April 22, 2025 • 32 mins
The markets are wild and cash rates are dropping quickly at the major banks: Investors of every type need cash. Here's a guide for the investor who wants to be ready for the next opportunity.
Liam Shorte of the Sonas Group joins Associate Editor- Wealth James Kirby in this episode.
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In today's episode, we cover:
- Finding the best cash rates
- Optimising offset accounts
- Reviewing Dividend Reinvestment Plans
- Sorting your super inheritance (and that does not mean your Will)
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. Now, look, it's indisputable. I
think we can say at this stage that investment markets
share market in particular are at an inflection point. And
this obviously is based on credible, logical, rational concern over
(00:31):
the unleashing of the tariff policy in the US and
the consequences of that for markets. Some of the biggest
names and best minds, if you like, in investment are
openly expressing concerns. Ray Dally, Oh, I'm sure a lot
of you have read or heard of talking great concern
(00:52):
over ever recent days. On our own show, Chris Coff
in the which you shouldn't miss if you did miss it,
which was the last before Easter, and he talked about
his concerns for the market, and you know, I thought
it was great that he came out and expressed clearly
what he was thinking. Now we don't no one knows
who's right and who's wrong just now. No one knows
the future. But he was extremely skeptical about buying the
(01:13):
dip for instance, and this is someone who's outstanding fund
manager legendary fund manager in Australia on the board of
UNI Super, the fourth biggest super fund, on the board
of RGO, the listed investment companies. Someone really plugged into
investment committees and where they're coming from. So you have
this issue that it is a time that you should
(01:34):
have cash. This is the common denominator of you, like
among what these people are saying. Now that's not to
say that you shouldn't bargain hunter or whatever, but today
I am going to concentrate on that single issue, okay,
which is building cash buffers at a time of great
unease in the markets, which is exactly where we're at.
To help me with this, I have financial planner Liam
(01:57):
short of the son of S Group, who has been
on the show before and is particularly expert on this issue,
and I talked to him regularly about this. How are you, Liam,
Good morning.
Speaker 2 (02:08):
Let's just talk to you, James.
Speaker 1 (02:09):
I knew nothing at all about cash, but I knew
I should have cash. I would be aware of a
couple of things that the rate cycle, as far as
I know, has topped out. So the RBA did its
first cut in years, only one cut so far, everyone's
talking about more cuts but in terms of cash, having cash,
where to put it on, how much you could get
(02:31):
for your cash at the moment. Can you give us
an idea what the settings are and what the momentum is.
Speaker 2 (02:38):
Yeah, So you always need to be aware the banks
are moving a lot faster than the Reserve Bank. So
for example, four months ago, we were getting five point
three percent for a one year term deposit. Now the
best right we're seeing is about four point six. Okay,
so even though there's only been one rate cut, we're
almost priced in three rd cuts into the term deposit rights.
So then we have to talk about this two types
(03:00):
of cash. There's lazy money that you just leave sitting
in a check account or a low interest savings account,
and this cash that you get working for yourself, that
you can afford to either not touch it for a
month or longer, and that you can make sure it's working.
What we're seeing is some of those some of the
banks have still got their high interest cash accounts. So
(03:20):
those cash accounts where they're adding the bonus interest if
you put in an extra two hundred dollars or fifty
dollars a month, they're really worth while taking care of, Okay,
and using them. But you've got to use them smartly.
If it says that you've got to put in an
extra fifty dollars a month and you have to do
four transactions, set those up as automatic. Set fifty dollars
(03:41):
in there, automatically. Pay some small bills that you pay
on a monthly basis, Set them up as automatic so
you don't miss that key bonus interest because it's often
the base interest rate is one point five or one
point seventy five and the bonus is three or three
and a half.
Speaker 1 (03:58):
And this is this is standard fair, now, isn't it like?
This is really yeah, this is unfortunately you can't just
it's almost rare that you get a clean cut. Here's
the rate. It has to be sort of strings attached.
Speaker 2 (04:10):
Yeah, and don't be loyal to any one bank. Shop
around and see what you can get. And then we're saying,
if you've got money that's available for more than one month,
look at term deposits, look at laddering term deposits. Six nine,
twelve months before rights started dropping, we were lucky in two, three,
four and five year term deposits and also some annuity,
so we were.
Speaker 1 (04:31):
Able to elain if you were to the listeners about
what laddering means exactly, and they have this in bonds
in the US, I know, but if you might just
explain to listeners the concept behind laddering.
Speaker 2 (04:41):
Yeah, and I'd probably talk about it in terms of
funding your retirement. We always want to have two to
five years pension money or income that you require in
cash and fixed interest. But if you don't need some
money till the third year to finance the third year,
instead of just constantly rolling it over one year, turn deposits,
lock it into a three year, turn deposit, lock it
(05:03):
into a two year, lock it into a four year,
so that you're timing the maturities at the same time
as when you'll actually need the funds, and not leaving
yourself open to a variable interest rate on a savings
account that's a more life you're going to drop fairly
fast over that period. So it's all about making sure
that the money is invested for the times you need it,
for the timescale you need it on the timeline.
Speaker 1 (05:26):
Yeah, that's the laddering approach. So it's and it's working
on the assumption, obviously, the fairly fundamental assumption that the
longer you lock it up for the more you'll get,
and then what would be the range at the moment
between say a month and a year and four years.
Speaker 2 (05:40):
So on one month you can some of the banks
are paying as little as three percent. For one year,
as I said, we can get four point six. With
the average bank nails down to four point three, you
can still get around four point six for two years
and three years. So we've all some people have already
missed about. Okay, you should always be thinking about these
things before they actually happen. You need to be thinking
(06:03):
where we're seeing. If the markets are going well, if
they're economies doing well, then it's time to start putting
money away for the bad times. And it was being
met very clear that the Reserve Bank was holding or
not reducing interest rights, but that there was a bias
towards reducing them as soon as they got the unemployment
figures where they wanted and inflation where they wanted it.
So six months ago we knew this was going to
(06:25):
be happening, and so the people who managing their own
money should have been moving money into these longer term
exposures at that stage.
Speaker 1 (06:32):
And if somebody was of an opinion now a regular investor,
but was saying, oh, hang on a second, I don't
like the markets at the moment. They are highly volatile.
We're seeing them moving up two and three percent. We
had the worst day and the best day in since
COVID inside a week recently. That's the signal if ever
you saw wanted, it's highly volatized. So if somebody was saying, look,
(06:52):
I never really had much cash. I like to be
fully invested, but on this occasion, I am thinking about
putting cash and investing it as an seeing it as
an asset class for this period. And if someone was
doing that, tell us that there's some guidelines. For instance,
I go out and I see that I'm going to
I'm going to use Combank. I don't know what the rates, however,
(07:14):
I'm going to see that Combank has a rate for cash,
and I'm going to see bank Zip Zip, that I've
never heard of in my life, has a rate that's
a percentage higher. They're both banks, they're both strictly and
legally and technically approved depositive taking institutions, which means they're
both covered by the guarantee. And this is the great
thing about cash, which we must explain to listeners and
(07:36):
the unlikely event, guys, that you don't already know it.
All cash in banks or approved to posit taking institutions
is guaranteed by the government in Australia to the tune
of two hundred and fifty thousand per bank. So part
I'm making Liam is if they're all guaranteed, need we
worry about brand names or the fact that one bank
is much smaller than another.
Speaker 2 (07:57):
Not really for the government guarantee. Remember also its per institution.
So you can put two hundred and fifty thousand with
Saint George and put another two fifty with Westpac, can
expect the guarantee. It's both so and that goes back
to thinking about what banks merged during the after the
GFC and so come Bank Bank, West nab On, New
(08:19):
Bank and West pack in c George. So you've got
to think in terms of institutions.
Speaker 1 (08:24):
Okay, So a great point, Liam, and folks. The problem
is the bank's virtually conceal this. If you're with Bank
of Melbourne, you would not necessarily know that you're with
the same group that also owns Saint George, which is
West Bank, because they tried to keep the brands distinct.
As Lean pointed out, if you're with Bank West, don't
think that if you had half your money with Bank
(08:45):
West and half with Combank, in fact you only have
it with the one banking institution, which is the parent
company Comebank, which owns Bank West. Really good point, Liam,
really good, especially for perhaps that's maybe older listeners that
had money in banks or had some faith in their
local bank, so Bank of Melbourne which is actually owned
by a Sydney bank, Westpac, for instance.
Speaker 2 (09:03):
Yeah.
Speaker 1 (09:04):
Yeah.
Speaker 2 (09:04):
The other thing is, yes, they're all covered by the
government guarantee. But if you've got your one year money
and you need to make sure that is liquid, yes
the government guarantee is there, but you don't know how
long it's going to be till it's paid. If a
bank did collapse, okay, so possibly with six to twelve
month money, we'd probably still say stick with the bank
(09:25):
that's at least BBB triple B rated, so it's got
a good credit rating. But overall, and I tend to
not put the fill two fifteen. I'll put in two
thirty five to make sure that any interest is covered.
Speaker 1 (09:38):
You are conservatively sure I'm dealing.
Speaker 2 (09:42):
With other people's money. So I've got a true I've
got to take care of it and just making sure
that don't have the loyalty to the banks. They have
no loyalty to you anymore. So look for those best
interest rates if possible, look for an abrary. Look for
a facility that gives you access to more than one
or two banks than going direct to each bank, because
that can get complicated nowadays, having to prove your identity
(10:04):
with all of them, having to have your logins and
everything like that. So look at that. There are services
out there like Australian Money Market and cashworks and stuff
like that that that are offering access to twenty or
thirty different banks, and you can have it all there
spread across all the banks. At the end of the year,
you get nice tax report for your SMSF for your
all times.
Speaker 1 (10:22):
Yeah, they're your channel through to the different banks and
they clip the ticket. I assume somehow.
Speaker 2 (10:26):
They get paid by the banks, so roughly you get
the same as you're paid in the actual bank branch.
So the banks have allowed for what the branches custom
similarly allowed for what these wholesalers customers.
Speaker 1 (10:37):
Gee, yeah, a bit like I suppose a bit like
mortgage brokers for the same sort of thing. They don't
advertise much. They're not very well know what would the
two you mentioned Again, we are not in any way
picking these out as the best or anything, but two
more popular ones. Liam.
Speaker 2 (10:49):
Yeah, So Australian money market is my one, and then
there's I'm not sure if cashworks called cashworks, it might
be called term deposit, dot com, dot au. There's a
few out there, but Australian honey markets tended to be
the leader in the space.
Speaker 1 (11:02):
Very good. One last thing before we go to the
break about all that. It sounds very laborious because the
banks do these honeymoon deals. So I go in, the
bank says, listen, we're offering four point five percent right
now on your cash. But three and a half of
that is if you do this and this and you
get a one percent basic rate. I forget to do
it one week and it's all gone. And that is
I don't get the rate. You're saying. Set up direct
(11:24):
debits or automatic arrangements, which is very smart, but these
honeymoon deeds they only last a year or so.
Speaker 2 (11:30):
Uh yeah, And that's why I use it for similar
money market because at the end of the six months
or nine months or twelve months, I just go in,
I see the rates from twenty different banks from one
month out of five years. Flicky button, and it moves
to the other bank automatically.
Speaker 1 (11:43):
Can I ask a technical question, if you had a
self managed super fund and you linked up with one
of those intermediaries cashworks, money market, whatever they are, is
that it will that do you for all the banks
because traditionally, as I record, if you had an SMSF
and you wanted to put cash in a term deposit,
you've got to show your superannuation deeds and everything.
Speaker 2 (12:02):
So you do all that upfront one time with the
actual provider, and then they researtified as advisors. It's on file.
The money marketer whoever will use that then to open
the account. So once a year we will update the
IDs for example, but the trust needs is the trust aed.
Speaker 1 (12:18):
So it will serve for all banks exactly. Lovely. Okay,
that's interesting, okay, folks. So we'll be back in a moment.
We're going to develop this way of thinking about building
buffers fast if you need to in what is a
fairly wild investment market. Just now, hello and welcome back.
(12:47):
To The Australian's Money Positive podcast, a fairly sober episode
this folks, and could could you blame us for having
this approach? Everyone that's been on the show is concerned
about the markets levels. As I speak. This is Easter Tuesday.
We just had another three percent drop last night on
Wall Street because of what Trump is trying to do
(13:09):
around the Federal reserve. These are absolutely fundamental concerns about
how the market that we have known all our lives works.
How does the federal reserves work inside of the US,
how does the global trade order work? These are open
and under questioned just now. And it's no surprise that
(13:30):
the share markets are showing that fairly severely. Our ASX
is down for the year to date by about five percent.
The global market represented by Wall Street S and P
five hundred is down for the year to date this
morning twelve percent. That's a fairly rough market to try
and make money in. And that is why we're talking
(13:50):
about cash and liquidity today. Liquidity obviously being the ability
to catch out something fast. Right, So a notoriously i
liquid investment would your property right? You can't you own
an apartment? It's worth the three hundred thousands, but you
can't take twenty grand out of it. You just can't deliquid.
But if you have listed investments of any description, as
(14:11):
opposed to unlisted investments, you should be able to get
your cash out as much as you want really, at
any time fast, with the exception perhaps of some small
cap stocks. So Liam, just to develop it a little bit,
could you repeat Also, at the start of the show,
you mentioned this was obviously for investors. Well it wasn't all.
(14:32):
This was investors who need their investments to pay their income.
I suppose you were talking about emergency funds. But let's
just talk about liquidity tools for any investor of any
age at this time. If you were I, you've explained
to us about what to do with cash? What about
raising cash? If I came in to you when I
was a fully diversified investor and I said to you,
(14:52):
I've always been fully invested, but I and I never
paid much attention to cash. I need to now, where
would you start the compass?
Speaker 2 (15:01):
Well, the first thing I'd say is stop any dividinary
investment plans. You've got their fools game nowadays because of
the fact that we've got dividends stripping funds out there
that basically jump into shares before the dimendends are paid,
stay the forty five days, and then exit. It means
that usually when the d RP price is set, it's
at the very peak of the share price. So the
(15:22):
idea that you're getting a good deal by dividend reinvesting
it's no longer true.
Speaker 1 (15:27):
That's very interesting, Yeah, very interesting. They have faded a bit.
Have they Have you any sense of how many give
them anymore? Maybe it seems to me, is it like,
have you any idea how many of the top fifty
give have DRPs that's dividend reinvestment plans folks, if you.
Speaker 2 (15:41):
Have honestly, I would say it's only third of it now.
But as they are struggling to raise casher, they're trying
to hold on to investors that some of them, especially
unlisted funds for example, they're starting to offer discounts again
under DRPs, so you can tell when they're stress for liquidity.
Speaker 1 (15:57):
Interesting, but you're telling me that in any event, the
do is you're getting a raw deal because you're the
listed company XYZ Limited that you have the d RP
with they apply it on the day where the thing
was at absolute peak because the dividends strippers are about
to come in and play around that. See that's very interesting.
So what your I don't want to go too far
(16:19):
off track here, but are you are you generally do
you generately tell people not to bother with dividend reinvestment
plans because they do have a discipline leem I suppose,
which is useful, just like investment property has a discipline
makes you pay the mortgage.
Speaker 2 (16:31):
But if you're disciplined, you can have the same discipline
by taking the DRPs and every three months looking and saying,
where's the best place to pace that toward lay uly
putting it into your existing portfolio. It may be the
time to diversify it. In a time like this, you
might say, well, look, instead of just divilinearlyinvesting, I'm actually
all the dividends that come out. I'm actually going to
specifically target it at a high yield fund or targeted
(16:54):
at something that has dropped pretty significantly. So it's far
better to be an investor who's actually thinking about the
investments rather than just sit and forget. Because as we've seen,
if somebody was just pumping money into the Magnificent seven,
that have done great for the last couple of years,
they would have been smashed this year. I've got clients
who they take their dividary investments and they pump that
(17:15):
into gold and they've done really well to that over
the last few years. And it's just for them. It's
just basically it's a regular routine of what they do
with it. But also then for younger people with a mortgage,
take those any dividends you've got and shove them into
your offset account and build up a cash reserve. It's
not affecting your income, so the offset account doesn't earn
(17:37):
interest and just saves your interest on your loan, so
it's not adding any tax of linking to your account,
and it's basically making sure you're paying down your mortgage
quicker that the money is available. Money in an offset
account is your money. Money in a redraw is the
bank's money, so they can always take away the redraw.
The offset account is your money. So just be smart
on things like that and just something off the cuff.
(17:58):
I've seen a lot of people now bilding up a
cash reserve by just going around their house and seeing
what they don't use anymore, selling it on Facebook Marketplace
or gum Tree and just building up that cash reserve.
And I think when we go two times like this,
when the cost of living has gone up, people are
more willing to look around and go, look, I haven't
use that thing for a year. We bought that on
(18:18):
a win that we're going to go off camping, and
we bought the full setup. I'm gonna three hundred and
fifty dollars King's Age refrigerator. It has just been sitting
in the garage.
Speaker 1 (18:28):
Every house has some version of that. Sure, I'm sure
there's one in my house. Starting to think what it is,
but I'm sure it's there more for our investors. More typically,
I suppose it would mean in if you were an
accumulation phase, the younger investor, and you had your self,
you had your contributions going into SUPER every month through
(18:50):
your salary the concession that is the thirty thousand you
can put into SUPER each year pre tax. I expect
that it would mean that you don't that you use
for cash accumulation.
Speaker 2 (19:01):
Yeah, but what you do with that is during the
year you save that in your offset account, so saving
you interest, and then you just put it in the
last month of the year. Okay, so you're still getting
your tax deduction, but rather than sounding sacrificing or doing
it early in the year, you put it into your
offset account and then when it comes to June you
do a lump sum and claim it as a tax
deduction straight away.
Speaker 1 (19:21):
After that you put the thirty thousand one go.
Speaker 2 (19:24):
Well, you're already getting your employer contributions going in regularly,
so you might only have ten.
Speaker 1 (19:28):
Or fifteen your voluntary contributions. Yeah, you've given one go yeah, yeah.
Speaker 2 (19:33):
And that's it. Yeah, So you're getting the best of
boath worlds there. You're saving a bit of money. And
then if you know the money that you have outside,
what we try and do with young accumulators is fifty
percent goes well, thirty three percent goes to short term savings,
medium term savings that's a cash high interest account or
the offset. Thirty three percent goes for lifestyle okay, paying
(19:54):
for a wholiday, paying for not grade of the car,
whatever they feel like, and then thirty three percent goes
into ETFs. Okay. The good thing about those ETFs is
that you can sell them down and they'll settle to
your back cabin in three days. So it's thinking long term,
but having that short term plan b that if things
go wrong, you can dip in and sell them if
you need to.
Speaker 1 (20:14):
Does your skepticism about the dividend reinvestment plans apply to
ETFs as well.
Speaker 2 (20:19):
Yeah, for a dividend stripper, it's very attractive for them
to go in there. But again it comes back to
don't do lazy investing, Try and be smart. Take the
dividends from the ETFs and every three to six months
look and see where the opportunities are, or look and
see where's the best place for my dollar. And it
may be in a time with this for the best place,
(20:41):
it's in the opposite the cat and you just leave
it there. And as Chris Cuff said, it's probably not
the time to buy the dip in the moment because
we're not sure this is the dick. There's a ninety
day tariff free zone that could come back in. Well,
Trump could turn change his mind at any state and
just bring it back in. So now the time to
build up that buffer, and the buffers not just for
(21:02):
your emergency funds, it's an opportunity fund as well.
Speaker 1 (21:05):
Yes, well, thinking like that, of course, yes, yeah, that
it's a think of it. When I say build up
cash buffers, I'm not suggesting that you go to cash, folks.
I'm suggesting that you accumulate cash for either defending yourself
your portfolio, or taking opportunities of what could be lower
levels than we are have at the moment. One other thing, Liam,
(21:27):
I supposed to go back to the thing about dividend
reinvestment plans is there was always the notion that if
your investor was good enough, it was good enough to
do a d ORP plan with at the start. So
let's say I select my investment, and there was always
that theory that if if it's good enough, it's good
enough to d orp. Is do you see a weakness
in that theory.
Speaker 2 (21:48):
The weakness is that ninety five percent of trading now
is computer training. So those different stripping algorithms are looking
and saying if a stock is good value, well, they'll
buy into it just before the evident I stripped the dividend,
and then it will actually fall back down as that
money leaves. So yes, long term, if you still believe
(22:08):
in a company, you can still put money into it.
But I don't believe that I believe that the d
ORP you could be leaving three to five percent on
the table, which in a lot of cases is you diffident.
Speaker 1 (22:19):
The exactly So the algorithms have have won on that one. Interesting,
and I suppose that that ruling, or that that rule
of thumb came from a different time. Okay, take a
short break, got some very interesting questions. Hello and welcome
(22:43):
back to The Australian's Money Positive podcast. James Kirby here
with Liam short s h o Orte of the Sonnets Group.
Is now Liam a couple of questions. Would you like
to read the first one from Andrew.
Speaker 2 (22:57):
Yeah, there's been a lot of discussion about the capital
Gains tax discount being unfair. Correct me if I'm wrong. However,
it's in the purpose of the discount to address the
inflationy component of the capital gain. In other words, when
an acid appreciate and value due to inflation, why should
the investor pay tax on it? Does something CGT discount
offset the inflation component, And that's exactly why inflate why
(23:20):
the CGT discount was brought in nearly forty years ago.
But basically originally it was tied to inflation. So every
year you've got you indexed the discount was indexed to
the CPI, but the government or somebody decided that this
was way too complex to do longer term, so they
decided that they would put a flat fifty percent discount discount.
(23:43):
I think it was held for more than twelve months.
Speaker 1 (23:46):
That's right. I think it was Peter Costello. I think
maybe Andrew and obviously never advise or information only, but Andrew,
maybe the discussion is more often that the capital gains
discount is not so much unfair as unfairly large.
Speaker 2 (24:04):
At the issue, James, is the CGT discount can seem
very unfair in a period where we've had low inflation
for a long time, okay, but if we've had high
inflation for a good number of years. So think in
terms of an investment you did for one hundred thousand
if when CPI was index link, if inflation went on
(24:26):
only two or three percent a year, and you what
you're the value of your funders worth two hundred thousand
at the end of a ten or fifteen year period.
You've got a very good deal because you're getting the
fifty percent capital gain tax discount on it. But in
a period where you've got very high inflation, that one
hundred thousands. It would have to probably grow to two
hundred thousand just to keep its own value over a
(24:48):
ten or fifteen year period. Yet you're going to have
to pay fifty percent capital gains tax on that rise
of one hundred thousand. So in periods of high inflation,
the capital gains tax discount is not actually a great deal.
It's a poorly yes.
Speaker 1 (25:00):
Right, And what would you classify as high inflation plus
five percent?
Speaker 2 (25:06):
Plus? Yeah?
Speaker 1 (25:07):
Right, which we nearly touched. We came close to, didn't
wait in recent times? Okay, very good? All right, Peter asks,
reading between the lines of a recent episode, your bias
towards managed funds versus index is apparent. Nothing wrong with that.
I'm sure you have declared your interest elsewhere, But for
the sake of transparency, don't you think it would have
been prudent to declare this bias during the podcast? Okay,
(25:30):
thank you, Peter. Your claim that I'm biased in favor
of I have to remember who I'm supposed to be
in favor of managed funds versus index. No, that not
the case. I would respectfully suggest it's not the case
I recently had. We had another piece correspondence was it
two weeks ago saying I was a bias against industry funds.
There's no bias, please, I would hope that there is
(25:52):
no bias of we're really looking for the best for all.
Investors sometimes get over enthusiastic about something or other. But
there's different strokes for differ from folks, let me tell you,
and there is no there is. I think we could
do a show one investor bias if I could get
the right person to talk about it. Karen Neilson. Years ago,
I saw him give an investment lecture which was one
(26:13):
of the best lectures I ever saw, and it was
all about sort of unconscious bias in our subconscious bias
by investors. But that's a different thing that the notion
that we are the show is pro x or y
not really we're looking for the best deal. I would
respectfully suggest to you, Peter, but thank you very much
for the correspondent. Okay, Paul, there, Liam, if you want
(26:34):
to have a go on that one.
Speaker 2 (26:35):
Okay, Suppaul says, I have a question regarding binding death
nominations within super I've seen it written that a BDN
is normally a more efficient and an effective way to
get cash to adult children rather than through the traditional
will process. Can you clarify there if there is a
downside to using the BDN approach to leaving money to
your children.
Speaker 1 (26:55):
Very good question, Paul. Can we just liam before we
answer it? Can we just make it really clear what's
going on here? The will traditionally was the key instrument
for all inheritance. Many people now most of their money
is in super apart from their family home, and so
this binding death nomination is the will dimension of super
isn't it right? So putting that on the table, then
(27:15):
to go back to Pau's question, you might cover off
on what he asked.
Speaker 2 (27:18):
So the first thing to understand is with our little children,
you're super is a separate entity to your will, So
your super will not automatically go to your will. So,
especially with adult children, you have to use a binding
death nomination either way and either send it to your
will or send it directly to your children. Okay, The
plus side of sending it to your children directly is
(27:40):
that it will often go there quicker, and nowadays there's
also a lot more chance of a will being challenged.
So if if all the money goes into a will,
then it becomes a bigger part and people look naturally,
when there's money on the table, people are looking to
get more of it. So one of the benefits of
doing a binding nomination is basically it goes directly out
(28:01):
of the children. One of the downsides is if it
goes out to them directly, you're looking at the seventeen
percent tax on the taxable component of your super So
that's any money that you put into your employment or
true salary sacrifice, that's called your taxable component. If that
passes to your adult children or anybody else out of
super you're going to pay seventeen percent. If you send
(28:23):
us through the will, he saved two percent, okay, so
you don't pay the Medicare levey on that part of
it that goes should have.
Speaker 1 (28:30):
A very good information just to wind back a little bit, Liam,
just to finish off for Paul. So the binding denominations
in super should everyone do them if they have a
super fund? And how often should they update them?
Speaker 2 (28:44):
Yeah? Well, look, thankfully nowadays there used to be almost
three years maximum. Okay, So one I believe everybody should
do them. And with a software superman, it's often a
lot of lawyers will argue that it's better not to
do it, to leave it up to the trustee because
it's a husband and wife and it's the partner. I
just believe the demand of blended families nowadays you need
more certainty, So I believe a bonding nomination is essential.
(29:07):
Now most funds will offer you the ability to have
a non lapsing body nomination. That means that it doesn't
expire every three years, it actually keeps on going beyond.
That doesn't mean you don't review it. It just means
that just in case your circumstances change, your mental capacity declinent,
or something goes wrong, that it's still locked in what
(29:27):
your wishes are locked in. And we back that up
by saying, if you're doing an empower enduring power of attorney,
mention in that enduring power of attorney the power to
make a boding nomination on your behalf or make sure
that no, I want it fixed as to where my
super goes. I don't want the power of attorney to
have the ability to change it. So think you're the
(29:48):
big picture.
Speaker 1 (29:49):
Cutting through here. It's talking about fixing for sure where
your super goes, and if you want to fix it
for sure, permanently. That is permanently until you in your mind,
a non lapsing binding death nomination should be made so
that you say, my super goes to jack and jail
whatever in the future. And that's how you wanted it
(30:11):
divided separate to your will, because your will doesn't cover effect.
Does your will not cover your super? How does it work?
Speaker 2 (30:18):
No? So, because the super is a separate trust, it's
a totally separate entity. So to have it go to
your will, you must specifically send it there. So you'll
see on that binding nomination there's an option to put
in your children or your spouse. At the bottom does
the option legal personal representative and that's your state. That's
the executor of your state. But that you have to
use those specific world where it's legal person representative. So
(30:40):
you'll find a lot we'll do hunder present to the
legal personal representative and then deal with a trigger will.
With the amount of will's being challenged nowadays, the amount
of money we're talking about, you really need to get
expert advice or from a lawyer and from your financial
panel to ook, look, what are you actually trying to achieve?
Where do you want this money to go to? And
also through the way you got your will set up.
(31:03):
Is it set up a testamentary trust so that there's
flexibility for your beneficiary. So it's a big picture thing.
Speaker 1 (31:09):
Yes, but don't assume your will covers your super rock
bottom piece of information from Liam shot this morning. Okay, terrific. Hey,
thank you Liam. Great to have you on the show again.
Speaker 2 (31:20):
Loved it. Thank you very much, James.
Speaker 1 (31:22):
That was Liam Short of Sonna's Wealth Group and I
thought that was something we should do folks. As I say,
I think it's a time that you can have your
own view as to where the markets are going, whether
this is a risk or whether it's an opportunity. But
certainly to be cash less in this environment is risky
(31:44):
and obviously the older you are, the more that is
a pertinent and Liam basically covered that at the start
of the show. Terrific. Okay, we've got lots of questions
coming in, keep them rolling, please, love to have some more.
The Money Puzzle at the Australian dot Com dot Au
and Today's Who was produced by Leah Sammerglue. Talk to
you soon.
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirby. Welcome aboard everybody. Now, look, it's indisputable. I
think we can say at this stage that investment markets
share market in particular are at an inflection point. And
this obviously is based on credible, logical, rational concern over
(00:31):
the unleashing of the tariff policy in the US and
the consequences of that for markets. Some of the biggest
names and best minds, if you like, in investment are
openly expressing concerns. Ray Dally, Oh, I'm sure a lot
of you have read or heard of talking great concern
(00:52):
over ever recent days. On our own show, Chris Coff
in the which you shouldn't miss if you did miss it,
which was the last before Easter, and he talked about
his concerns for the market, and you know, I thought
it was great that he came out and expressed clearly
what he was thinking. Now we don't no one knows
who's right and who's wrong just now. No one knows
the future. But he was extremely skeptical about buying the
(01:13):
dip for instance, and this is someone who's outstanding fund
manager legendary fund manager in Australia on the board of
UNI Super, the fourth biggest super fund, on the board
of RGO, the listed investment companies. Someone really plugged into
investment committees and where they're coming from. So you have
this issue that it is a time that you should
(01:34):
have cash. This is the common denominator of you, like
among what these people are saying. Now that's not to
say that you shouldn't bargain hunter or whatever, but today
I am going to concentrate on that single issue, okay,
which is building cash buffers at a time of great
unease in the markets, which is exactly where we're at.
To help me with this, I have financial planner Liam
(01:57):
short of the son of S Group, who has been
on the show before and is particularly expert on this issue,
and I talked to him regularly about this. How are you, Liam,
Good morning.
Speaker 2 (02:08):
Let's just talk to you, James.
Speaker 1 (02:09):
I knew nothing at all about cash, but I knew
I should have cash. I would be aware of a
couple of things that the rate cycle, as far as
I know, has topped out. So the RBA did its
first cut in years, only one cut so far, everyone's
talking about more cuts but in terms of cash, having cash,
where to put it on, how much you could get
(02:31):
for your cash at the moment. Can you give us
an idea what the settings are and what the momentum is.
Speaker 2 (02:38):
Yeah, So you always need to be aware the banks
are moving a lot faster than the Reserve Bank. So
for example, four months ago, we were getting five point
three percent for a one year term deposit. Now the
best right we're seeing is about four point six. Okay,
so even though there's only been one rate cut, we're
almost priced in three rd cuts into the term deposit rights.
So then we have to talk about this two types
(03:00):
of cash. There's lazy money that you just leave sitting
in a check account or a low interest savings account,
and this cash that you get working for yourself, that
you can afford to either not touch it for a
month or longer, and that you can make sure it's working.
What we're seeing is some of those some of the
banks have still got their high interest cash accounts. So
(03:20):
those cash accounts where they're adding the bonus interest if
you put in an extra two hundred dollars or fifty
dollars a month, they're really worth while taking care of, Okay,
and using them. But you've got to use them smartly.
If it says that you've got to put in an
extra fifty dollars a month and you have to do
four transactions, set those up as automatic. Set fifty dollars
(03:41):
in there, automatically. Pay some small bills that you pay
on a monthly basis, Set them up as automatic so
you don't miss that key bonus interest because it's often
the base interest rate is one point five or one
point seventy five and the bonus is three or three
and a half.
Speaker 1 (03:58):
And this is this is standard fair, now, isn't it like?
This is really yeah, this is unfortunately you can't just
it's almost rare that you get a clean cut. Here's
the rate. It has to be sort of strings attached.
Speaker 2 (04:10):
Yeah, and don't be loyal to any one bank. Shop
around and see what you can get. And then we're saying,
if you've got money that's available for more than one month,
look at term deposits, look at laddering term deposits. Six nine,
twelve months before rights started dropping, we were lucky in two, three,
four and five year term deposits and also some annuity,
so we were.
Speaker 1 (04:31):
Able to elain if you were to the listeners about
what laddering means exactly, and they have this in bonds
in the US, I know, but if you might just
explain to listeners the concept behind laddering.
Speaker 2 (04:41):
Yeah, and I'd probably talk about it in terms of
funding your retirement. We always want to have two to
five years pension money or income that you require in
cash and fixed interest. But if you don't need some
money till the third year to finance the third year,
instead of just constantly rolling it over one year, turn deposits,
lock it into a three year, turn deposit, lock it
(05:03):
into a two year, lock it into a four year,
so that you're timing the maturities at the same time
as when you'll actually need the funds, and not leaving
yourself open to a variable interest rate on a savings
account that's a more life you're going to drop fairly
fast over that period. So it's all about making sure
that the money is invested for the times you need it,
for the timescale you need it on the timeline.
Speaker 1 (05:26):
Yeah, that's the laddering approach. So it's and it's working
on the assumption, obviously, the fairly fundamental assumption that the
longer you lock it up for the more you'll get,
and then what would be the range at the moment
between say a month and a year and four years.
Speaker 2 (05:40):
So on one month you can some of the banks
are paying as little as three percent. For one year,
as I said, we can get four point six. With
the average bank nails down to four point three, you
can still get around four point six for two years
and three years. So we've all some people have already
missed about. Okay, you should always be thinking about these
things before they actually happen. You need to be thinking
(06:03):
where we're seeing. If the markets are going well, if
they're economies doing well, then it's time to start putting
money away for the bad times. And it was being
met very clear that the Reserve Bank was holding or
not reducing interest rights, but that there was a bias
towards reducing them as soon as they got the unemployment
figures where they wanted and inflation where they wanted it.
So six months ago we knew this was going to
(06:25):
be happening, and so the people who managing their own
money should have been moving money into these longer term
exposures at that stage.
Speaker 1 (06:32):
And if somebody was of an opinion now a regular investor,
but was saying, oh, hang on a second, I don't
like the markets at the moment. They are highly volatile.
We're seeing them moving up two and three percent. We
had the worst day and the best day in since
COVID inside a week recently. That's the signal if ever
you saw wanted, it's highly volatized. So if somebody was saying, look,
(06:52):
I never really had much cash. I like to be
fully invested, but on this occasion, I am thinking about
putting cash and investing it as an seeing it as
an asset class for this period. And if someone was
doing that, tell us that there's some guidelines. For instance,
I go out and I see that I'm going to
I'm going to use Combank. I don't know what the rates, however,
(07:14):
I'm going to see that Combank has a rate for cash,
and I'm going to see bank Zip Zip, that I've
never heard of in my life, has a rate that's
a percentage higher. They're both banks, they're both strictly and
legally and technically approved depositive taking institutions, which means they're
both covered by the guarantee. And this is the great
thing about cash, which we must explain to listeners and
(07:36):
the unlikely event, guys, that you don't already know it.
All cash in banks or approved to posit taking institutions
is guaranteed by the government in Australia to the tune
of two hundred and fifty thousand per bank. So part
I'm making Liam is if they're all guaranteed, need we
worry about brand names or the fact that one bank
is much smaller than another.
Speaker 2 (07:57):
Not really for the government guarantee. Remember also its per institution.
So you can put two hundred and fifty thousand with
Saint George and put another two fifty with Westpac, can
expect the guarantee. It's both so and that goes back
to thinking about what banks merged during the after the
GFC and so come Bank Bank, West nab On, New
(08:19):
Bank and West pack in c George. So you've got
to think in terms of institutions.
Speaker 1 (08:24):
Okay, So a great point, Liam, and folks. The problem
is the bank's virtually conceal this. If you're with Bank
of Melbourne, you would not necessarily know that you're with
the same group that also owns Saint George, which is
West Bank, because they tried to keep the brands distinct.
As Lean pointed out, if you're with Bank West, don't
think that if you had half your money with Bank
(08:45):
West and half with Combank, in fact you only have
it with the one banking institution, which is the parent
company Comebank, which owns Bank West. Really good point, Liam,
really good, especially for perhaps that's maybe older listeners that
had money in banks or had some faith in their
local bank, so Bank of Melbourne which is actually owned
by a Sydney bank, Westpac, for instance.
Speaker 2 (09:03):
Yeah.
Speaker 1 (09:04):
Yeah.
Speaker 2 (09:04):
The other thing is, yes, they're all covered by the
government guarantee. But if you've got your one year money
and you need to make sure that is liquid, yes
the government guarantee is there, but you don't know how
long it's going to be till it's paid. If a
bank did collapse, okay, so possibly with six to twelve
month money, we'd probably still say stick with the bank
(09:25):
that's at least BBB triple B rated, so it's got
a good credit rating. But overall, and I tend to
not put the fill two fifteen. I'll put in two
thirty five to make sure that any interest is covered.
Speaker 1 (09:38):
You are conservatively sure I'm dealing.
Speaker 2 (09:42):
With other people's money. So I've got a true I've
got to take care of it and just making sure
that don't have the loyalty to the banks. They have
no loyalty to you anymore. So look for those best
interest rates if possible, look for an abrary. Look for
a facility that gives you access to more than one
or two banks than going direct to each bank, because
that can get complicated nowadays, having to prove your identity
(10:04):
with all of them, having to have your logins and
everything like that. So look at that. There are services
out there like Australian Money Market and cashworks and stuff
like that that that are offering access to twenty or
thirty different banks, and you can have it all there
spread across all the banks. At the end of the year,
you get nice tax report for your SMSF for your
all times.
Speaker 1 (10:22):
Yeah, they're your channel through to the different banks and
they clip the ticket. I assume somehow.
Speaker 2 (10:26):
They get paid by the banks, so roughly you get
the same as you're paid in the actual bank branch.
So the banks have allowed for what the branches custom
similarly allowed for what these wholesalers customers.
Speaker 1 (10:37):
Gee, yeah, a bit like I suppose a bit like
mortgage brokers for the same sort of thing. They don't
advertise much. They're not very well know what would the
two you mentioned Again, we are not in any way
picking these out as the best or anything, but two
more popular ones. Liam.
Speaker 2 (10:49):
Yeah, So Australian money market is my one, and then
there's I'm not sure if cashworks called cashworks, it might
be called term deposit, dot com, dot au. There's a
few out there, but Australian honey markets tended to be
the leader in the space.
Speaker 1 (11:02):
Very good. One last thing before we go to the
break about all that. It sounds very laborious because the
banks do these honeymoon deals. So I go in, the
bank says, listen, we're offering four point five percent right
now on your cash. But three and a half of
that is if you do this and this and you
get a one percent basic rate. I forget to do
it one week and it's all gone. And that is
I don't get the rate. You're saying. Set up direct
(11:24):
debits or automatic arrangements, which is very smart, but these
honeymoon deeds they only last a year or so.
Speaker 2 (11:30):
Uh yeah, And that's why I use it for similar
money market because at the end of the six months
or nine months or twelve months, I just go in,
I see the rates from twenty different banks from one
month out of five years. Flicky button, and it moves
to the other bank automatically.
Speaker 1 (11:43):
Can I ask a technical question, if you had a
self managed super fund and you linked up with one
of those intermediaries cashworks, money market, whatever they are, is
that it will that do you for all the banks
because traditionally, as I record, if you had an SMSF
and you wanted to put cash in a term deposit,
you've got to show your superannuation deeds and everything.
Speaker 2 (12:02):
So you do all that upfront one time with the
actual provider, and then they researtified as advisors. It's on file.
The money marketer whoever will use that then to open
the account. So once a year we will update the
IDs for example, but the trust needs is the trust aed.
Speaker 1 (12:18):
So it will serve for all banks exactly. Lovely. Okay,
that's interesting, okay, folks. So we'll be back in a moment.
We're going to develop this way of thinking about building
buffers fast if you need to in what is a
fairly wild investment market. Just now, hello and welcome back.
(12:47):
To The Australian's Money Positive podcast, a fairly sober episode
this folks, and could could you blame us for having
this approach? Everyone that's been on the show is concerned
about the markets levels. As I speak. This is Easter Tuesday.
We just had another three percent drop last night on
Wall Street because of what Trump is trying to do
(13:09):
around the Federal reserve. These are absolutely fundamental concerns about
how the market that we have known all our lives works.
How does the federal reserves work inside of the US,
how does the global trade order work? These are open
and under questioned just now. And it's no surprise that
(13:30):
the share markets are showing that fairly severely. Our ASX
is down for the year to date by about five percent.
The global market represented by Wall Street S and P
five hundred is down for the year to date this
morning twelve percent. That's a fairly rough market to try
and make money in. And that is why we're talking
(13:50):
about cash and liquidity today. Liquidity obviously being the ability
to catch out something fast. Right, So a notoriously i
liquid investment would your property right? You can't you own
an apartment? It's worth the three hundred thousands, but you
can't take twenty grand out of it. You just can't deliquid.
But if you have listed investments of any description, as
(14:11):
opposed to unlisted investments, you should be able to get
your cash out as much as you want really, at
any time fast, with the exception perhaps of some small
cap stocks. So Liam, just to develop it a little bit,
could you repeat Also, at the start of the show,
you mentioned this was obviously for investors. Well it wasn't all.
(14:32):
This was investors who need their investments to pay their income.
I suppose you were talking about emergency funds. But let's
just talk about liquidity tools for any investor of any
age at this time. If you were I, you've explained
to us about what to do with cash? What about
raising cash? If I came in to you when I
was a fully diversified investor and I said to you,
(14:52):
I've always been fully invested, but I and I never
paid much attention to cash. I need to now, where
would you start the compass?
Speaker 2 (15:01):
Well, the first thing I'd say is stop any dividinary
investment plans. You've got their fools game nowadays because of
the fact that we've got dividends stripping funds out there
that basically jump into shares before the dimendends are paid,
stay the forty five days, and then exit. It means
that usually when the d RP price is set, it's
at the very peak of the share price. So the
(15:22):
idea that you're getting a good deal by dividend reinvesting
it's no longer true.
Speaker 1 (15:27):
That's very interesting, Yeah, very interesting. They have faded a bit.
Have they Have you any sense of how many give
them anymore? Maybe it seems to me, is it like,
have you any idea how many of the top fifty
give have DRPs that's dividend reinvestment plans folks, if you.
Speaker 2 (15:41):
Have honestly, I would say it's only third of it now.
But as they are struggling to raise casher, they're trying
to hold on to investors that some of them, especially
unlisted funds for example, they're starting to offer discounts again
under DRPs, so you can tell when they're stress for liquidity.
Speaker 1 (15:57):
Interesting, but you're telling me that in any event, the
do is you're getting a raw deal because you're the
listed company XYZ Limited that you have the d RP
with they apply it on the day where the thing
was at absolute peak because the dividends strippers are about
to come in and play around that. See that's very interesting.
So what your I don't want to go too far
(16:19):
off track here, but are you are you generally do
you generately tell people not to bother with dividend reinvestment
plans because they do have a discipline leem I suppose,
which is useful, just like investment property has a discipline
makes you pay the mortgage.
Speaker 2 (16:31):
But if you're disciplined, you can have the same discipline
by taking the DRPs and every three months looking and saying,
where's the best place to pace that toward lay uly
putting it into your existing portfolio. It may be the
time to diversify it. In a time like this, you
might say, well, look, instead of just divilinearlyinvesting, I'm actually
all the dividends that come out. I'm actually going to
specifically target it at a high yield fund or targeted
(16:54):
at something that has dropped pretty significantly. So it's far
better to be an investor who's actually thinking about the
investments rather than just sit and forget. Because as we've seen,
if somebody was just pumping money into the Magnificent seven,
that have done great for the last couple of years,
they would have been smashed this year. I've got clients
who they take their dividary investments and they pump that
(17:15):
into gold and they've done really well to that over
the last few years. And it's just for them. It's
just basically it's a regular routine of what they do
with it. But also then for younger people with a mortgage,
take those any dividends you've got and shove them into
your offset account and build up a cash reserve. It's
not affecting your income, so the offset account doesn't earn
(17:37):
interest and just saves your interest on your loan, so
it's not adding any tax of linking to your account,
and it's basically making sure you're paying down your mortgage
quicker that the money is available. Money in an offset
account is your money. Money in a redraw is the
bank's money, so they can always take away the redraw.
The offset account is your money. So just be smart
on things like that and just something off the cuff.
(17:58):
I've seen a lot of people now bilding up a
cash reserve by just going around their house and seeing
what they don't use anymore, selling it on Facebook Marketplace
or gum Tree and just building up that cash reserve.
And I think when we go two times like this,
when the cost of living has gone up, people are
more willing to look around and go, look, I haven't
use that thing for a year. We bought that on
(18:18):
a win that we're going to go off camping, and
we bought the full setup. I'm gonna three hundred and
fifty dollars King's Age refrigerator. It has just been sitting
in the garage.
Speaker 1 (18:28):
Every house has some version of that. Sure, I'm sure
there's one in my house. Starting to think what it is,
but I'm sure it's there more for our investors. More typically,
I suppose it would mean in if you were an
accumulation phase, the younger investor, and you had your self,
you had your contributions going into SUPER every month through
(18:50):
your salary the concession that is the thirty thousand you
can put into SUPER each year pre tax. I expect
that it would mean that you don't that you use
for cash accumulation.
Speaker 2 (19:01):
Yeah, but what you do with that is during the
year you save that in your offset account, so saving
you interest, and then you just put it in the
last month of the year. Okay, so you're still getting
your tax deduction, but rather than sounding sacrificing or doing
it early in the year, you put it into your
offset account and then when it comes to June you
do a lump sum and claim it as a tax
deduction straight away.
Speaker 1 (19:21):
After that you put the thirty thousand one go.
Speaker 2 (19:24):
Well, you're already getting your employer contributions going in regularly,
so you might only have ten.
Speaker 1 (19:28):
Or fifteen your voluntary contributions. Yeah, you've given one go yeah, yeah.
Speaker 2 (19:33):
And that's it. Yeah, So you're getting the best of
boath worlds there. You're saving a bit of money. And
then if you know the money that you have outside,
what we try and do with young accumulators is fifty
percent goes well, thirty three percent goes to short term savings,
medium term savings that's a cash high interest account or
the offset. Thirty three percent goes for lifestyle okay, paying
(19:54):
for a wholiday, paying for not grade of the car,
whatever they feel like, and then thirty three percent goes
into ETFs. Okay. The good thing about those ETFs is
that you can sell them down and they'll settle to
your back cabin in three days. So it's thinking long term,
but having that short term plan b that if things
go wrong, you can dip in and sell them if
you need to.
Speaker 1 (20:14):
Does your skepticism about the dividend reinvestment plans apply to
ETFs as well.
Speaker 2 (20:19):
Yeah, for a dividend stripper, it's very attractive for them
to go in there. But again it comes back to
don't do lazy investing, Try and be smart. Take the
dividends from the ETFs and every three to six months
look and see where the opportunities are, or look and
see where's the best place for my dollar. And it
may be in a time with this for the best place,
(20:41):
it's in the opposite the cat and you just leave
it there. And as Chris Cuff said, it's probably not
the time to buy the dip in the moment because
we're not sure this is the dick. There's a ninety
day tariff free zone that could come back in. Well,
Trump could turn change his mind at any state and
just bring it back in. So now the time to
build up that buffer, and the buffers not just for
(21:02):
your emergency funds, it's an opportunity fund as well.
Speaker 1 (21:05):
Yes, well, thinking like that, of course, yes, yeah, that
it's a think of it. When I say build up
cash buffers, I'm not suggesting that you go to cash, folks.
I'm suggesting that you accumulate cash for either defending yourself
your portfolio, or taking opportunities of what could be lower
levels than we are have at the moment. One other thing, Liam,
(21:27):
I supposed to go back to the thing about dividend
reinvestment plans is there was always the notion that if
your investor was good enough, it was good enough to
do a d ORP plan with at the start. So
let's say I select my investment, and there was always
that theory that if if it's good enough, it's good
enough to d orp. Is do you see a weakness
in that theory.
Speaker 2 (21:48):
The weakness is that ninety five percent of trading now
is computer training. So those different stripping algorithms are looking
and saying if a stock is good value, well, they'll
buy into it just before the evident I stripped the dividend,
and then it will actually fall back down as that
money leaves. So yes, long term, if you still believe
(22:08):
in a company, you can still put money into it.
But I don't believe that I believe that the d
ORP you could be leaving three to five percent on
the table, which in a lot of cases is you diffident.
Speaker 1 (22:19):
The exactly So the algorithms have have won on that one. Interesting,
and I suppose that that ruling, or that that rule
of thumb came from a different time. Okay, take a
short break, got some very interesting questions. Hello and welcome
(22:43):
back to The Australian's Money Positive podcast. James Kirby here
with Liam short s h o Orte of the Sonnets Group.
Is now Liam a couple of questions. Would you like
to read the first one from Andrew.
Speaker 2 (22:57):
Yeah, there's been a lot of discussion about the capital
Gains tax discount being unfair. Correct me if I'm wrong. However,
it's in the purpose of the discount to address the
inflationy component of the capital gain. In other words, when
an acid appreciate and value due to inflation, why should
the investor pay tax on it? Does something CGT discount
offset the inflation component, And that's exactly why inflate why
(23:20):
the CGT discount was brought in nearly forty years ago.
But basically originally it was tied to inflation. So every
year you've got you indexed the discount was indexed to
the CPI, but the government or somebody decided that this
was way too complex to do longer term, so they
decided that they would put a flat fifty percent discount discount.
(23:43):
I think it was held for more than twelve months.
Speaker 1 (23:46):
That's right. I think it was Peter Costello. I think
maybe Andrew and obviously never advise or information only, but Andrew,
maybe the discussion is more often that the capital gains
discount is not so much unfair as unfairly large.
Speaker 2 (24:04):
At the issue, James, is the CGT discount can seem
very unfair in a period where we've had low inflation
for a long time, okay, but if we've had high
inflation for a good number of years. So think in
terms of an investment you did for one hundred thousand
if when CPI was index link, if inflation went on
(24:26):
only two or three percent a year, and you what
you're the value of your funders worth two hundred thousand
at the end of a ten or fifteen year period.
You've got a very good deal because you're getting the
fifty percent capital gain tax discount on it. But in
a period where you've got very high inflation, that one
hundred thousands. It would have to probably grow to two
hundred thousand just to keep its own value over a
(24:48):
ten or fifteen year period. Yet you're going to have
to pay fifty percent capital gains tax on that rise
of one hundred thousand. So in periods of high inflation,
the capital gains tax discount is not actually a great deal.
It's a poorly yes.
Speaker 1 (25:00):
Right, And what would you classify as high inflation plus
five percent?
Speaker 2 (25:06):
Plus? Yeah?
Speaker 1 (25:07):
Right, which we nearly touched. We came close to, didn't
wait in recent times? Okay, very good? All right, Peter asks,
reading between the lines of a recent episode, your bias
towards managed funds versus index is apparent. Nothing wrong with that.
I'm sure you have declared your interest elsewhere, But for
the sake of transparency, don't you think it would have
been prudent to declare this bias during the podcast? Okay,
(25:30):
thank you, Peter. Your claim that I'm biased in favor
of I have to remember who I'm supposed to be
in favor of managed funds versus index. No, that not
the case. I would respectfully suggest it's not the case
I recently had. We had another piece correspondence was it
two weeks ago saying I was a bias against industry funds.
There's no bias, please, I would hope that there is
(25:52):
no bias of we're really looking for the best for all.
Investors sometimes get over enthusiastic about something or other. But
there's different strokes for differ from folks, let me tell you,
and there is no there is. I think we could
do a show one investor bias if I could get
the right person to talk about it. Karen Neilson. Years ago,
I saw him give an investment lecture which was one
(26:13):
of the best lectures I ever saw, and it was
all about sort of unconscious bias in our subconscious bias
by investors. But that's a different thing that the notion
that we are the show is pro x or y
not really we're looking for the best deal. I would
respectfully suggest to you, Peter, but thank you very much
for the correspondent. Okay, Paul, there, Liam, if you want
(26:34):
to have a go on that one.
Speaker 2 (26:35):
Okay, Suppaul says, I have a question regarding binding death
nominations within super I've seen it written that a BDN
is normally a more efficient and an effective way to
get cash to adult children rather than through the traditional
will process. Can you clarify there if there is a
downside to using the BDN approach to leaving money to
your children.
Speaker 1 (26:55):
Very good question, Paul. Can we just liam before we
answer it? Can we just make it really clear what's
going on here? The will traditionally was the key instrument
for all inheritance. Many people now most of their money
is in super apart from their family home, and so
this binding death nomination is the will dimension of super
isn't it right? So putting that on the table, then
(27:15):
to go back to Pau's question, you might cover off
on what he asked.
Speaker 2 (27:18):
So the first thing to understand is with our little children,
you're super is a separate entity to your will, So
your super will not automatically go to your will. So,
especially with adult children, you have to use a binding
death nomination either way and either send it to your
will or send it directly to your children. Okay, The
plus side of sending it to your children directly is
(27:40):
that it will often go there quicker, and nowadays there's
also a lot more chance of a will being challenged.
So if if all the money goes into a will,
then it becomes a bigger part and people look naturally,
when there's money on the table, people are looking to
get more of it. So one of the benefits of
doing a binding nomination is basically it goes directly out
(28:01):
of the children. One of the downsides is if it
goes out to them directly, you're looking at the seventeen
percent tax on the taxable component of your super So
that's any money that you put into your employment or
true salary sacrifice, that's called your taxable component. If that
passes to your adult children or anybody else out of
super you're going to pay seventeen percent. If you send
(28:23):
us through the will, he saved two percent, okay, so
you don't pay the Medicare levey on that part of
it that goes should have.
Speaker 1 (28:30):
A very good information just to wind back a little bit, Liam,
just to finish off for Paul. So the binding denominations
in super should everyone do them if they have a
super fund? And how often should they update them?
Speaker 2 (28:44):
Yeah? Well, look, thankfully nowadays there used to be almost
three years maximum. Okay, So one I believe everybody should
do them. And with a software superman, it's often a
lot of lawyers will argue that it's better not to
do it, to leave it up to the trustee because
it's a husband and wife and it's the partner. I
just believe the demand of blended families nowadays you need
more certainty, So I believe a bonding nomination is essential.
(29:07):
Now most funds will offer you the ability to have
a non lapsing body nomination. That means that it doesn't
expire every three years, it actually keeps on going beyond.
That doesn't mean you don't review it. It just means
that just in case your circumstances change, your mental capacity declinent,
or something goes wrong, that it's still locked in what
(29:27):
your wishes are locked in. And we back that up
by saying, if you're doing an empower enduring power of attorney,
mention in that enduring power of attorney the power to
make a boding nomination on your behalf or make sure
that no, I want it fixed as to where my
super goes. I don't want the power of attorney to
have the ability to change it. So think you're the
(29:48):
big picture.
Speaker 1 (29:49):
Cutting through here. It's talking about fixing for sure where
your super goes, and if you want to fix it
for sure, permanently. That is permanently until you in your mind,
a non lapsing binding death nomination should be made so
that you say, my super goes to jack and jail
whatever in the future. And that's how you wanted it
(30:11):
divided separate to your will, because your will doesn't cover effect.
Does your will not cover your super? How does it work?
Speaker 2 (30:18):
No? So, because the super is a separate trust, it's
a totally separate entity. So to have it go to
your will, you must specifically send it there. So you'll
see on that binding nomination there's an option to put
in your children or your spouse. At the bottom does
the option legal personal representative and that's your state. That's
the executor of your state. But that you have to
use those specific world where it's legal person representative. So
(30:40):
you'll find a lot we'll do hunder present to the
legal personal representative and then deal with a trigger will.
With the amount of will's being challenged nowadays, the amount
of money we're talking about, you really need to get
expert advice or from a lawyer and from your financial
panel to ook, look, what are you actually trying to achieve?
Where do you want this money to go to? And
also through the way you got your will set up.
(31:03):
Is it set up a testamentary trust so that there's
flexibility for your beneficiary. So it's a big picture thing.
Speaker 1 (31:09):
Yes, but don't assume your will covers your super rock
bottom piece of information from Liam shot this morning. Okay, terrific. Hey,
thank you Liam. Great to have you on the show again.
Speaker 2 (31:20):
Loved it. Thank you very much, James.
Speaker 1 (31:22):
That was Liam Short of Sonna's Wealth Group and I
thought that was something we should do folks. As I say,
I think it's a time that you can have your
own view as to where the markets are going, whether
this is a risk or whether it's an opportunity. But
certainly to be cash less in this environment is risky
(31:44):
and obviously the older you are, the more that is
a pertinent and Liam basically covered that at the start
of the show. Terrific. Okay, we've got lots of questions
coming in, keep them rolling, please, love to have some more.
The Money Puzzle at the Australian dot Com dot Au
and Today's Who was produced by Leah Sammerglue. Talk to
you soon.
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