26th September 2022

Smart money weekly; Franking credit frustration, US rate rise (again), ASX down 10% and building confidence in volatile times

Ben Nash

 

Hey team,

Happy Monday.

This week something that came into focus with one of our clients was franking credits. We talked to a few more clients and realised a lot of people are confused about this topic. This is how they work…

The short version is that when a company makes a profit, they pay tax on the profit – the money leftover is what they use to pay dividends to shareholders. Because the company has already been taxed, the investors that receive the dividends receive a tax credit for the tax already paid, and the tax credit reduces the amount of tax you owe to the ATO.

Franking credits mean the value of ‘franked’ dividend income is greater because you end up with more money after tax, which means you end up with more wealth from the same amount of money.

Using franking credits to your advantage is a hack that can make it easier for you tyo achieve your financial potential.

In the news: Inside Australia’s $3.8 trillion property market forecasting error. A grave forecasting error in 2020 saw Australia’s property market go haywire. Now the same thing could be about to happen all over again. Check out the full article here.

Upcoming events:
Take control and get on the front foot for next year. We’ve got stacks of sessions leading into next year with employer share plans and financing 101 sessions coming up next. Check out our other events below

Share market wrap
The US Federal Reserve lifted rates by an expected 75 basis points on Wednesday. There have been further fears of volatility in the equity and bond markets in what has already been a negative year. The third rate rise in a row from the US Fed came with a statement that ‘there is no painless way to lower inflation that has reached a 40-year high.’ The US central bank also projected economic growth of just 0.2 per cent this year and 1.2 per cent for 2023. Domestically, the ASX set a new 20-day low on Friday and has lost 10 per cent since the year began.

Key sharemarket numbers:  

  • The ASX ‘All Ords’ (top 500 shares in Australia) finished the week -4.3% lower than last Friday at 6,784.50 points.
  • The US ‘S&P 500’ (Top 500 shares in America) finished the week -3.19% lower than last week at 3,757.99 points.
  • The US ‘Nasdaq’ (Top 2500+ mainly tech shares in America) finished the week -2.94% lower than last week at 11,066.81 points.
  • The Global FTSE ‘All World’ index (largest 3100 companies in the world) finished the week -1.75 % lower than last week (Friday AEDT) at 7,159.52 points.
  • The S&P Cryptocurrency ‘Mega Cap’ Index (tracking market value of Bitcoin and Ethereum) is currently at 2,077.21 for the month, down – 8.33% for the month to date.

Investment story of the week:  Coles Group Ltd. (ASX:COL)
The Coles (ASX:COL) share price has been in a decline for over a month and is still down approximately 8% over the last 6 month. Goldman Sachs has stated that it believes Coles will be left behind by rival Woolworths Group Ltd (ASX: WOW) due to its slower digital transformation. Goldman also notes that the Coles Express sale is immaterial to its forecasts given its minor impact on earnings and its valuation. The continued decline is worrying, given that Coles recently announced that Coles has entered into a binding agreement to sell its fuel and convenience retailing business to Viva Energy Group Ltd (ASX: VEA) for $300 million. Coles’s CEO Steven Cain has revealed that selling the business will allow the company to focus on its supermarket and liquor businesses, as well as its ambition to become Australia’s most sustainable supermarket company. It will be interesting to see where the Coles share price lands up by year-end.

Smart Money upside #88
Because people don’t often talk about the full ins and outs of their money, it’s hard to learn lessons from hearing what good and bad choices other people make. This story is from one of our clients to help you take your money game to the next level.

Numbers/Background
Individual, early 30’s; household income ~ $200k; total assets ~ $50k; savings ~ $1k annually.

Frustrations
Credit card debt, overspending and no clarity into the future.

What they wanted from us / the advice process
Create a strategy to build wealth and get help entering the property market. Simplify their savings, create passive income and minimise tax as well as improve education around RSUs.

What success looks like for them
Maintaining a nice lifestyle but implementing a disciplined structure around savings. Clarity around finances and a clear strategy regarding RSUs.

What money strategy they were following before we went through the planning process
No money strategy, minimal savings and with their default super.

What money strategy they chose to pursue from our planning work
Buying an investment property, investing funds into the share market, automated banking structure with separate bank accounts, clear strategy around RSUs, switching to a more appropriate super fund.

Key benefits of going through the process
Clear strategy on when and how to buy a property as well as how to arrange the deposit, clarity on managing existing debts, easy to manage banking structure to track and save, strategy for RSUs to reduce risk and taxes.

Value of advice after all advice fees year one: $33k
Year 20 upside after advice fees: $900k

If this story resonates and you want to chat about how to get these sorts of results, you can book an intro call here.

Giving update of the week
Last week we started working with an amazing business owner kicking a heap of goals and doing some great things in the community at the same time. Our conversations have reminded me of the power of business to change the lives of not only the people that work with any given business, but also the broader community and the world at large. So to celebrate, we’ve provided one year of business training and an attached microloan for 20 women in Malawi. This is part of our ongoing commitment to make a difference in the lives of our clients and simultaneously make an impact on our world through our partnership with B1G1 (Buy 1 Give 1). You can check out more information about our giving here.

Money hack of the week: How to see the value of a buyers agent.
The beauty of a buyers agent isn’t just in the ease of buying, but the potential profits they can spot in a good pick. Profits that would completely outweigh the fees associated with their service in the long run. In this chat, Chris Gray and I talked about the value of a property buyer and why it can be challenging to justify their cost without a long-term view. Check out our full chat here.

Money mistake of the week: What would you do if you could go back in time?
If you had a time machine, you’d probably use it to go back to 2012 and invest in Apple, right? But failing that, what advice would you want to give your younger self to set you on the right financial journey? Pivot Wealth clients Christine and Walter shared their thoughts with me about why they would go back in time and better understand their finances and super from an early age. Would you do the same? Check out the full chat here.

Jargon Buster of the Week: Fixed interest (via Macquarie)
An amount earned on funds is to be paid on top of a principal and is calculated as a percentage that remains unchanged for the term of the loan.

Podcast from last week:  #252 w. Dr Mike Kollo – Crypto & Markets
In this episode, I chat with Dr Mike Kollo who’s a quant and CEO at Clanz, a crypto platform where he got a deep experience in Institutional investment markets.

We talked about what’s going on with crypto, some of the things that people might not know about what happens behind the scenes that have driven some of the disruptions we’ve seen over the last little while. Then we start talking about risk at the moment, what’s going on in markets, how people should invest smarter & protect themselves, and how to think about what makes a good investment in the current climate. As well as nerd out a little bit on how people should see through the spin when it comes to different investments.
This episode is perfect for anyone who wants to understand how the big end of town really looks at investments so you could learn those lessons and use them to your advantage

Helping people with this stuff is our jam, so if you want to chat about how to make your money success easier, you can book an intro call with us here.

Be awesome,

Ben

Disclaimer:
I know you’re smarter than someone that would need me to write the words that come next, but our compliance peeps are real hard-asses so here we go… This information is not personal advice, poetry, or a map to where Jimmy Hoffa is buried. It may only be regarded as general advice and shouldn’t be considered something worthy of inclusion for Donna Hay’s next cookbook or the Archibald prize. This is actually just an email communication that has been sent to a bunch of people and doesn’t even have your name on it. Your personal objectives, needs or financial situation have not been considered when preparing this email, but I want you to know that I have spent a lot of time thinking about the Venn diagram intersection of poetry, landscaping, and essential oils – if you’re fascinated by this same phenomenon please reply so we can compare notes. You should consider the appropriateness of any general advice we have given you, regarding your objectives, financial situation and needs, and if necessary, seek advice before acting on it. You should also consider other people when getting on and off public transport, smiling more, eating healthy, and listening to your mum when she tells you that you’ve been working too hard. Where the information relates to a financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product. Where the information relates to a hilarious joke I’ve made, you should consider belly laughing deeply. Worth noting also that past performance is not a reliable indicator of future performance when it comes to investments, and definitely not when it comes to the Wallabies. Financial services guide. All jokes aside and just to be clear, this information may only be regarded as general advice. Your personal objectives, needs or financial situations were not considered when preparing it.  You should consider the appropriateness of any general advice we have given you, regarding your objectives, financial situation and needs, and if necessary, seek advice before acting on it. Where the information relates to a financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product. Past performance is not a reliable indicator of future performance.