Investopoly

It is stating the obvious that private school education is expensive. If you are uncertain whether you would like to send your kids to a private school, I thought it would be interesting to consider some alternatives and put the costs into perspective. The public versus private school decision is a very personal one influenced by many considerations, including financial. I acknowledge that many factors may be more important than financial consideration. However, in this blog I would like to focus solely on the financial implications whilst acknowledging that despite the costs and alternatives, many people will still choose to send their children to a private school. How much will private school fees cost in the future?Of course, private school fees can vary significantly in different capital cities and regional centres. As an example, secondary tuition fees for many private schools in Melbourne range between $30,000 and $40,000 p.a. There are two noteworthy factors that must be considered. Firstly, on average, fees tend to increase at a rate that exceeds inflation. When planning for clients, we assume that fees increase at a rate of 5% p.a. As such, 10 years from now, school fees are probably likely to cost between $45,000 and $60,000. Secondly, these fees do not include additional items such as uniforms, books/computer, excursions/camps and so on. It is prudent to allow an additional 5-10% for these costs. The cost in today’s dollarsAssuming you have a child today and you want to send them to a private secondary school that currently costs $30,000 + 5% for other costs, I project the total cost of secondary school will be $400,000 in future dollars, or $270,000 in today’s dollars. Of course, if you have more than one child and/or send your kids to a private primary school as well as secondary, your total cost will be a multiple of $270,000.That’s a lot of money and a big drain on your retirement savings. Let’s consider some alternatives.Buy a home in a good public-school zone If you don’t have access to a good public school, you could buy a home in a good public-school zone and avoid having to pay for private school fees. According to this research by Domain, property prices can grow at a much higher rate than locations that don’t offer a highly regarded public school. Of course, it is going to depend on the location and schooSubscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

It has certainly been a wild ride for property investors over the past 6 years. In 2017 and 2018, the banking regulator demanded banks reduce the volume of interest only loans, particularly to investors. The media called this the “interest only cliff” and predicted that many borrowers would face financial stress when loan repayments switched to principal and interest resulting is higher arrears and default rates. It didn’t. Then in 2018-2019, Bill Shorten (you will recall that everyone was expecting him to win the 2019 federal election) promised to ban negative gearing and increase capital gains tax which unsettled property investors. Of course, he didn’t win, and the ALP abandoned this policy. Of course, the Covid years (2020 and 2021) were very kind to property owners. But aggressive interest rate hikes over the second half of 2022 have ruined the party and property prices have retreated to pre-Covid levels in many locations. Despite a relatively volatile period, it is important to note that property fundamentals remain very robust. In fact, it is vital that investors remain solely focused on these long-term fundamentals and not get distracted by these temporary volatility events. Rental crisis will only get worse There is a shortage of rental properties in Australia and as a result, rents are rising quickly. According to Domain, the national vacancy rate was a mere 0.8% with Perth, Adelaide and Hobart essentially reporting close to zero vacancy. Melbourne and Sydney’s vacancy rate has fallen from 2.7% and 1.9% respective to only 1.0% over the year to January 2023. Over the 2022 calendar year, rents have risen by almost 20% nationally. Of course, these rises are coming off a lower base, due to rental reductions during Covid, but the trend is strong and doesn’t look like it will abate anytime soon. The chronic shortage of rental properties will continue to put upward pressure on rents. You should expect to see a lot of media coverage this year about the growing rental crisis. Tighter rental laws could be to blame… Tighter rental laws certainly do dissuade people from investing in property. One of the most attractive advantages of being a property investor is control – you have full control over how you use and improve the asset. Tighter rental laws (that favourSubscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

It is often debated which is a better investment, property or shares. It is my thesis that property is an okay investment, but not as good as shares. However, when you factor in gearing (the ability to borrow to invest), property becomes a wonderful investment – better than shares. Property versus sharesThe main advantages of shares (compared to property) include: §  You can outsource the management of a share portfolio to an advisor. However, as a property investor, you may need to spend time to work with your managing agent to deal with tenant issues and/or property maintenance/repairs. §  Shares can generate a stable level of income with no (or few) related expenses. For example, the ASX200 index has yielded circa 4.5% p.a. for a long time. §  Shares are liquid and have low entry and exit costs e.g., no stamp duty, real estate agent fees, etc. This means you can invest and divest in small increments. The main advantages of property include: §  Most investors feel comfortable borrowing to invest in property, which means you don’t need to make a large upfront cash contribution to be able to invest. §  The assets tangibility can make investors feel more comfortable. §  You don’t need ongoing financial advice after you have purchased the property. §  Investment-grade property provides most of its return in capital growth in return for less income, which is tax effective. We can debate the pros and cons of shares and property until we are blue in the face, but I think it’s a meaningless debate. It’s like debating which golf club is better. They are all different and you need more than one club to play well. How do returns compare? My thesis is that it’s not property that makes property investing so effective. It’s the gearing that does a lot of the heavy lifting. Therefore, an investors decision is not whether to invest in property or shares. Their decision is whether to borrow to invest or not. If it is appropriate to borrow, and they can do so safely, then borrowing to invest in property will likely generate the highest return.  I financially modelled borrowing to invest in a property, holding the property for 25 years, and selling it to realise the cash proceeds after repaying the loan and paying for capital gains tax (my assumptions are in the footnote[1]). Whilst the investor doesn’t need to make a cash contribution (as they borrow the entire cost of the pSubscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

I’m a big advocate of value investing. If you buy high a quality investment for fair price and hold it for the long run, you can’t help but make a lot of money. But if you can buy the same quality asset cheaply (below its intrinsic value), then it’s likely that you will make even more money. This is what value investors attempt to do.  You can adopt a value investing approach with many asset classes, which I’ll discuss later. However, for most of this blog, I’ll use shares as an example because there’s a lot more data available. How does value investing reduce your risk?When investing in an asset, you can derive an investment return in two ways; by receiving income and/or the value of the asset appreciates i.e., capital growth. Often, assets provide a combination of both income plus growth. Receiving income is less risky because you ‘bank’ the return each year. That is, you are less reliant on capital growth to generate an acceptable overall return. Your capital return will depend on two factors. Firstly, what you paid for the asset (to purchase it). And secondly, the assets future value. Of course, overpaying for the asset initially will diminish future capital returns. Overpaying slightly for a high-quality asset probably won’t have a material impact on future returns, as a quality assets growth with quickly make up for any small overpayment. But a material overpayment and/or buying a poor-quality asset is a big problem that will cost you dearly.  Conversely, if you buy a quality asset for a cheap price, you are less reliant on the overall market organically driving prices higher to generate quality returns. In fact, in this situation, your future capital growth will come from two sources: the appreciation to fair market value, plus organic growth. A quick history lesson… The chart below compares how value has performed compared to growth in the US share market since 1979 (using the Russell 1000 indexes). They have performed similarly over the long run i.e., growth has returned 11.3% p.a. and value 11.6% p.a. However, recent performance has been a lot different. Between 2018 and 2021, growth substantially outperformed value as it returned 24.1% p.a. versus 10.5%. Consequently, by historic standards, value is now relatively cheap.  CHARTWhy do I think value is likely to outpeSubscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

It has been very well reported that many mortgage holders will soon be paying much higher interest rates when their fixed rate terms expire. It is estimated that $478 billion worth of fixed rate mortgages are due to expire in 2023. In addition, borrowers may also have to navigate the end of an interest only term, which typically apply to investment loans. This blog sets out our advice on how to navigate these changes. What are your options?  Fixed rate expiry If your fixed rate is maturing, you have two options. You can re-fix your interest rate for another term or allow the interest rate to roll over onto a variable rate. Current fixed rates range between 5.39% and 6.10% p.a. for owner-occupiers and 5.69% to 6.70% p.a. for investors (terms between 2 and 5 years). Variable interest rates range between 4.75% to 4.90% p.a. for owner-occupiers and 5.30% to 5.50% p.a. for investors on interest only repayments. As such, fixed rates don’t look attractive for a couple of reasons.Firstly, it is very likely that we are at or close to the top of the interest rate cycle. So, there’s limited value in paying a premium (i.e., a higher interest rate) to protect yourself against potentially higher interest rates in the future. This chart shows that the interest rate yield curve over 5 years is relatively flat i.e., it implies that RBA’s cash rate won’t change much over the next 5 years. Fixed rates may become attractive again when/if the yield curve inverts because it reduces the banks term borrowing costs and allows them to offer more attractive fixed rates. Until that happens, we typically recommend rolling over onto a variable interest rate. Interest only term expiry Navigating an interest only term expiry is not always straightforward. Usually, all mortgages have 30-year terms. If you elect to initially repay interest only, your loan term typically consists of a 5-year interest only term plus a 25-year principal and interest term. Contractually, the bank doesn’t have to offer you another interest only term – they can insist that you repay principal and interest for the remainder of the loan term. You have two options; request another interest only term or agree to repaying principal and interest. There are two common matters you should consider being (1) cash flow and (2) interest rates. The advantage of repaying intereSubscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

It is often suggested that it’s a lot more difficult for people to buy their first property compared to many decades ago. It is true that property is a lot more expensive. However, I would like to suggest that in many respects, buying a property today is easier than it was many decades ago. I would like to start by highlighting the main advantages that property buyers enjoy today compared to many decades ago. I’ll address the affordability issues once I’ve done that. Abundant access to information, knowledge, strategies, advice and so forthHow do you get ahead financially? One solution is to get the best advice so that you make the most of your financial opportunities. Often people learn by trial and error, but that can be expensive and waste valuable time. You can fast track your financial success by learning the best way to use your money. There is an absolute abundance of information that is available on the internet. Most of it is accessible instantaneously at no cost. Blogs, forums, podcasts, books, websites, software and so on. It cannot be underestimated how valuable that is. I purchased my first property 25 years ago and no such information was available (the internet didn’t even exist… now I’m showing my age). There were a few books about property investing, but not many. The only way to learn about borrowing strategies was by meeting bank staff, but they weren’t particularly knowledgeable or helpful. Therefore, unless you knew a successful property investor, it was hard to access knowledge. Today, I can find out how best to save a deposit for a property and strategies to mitigate a low deposit. I can find out how to manufacture equity via renovations. I can learn what makes a property investment-grade. I can research specific properties and find out what they have sold for in the past i.e., historic growth rates. I can learn about borrowing strategies, how to increase borrowing capacity and a mortgage broker can compare 30+ lenders in seconds. As the saying goes, “knowledge is power”. Much higher borrowing capacityThirty to forty years ago, borrowing 3 times your gross income was seen as very high risk. Today, the banking regulator (APRA) classifies a high-risk borrower as anyone that borrows more than 6 times their gross income. That is, I have come across some investors that have borrowed 10+ times their income, although I would caution anyone against borrowing that much. Over-borrowing is very risky. MortgagesSubscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

Good cash flow management is by far the most important practice that you must master to be successful at building wealth. I realise that it’s not a particularly popular topic, but bear with me, because it’s an easy thing to master if you know how. It won’t take you much time, and you will feel more empowered and in control as a result. You can’t expect to build wealth if you spend all your income Investment returns alone won’t help you build wealth, unless you already have a large investment base. You must contribute some of your own money/savings. For example, most people that buy an investment property fund its holding costs (i.e., the shortfall between net rental income and loan interest) from their salary/wage income. A property’s holding costs might equate to $20k-30k p.a. on an after-tax basis. Essentially, that is their capital contribution towards this investment (assuming they borrowed the full cost of the property). However, if the investor decided to fund these holding costs through drawing additional borrowings, the interest cost would compound, and greatly diminish investment returns. In short, you can’t build wealth without doing the hard work of making regular cash contributions into your investment portfolio. If you are not already doing that, you need to find a way to begin. Make 2023 the year you do that.  Unconscious expenditure is the problem. You must minimise it.Holidays are expensive. And since Covid, holidays have become even more expensive (although that might change over the next 12 to 18 months as higher interest rates temper demand). However, holidays are probably the best example of conscious expenditure. That is, we tend to think very deeply about where we want to holiday, how we get there, accommodation and so on. We carefully weigh up the cost-benefit of the expenditure. As such, holidays tend to provide a high utility per dollars spent i.e., they are good value for money. However, unfortunately, we do not apply the same diligent approach to all expenses, especially low dollar value expenses. In fact, for some expenses, we don’t spend any time thinking about them. Consequently, we spend money on things that have no impact on our standard of living. These expenses are a waste, as they don’t provide any benefit or enjoyment. Whilst these items tend to be lots of small dollar value items, they certainly addSubscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

In 1905, George Santayana wrote; “Those who cannot remember the past are condemned to repeat it.” That’s why it is always worthwhile to reflect on the past year to identify any lessons that we can learn. Below I share the investment lessons that I believe last year taught us.  Review of markets in 2022Firstly, let’s review what returns various asset classes generated in the 2022 calendar year. The US market lost around 20%. However, if you were an Australian investor (unhedged) you would have only lost approximately 12% because the Australian dollar devalued (compared to the USD) over the year. The global share index performed slightly better by losing circa 18% over the year, or still 12% if your investments were unhedged i.e., in AUD.  The UK share market was relatively flat for the year regardless of whether your investments were hedged or not, as both the Australian dollar and British pound lost value over the year by a similar amount. According to Corelogic, house prices across the largest 5 capital cities fell by 7.1% and apartments by 5.5% over the 2022 calendar year. Sydney was the worst performing market losing 12.1% and Adelaide the best with a gain of 10.1% (Melbourne lost 8%). Unfortunately, bonds had their worst year on record (or at least since many bond indexes began in in the ‘70s). Bond indexes lost between 6% to 15% over the year, depending on exposure type. Bonds and shares falling in value at the same time has only occurred twice over the past 100 years, so 2022 was a strange year for bonds. Listed commercial property investment (REITs) values have been hammered by higher interest rates, lockdowns and work from home. REITs lost in the range of 20% and 25% in value over the course of 2022. Global infrastructure fared much better. It was even on an unhedged basis, and down circa 5% on a hedged basis. Cash and commodities were the best performing asset classes. For example, term deposits rates rose over the second half of 2022 and are now typically paying above 4% p.a.  What can we learn from 2022? The first lesson we were reminded of is that investment returns are random and unpredictable in the short run. No one can pick which asset class will outperform over the next 12 months. The table below demonstrates how random asset class Subscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

This was the third most popular podcast episode in 2022. My aim for this topic was to give investors an insight into the strategic process that I follow to develop a holistic, long-term financial plan for my clients. The topic obviously resonated with people. I hope you enjoy it and here’s a link to the blog in case you want to read it (instead of listing to the podcast). Subscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.

This was the second most popular podcast episode in 2022. My aim for this topic was to educate investors about the fact that investing a little bit each week, fortnight or month is much better than investing on an ad hoc basis. You may have seen the idea that improving something by 1% each day for one year results in a 37x improvement – small, regular improvements create massive results over the long run. The topic obviously resonated with people. I hope you enjoy it and here’s a link to the blog in case you want to read it (instead of listing to the podcast). Subscribe via www.investopoly.com.au/emailDo you have a question? Email: questions@investopoly.com.au or for a faster response, post a comment on the episode's video over on YouTube: https://www.youtube.com/@investopolypodcast/podcasts If you're interested in working with my team and me, discover how we can work together here: https://prosolution.com.au/prospective-client/If this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://www.prosolution.com.au/stay-connected/ Buy a one of Stuart's books for ONLY $20 including delivery. Use the discount code blog: https://prosolution.com.au/books/DOWNLOAD our 97-point financial health checklist here: https://prosolution.com.au/download-checklist/IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.