Investopoly

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

The ALP’s proposed ban on negative gearing has been well publicised and debated. However, its proposed changes to Capital Gains Tax (CGT) have received far less attention. I suspect that this is because investors tend to overestimate short-term consequences and underestimate more significant long-term outcomes. But, since most of us are long-term investors, I’d suggest that we should adopt a more balanced view.How does capital gain tax currently work?At the moment, only 50% of the net capital gain is included with your other taxable income (except for companies which are not entitled to the 50% discount) if you have owned the asset for more than 12 months. The net capital gain (or loss) is calculated as follows:Net sale proceeds – being sale price less any selling costs including agent fees and so on.LessWritten-down acquisition cost – including purchase price, stamp duty, buyers’ agent fees, legal fees, inspection fees and so on; less any depreciation claimed in prior years.EqualsNet gross capital gain (or loss). This amount is discounted by 50%. The discounted amount is then added to your income and taxed according to individual marginal rates.What has the ALP proposed to change?The ALP has announced that if it wins the election on 18 May, it will halve the CGT discount from 50% to 25%. This effectively increases that amount of tax you’ll pay by 50%.For example, under current arrangements, only $50 of a $100 capital gain would be added to your taxable income. If you are on the highest marginal tax rate of 47%, you would pay $23.50 in tax. However, under the ALP’s proposed arrangement, $75 would be added to your taxable income and your tax payable would increase to $35.25 – an additional $11.75 or 50%.These CGT changes apply to investments, including property and shares, purchased on or after 1 January 2020 (for property, this is likely to be based on contract date, not settlement date). All investments made prior to 1 January 2020 will be fully grandfathered and entitled to continue to claim the 50% CGT discount.High growth assets will be impacted the mostUnlike the changes to negative gearing, these changes to CGT will impact property and share investors to a similar extent.And investments that provide the majority of their total return in capital growtDo 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.

Different professionals are able to give advice about a specific field – but who’s taking responsibility for looking at the big picture? How do you know if opportunities are slipping between the gaps? What if you have an issue/problem/question that bleeds over a few different fields?Firstly, it is important to understand the what different professionals can and cannot talk about (by law).Mortgage adviceTo give advice about a mortgage, borrowing capacity, interest rates, products and so on the professional must hold an Australian Credit License (or be an authorised representative of an ACL holder). You can search ASIC’s register of credit representatives here.Tax adviceAnyone that provides tax agent services (tax advice, lodge tax returns, etc.) for a fee must be registered with the Tax Practitioners Board. You might find that some well-meaning professionals (such as mortgage brokers or buyer’s agents) offer you tax advice or express an opinion about how an item should be treated for taxation purposes, but you should always confirm this advice with a Registered Tax Agent. You can search the Tax Agents register here.Financial adviceTo be able to provide financial advice, you must hold an Australia Financial Services License (AFSL) or be an authorised representative of a holder. Financial advice includes cash flow management/budgeting, investing in shares, superannuation, retirement planning, estate planning, risk management and so on. I have written previously about the importance of selecting a truly independent advisor. You can search the AFSL register here.Property adviceA person cannot recommend and help you purchase a property unless they are a licensed real estate agent. Licensing is State based and this page provides a good summary including links to registers. General property investment advice is completely unregulated and I have written about why this is a problem in The Australian Do 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.

An investment property should be selected based on the likelihood of it generating strong capital growth rather than secondary benefits such as rental yield or negative gearing. However, saying that, this doesn’t mean we shouldn’t maximise the gearing benefits of your current or future investment property to save on tax! So, if you’re looking to purchase an investment property or currently have one, these are some commonly missed methods/deductions that will help you get the most from your investment property: 1. Depreciation schedulesClaiming depreciation and the associated capital works deductions is a significant taxation benefit, and one which many property investors are unaware of. Depreciation is a non-cash deduction meaning you do not need to spend any money to claim it.As your property ages and items within it wear, they depreciate in value. The ATO allows deductions for this wear and tear. Deductions can be claimed on the building's structure and items considered permanently fixed to the property. Further deductions can also be claimed on the plant and equipment assets contained within it.To claim depreciation deductions, property investors need to engage a specialist Quantity Surveyor to complete a capital allowances and tax depreciation report. When completed, the report outlines the deductions available for both capital works and plant and equipment items on an income producing property and is used each financial year when preparing tax returns. The cost of obtaining this report is also tax deductible.Click here for an update to the depreciation laws since this blog was published. 2. Prepay interestIf you anticipate your income to substantially decrease in the next financial year due to factors such as maternity leave or redundancy, prepaying your interest in the current financial year will allow you to reduce your current higher taxable income – maximising your tax savings. 3. Statement of adjustmentsThe purpose of the Statement of Adjustments is to calculate the exact amount the Purchaser will need to reimburse the Vendor on the day of settlement for the property’s annual costs already paid by the vendor for the remainder of the year. These expenses can include, but are not limited to council rates, water rates and body corporate fees. Many property investors Do 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.

Understanding how property growth behaves is critical when making buy, hold or sell investment decisions. Unfortunately, I have seen lots of people make terrible decisions based on misinformation or misunderstanding. Therefore, if you are a property investor, you must understand this concept. And if you are an investor with a low asset base, you can use this knowledge to your advantage.History always leaves cluesI’m a big proponent of evidence-based investing because it removes a lot of risk. Evidenced-based investing involves only adopting methodologies, approaches or investing in assets where there is overwhelming evidence that demonstrates it works. No throwing darts. Only invest in sure-things.Below I have set out a few examples of property growth both for individual properties and markets.Individual examples of property growthThe chart below (click to enlarge) sets out the sales of an apartment in Richmond, Victoria between 1985 and 2019. As you can see, there was very little growth between 1985 and 1997 and very strong growth between 1997 and 2010. The average growth over the whole 25 years period averages out at over 8.8% p.a. – which is pretty respectable. This is a very good example of how property behaves i.e. it grows in cycles lasting 5 to 10 years followed by a flat cycle. Click here for an example of a house in Carlton that I cited in another blog that also illustrated this concept.<< Chart - click here >>I appreciate that this data isn’t statistically significant, because it’s only a couple of properties. However, after 17 years of looking at property growth on almost a daily basis, I can assure you that this growth is indicative of how the vast majority of investment-grade property behaves over long period of time.Example of state-based growthThe chart below (click to enlarge) sets out the distribution of median house price growth since 1980. You will notice that a growth cycle typically lasts 7 to 10 years. And a growth phase is typically followed by a period of (7-10 years) of little growth. The average growth rate over the past 38 years of each capital city ranges between 7.3Do 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.

“First rule of business is never get emotional about stock, clouds the judgment.” Gordon Gekko, from the movie Wall StreetThe quote above is from the fictional character, Gordon Gekko from the legendary 1987 movie, Wall Street. The challenge he was alluding to is the fact that it’s impossible to have a completely impartial lens when making financial decisions. There are many reasons for this.Firstly, it’s our money, we worked hard for it and we don’t want to make a mistake and lose it. I have observed marriages dissolve because of financial losses. It’s a big deal and a lot is at stake.Secondly, we tell ourselves stories about money. These stories have been shaped over many years by our upbringing, culture and personal experiences. Stories like money is evil, money is a measure of success, it’s hard to make money from investing, money changes people, money will solve all my problems, money makes me feel safe and so on.The sun is smaller than it looksHave you ever taken a photo of a sunset or landmark and been surprised how small it looks in the photo compared to the naked eye? The reason is because our brains play a trick on us… it’s an optical illusion. Our brain makes us see something that’s not real. Here are some explanations why this happens – although it’s not important for this blog – I’m merely making the point that sometimes we see what we want to see. Our impression of “reality” is shaped by our beliefs.My observations over the past 17 yearsI agree with Gordon Gekko that emotions are rarely a useful human behaviour when it comes to making financial decisions. They distort our views and can cause us to make expensive mistakes. In my experience, emotions can cause a few common errors including:§ Overthinking – it might sound a bit perverse, but you can overthink financial decisions. The problem with overthinking is that you start to explore every possible outcome and add too much weight to outcomes that are very unlikely to occur – almost so remote that they do not really warrant any attention or consideration. This can cause people to jump at shadows.§ Blind to risk – sometimes we want something to be true so much that we irrationally ignore any evidence to the contrary. This often happens when peoDo 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.

The ALP announced on Friday (29/3/19) that it will ban negative gearing from 1 January 2020 if it wins the election next month. I wrote an article for The Australian newspaper over the weekend which addresses the steps property investors can take to fortify their investments (which I list below). A number of people have asked me whether they should invest in property prior to 1 January 2020. I discuss this too.We still have a long way to goOf course, the ALP has to win the election before it can ban negative gearing. I acknowledge that virtually every poll predicts an ALP victory. But John Howard didn’t poll very well leading up to his 1996 election win. And who would have thought Mr Trump would become President of the USA! So, anything can happen.Secondly, it will depend on how strong their win is and whether they have a large majority or not. If it’s a tight win, they may have to negotiate with minor parties to get its law enacted and, as a result, water down its change to negative gearing e.g. limit it rather than an outright ban.And finally, we have not seen the draft legislation yet. All the ALP has said is they will be negative gearing if people invest in established property or shares after 1 January 2020. Back in 1985 when the Hawke government banned negative gearing, people used unit trusts to invest in property. They borrowed to buy the units and as such were able to continue to negatively gear the property. So, there could be workarounds.What should (existing) property investors consider doing?There is a risk that the ban on negative gearing will put further downward pressure on property values in 2020. Owning an investment property in a falling market can be a double-whammy. Not only is your asset value falling, but you have to put your hand in your pocket each month to contribute towards the holding costs (if the net rental income isn’t enough to meet the loan repayments). Here are some of the steps you can consider taking:1. Reduce holding costs – fix your interest rateMany lenders are offering 3 years fixed rates at levels below variable interest rates, particularly if your loan repayments are structured as interest only. This may help reduce the monthly holding costs and you could still be betDo 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 huge fan of Seth Godin’s work. He’s a presenter, author and entrepreneur and if you have any interest in marketing or business, you must subscribe to his daily blog. Anyway, his recent blog about the difference between an amateur and professional got me thinking. I think many of us could benefit from approaching our finances more professionally.The different between a professional and amateurOften, a professional investor such as a fund manager approaches investing a lot differently than an amateur investor. I have listed some of these differences below to highlight this point.Professional– Understands that making investment decisions requires experience, education and understanding the market– Seeks out experts in their field and is willing to pay a fair fee for their advice– Will have a methodology for hiring and firing advice professionals – a clear list of things they want and want to avoid, thorough methodology, etc.– Will hold their advisors accountable for producing results– Won’t try and take on a task that is outside their sphere of experience– They make investment decisions on a daily basis– Will take almost any steps to ensure the risk of losing capital is low or non-existent.Amateur– Has no metric or methodology for measuring the value of advice– Asks friends or colleagues for advice– Is prepared to have a go at trying to do it themselves before asking for help– Considers it a saving if he works it all out himself and therefore don’t need to pay anyone for advice– To some extent, is guided by emotions e.g. it feels right, falls in love with the potential returns, etc.– Gets seduced by investment returns and doesn’t adequately consider (and mitigate) investment risks– Doesn’t realise the danger of their lack of experience– Makes a handful (or less) of investment decisions over their lifetime.– Its prepared to make a mistake i.e. learn through trial and error.But we don’t compromise on some things…Imagine how you would react if your friend told you that he did his spouses dentistry work. Or wrote their own will. Almost all of us understand tDo 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.

For many Australian’s, their home loan is their largest expense. And property investors should seek to minimise their borrowing costs (interest) as it’s one of the top three factors that directly impacts investment success as outlined in this blog. With this in mind, I thought it was timely to look at the current opportunities in the mortgage/interest rate market.What the “market” is expectingAs the chart below illustrates, the implied yield on 30-day cash rate futures suggests that the market expects the cash rate to be 0.25% lower in the second half of 2019. These future contracts are used primarily by large institutions and banks and essentially represent the consensus view on the direction of interest rates in the short term (i.e. next 18 months). Of course, the market is not always right – it’s only one indicator.https://www.prosolution.com.au/wp-content/uploads/2019/03/cash-rate-futuresv2.jpgEconomist predictionsBill Evans, the Chief Economist for Westpac, was the first to predict that the RBA will cut its cash rate twice in 2019 (0.25% in August and then again in November). Since making this prediction on 20 February 2019, many other economists have joined him. Mr Evans was the first economist to correctly predict the start of the RBA’s easing cycle in 2011 – so he has good form.Mr Evans cited weaker than expected GDP growth, the “wealth effect”[1] associated with a softer property market and an expected increase in our savings rate as the main reasons for forming his view.What would have to happen for the RBA to cutThe RBA has previously said on a number of occasions that it is not concerned by the falling house prices. This commentary has never made sense to me because a falling property market definitely impacts on consumer confidence – look at what happened in the USA when the GCF hit. Perhaps the RBA was hoping its positive rhetoric would persuade ADo 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.

A client was telling me a story about how the Chief Financial Officer (CFO) of a business he used to own passed away unexpectantly. Of course, it was a very sad event both personally and professionally. But an unexpected additional consequence was that the business was locked out of internet banking. The CFO had many important passwords committed to memory (for security). The business had to pay staff the week following his death without any access to banking! This taught my client a very important personal lesson. That is, make sure your loved ones are looked after in the event of your unexpected demise. Don’t leave them in the dark!Here are a few things you must organise.Passwords galore!Its ridiculous how many passwords we have these days – almost too many to keep track of. If your spouse or loved ones don’t have ready access to your passwords, it can be very frustrating and stressful – at a time where additional and avoidable stress is definitely unwanted. You need to make a list of important passwords, including:Online bankingSuperannuation accounts;Managed fund providers or share brokers; andAny other investment providers.There are password apps you can use or a simple password protected Excel spreadsheet does the trick. Save the file in Dropbox (or similar) and share it with your spouse (or executor/s). This is simple to do and will avoid a lot of unnecessary stress.Summary of assets and liabilitiesIt is important to have an up-to-date summary of all your assets and liabilities. This will make it easier for your executor/s to ascertain what assets you have, their value and what immediate actions need to be taken, if any. It is also useful if you have a summary of regular financial commitments such as loan repayments to ensure these are met on time. This will help your executor get on top of everything. Perhaps you can include this information in the password-protected Excel file mentioned above.List of personal risk insurancesYou should also maintain a list of personal risk insurances such as income protection, life and total & permanent disability insurances. You need to note policy numbers, sum insures and insurer. This will be important because if you have an accident,Do 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.