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Podcast Summary: Motley Fool Money - Mailbag Episode (May 5, 2024)
Episode Overview In this Mailbag episode, hosts Scott Phillips and Andrew Page address various listener questions related to investment strategies, growth investments, ETF options, and family financial planning. The conversation is characterized by a relaxed and humorous tone, providing insightful and practical advice for listeners interested in finance and investing.
Key Topics Discussed
- General Thoughts on Banking and Insurance
- Frustration with Big Institutions: The hosts express frustration over their experiences with banking and insurance, highlighting issues with customer service in large institutions.
- Disruption Potential: They suggest that the size of these institutions could lead to vulnerabilities that disruptors could exploit.
- Listener Questions
A. Growth Investments (Zach's Question)
- Growth Investment Options: Zach inquires about investment options for younger individuals, particularly comparing high-growth low-fee ETFs (like Vanguard) with more controlled options like Australian Super's member direct.
- Superannuation Considerations: The hosts mention that superannuation is often overlooked by young investors, although it can constitute a significant portion of their net worth.
- Recommendation: Emphasizing the long-term nature of investing, they suggest that younger investors should lean towards equities rather than a balanced fund for better returns over time.
B. Ex-20 ETF (Chris’s Question)
- Performance Comparison: Chris questions the viability of an ETF that excludes ASX's top 20 companies, as it has underperformed compared to broader indexes.
- Market Observations: The hosts agree that large companies often dominate performance, and that mid-cap stocks can be riskier than they appear.
C. Investing for Kids (Richard's Question)
- Setting Up Investment Accounts: Richard seeks advice on setting up investment accounts for his daughters. The discussion includes tax implications and the mechanics of account management.
- Investment Philosophy: Both hosts encourage instilling the value of investing early in children, sharing anecdotes about their own parenting experiences related to money management.
D. Fortescue Shares (Matt's Question)
- Selling Strategy: Matt asks about the hosts' thoughts on Fortescue shares, given their price increase. They discuss the complexities of selling stocks based on market conditions and individual investment strategies.
- Investment Philosophy: They caution against emotional decision-making and emphasize the importance of having a clear investment thesis when managing stocks.
Key Takeaways
- Investing for the Long-Term: Younger investors should focus on equities for growth, especially in their superannuation, and avoid overly conservative investment strategies.
- Market Volatility: The hosts discuss the importance of managing perceptions of volatility and understanding its role in long-term investing.
- Engagement with Kids: Teaching children about money and investment is crucial, and it should be done in a way that encourages responsible behavior and understanding of financial concepts.
- Selling Stocks: Investors should evaluate their reasons for holding or selling stocks based on performance and personal conviction rather than short-term market fluctuations.
Closing Remarks Scott and Andrew wrap up the episode with a light-hearted tone, encouraging audience engagement through questions and reflections. They provide their social media handles, inviting listeners to interact and seek further insights.
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For more detailed financial advice, listeners are encouraged to consult with a financial professional to understand how the topics discussed may pertain to their personal situations.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Transcript
Automatic transcript. May contain errors.0:29A listener production. you to come straight from the water and join us on the podcast yeah a little bit sore but we'll uh we'll soldier on through it's gonna be one of those things because you're not doing enough exercise mate that's your problem if you you know did it more frequently you'd be fine that's the problem twice a week i'm thinking you need to up a two just so you don't you know you gotta your body is a machine to finally tuned finally tuned machine oh that's correct correct uh have you been mate good yeah no complaints well come on if people let's be real let's let's be honest for a second so just before this call started i had this massive whinge to you about trying to set up a bank account oh my gosh would you like me to ask how that's going so you can all i'll say is you're a bank this is what you do like how hard can it be how hard can it be oh my god this is this is a mailbag episode but i will actually my response because i think it's I've mentioned this once before when it comes to insurance.
1:28Being big, being the incumbent, being the dominant player is really, really, really, really great forever until it's not. And I have my insurance dramas and the person, the people I was dealing with, multiple people as it always is, I'm convinced there's no feedback loop. Not cynically, just because businesses are so big and decision makers are so far away from the end customer. I honestly think at some point these businesses get taken over, not because they're necessarily too profitable, not because they're too big in and of itself, but because the feedback loop, the opportunity for any disruptors to say, where are the pain points?
2:06And I can fix them because the big guys are the don't know or don't care or both. And I think if and when it comes, that's the chick in the armor, right? It's the stuff they don't know is there or not there, as the case might be, that a disruptor can come and disrupt. Yeah. And as I said to you, I mean, like I've been in big institutions and you very quickly have your soul and any life force sucked out of you. Right. Yeah. Because you think, well, I'm at the coalface here. This client is having an issue. Let me try and solve it. Now, to solve that problem, I have to fight my way through 28 people who are above me, all of which see me as a pain in the backside.
2:48and like it's easier just to go computer says no and and go have a beer right like actually my career prospects are better if you don't annoy the boss if i do that if i annoy the boss and go oh this is really dumb the client is like oh it's really now they've got to go fight and then the person above them has to go fight and then eventually the person is in the position to actually make a decision and do anything about it it's just you have this you have this chain of responsibility where basically the end result is just do the bare minimum you don't need to get fired and we'll all just take our paycheck and go home and it is as i said it's pretty soul destroying yeah i think that's probably right hey um should we get another mailbag just speaking of speaking of soul let's let's recover our souls let's let's solve some problems for people or at least uh address some of their questions uh mate zach's ends an email says hi team in the pod machine I quite like that.
3:42I like the idea that we're inside the pod machine, kind of like Ghost in the Machine. Kind of that's a bit of that kind of. It's got Zoolander vibes too. It does a little. It's in the computer. So we're in the pod machine. Zach says, I will provide my details just for context. Feel free to include or remove as you need to. I might summarize. Zach will be pretty good. The question, do younger people just find a high growth, low fee option, Vanguard, for example, at 0.6 % Or is an option such as Australian super member direct with more control something to consider? It appears to be closer to 1 % in fees.
4:17If I were forced to take control of my super, he says, I'd probably go 40%. It says VTI. I don't know what that is. I'm sure it's a Vanguard index or some description. Maybe the US total market. 40 % NASDAQ, ASX 200 ETF, and an international non-US ETF for 25 years before considering a move towards an income-based portfolio. For many younger people, he says, super is often overlooked, but for many, it would be the largest portion of their net worth, myself included. I've been diving into mine recently, says Zach. It was put into a balanced, managed option, and since inception, about 18 months ago, it has underperformed basically everything I benchmark it against.
4:55Easily done, he says, in the account window. Shocked. Shocked. Yeah. My returns on this benchmark graph are inflated by the contributions made by my employer. He says the rough portfolio is 30 % international Australian shares, which accounts for all of the return. 15 % is cash. The remaining 55 % is a mixture of eight different bond and cash ETFs. Oh, Lord. On top of this, he says, I also have insurances and until a month ago, management fees. In conclusion, my super has been flat for 18 months. When if I had just been put 100 % into the ASX 200, it would be up approximately 12%. whilst i'm an avid amateur investor i don't currently want the responsibility of my retirement but i do want something better than this it's a really nice summary actually about how most people feel like thank you for the pod i look forward to my religious listening every week i'm now thinking our sunday morning episodes they're more maybe maybe there should be more sermon sermon do you think the reverend dr andrew page in memory of the great late great uncle doug mate uh i you've kind of uh you let the cat out of the bag that you don't think he's doing necessarily the best thing for him we can't give zach of course individual advice but uh no zach's all over it zach's got the exact right take i wasn't having a go with zach in any way no no i know you're answering his question though yeah yeah i mean you know a balanced fun we've talked about this recently you know that whoever named these things needs to be punished in the most painful way possible yes yes you know because what right thinking person doesn't want balanced or low risk you know but it but it is for anyone who's more than 10 years away from retirement it's actually the riskiest option that you can yeah you can possibly have so yeah um yeah get out go go full low cost go 100 equities at your age absolutely that is the best lowest risk uh proposition that you can have long-term yeah long-term i wouldn't i look i would i wouldn't be so unfair by looking at the most recent 18 months um given given the the asset mix within the fund i mean one it's too short a time frame to draw any meaningful conclusions uh two yeah equities have gone up but you've only got 30 equities exposure there so the rest the rest is bits of government paper and melting ice cubes.
7:13So, yeah. I was with Australian Super until, well, I kind of technically still am for another week or so. And they're a pretty good option for me. But even then, you mentioned, we've covered this recently too, so maybe it's just easier to point back to a recent episode if you know it off the top of your head. But you were mentioning some other options coming onto the market soon, which are just even more straightforward and even more low cost. And I think that's the way to go. This really is something where simple is better. I think you're right, mate. I think, yes, again, we repeat ourselves regularly, so I'll do it very quickly again.
7:56You're looking, Zach, at your last eight months saying, I could have done better. There'll be periods where you look at it and go, oh, man, I'm glad I got this because the share market was down 20%. I'm actually better off. So to Andrew's point, the 18-month period is irrelevant. You will have more volatility if you go equities only. I would suspect it's very, very, very likely, but not guaranteed. You'll have much better returns over your investment life if you go whole equities. But that is the trade-off, right? Just be really, really, really, really clear. You think this underperformance is bad?
8:27You will have much worse underperformance if you go this strategy. Now, I think you should, or not you personally. I can't tell you what you should do, but I think people should. we've said many many times the balanced option is a waste uh conservative is a waste unless you are 85 unless you literally can't sleep and unless you know that you know that you know everything is there in cash in which case you're going to be much poorer in retirement but at least have something and be able to sleep which is fine if that's for you um but it sounds like you're just sort of bloke exactly who's made that kind of you know knows that you listen to the podcast you get it so i'm i'm flogging the dead horse here mostly for other people's benefit but uh yeah you over time, you want to maximize your returns.
9:01If that's your job and you can withstand the volatility, then you're much, much better off in those higher growth options. You might seem called aggressive or high risk. That sounds ridiculous. You need a longer timeframe. You need more stomach for volatility. You need to be able to stay the course. But if you can, I fully expect that over time, no guarantees, but you'll get a better return sticking with shares effectively entirely. You won't even see the volatility. Most people, you'll get your statement at the end of the a year and I go, oh, it's worth that much. And then a year later, oh, it's worth that much.
9:33And there'll be some years where it is down, but you will miss the week to week, day to day, month to month. And by the way, don't log into your account and check it during the year. Just wait until the statement comes out. Because you can do that as well. It's a point I used to make all the time. I can magically wave a magic wand and get rid of volatility because I just take the ASX and I go from minute to minute plotting to day to day, to week to week. Just do it on whatever chart Yahoo Finance and just change the plot frequency to yearly and guess what? The volatility disappears. It disappears.
10:07Well, again, you have some years that are down but it's nowhere near as scary or weird. The line isn't nearly as wiggly to use a technical term. That's right. You'll say that in all the text wiggly is the phrase. And again, it's what always I say to property investors as well. I go, well, property is not volatile. Yeah, because it's not liquid. Hold an auction at your house every day and it'll become the most volatile asset on the planet. So it's just volatility is, pass and parcel, a function of liquidity. And liquidity is not a bad thing. Liquidity is a good thing, right? You've said before that if you were king of the world, ooh, this is a mailbag episode, but I can't hope to get your take on this.
10:47You've said before, if you were king of the world, you would only let the share market trade for one day a year. Yeah. I mean, I would actually do it. Well, if I was king of the world, I probably would. But realistically, yeah, I would have absolutely zero issue. It was open for one hour a year, and you could place your trades in that hour, and you could queue them up, and it'll be done. I have no issue with that whatsoever. Yeah, I'm not a mile away from that, to be honest. And guess what? Volatility would evaporate. Now, a lot of people go, well, wait a second. That means I can only get my money once a year.
11:14Exactly, yeah. So, again, there's a compromise here. So, volatility gives you this sense of risk when really it's a reflection of liquidity. Yes. A lot of the time. So yeah, careful what you interpret from that volatility. And I mean, I'm not, I'm hesitating a bit here because equities are definitely riskier in the real definition of the word risk. But just the volatility isn't risk is the point that I'm making. And if you have a super fund and you're just getting your annual statement, a lot of it will be invisible to you anyway. You're always going to do better. You're always going to do. And it's a relative thing too even if the real return the real you know end of day compound annual growth rate isn't fantastic at the end of the decades i'd still reckon it's almost definitionally going to be better than what your alternatives were anyway yeah if we if we're having we're doing this podcast in the year 2047 and asx is like delivered three percent compound per year there are some very serious things going on in the world yes and stuff got real cash ain't gonna help you you know maybe Maybe gold might be that.
12:26Maybe it's gold's time to shine. I don't know. But it's always, it kind of has to be a better return when you really get down to it. And I'm hesitating here because I can feel myself going off into a massive tangent. Don't do it. Don't do it. And what I will ask you, what I did have to ask you, because I know this came up during the week, was it someone proposing in the US that equity markets should trade 24-7? Oh, yeah. God love them. I read it and my mind went, Scott's got a view. I got a view. Most things I've already tweeted about that by now. If you follow me on Twitter, Andrew, you would know, by the way.
13:09I've got to get more active on it. I've been slack. You do come and go on Twitter, I have to say. I do. I will give you a Twitter handle later so people can at you and have a chat. Yes. Yes. I did make that point that the only people who benefit from that are the stockbrokers and the market itself because that's how they make their money. If you only need to trade once a year or at best six hours a day, why would you need to trade 24 hours a day? What benefit could possibly accrue from that other than more activity for the brokers and the markets? That's exactly why they want to do it, right? They just want you to trade more often because that's how they make their money.
13:42It is about as transparent as it appears because that's all there is to it. There is, you know, I... frankly, as an Australian, it'd benefit us a lot because we could actually trade US stocks in Australian hours. We should actually remove a huge hurdle. So on one level, honestly, mate, I'm not totally against the US market trading more frequently or for longer hours because they give us access during our trading day. People don't do it because of their currency dramas and because you've got to place your orders at midnight or put a limit order in and let it go overnight and see what happens in the morning.
14:15The ability to access buy shares of Company X, you know, now, right now, Oh, not now, it's Sunday morning, but you know what I mean? During the business day, or if it was 24-7, you could buy them Sunday morning, I suppose. There is some slight benefit for Australian investors investing in US shares along that path. But otherwise, the whole thing, it's a very, very transparent attempt to just generate more fees for people who make money on trades, not on wealth creation. And that's generally people you don't want to spend too much time on money with. I mean, the good thing about having a period of non-trade is that I think it helps create a fairer market in the sense that it gives more time for information to spread.
14:58I actually agree. That's a really good point. Very, very, very good point. So Buffett made the point, like anything half intelligent I say, it's because I stole it blatantly from someone else. And he's made the point that companies should really release their results on a Friday afternoon aftermarket. A lot of people, it's funny the number of investors I speak to go, oh, it's always bad. It's a bad sign when they do that because, you know, they're trying to sort of sneak it out. Hey, has it ever worked where no one hasn't noticed because it was a Friday? But the reason why Buffett likes it and I like it is because I've now got two whole days to digest this information, meditate, contemplate, and then make a decision.
15:39as opposed to if this was happening during open trading, like there's going to be all kinds of knee-jerk reactions and, you know, it just allows for a more calm and rational mind. It's never going to be perfectly calm and perfectly rational, but more calm and more rational. Yeah, and particularly more buyers and sellers there at the same time. Yes. It's like ringing the bell. Hey, marketing, we're open an hour, so let's go. You know, you go and get your fruit and veg in the morning. The sellers, they bring the stock in, you rock up, you get your bananas and you go home. Same kind of idea. I think that's a really, really good point.
16:09Hey, mate, a question from Chris who starts by saying, Hi, great, Scott, and Handy Andy, which I quite like. That was a Plenty product, as I recall, wasn't it? Remember that? Handy Andy? I should know that. Maybe I'm going back. Exactly. Anyway, Chris didn't mention that. He just started. He says, I have been reading on various websites about fund managers who concentrate on ASX mid-cap stocks. They say that mid-cap stocks make better investments than the largest 20 companies by market cap and are also less risky than small caps. The reasoning is that mid-cap stocks are more usually profitable companies, unlike an index including many small companies.
16:48More mid-caps are also likely to have a better future growth profile than most of the largest 20. I found there is an ETF that invests in the largest 200 companies on the ASX, excluding the top 20. It's the BetaShares Australian X20 Portfolio Diversifier ETF. I did rant about the way legislators give titles to legislation. I'll do the same for BetaShares here. With an ASX ticker, EX20, he says. I compared its performance against the BetaShares Australia 200 ETF. According to the fact sheet at the time of writing, since inception, the 200 has outperformed the X20 by one percentage point, 8.4 against 7.4%.
17:29Over the five years, the ASX200 has outperformed the X20. Over three years, the ASX200 has outperformed the X20, and he goes on. Although neither ETF has existed for 10 years, British has reported the index of the ASX200 X20 ETF tracks against has outperformed the 200 over the longer time period. We know, he says, the largest 20 companies include the big four banks and the largest miners and some other mature, slow-growing companies, as well as some companies still with reasonable growth prospects like Goodman Group, Macquarie and CSL. However, the past performance implies there is not really a discernible advantage investing in an Australian index, excluding those companies.
18:10Is it the dividends from the banks, large miners, telcos and supermarkets that have boosted the ASX 200 returns? Or is it there are just many very ordinary companies outside the largest 20 that are also simply either too cyclical or x growth or is it something else what are your thoughts warm regards chris a really good thoughtful question chris thank you do you want to go first uh i mean yeah i've i've long said that a lot of the bigger quote-unquote blue chip companies are just rubbish i mean look at this let's have a look at some of the names in the in the top 20 you got telstra are we saying rubbish companies or rubbish investments just just to clarify maybe rubbish investments let's be clear i'm not putting words in your mouth i just wanted to understand what you're thinking well i talk about massive slow-moving soul-crushing bureaucracies telstra exhibit a exactly uh qbe oh my goodness um uh woodside oh my goodness we talked about them on friday And BHP as well, yeah.
19:15BHP, yeah, that's right. And the banks, and again, I'll make the point because I feel as though everyone's surprised by just facts. And they have been woeful investments over the last five, six, seven, eight years, given the state of the economy and given the state of the housing market. How is that possible? Well, it is. So, yeah, I totally get the sentiment. Here's the trouble, though. In the U.S., it's the biggest stocks that have done all the heavy lifting. So such a constructed ETF in that market would have meant massive underperformance. But even as Chris says, mate, in the last five years, the 200 has actually beaten the X20.
19:52Now over 10 years it hasn't, but the last five years has been the same here as it turns out, even despite, as you said, the challenges facing the big four banks. Yeah. So the hard thing about all of this is that particularly listening to the providers themselves, I mean, they all sound good. And I've said many times on this podcast how I love small caps. And then you get, well, what's the small cap versus the mid cap? What's a micro cap? Then there's nano cap. They're all arbitrary, right? And so while there are general truths in that, yeah, bigger growth potential and on balance probably less riskier than the smaller and certainly the nano caps and all of this kind of stuff, there are there are i just be careful in in drawing any hard and fast axiomatic conclusions on on any of that yeah look at the end of the day if that's the etf you went for i don't think you'll be too upset in 30 years yeah uh and if there is a difference it's not going to be massive um yeah it's a good point actually but i couldn't guarantee it i wouldn't i wouldn't i wouldn't know it's going to be better than the other one.
21:05That's right. Yeah, I don't know. It's a tough one. What do you think? My thinking is evolving. I own, for my young bloke, I think I've talked about this. I think we were, I should know the answer off the top of my head. We went at one point, an international ETF and the small ordinaries because the X20 ETF wasn't available. So it wasn't a consideration. It may, I may not have chosen. I'm not saying I would have, I just have, wasn't in the consideration set back then. And I did that for the same reason that Chris is asking about aborting the big end of town. But equally, the small lords are not even worse against the all lords than the X20 has.
21:41The big end of town has done more heavy lifting. It just has.
21:47And my thinking is evolving because, frankly, the other thing is, I haven't done the X20, so I really don't know. But I will say about the small lords that while I said, actually, I don't want exposure to banks and miners sold by the small lords, turns out there are so many small finance companies and miners that even when you buy the small ordinaries you kind of get the same industry split so i'm avoiding the big miners but buying the small miners instead and getting about the same allocation so to chris's point it kind of you need to think about not only what you're giving up or what you're taking out by removing the top 20 but also what you're keeping in the next 180 and and if the if the distribution is not meaningfully different then you're kind of in a similar kind of position than what you were Now, again, I don't know about the X20.
22:27I haven't looked at the numbers there. When I say my thinking is evolving, I've railed for a long time and not taken my own advice about being careful about being active when you're trying to be passive. In other words, if you just want an index ETF, go with the index ETF. Once you try and say, but I think I'll get this index out of that index or that moderation, I'll go equal weight rather than market cap. I'll go this, I'll go that. You can't have an active stock picking territory. Once you do that, you might as well pick the stocks. If you've done enough work to have a view, and not a view as in, and this is what I always say, right?
23:02I say to people, if you've done enough work to have a view, I've got a view. I think the small companies do better. Hang on, why have you got that view? Well, they will. Okay. So it needs to be a reasonably formed, defensible, rational view you could actually explain to somebody else, backed with some sort of analysis and insight. If you've done that work, then you can probably pick the stocks. If you haven't done that work, you probably shouldn't be trying to duck and weave and choose different ETFs. you should buy the index and go shopping or go fishing as i've said a lot of times so i went the small odds um i have to say mate i think if i did it again not because the returns have been bad that they have um by the way a bit like the first question returns will always be all over the place in short periods of time just because things happen minus the banks haven't done particularly well mine's done really well because commodity price has been very kind so you know in a different in a different conversation chris's numbers be entirely reversed and he'll be saying well hang on why don't do the other instead and around and around it goes I have to say while I instinctively don't love the miners as I said if you're trying to be passive be passive in my view not just not to Chris this is just my general view to everybody and for myself frankly if I'm trying to be passive I'll be passive I'm trying to be active I'll be active trying to be actively passive or passively active I think is the worst of both worlds unless you've done all the research to know you have a really strong conviction as to why one should be better than the other.
24:20Do we love the banks? No. Is it possible they beat the market anyway? Yeah. Do we think mining is a great business? No. Is it possible commodity prices are higher in five years' time? Yeah. Okay. Well then, if you want to avoid the miners and pick woolies because you love woolies, you think it's a great business, really well valued, really well priced, great opportunity, good growth prospects, then grab that. But picking that instead of the miners as part of some index, because that's just how it happens to be created, I think is a mistake. so yeah so it's a long answer but i think i am coming around to being more passively passive rather than rather than as it actively passive or passively active whichever way you want to you want to frame it yeah i agree with that i mean there might be instances where you just have a particular insight and conviction on a given sector yeah you know and and and one that's at a very early stage might make sense for broad diversification yeah um you know just like i don't know there'll be a robotic etf if there isn't already oh there is there is okay there you go there you go um so you might have a view on that but then what's hard what are the companies what are their prospects what are their price what are their valuations like it's it's one thing to say i like robotics the other thing to say and therefore i think this basket of these companies in this proportion are priced well enough to beat the market like that's a that's a it's such a long distance between i think robotics got a bright future too this etf is therefore worth buying It's chalk and cheese.
25:45It really is. Were there ETFs in 2000? I don't think there were. I don't know. I really don't know. If there were, I don't think there were. If there were, I was around then, so I should know. Yeah, that's why I'm thinking. I can't remember them either, so I'm assuming not, but I could be wrong. I don't think so. But there would have been an internet ETF. Oh, yeah. And you would have had a bunch of names in there that no longer exist. Yeah? You would have got Google and you would have got Amazon. You would have got some of the really big ones and those returns would have been insane. But depending on the diversity of that fund, you may have had 3 ,000 companies in there, 2 ,932, which went to zero or effectively zero.
26:30So you can be kind of generally right but still not do that well. I would push people towards a book called The Gorilla Game, which is a bit of an obscure reference. Isn't it a great book? Really good book. Yeah. And the lessons of the guerrilla game are there are some industries where you have natural winner-take-all kind of dynamics. And the authors of the book really argue for wait until they are established. And then, even though you'll be buying at a much higher price than those who got in very early, go in and go in very concentrated. Right? Because the dynamics are such that, you know, it's just sort of like they cannot be overtaken at this point.
27:13The network effects are too powerful. And this is a book written before a lot of these SaaS kind of enterprises. This was more talking about Cisco's and sort of chip makers and all other things. But it proved true. And it still proves true today. So I'm really going down the robot rabbit hole. it's no man there's some cool stuff happening yeah it really is some and like yeah it's just i'm really bullish but i'm not buying any like there's a company called figure in the u.s i just don't even list it at this point right boston dynamics is doing some cool stuff you know tesla's doing so everyone's doing stuff right who's gonna win i don't know if you ask me i would the average middle class household have some kind of humanoid robot within the next 30 years i'd say yeah probably this is as much a natural purchase as a family car um but i'm not going near it because i know that of the hundred that start out only one or two will survive but once that becomes clear who that is i'll be making a very sizable investment and i'll be sticking with that because that's the way you play the gorilla game um and and beautifully Yeah, I look way off topic here, but just kind of going against what I initially said.
28:30High conviction and a lot of insight into a particular industry may advocate for a themed ETF. But even then, even then, it's a bit tricky. Your point is the valid one. It's just like once you're at that level of analysis, just pick the stocks. Right. And if you can't do that, then you really have no business buying the ETF in my view. Because if you're not so sure that the stocks are worth picking, then how do you know the basket is worth picking? And again, we've said so many times, like let's go back to airlines, right? But 50 years ago, I would have sold my house, bought my kid, thrown everything at airlines and lost money four or five times over.
28:59Because if someone had said, hey, air travel is going to boom 10 ,000 times in passenger miles in 50 years. I'm like, oh my God, this thing's amazing. I'm in. Now, without airports, I would have made a lot of money, but I wouldn't have. I would have made the airlines because, hey, look at all that volume growth. And again, that's what's really, I think lithium, by the way, I think robotics and everything else. The value will accrue somewhere, as you said on Friday. And you're saying now the guerrilla game story is like, work out where that is And when you see it, not when you think you might have, not when you can have a punt or whatever.
29:27It's like, you know, when it's there, then you can jump in and have a go. Yep. It's something we said, risk-adjusted returns are something you've got to think about a lot. You'll always – Apple looked very expensive in 2012. I missed Apple every time. Me too. It was stupid. Like, how dumb was that, right? Like, it was so clear. And Buffett was super late to it. Now, I think it's his biggest holding, like listed holding. So yeah, would have you been better investing in 1997? Yeah, of course. Absolutely, you would have. But what you lose in upside potential, you gain in reduced risk. Because Apple in the late 90s was a very different proposition than in 2012.
30:13Same with Amazon. There was that famous Forbes article, Amazon.bomb, with a picture of Bezos on the front and just like, this is going to zero. And there was another one was saying Google hasn't even, Google should search for a business model, right? And we laugh at it now. But it was like, yeah, but it actually wasn't that bad a take. It wasn't that bad a take at that point in time. And yet earlier is better. You know, it could have bought Fortescue at 5 cents at one point in time. Yes, yes, that's right. But it was a dinky little explorer. You know, it looked like everything else. And there was no way that you could have divined its future based on that.
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30:49No, that might not. I think I was on Sky News Business back in the day on the Friday before Twiggy had to go to New York and basically plead with the bankers not to send the company into administration over the weekend. And of course, the rest is history, blah, blah, blah. But it was touch and go. I was literally talking about the risk or the chance that Fortescue Go's broke over the weekend. That's how close it was.
31:13I think too many investors miss out, me, myself included. Well, not just included. myself as the exemplar, of not investing in something because, quote, unquote, I'm too late. It's already 5X'd. You know, I can't. How could I possibly do well from here? I was like, well, you can do really well from here. Google, Apple, Amazon, Berkshire. I mean, CSL, Woolworths. RAA Group, right? Exactly. RAA Group, Zero, WiseTech. I don't know. And you could have bought them after they'd 10X'd and still done insanely well. Yeah. Woolies was a$2,$30,$2,$60 stock at the listing. That's up for FedEx. It's Woolies.
31:55It didn't have to be an exciting tech stock even. It was like just a dominant growing business. So that was enough. Hey, by the way, ETFs. The first ETF was out in the US in 1993. Oh. But it says, this is from Investopedia, quote, for the next decade, even as a major investor saw their potential, overall trading them was barely a blip, with ETFs breaking 1 % of fund trading only in 2000. At the time, retail investors largely stuck to regular deposits in their mutual funds. So there you go. Wow. So they were around, but no one was paying any attention. The Vanguard S &P 500 ETF was launched in 2010.
32:30So yeah, it's been a - What? 2010? I know. It's been a ride. From Vanguard. They were the pioneers. That's the ETF rather than the index fund itself, yes. The index fund goes back to 1972 or four. Yes. But you had to send the money to the fund manager at that point. They were listed on the exchange in 2010, apparently. I never would have guessed 20. Isn't that amazing? Wow. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.
33:00Matt is holding me accountable, which I love. Thank you, Matt. Hi, guys. Great show. Well done. I love listening. All that stuff, he says. I think that's the token generous comment to get myself on the podcast. Bend the knee. Quick question, he says, and in brackets, and this is not intended to be a gotcha. You said this and didn't... Sorry, not intended to be a gotcha. You said this and didn't do it type of question. Contrary to how my next sentence might sound, dot, dot, dot, in your podcast on 19 November 2021. Jeez, thanks, mate. Give us a break. Isn't there a statute of limitations on how...
33:35Statute of... On the internet? I said it, but yeah. Scott, you said, if the Fortescue share price traded closer to$30, you would be absolutely out the door. I've held Fortescue shares for a while and have done quite well, but the share price is up there at the moment. He says$28.40 at the time of writing, but has been to$29.95. I'm keen to hear your thinking on holding Fortescue. Have you sold or are you holding? If you're not out the door, why? What has changed? As I said, I'm not trying to catch you out. Just keen to understand the thinking process you might go through when share prices rise to a value you previously thought would be your get out price cheers matt i love this question ram i love the fact that he's accountable also he's kind of asking about the thing i'm gonna i'm gonna take this about three different ways mate then i want you to also hold me accountable and share your thoughts firstly matt i'm lazy and i pay more attention to my uh members portfolios than my own so really honestly um i i've said before that i couldn't name the top five positions and certainly not in order in my portfolio.
34:37I can have the top two because they're big, but other than that, I don't know because I'm a long-term investor. It doesn't really matter. So I didn't realize Fortisgur got to$29.95, honestly, mate. There you go. That's the first one. Also, I haven't looked closely enough and I haven't been following closely enough to have thought, hey, I should do something with this. So they're related, but the same kind of point. Second one is I tend not to sell. and so there's that third one and this is i'll get back to some of this third one is i suffer from everyone at the same bias as everybody else which is oh it's going up maybe it'll keep going uh and so my my conviction to sell gets uh gets uh lower as the price continues to rise well i think oh maybe it's got more to go then and that is a that is a logical fallacy i shouldn't fall trapped victim to but i do uh again speaking of speaking of uh us being exemplars of failures that's one the other one though is and this is where i won't spend too much time on this because it's only one company it's you know whatever i still own the shares matt sorry is the is the first part i should have said the iron ore price has been all over the joint uh but at the moment it's not miles away from where it was uh when we had when we had that conversation so part of the and i've probably i might have been too flippant when we talked about it on the pod so i should have been more thoughtful or maybe been a little bit clearer.
35:58Having noticed since you sent that question through, I had a bit of a look around and said, oh, maybe I've missed a check, maybe I should sell it.
36:07Here's the challenge. The share price has risen, but the iron ore price hasn't. Now, there's two ways to look at that. One is, wow, obviously, it's more highly valued relative to the iron ore price. In other words, the PEA has probably expanded. And now, not necessarily versus Fortescue's profit, but certainly versus the price. Therefore, is there an opportunity? Is there something going on there that I should be aware of and should take action about? Possibly. The other is that when I bought Fortescue, I bought it because the iron ore price was pretty low. And generally speaking, I also like the Fortescue Future Industries business, the kind of the new stuff he's trying to do.
36:41I consider it a free option, but he's pretty convicted and working pretty hard on that. So I think there's some potential latent upside, but I'm not putting any value into it. The problem is with the iron ore price still, again, low. The odds are still pretty good that the price could go higher from here. And so you start by looking at, this is where commodities are tough. That's why I don't, I've never recommended Fortescue DOA members, by the way. And the reason is because I consider it not certain enough for all the things we've talked about. We talked about BHP, we talked about Woodside the last couple of days.
37:13Basically, I've kind of go, well, the iron ore price is at the low end of the range. And so it's probably more upside than downside risk for the iron ore price itself. Now, the market knows that too. And so if the iron ore price was to rise from here, there's a very good chance the Fortescue share price would too. So when we talk about the share price, I probably should have sold, looking back at the chart. And again, I don't read charts, I'm not saying because of the chart. But the iron ore price went over$150 in 2022. It was$140 earlier this year. They were the times to sell when the risk and reward for the commodity itself were much less favorable.
37:46At the moment, it could go lower. Of course, it could. Yes, absolutely. Could it go higher? Yes, absolutely. So it doesn't appear to me particularly, the market's particularly optimistic or particularly enthused. Frankly, at the$29.95 price you mentioned, that was probably the point. Now, since you sent this in, Fortisky share price, yeah, Fortisky share price has even fallen further. So it's now$26 10. So I've diddled myself out of 10 or 15 % by not paying attention, but the share price has moved roughly in line with the commodity price. I would suspect that, well, if I'm paying attention, I should sell again when it gets up to those higher levels.
38:21When the market's excited about iron ore towards the top of a kind of range of prices, that's when I should look at selling. That'd probably be, I assume the share price would be at 30 or something around there, a bit over below. I should have sold at 29.95, mate, honestly. I just sell again if if the share price gets up but if it's up because the iron ore price is up the risk reward simply slanted it against me and when it's slanted against you that's time to take some money off the table well i mean
38:59yeah i i don't i i'm not in your head so only you can answer that that question um i tend to think there are, I've learned this the hard way and I've come to this realization slowly because I'm a, I like to ideally hold forever. I think that's the best holding period. I think that's where the best returns are made. But what I've started to think is that very few companies deserve that level of trust.
39:36and that's not to say that you sell out as soon as you're on a profit or you have some target exit price or any of that kind of nonsense but if i'm dealing that is it peter lynch is one of the i forget the investor but they they sort of have seven probably jp morgan they probably have they have seven different buckets of types of yeah there's special situations they're the long-term compounders. They're the deep value plays. They're the net asset plays. And they're all shares. You all buy them through your broker. But they're very different investments. Good point. So now and again, you come across something.
40:13So I'm not a mining guy. I'm just not. It's too hard. It's outside of my little house. I don't like it. That being said, I remember when you bought your Fortescue and I thought it made a lot of sense. And it was under the guise of things are just really cheap. The world's not going to stop needing iron or the cycle will turn. And I think when, and I think that I can't fault you there, but at the same time, it was probably an investment that isn't a bottom drawer investment because the nature of the business is that there will be a point when prices are super high and it's at the top of the cycle and things are really expensive.
40:49And that's just very different to the Solpats or the Berkshire Hathaway or the CSL that just sits in the bottom drawer. It doesn't really matter what happens. I'm just never, ever going to sell. So I think when you go into an investment, you want to have a good idea of, well, this is always true. What's the investment thesis here? Am I buying it because I just think it's the world's greatest company and it's just going to compound for decade after decade? I'm going to do very well. Or is it just a pretty ordinary company? It just happens to be super, super, super cheap. And if it is that kind of company, I've got a few of those companies.
41:22Actually, one of my biggest holdings, I actually regarded it as that great a business. When I bought it, I was like, this is insanely cheap. And the trouble is for me is that it morphs. I buy it for one reason and then I go, oh, I like it. Especially when you're in profit, right? Because you rationalize all kinds of crazy stuff. It's like, well, it doesn't really matter because I only bought it at 12 cents. Now it's at 28 cents. What does it matter? And it's really bad thinking, I think. So I don't really have a dog in the fight with Fortescue, but I do think it is worth understanding the investment you are making.
41:57If it is a special situation or it is a deep value kind of play, once your thesis has been realized, get out. Get out or at least be able to objectively articulate a new thesis that justifies you to keep holding it. And it's very hard. It's very hard because you will sort of shift the goalposts. So I guess that's the only thing that I would add. There are just things come along every now and again. And it's just like super cheap. Okay, it's not cheap anymore. Why am I holding it? Yeah. Like, why am I holding it at this point anymore? And I think it's absolutely true. I should have sold it close to 30 bucks and the iron ore price was high.
42:37I just wasn't, honestly, wasn't paying attention. And that's, yeah, honestly, I always am glad my wife doesn't see this because I pay much more attention to our services than my own portfolio. Largely because I'm a kind of, I like to be, as you said, a set and forget investor. Fortisque is absolutely one I don't expect to hold for the long term. um i'm a sucker for for businesses and i'm a sucker for management i think fortescue is a good business and run by a good guy whether that's enough to overcome the realities of the industry though i have to be really careful of because it's still a minor right and for all of bhp's i'm remarkably well so it's fortescue uh can it keep doing well is it going to keep doing well should i hold it because i already hold it i i am you know me mate i've i've held some stuff before dogs for way too long um for the long-term listeners you remember gauge roads it's now good drinks Australia I'll help forever and eventually we talked about this so many times I'm just going to sell this thing that's ridiculous so I am an inveterate holder past a reasonable time frame by the way more often than not that's actually served me well because I've been patient in times of bad news and things have come good but there are other times where I'm just like why am I still holding this thing like that's just stupid and Fortescue is probably at risk of becoming that I won't commit to selling at 30 because I may forget and or decide otherwise but if we get an iron ore price spike and we got a share price above 30 bucks I think I'd be silly not to sell so if i if i don't it's on me uh not not on you and i wouldn't as as is often the case with these things do as i say not as i do because i um i honestly don't you know i check my portfolio once a week if i'm lucky these days um not because i don't care not because it's not important not because money doesn't matter just because i'm a long-term investor i just don't want to live and die by the minute by minute share price update so i just make myself not do it which works quite nicely yeah and i'll just repeat that my biggest mistakes are re-weighting taking profit whatever you want to call it on things.
44:21I was, you know, we all know what I did with ProMedicus. But, you know, there's others. XRF is one that I quite like. And I realized that I bought that at 26 cents years ago and I sold out between 50 and 65 cents. Oh, really clever. I thought I was pretty smart. It's doubled since then. Oh, okay. It's still a great company and still around fair value. You know, it's just sort of, yeah, Yeah, I love, I'll quote you here because I love it, is you want to be slow to buy and slower to sell. And I think that's always a good thing to keep in mind. Yeah, I think it's right. I've made the same mistakes made out of it famously.
45:04I sold Domino's two others. I said a million times. Bought at eight, sold at 13, thought I was a genius, and it went to 140. So yeah, if you are slow to buy and you buy well, letting time look after it after that. As I said, I could have lost money on another five. I've lost everything on another five recommendations to come out miles ahead. That's the way the maths of investing, particularly if you've got companies, have a significant amount of growth potential. Do you remember, just very quickly, it was David Gardner, one of the full founders, who regaled the story of such and such, some American dude.
45:39Shelby Davis? Yes, yes. And the story is they just never sold, ever. So anytime they bought, they're buying all the time. And when they'd work, they'd save money and they would buy. And they would never, ever, ever sell. So they obviously had this monster portfolio in terms of number of shares. But it's just sort of like, you know, 80 % of the value was held in 20 % of the stocks. It had this very big long tail of disasters. But those disasters tend to correct themselves in the sense that they automatically reweight to very low levels. They stopped mattering after a while, exactly. It just doesn't matter, right?
46:14Now, it's a hard - And for two reasons. One, because it gets small. The other is because the other ones get big. And the other ones get big. And so at some point, you've got a million-dollar portfolio. This stock's now worth$10. You can sell it and redeploy it, but kind of why bother? Because it's already really small. Yes, you can$10 worth of something else. But you're right. But both those things pull opposite directions to make it even smaller as a percentage. And it's a very – I've thought about that story a lot over the years because intellectually I hate it. That's right. I hate it. It's dumb.
46:44What are you telling me? That's right. You should go in there now, at least the bottom decile. Clean yourself out. Take them behind the shed and do the humane thing, right? Like that's what you need to do. But the point, I think the wisdom in it is that you don't know at any given point in time. You don't know. And so the fact is that just what you do is when you have money, you allocate to your best idea at that point in time. And the die is cast and you will see. You'll see whether it's good or bad. But it just, A, when you say that this is my overt strategy, it forces you to be pretty picky.
47:25It's like, I'm never going to sell this. Good or bad, I'm never selling it. So, okay, I need to be thoughtful with this. But it also stops the knee-jerk reactions. Oh, they had a bad quarter. Oh, you know, US is an exception. Had a good quarter. Share price got 10%. Maybe we should sell now or whatever it is. Yeah, exactly. It just, it takes that away. And like when you look at – so David's a great example here because he's got a rubbish strike rate. Yes. Hi, David, if you're listening. The strike rate is rubbish. I'll send that to him though. He says it himself, right? So I'm very confident. He says he has picked the most losers at the Motley Fool.
48:00Most losing stocks at the Motley Fool. He's got the worst strike rate at the Motley Fool. Yes. I mean, so it's something like what? Three out of 10 turn out to be good investments. Something like that. And you're like, what? but he's got one of the best investing track records in the industry because he bought Amazon very early and never sold. He bought Facebook, Nvidia, Macado, Libra, exactly, yeah. Never sold. So you look at his portfolio and it's like, wow, you're way over diversified. My gosh, you're so concentrated in this handful of stocks. It's kind of like, no, that's the point. Now, having said all of that, I don't do it that way, right?
48:35But these questions and these examples do prompt me to sometimes I think I'm trying to be too tricky by half. And there is some elegance in that approach. Yeah, that's kind of my view, honestly. Again, I haven't lived David's suggestion. I'm somewhere in between. I find, yes, for both reasons, through experience, particularly on valuation, particularly on valuation. I let companies have a lot more rope. And I let them have a lot more rope when it comes to execution. I'm talking about Kogan for a while, everyone have a quick drink on a Sunday morning. I still loan those shares. They dropped 25%, was it last week or this week?
49:16On numbers that were actually generally pretty good with the exception of marketplace sales being down a bit. It's kind of like, I don't know what the market expected. I don't know why it lost its complete mind. I don't really care, right? So it's been up and down more than anything else. The daily moves are big, often the weekly moves are massive. Just is what it is, right? and that's exactly an example of what you've just talked about. I have a thesis over four plus years, it either played or it won't. I have no way of knowing now whether it's going to play out over that period of time. And the movements in the share price subsequently, would I have sold at nine if I could have before went to six?
49:48Of course. But now it's six, so now what am I going to do? Well, I have no reason to believe the thesis is going to play out. Now, at some point you say enough bad news in a row suggests that the odds are lower, so maybe you want to pay a lower price or sell earlier. But the thesis I have is a business thesis, not a share price thesis, which again is different to Fortescue for clarity. So Fortescue is largely a commodity price and a share price kind of balance probabilities bet. The Kogan thing is, I think it will be a much bigger business in four or five years time. I don't know that it won't.
50:18And if it is, it'll be worth more. And if it's not, it won't be. That's the game. In the meantime, the volatility is not helping me. We talk about volatility a lot on Friday. So it just is what it is. So I'm going to play it that way. Yep. Hey, Richard sent an email about investing for kids, which I quite like, mate, because it goes a little bit further than some of the other questions we've had. He says, Hi, Scott and Ram. I'm thinking of setting up an investment account for my two daughters, currently seven and five. Their grandparents often give them money, which I want to convince them they should invest.
50:47Good luck. I'll tell a fun story about my young bloke. I also think the grandparents would like to see this accumulation of funds, as it'll probably give them more satisfaction than seeing it spent on crappy plastic toys that'll be soon in the bin. I see many brokers offering accounts for kids, but can you explain to me anything I should be aware of? For example, are there any tax implications for myself? And will there be any restrictions on withdrawals? Also, how do they eventually obtain access to the funds, given I don't necessarily want them to be able to withdraw it all themselves when they turn 18 and immediately peed up against the wall?
51:21Thanks for your help, Richard, from the central coast of New South Wales, he says. lovely part of the world richard thank you mate um a fun story for my bloke my own bloke when uh when he gets money for pocket money or for doing stuff around the house or whatever he gets uh he takes the cans and bottles back to the recycling thing uh he's got to put 10 percent uh he's got to give 10 percent to a charity or a good cause as you're invest 10 of it that's the deal so on the weekend i took him to do that and he's got his heart's in all this money right and so as soon as he sees somebody having to go away for investing or giving he's like oh i can't it's going to go away and uh and so he said what i'll do if i can have it all now next time i get some money i'll put double in the investing and giving accounts right and he's absolutely 100 sincere this is not him trying to hoodwink me he he believes it with every fiber of his being the reality is that this and this is what i tried to explain which he can't get who i get for years is that's kind of what most of my job is is helping or trying to help people overcome that very urge which is i won't save now i'll save later i'll spend now but later i'll save i promise i will i really i really want really will uh we all i'll quit i'll quit drinking tomorrow literally yes yeah what is it god grant grant me abstinence but not yet who is that one yes yeah that's it i love the saints um yeah and that's the thing right he genuinely believes it uh but we all know human nature is when you get to that that you know future you will be like oh bugger either either i can't believe i did that or i said it but i didn't really mean it next i'll do it next time okay um so we had that conversation mate Grisha when it comes to investing for kids a couple of things um you can I'm not we're not tax advisors get some tax advice you can set up an account in your kids individual names I don't know if you can do it as a joint account in their names that might be too difficult I probably do separate accounts for them that's up to you um you can make yourself as trustee for them the account has to be your legal name but it can be set up as Richard I'll say Smith it's not your surname but Richard Smith uh and then you know Jenny Smith account and Avril Smith account uh And those accounts can operate with their own tax file numbers and linked, the kids' tax file numbers, that is, and linked to a savings account if you've got a bank account in their name with, again, their tax file numbers.
53:24That is the way I've been advised to do it if you're doing it on behalf of a kid. If you do it that way, there should be no tax implications for you. The tax implications are all theirs. There is a tax implication for them if the dividend income is over a certain amount of money a year, and that's because people are using their kids as tax shelters. So just be mindful of that as they get older, particularly if you're compounding a large amount of money. At some point, their dividends may be high enough to need to pay what's effectively pecuniary level of tax. Is it 66 % round? I think it used to be.
53:54It's stupid, stupid high tax anyway. So be careful on the dividend side. I think maybe it's low, but it's stupid high. Maybe it's 48 and a half, whatever the number is anyway. It's stupid high. So keep that in mind. I am not sure legally, I'm not a lawyer nor a tax accountant. I'm not sure legally what happens at 18. I mean, if it's set up in their name with their tax file number, I assume they have a legal recourse to that account. Now, you could maybe not tell them, especially how legal that would be, but if they didn't know it was there, they couldn't take the money out. There's one way to do it.
54:22But other than that, yeah, you kind of, if it's in their name, it's your trustee for them. Once they become legal age, particularly the tax office will want to see that that money gets transferred because if it doesn't go to them, then at some point, the ATO says, well, hang on, you've been running a 15-year tax avoidance scam. It really is your money, isn't it? Because you haven't given it to them yet. I don't know whether the ATO would care. I don't know if they'd find you. And you do it for the right reasons, right? You're not doing anything dodgy. The ATO is paid to be skeptical. So just be mindful of that.
54:50Yeah, I'd be worried about that too, mate. The other option to do it in your name, pay the tax for yourself and give them the post-tax proceeds at some point later in their lives. There is therefore a tax burden to be paid on transfer from you to them um you can't really get around that it's kind of one or the other uh i don't really have a strong view um we've done for my young bloke we've done his name also my name is with him as um the beneficiary uh and at some point when he gets to 18 i'll probably tell him he can't have it and probably give him the password and see how that goes for a period of time i probably haven't been telling him it's there honestly at some point he needs to know it's there because if he's doing his own tax return then you know he'll have interest or dividends to declare at the same time as working at Maccas or whatever.
55:30So you do need to let them know at some point too that's the other part of the problem. It is a super, super, super mess. I wish it wasn't so bad. You can blame every other so-and-so who decided to dodge tax by putting their investments in their kids' names. It's ruled it for the rest of us. I don't know how the government can fix it because if they reverse it, then people will just do exactly that again. So it's just scumbags, make it worse for the rest of us. But it kind of is life sometimes. Ram, any other thoughts? Yeah, I mean, I don't. I don't do any of that stuff because it's just hard.
55:59There's enough entities that I'm looking after. I love the idea though. I really do. They're not going to care whatever the structure is. Dad, is this notionally mine? Yeah. Okay, cool. That's all I need to know. That's right. If you don't give it over to them, you've got to pay the tax and you've got to declare it in your income and there is a capital gains tax bill to be paid on disposal. So the transfer gets messy if it's in your own name, but it's easier to manage outside their control. That's one side of it. The other side would be give them full control and just acknowledge at some point they're going to take the money and you're going to have to hope they don't wreck it.
56:35You can always do a bit of both, by the way. No names, no pack drill, but I might be doing that for my young bloke. He's got a little bit of money, as we've talked about before. He's chosen the shares and he's kind of got his own little name in a sharesies account. I've got a Perler account that I put money into he doesn't know anything about. That's how we've kind of done it that way.
56:53Yeah.
56:57If you're, especially if you're doing, like, let's say you're just buying an ETF, an index ETF, and just contributing money whenever they get a bit of cash their way. There actually won't be any, like, for you, the tax burden will be very non-existent, really. Except after a long point of time. You might even be retired then. You might even have some in a better position to do it. That's a very good point. And you're not giving them a tax liability either, right? You're free and clear. So I think there's something to be said for that. And if you don't have the income that particular year to pay the tax, the tax can be paid out of the proceeds of the sale anyway.
57:35So it's kind of like, here's your after-tax endowment, so to speak. But it is a shame. It is a shame that there is any more straightforward and honest and easy way to do it. Yeah, I don't know how you do it given that. That's it. It's been rorted, so people do it. Hey, Mike, this is one of the better questions we've had for a long time, particularly because it comes from Lucas. And Lucas, well, I'll let him say it. Hello, I am Lucas and I'm 11 years old. Me, my brother and my dad listen to your podcast or as you like to call it, he says, the pod machine. Thank you, Lucas. Every day on the way to school.
58:11How good is that? Mate, thank you for listening, Lucas. Thanks to you and your brother and your dad. This is ringing a bell. Are you sure we haven't done this one before? I don't think so. Well, you tell me. I have two questions, he says. First, how much money do you think I need to begin investing? Second, why does Scott have such a big problem with Bitcoin? Yeah, we've definitely done this before. Have we done this before? We've definitely done it before. Well, g'day again, Lucas, and we'll move on. Thank you, Ram. I had forgotten. Let's go to - I wasn't sure, but then you mentioned why do you have a problem with Bitcoin?
58:40Okay, I wasn't sure. We've definitely done this before. I must have put it in. Some of these, I'm trying to roll forward with some of the questions we got from our listeners. let me find another one then to finish off because I didn't have that one already why do you have a problem with Bitcoin because a problem with me what can I say
59:03what questions haven't I answered thank you for letting me we did I've really caught myself up entirely while you're doing that I will just say for those that may have missed that episode or whatever there is there is you can do it with a very small amount yes very small amounts yes yes and just just start yeah all right um lucas is going we said at the time lucas is going to be a good he'll be fine thanks lucas uh alex says hi scott and ram brilliant podcast keep up the great work it's not why i'm answering this question but it might be alex i'd love your thoughts on this and then he says, happy for you to use my first name on the pod.
59:45Now, Alex, on behalf of myself and as a warning to every other listener, don't put that as your third sentence because I've already said it from Alex and I got down to happy for you to use my name. Now, luckily he said that rather than please don't use my name, in which case it would have been too late. So I appreciate you saying that. If you don't want your name used, put it at the very top, please. Help me out. I'm 37, says Alex, and have around 500K in my super. Nice. Which is invested in Australian and international shares, speaking of people who have no troubles, and a small portion in bonds for a low-cost industry fund, Aware Super.
1:00:14Given the low fees, I see this as a more cost-effective way to invest my super than a self-managed fund, not to mention much less hassle, he says. I intend to continue making the maximum concessional contribution every year while I am working. This is likely another 20 years. My understanding is that Aware and similar funds calculate the unit price of the various investment options by taking the asset value and subtracting the liabilities. Presumably, this includes an allowance for tax on unrealized capital gains. Over the next 20 plus years, this allowance for CGT could amount to a significant sum.
1:00:49My guess would be well over$100 ,000. Given that under current legislation, I'd be able to access my super tax-free at 60, would I be better off investing through a self-managed fund with a buy and hold approach so that when I reach 60, I could theoretically cash out my super without having to pay any CGT at all. Am I missing something? Now, my understanding, Alex, and I'm not a super fund expert nor an industry super fund expert, is that the unit prices are already net of tax. So whatever's in your account is the amount you could cash out without additional tax owed on that transaction is my understanding.
1:01:25So if your account is half a million bucks, I'm 98 and 0.3 % sure. But anyone listening, please let me know. If I've screwed it up, we'll update you next week. I'm pretty sure that's the value of your account effectively free and clear. They pool the tax, they pool the franking credits the same way. So that's all kind of pooled together. And your unit price allows for all of that stuff. You don't have an account in your own name in the way you would with an SMSF or your own personal investing. You kind of have an entitlement to a number of units in the fund, as you've rightly highlighted, worth a dollar amount, which is already net of all those taxes and fees.
1:02:00I believe that's true, Ram, unless you have a different perspective. I don't. And I'm really glad you answered that first. I'm not sure. It makes sense that it would be that way. It seems like massively unfair if it's not. So it kind of never occurred to me, but I just naively assumed that that was the case. Yeah, I'm reasonably sure that's true. So again, if someone tells me otherwise, please, as always, we're not tax experts. We're not tax advisors. We're not accountants. We're not lawyers. will give you the thoughts as we believe we understand it. I've not heard of him having a massive tax bill to pay on cashing out a super payment at retirement, for example.
1:02:39So I'd be remarkably surprised if that was an issue for you. It also is, and it's probably something that SMSFs are still relatively new. The move towards SMSFs, and we've just talked a little bit about Ram doing something with his, and I think about, should I close mine? the the rules are really different in terms of particularly franking credits and that kind of stuff and the way they get applied and the the tax owed and all that kind of thing it's the whole system is way as usual way more complex than it needs to be um but that's kind of the way because even with smsf you got pooled funds with multiple people in the family it's all a bit it's all a bit messy the whole thing so yeah i don't i don't have a i don't have a particularly good solution to how you solve it for everybody but the funds are entitled to pool the assets and calculate things that way.
1:03:25It's also why, for example, when the previous Labor opposition was talking about changing franking credits, it was going to hit, I think, SMSS, but not super funds because of the way the refunds work in those funds. And yeah, because it gets a portion to everybody. The whole thing was a bit of a mess. So yeah, no suggestions as to how to improve it. But I don't believe you need to worry about unrealized capital gains. The unit price should allow for all that already. Yep. Mate, I reckon after covering Alex's question twice, we're probably, sorry, Lucas's question twice, we're probably finished for this Sunday.
1:03:59Mate, are you committing? You said you were going to commit to using Twitter more often. Can we expect to see you on Twitter this week? I didn't say I was committing to using it more often. I said I don't use it that much. I should use it more. Oh, I see. So a statement of regret rather than intentions. Yeah, an aspirational target. Aspirational. Well, you could be a politician with that sort of stuff. That's like Albo's housing thing. It's not a target. It's not an estimate. It's not a quote. It's not a promise. It's just an aspirational idea. Twitter's great. I do scroll Twitter a bit. I don't tweet.
1:04:30I just find you get drawn into things that I, you know, it's like wrestling with a pig, you know. Go on. You both get covered in, let's call it mud, and the difference is the pig enjoys it and you don't. So you've got to be careful. and with that lovely image of Andrew mud wrestling a pig enjoy your Sunday thank you for listening if Andrew is on Twitter this week he will be at sage underscore simian or at straw man invest is the straw man Twitter account you get me on Twitter or Insta or threads at TMF Scott P I'm not on threads I'm also a mastodon apparently but I haven't been there for months you can get me on Facebook at Scott Phillips money that's just facebook.com slash Scott Phillips money the Motley Fool AU on Twitter Insta I don't give that very often but that's where that is and The Motley Fool Australia on Facebook as well.
1:05:15If you have questions for us, send us an email, info at fool.com.au. You never know, I might answer Lucas's question again. No one knows, it could come back. But in the meantime, enjoy your week. We will see, well, I assume, Andrew, will you be here on Friday? Yeah, try and stop me. Lucky, all right, cool. In that case, we will see you next Friday. Until then, Fool 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.
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