Podcasts about independent advice

Share this episode: https://www.samharris.org/podcasts/making-sense-episodes/379-regulating-artificial-intelligence Sam Harris speaks with Yoshua Bengio and Scott Wiener about AI risk and the new bill introduced in California intended to mitigate it. They discuss the controversy over regulating AI and the assumptions that lead people to discount the danger of an AI arms race. Yoshua Bengio is full professor at Université de Montréal and the Founder and Scientific Director of Mila - Quebec AI Institute. Considered one of the world’s leaders in artificial intelligence and deep learning, he is the recipient of the 2018 A.M. Turing Award with Geoffrey Hinton and Yann LeCun, known as the Nobel Prize of computing. He is a Canada CIFAR AI Chair, a member of the UN’s Scientific Advisory Board for Independent Advice on Breakthroughs in Science and Technology, and Chair of the International Scientific Report on the Safety of Advanced AI. Website: https://yoshuabengio.org/ Scott Wiener has represented San Francisco in the California Senate since 2016. He recently introduced SB 1047, a bill aiming to reduce the risks of frontier models of AI. He has also authored landmark laws to, among other things, streamline the permitting of new homes, require insurance plans to cover mental health care, guarantee net neutrality, eliminate mandatory minimums in sentencing, require billion-dollar corporations to disclose their climate emissions, and declare California a sanctuary state for LGBTQ youth. He has lived in San Francisco's historically LGBTQ Castro neighborhood since 1997. Twitter: @Scott_Wiener Learning how to train your mind is the single greatest investment you can make in life. That’s why Sam Harris created the Waking Up app. From rational mindfulness practice to lessons on some of life’s most important topics, join Sam as he demystifies the practice of meditation and explores the theory behind it.

In this episode of Talk Property To Me, I had the pleasure of speaking with Cameron from Waterford Financial Planners about self-managed super funds (SMSFs). We delved into the intricacies of setting up and managing an SMSF, exploring the differences between SMSFs and industry funds, the advantages of leveraging assets within an SMSF, and the various investment options available. Cameron highlighted the importance of seeking independent advice and avoiding one-stop-shop solutions that may lead to potential conflicts of interest. We discussed real-life examples of successful SMSFs as well as cautionary tales of SMSFs gone wrong, emphasising the need for careful planning and due diligence. Throughout the episode, we covered key topics such as the setup process, compliance requirements, tax implications, and considerations for retirement planning within an SMSF. Cameron provided valuable insights into the complexities of SMSF lending, the importance of proper structuring, and the potential pitfalls to avoid. We concluded by stressing the significance of conservative investment strategies, the minimum fund size for SMSF lending, and the importance of seeking professional advice when navigating the world of self-managed super funds. Listeners were encouraged to reach out to Cameron at Waterford Financial Services for personalised advice and assistance with their SMSF queries. Whether seeking clarification on SMSF setup or evaluating the effectiveness of an existing SMSF structure, Cameron and his team are ready to provide expert guidance and support. Tune in to this episode for a comprehensive overview of self-managed super funds, packed with practical insights and expert advice to help you make informed decisions about your retirement savings. 00:00:01 - Introduction to Self-Managed Super Funds 00:05:17 - Steps to Set Up a Self-Managed Super Fund 00:10:02 - Limited Recourse Borrowing Arrangement 00:11:05 - Compliance and Audits for Self-Managed Super Funds 00:12:39 - Taxation in Self-Managed Super Funds 00:13:53 - Retirement Options and Pension Phase 00:15:49 - Real-Life Examples of Successful Self-Managed Super Funds 00:18:20 - Importance of Independent Advice in Self-Managed Super Funds 00:21:46 - Considerations for Separation or Death in Self-Managed Super Funds 00:22:30 - Minimum Fund Size for Self-Managed Super Fund Lending ABOUT THE HOST BRAD EAST Brad East is the Managing Director of Wisebuy Home Loans. Brad is an award-winning mortgage broker and has helped thousands of clients gain finance to purchase properties. Wisebuy Home Loans is the go-to mortgage brokerage for clients wanting out-of-the-box applications approved. Website → https://wisebuygroup.com.au  LinkedIn → https://www.linkedin.com/in/newcastlemortgagebroker/  Instagram → https://www.instagram.com/bradeast_mortgagebroker/  Facebook → https://www.facebook.com/bradeastofficial 

Joe is joined by Ms Justice Marie Baker, Chair of the Electoral Commission, to give advice to voters before the upcoming elections in Limerick. Hosted on Acast. See acast.com/privacy for more information.

In this episode of ACM ByteCast, Rashmi Mohan hosts ACM A.M. Turing Award laureate Yoshua Bengio, Professor at the University of Montreal, and Founder and Scientific Director of MILA (Montreal Institute for Learning Algorithms) at the Quebec AI Institute. Yoshua shared the 2018 Turing Award with Geoffrey Hinton and Yann LeCun for their work on deep learning. He is also a published author and the most cited scientist in Computer Science. Previously, he founded Element AI, a Montreal-based artificial intelligence incubator that turns AI research into real-world business applications, acquired by ServiceNow. He currently serves as technical and scientific advisor to Recursion Pharmaceuticals and scientific advisor for Valence Discovery. He is a Fellow of ACM, the Royal Society, the Royal Society of Canada, Officer of the Order of Canada, and recipient of the Killam Prize, Marie-Victorin Quebec Prize, and Princess of Asturias Award. Yoshua also serves on the United Nations Scientific Advisory Board for Independent Advice on Breakthroughs in Science and Technology and as a Canada CIFAR AI Chair.  Yoshua traces his path in computing, from programming games in BASIC as an adolescent to getting interested in the synergy between the human brain and machines as a graduate student. He defines deep learning and talks about knowledge as the relationship between symbols, emphasizing that interdisciplinary collaborations with neuroscientists were key to innovations in DL. He notes his and his colleagues' surprise in the speed of recent breakthroughs with transformer architecture and large language models and talks at length about about artificial general intelligence (AGI) and the major risks it will present, such as loss of control, misalignment, and nationals security threats. Yoshua stresses that mitigating these will require both scientific and political solutions, offers advice for researchers, and shares what he is most excited about with the future of AI.

WorkSafe is seeking independent advice about a leaking oil and gas well in the Kupe Field off the coast of Taranaki. The KS-2 well has been leaking a small amount of gas since at least 2018 - a fact that the Environmental Protection Authority only revealed when forced to by the Ombudsman. Taranaki Whanganui reporter Robin Martin has more.

In this episode, David Warren – Co-Founder/Chairman of Bridgeford Trust Company – sits down with guests from Callan Family Office, including Jack Ginter, CEO/Partner; Doug Getty, Investment Management/Partner; and Betty Pettine, Director of Philanthropic Consulting. Callan Family Office delivers independent and objective counsel to families, foundations, and institutions, and during their conversation, we learn more about the Callan Family Office Difference, fueled by innovation, research, technology, and education. Jack specifically talks about the vision of the firm and how they are embracing the opportunity to fundamentally “disrupt” the industry today. As the conversation continues, we hear from Doug on Callan Family Office's investment management focus with access to sophisticated strategies and technology, customizing portfolios designed to help clients reach their goals. We also learn from Betty why philanthropy is important to Callan Family Office clients and how vital it is to have an advisor that shares values, offers resources, and provides expertise in this rising interest of wealth management.

We talk to Tony Crawley, MD of Synyega, about: The importance independence in ITAM The US SAMOSA act and its impact on ITAM Using ITAM to drive digital transformation Join us to hear how an independent 3rd party view when it comes to software licensing & procurement can help, and how being involved early and consistently can help raise ITAM's strategic importance as well as save your organisation time and money. We also discuss the proposed SAMOSA Act from the US Government and how this could drive increased need for ITAM across various sectors.

A Goldilocks investment strategy means that you are making the most of your financial opportunities without overdoing it and taking unnecessary risk. That is, your level of investing is exactly right (i.e., perfectly balanced).  Underinvesting means that you risk not having enough investment assets to enjoy a comfortable retirement.  Overinvesting means that you have taken unacceptable risks which may compromise your ability to achieve a comfortable retirement.  The goal is to achieve a perfect balance – invest enough to ensure you will meet your lifestyle goals – but not too much that you put your lifestyle goals at risk.  Overinvesting can do a lot of harm I recall working with a mortgage broking client (not financial planning) for several years prior to 2008. The client purchased 6 investment-grade properties over a relatively short period. After the sixth acquisition, I advised the client to not purchase anymore properties, as I felt taking on more debt would be too risky. The client ignored my advice and purchased two more investment properties – which I only found out about after the fact!  Unfortunately, the GFC hit Australian shores in 2008/2009 and the RBA cash rate climbed to 7.25% which put pressure on the client's cash flow. Worse still, credit rules and policies were rightfully tightened which locked this client out of their ability to refinance. The client had no choice other than to sell all but two of their properties in the years following 2010 because they wanted to retire.  This client's story is a perfect cautionary tale. Debt is a wonderful servant, but a terrible master. Borrowing to invest can be a very powerful and beneficial strategy but it must be used carefully. You must never borrow more than you can afford and should consider your ability to service repayments when interest rates rise. For example, what if you are forced to eventually repay principal and interest. Or due to borrowing capacity, you can't refinance e.g., you are trapped at your current lender. You must consider these risks.   Underinvesting comes with great opportunity cost Arguably, underinvesting is just as bad as overinvesting. Underinvesting means that you risk not accumulating sufficient investment assets to achieve your lifestyle goals i.e., funding a comfortable retirement.  I wrote a blog earlier this year (here) setting out the three common reasons that tend to cause people to underinvest. It's worth reading if you suspect that you have underinvested.  Invest enough to achieve your goalsIf you are already going to achieve your goals with the investments that you currently own, why invest more? Investing always carries some risk, so why exposure yourself to greater risk if it's not going to have a positive impact on your life?  Some people will argue that it's prudent to ensure that your money's working hard for you.  Other people are driven to continue to invest so that can leave more money to their beneficiaries.  I don't think there's a right or wrong answer to the question of; how much is enough? It really depends on your circumstances and risk tolerance.  However, it is worth considering a few things. Firstly, whether it's necessary to invest more to achieve your goals. If not, are there any other reasons to invest more e.g., to provide more for beneficiaries.    How much debt is too much? Typically, the most common way people overinvest is by borrowing too much (e.g., the client story that I shared above). There are several factors to determine the right level of borrowings for your circumstances and goals.  Of course, the obvious consideration i

 Most people would say that finding a good financial advisor has always been a difficult task. Ten years ago, most financial planners received commissions for remuneration, so clients had to navigate endless conflicts of interest. Thankfully, investment commissions no longer exist. The challenge is now finding an advisor with well-rounded experience. Commissions are banned – it's more about experience and scopeFinancial advisors use to receive commissions from managed fund providers which created a conflict of interest, as data showed that they'd only recommend the funds that paid commissions, and the higher fees (resulting from the cost of paying this commissions) greatly diminished net investment returns. In essence, commissions incentivised planners to recommend poor quality investments (managed funds). Commissions on new investments were banned in 2014 and on existing (grandfathered) investments in 2018. Financial advisors now cannot accept conflicted remuneration arrangements by law e.g., commissions. Obviously, this was a massive step forward because the existence of commissions was almost wholly responsible for all the poor advice outcomes that people experienced. In a commission-based (or any conflict of interest) world, most advisors core competency was salesmanship, not delivering quality financial advice. But most unsuspecting customers didn't realise this – often planners were wolves in sheep's clothing. This has changed now. Financial advisors no longer need to sell, just advise. Therefore, in my view, when choosing an advisor, you must consider (1) whether they have enough experience and (2) whether the scope of their advice maximises your opportunity i.e., knowledge. With respect to scope, I'm a staunch believer that holistic advice maximises value, as discussed here (where I shared 6 case client studies). High quality advice is multifaceted because it includes many considerations including tax, super, estate planning, insurance/risk and so on. The mass exodus of advisors will take years to repair There have been several changes in the financial planning industry which have resulted in a mass exodus of advisors. In 2018 there were about 28,000 financial advisors in Australia. Around 40% of these advisors have already left the industry and it is predicted that advisor numbers will fall to circa 13,000 by the end of next year. Of course, there were many shoddy financial advisors that really needed to leave the industry, so that's a good thing. But more than halving the number of advisors in only five years is a terrible outcome for Australians. Imagine if that happened with lawyers, accountants, or doctors. The problem is that as older, more experienced advisors leave the industry, there aren't enough intermediate advisors to eventually take their place. You can't replicate decades of experience overnight – there are no shortcuts. Therefore, the financial advisor shortage will get worse before it gets better. A lot worse! Robo-advice has limited application Robo-advice solutions have been lauded as a cheaper alternative to personal financial advice. Robo-advice is an algorithm-driven software tool that makes recommendations based on the answers to a series of questions. Currently, robo-advice tools provide very limited solutions. The problem with robo-advice is that it's a very logical tool. However, the study of behavioural finance tells us that financial decisions can be heavily influenced by emotions. Often, it is difficult to change someone's mind with logic alone, especially if they did not use logic to make their original decisions. In this situation, a human-to-human relat

Billy talks The Beatles and what might have been had manager George Epstein not passed away prematurely. Dominic looks at the importance of getting Independent Advice and the magic of Compound Interest. Want to travel from Istanbul to London via Milan on the Orient Express at $100,000 or elsewhere? Start saving now – Get your time horizons set before you invest.

Olga Miler is co-founder of SmartPurse which is empowering women from all over the world to build each other up and reach new heights of financial independence. In this episode, Olga, who co-founded and developed UBS Wealth Management's award-winning global female program and the Gender ETF, shares why she co-founded SmartPurse, the global impact they're seeking to make and how financial advisers around the world can leverage the platform to grow their own businesses. We also chat about Olga's current research around women and money which, despite being a highly researched topic has had really slow progress, and how she's hoping to change that. And finally, as an expert in gender-smart investing, we chat about what that means and why advisers should be more knowledgeable in this area. Links, show notes and timestamps at https://innovatingadvice.com/post/episode53. Join the Global Community Connect with Kate on LinkedIn Humans Under Management virtual event happening 8th September: https://bit.ly/IAHUM2020 Tickets: R500, US$30, £23, AU$42.

Rob and Tom discuss the Government versus the Civil Service and how Boris Johnson and Dominic Cummings are losing high profile civil servants regularly.TOPICS- [0:00] Intro- [5:37] Boris & Super Saturday- [13:01] Boris On LBC- [17:03] Stanley Johnson In Greece- [19:35] Care Home Crisis- [22:57] PMQs- [28:13] Government Vs Civil Service- [43:31] Ad: Hat Of Many Things- [44:09] Quick Polls Update: America- [52:10] OutroSUPPORTSupport all TTSS shows on PatreonSHOWNOTES- YouGov: Will Brits flock back to pubs this weekend?- BBC: Theresa May criticises PM over choice of Brexit envoy for security role- Presidential Race Poll- How unpopular is Donald Trump?- Join us on Discord!DISCUSS- Reddit- Twitter- FacebookATTRIBUTION- Recording engineer: Ennuicastr- Theme song: Handel's Water Music (Public Domain under CC0 1.0) with Big Ben Chimes (By hyderpotter under CC0 1.0).- Main Image: United Kingdom National Security Advisor Mark Sedwill Signs Secretary Pompeo's Guestbook by U.S. Department of State, a US Government Work

If you have a couple of thousand dollars surplus cash each month, what is the most effective way to invest it?You could invest in the share market, repay your mortgage(s) or invest in property.But there’s another strategy that might be particularly more attractive, especially since mortgage interest rates are ridiculously low at the moment.You may not want to repay debt or invest in shares or propertyIt certainly doesn’t cost a lot of cash flow to borrow to invest in a residential property at the moment. However, it is difficult to buy an investment-grade property for less than $600,000, which means you need to borrow a relatively large amount of money. If you already own some direct property, you may not feel comfortable borrowing this amount of money.Repaying debt at the moment might only save you 3% p.a. in interest costs, which isn’t terrible, but it’s hardly a big return on your investment.And of course, you could invest your cash flow in shares in your personal name or family trust. But if you are relatively close to retirement (within 10-15 years), investing inside super could be a lot more tax effective.So, what about borrowing to fund additional contribute into super?First, let me clarify how you can contribute money into super.What is a non-concessional contribution?There are two types of super contributions being ‘concessional’ and ‘non-concessional’.Concessional contributions are more commonly utilised because these contributions are made pre-tax i.e. you receive an income tax deduction for them. You can make concessional contributions via salary sacrifice or by making a personal contribution into your super account. These contributions are taxed inside super at a flat rate of 15%.Non-concessional contributions are after-tax contributions i.e. they do not affect your income tax position (no tax deduction). As such, they do not attract any superannuation taxes either (no contribution tax).If your super balance is less than $1.4 million at the beginning of the financial year, you can make non-concessional contributions of up to $100,000 per year. Alternatively, you can bring forward 3 years of contributions into one i.e. contribute $300,000 in one year and nil for the following 2 years.This page on the ATO’s website provides more information.Borrowing to make non-concessional contributions isn’t normally a good ideaIf you borrow to make a non-concessional contribution into super, the interest in respect to the loan is not tax deductible. This makes it an expensive strategy when interest rates are higher than they are today, and therefore rarely worthwhile.However, with interest rates so low today, I thought I would consider whether borrowing to make non-concessional contributions is an attractive strategy.My financial analysisAssuming an investor has a surplus cash flow of $2,000 per month, they could borrow $200,000 today and contribute the full amount into super (i.e. make a non-concessional contribution). They could then direct their monthly surplus cash flow of $2,000 towards repaying this loan. The loan would be fully repaid within 10 years.As noted above, interest charged in respect to this loan will not be tax deductible.I have assumed the investor fixes their interest rate for 5 years at 3% p.a. After the 5-year fixed rate expires, I have assumed the variable rate has increased to 4% p.a. and then increases each year by 0.50% to reach 6.5% p.a. at the end of the 10 years.I calculated that the value of the total interest paid over 10 years in today’s dollars (assuming inflation at 1.5% p.a.) is approximately $32,000.What are the results?After 10 years, the investor is approximately $51,000 better of in today’s dollars as a result of borrowing the $200,000 now, compared to investing it progressively over the 10-year period (i.e. projected future balance of $323,000 versus $272,000).Therefore, after subtracting the interest cost ($32,000), the investor is approximately $19,000 better off in today’s dollars.The investor is approximately $50,000 better off after 20 years. I have used conservative investment return assumptions of 3.5% p.a. of income plus 3.5%p.a. of growth. If actual returns are higher, the differences could be substantially more.Admittedly, these are not huge numbers. However, this additional wealth is accumulated as a result of this chosen strategy, which doesn’t really cost you very much time or money to implement.No capital gains taxRemember, one of the benefits of investing inside super is that income is taxed at a flat rate of only 15%.And, if you do not sell any investments until after you retire, it is very possible that you will pay no capital gains tax. This provides substantial future tax benefits compared to investing in your personal name.Is it a good time to make this investment?Given recent volatility in share markets, it could be a good time to make this investment, particularly if invested well.I’m not confident that in 6 months we will look back at June 2020 and consider it a smart time to invest. However, I have a much higher level of confidence that in 6 years from now (for example) we’ll wish we had have invested more in June 2020. That is a very important point. What happens to markets over the next few months is immaterial – no one can pick markets so it’s not worth worrying about.What is absolutely critical is that your average investment returns are healthy over the next 10 and 20 years.Double your downsizer contributionThe government allows people to contribute up to $300,000 from the proceeds when downsizing their home. These contributions are not included in the non-concessional cap.Therefore, if someone plans to downsize their home in 3 years’ time, they might borrow $300,000 today to make a maximum non-concessional contribution. Then in 3 years’ time they can repay this loan using their home’s sale proceeds; make a downsizer contribution; plus another non-concessional contribution into super at that time. Doing so effectively allows them to shift up to $900,000 of their home’s equity into super.Don’t invest it all at onceI would almost never recommend investing $200,000 into super in one hit. Instead, I would spread the timing risk and invest the monies in a of number tranches over several months. Dollar cost averaging is an important risk management strategy.What could go wrong?No investment strategy is without risk. It is important to first consider all the things that could go wrong, before you become enamoured with all the things that could go right.Borrowing to invest magnifies returns. Therefore, if you borrow to invest and your super fund does not deliver the investment returns you hope for, is it very possible that you could be worse off.Also, if interest rates rise at a faster rate than what I have assumed, this strategy will not produce the benefit I have projected.Make sure you have a high-quality super fundThe quality of your assets directly impacts the quality of your investment returns. You cannot expect good returns from average quality assets.A quality super fund is one that has strong historical performance; adequate transparency and accountability; and low fees. The investment returns that many of the big-name funds produce can vary significantly over long periods of time. Investing in the wrong fund can cost you hundreds of thousands of dollars in missed returns.Strategy is free moneyOften a small enhancement to an investment strategy can produce substantial benefits for little to no additional cost. I regard this as ‘free money’ because its available to anyone with the right advice for no additional risk or cost.As the saying goes, “you don't know what you don't know until you know it”.

Due to the impact of coronavirus, many people are having to navigate unexpected changes in income and expenses for the first time in their life. This is something I have been talking about over the past few weeks with clients, during presentations and podcast interviews.Cash flow management is the cornerstone of successful wealth accumulation. It doesn’t matter how much you earn, if you don’t manage cash flow effectively, it’s unlikely that you will be successful with building wealth. I have seen clients with 7-figure incomes that have little wealth to show for it. Conversely, other people with relatively modest incomes but very good cash flow management practices, have successfully accumulated a lot of wealth.Managing cash flow does not have to be painfulThe topic of cash flow management feels painful to many people. It tends to create connotations of curtailing expenditure on all the fun things in life. However, in the main, that is not the case.The main aim of best-practice cash flow management is to eliminate unconscious expenditure.Conscious versus unconscious expenditureMost people do not consciously make bad financial decisions. Therefore, the insidious consequence of not tracking cash flow means that money ‘disappears’ on items that add very little enjoyment to your life. As such, eliminating this unconscious expenditure not only saves you money, but is likely to have very little impact on your standard of living.You cannot manage what you do not measureThe best way to eliminate unconscious expenditure is to measure how much you spend in total on all discretionary items. You do not need to track every single expense, just a monthly or fortnightly total.I typically like to allocate expenses into seven categories.Non-discretionary expenses1. financial commitments, such as rent, mortgages, car leases and child support.2. utilities, including costs for gas, electricity, rates, phone, water, internet and contents insurance.3. health and education, such as school fees, health insurance, medical expenses and child care.Discretionary expenses4. shopping and transport, like food, clothing, beauty, petrol, car maintenance and public transport expenses.5. entertainment, including spending on annual holidays, gifts, eating out, movies and coffees.6. cash, which is all withdrawals from ATMs – if this figure is high, stop using cash and start using EFTPOS or credit cards more often, as this makes tracking your spending much easier. Remember, you can’t manage what you can’t measure.7. other, which is anything that doesn’t fit in the preceding categories.Use two separate bank accountsYour salary income should be directed into one account, typically the (offset) account that is linked to your home loan. We will call this a ‘savings’ account. Pay all non-discretionary expenses from this account (categories 1 to 3 above).Then transfer a set amount each week, fortnight or month into the ‘spending’ account and pay all expenses in categories 4 to 7 (above) from the ‘spending’ account. This is depicted in the diagram below (taken from my new book, Rule of the Lending Game).The mere existence will save you moneyIn our experience, merely setting up this banking structure will almost certainly result in a fall in expenditure, probably without any negative lifestyle consequences. But most importantly, it will allow you to track your cash flow at a high level so that you can ‘course correct’ if it gets out of control.Use the lockdown to reset spending habitsUnconscious behaviour tends to be habitual. Breaking the habit, tends to break the unconscious activity. An unexpected positive from the pandemic shutdown might help achieve this for some.What if you run out of money?If you run out of money (spending account balance hits zero) part way through the period, then you know you have been overspending. In this case, you need to have a closer look at your spending habits. This involves allocates each expense into category 4, 5, 6 or 7.If your overspending is conscious i.e. you are spending too much on deliberate items, try to reduce either the amount per transaction or regularity. For example, if you enjoy eating out, keep doing so but go to cheaper venues. Or if you like fine dining, eat out once per month, instead of once per week.The temptation is to try and eliminate these types of expenditure in totality e.g. “we’re not going to eat out for 6 months”. But that approach is rarely sustainable. Remember, the aim is to adopt good cash flow management practices permanently, not just for a few months.Tech you can useThere are a number of apps you can use to track your expenditure at a more granular level. The most popular is Pocketbook. It allows you to link your bank account so that it downloads your transactions from your bank and automatically allocates it to predetermined categories. You can set a budget for each category and automatically track your compliance.The second biggest advantage is it aids financial decision makingOf course, the biggest advantage of improved cash flow management is that you spend less which allows you to invest more.The second biggest advantage is that you will have more reliable data to base financial decision on. That is, for example, if a client is contemplating a home upgrade and we are determining a budget, we can confidently base our financial projections on their actual expenditure amounts.Baby stepsIn my experience, 90% of people do not track their cash flow. Not doing so almost certainly means that they are ‘wasting’ money on items that give them zero enjoyment, and that is a shame. Hopefully, this blog demonstrates how easy it is to get this under control. Doing so will greatly enhance your ability to successfully build wealth.Once you’ve mastered your cash flow, if want to have a chat about how to invest your newfound savings, feel free to reach out to us. Good luck.

Over the past few years I have observed a strong trend of investment-grade house prices growing stronger than apartments. It is true that all markets move in cycles and all cycles come to an end, eventually. It’s my thesis that several factors (such as the fall in the volume of new apartments, contraction of borrowing capacity and high population growth) are conspiring to create a growth cycle for older-style, investment-grade apartments.Supply of new build apartments drying up, fastDevelopment approvals for new apartments has been falling dramatically over the past few years. In Sydney, the volume of new apartments approved for construction has more than halved since its peak in 2016. In Melbourne, approvals have fallen nearly 40% in the last 18 months. The Brisbane apartment market is almost non-existing with less than a quarter of the volume compared to the peak in 2016.Major residential developments typically have a lead time of at least 18 to 24 months (i.e. planning through to construction). Therefore, if this trend continues, there will be a massive supply-shortage of apartments within the next few years. There is still some pipeline stock to come onto the market, however, once those properties are completed, supply is expected to fall.New-build apartments aren’t constructed with the secondary market in mindPurchasing a new build apartment and an establish apartment are materially different things.Typically, a brand-new apartment purchaser is influenced by things such as apartment finish and building amenities such as theatre rooms, pools and gyms. In the beginning, these buildings are all shiny and new and present very well. However, they tend to wear and tear quickly and these largely superficial attributes become far less persuasive (and costly to maintain).Conversely, established apartment buyers rarely focus on these factors – mainly because older style apartments rarely offer such amenities. Instead, these buyers tend to focus on factors such as location, privacy, soundproofing, natural light, smaller blocks (fewer tenants) and so on.Understandably, when you compare a brand-new apartment to an established apartment, the shiny new object gets all the attention. However, because a newer apartment is no longer shiny after 3 to 5 years of wear and tear, an older-style apartment starts to look comparatively more attractive.Borrowing capacity is diminishedIt has been very well documented that borrowing capacity has contracted significantly over the past few years. This means a property buyer’s purchasing power is less which forces them choose between two options. First, an apartment in a nice, blue-chip suburb close to everything. Or, second, a house in the outer suburbs. Many people will choose the first option. Consequently, I predict the reduction of borrowing capacity will force more property buyers into the apartment market.Houses are too expensive for many peopleApproximately ten years ago it was possible to purchase an investment-grade house in Melbourne for around $800,000. However, today, you need over $1 million. Therefore, if your budget is $800,000 you have two options. You can purchase an apartment, not a house. Or you can find a house in an adjoining, non-investment-grade suburb (i.e. compromise on the investment’s quality).With house prices continuing to increase, an increasing number of property buyers will be forced into the apartment market.Cladding and building quality issues make new apartments harder to sellBuilding quality issues in a few Sydney apartment complexes (e.g. Opal Tower and Mascot Tower) were well publicised during 2019. It is unclear how much of the restoration liability rests with the owners, but it’s safe to say that they will likely suffer some loss.In addition, many buildings are investigating the type of cladding used to ensure its adequately fire retardant, to avoid a repeat of the Grenfell Tower fire in London in 2017.These issues will impair the marketability of new-build apartment complexes. Consequently, developers will need to spend more money on marketing as well as improve the quality of their construction (higher cost). Both of these factors make constructing new residential towers less attractive to developers – and less attractive to property purchasers too.Population growth marches onAccording to the ABS, over the past 8 years, Victoria’s population has increased at a rate of between 100,000 and 150,000 people per year (rolling 12 months average) and NSW by between 75,000 and 130,000 people. Population growth in both states is driven heavily by overseas migration. Interstate migration is negative in NSW (minus 15,000 - 20,000 people per year) whereas its positive in Victoria (plus 12,000 - 15,000 people per year).If this growth continues, and supply of new apartments fall as indicated above, this imbalance in supply and demand will inevitably translate to property price growth.In the last 10 years, we have constructed too many apartmentsThe chart below compares Victoria’s population growth with Melbourne apartment approvals. In 2011 approximately 24,000 apartments were approved when Victoria’s annual population growth was only 75,000 – but 32% of people probably don’t want to live in an apartment! It appears that current construction volumes are now at a more sustainable level.Steer clear of Brisbane apartmentsI do not advise any of my clients invest in apartments in Brisbane (at the moment). Brisbane’s population growth is mainly driven by overseas migration as interstate migrants go to the Gold and Sunshine coasts e.g. retirees. Overseas migrants tend to be skilled workers and Brisbane has the best job opportunities in Queensland. These migrants tend to be young families and need a house, not an apartment. In addition, the apartment market is still in over-supply and it will take many years until this surplus stock is absorbed by demand (natural population growth).But not all apartments are good investmentsYou are probably sick of reading this, but it must be said: “not all apartments will make good investments”. In fact, I would say that very few apartments can be regarded as investment-grade. Therefore, I always recommend that people engage a reputable and experienced buyers’ agent to assist them with selecting the right property to invest in. This blog will remind you of the three attributes needed for a property to be deemed investment-grade i.e. strong land value component, scarcity and proven performance.Markets move in cyclesIt is my observation that apartments have dramatically underperformed houses over the past five to ten years i.e. house prices have increased at a much higher rate. As I illustrated in this blog (using historical data), most property markets move in cycles. A high growth period of 7 to 10 years is typically followed by a low-growth period. If we agree that the established (investment-grade) apartment market has recently been in a low-growth phase, that should mean a higher growth phase will follow. I predict this growth phase will begin in the next five years, for the reasons discussed above.If you need assistance with your property investment plans, including a referral to a reputable buyers’ agent, please don’t hesitate to reach out.

According to global bank Standard Chartered, the Chinese and Indian economies are expected to more than triple between 2017 and 2030. In fact, China’s Gross Domestic Product (a measure of a country’s economic output) is predicted to be more than double the USA. This is because the International Monetary Fund predicts that emerging economy growth rates will be nearly three times higher than developed economies. However, investing in emerging markets is not for the fainthearted.Developed versus emerging marketsStock markets are typically classified as either developed or emerging markets. Developed markets have a robust and reliable financial system. The country must be open to foreign ownership, ease of capital movement, and efficiency of market institutions. As such, the governments disclosure and regulatory regime is aimed at providing investors with reliable and trustworthy information. The largest developed economies include USA (accounts for 62.8% of all developed markets), Japan (8.4%), UK (5.5%), France (3.8%) and 19 other smaller countries including Australia.However, emerging markets are less developed. Their financial systems do not have the same level of transparency, accountability and regulatory oversight. The largest emerging markets include China (33%), Korea (13%), Taiwan (11.4%) and India (9%) plus 22 additional countries.Indexing doesn’t work as well If you have been a reader of this blog for some time, you would be well aware by now that I’m a strong believer in passive (index) investing. Passive investing is low-cost, very diversified way of investing in a particular market or asset class. It only employs rules-based methodologies - meaning that you don’t pay for expensive fund managers and we can back-test results (i.e. work out what the results would have been if you employed the same rules-based approach over the past 20 years for example). There’s overwhelming evidence that confirms passive investing produces higher returns in the long run. For example, based on data prepared by S&P Dow Jones Indices, only 16% of active fund managers have beaten the Australian index (ASX200) and less than 11% have beaten the US index (S&P500) over the past 15 years. But this data is a bit deceptive, because its not the same fund managers for the whole period. In fact, any out-performance rarely persists for more than a couple of years – which means you need a crystal ball to work out which active fund manager to switch to every few years. This is a flawed strategy in my opinion – which is why rules-based, passive investing is superior.However, when it comes to investing in emerging markets, indexing doesn’t always perform as well as it does in developed markets.When investing in developed markets, many studies show that the key is to diversify your portfolio as much as possible. Of course, you should employ various value-based indexing strategies, particularly in this market. Lack of diversification is the number one cause of poor returns. So, a blanket-based approach works best.However, when investing in emerging markets, the key is to avoid the poor-quality companies and over-valued companies. You cannot rely on the market to accurately help you identify a poor-quality business, like you can in a developed markets. Therefore, you must be very selective with what you invest in. That is why active investing can produce better outcomes when investing in emerging markets.In my view, you should employ a high-conviction active manager that is very selective and disciplined with what they invest in. You only want them to invest in very high-quality businesses that are fairly priced.The “President Trump effect”Emerging market valuations are currently low by historical measures. Stock markets dislike uncertainty and tend to price in worst case scenarios. The USA/China trade tensions have had a negative impact on emerging market valuations. This indicates that it’s probably a good time to buy now or, put differently, your downside risks are relatively limited.Expected returnsAccording to modelling produced by US research house Research Affiliates, there is a 90% probability that, over the next decade, emerging market investment returns will be in the range of 4.3% and 11.1% p.a. This modelling is prepared using the CAPE ratio which has been a very accurate predictor of subsequent returns.Over the past 5 years, my preferred investment managers (including Martin Currie and Fidelity), have produced double-digit investment returns (10.9%-12.3% p.a.). This compares favourably to Vanguard for example (the largest index manager in the world) at 7.62% p.a.It is also possible to be more focused with emerging market investments through targeting specific growth industries such as technology. For example, BetaShares has a product this invests in the top 50 tech companies in Asia such as Alibaba, Samsung, Taiwan Semiconductor, gaming company Tencent. These are currently valued on lower multiples than their USA counterparts but arguably have better long-term growth prospects.Please don’t invest in these funds without first obtaining independent advice. I only share these names with you to give you some examples of emerging market funds. Please be cautious with your approach Emerging markets are higher risk investments because they typically have a higher volatility rate. Volatility means that prices can change quickly, and movements can be large. As such, typically, I would not recommend investing more than 5% of a portfolio in emerging markets, if anything at all. Emerging market investments should form part of a diversified portfolio of shares and bonds.Indirect benefits Over the past century, global wealth has centred in the USA and Europe. However, by year 2030 the Chinese and Indian economies are projected to be significantly larger than the USA. All of these countries are in close proximity to Australia and relatively similar time zones. As such, Australia is well-positioned (excuse the pun!) to benefit from this tremendous growth.Perhaps it’s a good time to start thinking about whether your investments are also well positioned to capture these possible investments returns.

Not more than 7 months ago, according to the media, investing in property was no longer a smart way to build wealth. Labor wanted to ban negative gearing, increase Capital Gains Tax (CGT), commentators were predicting that the market would crash by more than 20%, banks were tightening lending standards and so on. Since then, the world has returned back to ‘normal’ and most of these concerns have abated. According to the media, property is now a good investment again.But what if Labor had won?Of course, Labor losing the federal election in May 2019 did help the property market because it meant any changes to negative gearing and CGT were off the table. However, if it had won the election, I doubt Labor would have been able to get these proposed changes legislated. And even if they did get them legislated, I stand by my view that whilst these changes would have materially reduced after-tax returns, it would not have rendered property investment uneconomical. In the long run, investing in the right property still would have been a viable investment.Construction of new housing, recession, interest rates…I was reading an article by an investment manager that I respect greatly a few weeks ago. His thesis was that it was too early to call a recovery on the property market because of the fall in construction volume (of new dwellings). He went on to explain that a depressed construction market will create negative consequences for economic growth, unemployment and therefore property.Whilst I don’t disagree with this author’s economic reasoning, I was left pondering what use this information had to an investor. That is, if I’m contemplating an investment in a blue-chip, investment-grade location, do I care about the fall in new construction (which inevitably occurs in locations far removed from investment-grade locations)?So, what information is relevant then?In reality, much of the content produced by the media is relatively useless for making property investment decisions. The media tend to only run stories that they consider newsworthy. Newsworthy often means that the information is time-sensitive e.g. what happened yesterday or what will happen tomorrow. This short-term information does not help if you intend to own a property for many decades.Remember what drives property valuesA good and bad property cost the same to hold. You will pay the same amount of interest in respect to the mortgages. And the income and expenses will be relatively similar. The biggest difference between a good and bad property is capital growth. That is, what will the property be worth in 10, 20 or 30 years? In this regard, when selecting a property, there are three things you must consider:1. Land valueLand appreciates whereas buildings depreciate. Therefore, it stands to reason that you should invest in properties that are mostly land value which typically includes houses and older-style apartments. Whereas, if you invest in a newly built property, it is likely most of the purchase price will represent building value and only a small land value component. The appreciation in land value needs to more than offset the depreciation in building value for the property’s overall value to increase. But this is unlikely if say, 80% of the value is building (and depreciating) and only 20% land (and appreciating).2. ScarcityThe property must be scarce both in terms of location and property type.A scarce location is one where there is a finite amount of vacant land (often no vacant land) plus the location is highly desirable to a broad spectrum of demographics (e.g. young people, families, retirees, etc.).A scarce property type is one that has limited (even falling) supply and wide appeal. An example is Victorian cottages – no one is building them anymore and they have wide appeal. An example of a property type that has little scarcity is a high-rise apartment – there’s literally thousands of them and they all look the same and supply of new ones is almost never-ending.3. Past performanceThe best evidence of a good property is past performance. That is, how has the property’s value changed over the past 30 years? Past performance is a good indicator because value drivers tend to be static (i.e. rarely change) and factual, not open to subjectivity. For example, positive amenities (attributes) such as shopping strips, schools and hospitals rarely change.There’s only a handful of important macro considerationsOf course, when contemplating an investment, it’s important to consider the aforementioned factors – but these are all property-specific. In terms of macro-level factors, there really are only a handful of important considerations, namely:Population growthLong term population growth is a very important factor. There’s only a limited number of investment-grade locations (so the supply-side is fixed) and if population is growing, this will translate to an increase in demand. This translates into upward price growth pressure. Natural changes in population (births and deaths) are relatively stable. The main changes will be driven by overseas and interstate migration. Some capital cities are projected to benefit from higher levels of migration than others. For example, the ABS (here) predicts Melbourne will be Australia’s largest capital city surpassing Sydney in year 2031.Money supplyThe flow of money into the property market will have an impact on growth rates. Money can flow into the market mainly through borrowings and from overseas sources (i.e. non-resident investors). It has been well documented that the government has restricted supply from both these sources in recent times. Arguably, the government has been too aggressive with its approach and I predict that bank lending policies will continue to gradually loosen over the next few years. However, if money supply remained constricted for an extended period of time, this would likely have a negative impact on growth.Diversified employment opportunitiesYou must invest in a location that has diversified employment opportunities. Doing so means no one industry can manipulate the demand for property and therefore demand is sustainable and stable. It has been well documented how the mining industry has impacted property prices in Perth for example.InfrastructureInfrastructure is important to the extent that it can reduce the impact of living further away from the CBD (i.e. in the outer suburbs). That includes reduced travel times, better access to employment prospects, recreational resources and so forth. As I discussed in this blog, Australia is unlikely to make any material advancements in this regards, and that’s why inner-city, blue-chip suburbs will continue to outperform.Ignore the rest!Apart from the considerations discussed above (population, money supply, employment opportunities and infrastructure), ignore all other media ‘noise’ when making property investment decisions. A lot of quality media is thought-provoking and interesting. Its just that most of it isn’t very helpful to property investors. If anything, it can encourage you to make mistakes such as promoting short-term thinking and/or procrastination.

It feels like there is more global uncertainty at the moment. Things such as a global or domestic economic recession, US/China trade war tensions, Brexit, Trump’s rhetoric, the prospect of zero (or negative) interest rates, what property prices might do here, all seem to dominate the news. You may find these matters confusing and they can create inertia.So, how do you navigate these seemingly turbulent times?Consider issues in a long-term contextLast week, the Australian share market fell 3.7% between Tuesday and Thursday. These types of dramatic movements attract alarmist headlines. The reality is that despite this drop, the market is still up 10.1% over the past 12 months, which is much better than other developed markets.The volatility (VIX) index is the most common measure for the level of volatility in the US market and is charted below for the past 20 years. The VIX index averaged only 13.2 throughout calendar years 2016 and 2017, which is well below the long-term mean of 18.3. Since the beginning of 2018, the VIX has averaged 16.6, which is 25% higher than 2016 and 2017, but still below the long-term mean.https://www.prosolution.com.au/wp-content/uploads/2019/10/VIX.png?6bfec1&6bfec1Perhaps this puts recent share market volatility in context. Whilst the market is more volatile than it has been in recent times, in context of longer-term data, it is actually not all that volatile. For example, there was almost twice as much volatility between 2008 and 2011.I share this with you to make the point that it is important to focus on the data and facts rather than how markets feel.Most of these issues are short termThe best way to deal with these often-exaggerated topics (as listed in the headline) that the media, in particular, love to talk about is to ask yourself whether these are likely to have had an impact 20 years from now. Mostly, the answer is no. Many of these “issues” are short-term in nature and really won’t have any impact on long term investment returns.Markets and economies move in cycles, so recessions aren’t a new phenomenon for long-term investors. Government trade terms and strategies change, but markets and business always adapt. Perhaps the only factor that might have an impact in the long run is interest rates, particularly if they are lower for longer. But that impact is likely to be positive for astute investors.In short, what I am saying is; “play the long game”. Focus on long term outcomes. If you do that, you don’t need to worry about getting distracted by all the short-term noise and as such, it is less likely you will make a decision that you may regret in the future (or regret not making any decisions).Short term thinking creates unnecessary and unhelpful anxiety. You end up focusing on whatever dominates the news – there is always something to worry about. To avoid this ask yourself, what can you do today that is likely to strengthen your financial position 20 years from now. Forget about what might happen over the next 20 days or 20 months.Focus on quality, methodology and valuationIf you are investing in shares, you must focus on ensuring you adopt the correct methodology and skew your investments away from over-priced markets. If you are investing in property, focus all your energy on quality only. Doing this is the best way to ensure your investments are strong enough to weather any storms that might be coming our way. I explain these two factors below:§ Quality and methodology – ensure you have a sound methodology for selecting your investments. If you are investing in equities, arguably it would be better to adopt a valued-based approach if you share my belief that the equity bull-market is approaching its end. If you are investing in property, focus on the basics of supply and demand e.g. strong land value component in an area that has scarcity and therefore benefits from sustainable, excessive demand. Historic performance is an excellent guide.§ Valuation – the best way to protect future share investment returns is to skew your investments away from over-priced markets. Your starting valuation will tend to have a big impact on future investment returns. It stands to reason that if you invest in markets that are “cheap”, your downside risk is low whereas if you invest in markets that appear overpriced and the bubble bursts, you will probably lose money! When investing in property, unlike with shares, the current valuation has little impact on future returns because the property market is less volatile, so intrinsic and market values tend not to differ substantially. Property has always seemed expensive unless you take a long-term view. Of course, that doesn’t mean you shouldn’t take steps to avoid over-paying for a property, so make sure you get professional advice!The short-term hysteria sometimes creates opportunitiesAnother thing you can do is use some of this short-term noise to your advantage. For example, the US/China trade tensions have weighed on emerging market valuations. Emerging markets include countries such as China, Taiwan and India.The price-earnings ratio (see this blog for what this means) for emerging markets (FTSE Emerging Markets All Cap) is currently 12.8 times. Compare that to the US market (S&P 500) which has a price-earnings ratio of over 21 times – 64% higher! This and other measures (such as book value/price) make ‘emerging markets’ look cheap, by comparison.As Warren Buffett suggests, the share market is a popularity contest in the short run. However, in the long run, it is a weighing machine in that it’s the fundamentals of markets that will determine long term returns, not popularity. Emerging markets are not popular at the moment because of President Trump’s actions. Perhaps you can take advantage of this in your portfolio?A word of warning: this is an example only. Emerging market are high risk investments. Typically, less than 5% of your portfolio should be invested in emerging markets. Also, indexing (passive strategies) don’t work as well as they do in developed markets, so it is best to use active management. Just be careful.It’s times like these you must block your ears, close your eyes and play the long game.I started this blog with a statement that “it feels like there is more uncertainty at the moment”. The most important word in that statement is; feels. Feelings are often shaped by two emotions; fear and greed. Neither of these emotions are particularly helpful when it comes to making financial decision.Avoid allowing the news of the day to shape your financial decision including the temptation to delay making a decision i.e. procrastinate. Instead, put your feelings aside and look at the facts. Make an evidenced-based decision. Get astute and independent advice. And most of all, focus on the long run i.e. the best investment you can make today that will maximise your wealth in 20 years’ time. What happens over the next 2 years (for example) is completely irrelevant, so don’t waste any time thinking about it.

Borrowing to invest (in property or shares) is typically a good wealth accumulation strategy as long as you do it prudently and adopt a proven methodology to select quality investments. If used wisely, debt can be a very effective tool. However, whilst your investment strategy might require you to get into debt, the strategy must also articulate how you will get out of debt (i.e. repay it). This blog sets out some of these strategies.How much debt is safe to take into retirement?You must think about your interest rate sensitivity in retirement. For example, if you have $2 million of borrowings, an interest rate increase of 1% will cost you an extra $20,000 per year. If your only source of income is from investments and super, that increased amount of interest might have a big impact on your cash flow and standard of living.Generally, you want to aim for a debt level that is far less sensitive to changes in interest rates. Worrying about interest rate changes is the last thing you want to do in retirement.One thing I always aim for when developing a strategy is that I definitely do not want any negative gearing in retirement. That is, your investment property portfolio (if you have one) should at least be paying for itself i.e. rental income covers all expenses including loan repayments. It doesn’t necessarily have to generate a lot of income (depending on the client’s situation of course), but we don’t want to be in a position where your property portfolio is sucking out cash flow.Having zero debt might not be an optimal strategy either. A conservative amount of leverage will allow you to build wealth more aggressively, particularly in the first decade of retirement. I would argue however that you want to aim to have more conservative levels of debt when you are retired (compared to when you are working).Debt repayment tacticsWhen formulating a long-term investment strategy for my clients, there are a number of strategies we can employ in the strategy that allows us to reduce debt to an acceptable level prior to retirement.Buy an asset specifically to sellSelling assets to repay debt solves one problem (i.e. reduces debt) but can create another i.e. it might mean that you have insufficient remaining investments to fund your retirement.However, if you formulate a strategy from the beginning that is premised on the idea that you will sell an asset as a debt reduction mechanism, you can proactively plan around this. Firstly, it would be wise to focus on ways to reduce your Capital Gains Tax (CGT) liability such as owning the asset in a family trust, tenants-in-common or in your super fund. Secondly, you can select the most appropriate asset and location that best suits this strategy. For example, if you are planning to sell the asset in 15 years’ time then I would consider buying a house that you could add value to (e.g. renovate, sub-divide or develop) – so that you were not totally reliant on the market to generate equity in the property.Owning that house in a super fund would mean that you could avoid CGT altogether if you dispose of the property post retirement (in pension phase). For example, if you purchase a house in a blue-chip suburb in Brisbane for $850,000 and it appreciates in value by 7% p.a., I estimate you will net circa $1.4 million in cash after repaying the loan and all costs if you sell it in 15 years’ time. That should be enough to make a significant reduction to your debt.Use surplus cash flowYou can direct some or all of your surplus cash flow into offset accounts to notionally reduce your debt. As discussed in my blog last week, good cash flow management is imperative to build wealth. Directing monies into offset accounts does two things. Firstly, it reduces your net debt exposure and cash flow sensitivity to changes in interest rates. Secondly, it improves your investment portfolio’s liquidity because you have immediate access to cash should you require it. This might help you transition to retirement before you have access to super (which is age 60 if you are born after 30 June 1964), for example.Withdraw some monies from superAfter age 60, you can withdraw your super tax free. Depending on your super balance, debt exposure and other investments, it may be appropriate to withdraw funds from super to repay debt. Of course, in retirement, super is a zero-tax environment (if your balance is less than $1.6 million), so it’s wise to keep as much money in your super account for as long as possible. However, this might be a good ‘plan B’.Reduce debt so investment property/s cash flow is neutralGenerating good returns from investing in property can take many decades. That is because compounding capital growth takes at least 10 to 15 years before it starts to produce significant equity gains, as described in the short video below.https://vimeo.com/352381658 Therefore, one strategy could be to reduce your net debt (through depositing surplus cash flow into offset accounts) to the extent that the rental income is sufficient to pay for the property’s expenses and loan interest i.e. break-even. This means you will be solely reliant on your super to fund say the first 10 to 15 years of retirement after which, the property should have benefited from significant equity growth over that time (assuming it’s an investment-grade asset).Downsize your homeI am very cautious about formulating a strategy that relies upon crystallising equity from downsizing the family home. The reason being is that whilst people might like to downsize in terms of accommodation size, it might not necessarily translate to a downsize in terms of value. For example, if your family home is worth say $2 million, an alternative new-build, luxury townhouse in the same area might cost say $1.5 million. In this case, net of costs, you may not crystallise as much cash as you expect.However, in some limited situations, where appropriate, I will assist clients in formulating a strategy that includes downsizing the family home and using some of the proceeds to reduce debt.You need more than one tacticYou must adopt more than one of the above debt reduction tactics. That way, if one fails, you always have a plan B. For example, you might rely on cash flow to reduce debt. If that doesn’t end up delivering the amount of debt reduction desired or expected, then you can withdraw monies from super or sell a property for instance.What is your plan?Many financial plans require investors to get into debt. However, a plan is not complete if it doesn’t address how the investor will eventually repay their debts at some point. And if you want to retire within the next two decades, debt reduction is something you need to start considering, if you haven’t already done so. Of course, we are here to help, if you need it.

Last week Jarrod McCabe and I recorded a presentation about the ALP's proposed changes to tax laws that impact investors. You can watch it here: https://www.prosolution.com.au/webinar-negative-gearing-replay/ In this week's podcast, I summaries answers to 5 questions we addresses: What is the impact on investors (in dollar terms)? What impact will these changes have on the property market - prior to 1 Jan and after?Is there anything existing property investors should do now? Will these changes get through parliament? Will these changes improve housing affordability?What can investors do to mitigate the impact of these changes? Here's a link to chart 1. Here's a link to chart 2. I'm on leave for 3 weeks so there won't be any new podcasts over this time. Sorry.

Arno Burger, CFP® started his practice as a young, 25-year old in a flatlet at the back of his house in 1992. His clear vision and strong work-ethic quickly got him to move to bigger offices.In 1994 he started charging fees, and although it was by no means perfect, he pioneered the business model in South Africa in his own unique way.We discuss what led him to make the change and the journey and learnings over the years and we get into detail about his model. We discuss setting prices, something that is a challenge for most financial planners.Arno discusses the structure of the business, FIDIUS, and their intentional approach to ensure clients do business with FIDIUS and not the individuals in the business. We talk about the FIDIUS client experience, all the technology they employ and we get to know Arno a little better and find out how he gets away from the business when not working.

The ALP’s proposed ban on negative gearing has been well publicised and debated. However, its proposed changes to Capital Gains Tax (CGT) have received far less attention. I suspect that this is because investors tend to overestimate short-term consequences and underestimate more significant long-term outcomes. But, since most of us are long-term investors, I’d suggest that we should adopt a more balanced view.How does capital gain tax currently work?At the moment, only 50% of the net capital gain is included with your other taxable income (except for companies which are not entitled to the 50% discount) if you have owned the asset for more than 12 months. The net capital gain (or loss) is calculated as follows:Net sale proceeds – being sale price less any selling costs including agent fees and so on.LessWritten-down acquisition cost – including purchase price, stamp duty, buyers’ agent fees, legal fees, inspection fees and so on; less any depreciation claimed in prior years.EqualsNet gross capital gain (or loss). This amount is discounted by 50%. The discounted amount is then added to your income and taxed according to individual marginal rates.What has the ALP proposed to change?The ALP has announced that if it wins the election on 18 May, it will halve the CGT discount from 50% to 25%. This effectively increases that amount of tax you’ll pay by 50%.For example, under current arrangements, only $50 of a $100 capital gain would be added to your taxable income. If you are on the highest marginal tax rate of 47%, you would pay $23.50 in tax. However, under the ALP’s proposed arrangement, $75 would be added to your taxable income and your tax payable would increase to $35.25 – an additional $11.75 or 50%.These CGT changes apply to investments, including property and shares, purchased on or after 1 January 2020 (for property, this is likely to be based on contract date, not settlement date). All investments made prior to 1 January 2020 will be fully grandfathered and entitled to continue to claim the 50% CGT discount.High growth assets will be impacted the mostUnlike the changes to negative gearing, these changes to CGT will impact property and share investors to a similar extent.And investments that provide the majority of their total return in capital growth rather than income will be impacted the most by these changes. The two most popular (common) major asset classes are:Direct propertyAccording to REIA data, the average compounding capital growth rate of Australia’s five largest capital cities since 1980 is 7.2% p.a. Investment-grade properties should generate a higher growth rate (than the median).However, property tends to generate only a small amount of income. Whilst gross rental yields can range from 2% and 5% p.a., after an investor pays for expenses such as management fees, maintenance, insurance, water and so on, the net rental yield is a lot lower – probably under 2% p.a. in most circumstances. In summary, property typically provides circa 80% of its total return in capital appreciate and 20% in income.International sharesInternational equities also provide most of its return in capital growth. The MSCI World Index has appreciated in value by 7.83% between December 1987 when it began and March 2019. The average annual dividend yield of this index is currently only slightly above 2%. So, international investments also provide 80% of total return in growth and 20% in income.It is interesting to note however that Australian shares generate a lot more income. Almost 50% of their total returns are provided by way of income and 50% in capital growth – a lot different to property and international shares.Impact of CGT hike on after-tax returnsAs the table below illustrates, asset classes that generate more of their return in the form of capital growth (and consequently, less income), are impacted by the ALP’s CGT policy to a greater extent. Somewhat ironically, it is these types of assets that suit a gearing strategy the best – because the lower income produces a higher pre-tax loss.See table hereThis is a big deal – more costly than the negative gearing ban!Most of the media focus has been on the negative gearing ban but this increase in CGT will cost investors a lot more.I have calculated that the present value of the negative gearing ban over the first 20 years of ownership of a $750,000 investment property to be $82,762. That is the present value of the delayed tax benefits i.e. how worse off you are as a result of this change.However, if you sold the property after 20 years, due to the reduction in the CGT discount (as explained above), your net sale proceeds would reduce from $950,000 to less than $800,000 (in today’s dollars). $150,000 less – or a 19% reduction. It gets worse the longer you retain the asset. After 30 years you will be $275,000 worse off in today’s dollars due to the higher rate of CGT. This is high compared to the present value of the negative gearing changes after 30 years which is $57,124 (lower than after 20 years because you eventually benefit from the carried forward losses).So, in summary, the negative gearing ban will cost you $57,000 and the CGT hike will cost you $275,000. Which one are you more concerned about?What should you do?You might be excused for concluding that you should only invest in income-style assets (such as Aussie shares) if the ALP wins the election. However, concentrating your investments in one asset class is never a good idea.The best way to minimise capital gains tax is to use entities. A super fund is the best entity as it has a zero-tax-rate in retirement (i.e. pension phase assuming your account balance is less than $1.6 million) and therefore is protected from these proposed CGT changes.The next best entity is a family trust because, as the law currently stands, you can distribute a capital gain to a number of beneficiaries. This allows you to share the CGT liability amongst your family members. Although the ALP has also suggested it will start charging discretionary trusts a flat tax rate of 30%.Apart from using entities, investors should think about sharing ownership with their spouse. The goal should be to have relatively even asset ownership (both in and outside of super) by the time you reach retirement. This will ensure you are well positioned to weather any future tax changes.Planning is the best solutionThere certainly will be a lot of changes coming our way if the ALP wins the election on 18 May. And whilst on the face of it they seem entirely negative, I’m sure they will create market opportunities for investors astute enough to look for them.Like everything to do with building wealth, you must take a long-term approach, invest in quality assets and ensure you receive good, independent strategic advice – so that you retain as much wealth as possible. This is as true today as it was 30 years ago – nothing has really changed.This blog is an edited version of an article written by Stuart Wemyss published in The Australian on 26 April 2019

Different professionals are able to give advice about a specific field – but who’s taking responsibility for looking at the big picture? How do you know if opportunities are slipping between the gaps? What if you have an issue/problem/question that bleeds over a few different fields?Firstly, it is important to understand the what different professionals can and cannot talk about (by law).Mortgage adviceTo give advice about a mortgage, borrowing capacity, interest rates, products and so on the professional must hold an Australian Credit License (or be an authorised representative of an ACL holder). You can search ASIC’s register of credit representatives here.Tax adviceAnyone that provides tax agent services (tax advice, lodge tax returns, etc.) for a fee must be registered with the Tax Practitioners Board. You might find that some well-meaning professionals (such as mortgage brokers or buyer’s agents) offer you tax advice or express an opinion about how an item should be treated for taxation purposes, but you should always confirm this advice with a Registered Tax Agent. You can search the Tax Agents register here.Financial adviceTo be able to provide financial advice, you must hold an Australia Financial Services License (AFSL) or be an authorised representative of a holder. Financial advice includes cash flow management/budgeting, investing in shares, superannuation, retirement planning, estate planning, risk management and so on. I have written previously about the importance of selecting a truly independent advisor. You can search the AFSL register here.Property adviceA person cannot recommend and help you purchase a property unless they are a licensed real estate agent. Licensing is State based and this page provides a good summary including links to registers. General property investment advice is completely unregulated and I have written about why this is a problem in The Australian here. Therefore, if you are paying for property advice, be very careful.Insurance adviceMany financial advisors also provide insurance advice. However, sometimes professionals are insurance advisors only i.e. they have a limited AFSL.What can and cannot be covered…Therefore, mortgage brokers can only give advice about credit (mortgage) products, not cash flow or taxation matters.Tax agents can only give you tax advice and cannot comment on cash flow, investments, mortgages, superannuation and so on.A financial planner can't talk about tax consequences or give you borrowing advice unless they hold the appropriate licenses.The problem is many financial decisions are interrelatedMany financial decisions cross over multiple fields and require input from various professionals to ensure you arrive at a thoroughly well-considered conclusion. Take the decision to upgrade or downsize your family home for instance. Whether to do this and at what budget would include borrowing considerations (mortgage broker), cash flow and retirement planning (financial advisor) and possibly taxation (tax agent).Some decisions are relatively simple and only need brief input. However, more complex issues can result in a lot of back-and-forth between the different advisors before an optimal solution is found. The risk in this situation is that its open to miscommunication, misunderstandings and/or omissions.Who’s responsibility is it?Who’s responsibility is it to ensure all your advisors are engaged in dealing with your financial matters when appropriate? There are three possible solutions:1. You need to take responsibility for this. This means its your responsibility to ensure you communicate with each individual advisor and ensure any plans and advice is shared amongst them. My key bit of advice is that there is no downside to oversharing. That is, be careful to assume that a bit of information isn’t relevant because you don’t know what you don’t know. Share everything and let your advisors decide what is relevant or not.2. Engage a holistic independent firm. The firm should be independent and hold all three key licenses (AFSL, ACL and Tax Agency). Secondly, the firm must have a good collaboration culture – so they are sharing information about clients amongst themselves – rather than working is silos. I know that this is easier said than done as a lot of effort in our business goes into ensuring we are effective sharing information between ourselves.3. Engage a group of firms that have a deep relationship with each-other. If you deal with independent businesses that know and respect each-other there is a greater chance that they will pick up the phone and share ideas/solutions about your financial situation. You will still need to facilitate and encourage the communication, but it will be easier.There are non-advice benefits tooIf we have set up insurances for a client, then our tax accountants know to ensure they claim a tax deduction for their income protection premium. Similarly, if we have set up a client’s loan structure, we will ensure those interest deductions are correctly reflected in our client’s tax returns. When the right hand knows what the left hand is doing, nothing gets missed. Its our responsibility to ensure we pick these things up, not yours.Holistic might not suit everyoneThe key point I want to get across is that many financial decisions require a multi-disciplinary approach which means you must ensure all your advisors are included in the conversation. Most people don’t have the knowledge and experience to identify what information is relevant to each advisor. Any omissions or miscommunication can cause expensive and sometimes irrevocable mistakes or missed opportunities. If you acknowledge this fact, then you must select one of the three solutions above.Ultimately, the more eyes you have looking over your financial circumstances, the greater the chance of you maximising your opportunities. Over the past 17 years of operating a multi-disciplinary, holistic financial services business, I observe this benefit on almost a daily basis.

Understanding how property growth behaves is critical when making buy, hold or sell investment decisions. Unfortunately, I have seen lots of people make terrible decisions based on misinformation or misunderstanding. Therefore, if you are a property investor, you must understand this concept. And if you are an investor with a low asset base, you can use this knowledge to your advantage.History always leaves cluesI’m a big proponent of evidence-based investing because it removes a lot of risk. Evidenced-based investing involves only adopting methodologies, approaches or investing in assets where there is overwhelming evidence that demonstrates it works. No throwing darts. Only invest in sure-things.Below I have set out a few examples of property growth both for individual properties and markets.Individual examples of property growthThe chart below (click to enlarge) sets out the sales of an apartment in Richmond, Victoria between 1985 and 2019. As you can see, there was very little growth between 1985 and 1997 and very strong growth between 1997 and 2010. The average growth over the whole 25 years period averages out at over 8.8% p.a. – which is pretty respectable. This is a very good example of how property behaves i.e. it grows in cycles lasting 5 to 10 years followed by a flat cycle. Click here for an example of a house in Carlton that I cited in another blog that also illustrated this concept.>I appreciate that this data isn’t statistically significant, because it’s only a couple of properties. However, after 17 years of looking at property growth on almost a daily basis, I can assure you that this growth is indicative of how the vast majority of investment-grade property behaves over long period of time.Example of state-based growthThe chart below (click to enlarge) sets out the distribution of median house price growth since 1980. You will notice that a growth cycle typically lasts 7 to 10 years. And a growth phase is typically followed by a period of (7-10 years) of little growth. The average growth rate over the past 38 years of each capital city ranges between 7.30% and 7.96% p.a. That is, in the long-run, there is not a large variation.>Understanding the market and its performanceWhen assessing an investment property’s historical performance, it is important to ascertain whether it is due to asset-specific or market-wide influences. For example, I know that investment-grade apartments in Melbourne have not performed well over the past 7 to 10 years – as perfectly depicted by the Leslie Street chart above. Therefore, investors must consider this when assessing the performance of their assets. For example, if you purchased a quality apartment in Melbourne 5 years ago and haven’t enjoyed much capital growth, it is possible that you have a perfect (investment-grade) asset, but you just haven’t held it long enough yet. That is, no growth is a market-wide phenomenon, not asset-specific.But you can’t have blind faith in the headline numbers. You must understand what has driven performance. Using investment-grade apartments in Melbourne as an example, these are some of the things I would consider when looking at recent growth and forming a view on future growth:New apartment supply peaked a few years ago at 35,000 apartments per year. Ten years prior to this, the average annual apartment supply was in the range of 10,000 and 15,000.Tightening in laws permitting sales of apartments to non-residents in the past few years has dramatically reduced demand for new-build apartments.Tighter credit has significantly reduced borrowing capacities meaning fewer people can qualify for a loan. This makes it more difficult for developers to sell apartments.Approvals for apartments in Melbourne and Sydney have reduced dramatically (see chart by Pete Wargent here). This will have an impact on supply for the next few years.New apartments show a lot of wear-and-tear after as little as 3 to 5 years. They lose their initial ‘shine’ very quickly. This makes older-style apartments look more attractive by comparison. Also, given changes to laws, recently built apartments offer no depreciation benefits to secondary buyers.Melbourne’s annual population growth is approximately 125,000 – so it won’t take long to soak up any excessive supply.Work your way downIn summary, you need to understand the performance of different markets (states). Then the performance of different assets (apartments, houses, townhouses, etc) within each market. And then distinguish between any suburb or geographical considerations. This knowledge helps you assess past performance and, more importantly, form a view on expected future performance on which you can base future investment decisions.What should you do with this information?You can use this information to your advantage in two ways:(1) Have patience and disciplineYou must have patience. Property is a long-term asset and you really need to hold an asset for 30 years to enjoy the significant benefits it offers. Entry-level investment-grade assets in particular do take longer to deliver returns. Therefore, it is unfair to buy a property and expect to see results after only a relatively short period of time. It’s a little bit like declaring a winner at an ALF game at quarter-time (although you can probably safely do that if you’re playing Carlton!).Also, you must have the discipline to stick to, and believe in, the fundamentals of an asset. If it has performed in the past, has a strong land value component and is a scarce asset (i.e. its investment-grade), it will work out in the long run. Have faith. You’ll be rewarded for it in the long run.(2) Fundamentally sound approach with a strategic tiltYou can use this information to be more strategic with the implementation of your investment strategy. Let me be clear. I am not suggesting you speculate and do things like invest in an unproven location on the hope/view that growth is going to pick up. Definitely not! You must always stick to a fundamentally-sound, evidenced-based, proven, low-risk approach (methodology). However, you can be strategic in your implementation.For example, let’s say that your investment strategy included investing in two properties; one apartment and one house. In that case, I would suggest that buying the house in Brisbane has merit (because median house growth has been pretty flat since 2011 so it’s probably ready for a growth spurt, especially given improvements in overseas and interstate migration). And I would buy the apartment in Melbourne given this sector (i.e. older-style apartments) has been quite flat for a number of years and supply of new stock is contracting which should eventually drive growth in investment-grade apartments.Take advice from someone that is holistic and independentI acknowledge that I have a vested interest in what I’m about to write – but that doesn’t make it untrue or less valuable. My experience tells me that there’s great value in receiving advice from someone that doesn’t have a vested interest in you (1) investing in a particular asset class (e.g. property) and (2) in which market you invest in (and the type of asset you buy). That is what I have shaped my business in this way – because I believe it positions us to add the most value. Develop an astute strategy, be strategic with its implementation and know the right professionals to trust on the ground to ensure you invest in the right assets.So, you can either try and figure all this out yourself and hope you get it right, or you can engage an independent expert.

Question one: What didn’t work well in 2018?When planning, a good place to start is to ask yourself what were the one or two things that didn’t work well in 2018. Maybe you planned to sort out your super and didn’t get around to it? Or maybe you didn’t have a good enough handle on expenses (spending)? The idea is to identify one or two big things that didn’t turn out how you had hoped and develop a plan for rectifying them this year. Here’s two tips:1. Often, it’s not a what, but who question. The best way to find a solution to a problem is not by asking “what steps do I need to take” but “who has solved this problem previously that can help me”. Seeking advice or experience from someone that has been in the same situation you will save a lot of time and help you avoid repeating common mistakes. People such as family, friends, colleagues or an independent advisor could help.2. Who’s going to hold you accountable? Creating some sort of accountability has a massive impact on the likelihood of someone achieving a goal. When you set a goal, you must set a deadline and then have someone hold you accountable for achieving that deadline. That could be your spouse, friend, accountant or an independent advisor.Question Two: What are the one or two things you need to achieve in 2019?All of my financial advisory clients have a very clear understanding of the one or two priorities that they need to focus on/achieve this year in order to achieve their longer-term goals. This could include reducing/offsetting debt by a predetermined amount (through good cash flow management assisted with software), investing a certain amount in super, making regular share investments, investing in property or similar.The key question to ask yourself now is “what can I do this year that will have the largest impact on my financial position by 2030?” This will force you to take a long-term view and not be distracted by short-term worries or noise. Don’t try and take on too many goals in 2019 – you really only what one to three goals. And if you are struggling to develop a long-term plan then grab a copy of Investopoly and follow the 8 rules outlined therein.Question Three: Are you safe and secure?It is very important that you periodically consider the things that are in place to protect your wealth and family and the start of a year is a perfect time to do that:· Are your wills up-to-date? Are your executors still wiling and able to preform their role? Have any beneficiaries changed? Do you have current medical and financial powers of attorney? Should/does your will include a testamentary trust?· Are your personal risk insurances (Life, TPD and income protection) up-to-date and still appropriate? Are they structured is a way that you are getting the best value for money i.e. deepest, quality cover for the lowest cost?· Have you reviewed your mortgage interest rates? Should you convert loan repayments to principal and interest (to reduce the interest rate ≈ 0.50% p.a.)? Should you lock in access to equity now? Should you fix any interest rates (3-year fixed rates can be lower than variable rates)?· Is your super invested in the correct investment option? If you have multiple super accounts, should you consolidate them? Have you looked at your super fund’s long term (10 year) performance compared to the leading industry funds (see here – refer to Chart 2)?· Are your tax structures effective? Have you had a review of your taxation affairs?One hour of planning could be the best investment you make this yearMany of the above questions and items really don’t take a lot of time to answer or address. As I say in my book (Investopoly), investing and building wealth is very, very simple – people (and finance professionals) often make it way more complex than it needs to be. So, keep it simple. Spending one hour thinking about the above could reveal some valuable opportunities and help kick start 2019. Of course, if you need any help or referral please don’t hesitate to reach out to us.

Ahead of Australia's inaugural IFA Convention in September 2017, ifa speaks to Gillian Cardy, founder of the UK's IFA Centre and an advocate of the global independent financial advice movement, about the experience of IFAs in the UK. We discuss a number of topics pertinent to Australian advice including vertical integration, the philosophy of independence and adviser education standards. www.ifa.com.au

We have all read the horror stories in the newspapers or seen them on television: Mum and Dad put their trust in a financial advisor. The advisor ‘sells’ them an investment that paid him a substantial commission. The investment was poor quality. Mum and Dad subsequently lose their life savings and the advisor goes unpunished. A new story like this comes up every few months. It’s frightening and very upsetting!I propose you can only do one thing to eliminate 99.9 per cent of all these stories occurring: remove all and any conflicts of inter­est. Once all conflicts of interest have been removed, working out if you should and can trust a particular advisor becomes a lot eas­ier. In that situation, it simply comes down to whether the advisor has enough experience, knows what they are talking about and has a track record of producing good results.Let me put it this way, would you be comfortable if your doctor (GP) was employed by a pharmaceutical company? Absolutely not! And that is why laws in Australia prevent pharmaceutical compa­nies from owning and operating medical practices. I believe that we should have similar laws in the financial services industry (but I suspect the banks’ political lobbying power will prevent this from happening). How do you choose which GP you visit? You make an assessment of whether the doctor knows what they are talking about, the results they produce and whether you feel comfortable dealing with them.Therefore, before concluding that all financial advisors are crooks, I invite you to recognise that two types of financial advisors exist: independent advisors and conflicted advisors. When you read the next horror story in the newspaper ask yourself whether the advi­sor was independent or conflicted. I’ve no doubt you’ll find they are always conflicted. The golden rule here is that you should always avoid conflicted advisors. To be truly independent I believe the advisor needs to satisfy five conditions1. Take no investment commissions, referral fees or kickbacks2. Offer fixed fees3. Have no investments to sell you4. Be privately owned with an AFSL and with no links to banks or investment providers5. Demonstrate deep knowledge of all asset classes (especially property and shares)https://www.prosolution.com.au/what-is-an-independent-advisor-five-important-tests/

It stands to reason that not everyone needs a financial plan or relationship with a financial planner. There might be various reasons for this. However, perhaps the best way to answer this question, i.e. “who doesn’t need a financial plan” is to discuss what’s involved in a plan and then you can draw your own conclusions.In this podcast I discuss:•    what’s involved in the financial planning process i.e. what outcomes will you enjoy•    how to set the two most important goals•    how to map out an action plan•    what a financial planner will do ongoing (each year).This will give you enough information to decide whether its for you or not.For more, check out my video here.

In this weeks episode Nathan and Glenn chat with John Hewison, Chairman and Founder of Hewison Private Wealth about the importance of independent advice. John is very passionate about the financial planning industry and has long called for a banning of commissions and conflicted remuneration within the Financial Planning Industry.