Welcome to our first Q&A episode, where we answer a bunch of questions sent in by listeners.
We’ve got a great range of topics to discuss to kick things off, so I hope you enjoy it.
(you can also download the mp3 file here)
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Why deliberate spending is my favourite money management style. What it really means and how you can use it as your situation and priorities change over time.
My thoughts on ‘The Great Taking’. An idea that the masses will lose untold amounts of wealth in the next financial crash, due to a deliberate plan by mysterious figures.
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Hey Dave, love you thoughts on micro investing apps and it gave me a chuckle.
Over the last 3 months I’ve been investing regularly into RAIZ with the thought of emptying my Raiz account and dumping into my “big boy portfolio” when it hits $10k, I fill out a couple of surveys each month to offset the RAIZ fees and hoped you could critique this approach vs saving in a cash account? By the way, couldn’t give a shit about the personal info I provide via the surveys, but am I missing something?
Love the show, keep up the great work
Hey Greg. Glad you enjoyed it 😉
I’ve heard from others who do it like this too. It’s not really worth much debate, the difference is peanuts really. Slightly more hassle for slightly higher return vs cash. I wouldn’t bother with this and would just keep one investing account, but if it works for you that’s what matters 🙂
Great stuff as always.
A minor piece of pedantry:
In the discussion about interest rates and tax deductions Dave said “you can only claim that interest against income you’ve earned through taking out that loan to invest.”
My understanding is that in the eyes of the tax system all taxable income is ultimately treated the same. In other words, you can always claim investment expenses against your total income regardless of the source of that income.
See https://treasury.gov.au/review/tax-white-paper/negative-gearing
We’re talking about different things. The investment must be income producing for the interest on the debt to be tax deductible is what I’m saying. “You can claim a deduction for interest charged on money borrowed to buy shares and other related investments that you derive assessable interest or dividend income from. Only interest expenses incurred for an income-producing purpose are deductible.”
https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-deductions/Interest
So yes if it is negatively geared you can then offset the loss against other income. But my point was that the asset you’ve invested in must produce an income stream in the first place (people often think you can get a straight deduction even with non income producing assets and think 3% interest is 1.5% after tax benefits or something equally ridiculous).
Right, so gold, bitcoin and Tesla shares are out!
Haha exactly. Shame… 😉
Great Pod, as usual!
I was a little surprised you didn’t like the commSec pockets app.
I’ve used it before for IOZ and thought the $2 fee was good, and the MER of 0.09 was very competitive.
Additionally, the ability to automate the purchasing easily were both draw cards to me.
A hurdle of $500 with $9 brokerage would be equivalent to about $110 invested with $2 brokerage, meaning a lower barrier to entry to get started on. All good stuff though. Cheers
Cheers Patrick. Yeah I actually think Commsec pocket is better than most, the fact that it has IOZ is great, though Pat is upset that it doesn’t have a low cost international fund. We were probably a bit harsh to be honest. It’s more a case of us thinking that people might as well just have one main investment account instead of these little ones as well.
I buy lotto tickets in the MSWA Mega Home Lottery. The odds of winning the house is way better than Saturday lotto, plus you’re helping out a charity. And even though I’m working towards FIRE, I live in a tiny 2 bedroom unit with a tiny single car garage with a 12 year old car. When I reach FIRE I doubt that’ll change, but if I won the house, it comes with a million dollars and a new car. So it’s instant FIRE and an upgrade. I’d like to have a backyard so I can own a dog. I will also let my mum move in since she’s a senior on disability who doesn’t drive, so she could do with me being around (as right now she’s a 30 min drive away), but with enough space in a big house that we can still do our own thing without getting in each others way. To me, it’s worth buying a ticket for 😉 There are two lotteries a year so I buy 2 tickets a year, one in each draw for $100 each.
Also, I’m a huge fan of Spaceship. I began in Aug 2018 and it’s given me a personal return of over 40%. There are no brokerage fees and the there are no fees for less than $5000, and above that, the fees are still low. The return has been far greater than VDHG which requires brokerage and has higher fees. I do both, I do invest mostly into VDHG but still put a bit into Spaceship each fortnight.
Hey Beth. The MSWA lottery is a great cause and I have actually bought one of those tickets before which I forgot to mention!
Yeah looking back we were probably a bit harsh on these apps – we just think it’s better to have one main investment account to focus on. I wouldn’t put too much emphasis on Spaceship’s performance – anything can outperform at certain times. Spaceship Universe is a hand-picked basket of tech stocks and other themes, which has paid off recently – at other times, the opposite will occur. If you like doing both, and find it motivating or useful, by all means continue! 🙂
The Spacehip Origin portfolio is an equal weighted portfolio including a mix of the top 100 shares in Oz and 100 global shares. At no fee below $5000 and 0.05%pa above this it is also extremely cheap (better than nearly all ETF’s). Both my kids use it and it and it is a great way to get into investing. Even though I don’t need the smaller minimum i also use Spaceship as an easy way to DCA. Please do your research before bagging a product. Always better with the facts rather than guesses.
You’re right, I didn’t know the finer details. The no fees for small accounts is good. But I still think most people are better off (even beginners) with a proper brokerage account, given they’ll need one anyway. Also would prefer just normal index options, rather than a different strategy. So my view is still that I can see the appeal for some cases, but overall, I’m still not a fan of micro investing apps.
Regarding tax deduction for interest on loan used for investment (and any tax deductible expense really) :
I find the easiest way to think about the benefit is that the ATO pays your marginal tax rate percentage of the expense (e.g. 32.5% + 2% Medicare levy = 34.5%), and you pay the rest (e.g. 65.5%). So then it is easy to see that it is always in your best interest to reduce the expense as much as possible, i.e. always go for low interest rate.
I often see many complicated discussions about tax deductions, but really it is a simple as that.
Thanks Leigh. Good example. We do need to consider what income you’re earning on the investment to work out the tax outcome though. If your investment pays 3% income and your interest rate is 3%, you get zero dollars as a tax return. The ATO covers nothing in this case. This is where I see people trip up the most. They seem to assume it’s a straight write-off or something lol.
My son (18) started his own RAIZ account as somewhere to put his slush fund of $10 per week ( the rest of his small part time wage goes straight to Selfwealth). He got sick of it sitting in a bank account doing nothing. He has also managed to get a lot of his friends interested in investing through the app. These are kids that don’t have a lot of income, or at times a steady income as they are casual after school workers. Having a ‘cool’ app and the swag of being a ‘trader’ is actually encouraging them to dip their toes in the water and become more interested in what is happening in the economy. At that age and income level $500 can seem impossible, but they get to see how easy it is to save when it is almost 100% automated by rounding up purchases and also them putting small amounts in. The plan for my son is that when it gets to a certain amount, it goes into the Selfwealth. A lot of adults also find brokers and trading intimidating, so this is an easy in for them and gets their mindset started on the whole investing journey. I don’t use it myself for the reasons you mentioned but I can understand why it is a good way for some people to start 🙂 .