Hope you’re all having a cracking Easter long weekend.
This week saw some unexpectedly strong economic stats come out of the US which drove a huge surge in the US share market, which then flowed through to other key world markets with the notable exception of Australia based on our slower than expected vaccine rollout. We also saw a bunch of big-name IPO’s (sharemarket listings) announced, including a cheeky back-door listing from the troubled property powerhouse WeWork – more on that below.
And I kicked off the Spill the Proper-Tea money education series with General Assembly and Raiz Home ownership. You can check out the recording of first the event here and book your place for the next four property events here.
Share market wrap
Global markets were all up strongly, lead by the US job data showing a big drop in the unemployment rate driven by the creation of 650,000 jobs (!). But the Aussie market didn’t get the full rise, based seemingly around negative investment sentiment on the COVID vaccine rollout being behind schedule.
Key sharemarket numbers:
- The ASX ‘All Ords’ (top 500 shares in Australia) finished the week 0.6% higher than last Friday, on 7,046.20 points.
- The US ‘S&P500’ (Top 500 shares in America) finished the week 2.63% higher than last Friday, on 4,019.87 points.
- The US ‘Nasdaq’ (Top 2500+ mainly tech shares in America) finished the week 3.72% higher than last Friday, on 13,480.10 points.
- The Global ‘All World’ index (measured with the iShares MSCI world index (all share markets around the world combined) finished the week 1.99% higher than last Friday, at 119.78
Investment story of the week + Jargon Buster of the Week
Jargon buster – Special Purpose Acquisition Company (SPAC): I’ll tackle this one first as it will help me explain the WeWork Story. A special purpose acquisition company (SPAC) is a company with no commercial operations that are formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. When a SPAC is started, they get a bunch of investors to invest and give them cash that will be used in the future to buy another company, but the twist is that the investors have no idea what company the SPAC will buy BEFORE they give up their cash. This is why they’re also known as “blank check companies.
SPAC companies are on a huge rise, with the number of listings via a SPAC increasing from just 48 in 2019 to 248 in 2020 (400%+ increase), and in the three months of 2021, we’ve already seen over 275 SPACs going public.
Share story – WeWork (Stock ticker TBC post listing): When a company wants to list on the stock exchange, often with the driving force being to raise cash for further expansion, they have two choices – to go down the traditional path of listing via an initial public offering (IPO), or to list via a SPAC.
When you list via an IPO, there are an enormous amount of hurdles to go through, both via the financial market regulators as well as via the banks. You have to find a bank that will back you through the IPO process – this bank will help you list, but also essentially ‘underwrites’ or guarantees part of the listing amount. Because this bank will stand behind you, and because all banks love money, they want to make 110% sure they do some good due diligence so they know they’re not going to lose money. This means they put you through the ringer, crunching all your numbers on top of what’s required by the stock exchange.
When you list via a SPAC, because the company already exists as a listed entity the same level of due diligence isn’t required. Not to say that a SPAC couldn’t do this, but because the exercise is so time consuming and expensive, they often don’t apply the same approach.
But as we know, cheaper isn’t always better. The investment research powerhouse Bloomberg just did a research report on SPACs that showed in 2020 the average return on a SPAC listing was 22.9%. By comparison, in 2020:
- The S&P 500 index saw a gain of +18.4%
- Nasdaq saw a gain of +43.6%
- Traditional IPOs saw an average gain of +75%
Time will tell if WeWork can buck the trend…
Money mistake of the week: Buying the wrong property in a hot market
Last week I interviewed Kellie Landrey on the podcast and we kicked off talking around her top property mistake. Kellie spoke about how easy it is to let your psychology drive your choices, but how that can be a total disaster for your money game long term. Full episode here.
Money hack of the week: Not letting emotion drive your property purchase
It’s hard when you buy a property not to let your emotions have some impact. But, if you base your property decisions off the emotion alone it’s easy to do something dumb that can cost you a bunch of money. I spoke to property buyer Chris Gray, an expert property buyer who downloaded his learnings from buying literally thousands of properties for others. Full clip here.
Podcast from last week: #92 Property Pro series w. Amanda Bennett
Last week I spoke to Amanda Bennett, a property legal specialist conveyancer from Elan Legal. She is a conveyancer and helps people with the legal side of property purchases. We covered a bit of ground, but we were talking about the contract mistakes that she sees, what a conveyancer actually does and, why that’s important when you should be engaging, someone to do your conveyancing and how to choose someone to support you in that space as well as take on the property market. We got a little bit off-script and talked about company titles and what that actually means for property, as well as whether it’s a good or a not so good investment and also some of the tips and things to look out for when buying a property to make sure that you don’t get burned.
Smart Money upside #15 – Starting a business, family planning, investing
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 from one of our clients to help you take your money game to the next level.
Couple early 30’s, household income $250k, wanting to set up a smart plan to start a business without sabotaging ability to start a family or risk their financial future, get on top of RSU’s, start investing, and set their financial foundations the right way from the start.
Frustrations when first coming to see us
Expats that didn’t fully understand the rules around money, limited knowledge of investing, good business ideas but not sure how to set financial boundaries/targets to give their ideas a go without creating too much downside or risk.
What they wanted from us / the advice process
Financial modelling of business launch, adequate provisioning for RSU tax, family planning, working toward a property purchase.
What money strategy they were following when we started working together
Retaining employer shares and saving strong surplus cash into a savings account.
What money strategy they chose to pursue from our planning work
Starting a business with clear targets around what would need to happen for this to be the best option for them financially, building money momentum through investing.
Key benefits of going through the process
Confidence to walk away from golden handcuffs to launch own gig, solid family and investment plan, the knowledge they would eventually be able to fund their dream home
Year 1 upside after advice fees: -$28,391 (from walking away from employment income to no salary)
Year 20 upside after advice fees: $3,452,155
If this story resonates and you want to chat about how to get these sorts of results, you can book an intro call here.
PS: If you want a hand to get on the front foot with your money in 2021, check out our 45-minute one-on-one sessions here. We’re donating 100% of the money raised to charity, so you can up your money game and do something good on the planet at the same time.
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 definitely 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 to this email so we can compare notes. You should consider the appropriateness of any general advice we have given you, having regard to your own 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. Financial services guide.