Rule of 20: $X amount of passive income multiplied by 20 Multiply this number by 1 plus the inflation rate to the power of the number of years until retirement How long do you have? Great to start early. Answering the question: Should I pay down debt or invest it? Ask yourself if it is debt or investment as the priority to reach your financial goals? Am I on track to retire with enough invested? Yes – Means you have enough to cover what you will need No – You may need to focus on investments more Look at the timeframes you have to work within Do you have bad debt? Yes, will it be paid off before retirement? Do you need to pay this off quicker? How much, and by when? If it is good debt, will the investment be able to pay for itself before retirement? Or, will the income be needed to provide a passive income? i.e. used to live Putting it all together: Rules of thumb. Remember, this is not advice, but just some guidelines: Bad debt is always bad. Good debt declines in value the closer you are to retirement. But if used correctly, can decrease the time until retirement. Example: Person with $520,000 mortgage, just bought first place so they have a 30 year time horizon Long term rates of 7%, repayments of $3,462 p.m Option 1: Pay $20,000 onto a loan, or invest the money – 30 years Loan – rate of 7% long term rate and P&I, versus lower rate 7%: 30 years would save you $123,301 in interest and 3 years – If you kept your repayments the same 5%: 30 years would save you $63,787 in interest and same 3 years – If you kept your repayments the same Option 2: Investment – Put $20,000 into portfolio, getting 8% p.a. for 30 years 30 years would be around $186k to $200k invested. Taxes on investment income – Return: 4% Income + 4% growth, income will be taxed. Either fund through cash flow Or use investment income to pay for What's even better? Pay down the loan and redraw the funds as separate investment loan. Convert debt to good debt. – Debt recycling that we have covered Have best of both situations – Have investment, and while paying interest it is deductible. You would have the $200,000 in investments and pay the loan with $123,301 of deductible interest along the way. Depending on MTR: lowest marginal tax rate: $25,893 to $57,950 at the top. Summary – Remember this isn't advice, just things to think about: Should you pay debt or invest your cash? Long time – Invest but not at expense of Bad debt costing too much Short time – Bad debt, then invest or pay down good debt, or both.

Welcome! This week we will be talking about Estonia, which sits right on the Russian border, just below Finland. Anyone can become an e-resident in Estonia, create a company and operate it in the EU. Digital identity is probably the most significant legal and commercial and political concept we have in today's world Estonia is a very Digital Society - government services are provided online, including e-health, e-school, e-tax and e-voting. We will be focusing on Estonian e-Residency – As anyone in the world can become one Estonian e-Residency You receive a government-issued smart ID card that provides digital identification and authorisation. you can digitally sign important documents, access secure services, and make secure transactions - even if you don't live in Estonia. E-residency does not grant citizenship rights or function as a travel document, but: as an e-Resident, you'll be able to Establish and run a company online Conduct your banking online e.g. make electronic bank transfers Have access to international payment service providers Digitally sign documents (annual reports, contracts) within the company as well as with external partners Verify the authenticity of signed documents Encrypt and transmit documents securely Declare taxes online The purpose e-Residency program makes life and business significantly easier for freelancers, digital nomads, business owners, international partners, and any other non-resident who has a relation to Estonia. Great if you want to start a business, expand your business, make investments, or study in the European Union For e-Residents who have established Estonian companies, it is important to note that there is a difference between personal tax obligations and corporate tax obligations. Tax system You need to pay tax in accordance with tax legislation in Estonia (and Australia sadly) Individual – Property, income, benefits are all taxable at different rules, but there is a flat 20% tax on individual income. Double Taxation Agreement – Avoids paying tax in both, only pay in one – We don't have one with Estonia so there would be double taxation Only bad part is that we don't have a DTA with Estonia otherwise we would be able to keep funds invested in the company there and pay no tax on the profits. Companies are taxed at the same rates depending on types of income An Estonian company entered into the commercial register is regarded to be Estonian tax resident. Salary are different to dividends Types of tax Corporate Income tax – Not assessed by profits, but only when profits are distributed (as dividends) Dividends: 20% tax rate on assessable payments Different rules apply for the avoidance of double taxation with regards to wages as compared to dividends. if a company is active in a foreign country (not Estonia), the other country may tax income received from there, in accordance with the rules applicable in the tax treaty instead (remember we don't have one) Possible double taxation is avoided in Estonia when distributing profits as dividends. We don't have a DTA so from what I can see it may probably be double taxed Value added tax - the supply of the goods and services which shall be taxed in Estonia and which VAT rate is 20%, 9% or 0% Social tax – Tax for social security payments Others (customs, duties, unemployment insurances, etc.) Determining the tax residency – It is murky An Estonian company registered through e-Residency is automatically tax resident in Estonia as according to the Income Tax Act a legal person is a tax resident if it is established pursuant to Estonian law. If a natural or legal person is regarded to be Estonian tax resident, it should also be taken into account whether the same person is tax resident of any other country under the law of the foreign country. In such case the tax residency in Estonia will depend upon the tax treaty between Estonia and the foreign country. Business operated online - you receive income from around the globe, your Estonian OÜ would be tax resident in Estonia. e-resident company can generally avoid double taxation if business activity is conducted abroad. If profits that are taxable abroad are paid out as dividends in Estonia, these profits might not be subject to tax in Estonia. Business operated physically in another country - your company is likely to be taxed there too. I'd strongly advise e-residents to consult a qualified tax professional in order to determine their tax obligations. Example If you work in another country and create a company in Estonia Tax rules apply to your company profits in you local country IF the company is managed by a tax resident of the home country, the company would be treated as a tax resident company in the home country Summary This is a promising sign for the future – Ease of business and ability to access lower taxable environments I see it as a competitive market of taxation If you have a monopoly operating then there is no optimal solution for consumers With tax – G

Welcome to Furious Friday… The Tax Bill has Passed…Yay! Now, let's clear up a little misconception floating around, we're going to talk about the Robocall that was made to a lot of Queenslanders. I wasn't "lucky" enough to get one of these calls, but I can just imagine it was the same voice that does all the smear campaigns. It said: "Right now, in Canberra, Pauline Hanson plans to vote with Malcolm Turnbull to give another tax cut to the top end of town. She's even giving herself a massive tax cut. But it's not too late for us to stop her. Pauline is in Canberra right now – the final vote could happen at any minute. Press one to be connected direct to Pauline Hanson's office to tell her yourself: Stop selling Queenslanders out." Questions of the day: Are these tax cuts going to the "top end of town"? And is this selling Queenslanders (and the rest of Australia as it is Federal) out? The plan is a 6-year rollout, aimed at reducing the burden on the full-time workers in Australia due to the progressive tax policy. Here's a summary of the changes, courtesy of the Parliamentary Budget Office: 1 July 2018 Increases the upper threshold for the 32.5% marginal tax rate from $87,000 to $90,000 (3-4% of Australians) Low and Middle-Income Tax Offset of up to $530 for individuals with taxable income up to $125,333 (Full $530 between $48-90k, reduces by 1.5 cents every dollar over $90k) 1 July 2022* Increases the upper threshold for the 32.5% marginal tax rate from $90,000 to $120,000 Increases the upper threshold for the 19% marginal tax rate from $37,000 to $41,000 1 July 2024 Increases the lower threshold for the 45% marginal tax rate from $180,001 to $200,001 from 1 July 2024. Removes the 37% marginal tax rate, income from $41,001 to $200,000 is taxed at a marginal rate of 32.5% from 1 July 2024. That is around 40% of Australians – Or almost every single full-time worker! Who will receive this reduction in tax? Let's look at the stats $81,531 average annual full-time earnings (Data Sourced: ABS) 5m Australians - 19 million Australians are over 15 years old 6m are employed full time 8m are employed part time 800k are unemployed (looking for work) 2m Not in labour force About 3.5m over 65 Incomes of 19m Australians of those 15+ years of age 10% - No incomes 31% (6m) between $12,000 and $30,000 – But these are likely those not in the work force or working part time 46% above $30,000 – About 8.5m, of which 6.6m are working full time 6m Australians will not have to pay the 37% tax bracket from 2022 This group makes up 85% of all tax income the government receives. The Verdict: Not much benefit for the first 4 years Small benefit to those between $50k and $90k - $530 tax offset now (4.5m Australians) By 2022 – Earning $120,000 p.a. you will have $12,220 more per annum (10% of salary) Back to the questions Is this just for the top end? Well for those lucky people who work full time it does benefit The top 30% of income tax payers who pay for 84% of the tax will get the benefits So, I guess the claims are true… but it isn't like the top 1% are the only ones getting the benefits. And they're the ones paying a higher tax rate anyway. Is it selling anyone out? Or letting people keep what they earn? When you look at it, for those not paying much tax, they don't save much, as they don't pay much They don't receive anything either, as it is a tax cut and not a handout. The real benefit: Save tax – Have more disposable income More to invest! - $3k to $12k for the average households incomes (about $120,000) Shouldn't really be more to spend but either repay bad debts or increase net wealth I hope this clears things up! Have a great weekend *Yo, I said "2020" on the podcast, but I meant "2022". Sorry!

Welcome to Finance and Fury, 'Say What Wednesdays' where each week we answer your questions. This week's question is from Sandeep: "Hi, Can you please talk about how to purchase investment property using my superannuation?" Thanks Sandeep, great question! Buying property in superannuation First you need a Self-Managed Superfund (SMSF) An SMSF is a private superannuation fund, regulated by the Australian Taxation Office (ATO) that you manage yourself. All other funds are managed by the Australian Prudential Regulation Authority (APRA) - the regulator of financial organisations (Banks and superannuation funds) SMSFs can currently have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for decisions made about the fund and have to adhere to compliance with relevant laws/ Superannuation Industry Supervision (SIS) Act When you run your own SMSF you must: carry out the role of trustee or director, which imposes important legal obligations on you set and follow an investment strategy that is appropriate for your risk tolerance and is likely to meet your retirement needs You need to have enough time to research investments and manage the fund, keep comprehensive records and arrange an annual audit by an approved SMSF auditor Organise your own insurance Use the money only to provide retirement benefits. Who is it appropriate for? Those wanting to combine individual superannuation balances Those who are hands-on Those looking to buy property You can get Direct shares or Term Deposits in other super accounts which aren't available within SMSF Buying the property The property must meet the 'sole purpose test' – and only provide retirement benefits to members Must not be lived in by a member or related party (family) Must not be acquired from a member or related party Must not be rented by a fund member, or related party BUT – the exception is business real property Must meet the business real property definition – if you own and run a business you can operate out of a property your SMSF owns Your SMSF generates an income as you pay rent to the SMSF at market rates – must adhere to definition of 'Arms-length' transactions Property purchased with a loan – limited recourse borrowing arrangement (LRBA) Bare Trust – A separate legal structure which protects the members of the fund, set up inside the SMSF in order to borrow on behalf of the superfund. The property it the sole collateral for the loan and any other assets owned by the superannuation fund are protected Property has to be a 'single acquirable asset' Not able to change the character of the property (can't subdivide or renovate it while there is a loan attached to it) When it works well When you have a decent balance – ASIC guidelines say a minimum of $200,000, however the more the better – you'll incur flat fees of $2,000 p.a. plus investment costs The more you have the more you're able to diversify into other investments. This comes back to having enough to spread around. There's a great deal of additional risk with a lack of diversification. Don't put all your eggs in one basket. The property: Commercial real, especially if you have your own business – own it yourself and lease it to yourself. Super only pays 15% tax too! What won't work – The risks of buying property If the property is heavily negatively geared Deduction are lost if no additional income is earned by SMSF to be offset by the deductions Also, maximum rate of tax is 15% for accumulation Not much in super – only asset is a property Non-adherence with the fund investment strategy; liquidity requirement, meeting diversification requirements Big risk to your retirement balances Not making a lot of contributions Sometimes the property income won't cover costs; auditing costs, accounting costs, interest repayments etc Need to have employer or personal contributions to meet cashflow requirements Can't make changes to the property until the loan is paid off If you need to renovate for any reason, you will be stuck It can be hard to wind up an SMSF Loan documentation (if not set up properly) would require the complete sale of the property before SMSF can be closed If you move overseas and become a non-resident you can't have an SMSF Additional rules, like the in-house asset test If you are looking at doing it, seek advice! Don't stuff up your retirement! Thanks again for the question, and remember - these episodes are open to anyone who has a question! Go to Financeandfury.com.au and get in touch through the contact page!

Have your Super set up – do yourself a favour! What will kill your retirement? Not looking at your super now. Would you trade 15 minutes now for $350,000 in 30 years? That is all this episode is, little things now for the future self – not hard, and your future self will thank you. Tips on what you can do now with little effort or sacrifice to maximise your future What is super? Most people think of superannuation as just something your employer pays into, which you can't access until you turn 60 Even though your employer pays into super, that is your money! 9.50% on average Don't care and why would you right? Out of sight, out of mind and decades away from becoming relevant. If you could log into your bank account and click a few buttons to save a few hundred dollars a year, would you? The real cost of super is opportunity cost – doing nothing now will hurt Any problem ignored long enough will grow – until it is too late Pay attention and make it work – don't regret the future One thing I hear clients say all the time is 'I should have looked at this years ago' – regret is worse than the effort Real use of super Forced savings - YOLO safety net. It allows me to diversify my investments and secure my future. My businesses can fail, go broke but at least by the time I am 60 I will have enough in my account to sustain myself for the rest of my life. Tax effective investment account – if you are investing for the long term, why not use? Same investment of 10% p.a.: Compounding returns of 8.5% p.a. vs 6.1% p.a. $20,000 over 30 years = $231,000 vs $118,000 – or almost double the money What are your options: Super is a vehicle to invest funds for retirement – A car is a vehicle You can get a Mazda, or Mercedes but the aim is to get you from point A to B! Like cars there are different types of super accounts with different features Retail A Master Trust is a superannuation fund in which a large number of members deposit their money. The trustee of the Master Trust pools the money together and purchases interests in the underlying investments, typically managed funds. The value of the investments of each member incorporates the fees, franking credits and some taxes from the underlying investments. WRAP account External super trustee but you have control over investment decisions You get a cash account Then you select third party investments – Managed funds, Direct Shares, LICs, ETFs Industry Industry super funds are multi-employer funds (employer associations and unions) Investments - limited to around 10 multi-sector investment options (eg. Growth, Conservative, Balanced), limited insurance options What to do to make sure you make the most out of it? Pay attention – get the right investments Cars: You can have a Ferrari but if the driver (investments inside the account) is awful, the car may crash! Not getting to point B! Make sure your contributions are going in there Treat it like your own, because it is – If you think you don't have any investments, well you do in your super Managed funds are investments – just doesn't look like it with industry funds Strategies: Consolidate accounts Like a lot of people, I had different employers 4 super accounts v 1 account – Each costs $80, plus $300 in insurances ($380 total) $1,500 p.a. : $20,000 in super = 8% costs – good luck for investments to beat this Check your costs – Some accounts are higher than overs (in the last Furious Friday ep) Admin fees: Standard is about $78 which is good for lower balances The platform I am with costs $175 p.a, but it's worth it. Any managed fund I want, any direct shares (Australian or International). Investment fees (MER/ICR) – these can be hidden Recently industry funds went from very low to about 1% - Disclosure required The higher the MER – the lower the net returns depending on investment strategy Don't get caught out. Insurances or not? What is your situation like? Do you have dependents and debts? Or are you paying for something you don't need? If you are studying still, with many super accounts you are probably over insured! Don't pay for things that you don't need. If you are a professional – Chances are you are paying too much for the cover Standard Covers – Same premiums for all – Builders vs Accountant Premiums – statistical likelihood for claims Investments - Depends on the account. Premix - Balanced for someone who has 30+ years might not be the best choice. Higher levels of volatility can be good for regular contributions Example: 15 mins for $300k Earn $60k p.a. growing with 2.5% and starting super balance of $30,000 In 30 years: Super earning 6% = $707k, or 8% = $1,060k Doesn't have to be earnings but reduced insurance costs as well Contribute - Tax savings and asset gain Salary sacrifice when on a decent marginal tax rate - Earn $100k, each $100 you put in there is $60 less you have in pocket, but $85 more into your super account. Non-concessional - Lower MTR - Can get up to $500 from the government in government co-con

Welcome to Finance & Fury's 'Furious Friday'! Today's misconception – Is cheaper better, or do you get what you pay for? Met with a client this week for an initial appointment – He had been reading 'The Barefoot Investor' I haven't read it, but he had a summary of the tips in the book. His biggest take away were on the cost of things – basically, lower cost is the best option. But is it? You pay for costs for a reason - to get something out of it! Super – Admin fees and Management fees Listed Investment Companies (LICs) – Management fees Very true that when looking at 'like for like' products – cheapest is generally the better option When comparing the exact same: for example, buying a car – If 'Car A' and 'Car B' are the exact same, you go for the lower costs Close substitutes: If things are really similar 'Car A' and 'Car B' (Mazda and Hyundai) – Might go for a personal preference But how do you compare things like investments or superfunds? Not all things are created equal Comparing solely on costs can be a trap! Not all things (like super) are 'like for like' Admin fees Host Plus - $78 Sunsuper - $78 + 0.1% Australian Super - $78 Investment options, returns and net costs: Returns – MERs – taxes = Net Returns Income returns taxed at 15% on average Cumulative returns Host plus Balanced Default - 74.31% Index Balanced - 69.60% Sunsuper - 67.01% Australian Super - 71.59% You get what you pay for here – because they are all managed and invested in similar ways These options, however, might not be the best for all My funds My super is with another platform that allows me to make the investments, so I can choose from 400+ other managed funds, direct shares, LICs etc. They do charge more though, so if you are going for multimanaged you will underperform, but if you go for other managers you will make up the difference. Needs to be non-index investments to make up the difference Active funds If you are higher growth, non-index, that increase in values more than income returns My fund pays me franking credits For me the costs are worth it to access the investments and franking credits Cumulative returns Average – 148.15% Not 'like for like' – More high growth than the industry funds. But costs more - $175 flat + 0.3% of balance MER – 1.4% LICs vs ETFs LICs -Companies Control Dividends Make active investment decisions ETFs – Trusts (similar to managed funds) Generally passive Dividends, FCs – flow through to the investor Dividend payments WAM – 6.6% WAX – 6.4% AFI – 3.96% The take away If you know you're comparing 'like for like' – Lower cost is best But you shouldn't base all decisions around the costs only If you are comparing two large cap funds that do the exact same thing Or two super funds doing the exact same thing Go for lower costs Some things are worth the extra cost!

Welcome to Say What Wednesday - Today's episode is a special one! Plus there's a bit of an announcement at the end. This all started with a question I asked myself a few years ago. The question is: How can I increase the financial literary of Australians? The Back Story Started reading books about investing at age 12, played the ASX School Share Market Game as well Started investing at 16 years old, just before finishing school Went to Uni and did Commerce and Economics degrees Started in financial planning after graduating and never looked back I had a lot of financial knowledge, but my clients didn't (which is why they were coming for advice!) I had a 'Eureka!' moment – most of the initial meetings I was having with clients was spent simply educating them on a few of the same basic principles. Teaching people was 60% of the job. Previously I hadn't thought too much about the fact that people didn't have the same background or exposure to finance as me; I was pretty naive starting out – I assumed everyone would know at least the basics But learned that financial education is lacking – it's not taught at school or anywhere else in life unless you specifically seek out the education yourself Education / Literacy You learn physics and chemistry and how to dissect poetry – but most people never use it again The point, I thought, of an education is to equip you to earn an income later in life. From there, people go into trades or go to Uni, but never learn what to do with their money What are your options then? You either learn as you go – make some mistakes along the way Someone does it for you Or someone teaches you There is plenty of information out there – But this comes with a few problems Scatter gun approach to information / Information overload – where do you start? No structured order to the internet in most cases You don't know what you don't know – hard to search online unless you know what you are looking for Most top-ranking searches are from the media / money making institutions – selling something, not providing education – a shiny quick fix Creating a Solution In 2014 I decided to do something about this problem First step was to see where I could teach Contacted the course coordinator from a community education provider, we met and they liked the idea I locked myself away and started from scratch – I went back to the basics and thought about what information I would need if I was starting from day 1 all over again. The end result was a 6-week course that I taught each semester for 2 hours a week, Wednesdays 7pm to 9pm. Really enjoyed this, but it was limited in scope – plus people's lives are busy and 7-9pm on a Wednesday night is a big commitment Lots of people wanted to take the course – but couldn't make it An evolution After 2 years of teaching I had another eureka moment – almost the same time as Jayden and I started The Rentvesting Podcast Why not put it online? You can do it your own time and there's unlimited scope and online tools to use as well So, over the past few months been putting it together in an online package - not restricted by school terms and 2-hour time slots and condenses all the information into modules that flow in a sequential order The content ended up growing into 24 hours' worth of lectures over 12 modules – I was running into same problem as before - information overload. Plus – there was so much information in there it was hard to get through. So, after some initial feedback I scaled it back to just the essentials The Announcement Lectures recorded for the essential finance course – gone from 24 hours to 7 hours of lectures To be completed through an online portal – go at your own pace Tools for each module and quizzes – no point learning if you can't apply it. What the course covers - 8 Modules Financial independence and goals Basics – Income, taxes, balance sheets, budgeting Basic economics – Supply and Demand – Important for price of investments Investment theory – Risk returns and diversification Investment Basics – Different asset classes – How shares work, bonds, etc and asset allocation Structures – where you can hold investments – Family trusts, super Strategies – Focus on how to build wealth and reduce tax Risk management – Long term plans need contingency – Investment risks and personal risks For those who are interested go to https://financeandfury.com.au/learn-finance/ Or just get to our website financeandfury.com.au, select 'Learn Finance' from the main menu, then scroll down to the bottom of the page to register your interest We are already getting a list of people together to contact when the course goes live - this course is only being released to podcast listeners Further details soon Thanks for listening!

Welcome to Finance and Fury Quick tips to help with making successful investments in property When property will work – and when it won't! It is two-fold – How well the property works, and then what your own personal situation is like as well Situations that will work – essentially, doing well in property compared to not doing well Property Paying fair value or undervalue for the property - The first step is making sure that you don't lose from the get go Don't overpay – New builds can have the FHOG built in Or at least pay the fair value in an area that will grow Remember for a place where land values will go up – The property price will technically go down (remember to watch out for maintenance costs) Potential zoning and subdivision – future capabilities of the property What is the ability to increase prices? Zoning – growth of land value from high density zoning What are the limits on your ability to change the property? What is the ability to increase yields? Sub division – 2 incomes for one Duel occupancy Your situation Stable cash flows – Don't get caught out The ability to have long term ownership and maintain payments is important Can hold for the long term Future plans are important – Property is great for growth – But you have to wait Limit your outgoing – $50 or $100 p/w – Don't get in a hole The worst case is to be in a position you are paying more than you earn long term Situation that won't work! The property The hidden costs – the things that kill the profitability of property Sinking Funds/Body corporates – Seen $6,000 on a place renting for $28,600 Leveraging too high Price declines can lead to banks increasing your repayments – LVR too high Interest rate rises – too much debt against value = Bad yields Repayments may be unaffordable if too much debt and rent declines Your situation Family/income situation changing Maternity leave or starting a family – Additional costs plus lower incomes Needing to buy a new home for yourself – bank may not lend if existing investment debt Property is a wealth trap Worst property in best street is a good buy – but not if it is going to cost $300,000 to make it habitable Title searches – Flood zones, major highways (Moving to Brisbane, places in Kenmore) Negatively geared – with no income to offset or low marginal tax rates MTR of 21% means that 79% is being lost Loan or ownership structure incorrect Joint owned but one person has no assessable income – bad for deductibility Thanks for listening!

Welcome to Furious Fridays! Make sure you're caught up with last week's episode about the system and what it should provide System - Inclusive Vs Extractive systems Inclusive - Equality of opportunity – everyone has access, same rights, no preferences Accountable – Can't be extractive: held accountable and easily removable, transparent What system provides – what incentivises should be available Property rights – keep what you own Ownership of what you own and purchase, Patents Legal system - protect what you have, know deals are honoured Contracts Borrowing Public services – Well functioning state; police, infrastructure, education Use what the system provides – What has worked over history Extractive system – those that rise to power and keep it, sucking wealth up (short term for some) Inclusive system – those that do it on their own and keep it. Your incentive: increase the incentive of others to exchange money with you. System provides freedom – freedom of exchange of money is the first part You have wants, you buy goods/services and exchange money for it Wants – Things to be met by products and services Products and services – the vehicle of wealth transfer in a free market Options on how to have individuals voluntarily transfer wealth to you: Create the product/service – New idea, or improvement to existing Demand for a product of service This is what people need, and will exchange money for Built around solving problems, or convincing people of needs (marketing) Participate with an existing product or service – employment Demand for you and what you can do to improve the product/service What you know to help? How can you get to know more? How you can use it to help? Creative destruction: mechanism for societal improvements Extractive economy - too destabilising = lose power. Stocking producer in England – Elizabeth banned him from doing it, but he had to go through the state to do, went to France, same story. Inclusive - If you think there is no money in something as nobody is doing it, there may be money. What do people need? People solving problems – wealth is transactional under this system. Or, Who do products/services need? Where do you start? Figure out the area to focus on What are you good at? Individuals have talents – mine is numbers/theory, don't give me an English test. What you like to do? Happens that as I am interested in finance/economy, which is thankfully has theory and numbers If you don't know: Get a list together! See if there are cross overs. Once you have it: Either what product/service you want to work with, or create yourself First step – increase your demand – have to provide greater value than cost (PROFITS are incentive) Product – Best product or service, or what people value Individual – what do companies need? Second step – Once people transfer wealth to you invest your surplus Reinvest in business/build outside investments Invest personally to build personal wealth beyond transfer of wealth Third step – keep repeating steps one and two again & again Along the way: Tools at your disposal Systems to take advantage of Property rights – you keep what you earn/save Borrowing – leverage your wealth to access capital to invest Legal system – minimise tax and protecting what you own The really wealthy have always done this well Created a product/service people really want. Kept reinvesting and creating more to fulfil peoples wants. The more people want what you have, or the more people want what you can offer them, the more you are in demand, the more you can demand for your good, the more people will transfer your wealth. THE BAD - Crooks and people who transfer wealth to themselves, for poor or no service Obvious flaw in the system – transfer in wealth needs to be beneficial, informed voluntary decision. Market crashes occur – thanks to human behaviour – but the market learns Human nature – we are more self-interested than altruistic Works in small numbers – help your friends/tribe, etc. But when in millions of people, humans' motivation on average is the self Why shared group work people slack off – for additional effort you put in, little additional reward. NEED INCENTIVES! Our stories Jayden and my story are similar – Started PAYG – saw problems with the systems, wanted to improve. Started own companies – potential to do a better job at helping people Provides freedom to improve what you are doing. When you are starting out – you really want to do a good job, if you can't help people, your business fails. When you are comfortable at the top – what are your incentives? It's pretty hard to change, but the old models don't work for new world – Creative destruction In summary Become "In-demand" Product/service You are the product – measured by how much people want you Decide what you want to be demanded for Get really good at it, or Create a product people want. Keep some of the wealth transferred to you to invest (keep/save) Keeping improving! Product - Reinvest the rest, do

Welcome to Say what Wednesday Today's question is from Emma. She says, "I'm new to the podcast so not sure if you have covered this in the past. I thought it might be cool to hear you analyse a specific stock or company; not like a recommendation but say something in the past. To avoid people taking it as a recommendation it could be something you have put money into and how it went or maybe something you lost money in and how that happened too." Analysing stocks I'll talk about the two camps of analysing shares Look at the pros and cons along with how they work Talk about how I personally do it, and a few winners and losers, what they did right and what they did wrong. The Methods of making stock analysis Fundamental Analysis vs Technical Analysis Fundamental analysis – Aims to value a share by its intrinsic (fair) value – valuation of shares Done by examining the financials, qualitative Why? Buy the undervalued or expected future performers Technical – Doesn't care about intrinsic values Shares are traded using share charts to identify patterns and trends Works off the "Dow Theory" market price discounts every factor that may influence a shares price (why [intrinsic] values don't matter) market price movements are not purely random but move in identifiable patterns and trends that repeat over time – This works off "support and resistance" Why? I talked about markets being behaviours of crowds – supply and demand If it's over-demanded you sell, if it's under-demanded you buy What they are and how they work Fundamental Macro – Trends in the economy Country stats – unemployment, tax rates, weather Thematic trends of society Examples – Lithium (Pilbara), Health care Micro Underlying company financials, understand the management All about looking for evidence in financials and forecasting these out What to look for: Fundamentals Financials – historical – but can show trends, most important thing is cash flow Earnings per share goes up from a few things Increased dividend growth (profits) Buy backs – reduction in shares Example - RIO Decreasing debts – will show the reduction in costs Management – hard to know what they will do, as they are make or break as we will see Track record is important, but impossible to know future performance Thematic – trends and the future The important question is – how will these effect the future earnings of the company? This is where share recommendations come from. It also depends on who you talk to as to the value Technical Use technical indicators Moving averages, volumes, trends in the long-term prices Aims to predict the future direction of the price based on past behaviours of the market You want to look at trends here, plus some technical indicators If a share is below the exponential weighted average + oversold = it could rise How do I buy shares? In the early days – Fundamental analysis – smaller cap shares The horror stories BCI Minerals - BCI – 4th biggest iron ore producer at the time Earnings growth was great, below fair value – bought in 2011 for $2 – 2013 went to $4.50 BUT – they took on a massive amount of debt - 2012 (11.7m) to 2013 (67.4m) Was fine as long as iron ore prices didn't go down...but they did… Revenues dropped – their response was to do equity raising to pay off debt – 144m to 228m = Dilute EPS… and they kept going to 393m Today are sitting at $0.145 = 93% loss from $2 Medusa Mining – MML – Gold exploration Decline from $9 to $1.80 peaked my interest in 2013 Massive bubble but looked stable – EPS went from 54c to 28c, but they had no debt But then they started slowly borrowing after I bought – 2.3m, 2.8m, now 4.6m While revenues have been going up – EPS in 2015 was -94c, now -23c Price now at $0.65c = 63% loss What is the common connection between these two? Single focus companies (iron and gold) with revenues tied to resources – no control Poor management decisions - Being in resources they dug further into their hole – Rather than hunker down and get rid of debt, decrease costs and wait, they got further into it all The happy endings Dulux Group – DLX – The paint company Can't take full credit – Fund manager gave the tip – Bought for $3.20 in 2012 Revenues going up year on year ROE was in the double figures each year Diverse – Aus, NZ, Asia, and produces lots of hardware/construction for private and section Plus, they had a monopoly! Today $7.64 = 138% gain The mixed, but then great! Codan Limited - CDA – Communication products, detection and mining technology Bought in 2013 for 1.60 – Rise from $1.60 to $4 Then they declined from $4 over 5 months – but this peaked my interest After mining boom news came out and dropped to $0.90 I bought 50% more What I liked Range of markets – Gov, private, and world-wide (Aus, Canada, Middle east, Europe) After crash they started focusing on paying down debt Cut other costs and got financials back to a healthier position today Smart management is the winner here – Today at about $3.10/$3.20 = 140% gain These da

Welcome – Today we're talking about controlling your behaviours and emotions...when it comes to investing Investing is an action, controlled by behaviours – emotions change your behaviours. Getting a good investment midframe allows you to invest well for the long term. How to start investing and not muck up – This means controlling your fear more than trying to control investments – Can't control what investments do short term Fear is an emotion – Which stops you from investing Starting is the hardest part – Getting the right fame of mind and overcoming fear But staying motivated and on track is just as hard Life gets in the way – and new things happen in your personal life as well as market ups and downs How to start? "Needs-based" plans – ignoring your emotions Hard to know – "you don't know what you don't know" What are you trying to achieve? – If you don't know your reasons to invest, you can't answer this Long term growth? Passive income? How will you achieve this? Strategies and investment options Save a deposit – Buying a property Monthly investing into Managed funds, LICs, rather than savings The most important thing is to just start – otherwise fear will take over and then so will indecision Information overload will be hard to overcome Diversified products help to remove this – ETFs = let someone else make the investment decisions for you Taking the plunge – Start small if you are uncomfortable You don't need to put everything in, but a small amount Example: Some people like to jump into a cold pool, others start with feet and slowly move in to acclimatise. Like a pool of investments, some people do dive heard first into pools, but what happens when they can't see the bottom, or can't swim? If they break their neck or drown, would people say that pools are dangerous, or the behaviours were dangerous? Say it is your pool, or a pool you go in every day? You know what you are in for – So you know if you should dive, or slowly get in. Prior experiences do affect your future behaviours Buy a property that goes down – Will you be more or less likely to buy another? Buy shares right before a crash – will you be more or less likely to think share are too risky? LESS likely in most cases – But these are some of the best long-term investments thanks to GROWTH Don't let one bad experience stop you Or something you hear about – fear will come in from hearing about other people losing money Failing at investments FEAR = failure Rational fears vs Irrational Fears – Some fear is good, but only of very risky investments, or of diving in head first! Stops people from starting to invest – Fear of the unknown – Shares are ownership Investments will fall apart if you respond by fear! Doing the wrong thing – "fear selling" FEAR leads to following others instead of doing what is right for you. Do they know something you don't? SO, you follow them just in case, even if it's irrational! Buying – Leads to buying at peaks of bubbles All because people buy property doesn't mean you should. All because people buy shares, doesn't mean you should. Selling – Leads to selling in the crashes How do you avoid this? 10 Do's and 500 Don'ts of knife safety - Don't do what Donny Don't does! Investments can be pointy and have sharp declines – Killing your investment future I have some rules when I invest: There aren't 10 – there are 5 Rule 1) Invest for the long term with a purpose! This means holding through the cycles Also investing in a diversified portfolio to survive – long term! Not putting more into one investment than I can afford to lose Rule 2) Don't invest out of hope, or more than you can afford to lose – That is gambling Invest with a greater certainty Avoids you chasing the risky (and unlikely gains) EXAMPLE – the only losses I have in shares is from hoping they will be big returns in the short term... they weren't Rule 3) Don't do what the crowd is doing, just because they are doing it, That is called "Contrarian investing". Buy when others are selling Personally, I love doing this. Like the "divorce yard-sale" of investments Sell when others are buying Personally, I don't do this, as what would I buy if I sold? I just wait for the crash and get things on discount. I just don't buy at these points, but I don't sell. You can't time the market, but you can know when things are cheap or expensive. Buy when it is cheap, and don't buy when it is expensive Rule 4) Don't listen to the media – Their job is to sell fear and there is always a new crash coming Try to sell when to buy: Look at the fads of investments – short term holds – but longer term someone is left holding the bag. You don't want to have to change your investment wardrobe every 6 months. What do you replace it with? When you sell an investment, it goes to cash Then what do you buy? You are back at square one – Figuring out what to invest in now! Rule 5) - If in doubt, remember rules 1 to 4! In summary Just start, but don't dive in head first unless you know how

Introduction – Welcome to Furious Fridays Imagine you are a child North Korea - After school (which is mostly propaganda to solidify your ruler), 10 years mandatory military service No option to accumulate anything No way to start a business No way to buy your home Never own a car, telephone, or travel overseas Constantly looking over your shoulder, similar to Soviet Russia, 1 in 10 were government informants South Korea - Whatever you want – get a degree, buy a home South Korea out produces North Korea's economic output by 37 times - $33,400 vs $1,800 GDP per capita (that is, per person) Live 10 years longer in south, infant mortality is almost 7 times lower So, what makes them so different? Capitalism! Let's look at the history: Korea WW2 – Japanese colony, then split North/South with Russia and America Korean War – June 25, 1950 North invaded south with Russian aid, America stepped in, demolished north with firebombs, they surrendered North – history – state run economy – founded by Kim Jung-il's grandfather South – History – adopted capitalist ideas Capitalism is characterized in the following ways: It is a market-based economy made up of buyers (eg. People) and sellers (eg. Companies). The goods and services that are produced are intended to make a profit, and this profit is reinvested into the economy. The market (people buying & selling) determines investments, production, distribution and decisions the forces of supply and demand There is a need for continual production and purchase for a capitalistic economy to operate efficiently. Capitalism provides a system that create incentives and efficiencies What are incentives? – Rewards for your effort Not a zero-sum game – earn more, keep it, and use it as you want If someone can take your stuff, why bother? What capitalism provides: Inclusive system FREEDOM! - Why is it important? Allows improvement, and people to dream of betterment. Protection! - Why start a business, or take risk, if it can be taken or taxed away from you? The easier it is, the safer, the more you trust the system, and others trust you in the system, then easy! The political System - Inclusive Vs Extractive systems Needs to be Inclusive - Equality of opportunity – everyone has the same rights Inclusive - Opportunity providing Lack of interference – restrictions (regulations) Reduced barriers to entry, freedoms/opportunity - laws Non-exploitive (Extractive) – shouldn't take from some to give to others What inclusive systems have– what incentivises should be available Property rights - keep what you own Ownership of what you own and purchase, Patents and intellectual property Legal system - protect what you have, you know deals will be honoured Contracts and Borrowing capabilities = TRUST in the system – Economy is built on confidence Public services – Well functioning state Infrastructure – Roads, transport, water, power, etc Legal system enforced All are needed simultaneously! What doesn't work – Extractive systems – Socialism Extraction from the productive is a race to the bottom – history repeatedly shows this. Extractive – the more it is, more people will fight over it. Dictatorships and democracy are both fought over Example - Proof – Christianity hasn't had a major war since churches power was separated from the state. Other parts of the world where Government and Religion are one and the same aren't as peaceful. Dictatorships – violent overthrows, for power state has. At least they are public about it, as there is little the public can do to get them out beyond another violent overthrow – rinse and repeat Democracy – trash talk about the opponents, depending on conspiracy level – shady behind the scenes like "House of Cards". Incentives – They are the thing that makes you want to do things. Example – state run systems – 'they pretend to pay us, so we pretend to work' Property rights – providing people of China with property rights If profits are the purpose of capitalism, is this immoral? Capitalism is painted as heartless, but nobody wants to see the poor suffer. Those that want to provide for the poor through taking what the wealthy have, stand on a moral position of wishes….and theft Example - You bring bubble-gum to the class – you better have enough for everyone? But why? What if you worked mowing lawns as a kid to buy gum, when others in the class didn't? Renee (shout out!) – her niece is 8, and makes shirts, and sells them to earn her money for roller skates, rather than asking her parents. Now makes and sells healthy muffins each afternoon after school. That is what kids need to learn, as she will likely be successful! Ask yourself – What is greedier – Keeping what you have earned, or demanding someone else provide for you with what they earn? Importantly, what has been proven to reduce poverty? Capitalism The more capitalism produces = more things, the more things we have, the lower prices are and easier they are to get! The more things being made, the more people need

Welcome to Say What Wednesdays – Where we answer your personal finance questions each week. Two questions this week from Chris: No 1 what are your thoughts on investing through a platform such as acorns? In your opinion do you see it as reliable and a worthwhile investment option? Furthermore, with such platforms would you say that there is a degree of double fees being taken out (platform fees and ETF fees for underlying investments e.g. ASX ETF's) which erode earnings? No 2 What is the best way for people on a low income (around $25,000 p.a.), such as students and job seekers to start building a growth portfolio? Platforms What are they? – Ways to hold all of your investments in one place Types – three types Raiz (Acorns) – Investment application (app) Allows for micro investing – automatic investments Limited choice of options – Growth Option, etc Investment Platforms are a bit different Allows for accessing managed funds, shares at wholesale level Range of choices of funds Broking platforms Direct shares mostly Costs – Admin fees Raiz – 0.275% p.a. Investment platforms - platform fees generally higher Flat fees - $175 to $600 p.a. Percentages - 0.4% to 0.1% Broking platforms Transactional costs when you buy/sell investments Benefits Raiz Nice, simple easy way to start Automatic savings takes away the hands-on approach Passive Platforms You can have actively managed funds Specialist Managed funds in certain sectors I have an account – Buy small cap, micro-cap, international, emerging market fund etc. Wouldn't really get that much in the way of large cap here, as that is ETF Small cap – 25% p.a. for the past 8 years Worth it if you know how to use it right For ETFs, shares, Large cap, probably not worth it. They do consolidated tax statements for you (that's what the admin fees are for) Don't have to meet minimums on fund purchases - $25k to $500k Broking Benefits – no ongoing holding costs Can buy the same ETF in RAIZ in broking platforms, for broking costs Upfront costs may be higher, but no ongoing. In my opinion, if you are starting out, probably better to start somewhere than not start at all Especially if you aren't familiar with investments or good at saving, may as well go with app to do it for you. Better to start with something then never start. Broking platforms – Can have large upfront costs Investment platforms are good, if you have enough to justify it But only if you use the specialist funds that you have access to – geared, emerging markets, micro-cap, etc. To answer Chris's second question There are two options for students Hands on/personally invest Focus on Franking credits, or high growth long term – You will get more back in income than what you would pay in tax Need low transaction costs and diversified – Good Fully Franked LICs or ETFs are an easy place to start Super co-contributions – free money $1,000 (post tax) = $1500 investment Comparison over 3 years at university, while earning below $37k p.a It's a boring answer for long term benefits – superannuation as an investment vehicle! Each year you put $1,000 into super, or $1,000 into the same investments personally. Who wins? Either way you put $3,000 towards investments In super you get an extra $1,500 (or 50% return) straight away! By the time you access it, say 40 years, earning 8% p.a. (4% income, 4% growth) Personally, after you get taxed on the income at say 34.5% = $37,031 Super gets taxed at 15% = $72,965 Awesome questions Chris! I hope I covered off on it all. Next Say What Wednesday we'll answer a question from Emma Send in your questions and feedback! https://financeandfury.com.au/contact/