She's On The Money - Your Most Asked Investing Questions Answered

Episode Date: September 3, 2024

Feeling overwhelmed by the world of investing? You’re not alone, and we’re here to help! In today’s episode, we’re tackling your most asked investing questions, with nothing off limits. And of course, we’ve got the one and only Victoria Devine, who’s ready to break it all down in her signature no-nonsense, easy-to-understand style. Whether you’re just dipping your toes in or fine-tuning your strategy, this episode is packed with the answers you need to take your investing game to the next level. And if you’re ready to dive even deeper, don’t forget we’ve just announced our Investing Masterclass. Join the waitlist here! Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money. She's on the money.

Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. If you listen to us a lot, you know that one of the best ways to achieve financial freedom is through investing. But we do know that world can sometimes be confusing. So we ask you, our incredible community, to send in your burning questions about investing. And boy, oh boy, there were some goodies. And a lot of them. A lot of them. I feel so seen by this. I feel so overwhelmed. So I'm glad that we're on both ends of the spectrum. I'm like, holy moly, I thought I'd done a heap for financial literacy, yet there are still six billion questions to answer.

Yeah. I mean, I get it. Like there are so many things that maybe we don't even think about because we're in this world. If you guys hadn't replied, I wouldn't have a job anymore. So thank you for keeping me employed. Thank you for keeping us afloat. As always, we of course have Victoria Devine herself, the expert to share her wisdom. Oh, thanks for introducing me. I just jumped into your intro before. Hey, no, that's okay. Unsolicited introduction. Just in case this is anyone's first time, Victoria Devine is the expert and the one and only and the host of this podcast. way all right well let's dive even further in i feel like today's gonna be a goodie beck if you've been wondering how to get started on a tight budget how to work out how much you need

to invest for your retirement or just trying to figure out what the heck a franking credit is stick around v are you ready to dive in you want to talk about franking credits do you yeah i've always been curious about well who's frank why are we giving him credit exactly what did he even do all right well let's go i'm really excited okay so it's a really good one to start with. How do you work out how much to invest for your retirement goal? I feel like retirement is a bit of an icky word. I don't know about you, Bec, but I feel like if someone says, oh, like, have you been planning for retirement? You immediately just think grey hair, old age, you're not enjoying life anymore. Maybe you're thinking caravans, like the grey nomad vibes,

but like, you're not really thinking financial freedom. You're not really thinking rich. You're not really thinking like, I can set myself up financially. You're kind of just thinking about the wind down. I feel like there's such a stereotype associated with the word retirement that our generation just doesn't resonate with. Do you resonate with that? I see what you're saying. Actually, when you said the wind down, I was like, that sounds so cozy. I'm so ready to wind down. It does, but like, that's what we associate with retirement. And I mean, it should, like when you have financial freedom, you've got choice. And if you've got choice. You get the choice to not do anything anymore. And I mean, the entire premise of

creating a retirement fund, the entire premise of superannuation is to create a fund that pays for future use lifestyles so that you don't have to go to work anymore. And I think that's really sexy. I'm actually sitting on a round table or did sit on a round table with ASIC recently to talk about how to get more millennials engaged with their superannuation. Honestly, an honor, like me being asked by ASIC to come and sit on a round table to help guide them in how to get people our age more engaged with their super one topic of my dreams I am here for it like it didn't matter they were like what day are you free and I'm like I'll make myself free I'm here for this I'm so excited to be involved good for you but also we discussed a lot about

language and the need for language around retirement to change to get us more engaged So like obviously that's not answering your question but I think with answering your question we need to remember that what we do today does impact future us and as much as living in the moment and the journey is so important we also need to think about future us and if we are going to plan for retirement it can start now and it means smaller steps need to be taken and I think that's really, really attractive not just because it's like an attractive thing to do. but like I'm creating less work for future me by focusing on this right now. So if you want to be saving for your retirement you don't actually have to actively be doing anything but like do some of the hygiene factors along the way of checking in on your super, making sure that you don't have a heap of multiple useless accounts, make sure that you are invested in the right risk profile. We've done entire podcasts on risk profiling so that you know how to do that but I think it's really important that if we're going to talk about retirement, we have clear goals. And in that

session, in that round table, we spoke about getting a clearer number on what we need to actually retire. So let's start with the numbers that are accessible to me and to you that we can, I guess, use as a start point. Because Bec, if I think I flipped the table and said, well, how much do you need for retirement? You'd be like, I don't know, maybe I should do a budget. Like maybe I should sit down and work out how much food is and then you end up overwhelmed because of the time value of money and how much inflation might impact what you need to save, right? So at the moment, according to the ASFA BEC, to have a comfortable retirement by the age

of 67, you need to have approximately $690,000 saved or as a single $595,000 in your super How does that feel as a number? I guess I'm just like trying to calculate you're alive for maybe, let's say, like 30 years after retirement. Yeah. If you retire at the retirement age. I think that's making sense because you're keeping it somewhere and it's still gaining interest. Is that correct? Yep.

Ideally? Ideally. I like that you're doing some serious maths here. I feel like that's a new thing. Sorry, I feel like you were definitely just looking for like a quick yes or no. No, no, no. I think it's really important but we also want to talk about how at the same time we don't have that amount let's just use the couple as an example because I feel like that's most common

and you can come to your own conclusions about what that means for single people but if you have that income of 690,000 each year and you've done your maths like right now Bec I'm assuming you earn above minimum wage right I know you do because I know your tax bracket and she's rolling in it she's fine. She's just spending out the kazoo. But if we did some maths around this, so $690,000, fantastic, at a drawdown rate of 5%. Now, I use 5% because it's a really conservative number. We know that the Australian share market over the last 30 years has returned more than 9% each year, but we don't want to use that. I'm very much a believer of under-promising and over-delivering. I'd never want you to go through economic hardship and you not being able to draw

down what you need to from your super and therefore your lifestyle is completely whacked, right? So, we always budget when it comes to retirement predictions on a really low drawdown rate. And I don't say really low, like it's quite conservative in the financial advice world. Most financial advisors use 5%. So, we're going to use 5% here. So, if you got to having $690,000 across two people and you drew down 5% each year, which means you're taking 5% of that amount, Bec, to live your life, because that's what the ASFA has said is a comfortable retirement, that is an income of $34,500 a year. Oh. Is that enough? Well, no. Exactly. Depends, depends. No, no, no, it depends. And don't get me wrong, that's $34,500 that you didn't have before that,

but that is less than minimum wage. And we are seeing people now retiring with mortgages. We're seeing them retiring, not owning property and having to pay rent. That comfortable retirement figure that the ASFA is using assumes, Bec, that you own your own home and you don't have housing costs. What we need to do is actually find our own figure. And so the best way that I can say to do that is work off the 5% rule that I've just invented right now. So if I said, all right, well, what do you want to earn? Like right now, let's pretend you have an income of $70,000 per year. And I go, Bec, is that comfortable? All right. Like I could probably live on that. Yep. No worries. That makes sense for me. Between a couple, do I want more than that? Like there's

two of us now. I'm currently in a dual income situation. Do I want $70,000 for me and my husband? You might go, yeah, that's fine. So if we go, you want to have $70,000 as an income in retirement, we need to go to our calculator app and we take $70,000 and we times it by 20. Timesing it by 20, Bec, will effectively mean that you're using that income as 5%. So 5% of $1.4 million is $70,000. So that becomes your retirement goal. So that's the maths that I'm going to tell you to use. So Bec, to work out what you want to retire with, you need to work out what your retirement goal is. Like what's your lifestyle? Is it that comfortable lifestyle that everyone is talking about in media or is it something different it's

so okay to have something different but if it's 1.4 million dollars across you and your partner what does that actually mean for you how much do you have to save each and every single month to achieve that have you gone and looked at your current super contributions with your partner and worked out okay well you know my partner's employer contributes 800 a month to his super and my employer contributes 900. Like, is that amount going to be enough to sustain you in retirement? If it is, slay, you're well on the way. Anything you do is above and beyond and that's really attractive. If not, what are we going to do about it? Are we going to be planning to contribute more to super? Are we planning on investing outside of superannuation? Are we just

in the middle of a chapter of our lives where that is not possible and we need to put that idea on the shelf, do our hygiene, make sure we've got a good super fund, make sure that it is performing well. But no, I do not have the funds right now to contribute extra, but I know that one day when that comes, I'm going to change it. Like we need to have a plan irrespective of what our current budget is. Yeah. Does that make sense? Yeah. I feel like a maths figure is going to be the best way to calculate it. I feel like I could tell you to budget until the cows come home and don't get me wrong. A lot of people are going to listen to this who are a lot more technical than I am right now and say, Victoria, you haven't calculated for inflation. Victoria, you haven't calculated for

the changing rate of compound interest. Victoria, what about taxes? Victoria, what about the superannuation tax back? I don't care about that in this moment if this maths calculation gets you off to a clean start. So we want to do our hygiene. We want to make sure that we're in the best possible position but then we also want to do some maths and go hey in my head I've just worked out that a five percent drawdown is about seventy thousand dollars like that's what I want to earn and that means I probably am aiming for about 1.4 million dollars in super we can work with that we can go from there do not get me wrong stuff is definitely going to cost more in the future because like a basket of goods today Beck costs a lot more than it did last year

But over time, inflation will hopefully be much lower than the compounding interest that you achieve. So it will work out in the end. But I feel like that's a really good place for you to start so that you've got a lot of clarity on your goal. Yeah. Like that's a very clean goal. I just have it in my head.

I imagine that I'll be single when I'm older. And so I do want to like ask you like that doesn't necessarily have to be romantic. You could be like, oh, I'm shacking up with a housemate after I retire. You know what I mean? There could be other ways. If you are single, you can find that extra kind of like helping hands or whether it's share housing or whatever it is. It's an interesting conversation, right? Because I was having a chat over the weekend with my best friend who is currently single. If there are any hot chicks out there who are interested in my best friend, let me know. I'm happy to

hook her sister up. But I was talking to her about it and she is the same age as me or she's a year younger than me. And we were just talking about how she's just like sick of this like share house life I don't want to share my living quarters with someone like I want to go home and know that my stuff is left where my stuff is left and like I totally get it but I also just think how can we make this possible and feasible for people who just want to be single by choice I know like what if you just decide you're not interested in a relationship like that's not for everybody no absolutely not I feel like there's this cookie cutter idea that you have to live with other people but like I don't know like if I was single I feel like I would want my own space

at this age like she was right like if I left something on the bench I want it to be there when I get back if you know I cleaned the bathroom I want the bathroom to be clean when I get back I totally resonate with that because I can also empathize with you going oh yeah like you could have a whole heap of options to support you but like why should that be the outcome if that makes sense like yeah i know as a choice i also same best friend if we're both single when we're older we're moving in together and we're gonna live our best lives so fun we are convinced that we're going to be the old ladies on the scooters yes going around the nursing home getting in trouble like that is my future yes but what if you don't want to have to rely on another human being to

live your lifestyle yeah i know that number of 595 000 beck at a five percent drawdown rate is about $29,000. That's less than a couple's amount, but it's still not enough to pay for rent. Let's just be really modest. Outside of a city, you're still paying like $300 a week on average, I would say, for a one or two bedroom apartment. But we're not talking about having a house with heaps of land. That's still $300 a week. And $300 a week over a year is still half of what that income is right so that person is paying 50 of their income to rent and then what groceries groceries right now are 300 a week whether you're single or a couple yeah families are even worse it's so scary you start breaking it down and you're like that's really grim and i mean this

is a q a so we'll get off this because i've probably got another podcast in me to rant all about superannuation and retirement savings and whatnot at some point i mean we've done it before but I get so passionate about this because if you're not planning for retirement you're shooting yourself in the foot sure like there are small things that you can do today that put you in hundreds of thousands of dollars of a different position in the future that don't cost you a dollar today like go do that go check your superannuation and consolidate your accounts Beck when I checked my superannuation way back in the day I had like five different accounts and I calculated that over that period of time, had I not consolidated my super, I would have spent an

additional $70,000 on super fees. Oh, don't think about it. Don't think about it. Don't think about it. No, do think about it. So stop yourself from doing that because there are people that didn't make that change. There are people right now that are exactly like you and me, had a heap of hospital jobs. We worked retail, you know, we then got our big girl jobs and we like didn't think about it again because super's icky and it's not very sexy like just go consolidate it it's the light at the end of the tunnel right now if you don't have anything in your budget right now to put towards future you at least make sure her house is clean be for real like go and set that up so that when future you can contribute more money she's not starting from scratch take care of her oh anyway

ask me another question because otherwise this is going to become a massive rant about super and that's not what y'all came for okay let's go to the next one so what is the rule of 72 that i hear victoria talk about oh my gosh i love the rule of 72 have i heard you talk about this yeah i say it all the time but you just tune out you don't listen sugar i'm sorry about that i feel like it makes sense though because it's really boring so it's a rule that i first heard growing up from my dad who's an accountant and he was always like the rule of 72 is very important to understand and like as a kid I'm like boring but it is actually a really nifty little tool that's going to help you to figure out how long it will take for your investment to double

that's more attractive than just hearing the rule of 72 right like it's a formula that helps you work out when your money is going to be worth double attractive we like it very demure so it's actually quite simple it's a maths formula and it's based on a fixed annual return which i often calculate at either five percent which we've just discussed on this exact podcast or i talk about seven and a half percent because i like to be consistent across the content that we put out so all you need to do is divide 72 by your annual interest rate so for example beck if you're earning an 8% interest rate. You're going to divide 72 by 8. I've done the maths for you. And you'll find out that it will take about nine years for your money to double. Very sexy. Very mindful. We like

that. So if your annual return, if it's like five or 10 or whatever, it would be different than that. Yeah. And we know that the average rate of return for the Australian share market is just over 9%. So you could use that. But that's why I often say on the podcast, Bec, your money will probably double within seven to 10 years because that's the average timeframe of the average rate of return across the Australian share market, but also the international share market and all the assets that we talk about on the podcast. So it works the other way around as well. Say you want to double your money in six years, Bec, you divide 72 by six, and then you'll see that you need a rate of return of 12% to hit that and you can work out if that's reasonable or not. Where does the 72 come

from? It's just the magic number. You don't need to understand the number because if we were to explain exactly how we get the 72 number, it would be an entire podcast in itself. But what you need to understand is 72 is the magic number. We love 72 and 72 is going to be the number that tells you how to double your money. But the rule of 72 is basically a super quick, super handy way to set really realistic investment goals and understand how your money can grow and work over time. And the thing I want you to keep in mind is it's just approximate. It's obviously not set in concrete, but it's an approximate and it works best with interest rates between 6% and 10%, which often in our market at the moment and historically, that's what they've returned at.

Sure. And I guess we can all find comfort. Just don't worry about where 72 comes from. Just know that experts and scientists and all these people came to this conclusion. You can Google it. You could do a deep dive. There are a lot of really nerdy people who have done a lot of very good YouTube content on the rule of 72. Go look at that. It's not for today. What I want you to understand is that 72 is the magic number and it's going to teach you how your money can double. I love that. I love money. I love it doubling. I don't mind it. Wouldn't say no. Okay, but here's another one. Does chess matter? I'm thinking game of chess. I love a game of chess. I love chess as well. Is that what you're thinking? No, it's not. It's investing

chess do you know what investing chess is I know that you've probably told me but I gotta be honest I don't know if I have I can't remember I did it on an episode with Glenn James like we were talking about chess and we broke down absolutely everything you need to know about chess with him so go back and listen to that episode but pop quiz what does chess stand for if we're talking about it in an investing perspective Bec so it is actually an investing term yes that we okay I'm gonna guess It's not a game. Currency? No.

We're going to be here for a few hours. Do you want me to just tell you? Yes, please. Yeah. So it's Clearinghouse Electronic Subregister System. Oh, I never got that. That was what you were going to guess next. That was actually my next guess.

That was actually your next guess. Like, I get it. What does that mean? So basically, if you're curious about how chess works, obviously listen to that episode. but it's a computer system that is used by the ASX to manage the settlement of share transactions and to record who owns what. And TLDR, to me, as an individual investor, this is personal opinion, not advice, Bec. I could not give a flying bleep sound about chess. I don't care if I have chess. I care, obviously, if my investments are registered through the ASX, but I own ETFs and an ETF,

the chess does not sit with me. Chess sits with the underlying owner or the founder of the ETF and I'm quite comfortable with them having that because we are a very secure country. I don't need to worry about chess. I feel like it's a very hot topic in our community at the moment. If you are a bit more nerdy, which I am, and you spend a lot of time on Reddit and you spend a lot of time, you know, reading forums about investing, lots of people get really heated about like having to have it be chess and having to have access to it and having your very own name on that share. but from my perspective it's actually about the legitimacy of the asset that you own and an ETF is a very legitimate asset to own I don't need my name on every single individual share because

when I buy into an ETF I become an underlying owner of that asset does that make sense and it's all registered very legally and I'm very comfortable with that I'm not going to lose my investment because I don't have it chess sponsored, if that makes sense. But I think that it's one of those questions that people start to ask when they're getting analysis paralysis. And we did an episode about that recently as well. You are diving deep and you are so excited to invest back and you start doing all of these Googling and you're like typing away and typing away and working out what's going on. And then chess comes up and you're like, oh my God, I didn't know anything about chess. I better Google that. And then you read all these people who are really

passionate about it and go, oh my God, all of the investments that I'd shortlisted, they're not chess. Oh, now I'm going to have to start again. Like, what does this mean? How does this, I feel like it is a semantic that matters to a very small handful of people, but does not matter to the masses. Is there a benefit to chess? I mean, yeah, you get your name on the individual share. Okay. And that's like maybe more secure in some circumstances. I don't believe it is more secure. I believe it is more about having direct ownership of that share. I understand. Right now, the ETF that I own owns that share certificate and keeps it very safe. I've trusted them to invest with them. And I am, as an investor of that ETF and underlying owner of that trust that owns

all of those share certificates. So I don't mind. Okay. I think I get that. And I feel like it's a personal question, right? So you might still say, well, V, it does matter to me. And I go, well, that's absolutely fine. What I want you to be is as educated as possible to make the right decision for you, not the right decision for me. So go and do your research. But personally, as an ETF holder, don't mind. Don't mind. It's all good. Do you feel satisfied? Do you feel ready? I feel satisfied. I love chatting about this. What's the next one? Okay. This question is actually something I haven't heard before, but I should have asked you this already. What is the difference between market buy or limit buy? You want to talk investing with me. All right,

let's break down the difference between a market buy order and a limited buy order in super simple terms. So when you place a market buy order, you're saying, all right, get me those shares right now at the current price. Like I want to put an order in and I want it delivered today. I want to own those shares when the share market opens back. I want to own those shares and the share market is open in australia i bet you won't guess this between 10 and 4 10 a.m 4 p.m yeah it gives you like time to get into work get across your admin and then the share market opens stuff goes wild and then it closes at four and then you can do some admin and go home work-life balance i suppose oh i love that but that's interesting that means that if last night you put a share order in

and the market wasn't open it would be fulfilled at 10 a.m this morning when the market did open back up. Or you could just log on right now, 10.24am, technically. I mean, not for the people listening, but for you and I it is, in the past. But that means that you could go and buy a share right now for that current price. So it's all about speed. It's all about getting the share as quickly as possible, but the price might fluctuate slightly by the time the order goes through. The downside is that the market jumps up before your order is filled. So you might put in an order last night, the market opens, it's actually at a higher rate now, you might end up paying more than you'd anticipated. So a market buy order is basically, give me that,

don't care how much it costs. And I mean, the market doesn't fluctuate too much. So I don't want to be too dramatic about going, give it to me at any price. Like you're buying it and it might fluctuate a few cents. You're not going to see a share jump astronomically and then it absolutely financially screw you. But the other one is kind of like the cool boy way of investing. So, a limited buy order is basically when you like to call for school and you're like, I'm only paying X amount. If it goes up, I'm not interested. So, you set the price that you are willing to pay and the order will only go through

if the market hits or drops below that number. So, it's perfect if you've got a specific price in mind, but you don't mind waiting. The catch is kind of that if the market doesn't cooperate and the price doesn't hit your limit that you've set like your buy price you might not actually end up purchasing the share at all yeah okay yeah and I think that this is a good one where I'm a bit petty so like I don't want to overspend on something and if I see the market fluctuating a little bit so like there's been a share that I've recently been following and to be honest it's probably a little bit of a gamble so I'm not going to share it but I've been following it a little bit and it's going up and down by a

few cents here and there. And this is just me being investor Victoria. This is not me being Victoria creating retirement fund Victoria. This is me having a little bit of fun because I really enjoy investing. I've set a buy price for that because I'm like, no, I've seen it drop to that a couple of times over the last, you know, few months. And now I finally decided that I do want to invest in this asset. I don't want to pay more than what other people have paid. I want to see it drop back down to that because it's a bit of a risk it's a bit of a punt so I'm not willing to pay that even slightly higher price but the same is true if you're budgeting for a share right like you might go I really want to you know get x for x this is a really good way of doing

that but I also think it's important to understand that it's about balancing urgency and price control, but then also remembering that there's no such thing as timing the market. So when we're talking about this, it's so nice to be able to set a limited buy order and go, I only want that asset if it comes in at X, but there's never going to be a good time to invest back because I can't predict it. Like the best time to invest was 20 years ago. The second best time is to get your shoe in the door today, because we know based on the rule of 72 back that your money should double after a certain period of time and like starting now means you're not starting tomorrow and you cannot predict that the share is going to go back down but for me I don't want that share in my

portfolio if I have to overpay for it I only want it if I kind of get it for a good deal yeah it's like that top that you would only purchase if it was on sale totally you're like oh I wouldn't pay full price for that there are some stores that I'm literally convinced I will never purchase full price i just know they're going too good a sale i know i'm a bit the same house back right now always on sale i've never ever if you're paying full price at that store what are you doing what are you doing what are you doing with your life wait literally three seconds it'll be on sale again exactly all right let's go for a quick break i'm just need to check out the house website and see if they're still on sale yeah yeah fair yeah be everyone

okay guys we are back and we are doing a bit of a q a today so v i don't know how you feel i'm ready i'm sad that we checked the house website and they were still on sale of course i thought they'd go on like super sale or something but i really want to answer more investing questions this is my bread and butter babe you're in your element right now yeah living live, love, laugh or something. Yeah, something like that. All right. So, the next one is how do you collect revenue from investments? Oh, yeah, Bec, you're investing. Now you're an investor. Actually, all these questions are mine. Yeah. How is it going to make you rich? I'm not ready for that. Let me tell you. So, there are a heap of different ways that you can make

money from shares. Investment increases in value over time and then you potentially sell it for a profit, money, win. The other one is that it pays you for the privilege of owning it. I love that. Like imagine something just being like, hey, Bec, thanks for coming. Here's some cash. Thanks for still being here. Here's some cash. Literally your share portfolio is your sugar daddy now. That's so good. Like start referring to it as daddy. Yeah. Ideally they like that. You'll like it more, but there are a few things. So increasing in value is the most widely understood way of making money in the share market, right? Like you bought a share for a dollar and then in 10 years, Bec, you sold it for 10, money win. But for me, I am greedy.

I want my shares to increase in value, but I also want them to pay me for the privilege. So we have talked about it on podcasts before, dividend yielding shares. So a dividend is a payment that a company makes to you because you are technically a part owner in the business and as a part owner you are entitled to part of the profit and the percentage of which you own shares is the percentage that you get paid out and I always use nab shares for some reason on the podcast and as an example so let's keep that consistent so say you purchase a nab share back and a nab share is probably today about $37 per share like and we're just going to keep it clean you just purchased one. The dividend yield over this year for NAB has been $1.68 for the entirety

of the year. So it pays out twice a year and it pays out in July and December. And it gave in December about 84 cents and also gave 84 cents in July. So that brings you up to a total of $1.68, cents, which you go, oh, $1.68 for a NAB share. Didn't you say it was $37? That doesn't seem like a good deal, but it is a good deal because you end up with a dividend yield of about 4.55%, which in the grand scheme of things, you know how we said that the Australian share market returns about 9% each year? It's obviously significantly lower than that, but NAB is consistent. It is a blue chip share. It is a share that is tried and true and tested. It's like that consistent friend that is always there. So I love to see that. Also, it increases in price

over time. So I'm being paid 84 cents every six months for owning a NAB share. Again, not a recommendation, just an example. But these are companies that are paying percentages of their profit to you, Bec, that right now don't seem really big, but can either contribute to your share portfolio. So you can pick what's called a dividend reinvestment plan, and it's just a box on your Sharesies account. Like this is just side note for you, obviously anyone listening, you can hit dividend reinvestment plan and every dollar that your share portfolio makes will just be reinvested for you. So you don't even have to lift a finger. But then when you get to retirement, Bec, that 84 cents will be put into your bank account instead of your share portfolio and that

becomes your income instead of you going to work. So over time when you have more and more shares and more and more profit, that 84 cents becomes that $40,000 or that $70,000 of income that we were talking about at the start of the episode. If you had, for example, 100 shares, then there we go we've got a significant coming and this is why it can be so disheartening at the start of an investment journey because you're like oh gung-ho and you're so excited and i just don't want you personally to fall in this trap of like i've invested v and i'm so excited and then it comes to tax time and you get your tax statement which is probably one of the first times that you would just see on a statement of paper how much you earned the previous year on your investment

and you'd be like, wait, what? It was like $4. What the hell? All of this for that? Like, yes, because at the start, compounding starts off really slow and it really starts to kick into gear at about seven years. And that goes back to our rule of 72, where usually if you have a rate of return between six and 10%, it will usually be seven to 10 years. So compounding starts to take effect once your money starts to double. And once it starts to double, compounding just turbochargers, which is so exciting. But that's why we talk a lot about delayed gratification on the podcast, because you need to be in it for the long term. You can't just go, oh, it was $4 V, it wasn't worth it. Like that $4 next year is going to be eight. And after that, it's 16. And

after that, it just gets bigger and bigger. And it's so exciting, Bec. So that's cash dividends. You mentioned Frank and who's giving him credit earlier, and you want to know about that. So some dividends come with a franking credit. And I think a franking credit is best viewed as a tiny flag that they put on their heads. So your dividend comes in and it might be a unfranked dividend, no flag, franked dividend. He's got a fancy hat with a flag on it. And it means that the company he's come from has already paid the 30% tax at a corporate rate and you get a credit for it. So he's really attractive. So the flag on his hat doesn't make him look silly. It makes him look more attractive and it represents the tax that

the company's already paid on the profits that have been distributed as dividends and those credits, they can be collected. So you want lots of little men with lots of little hats because it's used to offset your personal tax liability. Oh, so for example, if you got a dividend, like a $1 dividend from NAB and they had not paid tax yet on this dividend. You'd pay full tax on that dividend. If they had, the tax has been taken. Yes, but maybe no. So it depends on what your marginal tax rate is. So if you pay tax that's less than what your franking credit is, it's not as attractive. But for most of us, we have a tax rate of 39% or more. And I say most of us because that's just how the bell curve falls. It's not a

good or a bad thing. It just is the state of the economy. Most people fall into a 39% tax bracket and because of that, you're 9% on average better off. Because the corporate tax rate is about 30% and he's got a 30% flag on his head. So even if you make more or less or you fit into a different tax bracket, you don't have to pay any more or less? Claim it on tax. Well, you might have to pay the difference so you might have to pay the nine percent but that's instead of 39 yeah gotcha gotcha that's very sexy really good yeah so tiny dividend has a hat and the hat is a flag i don't know if that's how every other ex-financial advisor views it but i've always just thought as frank as a dude who has a red hat on and it's got a flag on it i'm also curious for anyone

listening what their little man with a flag looks like mine is a white ball with a red hat and i'd wonder what yours looks like it's a mediocre middle-aged white man ah with a red a baseball cap like you know like the cap that you see that has the like fan on the top of it yeah it's like a colorful hat what are they called propeller i don't know propeller hat yeah so that is frank let's get on to some more questions all right let's go so this next one is an important one what type of reporting do i need for tax time oh you need all of it thankfully we live in 2024 so a lot of investing platforms and a lot of your employers actually have data feeds that go straight to the ATO. So if you don't log in on the 1st of July, which I don't recommend anyone

does their tax on the 1st of July. I know lots of people are like so gung-ho about like getting it done. Oh my God, I get my return. I know that that's you Beck. But if you wait a little bit longer, it gives time for your employer to upload all of your tax information. It gives time for all of the investing platforms to upload it and it might already be on the portal to make your life really, really easy. But when it's time to do your taxes, you need to make sure that you're as prepared as possible. In Australia, this includes understanding and knowing the dividends from your shares, the interest from your savings account or your bonds that you own, and any rental income that you have received if you are a fancy pants and have an investment property. If you've

made any sales, like you've sold some shares or some property, you need to report any capital gains or losses. And remember that there is a potential CGT discount if you've held the asset for more than a year. If so, you're in a good position because yes, while you'll still have to pay capital gains tax on that, the profit will be taxed at 50% your marginal tax rate. If you own an asset for less than 12 months, make a profit and then sell, the profit will be taxed at your marginal tax rate and we pay tax on money that we earn. That is just a reminder that there are potential CGT discounts if you own it for more than a year and have long-term holdings. Now, Bec, moving back into reporting, you can also claim deductions related to your investments,

which is important to track as well. So, if you've got interest on loans or property-related expenses or like management fees, keep all your paperwork, your receipts, your bank statements, transaction histories and keep them in order because the ATO might want to check your claims you might get audited but stay on top of it not only because obviously we want to comply with the ATO and not get in any trouble or strife but it optimizes your return like you're going to get the best possible return if you track your expenses yeah smart girl things smart girl god she's smart no not me just people who track their expenses are smart 10 out of 10 okay so this is gonna sound like me but it's not me i feel like all of them sound like you they all do

sound like me actually you're right i saw them come in from the community that's literally your only saving grace otherwise i'd be questioning whether you just keyed this episode in so that you got investing advice now you started i've got receipts so do i i'm on a tight budget what's the smallest amount i can invest with one cent that is so true v i was gonna say i was actually about to screen this from the rooftops. Yeah, one cent. I know that you say start with as little or as much as you like. Yeah, but like you are investing on Sharesies right now. You can literally invest for one cent. Yeah, I've got $9 in there. See, exactly. That's a lot more than one cent. So hold on. Let's flip this. Bec, you started your investing journey. How much did you start with?

I started with $10 actually, and it has gone down. But as you say, it's the long game that we're playing. I think it just feels good knowing that I have some money in my shares. It's good to start. I feel motivated to just chuck a couple of bucks in there every now and then. It's doing something. I don't know what it's doing, but it's doing something. It's doing its thing. Exactly. And to me, that's so exciting and probably even better than me explaining it because I feel like a broken record, but I'm like, you can invest for as little as one cent. Bex investing with $9, I feel like that's really approachable and it's really realistic. It's where lots of us start and it's where lots of us should start because, Bec, you're dipping your toes in

the water. If you lost that nine bucks, you're like, whatever, that's absolutely fine. But if you'd started with $500 and you'd seen it go down a little bit because that's the nature of the market, I think you would have been really stressed. Yeah, that's true. I think you would have been like, oh my God, V, I've actually lost so much money. I've lost 10%. And that's what you're explaining to me you were like up started with ten dollars it's now down to nine you've lost ten percent but you're not that stressed about it because you started small and you're going to build it up over time to put yourself in the best possible position so obviously great news is if you're on a tight budget beck you can invest with as little as one cent i just see no barrier to

entry anymore except people having cash flow and having an education because i feel like the education part is the thing that terrifies people you don't know what you don't know yeah like and if you don't know what you don't know you're not going to do anything are you so I feel like my job is education and then all these other platforms it's their job to make it super accessible for you to get your foot in the door because I can guarantee Beck that nine dollars you'll blink and we'll be talking in a couple of years and you'll be like oh yeah it's nine grand yo like but it is that's the plan is it not like the plan is not to take the money out it's to build over your lifetime to put you in the best possible position so that when retirement, as

boring as it sounds, comes, you can afford to go out for coffees that you love so much. Like we don't want to compromise our lifestyle. And by you doing this, you're putting future you in the position to not have to do that. Isn't that sexy? So sexy. So obviously platforms like Sharesies, the way they make it accessible is not because, as we said, a NAB share is $37. That's not that accessible, but they allow you to buy fractional shares. So you can buy a fraction of a share and the way they do that is by not being chess sponsored. So essentially sharesies buy the share and break it up and give you the portion that you want, which makes it much more accessible. And I'm quite comfortable with that, but it's a really great way to build your portfolio bit by

be it even if you're working with literally the smallest budget known to man, which is one cent, and I mean, shameless promo here, use the code SOTM. Bec, what do you get? $10. Actually, I think that's where I came from. You get $10 for free. So your $10 that is invested wasn't even your own money. Yeah.

I actually didn't even remember that I didn't put any money in there. So you got free money and then you've been investing it. Tell me a better money win. I'll wait. So true. That'll be something one day. All right. Let's move on.

More questions. What are they? Okay, this next one. I feel like I hear about it a lot, but I've never had any idea what it is. What is negative gearing? All right. So an investment is considered to be negatively geared when you buy it with borrowed money and then the expenses, so like the interest that you're paying on the loan, are higher

than the income that the investment brings in. Okay. But I thought it was a good thing, no? It can be. Ah. So, currently in Australia, those excess expenses are often claimed as a deduction on your otherwise taxable income, which is why people want that to happen, which might help reduce your tax bill, which we obviously love as investors. And while negative gearing is most commonly associated with investment properties, it's also something that can be applied to your shares. I'm taking it on, but I'm also-

No, no, no. So, I'm going to go back. You know how I do dumb things like Frank who wears the red hat? Yes, please. I don't think you're going to forget Frank. I'm not going to forget Frank. Frank has a red hat. Why, Bec?

Because he- Comes with a credit. Comes with. Frank is taxed already and non-Frank is not taxed yet. Exactly, right? Yeah, I hear you. It's like I have all these things in my life that I still do. Lefty loosey, righty tighty.

Yes. I know how to set the table because fork has four letters in it and so does left. Thank you. I'm the user. Yeah, you're welcome. But I just have these things in my head that work, right? negative gearing is negative because I have to pay for it. That's how I see it in my head. It's not a bad thing technically, but negative gearing is negative because you're going to take some

money out of my bank account to make that investment dream come true. Positive gearing is where the investment makes more money than it costs me. So positive, good for me. I'm getting money. I love getting money. Neutral gearing is where they just break even. Yeah. Okay. And then if you're negatively geared on occasion. You're going to have to cough up some cash back to pay for it. And that cash that you cough up may be claimable on tax. So it's negative because you have to put money in and we don't want to do that. Like in a perfect world, everybody would just be giving me money. But for me to own that asset, I have to tip some cash in and that's how I remember it. Hey, an investment's an investment, isn't it? Yeah, I guess. I mean, that sounds

really silly but like if it sticks in your brain yeah I don't care how it sticks that actually is sticking all right thank you so much so V throughout this episode you've kind of jumped to those two figures 7.5% return and 5% return yeah as like an example when you're trying to explain something yeah why do you jump to those I feel like that's really interesting and I don't think I have disclaimed it before it's just a good example right so as I said before the average rate of return of the Australian share market over the last 30 years has been more than 9%. But I feel like it's really irresponsible of me as a finance professional to then use that number as the example, because we always want to under-promise, over-deliver. Like in a perfect world, you would

get more than what your target is by retirement. When you are talking about retirement, you've probably noticed that I always tend to use the 5% example. But if we're just talking about the share market, and I'm just talking about average rates of return, I might use seven and a half because it's day to day. Both of those are obviously significantly below what the average rate of the share market does actually return. 5% because I want to account for inflation. 5% because I want to account for the time value of money and how things are going to cost a lot more in the future. And I'm taking care of inflation in my head when using 5%. So if I say, Bec, you've got a 5% drawdown rate on your investment when you come to retirement. That means that we've

got a lot of wiggle room. Whereas if you looked at the average rate of return and said, well, it's more than 9%. So I'm going to use that number to calculate it. What if the market's off? What if we're going through a recession? What if COVID happens? Like what, you just take less than half of what your income is today? 5% as a rate of drawdown means in economic turmoil, we can still take 5% and not impact the underlying asset. When the market is doing really well, we still take 5%, but that amount that is above and beyond goes into our investment so that we can continue to take 5% even when the market is off so that we maintain a consistent lifestyle. So that is something that a lot of financial advisors do because we want to make sure that we can just

be consistent. We can use a good example that is lower than the market because there's nothing better than when people go, well, where's that number even come from? And I can be like, well, it's actually higher, so you're going to do better, but if you really want to fight me. So it's nice to have a consistent low number, but then also that 7.5 is more around predictions of when money's going to double because if we only focused on 5% we're not doing ourselves justice so they are literally just examples that I use to make sure that one I give our community consistency because you are always going to have me use 7.5 or 5% and those numbers are things that I would be really happy if you were away doing your own calculating and in your head you go

V always says 5% or V always says 7.5% instead of you Googling and getting 6 million different options. Thank you, V. Oh, they're just two numbers. Okay. So next one. This is a good one to end on, I think. So what should we read and understand before purchasing any investment product? Okay. So you hear it on ads all the time. Read the PDS and TMD before making an investment or read the PDS and TMD before making a decision, right? I couldn't. Yeah, I read that on ads all the time and I feel very grateful to be able to read ads.

But what does it even mean? So PDS is the product disclosure statement and TMD is the target market determination. So we're just going to focus on the PDS because the PDS basically is all the information about the product and then the TMD is basically who that company thinks is a really good fit for that product. which i think is important to understand so when people say read the pds and tmd it's basically

saying read about the product and understand whether you're interested in it and also check if that might actually align to you and your lifestyle and what you're after because you might go to a tmd back after hearing that there's a finance product on the radio or something and you go that sounds interesting and then you look into it and they're like it is targeted towards people ready for retirement in their 50s and 60s and you might go well maybe this isn't actually for me. Maybe this isn't something that I'm too interested in. But before you jump into any investment, I think it is so important to read the PDS. And do you know why? So even if it's not to do what you need to do, which is understand all the details, what the investment

is and what the risks are and what fees are involved. One time a girl read the PDS of some company's product and in the pds was really fine print that says if you read this and get this far message us because you won a cash prize of five thousand dollars wow yeah and it was because they just knew that no one was going to read the pds and they wanted to reward the person that actually did read the pds and she contacted them and was like hey i know this is really weird but like i saw this in your pds and they're like come this way here's five grand wow be for real right i'm going to be reading every single pds so like don't get me wrong companies know that you don't read them like but they are a legal obligation and to be honest if you want to put yourself first

scan them they are written in plain english they aren't written technically they aren't for technical people they are written in black and white language that basically says this is what the product is this is where our fees come from this is how we make money and this is what you'll be invested in. And for me, if you're going to invest in anything, I feel like we all Google, right? Back to the NAB share example, you're going to purchase a NAB share back. You're going to Google it. You're going to probably see a few forums discussing it. You're probably going to see, you know, a whole heap of different investor websites that give you insight into different shares and what they mean and how they work. Fluff. Absolute fluff. Go to a PDS and read about

that asset class. What does it cost? How does it work? What does that mean? Go to any website. I'm going to throw shares under a bus right here for good reason. Go to their website, scroll to the bottom. The PDS will be right there and it will explain to you in plain, very easy English how they get paid, what it will cost you, how it will work, how their entire business model is structured so that you can be as educated as possible. Okay. And I know you're not going to do it, but like obviously it's a good idea and don't get me wrong. I mean if it's a company that Shoes on the Money is working for, you best believe I have not only combed through that PDS

but I've also sent it to my lawyer to make sure I didn't miss a thing. What if your lawyer finds that little – Don't work with them. Huh? Like if a lawyer finds something in a PDS of a different company, I won't work with that company. What if your lawyer finds the little statement that says you've won $5,000? Oh, maybe she can get the $5,000.

Do you know what? If she does that and I'd already read it, she deserves the five grand. Yeah, if you missed it somehow, she deserves it. Yeah, but that's the thing. Google it. Like, woman wins money from reading PDS. I promise it's the thing. That's so cool.

I mean, it's probably never going to be a thing again because now everyone's reading PDS is like Beck would be so that she can win money. She's not interested in her assets, but she is interested in some free cash. Oh, yeah, which ironically is what I would get. If you just invest it. If I just invest it. Oh, well, game the system. V, we have covered a lot today.

If you guys found that helpful, don't forget to hit that subscribe button so you never miss an episode. And also it really helps us. It does help us. But also if you do have any questions that we didn't get to today, don't worry. We're always listening. In the not creepy way, like in the way that your iPhone is not. Yeah, exactly.

Like we're listening if you actively engage with us, not passively while you're at brunch with your friends. Yes. Just a disclaimer that we're always listening in 2024 is a dangerous statement that I'm not sure why you used. But anyway, make sure you follow us. Make sure you subscribe. Subscribing to our podcast actually makes a massive difference. I don't think people understand that. So we're going to do some more call outs on that in the

future because we really want you to be as engaged with our content as possible. And also our Instagram has been slapping recently. It has been so good. I shouldn't use like Gen Z terms like slapping and slay and stuff, but my team is Gen Z. So they all say these things. and then all of a sudden I'm adopting them and I feel like that millennial dad on TikTok who, like, embarrasses his kids by using Gen X words. I think the fact that you said slappin'. Yeah, but it's a bit skibbity, you know?

Oh, dear. I'm out. I'm out. We're going to have to take you home. But obviously follow us on Instagram because that's where we drop all our call-outs for questions for episodes exactly like this. And I'm going to make sure that I put that Sharesies code

that Bec used that we were talking about in our show notes for you to make it as easy as possible for you to start your investing journey. So have the best day, guys, and we will see you on Friday. Bye, guys. The advice shared on She's on the Money is general in nature and does not consider your individual circumstances. She's on the Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs. Victoria Devine and She's On The Money are authorized representatives of Money Sherpa, PTY, LTD, ABN, 321-649-27708, AFSL 451-289.

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