Ask An Advisor: Jelena Koncar – Debt recycling and one stock for Christmas

Bryce: [00:00:15] Welcome back to another episode of Equity Mates. Or should I say welcome to another episode of Equity Mates where young we're reckless. We'll take this too far. Whether you're a newbie in the financial world or you're already feeling 22, we're here to guide you through the ups and downs of investing. So grab your guitar and let's strum the records of financial success together. As always, I'm joined by my equity buddy, Ren. And who am I or you?

Alec: [00:00:39] Bryce? Taylor Swift. 

Bryce: [00:00:40] Correct. 

Alec: [00:00:41] And it's fitting that you've chosen Taylor Swift. I'm going to hazard a guess that you didn't choose Taylor Swift, but producer Sasha chose Taylor Swift. Yes. She told us a couple of days ago when Spotify wrapped came out that, unsurprisingly, Taylor Swift was her number one. Artist. 

Bryce: [00:00:59] Yes. And with number one artist, I think this song was played over, what, more than once a week? 

Alec: [00:01:07] That's actually not surprising. 

Bryce: [00:01:09] We also saw like 22 or something. 

Alec: [00:01:11] I'm feeling. I thought my number one song was played 22 times. 

Bryce: [00:01:16] Something like that. Yeah. 

Alec: [00:01:17] Yeah. 

Bryce: [00:01:18] I reckon Weekly is a big lift. 

Alec: [00:01:20] A very diverse taste in music.

Bryce: [00:01:21] Yeah. Weekly session. If you want to tune in here, you can. But weekly is a big lift, I reckon, for Samsung 53 times. How do you manage that? 

Sascha: [00:01:30] I just feel I feel like I got to sideswipe that from being. Like my Music type is very devoted to other things. I just love it. I love. 

Bryce: [00:01:41] It. No, no, I respect it. I think Weekly is a solid. 

Alec: [00:01:44] Effort, so I just ask Price what his was, and. 

Bryce: [00:01:49] I don't have Spotify. I could look up my wife's Harriet because I use it through that.

Alec: [00:01:52] But let us What's that would be? What's your top YouTube track? 1640 Untitled Club mix.

Bryce: [00:02:01] Anyway, I have to download it so I'm not going to bother. Oh yeah. Yeah. By unknown. 

Alec: [00:02:09] Anyway, anyway, that is. No, that is not what we're here to talk about. Save it for the music podcast. 

Bryce: [00:02:13] Yes, yes, yes. 

Alec: [00:02:14] We are here for the final time. I'm 2023 for an ask and Advisor episode. This has been a new style of episode that we've launched this year and it's been an absolute cracker. We've loved it. And judging by the volume of questions we've been getting through to ask and equity minds.com, it's been a favourite in the community as well. It's our opportunity to put our questions to some of Australia's best financial advisors. And once again we're closing out the year by putting your questions to a financial advisor in the hot seat. 

Bryce: [00:02:45] That's it and it is our pleasure to bring into the studio Jelena Koncar. She is a senior wealth and holistic advisor at Shaw and Partners, and we've got three sort of buckets of questions today, investing related, superannuation related, and then a few general ones to close out around debt recycling and how to approach Christmas and those sorts of things. So I'm very much looking forward to this one. There's a few questions in here that I'm going to probe a little bit deeper on as well for my own personal circumstances, which is what I also love about these. We get a free financial advice session every time we do it. And well. 

Alec: [00:03:18] On that note for us, we should remind everyone that whilst we are licensed and while your lender is licensed as well, none of us are aware of your personal financial circumstances. So whilst you might think of this as a free advice session, it's important to stress it's a free general, absolutely no advice. And if you want to keep the general advice train rolling after this episode, an important reminder that we have two books out Get started investing. Don't stress, Just invest great ways to continue your investing journey and also great gifts. If you're racking your brain trying to think what to buy this Christmas for the person that has everything, give them the gift of financial security. Give them one of our books. 

Bryce: [00:03:58] And I'll tell you and I'll tell you one thing around it is on an almighty sale at the moment on Amazon. Not that I'm choosing between platforms where to buy, but I think it's about 15 bucks, which is almost half price. 

Alec: [00:04:11] $3.89 for Kindle. Get started investing.

Bryce: [00:04:14] It's an absolute.

Alec: [00:04:14] Bargain. And no, we're not choosing what platform. We support all platforms. We're always going to promote the biggest bargain. So book Topia, Dimmick, Angus and Robertson. I actually didn't think you still were in business, but you are.

Bryce: [00:04:26] Our own website, our own website. 

Alec: [00:04:29] We will promote whoever offers our book the cheapest. 

Bryce: [00:04:32] They go 1495 sorry, and it's up to $14 now. And Kindle Black Friday is finished. It's 1299. 

Alec: [00:04:39] That's still worth it. 

Bryce: [00:04:41] Every absolute bargains galore to be seen, up 42% or more. Anyway, let's get stuck in. Let's bring in Jelena. Were Jelena welcome to equity mates. 

Jelena: [00:04:53] Thank you very much. Thanks for having me. 

Bryce: [00:04:54] Now we've got a bunch of questions that have come through from the equity rights community. Thank you for sending them through. This is the last ask an advisor for the year. But if you do have any more questions, we can answer them in our email, so send them to ask@equitymates.com. 

Alec: [00:05:07] And this will definitely be coming back next. 

Bryce: [00:05:09] 100%. Yes. Bigger and better. So today we're going to cover a lot of the questions that have come in about investing. We've got super questions and then some general questions. So let's start with investing, Jelena. One that we often get that feels like anyone new to the community is looking for an answer and it's around buying shares for kids. So how do you advise your clients on different ways that you can buy shares for their children? 

Jelena: [00:05:39] Thank you for the questions. I believe there are two best ways to do this depending on how much you're working with and your tax position as well. So the first option would be just your regular trading account, whether that's through CommSec or whatever your preferred trading account may be in the child's name essentially, and opening an account with their tech start number. And then what would happen is they. Subject subject to minor rights. So that means you have to keep the income low. So as long as you earn less than $1,308 a year, you pay less than 30% tax. And you can do that via a growth ETF, for example, like a Nasdaq 100 that's achieved 80% per annum for the last ten years. So that would keep you below the higher tax bracket and allow you to grow some money there for your kids. And the other option would be investment bonds. So if you're happy to invest in funds and ETFs as opposed to direct equities, I would invest in bond products instead of in between a super fund and a trust where it gives you a concessional tax rate of 30% and after ten years, zero tax, if you hold it all the way through, if you access it before, you're just subject to the usual tax rates, but because it's accessible to you. But it sort of sits separately from your personal assets. There's no requirement to get a tax cut for your child. There's no capital gains event if you transfer it and change names.

Alec: [00:07:10] Nice. Now, investment bonds have come up a few times on the podcast. What are some of the investment bond issue is that you think would be worth googling and doing our own research on? If we're just looking for some names to start our research. 

Jelena: [00:07:25] Yeah, I think GenLife is the most flexible and has the widest investment menu in terms of the managed funds and investment options available. They also have tailored investment bonds for particular goals, like if you've got if you want to fund education, for example, or if you've got a broader objective to help your child, you can tailor the investment fund accordingly based on how long you're investing and things in hand and the features of the products. Yep. And then there's also Century. A few other providers out there. 

Alec: [00:07:59] Yeah, yeah. 

Bryce: [00:08:00] So the next one that's come in, what asset classes are you favouring for your clients at the moment?

Jelena: [00:08:06] Yes. So with this question, I would say we have a bit of a balanced approach. Not to be boring. There are a couple of asset classes I'll touch on, but we have a very balanced sort of allocation at the moment and that's in line with the House view. I agree with that view. I think it's very hard to predict what's going to happen over the next 6 to 12 months, which we never really know. But it's particularly tricky at the moment. Would there be a hard landing, soft landing? No landing. There are all possibilities. So I think firstly, be balanced across the various asset classes and between growth and defensive. Then maybe a slight tilt towards Aussie equities. And there's some interesting stuff in fixed interest as well. So Aussie equities, I say that because of the population growth story and there's some foreign money coming into apparently a lot of the fund managers. Banks globally are looking at Australia and some of our businesses here, as well as fixed interest, fixed interest, direct bonds, locking in some of these high interest rates. You can't always pick the top. But I'd say that the current bank bonds that are paying about six and a half to 7% is pretty good for a ten year bank. 

Alec: [00:09:19] Oh, it's crazy. Yeah. I'm on a mailing list from one of the bond issuers. They're all $50,000 minimum parcels, so I'm not. I can't invest in any of them. But, you know, you're getting like, a good bank paying 7% interest. It's like that's almost that's almost equity like.

Jelena: [00:09:37] Yeah. And there are platforms out there you can access those bonds with a minimum of 50,000, which for some people might have it in a super fund. You could do that.

Alec: [00:09:45] Yeah. One day. Yeah. 

Bryce: [00:09:46] One day. 

Alec: [00:09:48] So I cut you off there. But we spoke about equities and fixed income. Any other asset classes that are sort of in the moment. 

Jelena: [00:09:55] I would say to that, I would say having some cash set aside, not too much to be able to take advantage of potential volatility over the next six months and opportunities there in the market, but not, again, balanced across cash fixed interest Aussie equities where. 

Bryce: [00:10:11] What is not too much?

Jelena: [00:10:13] So slightly more than your typical risk profile, I would say. So if you have balanced, you might typically say that you should have 5% to maybe ten, a little bit more than you can play with because yeah, like I said, well, as we're raising rates, which will continue, we've seen inflation come down yesterday, but there's no doubt we're still above the long term targets for inflation. There will be further rate rises most likely. But either way, pain ahead, pain ahead from the rate rises, we're saying. And on the short term potential volatility. So that's why we're having a balanced approach and some cash there to take the opportunity of that. 

Alec: [00:10:54] And the thing with cash, like there's so many bad things about the economic environment, the wording. But the one thing is that having a 10% weighting to cash is no longer like a dead weight on your portfolio if you've. Got it in a high interest account and you're getting 5.5%. 

Jelena: [00:11:09] Exactly, Yes. Like a macquarie Cash account pays four and a half to 5%. That's liquid. You can access it every day and it's going to be sitting there forever. It can be put to use and most of my clients are overweight cash. Up until recently and that's done them really well informed the average investor. 

Bryce: [00:11:28] Must be nice. Now, our community love stock tips and we've got one that is just directly. Do you have any stock tips?

Jelena: [00:11:36] Yes. I do. Yep. I'm more of a holistic advisor, but I'm always looking for some direct equity positions as satellite positions that can really boost performance and get people excited about investing, too. So I would say in the small cap space, we've got a stock called IPG is the ticker. Okay. So they provide infrastructure for electric vehicles. So upgrading apartment block parking lots and installing batteries. Right. Enabling you to charge your electric vehicles in these apartment blocks. And they also provide data centres as well. So infrastructure in the tech space. And it's been hit hard in the last two months. It has come down about a dollar from its typical trading price. So I think it's just a good opportunity. 

Bryce: [00:12:26] Nice. Confusingly, the ticker is IPG, but the company's called IPD.

Jelena: [00:12:31] Correct. And then another company with the ticker, IPD and Imperium, which is a health care stock. 

Bryce: [00:12:38] Not to be confused. It looks like it's been on a bit of a run in November, up 30%. So there you go. Stock tip. IPG. The company is called IPD. 

Alec: [00:12:49] The ticker is. Let's just stick with the takeover. All right. So it's obviously been quite a volatile, you know, sort of I guess, for 12 or 18 months now, really since the start of 2022. And when rates started rising, investing got a lot harder. So what are some of the common mistakes that you're saying clients make? And I guess the flip side of that are what are some what are some of the habits and mindsets that you're trying to instil in your clients in this time? 

Jelena: [00:13:20] I think I think it comes back to you before you start investing as well. So obviously the classic panic selling at the wrong time. And we've seen that markets recover pretty quickly, like in the Covid recovery. The market took three weeks to recover a V-shape. And if you were trying to time yourself back in, it's very easy to miss that. A lot of people did. And I mean, the GFC took two years to recover, but times are different people, things are moving quicker. We've got algorithm trading, we've got all sorts of things going on. Trying to time itself back into the market is tough in my opinion. So I think you need to be careful about panic selling one. And the way to avoid that, in my opinion, is before you start investing. Be well aware of the risks. Have an emergency fund set up because you've got that base that you're comfortable that you have enough there. And if you were to lose your job and the money you're investing with people, use that to grow and know how much you're risking. So in equities, you can drop by half, as we say, in the GFC. Okay. The correction. And be prepared for that to happen. But you know, you've got to see fund set aside and you've got a long term target that you're aiming towards. 

Bryce: [00:14:27] And how do you advise your clients where to put their emergency fund and to know how much their emergency fund should be able to cover in terms of months of work or whatever it may be? 

Jelena: [00:14:39] Yeah, I'd say about 3 to 6 months of your expenses. But the reason behind that is that's how long you typically would take to find a new job. The statistics show that I think it's more us based but could be applied here. That's how long it would take you to find a new job and be settled in and start receiving a regular income again. So and then we terms of where to place that something somewhere liquid like Macquarie Cash cash for high interest cash account or an offset against your mortgage.

Alec: [00:15:11] As to people who have just got mortgages. I literally set up my offset account this morning. It's a very daunting world that we're entering.

Bryce: [00:15:19] Yes.

Alec: [00:15:20] And that's a separate conversation. 

Jelena: [00:15:23] Emergency fund. Yeah, income protection. So if I get out in the last 3 to 6 months and it's based on if you're out of employment, let's say, or whatever, raising your income stocks. What about health issues that stop you from getting a new job? That's what income protection kicks in. And if you get a policy all the way to aged 65, the means between the emergency fund and income protection, you're going to stay in it for the rest of your working life.

Bryce: [00:15:47] Yeah, it's actually something that is on my list of things that I'm doing at the moment because I don't get it through my super because of when I set the super up, it wasn't an option. And to get it in the super, I need to close that super account down, move all the money out, come back in. So that's really frustrating. And it's. Something that I'm considering doing. Or I can just go and get a policy outside of super. 

Jelena: [00:16:11] Yeah, that's right.

Bryce: [00:16:13] But there's a fair bit to it in terms of understanding what type of cover you need, how much you need, if it's going to scale as you get older, the health that you write, blah, blah, blah. So it's not just the a classic. 

Alec: [00:16:26] But when people are in this super fund, they get it through the super fund. They're not going, they're choosing all those things. Isn't it often just like a tick box?

Jelena: [00:16:34] The income protection policies in super are much simpler. Definitely. But either way does it if it's in super or outside, it's giving you a monthly coverage. Yes, there are a million different tweaks to it. It doesn't need to be overcomplicated, though. Just make sure you cover enough per month to cover your expenses and then it's up to you if you want to be covered all the way through to retirement. Age 65 is the benefit period to go through all the other tweaks. Bells and whistles don't really matter too much, in my opinion. As long as you've got it. And if it's tax deductible. So if you pay for it personally, it's taxed up to you. Oh, if you are preserving your cash flow and that's a goal of.

Bryce: [00:17:09] That's kind of what I.

Jelena: [00:17:10] Yeah. Then you can pay for it through through on its tax taxable to the super fund but or you can actually have both ways have half of it through super. The main product providers towel MLC and insurance providers all offer you pretty straightforward income protection cover. And that's, I would say, an extension of an emergency fund that everyone needs. 

Bryce: [00:17:31] Yeah. So they got something there. So it's tax deductible if I pay for it out of my cash flow.

Jelena: [00:17:35] Yeah. And often people lose that. I have quite a few friends and family recently looking to consolidate their super, whether it's MSF or a fund where they've got more control over the investments and they just want to click the button to consolidate. And there's a warning there saying you may lose your insurances, you will lose your insurances unless you replace them. Yeah, you absolutely lose them. So it's definitely worth looking at, especially at the time if you're looking at putting a super together into another option. Look at the insurance as well. 

Bryce: [00:18:06] Are there any other insurances that of tax deductible? 

Jelena: [00:18:08] Life and TPD acceptable to your super fund only? 

Alec: [00:18:12] Yeah, I can't say no to you personally. 

Jelena: [00:18:13] You pretty much always want to fund that through super. There are a few different scenarios and then this trauma is the last one, which is not acceptable at all. So you have to pay for it yourself if you can't pay for it through super. But it's sort of a fourth type of cover if you want to full safety net. There are some cases where income protection won't pay you. So the criteria is you have to not be able to work. And there are some cases people fall ill and they are physically able to do their job. So trauma gives you a lump sum upon diagnosis. 

Bryce: [00:18:47] Nice. Could 101. 

Alec: [00:18:51] So speaking of super. So let's hold on super because we always get a few questions about super. The first one was very general, I guess, and it also leaves it up to interpretation. So I'm going to be interested to see how you've taken it. How do the top three super funds compare to an ASX 200 or S&P 500 ATF over ten years? Now, the two ways that you could take out the top three super funds, you could say top three is in biggest. 

Bryce: [00:19:20] The lowest fees. 

Alec: [00:19:21] Or it could be the top three best performers, which I actually wouldn't be up to tell you off the top of my head. So I'm interested. Which way did you take it? And then how did you answer it? 

Jelena: [00:19:30] Sure. So I had a look at the top performing us, which was alarming. Over ten years, Australian Retirement Trust achieved 6.4%. 

Alec: [00:19:41] Is this all that balanced? 

Jelena: [00:19:43] It is their balance.

Bryce: [00:19:44] After fees.

Jelena: [00:19:45] After fees? Oh, this is after investment phase, not after account phase. Just only the investment return. Okay. I see. It was 6.3. 

Bryce: [00:19:54] UniSuper 6.2 over a decade.

Jelena: [00:19:57] Over ten years in return? 

Alec: [00:19:59] Lower that I thought. 

Jelena: [00:20:00] Yes. Yeah. I think the last year and five years are pretty good for over a ten year basis. That's what that's what they're saying. And in terms of ASX 200, most interesting is I was it I said one of the main ASX 200 ETFs actually has a similar return. Six and a half for ten years. 

Alec: [00:20:20] Is that excluding dividends?

Jelena: [00:20:21] So yes, yes, yes, I would say but lost its per annum return. So anyway. Yeah, but then S&P 500 much higher. 1,111%. Yeah. Yeah. So the answer to that is if you're in a diversified portfolio, you achieve better than what you wouldn't. Typical, but I think between international Aussie. 

Bryce: [00:20:43] Oh you mean diversified ASX and S&P.

Jelena: [00:20:46] To ETFs, S&P 500 ETF, ASX 200 ETF you would beat? 

Bryce: [00:20:51] Yeah. Yes. 

Jelena: [00:20:52] Fantastic. 

Alec: [00:20:54] Yeah. But I guess it's an important reminder that choosing the right setting on your super is important. And, you know, whilst everyone's situation is different in general, when you're young, you have. The capacity to be more aggressive? 

Jelena: [00:21:07] Correct. You do. And you've got a longer time frame. You've got cash coming in. So, you know, cash aside is a good idea at the moment. I mentioned that earlier. Well, if you're employed and you've got super guarantee coming in, I have to worry about that. You've got cash coming in. And that can work towards adding to a share portfolio or paying down debt if you've got a self-managed super fund. You paid on your debt quite quickly because you got regular contributions coming in. And similar for a share portfolio, you're adding into that portfolio regularly. 

Bryce: [00:21:37] So with a self-managed super fund, you can borrow through a self-managed super fund. 

Jelena: [00:21:41] You can.

Alec: [00:21:41] People buy it? Investment properties. 

Bryce: [00:21:43] Yeah, Yeah. Yeah, yeah.

Jelena: [00:21:44] Yes, you can. And one of the unique things about myself and I just people don't realise is you can pull your money together as well with your spouse or sibling or relative.

Bryce: [00:21:53] Nice. 

Alec: [00:21:55] We should do an MSF together.

Bryce: [00:21:57] Show, bring allies and partners. 

Alec: [00:21:58] So we can all get one house. 

Jelena: [00:22:03] Yeah. So you can borrow. It's called limited recourse borrowing though. So it's not, it's a bit tighter than borrowing your personal name in terms of how much you can borrow. And ultimately it's still within the super environment. You can't touch that asset. 

Bryce: [00:22:17] And even the cash flow generated from the asset has to go back into. 

Jelena: [00:22:22] So because it's all under that super. Yeah. But within Liam and under the umbrella, you can do many different things as an investor, including borrowing to buy a property. 

Bryce: [00:22:33] Well, on the super theme and related to the first question, what is the best way to compare super funds? 

Jelena: [00:22:39] Yes. So advisors do this all the time. But if you don't want to pay for an advisor, what we do as part of the process is we have a list of questions, hard questions that we used to call up the super fund and ask them. So far the balance obviously. And then ultimately, like where are your investors currently where you're invested? Look at the performance of that, but also how many investment options are there that I level in the fund and then fees obviously as well. But an interesting thing about phases, they vary between 1 and 2% performance. There is a lot more than that. So there can be 10% difference between a fund, a fund performance and B fund performance. So performance does come into it even more so than fees. Yeah, I would say. And availability of investments, how many investors and then ultimately other things like is there a body nomination available, insurance options, long list of questions that matter to you. And then sort of just asset across the different funds and compare it that way. I would say. 

Bryce: [00:23:42] Without calling the super fund, it's often quite hard to get a clear view on what they are invested in. So they'll say they'll say, yeah, they'll say Australian securities or private equity. But it's like, what is that? And so it feels like the solution is you've just got to give them a call and find out. 

Jelena: [00:24:00] But even in that case, though, yes, they'll give you certain information, but that's one of the downsides of industry funds. They are cheap and a great solution if you're under a certain balance, in my opinion, once you've got over $100,000 or thereabouts, maybe even less than that, you could be looking at other options where you've got more transparency. It's your hard earned money. You don't actually have a right to know. And some of these investment options, that's the way the industry funds are run. 

Bryce: [00:24:27] What other options? 

Jelena: [00:24:29] Other options are wrap super funds where they wrap the reporting up for you. That's the term wrap the reporting for you. But I offer a very wide sort of list of investments you can choose from and manage it yourself, essentially like a self-managed but without the tax liabilities and paperwork you have to do when you're running a self-managed. And the cost is sometimes similar. Going to build these, they call them retail funds as well as super reps. The cost can be quite similar to an industry fund running on which industry fund you're in, and the investment options can be hundreds or thousands more than what you might have in an industry fund. 

Alec: [00:25:07] Yeah, we actually had another question around industry funds, not just about investment options, which I agree it's often hard to find. And then you open the AFR and you say that AustralianSuper is now like standing in the way of Origin's acquisition and it's like, well, that's yeah, you're not where you say that, show up in your investment report. But anyway, that's another conversation. But the, we also had a question about finding out all of the fees that you get charged. And sometimes it's hard to find all the different fees to do like a true apples to apples comparison person that asked this question was actually looking at going back from an SMSf to an industry fund that was struggling to do it. I guess at sort of being an adviser and speaking to someone. How do you get a good view of all the different fees that money is charged?

Jelena: [00:25:56] I think there are two main fees, really, but they just sort of change the wording in them and sometimes they divide them up. So. The two main phase, our investment phase, and then product phase for the super fund and the investment phase. They're obliged to tell you, they have to tell you so. And sometimes what they do is they might split it between an asset base phase and then another phase. But really, it's just an investment management fee. So if you just ask what's the total investment management fee for a fund that you're in, they'll have to disclose that to you. And the other layer is the product fees. So again, that can be called an asset base fee, admin fee account, keeping the total administration fees, product fees. They must disclose that to you. So they're the two main ones. 

Bryce: [00:26:46] Well, we're going to take a very quick break. And on the other side, we're going to cover questions around debt recycling, the worst financial advice you've ever heard, plus more. So we'll be right back. Welcome back to Equity Mates. We're here with Jelena Koncar, Senior Wealth advisor, holistic advisor at Shaw and Partners. And we've been covering questions from the community around investing and superannuation. 

Alec: [00:27:10] I love it. And this is, I guess, a reflection of us and our audience. It's like we have a holistic wealth advisor that can advise on all aspects like personal finance, building your, you know, your financial house. But we're just like investing. 

Bryce: [00:27:26] So I know maybe next year, as I said this, the series will continue next year, so please keep the questions coming. Ask@equitymates.com is where you can submit them. Now we've got a few just general questions to close out, Jelena. And the first one is a good one. If you were to give a gift this Christmas to someone to help improve their financial wellbeing, what would you give?

Jelena: [00:27:53] I would give a safety net. I have an emergency fund and insurance policies. That's your safety net so that you can move forward and invest with confidence.

Bryce: [00:28:04] You'd give someone their emergency fund. 

Jelena: [00:28:12] Yeah, I don't know, maybe, maybe, maybe an invoice out to see an adviser to do that. 

Bryce: [00:28:17] Yeah, I think that's a really good one.

Jelena: [00:28:18] Idea to go and say to an adviser to help them achieve those two things. 

Bryce: [00:28:22] Do you do vouchers? 

Jelena: [00:28:24] I did in my last role. Yeah, I'm really busy at the moment. Yes, that's a good range. Maybe you can. 

Alec: [00:28:30] Yeah, a good one. Yeah. I imagine a lot of parents would be buying it for their, like, early 20s kids.

Jelena: [00:28:36] Yes. Yes. I think it's worth it. I mean, sitting down with an adviser, I think an hour or a half an hour with an adviser can open your eyes as to what's available out there and what you should be thinking about. 

Alec: [00:28:46] Someone in our office went to an adviser, one of the advisers that we've actually had on the show, and she was sceptical and came back and raved about it.

Jelena: [00:28:55] Mm hmm. Yeah. Okay.

Bryce: [00:28:56] So for that reason, she what she thought she would get out of it. [00:29:00][3.7]

Alec: [00:29:01] Having worked here in equity mates, yeah, I didn't think she'd get too much out of it. Yeah.

Bryce: [00:29:06] And the advisor opened her eyes. 

Jelena: [00:29:08] And go into an adviser that has a broad range of areas of advice. 

Bryce: [00:29:13] Yeah. 

Jelena: [00:29:13] Is useful, I would say.

Alec: [00:29:15] So we've got this question a few times. It's not something that I'm super familiar with, but that's okay. I'm not super familiar with a lot. So it's about debt recycling. What is it? I guess let's start at the very basics. And then when should people think about it?

Jelena: [00:29:30] Mm hmm. So it's the concept. The term debt recycling is sort of moving your debt from being non-tax deductible to tax deductible throughout your working life. And you can do that as you build equity in your home. You can borrow against that home and invest into an investment property or share portfolio, which is an investable asset, and at that debt becomes tax deductible. And the idea is that an asset grows or pays your income, allows you to pay off your non-deductible debt faster. So that's the idea in a nutshell. 

Bryce: [00:30:04] In plain and simple terms, it would be we have a home loan. We build some equity in it and in a few years time we then redraw that or borrow against that to buy growth stocks. 

Alec: [00:30:18] Or an investment property.

Bryce: [00:30:19] Or another investment, probably another investment property. And then because that's used for investment purposes, that debt is then tax deductible.

Jelena: [00:30:27] Correct. And that asset will likely grow as it's supposed to, according to statistics of the stock market. Double digit returns, betting on what time frame, but at least 8 to 10% return. And a property is similar, I'd say. And then the interest you're paying is less than that. So every time you're ahead and you're paying down your debt faster.

Bryce: [00:30:48] So I think that's super important. You wouldn't do it in a scenario where the expected return on the investment is less than what you're paying in interest.

Jelena: [00:30:58] Correct. But then you have to look at this as a medium term investment, not investing in shares of property for less than a year or less than a few years time, ideally. And over that timeframe, it should achieve more than what the interest you pay. Generally speaking.

Alec: [00:31:12] It's funny when you think about it from a policy point of view, like and I know none of us are here to design government policy and it's just about maximising your financial circumstances within the policy parameters that we have. But when you think about it like that, it's strange that investment loans an investment loan to buy a house is tax deductible, but a loan to buy a house for an owner occupier isn't just from a policy point of view and how we're trying to like what incentive structures we're trying to build into the system. It seems strange. Mm hmm. Yeah. Anyway, let's not get. 

Bryce: [00:31:47] It all the good in the ideal if it was owner occupied as well. But anyway.

Alec: [00:31:51] I mean, it would be great. Or if it was, you wanted to take the heat out of the housing market, you would say this. This just gets into all negative gearing. Yes. 

Jelena: [00:32:03] It falls into that category.

Alec: [00:32:04] I would be all for making more incentives to make stock market investing more. Anyway. 

Bryce: [00:32:10] And so do you see a lot of clients doing debt recycling? 

Jelena: [00:32:13] Not really. So often we have to open their eyes to it. They've got available equity. They've got a high income. They've got an emergency fund. Why aren't they doing that? That could unlock some capital there and grow their wealth further and faster and pay off their non-taxable debt faster. 

Alec: [00:32:30] It's a new concept.

Bryce: [00:32:31] Something to think about. 

Alec: [00:32:32] Yeah, we're still a little bit away from that. 

Bryce: [00:32:35] Yeah, it's just I haven't even have had paid one mortgage payment. 

Alec: [00:32:41] I guess that's probably a good question because a lot of people listening would be a little bit further than Bryce and I and they've started paying off the mortgage. How much? Like maybe as a percentage of the house of the apartment, how much equity should they have before debt recycling becomes part of the conversation. 

Jelena: [00:32:56] I would look at it as a dollar figure. Okay. Got it. If you got a couple hundred thousand. Okay. That's enough to do something. I would say I mean, if you're being cautious with the share market, you could do it in stages. You could do it in like $100,000 lots, $2 cost averaging to the market. So yeah, to minimise your risk. Investing and like we said, it's a volatile time. So we don't know. It could be difficult 6 to 12 months in markets to go backwards. Yeah. But if you're doing it gradually, then you're more likely to achieve a better result into a 2 or 3 year basis. 

Bryce: [00:33:32] Take it out and buy the 8% bonds that are getting. 

Jelena: [00:33:34] Yes, exactly. Yeah. So we actually have clients who are doing this borrowing into bonds. It's a very safe investment. And ultimately you're achieving 2% return on something that net after the borrowing costs. You achieve nothing if you weren't doing it at all. So.

Alec: [00:33:53] Yeah. But yet you're achieving the 2% net and you're getting that tax deduction, right? 

Jelena: [00:33:59] Yeah. Being taxed position where you're doing it if you're doing it in personal name or super. 

Alec: [00:34:04] It's interesting. All right. Well, I'm glad we also closed my eyes. The final questions we have. I guess two sides of the same coin. We'll ask them separately, but they're the best and worst pieces of financial advice. Let's start with the worst so we can finish on a positive note with the best. So you've been an advisor for a number of years. I'm sure you've heard a lot of advice and I'm sure you've had heard a lot of opinions from clients as well. What's some of the worse that you've heard? 

Jelena: [00:34:33] The worst thing that I've heard and that bothers me the most, especially at the moment, is when people are certain about the future, when they sort of try and they're so adamant about a particular outcome. And that includes professionals more so than clients. That irks me the most. And it's so transparent when they're trying to push their own product, but clients could fall for it. I mean, if you sit there listening to, let's say, defensive investment funds. 

Bryce: [00:35:00] Name names. 

Jelena: [00:35:02] I'm not I'm not. Let's say a defensive values based global equity fund value typically is more in favour when times are tough. So that bears naturally trying to promote their own funds, saying the markets will be down 30% next year. That's a typical example of a bear and pushing their own product. And they're very adamant on the fact that it's going to be down. And and I'm like, hang on a second. What about my clients that obviously that we see a potential scenario of soft landing, hard landing or landing. And various economists around the world have all these different opinions. Why are you the expert? How do you know what's going to happen? And it's transparent, basically.

Bryce: [00:35:42] Nice. Yeah. Yeah.

Alec: [00:35:44] So avoid people that have certain predictions about the future. 

Bryce: [00:35:51] Well, on the flip side, what's the best piece of financial advice here? 

Jelena: [00:35:54] The best piece is from one of my idols, Suzie Orman. She's a financial expert from the U.S.. She's her main sort of saying is people first, then money, then things. And that's sort of the point of it is you should put your relationships first. Money is the next most important thing, having financial security. And things are last. So really, when you go to buy that thing, you don't really need to impress the person you don't really care about. Think twice about that.

Bryce: [00:36:24] Awesome. Great way to finish. Well, thank you so much you and it's been an absolute pleasure. And thank you again to the community that submitted all of those questions. Ask@equitymates.com to keep sending them through and we'll make sure that we get them in for the first episode back in 2024. But it's been an absolute pleasure. Thank you very much. 

Jelena: [00:36:40] Thank you. Thanks for having me.