Mailbag: incl. Our pollies should be jealous of our financial planners. March 9, 2025

29:45It has been a seven-week debacle of probably at least up to eight or nine hours in various call centers. It's just like, it's not, they have spent probably 10 times as much as that would cost them to just refund the product, which didn't work. But they have, you know, it's just sort of like, anyway, it's not to make it all about me, but it's just sort of like, where's the value prop here? For the sake of like, just returning something that was broken, the brevels are ultimately going to pay for anyway. you've lost the customer for life there's nothing here and by the way i can get the breville coffee machine on amazon i can get it from here like there why i just happened to get it because there was a sale on when we got it there it was like i am out of principle never going there again and the one thing that you might hope to sort of distinguish yourself would be some outstanding customer service that i'm never going to get on an online retail not to the same kind of degree because who's running the show you're getting again you're getting the the mba's running the show here and i bet you they have never once called their own call center i bet you they have never once gone up to the counter and had any sort of direct experience and it's just yeah i'm sorry launched into a personal rant there continue you always like to let's go let's move on to luke's question i have to sneak in one more example hermes right yes hermes is a european luxury uh handbag essentially do you know that they is i'm just looking at yahoo finance it goes back to 93 on the chart here, just under€6.

31:13It's now worth€2 ,672 per share. That's a 500x return. Wow. They're making something that you could have made 100 years ago. There's no AI, there's no tech, and their bags are a fortune. That's a six-letter word. Absolutely. I just had to give that example. It's not like a company that's resting on its laurels after a long, you know, early success here. Even in the last five years, they've gone from 600, it's all over four or five X in the last few years. Just like, that's what we're talking about. An incredibly value, quality focused business. But by the way, the other thing as a shareholder of these sort of businesses, you should want them to be volatile sales and profit wise.

31:59And what I mean by that is not you want things to go down, but you don't want them chasing sales when things get tough. Yep. And so many businesses do exactly that. They're like, well, we're a quality brand, but sales are down. We've got to do something to get sales. Let's just do a discount. Let's use an outlet store. Let's do something else, right? I mean, it's a lot of waste in this, and there's some environmental questions, but a lot of fashion brands literally burn the leftover clothes, which is absolutely awful, right? Except why do they do it? To maintain the brand premium, because if they all of a sudden let them be available to outlet stores or sell them on special or discount, you immediately undermine the brand.

32:29So, yes, when things are tough economically, Hermes is probably going to have lower sales. Is it probably Hermes or something? I don't know how to pronounce it. but if they're half good they will say you know what that's just life we're going to suck it up we're not going to go and chase sales because when things recover we want to still be the premium brand that people would come to when they've got a squillion dollars to spend and they're too stupid to otherwise buy a cheaper bag a little bit of editorial there so they'll buy our bags and they've got$11 billion in cash on their balance sheet with not much debt so they can write it out you know it's just sort of usually European businesses as a general aren't great but this area is definitely the sweet spot.

33:07Exactly. Hey, let's go to Luke's question now. He says, Gents, it's apparent that many of the submissions that make the Pod Machine mailbag episodes commence with a verbose, albeit glowing, and cleverly worded opening paragraph. Deservedly so, I might say. So in order to ensure I meet the go-no-grow criteria, all I wanted to say is thank you for providing me with simplified and often balanced perspective of the world around us. As after consuming your content for the past 18 months or so, I can now confidently sit and contribute to the intellectual conversations had at the adults table. I'm a big boy now.

33:40We shall allow the question. There we go. This topic may not be relevant for many in your audience and therefore not appropriate for your run sheet. However, I'd love to hear your point of view on something that the Google machine, nor many financial advisors, have a strong, clear opinion on. I know you cannot provide personal advice. Thank you. And you're not licensed accountants or tax agents. Thank you again. All I want to hear is your logic as you consider and tear the two or more options apart. I'd be even happier if you disagree with each other so that I, we can get all sides of the argument.

34:11Here's the context. I work for a US tech firm and as part of my remuneration package, I received restricted stock units, aka RSUs. The longer I'm employed, the more I get as long as I perform. My question is whether one should A, cash in those RSUs within 30 days of investing so they are deemed as income and taxed at one's marginal tax rate like a bonus and pay off my mega mortgage or B, stay long, accept the future capital gains tax liability and have courage in your conviction that your company will do well. Is there an option C, even a D? I'm aware you'll probably raise the main point that one can potentially be putting a lot of eggs in the one basket by having their current income and future wealth all in the one US company.

34:54Anywho, may not be right for you and your audience, but I thought I always enjoy hearing your collective thoughts on these rarer topics. So I thought I'd just put it out there. Fool on and thank you, Luke. Luke, we always love rare and difficult different questions. So we will absolutely cover this one. I might set this one up structurally, Andrew, and then you can jump in if that works for you. Sure, sure, sure. So just for those who don't have this circumstance, Luke is talking about shares granted or awarded, earned by him, provided by his employer. If you don't sell them within 30 days, then you own them and you can't cash them out effectively as remuneration.

35:29Now, if you do cash them out when they're made available to you, you pay tax on them at your marginal tax rate. They're basically treated as income. If you don't and you keep holding them, then the capital gains tax liability jumps in and becomes an issue or a benefit. Now, here's the challenge. It kind of depends on where things go next, Luke. And I got to say, I don't know your circumstances because if they're granted to you at fair value, and that fair value is the current price, the capital gains tax just takes off from there. So really, the question for you is simply, if you can take them out at fair value, you're going to pay income tax on that income one way or the other.

36:09So my suggestion to you would be considered as you would any other investment, as long as there's no conditions I don't know, and that's what I'll be clear about. If someone said to me, here's a hundred bucks with the Commonwealth Bank shares. You can either cash them out now, take the income and pay tax on it, or you can hold them until whatever you want to sell later. You'd say, well, do I think Commonwealth Bank's going to go up or not? And so honestly, I would suggest you consider this as we would say with your portfolio or anyone's portfolio allocation, which is if you're forced to go to cash tonight, would you buy them back in the same size and scale tomorrow morning?

36:42And so that's honestly my answer to you, mate, is you shouldn't consider this an either or. So option C is cash them out anyway, and then intellectually, if not actually, buy them back at the current price. In other words, let's say you're getting 10 grand worth of shares. Let's say you've done really well. Here's 10 grand worth of shares in my company. Your only question is where's that 10 grand best invested? You got to pay tax on it either way at a marginal rate. Thereafter, you're paying capital gains tax on the gains. So should I invest 10 grand in my own employer or should I invest 10 grand in Woolies or CBA or Tesla or Apple or pick whatever you want?

37:15That's how I would think about it. Ram, your thoughts? Yeah. They feel different because they're granted, right? And they don't try to jump in. And I get it, Luke. It's kind of like the, but I think it's largely, unless there's conditions I don't know about, the psychology of it is actually just what's messing with you here. It's like, well, I've already got them. So now I've got the endowment effect. Should I sell them or should I keep them? If I like, if I keep them, why don't I keep them? rather than if the company said, hey, here's a$10 ,000 bonus, Luke, you can use that to buy company shares if you want.

37:43Same, exactly the same question, but one way to think about it. Sorry, mate, you keep going. The other psychological trap, I've fallen into this in the past as well, where you go, I got these shares for free. So I don't treat them the same. I go like, well, I hope they go up, but if they go down, well, it kind of sucks, but I didn't pay anything for them. Yeah, well, you weren't. You paid for them with your time and your effort. And so - That's in law of cash. You could have got the cash instead. Could have got the cash instead, right? So it's just like that's also a very dangerous thought process.

38:14Yeah, I mean, I don't have a lot to add. If you feel as though the company is a great company and you're not sort of – you're right to talk about diversification. You've got a lot of eggs in one basket there, but the income basket is different from the shares basket. But even outside of that, if it turns out that you sort of look at your portfolio and 90 % of your shares are the shares in the company that you work for that you have been given as an employee. I mean, just like in anything, I'd say, well, geez, that's a little bit concentrated. So that might be a reason. If you've got other assets outside of it and these are just a normal size, you know, regular size weighting, then that wouldn't be a consideration.

38:56I was going to say one of the advantages of getting shares in a company you work for is that you're really well placed to judge how good the company is. Yeah. Because you're on the inside. And I'm not talking about inside information. It's just sort of like, wow, we're doing really good in terms of our products. I love the culture. I love the team. I'm enthusiastic about the future. And if you feel that way about the company you work for, it's probably some pretty good signal to sort of say, you know, If I'm passionate about this business, that probably says the business is doing well. There's no guarantees in life, but it's nice.

39:38The reason I hesitate a little bit there is that we can have our judgment clouded by some specific interpersonal relationship. It might just happen that this is the best company in the world, but your boss is a real pain in the backside. And you hate going to work. not because the company isn't wonderful but because your your experience there is really negative and we can we can fall into that trap very easily like oh it sucks and all the people i work with are idiots and i hate going there and it's like yeah but it might still be a great company you're just in a bad division and so so happens that you know the people you work with aren't very nice um i've seen that play out too i've seen people i've worked with oh i hate this company is like yeah is that the company or is this some of your interpersonal relationships i i don't know right um you see it on glass door as well a lot of investors i know go oh i always go to glass door because it tells you what the culture is like it's like i do get that and there is i'm not i don't completely poo poo it but but you genuinely only get the people who are really aggrieved to go on there and post and ranch and rave and you know maybe that was a problem you know or there's a whole bunch of stuff you're not getting there so it's so i i think my initial response is still valid as long as you can be reasonably objective in your analysis of the company given your vantage point that goes beyond any one or two political sort of foibles that you may be having to experience which by the way exists in any company no matter how big or small there's like as soon as you have two people you have politics right remember david gardner saying that to me years ago it was just like such a good point right i never thought you would think politics is this bigger macro kind of thing but it's like no you know you two people this politic three people there's more and maybe it grows grows from there but it's it's it's it's yeah um yeah i've got nothing else to add other than that it is it is it is something that is i i do like it as a strategy for companies in a way that it does help align your interests with the bigger picture.

41:49It's not about what you're getting out of it directly yourself, but it's just like, well, if I want my shares to do well, I need the company to do well, and maybe I'll work a little bit harder as a result to achieving that end. That can backfire too, by the way. You think I've got no agency and, you know, I just want out and rah, rah, rah. Yeah. And one other, sorry, one other little caveat too is it depends too on some company some companies do it that are that are um private which means that it can be very hard to get out uh not that you might want necessarily desperate to get out but if you do need to get out or cash in you might only have a very occasional opportunity and at a price that you don't you know can't foresee in in advance at any way in it with any great clarity so there's a lot of there's a lot of things to consider there but i think we've we've covered the big points I think so.

42:37I think we've done it. Yeah, I agree with you. I think careful of concentration. Try and divorce yourself from the fact you've got the shares already. Think about if they gave you cash, what would you do? If there are tax implications I'm not aware of or particular plan components I'm not aware of, please think about that. But I don't think you should do either for the sake of it. The only question was the mega mortgage question, Ram, and I guess that comes in. We've talked a lot about that. Generally, as a rule of thumb, the higher the cash rate, the more attractive it is to pay off your mortgage relative to shares.

43:09It just is. It doesn't mean that shares won't necessarily do whatever they do. Just statistically, if the share is going 9 % a year and you're paying 6.5 % on your mortgage, by the time you've paid tax on that mortgage payment, you're kind of roughly close to where your expected share market return is anyway. You're frank and correct to think about other things, but just as a matter of course, when interest rates are at 2%, I would be all in on the market. When interest rates are 8%, I'd be paying off the mortgage and somewhere in between, depends on your level of comfort. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

43:46Let's go to a question from Burroughs. It says, good morning, fellas. In keeping with your theatre of the mind, I have a question for the sage of the Southern Highlands and the wizard of far Western Sydney. being the expert sorcerers you are. I thought you may be able to find some data. I haven't, Burrow, but I'll give you some thoughts on how much ASX dividends fall during the worst of market routes and how long before they return to previous highs. Kind regards, Burrow. Now, Burrow, I haven't done that. I have done some Googling because that's what I do around here. So, and by the way, I've also done this in the past.

44:19We have a service, I mentioned this before, and I only mentioned it to give it context called Everlasting Income. The idea is that we have a model portfolio our members can follow if they want to earn income dividend income from their portfolios in a diversified way again it's not an ad it's just an explanation um it came from a something i did for my mother-in-law way back i mentioned this before and previous to the service i was actually strategy i developed for her and then we turned into a service the motley fool which is kind of nice to be able to do um and i basically you know she was concerned about what it might mean for her portfolio and for you know how reliable dividends would be if and when there was a market crash in other words how worried would i be how worried would she get what should she do about all that kind of stuff so i went back and did some numbers now i did this i think i'm pretty sure it must have been just after the gfc because it gave me a great example i went back and i looked at some companies and i said like i like these companies and i didn't i didn't reverse engineer it deliberately i picked the companies first and look this is what i think you might like as part of your portfolio and then i went back and said okay well let's look at each of those companies now a couple were newer but the other ones i would say look let's look at what happened during the GFC?

45:24How much did the dividends fall to give my mother-in-law a sense of what, you know, the volatility of her income might look like? And the numbers were reasonably muted, quite frankly. I think the average was something like 10%. Now, this was not a representative sample. It wasn't picked at random. It was specifically companies I thought were good companies worth it for their dividends and their quality. And the dividends fell maybe 10 % or 15%, which was not great. But given where the market went over that period of time, it was a pretty good result. Now, I did grab some data from the S &P 500.

45:56And I will say that there are more, dividends falling are relatively common. In fact, not very common over the last decade and a half, but up to that point, relatively common. Not going to happen all the time, just that happened regularly enough. So they fell in the late 70s with the oil shocks. They fell in the 90s, thanks to the 90s recession. They fell after 2000, probably the dot-com crash, or at least the lessons learned from that. And they fell during the GFC. So there were three, there were, you know, a few periods. And by the way, there were some year-on-year sequential falls. Here's the thing.

46:27For the first two of those, the fall was less than 5%. In the 2000 crash, they fell by up to 10%. And then in 2009, they fell by about 25%. Now, they are meaningful falls. Let's not, and this is the S &P, not the ASX. They are meaningful falls. They're not small falls. The thing is, if you look at the share price responses in the early 80s share prices fell more than 20 percent share prices fell by the way in 1987 the 87 crash dividends actually kept going up in the 1990s recession share prices fell up to 20 so about four or five times the dividend fall uh june 2000 share prices fell and stayed low between 2000 2004 and yet that as low as 25 30 percent there's only about a 10 percent fall in dividends.

47:13And then GFC, share prices fell 40, dividends fell about 25. So they fall. Yes, they fall regularly. Yes, you shouldn't assume dividends will be flat or always go up as a market, but it depends on what you own. And the falls in dividends are almost always, in fact, always as far as I can tell, at least going back to 1968 here, so 50 years worth of data, the dividend falls are always less than the share price reductions. Yep. I was going to say that it's absolutely true. I mean, one, dividends are dependent on business performance. Share price is dependent on business performance as well, but in the short to medium term, also very much by sentiment.

47:52In both directions. And sentiment, yeah, absolutely. And sentiment just moves a lot more than the actual business performance. So PEs rise - And by a greater degree. Yep. So, you know, buy an annuity if you don't like volatility, right? And just make peace with the fact that you're going to get pretty ordinary returns or be smart and just go, you know, sometimes it really is a case of, actually when we tell you the dividend, it's more like three, four, five steps forward and then one small step backwards and then forward again, you know. Or you can go with something like Sol Pats, which has never had a dividend cut ever, you know.

48:25And that doesn't guarantee anything. Past performance is no indicator of future performance, as everyone likes to say and rightly says. But yeah, it's going to be far, far, far more stable than the share price performance. So, and it depends to, I think, I made this point before, but I think it does depend on the capital base you're working with. You can be 90 years old and be entirely invested in non-dividend paying companies and be fine if you've got a$10 million portfolio. Because the amount that you may have to sell during bear markets and the rest of it will suck. But it's not like it's going to erode the capital base so egregiously that there's nothing there to recover.

49:04If you've got$500 ,000 and you're 90 years old and being entirely in growth and no dividend paying, so that lands a little bit different because you have to sell down so much just to stay alive in any given year. To pay for your living expenses in any given year that you really can hobble your ability to recover. You're selling at the worst possible time. So that will factor into it as well. And again, the great thing with a lot of stuff in investing is it doesn't have to be either or. You can go a little bit this way, a little bit that way. I think black and white thinking can be very dangerous.

49:39I'm 70, therefore I'm all in dividends. It's like, well, really? Not necessarily. What's your risk tolerance? What's your capital base? What's your health? The whole bunch of considerations that go around all of that kind of stuff. And you might just think that I'm more than happy to have 40 % of my money in hyper growth stocks and the rest can be in dividends. You can have it a little bit each way. But the point remains, and Scott made it very well, which is they're just going to – as a general statement of fact, dividends are going to be far less volatile than share prices. Assume, borrow at any point in time, they could fall 25 % year on year.

50:11Yeah. But based on last – no, they could fall more. But the last 50 years, the biggest fall has been 25%. If you wanted to pick a number and say, I want to structure my life so that I could allow for a 25 % fall in dividends, that would be pretty smart. Look, even if that happens, you'll find that they recover quicker than you think. Yes, correct. So let's take the GFC and let's take probably the worst area you could be invested. Well, not the worst, actually, but certainly, at least on paper, a worst area you could be invested is banks, right? And our banks held up really well by global standards, but they cut their dividends.

50:50But then I think it was one or two years later, they were fully recovered and then back. You know, and that's a bank in a global financial crisis. There's a whole bunch of other, you know, other circumstances that we could get into there. But it does make a good point. There's what is terrible about a thing that pays you a regular income that every now and again, maybe for circumstances unforeseen, you do get a pay cut. But then you get a pay rise and then another pay rise and then a pay rise. it's and then you can sort of say well what you've always got to contrast it with the alternative and say well I don't know I hear what you're saying but I still don't like it I want something that's perfect and flat and it's just like there will be a massive opportunity cost you'll find something but it'll be something really really unattractive longer term where you're going to get a lovely consistent income stream that's just a really disappointing yield that hardly ever grows and it's just like lean in lean into the volatility on the uncertainty because that's where the reward comes from.

51:55You know, the riskiest thing you can do as anyone who's got a time horizon of more than three, four, five years is avoid volatility because it's just going to cost you. Volatility is not risk. To be fair, that's not what Burrow's not saying that that's the approach he's going to take. No. I guess my add to that is just the, use the 25 % as a mental exercise to say, if I'm living on dividends and they'll cut 25%, what would I need to do? and then think that through. So if it's, okay, if it cut by 25%, I would have to stop drinking the top shelf whiskey but I could buy the second shelf whiskey for a year, then you're sweet.

52:28If it's actually I have so much dividend income it wouldn't matter, then you're sweet. If it's actually I couldn't pay the bills, then think about, okay, should you, for example, pay down some, sell some extra shares and have a cash pile so that you could augment that? So you might have, for example, one way would be saying, okay, well, my current income, let's say it was 25 % less, how much money would I need to add to that? and have that much in cash, so you're on the sidelines. There's lots of ways to do it. But yeah, good question, Barrow. The answer is it will be volatile, less volatile than shares, as Ram says.

52:56Recover as, probably not as quickly, actually, pretty much more volatile, but recover quickly. And by the way, the compound nature of it is, over time, if they continue to grow, like everything, there's every chance that the 25 % fall that happens in seven years' time may bring you back only to the level of cash you've got today, because you will have compounded it between now and then anyway to that amount. So think about the compounding of that over time. There's an obliquity Bitcoin question for you. Hey. From an anonymous listener. So I can't be sure it's not you just asking your own questions.

53:23This is a very specific one, mate. I don't know if you have a view, so I will ask it and you can throw it out there. Hi, Scott and Andrew. Thanks for answering my previous question regarding Bitcoin brokers and for all the amazing work you do educating investors via this platform or pod machine, as you should call it. I have a follow-on question regarding Bitcoin again. In brackets, drink. I'm looking at hardware wallets for cold storage of Bitcoin. It seems they all have their pros and cons. I'm narrowing it down to the Ledger Nano X and Foundation Passport, although I'm keen to hear Scott's, just kidding, I mean Andrew's perspective regarding the options.

53:58Cheers, Anon. I could give you my thoughts on hardware welts if you wanted. Anon, it would come to tossing a coin, so I'm not going to. Ram, I don't know if you know those welts, if you have a view, if you have a choice. There you go. That's a good start. Don't go the Ledger. Don't go the Ledger. So we said the Ledger. Is that one of these two or is it something additional? No, that's the brand. Oh, cool. Good. Okay. Good to know. And the reason is that that's a wallet that will allow you to store all manner of rubbish. Okay. The passport is Bitcoin only. Okay. So, yes, there's the ideological bent that's implicit in that.

54:35I will die on that hill. I will die on that hill. I will die on that hill. And we are seeing it play out in real time. Is that like saying don't use ComSec because some people use it to day trade, though? I mean, is it, does it, if, if. No, I'll tell you why. Okay, please share. I'll tell you why. So, yes, if that was the only argument, then yes, absolutely. Cool. But from a technical standpoint, when, think about it from the manufacturer, when you allow other protocols to operate and interoperate with your hardware device, you need more software. You've got a wider attack surface. So, if you're a bad actor who's looking to somehow attack these things, and you've got something that's really simple and it only takes one protocol, it's harder to hack.

55:22There's less nooks and crannies for the hackers to get into. When you have Shibu Inu and Dogecoin and Trump and Milani and all this other kind of rubbish, the software must be more complicated, the firmware in this case. It must be more complicated. And when it comes to security, simplicity is your friend. You do not want complexity. Very complex computer systems are the ones that get hacked. Very simple ones do not. When you look at all the base protocols of the internet and just systems design in general, they're very simple. They're like, I say simple as if I understand them, like it's way above my pay grade.

56:03But in terms of those who understand coding and programming and cryptography and the rest of it, simple is best. And so whether it's Passport, whether it's Blockstream J, they do a really good product. Whether it's the cold card, they do an excellent product as well. There's a whole bunch of them, but go the Bitcoin-only ones. Now, you might say, oh, but I also want to hold Ethereum. Well, you need to look yourself in the mirror and have a much deeper conversation about some life choices that you've made. Again, I will die on this hill. But if you did want both, you might suggest, for example, use Ledger for your Ethereum and Passport for your Bitcoin.

56:40if you're really worried about making sure your Bitcoin is at least perfectly safe. So a little quick aside here. You may have seen in the news, or maybe it's just on my feed, but there was a very big hack recently with Ethereum. I guess it must be on your feed, Matt, because I don't have any sense of it. I think it was the biggest one in history, in quote-unquote crypto. And it wasn't that to do with the protocol itself, but a whole bunch of money was stolen by some North Korean hackers. and they and so the discussion afterwards from the ethereum foundation there's a foundation and there's a ceo full stop that's all you need to know right like it's it's it's like a tech company versus like gold or something the fact that you've got a marketing department and a foundation says everything and the fact that they're even debating whether they roll it back and change the protocol to prevent that from which they've done in the past like that is not incorruptible immutable you know all of the things that you would would want for in terms of like a digital kind of gold it just it if that doesn't scream from the hills you know like this is absolutely like not what it says it is then you know again i could go into great detail i won't because 99 of people don't care at the moment but it really gets to the fun i mean too often people get stuck in sort of these technical discussions and defy and web3 and all these sort of buzzwords that sort of mean nothing but the very fact that this could be changed and is an open discussion to being changed undermines the entire value proposition like running on a database like save yourself a whole bunch of hassle and time right like you you can't do that with bitcoin that's why it's different that's why it's special that's why you focus on bitcoin if you are going to focus on bitcoin use a hardware wallet that is Bitcoin only.

58:26One, because it's the only thing that's, you know, there's a cryptographic asset. It's called Bitcoin. There is no second best, quote Michael Saylor. And also because the whole point of having a hardware wallet is to make things as secure as possible. So why introduce potential threat vectors? Like it's madness. Don't do it. Out of the two you mentioned passport i've got one i use it i like it but i've got i've got a whole bunch of them because they're fun i don't like to play around with them hey tell me a question that notice how how how much is that just the fun of doing it how much of that is diversification and and de-risking how have you how have you thought about the way of allocating your funds or bitcoin between those wallets uh i had to as a legal requirement for setting up a self many super fun so they do require you to have it on a different device is that right yeah it makes sense yeah it does it you know it surprisingly does make sense i was surprised the regulators with that yeah it's better yeah clued in clued into it so i did have to do it there's also just you know good uh opsec as it's called like you know i i think it's operational security operational security if you want if you want look if you're mucking around with a couple hundred bucks whatever it's not even worth it if it gets to a serious value you just want to make sure that you have practiced your backup procedures right so in theory i've got it all you know i i put it onto my own address i've backed it up to a hardware wallet what if i that thing breaks yeah i should probably have practiced reinstalling it to make sure that i can just do it from the seed phrase and i should probably do it on a non on a different device in case the company that makes that device goes out of business.

1:00:12So there's just, and some of them have, yeah, so look, I don't want to dox myself too much. You're putting a big tie. The big risk, anyone out there who's doing this is that despite all the security assurances that come with this stuff, you don't want to be susceptible to what's called a$5 wrench attack, which is someone rocks up to your house in a balaclava and a wrench and says, give me a hardware wallet or I'm going to bash your face in. No. Boom. There goes your knuckle. That can happen, right? So you also want, again, I'm going to go too far down. So I'll just keep it brief. But you can do things, which I have anyway.

1:00:53Any potential attackers out there, let me make it abundantly clear. There are sort of multi-sig setups, geographically dispersed, third-party institutional custodian. There's all kinds of clever, cool stuff that you can do. is that someone figures out where I live, rocks up to my house, threatens my family with violence. I really hope that doesn't happen. But if it does and you do break all my kneecaps, I still can't give it. You still can't get it, right? Because I've set it up in such a way. Again, this is, you can get really, really, really advanced with all of this kind of stuff. The best thing to do just to keep it simple is shut up about it.

1:01:31If you've got any material amount, focus on a Bitcoin only wallet, make sure that you've thought through what might happen if you get hit by the proverbial bus or something. I mean, this is a strength and a weakness. The great thing about a bearer asset and non-counterparty risk and all this stuff is like there's a huge amount of advantage with that. The disadvantage is, it's just like, oh, I've got a really good setup. I've just memorized my words. And then you get concussion and you amnesia and that money's gone forever, forever. No right of appeal, no higher authority. there's no ceo of bitcoin right there's no tech support it's it is gone right there's it it is gone forever so you want you want to have you want to have a setup which is safe but not so advanced that that you know only you can figure it out and only you can figure it out if you maintain maintain control over all of your faculties yeah so yeah i i've got to be i has actually worried me at times talking so publicly about all this kind of stuff because The last thing I want to do is paint.

1:02:30It's like saying I'm a massive gold bug. I love gold. I've got a whole bunch of gold buried in my backyard. Yeah, that's right. Publicly, right? It's really a dumb thing to do. So I say it in all seriousness. There's nothing wrong with sort of being out and proud as a Bitcoiner, but just be very careful about what other bad actors may do, knowing that you've got a bearer asset potentially on your person or in your premises. That's very dangerous. And again, it's beyond the scope of this. podcast, there are very smart, sensible, easy things that you can do if that's it. And I have done that, potential attackers, just so you know.

1:03:08Don't rock up to my house with a hammer. I suspect no one's listening to this podcast trying to take advantage of your Bitcoin, but I could be entirely. That's because they don't know how much I've got. Joke. That's a joke. That's a joke. Oh, there you go. There's a reason that straw man is a billion-dollar company, is all I'm saying. Yeah, it's funny. Yeah, yeah. Well, yeah. We'll see it down that path. but let's finish off with a question slash comment from an anonymous listener who i will say by the way so dear anonymous listener this person starts with a very unusual for me i've read down to the bottom and it says kind regards anonymous the the question starts with hi scott andrew my name is x i'm extremely boring and i love it now i'm gonna say to you i you've listed this long enough person x so i will desperately try not to name because i have seen your name is right in front of me um when you sign for the anonymous but you put your name in the first line of the email just trust me when i say that's a very very risky strategy to stay anonymous i'm gonna do my level best and let's see how we go hi sir and andrew my name is x i am extremely boring and i love it i have a similar age wife independent kids and i appreciate your regular insights views and humility you know the great thing about humility you don't have to be that humble if you're actually not that smart which is my starting approach it's like yeah oh you're really humble you don't think you're awesome.

1:04:21It's like, no, I'm not awesome. There's no false humility about it. Can I add that as well? I would say that the biggest, well, one of the biggest risks as an investor is to lack humility. Hubris is going to get you destroyed. It might not be the absolute biggest, but it's bloody close. I instinctively recall for any investor who doesn't have humility because you are going to lead yourself off the cliff because you believe your own stuff. and that's not good. It's the pride before fall moment. Right, literally. You're going to start believing it yourself and you're going to start taking bigger and bigger.

1:04:57It's just the most, I mean, I live in perpetual doubt. I just suffer massively from imposter syndrome. So here I am bragging about it, right? But I think it's like, anyway, I'm just, be humble. That's the old joke, isn't it? I'm really humble. You must be proud of that. Yes, I am. Yes, I am. All right, here we go. I am an age where my biggest financial win this year has been combining multiple surgeries, eyes, hernia and feet, so we only have to pay one excess for hospital. Let's say I'm in my late 40s. I wish I had the podcast machine to facilitate my rant, one rant which you've got surrounded but have not specifically pulled the trigger on.

1:05:36By my mid-40s, says our anonymous listener, I could start to see the light at the end of the tunnel towards my tourist sightseeing stage of life. I engaged a financial advisor to set us up and point us in the right direction with regards to our finances, over a three-year period. Peace of mind. I am and have always been very engaged in our finances, and through tertiary training, I can understand and work easily with numbers. This has given me the stomach to handle volatility and appreciate long-term horizons. Our advisor has changed our super somehow legally in our best interest, from ART to Macquarie to Hub24 within the last 36 months, with my permission, of course.

1:06:15Our fees for super and financial planning have been taken out of our super, as well as most of our personal insurance costs, large commissions paid to the financial planner. I think the politicians would be envious at how much the financial planning sector can erode from our super without us feeling immediate economic loss. I cannot understand or challenge how this is in my best interest. A financial planner with integrity would say, it makes financial sense to use dollars after reduced tax. A financial advisor with no integrity would say, it makes sense to use dollars after reduced tax. In other words, the same thing.

1:06:48It has been very difficult for me to get an honest, upfront answer. You've mentioned that marketers have a great understanding of psychology. In my opinion, financial planners have a great understanding of psychology with a captive and vulnerable customer slash patient based. At least one of you has expressed a position that the honeypot of super will be too tempting for the government to ignore. That'd be rare. And the majority of you have found incredulous that financial advisors can charge their sum for ongoing fees. So I've combined the two viewpoints. That's my rant. My personal experience, he says, with regard to super, is my wife and I have made extra contributions since we were 25, ready for life after 60.

1:07:26We're now in a position where we will be able to leave the full-time workforce at some stage before having access to super to invest in freedom and lifestyle. We've talked a little bit about that in the past. I would like to hear any red flags with regards to our position and direction. Here we go. One, we live in our home we love and have paid off and will be in it until at least age 60. Two, we have an investment property, 60 % LVR, that is neutrally geared in an area experiencing sustained high growth, 10 % per annum over the last 10 years. We have a modest geared ETF portfolio made up of 80 % S &P and 20 % ASX.

1:08:03We've got an emergency fund earning 5 % at the Macquarie Bank, I'm still doing it right so far, which could see us live as we are for 12 months with no income. Super, I intend to move in a low-cost, high-growth fund, e.g. Vanguard High Growth. Make sure you listen to Friday's episode we've just recorded. Our advisor has stated there is CGT benefit to being in Hub24 as an industry fund has to continually rebalance. Something I queried, but he couldn't explain, stating it was hard to quantify. When I think we have enough to live on... Red flag. Red flag. When I think we have enough to live on our current income without working, we will retire, and I'll continue with my employer on a casual basis for insurance and security in case of a market downturn.

1:08:41I could adjust hours as required. We would sell our investment property near 60 in a year we don't work and add much of the proceeds to super. And consider, we would consider upsizing, depending on our grandchildren's needs, and still have enough to continue our lifestyle. I would love you to huff and puff and blow my plans of straw over. Kind regards, Anonymous. Mate, let's roll back to the rant. I think we've pretty much, he's pretty much covered everything we would have said anyway. Yeah, I agree. yes i i the simple one on psychology dear listener is if we'd asked if financial plans had to make us write a check rather taking it out of our income there'd be a tenth as many financial planners that's the psychology 101 answer on that one um the changes if they've done your interest look the hub 24 macquarie stuff i don't know whether it's a platform or a wrap um there may be reasons for either it may have been cost it may have been complexity of your super it may be actually the the advisor's platform rather than your investment strategy because hub 24 i don't know if they have a wrap they probably do but they are they're they're a they're a administrative platform so it may be the financial advisor simply changed platforms like going from windows to apple or something it may not be they've changed the program or even the investments just they've moved it from one platform to another in which case it's not a really big deal for you if they've changed the wrap with your advice or your permission hopefully they've asked you why um i'm going to go on a limb here without knowing your advisor which i could because i can't be sued for anything um that seems way too frequently for me and i would want a clear justification to your point about not being able to give you a justification for the the tax thing it is actually true um but it's between smsf and industry super i don't think overall it's a massive issue because cgt resets there is a effectively if i was to pay cgt all the way every year all the way through i'd have less to pay at the end now yes you're compounding an after-tax amount which does make a slight difference, but the small CGT amounts on the rebalancing of a fund are pretty small.

1:10:39I suspect, perhaps uncharitably, that your advisor wants you to hang around with them rather than go somewhere else. It's like the managed funds who say that ETFs are killing the market. It's absolutely garbage, complete rubbish. It's all self-serving nonsense. At best, they are diluting themselves. At worst, they're lying to you. In this case, I don't know which one you're... Your advisor was absolutely right. Yes, there are absolutely ongoing CGT from rebalancing. It's a million percent true. Is it likely to cost less than the fees he's charging you? Yeah, probably. So keep that in mind as well.

1:11:14Any more on the general stuff? It's complicated. You wouldn't understand. It's just like, try me, mate. Try me. Maybe that's true. Maybe I'm as thick as two planks of wood and I struggle to count beyond the number of fingers on each hand. Yeah. But I am paying you a fortune, so why don't you just give it a crack anyway, Sunshine? Like that is just, that is so derogatory. It is so offensive. Yeah. There's either a good reason or there's not. Yeah. And if there's a good reason, you should be able to explain it. To my earlier comments in terms of like, you know, businesses and the rest of it, it's like, it might be complicated, but if you can't explain it in a simple way, that I can understand, and that really just shows your lack of understanding.

1:12:01I'm offended on your behalf, Anonymous, with that statement. If they had said that to me, I think I just would have got up and walked out of the office. To me, just half pause your rant for a second. Deep breaths. Well, the quote is, he couldn't explain rather than wouldn't explain. That's even worse. That's even worse. It's like, I don't understand either, but we're doing it. Yeah, yeah. Oh, my God. No. get someone else, I would say, based on that. I mean, I don't know them either, and maybe it's been an unfair betrayal. But I actually... I just want to be clear about the question rather than say you're wrong, because you're right on both fronts.

1:12:39I actually had an interaction with the doctor recently on the same thing. And I would just... Look, I'm not a doctor. For goodness sakes, what do I know? Nothing. But you are my client. I mean, I am your client. I am paying you well, even if it's via the tax man or whatever, try me. It's kind of my body. It's kind of important to me. Give it a go. Give it a go, dude. See if you can explain it to me in a way. I find that – anyway, I just think there is nothing unreasonable about asking for an explanation on something. And even if it needs to be dumbed down, I'm not saying that you need to go into the depths of cell biology and the rest of it.

1:13:30Have I got a degree in microbiology? Try me. I might understand some of the few things that are out there. But anyway, I hate that arrogance no matter what the field is. And I said my piece. I'll stop ranting. What was the second part of the question? No, I want to add to yours only for a second, mate. The power and balance of these sort of relationships is really, really significant. And it's easy to kind of, you ask a question, he says, no, okay I don't really feel like I can ask another question then and then that's you know you work for me you work for me but it's hard I guess I'm responding to that it is instinctively hard for people to question that in those circumstances right even though you would do that at the time yeah you would do that but when you're in that chair it's like okay then I guess we've closed the conversation and you know it's the bloke with the tie and the suit and sitting at the table with the big you know showcasing medals or whatever behind him saying I think this is right I guess you're the expert.

1:14:23I guess you know. It doesn't make any sense to me. But if I don't know and you don't know, I guess I need to listen to you because you're in the industry, which is not to 100 % support your view, just so I can understand how people in that situation feel like they struggle to have that confrontation at that point. Oh, it is hard because it also feels as though you're saying I'm dumb. Should I know that? Right, yes, exactly. I don't understand. Too often, and that happens in not so much just financial planning, but our game as well. You know, it's like you feel you're hearing a CEO talk or something.

1:14:53Yeah. It's a really dumb question. I feel as I, and so you don't, because we're all, we're social creatures. We are so desperately scared of not fitting in and not understanding, you know. And so, but I would, I work very hard to overcome that fear. And I think others should too, because you have a right to know, or you have a right to at least ask the question. Because again, they work for you. They work for you. So I'm going to quickly, we're running late on time. I do want to answer the tax. I want to be a little clearer because I said it's true and I didn't really explain it as well as I might have.

1:15:26And being mindful of people who have the chance to ask us those questions directly back, we get to talk and then assume we've done a good enough job and move on. I don't want to be that person. Here's the thing. If I own an asset and I own an asset, let's say I own woolly shares and that's all I own, and I hold it for 25 years and sell them, I pay capital gains tax at that point. and for that 25 years, the proceeds have compounded, or there's no proceeds, the asset has compounded uninterrupted by tax. So I pay tax only at the end in whatever amount I owe. If I own units in a managed fund, that managed fund owns Woolies plus 20 other companies and they rebalance.

1:16:02So, you know, I don't rebalance very often, honestly, anyway, but something else gets added to the index. Page Incorporated gets added to the index and Phillips Incorporated gets dropped out. The fund sells its shares in Phillips Incorporated, buy shares in Page Incorporated. If Phillips Incorporated is done half decently, it pays tax on that sale. And so the fund has a capital gains tax liability this year. Even though you've not sold or bought units in the fund, the returns you get from the fund are lower than they otherwise would have been if nothing had been sold. Now, they don't have to rebalance between Page and Phillips.

1:16:32If both the indexes go up or down, they already own the units. There's no rebalancing required if you already own them just because the weighting has changed because you benefit from those weightings. You own them before the weighting's changed. You owe them after the waiting exchange. You don't change anything. So it's only companies that enter or leave the index that are bought or sold. But the reality is that does incur a capital gains tax impact on those transactions almost every year because something gets added, something gets removed. So yes, absolutely, there are changes during that period of time.

1:17:01And if I had to sell the goods and buy it back every year and pay capital gains tax on the way, I wouldn't be compounding at the same rate because you've taken the tax bit out, then you've reinvested it. Now, at the end of this 20 years, I have less additional tax to pay because I paid a little bit of tax every year, but I still got to pay some tax. The returns on, if the pre-tax returns are the same, paying tax more frequently is going to cost you more money. It just is. And that's just life. The size of that, because you're only buying and selling the businesses that are coming and leaving the index.

1:17:34If you own an ASX 300 ETF and 10 companies a year leave the index, some because they suck and they've gone down, In other words, you've got a capital loss. Others have gone up, but not as much as others. The proportional cost of that compared to your asset base is almost always going to be absolutely tiny. Now, not guaranteed and not forever and not in any circumstance, but think about that logic. It's going to be really, really small. So I guess I just want to take the chance, mate, for a bit of a teachable moment. If anyone's wondering what's going on there, that's absolutely a million percent true.

1:18:02The same is true with any superannuation fund, by the way, not just an ETF, for exactly the same reasons. So yes, if you wanted to absolutely control the taxable amounts and timeframes, you would hold assets directly personally and do your thing. That is a reason to hold an SMSF rather than be in an industry or retail fund. I can only speak personally and say, I have an SMSF. I am increasing close to not having it anymore because I can get the same benefits in other structures potentially. But either way, I would not worry for a second about that element of the taxation, particularly as I say compared to the fees you're probably paying your planner, which are probably 1 % or 2 % of your total income, that's probably more than any meaningful change in the tax, particularly looked at over your lifetime of saving and investing.

1:18:49Is that a reasonable summary, Matt? Yeah, no. It was actually good for me as well. I didn't know some of that. So, yes, very good. The only point I was going to make was too often we do things with tax as the primary consideration. I know I make the point often, but, you know, there's no better problem than a tax problem is my long-held view. I love that line. I don't use that before, but that's the tweet, as the cool kids say. That's the tweet. I mean, let me clarify. I'm not happy to pay tax. Well, let me even qualify that even further. I'm less happy about how the tax is spent. I'm more than happy to pay tax.

1:19:26But, I mean, no one likes paying tax. Let's be honest about it. but I'm only paying tax when I make a profit. The things that people do to avoid making a profit so they don't have to pay a tax. Think of the alternative. I remember years ago, I went and saw an accountant and I should have taken their advice in hindsight, but they were gunning for me to set up a negatively geared investment property. Why didn't I? Why didn't I? I would have made a fortune. I would have made a fortune. But the stumbling block was, I remember the conversation so well. I was like, but that means I'm losing money each year on a cash flow basis.

1:20:07Yeah, but you can use that as a deduction elsewhere on your salary. It's like, yeah, but I have to lose money to get that benefit. Yeah, you do. Wait a second. Sorry, I know I'm a bit slow here. You're telling me to lose money on purpose. Yes. So I pay less than, yes. but don't worry, you'll make it all back in the end. As it turned out, it would have been incredible. That's right. Yeah. It would have been incredible. But this is, I think, and just like Inonymous said this in terms of their particular situation, there's a neutrally geared investment property there. So you're holding something as absolutely, I mean, bring it back to Bitcoin just for a second, right?

1:20:52It's like people will often go, oh, there's no cash flow. It's like a neutrally geared investment property, right? Or at least it's better than a negatively geared investment property. And they'll go, yeah, but that's fine because one day it'll be worth more. Now, again, I'm not saying that it's the same thing, right? It's the same thing. One is seen as entirely financially prudent and sensible. The other is seen as outright speculative gamble and nonsense and ponzi. And it's kind of the same kind of thing, right? So all I am a little bit worried about, no one's surprised to hear this as well, is that, and again, in retrospect, I made the mistake by not following this strategy because since then, property's gone up for a gazillion percent and I would have been leveraged on that and save some tax along the way.

1:21:39But it does rest on that belief that not only will there be a capital gain, but it will be sufficient to recoup the losses made along the way. So far, that has been true but just we've got to and i this particular focus towards the financial planners and accountants out there we've got to stop treating this as sacrosanct you know deemed from the heavens that this will always be thus they're not for spain not for ireland not for greece not for the u.s not for a lot of places in recent history you know not for melbourne if you go back far enough right like it's just and then plenty of places actually even in perth that have been struggling with this over the past decade or so as well.

1:22:19So it's just understand that it is a strategy that has risks, even though people seem to feel as though it's not a risk. And again, I have to be clear here. I'm not saying it will definitely happen and you will definitely regret it, but stop pretending that it's not even on the table of possibilities. It might even, in fact, be a higher possibility than you think. And then it's salt into the wound. And it's like, I bled cash for 10 years while I held this thing. and then I suffered a capital loss at the end of it. It's just got to be careful with that stuff. Yep, I think that's right. By the way, I would apply the same thing to the mostly geared ETF portfolio.

1:22:56I think you just, particularly as you get closer to retirement, like anything, debt magnifies your returns, can also magnify your losses. And two things. Firstly, I would be reducing debt the closer I got to retirement. Again, that's not common and experience suggests you should just maximise your debt and just, you know, YOLO the whole thing. But the second part would be, as you think about that investment property, I was going to come back to something similar, Ram, which is only to say, you have an amount of equity in that asset. The question for you now is from this point forward, what is the likely best return for the equity?

1:23:28Yes, including the loan if you're going to keep it because obviously it magnifies your return. But just think about that. You've got to the point where you're neutrally geared. So at this point, the only question is, what does the equity growth look like? What does the capital growth look like over the next X period of time? And you say you're late 40s, you're saying investment property, maybe you're going to hold it for 10 years. You start to get to a point where it's, okay, what do we do next and what does that look like? So just have a think about those things, but I would be reducing debt as you got closer because you have the potential to.

1:23:58This is – I've said this a lot, mate, and I will continue to say it. Buffett's line of people gamble what they have and need for what they don't have and don't need. And I'm not for a second suggesting our listeners gambling, but anytime you're using debt, you are taking more risk than you otherwise need to. And my simple question is, when you get to a position in life where the upside potential is not worth the downside risk, then that's time to start to de-risk yourself a little bit. I'm not saying go to cash for a second. I will be in equities until I die, all things being equal. But I won't have debt until I die.

1:24:31And I intend to find a place where it makes more sense to say, you know, this can't be taken away from me. At the end of the day, we're not here to maximize our financial returns. We're here to maximize the quality of our life. and if I can say I have enough without debt to see me out, the upside of that is modest. The downside of that is huge. And so it's just a question of, you know, make your own decisions, take your own risks. Maybe you take the debt, maybe you end up with twice as much as I do. But if I can fund my life and you can fund your life, what was the point of the double other than for bragging rights or for ego compared to the downside risk you took?

1:25:04I don't mean you particularly question it, just in general, let's say it's RAM. You know, I can lock in a lifestyle for the rest of my life at some point. Why would I jeopardize that to make a little bit more so I can afford gold taps rather than brass taps? I mean, at some point, it's just like, I've got as much as I need, anything more than that. If I get more, of course I'm going to have more because I'd like a higher living standard, but am I going to risk what I have for the potential of upside? No, no chance at that point. So just think about that progress. You said it better than me. I mean, again, people hear what they want to hear.

1:25:33I just really want to be clear on this. It's not to say that what is being done is reckless or silly in any way. It's not. I mean, it's really hard to find too much fault with it all. The thing that always worries me is that when these conversations come up with people who have made very highly leveraged bets into a single asset that is not producing cash flow, and then they turn around and go that this is no risk, and that that viewpoint is reinforced by supposed experts in the industry, that's what worries me. It'd be different if someone said, yeah, I'm taking some risk here, but I'm aware of the risk and I'm weighing that against the upside.

1:26:11And I'm like, go for it. I'm not, I'm, you know, got magic beans in a hardware wallet. For God's sake, who am I to talk, right? Like it's not, but I can tell you, I am very overtly hyper, hyper, hyper aware of the fact that that might not work out, right? There is a risk there. it's just that when I ever have these conversations with friends and family and you go geez be careful of the downside they look at you as if you've got two heads you go what downside yeah like well maybe the price goes down no it won't like well it might not but it could no it won't never has no it's just like that's that's what's that's to me if there was ever a sign that you're in a bubble that's the sign right I interviewed I mentioned recently I I interviewed Alan Kohler recently.

1:26:57That was kind of one of the things he said as well. The moment when everyone assumes that there is no risk, that's when you're in a bubble. That's the tell right then and there. And again, that doesn't mean anything is imminent, but that's so, it's just to me, it's scary. And I don't want to, I don't want to, by the way, I would sell everything and go all into an investment property if I thought I could get a net yield of after interest and expenses and something of like seven, 8%. That is a wonderful return relative to the risk, throwing a little bit of average capital gain over a long period of time.

1:27:32That is outstanding. I love it. I love property. I fill my boots as much as I can with it. But when the proposition is, no, borrow 90%, bleed cash for 10 years, and cross your fingers that you get enough of a capital gain to make it worthwhile. And by the way, if it doesn't, you're on the street. It's like, that seems just really rare. Oh, and do it with your super. Do it with your superannuation. and do it the whole way while there's some vested interest, conflicted interest in a suit clapping you on and cheering you on, collecting fees the whole way. I was like, my goodness, it's so scary. Now, I'm just, I'm the village idiot so far over the last 10 years.

1:28:07So what do I know? I've been completely wrong. I'll probably be wrong over the next 10 years. So, but there it is. There it is. Nicely done. I feel better. I do. Just as well, because the podcast is almost over. Thank you for spending some time with us. If you want to hit us up for a question, you know what to do. Email us info, info at fool.com.au. Follow Andrew on Twitter, sage underscore similar at strawmaninvest. You might even get a little bit of insight into the Bitcoin conference it was at yesterday. Or not, depending on whether you want to tweet about it. You can follow me on Twitter, Insta, and bluesky at tmfscottp, or on Facebook at facebook.com forward slash scottphillipsmoney.

1:28:46And until Friday, while Andrew tries to calm down I don't know. Get a bit of Bitcoin love. Full on. Cheers. The Motley Fool and people appearing in this program may have positions in the companies mentioned. General advice only. Please speak to your financial professional to understand how it may pertain to your situation. Subscribe to the free newsletter at fool.com.au forward slash listener. The Motley Fool operates under Financial Services License 400691.