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#2 Side income | Investing convos every millennial should have

HOSTS Maddy Guest & Sophie Dicker|28 December, 2021

Sponsored by Superhero

In this episode, Sophie and Maddy talk about how owning stocks will help you earn those extra dollars and cents while you’re busy… well, just living your best life! They explain what dividends are, why you might participate in a dividend reinvestment plan (and what that exactly is…), and the concept of capital gains.

This summer, Superhero are partnering with Qantas to help you trade to the skies. 

Winner of Money Magazine’s Best of the Best award for the Cheapest Online Broker, Superhero allows you to invest in companies like Apple, Tesla and Spotify with $0 brokerage on U.S. shares and ETFs AND you can now earn Qantas points with Superhero. 

Visit superhero.com.au to learn more. Eligibility criteria, terms and conditions, and fees & charges apply. 

This episode contains sponsored content from Superhero.

Keep track of Sophie and Maddy between the episodes on Instagram, or on TikTok, and come and be part of the conversation on Facebook with our You’re In Good Company Discussion Group.

Got a question or a topic suggestion? Email us here

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Maddy: [00:00:20] Hello and welcome to You're in Good Company's summer series. Over the six weeks of summer, we are delving into the investing conversations every millennial should have. We still hear our close friends and family say that they don't know how to start honest conversations about money, and it makes them feel like they're not in control of their financial future. Sophie: [00:00:38] So this is our answer - six conversations on topics that you wanted to hear. Maddy: [00:00:44] This summer series is brought to you by Superhero. Superhero allows you to buy Aussie and US shares and ETFs with no monthly account fees, and you can now add Qantas points with superhero. Visit superhero dot com dot au slash Qantas to learn more. Eligibility criteria, terms and conditions and fees and charges apply. Sophie: [00:01:04] Mads, the average person, spends a third of their life working, which is depressing. Well, hey, if you love your job, not so depressing, but we dedicate so much of our time to making money... Why are we not trying to make money whilst we're sleeping? Maddy: [00:01:19] I mean, it's a good point. And you know what? Investing is the answer. Sophie: [00:01:23] Investing is sometimes the answer... not when it's your uncle's stock picks, you know? So there's two forms of income when it comes to earning shares money. What's your favourite? Maddy: [00:01:34] Look, my favourite is probably when my share values like triples. I love it when that happens. Sophie: [00:01:42] Has that happened? Maddy: [00:01:44] The first one I think that we should discuss is dividends. Yeah, so really simply, dividends are a distribution of a company's earnings to its shareholders. So a company makes a profit. And then because you own a little piece of the company pie, they share some of that profit with you. Sophie: [00:01:59] Let's take Go To, for example, we both love the products, slash would want to work for Zoe Foster Blake. Maddy: [00:02:06] Imagine having Zoe as a boss. That'd be so cool. Sophie: [00:02:09] But if we took that as an example, Go To now has a parent company, which is BWX, and if I'm buying their new advent calendar, have you seen that? [00:02:17] No. [00:02:18] It's so cool. Then that money is going up into Go To and then into the parent company. And then whenever they declare that they're going to pay a dividend, those profits will come back to the shareholder in some form or another. Maddy: [00:02:32] I'll tell you what I reckon their profits are going up this season because I will be buying plenty of the new Four Pillars collab with Go To. Sophie: [00:02:41] That sold out in about four seconds flat. Maddy: [00:02:42] You mean I already missed out? Sophie: [00:02:44] Yes, it's gone. I guess that's great then for the board of directors, because now they'll sit around and say, OK, what are our profits and how much can we actually give to our shareholders as a dividend? So dividends can change year on year, and it really depends on, you know, what's happening in the season. Maddy: [00:03:01] Yeah. So I guess the things that the board of directors are thinking about is like, how has business gone in the most recent quarter? Are sales up, are sales down, how are things tracking? But then I guess they're also looking ahead to like what they're expecting in the future. How's the economy looking more broadly and how do they expect that to impact their business and their future performance? Sophie: [00:03:19] So we're getting paid dividends from Go To... What happens if, like I was investing in a beauty ETF, and Go To was a part of it, but there was a bunch of different other companies. Are dividends also associated to ETFs? Maddy: [00:03:30] Sounds like a great ETF, by the way. It could be like L'Oreal, BWX, Adore Beauty... Sophie: [00:03:36] Yes, Love. Maddy: [00:03:38] So what happens is the ETF provider collects all the dividends, I guess, like throughout the year or the quarter, and then they bundle those up and give it to you in a nice little packaged up distribution payment. Sophie: [00:03:49] And I think the only thing you need to know is that it acts like a dividend. You getting a nice little cash payment into your bank account or for example, with me with Superhero, it goes straight into my Superhero account and I can reinvest it straight back in if I want to. Maddy: [00:04:01] So speaking of, that sounds like you've got your own little version of a dividend reinvestment plan going. This is a question that comes up in our community Facebook group a lot, so I think we should go into it. A dividend reinvestment plan allows investors to automatically reinvest their cash dividends into additional shares. You'll often say on your paperwork the words DRP. That's what it means. Sophie: [00:04:22] Yes, and the reason why I really like it is because firstly, you don't have to pay brokerage, so that's great. If you if you're paying brokerage, one of those fees is already gone. And then the second is that it's compounding in action. You know, it's going straight back in. You're not really thinking about it, but you're getting all those benefits that we spoke about in episode one. Maddy: [00:04:40] So I guess it takes some of the admin out. I guess one thing that I don't like about it is that you don't have the control over the share price. So if you're invested in a company and you think actually that share price is getting quite high now, you're automatically reinvesting at that price. Whereas I might be able to say that if I get my dividends back into my bank account, I can reinvest in somewhere where I might think there's a better opportunity. Sophie: [00:05:02] Yeah, fair enough, we've all got to do what works for us. One of the most common questions we get as well is like how to actually set up a dividend reinvestment plan. When I first set one up, I was so confused. But it's actually not through your broker, it's actually through the entity who holds your shares. You know, when you get like your HIN number, when you buy shares and at the top, you'll have like a little logo of the company that's done that for you. In Australia, really common ones like Computershare or Link Market Services. You actually go into one of their websites and you set up an account there with your HIN number. Maddy: [00:05:32] Yeah. And from there you can see all your shares that are held with that share registry and you have the option to tick a box. I don't know if it's really a tick box. You have an option to turn on your dividend reinvestment plan. Sophie: [00:05:43] Well, I guess that's the first form of income. We can both take a nap now, and we can still get paid. Maddy: [00:05:49] Dividends working for themselves. So that's number one. We are going to be right back after the break to talk about the second way that you can make money through investing. Sophie: [00:05:57] Before the break, we spoke about dividends, but there is another way to make money while sleeping when investing. What's the second way you can make money? Maddy: [00:06:06] That's so the second one is capital gains, which is basically just referring to when a company increases in value. So when we talk about shares, we're talking about the share price going up. Nice. So for example, if you bought Netflix in May of this year - and I actually have major FOMO about this one - in May you would have paid $500, and today you could sell it for $700. And the reason I have FOMO is because it must have been around May I pitched this stock to add to our watchlist and then I didn't buy it. Sophie: [00:06:39] Darls, you need to have that conviction. Maddy: [00:06:41] I know, and I really thought it was a good pitch too. Sophie: [00:06:43] But that $200 gain per share that you sold is your capital gain. So they've gone from 500 to 700. Good news all around. The company is growing, and that's what capital growth really is. And it occurs in a couple of ways, and one of them really is around that company growth. I think maybe the 500 to 700 was something to do with Squid Game. Maddy: [00:07:03] Absolutely. Sophie: [00:07:05] But you know, that brings more subscribers, which equals more profits and then a share price increasing. Maddy: [00:07:11] Yeah. And I guess the other one, which is a flow on effect of that, is when the company does well. People's future expectations of the company improves. So Netflix has gone out and showed that they can create this great TV show that has defied the odds - Korean language drama - and produced great content that people want to see. So that gives me faith in the company for its future growth potential. So it might be $700 today, but who knows where it's going to go in the future? Sophie: [00:07:38] So hypothetically, Mads, I have faith in you, and I bought Netflix in May for $500 Maddy: [00:07:47] Would have been well founded faith. Sophie: [00:07:50] And it's now five years down the track. I'm ready to buy my house and I want to sell some of my Netflix shares. Yeah. What does this mean? Maddy: [00:07:57] So capital gains or the income that you get from the stock price growing is only really measured when you actually sell and that gain is realised. Sophie: [00:08:06] Yeah, because it will hit my bank account, right? Yes. Let's hope. So I bought it at five hundred one share only, didn't have that much conviction. No, I'm joking. And hypothetically, it's now 3000. Why not, it's five years away. So my capital gain is $2500. Maddy: [00:08:25] Yes, but one thing you do need to keep in mind is the tax implications. Sophie: [00:08:30] Yeah. And this is a really common question that we actually get from our community a lot because, you know, when it comes to tax time, we had a lot of people saying, you know, what's the form of income? What, what does the tax office care about? So I think it's really important to understand that the dividends you'll probably hit your tax return every year if they're getting paid out throughout the financial year. But your capital gains will only hit your tax return once you sell a stock or ETF. Maddy: [00:08:54] And with capital gains, you can get taxed in two different ways. So taking your example, you have held the stock for five years. Yeah. So because you've held it for more than one year, you get what is called a capital gains discount, which means that you only get taxed on half of the gain or half of your two and a half thousand dollars. Sophie: [00:09:15] Right, so when it goes into my tax return, I'm getting charged at my normal tax rate. But instead of getting taxed on that 2500, I'm getting taxed on... Quick maths. $1250.  Maddy: [00:09:27] Well done. Sophie: [00:09:28] But that's what happens if, say, I sold it today because Christmas is next month, and I would never recommend selling shares for Christmas presents, but just say I had no money left. So what happens there? What do I get taxed? Maddy: [00:09:40] Yeah. So if you don't hold for a full 12 months, you get taxed on your full income of $2500 and you're not eligible for that nice little discount. So really, you just shouldn't be selling your shares for Christmas presents. You should have budgeted. Sophie: [00:09:56] So I guess the point here is, make money while you sleep! Maddy: [00:10:00] Investing is, like it's such a good tool for financial freedom, because it is a way to make secondary or even for some people, primary income. Sophie: [00:10:07] Yeah, for a lot of people, dividends is like a paycheque when you built it up to a certain point. Yeah. Maddy: [00:10:12] So I guess we can really see how even just a small amount each month, you know, last week you talked about $500 every month, putting it away. That can really lay the foundations for your future because it compounds over time and you get paid dividends. Sophie: [00:10:26] I'm just thinking of my future self. You know, may on a beach with a Pina colada. Maddy: [00:10:31] OK, we are wrapping up, but every episode we are going to leave you with some content recommendations because it's summer and fingers crossed. You're listening to us on a beach relaxing. Or if you're in the northern hemisphere, maybe you're on a ski slope. Or maybe this is what you're investing for - the vision board of your big holiday. Sophie: [00:10:51] No, I actually saw in our Spotify wrap, which happened, you know, last month that people were actually listening in the northern hemisphere. Which is exciting, very exciting. Maddy: [00:10:59] Shout out to our northern hemisphere listeners! Sophie: [00:11:04] So Mads, what are you adding? What's your second recommendation that you're adding to our little list? Maddy: [00:11:08] I've got a goody for you today. So and to be fair to you, this is actually a recommendation that you gave me. But I'm now going to forward it on to YIGC. So this one is a podcast called How I Built This by Guy Raz, and it is such a good one. Each episode, they dive into the stories behind some of the world's best known companies. But there are a lot of episodes, so I want to shout out a couple of my favourites. Yeah, the first one is Sandy Lerner, so she's the founder of Cisco Systems. It's such an interesting story, though, because she founded this company with her partner, and then she was pushed out of the company, I think, by like a VC Fund. And then she went and started another cosmetics company called Urban Decay. And it's just it's wild. I loved her story so much and it's so unusual. It's not like, you know, a classic start-up story that you normally hear. So that one was a great one. Another one, Daniel Humm. Here's a chef of New York City's most one of the New York City's most popular fine dining restaurants. You might have heard of Eleven Madison Park. Sophie: [00:12:20] Yeah, I think it's been labelled the best restaurant in the world. Maddy: [00:12:23] So cool and he tells his story about like how he got in that. And then over Covid. Obviously, he had to shut for ages and then he's completely pivoted on reopening, and it's now plant based food only. And obviously, like for some people, that's pretty polarising. And he talks about the why and how he's doing it and all the amazing food he's creating. So I loved that episode. Sophie: [00:12:43] Also, his voice is so soothing. Maddy: [00:12:46] Are you going to say sexy? Sophie: [00:12:48] Like, it's really calming to listen to. And I'm like, You know how people often say, like chefs are like very full on like I was like, I can't imagine him being like Gordon Ramsay style, right? Maddy: [00:13:00] I mean, maybe that's the secret to his success. My my next favourite ep. You just can't go past this one. Melanie Perkins and the story of Canva. I just I cannot recommend it enough. If you I know we talk about Canva all the time and I'm starting to feel a little bit like a broken record, but this episode where you hear about how her and her partner started up the company and, you know, she was like flying over to San Fran and all this stuff is just so cool. So definitely listen to that one and last one. Of course, Whitney Wolfe Herd from Bumble. Sophie: [00:13:31] I also they also did a resilient series over the pandemic, and they did one on Strava, the running app. Maddy: [00:13:37] Yes, I know all about that. Sophie: [00:13:39] Yeah, about, oh, pretty much about how these businesses have coped through Covid. There's also one on Airbnb. It's just any company that you invest in or like that you just want to know about is probably one on there. Maddy: [00:13:49] Yeah, and I love just hearing the background stories behind the companies like you can look at the kind of finance angle and investing, you know, profitability, blah blah blah. Sorry, not blah blah blah, it's important. But the stories behind the company is like, what really gets me in? And I was actually looking at it today just before the time of recording. I saw the most recent one is that the CEO of Coinbase and I was like, oh, that's the crypto exchange. Which, Soph, we've been getting pretty into crypto recently, trying, trying. So I'm looking forward to listening to that one as well. Yes. What have you got for us this week? Sophie: [00:14:22] I am recommending a book. Every summer comes around or sorry, not summer sorry, I mean this no man's time of year when you're in between Christmas and New Year and you're like, What year am I in? What country am I in? What's happening with my life? I'm like, Let's pick up a book. This one isn't the easiest of ratings, but it's One Up on Wall Street by Peter Lynch. Maddy: [00:14:43] Good one. Sophie: [00:14:44] And as I said, it's not necessarily a page turner, but it has some incredible investing lessons in there, and it's written for a retail investor as well. So there's none of that like really complex wording or jargon. It's just a lot of stories that kind of paint the picture about different lessons that you can learn from investing. One of the things I found really interesting the book is it talks about like events in his life and where the stock market was that day. And I thought, that is so bizarre that like you correlate that to. Yeah, but one other thing it kind of taught me was like over the whole book, you know, the stock market was going up and down the whole time and sometimes would be really bad, and sometimes it would be really good. And it's just like, Oh, you know, people have been living through this for, you know, a long time. So it's yeah, not a page turner, but one to definitely add to your Kindle if you're like me and your digital gal. Maddy: [00:15:39] Well, I am not. But I did buy this book from a bookshop, and I've got it sitting on my cupboard ready to go for this summer, so I'm going to pick it up now. Sophie: [00:15:46] It's so funny, you and me, because you'll be like, like reading a book. Can you like, Hey, can I borrow that? I'm like, Yeah, you want to like, take the Kindle? Maddy: [00:15:51] It is so annoying. Maddy: [00:15:52] I wish you read on Kindle. Sophie: [00:15:54] I know, because then you give me all your books. I'm getting a library out of it, but like I just got a digital one... Maddy: [00:16:01] So just to get me excited about that little extra bit of motivation if I need... what's your biggest takeaway or like a good quote from the book. Sophie: [00:16:08] One of the quotes that I really like is know what you own and know why you own it. I think a lot of the time people get excited and buy into things because of their friends or they've heard about it like, really? Do your research on a company. It's easy to have that conviction and hold on to it and understand it. So I really resonated with that quote, and I think it's something that people should put more focus on when they are investing in companies because at the end of the day, it's your hard earned cash. Maddy: [00:16:34] Hmm. Yeah. I actually remember when I watched the sewn hearts and minds conference with my brother, and I was this great pitch about a it was like a coding company. Yeah. And I was so interested in and I was really compelled by the pitch and I was really wanting to invest in it. And my brother made a really good comment where he said, I think it would be a really good investment, but it's one of those stocks or companies where if you invest in it and something goes wrong, you won't know. Yeah, because it's like quite a niche. It's not, you know, your stock standard. And we were comparing it to Spotify, which was another pitch which was like, if something went wrong with Spotify or, you know, you would know if it was no longer going to be a great investment. And I thought that was such an interesting point. Sophie: [00:17:17] Yeah, I think in the technology space especially, that can be really hard because like even if you go on like about us, like page of a website like they don't even explain what they do, they're just like, we are a focussed company and I'm like, Okay, cool. Awesome. I like focus. Yeah, I'm like, That sounds like a good technology. Yeah, that's what I'm adding to the list. It's one that I've just finished, and now I'm going to find something new to read. Do you have any books that you can pass on? Maddy: [00:17:45] I just gave you a recommendation last week. Sorry. Sophie: [00:17:48] Do you have the book? Maddy: [00:17:50] Oh no, it's an audio book. Sophie: [00:17:51] Oh, OK, cool. I won't take it. Maddy: [00:17:52] Then if you have any friends wanting to make some money focussed goals this year or New Year's resolutions and make sure you pass on these conversations, you can share the episode on your socials and tag us at YIGC podcast. Sophie: [00:18:06] We also want to know what your recommendations are and some recommendations for us. Jump out for everyone actually, not just us. Jump into our Facebook community - YIGC Investing Podcast Discussion Group. Maybe start a little thread. Maddy: [00:18:21] So if we absolutely love doing this podcast and we do it because we really care about other people being able to set themselves up financially, so the best way for us to grow and for us to help more people do that is by people who listen and people who enjoy the podcast recommending it to a friend. Sophie: [00:18:39] It's also a really good time to recommend money podcast because it's the New Year, and I'm sure we'll have some New Year's money goes. Today's conversation was brought to you by Superhero. Super Superhero allows you to buy Aussie and U.S. shares and ETFs with no monthly account fees, and you can now earn Qantas points with Superhero.

More About

Meet your hosts

  • Maddy Guest

    Maddy Guest

    Maddy lives in Melbourne, works in finance, but had no idea about investing until she started recently. Her favourite things to do are watching the Hawks play on weekends, reading books, and she says she's happiest, 'when eating pasta with a glass of wine'. Maddy began her investing journey when she started earning a full time income and found myself reading about the benefits of compound interest in the Barefoot Investor. Her mind was blown, and she started just before the pandemic crash in 2020. What's her investing goal? To be financially independent for the rest of her life, and make decisions without being overly stressed about money.
  • Sophie Dicker

    Sophie Dicker

    Sophie lives in Melbourne, and enjoys playing sport, and then drinking red wine immediately after finishing sport. She works in finance, but honestly had no idea about investing until her partner encouraged her to start. She says, 'my interest has only taken off from there - I find it exciting… I mean who doesn’t like watching their money grow?' Her investing goal is to build the freedom to do things that she's passionate about - whether it be start a business, donate to causes close to her, or to take time out of the workforce to start a family. Right now, there’s no specific goal, she just wants to have the freedom when she'll need it.

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