Here’s one for the renters

You always hear some real estate rooster crowing about how smart they were when they bought a joint in 2018 for $480,000, and then flipped it three years later for $1.3 million.
 
Renters hate those guys.
 
So, just for kicks, let’s look at life on the other side of the ledger.
 
Specifically, an apartment in 883 Collins Street, Melbourne, that’s just been put under offer this week.
 
Our story starts around 10 years ago, in 2015:

You’re sitting on the couch watching this new show called Married At First Sight, while simultaneously doom scrolling on realestate.com.au, when you see a sexy inner city property with the headline:
 
“Waterfront Elegance Meets Modern Convenience.”
 
Tap.
 
It’s a brand-new, waterfront, two-bedroom, two-bathroom, one-carpark luxury apartment in Melbourne’s Docklands. The building is like a resort. It has an indoor heated pool, state-of-the-art gym, yoga room, and even a residents’ lounge.
 
“Ooh, fancy”, as my mother would say.

The real estate agent assures you it will have strong rental returns, and touts the stamp duty and depreciation benefits of buying a new build off the plan. So you pony up and purchase the apartment for $860,000.
 
Cut to today.
 
Nearly 10 years have passed since you purchased the property … has it been a good buy?

Well, luckily for you, it’s been a pretty good 10 years to own a property:
 
For much of the past decade, interest rates have sat at some of the lowest levels in history.
 
Plus, we were hit with a fully fledged rental crisis in which landlords jacked their rents up, up, up.
 
Okay, so what’s it worth today?
 
(Bearing in mind that 10 years ago you paid $860,000, so it would need to be worth at least $1.1 million just to keep up with inflation.)
 
Well, this apartment has sat for months on realestate.com.au under the headline “urgent sale”.
 
And last week it went ‘under offer’ … for a price guide of $630,000 to $650,000.
 
That’s a shocking $210,000 loss over 10 years.
 
Yet it gets worse.
 
That loss is before you factor in inflation, body corporate fees, council rates, land tax, maintenance, agent’s selling commission, and of course 10 years of interest on your loan.
 
Look, I have no idea who actually owns this particular property, or the full story behind it. Yet what I do know is this is not an isolated case. Research house CoreLogic has identified 65 areas (mainly in inner-city Sydney and Melbourne) where prices today are still below the record highs from the 2010s. “Vendors are willing to sell at a loss … but buyers aren’t interested”, says CoreLogic.
 
Now, guess who the real winner is in our scenario?
 
It’s the renter!
 
They’ve enjoyed 10 years of downward dogging in the yoga room and paddling about in that fancy heated pool, plus they’ve even had a plumber on speed dial to unclog the dunny.
 
Now that is what you call “Waterfront Elegance Meets Modern Convenience”.
 
Tread Your Own Path! 

Here’s what’s in my Santa sack this year

Many years ago, I solved the Christmas gift-giving game: I buy people books.
 
A book says, “I think you’re the sort of person who has an attention span longer than 30 seconds and enjoys learning about something. In other words, I think you’re smart.”
  
Here are the books I’ll be putting in my Santa sack this year:
 
Crypto Confidential: Winning and Losing Millions in the New Frontier of Finance
By Nathaniel Eliason
 
This was hands down my favourite book of the year. Nat Eliason was in a jam: he was unemployed, and his wife was pregnant. He had just six months to turn things around, so he decided to roll the dice and attempt to get as rich as quickly as he could in crypto.
 
And … it worked!  At one point his crypto holdings were valued at over $US10 million.
 
However, the trouble was always just around the corner, where Nat came up against scammers and sleazebags of the highest order. This isn’t just a cautionary tale – it’s totally ‘bonkerballs’, as my eight-year-old would say.
 
Given Bitcoin is booming on the back of the incoming ‘Crypto-Prez’, I’d strongly advise reading this book before you dabble. You’ll learn a lot about coins, monkey pics and blockchain. You’ll also laugh out loud a lot.  
 
It’s the perfect beach read … or a great gift for your idiot brother-in-law.
 
The Anxious Generation: How the Great Rewiring of Childhood Is Causing an Epidemic of Mental Illness
By Jonathan Haidt
 
This is the book that helped kick off a revolution.
 
Not only are today’s kids more anxious, depressed and suicidal than in previous generations, they’re also dumber (Aussie students are among the world’s biggest users of digital devices at school, yet their academic results have fallen a full academic year behind those who went to school in the 2000s).
 
Haidt lays the blame squarely at the feet of the always-on dopamine syringes in everyone’s pockets, and calls for an end to the great experiment of ‘phone-based childhood’. The Anxious Generation will give you an understanding of what drove our government to create the world-first social media ban for teens.
 
A perfect gift for every parent.
 
Storyworth: give them the gift of telling their story
 
This isn’t a book … it’s a sneaky way to get your parents to write their own book.
Here’s the deal: once a week, Storyworth zaps them an email with a question like:

“What’s the funniest thing you’ve ever done?”

“What was your most embarrassing fashion choice?”

“Where were you when Neil Armstrong made his giant leap?”

They simply reply to each email and, by year’s end, voila – a printed book of their life stories to keep forever (or so the sales pitch goes).

I bought this for Christmas for my mum a few years ago. She loved it. In fact her Storyworth ended up rivalling The Lord of the Rings in length.
 
Let’s face it – Storyworth is just a clever way to help the older people in your life crank out their memoirs, one email nudge at a time. Genius, really.
 
Tread Your Own Path!

No Batteries Required

Hi Scott,

We got both my boys the Barefoot Kids book for Christmas over a year ago. In the last four months, Charlie has made over $100 from recycling cans and bottles. Charlie and our eldest son, Patrick, who’s 11, have also begun buying and selling Pokemon cards on eBay! Understanding how to make money, appreciating it, showing gratitude for their situation, sharing and being kind are ongoing lessons. Thanks for writing and sharing your books!
 
Peter
 
Hi Peter
 
Please pass on the following message to Charlie and Patrick:
 
Boys, good work on the little business you’ve got going. I’m really proud of you!
 
Now, there are still a couple of weeks before Christmas, and I’ve got another challenge for you:
 
I want you to take some of that money you’ve earned and buy some nice presents.
 
First, for your mum and dad, and brothers and sisters. 
 
Then I want you to go to Kmart and buy a gift for a little kid your age – it could be a book (Barefoot Kids?!), stickers or something else awesome – and then place it under the tree in the store.
 
You’ll be a Secret Santa for someone who really needs it.
 
Merry Christmas!
 
Peter,  thanks so much for giving me the perfect opportunity to plug Barefoot Kids for Christmas. There’s something really quite magical about that book. Kids devour it and then go off and do awesome things that make their parents (and grandparents) proud.

-Scott.

My Greedy Obnoxious Brother

Hi Scott,

In 2022, my stepdad passed away and shocked us all when he left all his $6.5 million in assets to my half-brother (his biological son), leaving my sister and me with nothing. To make things fair, our mum (divorced from him 10 years ago) updated her will to split her assets 50/50 between my sister and me.

When Mum passed recently, she left us about $3 million each. Now, our greedy, obnoxious half-brother is contesting her will. We expected this, of course. Yet our mum’s lawyer said her updated will was “bulletproof”. Yet now our trust lawyer says our brother can tie it up in court for years, and we might have to settle for $1 million. Any advice?
 
Brenda
 
Hi Brenda,

I’m really sorry to hear about your mum (and your half-brother).
 
The truth is that no will is bulletproof – nothing can stop an ‘eligible’ person from challenging a will.
 
However, that’s the million-dollar question:
 
Does your half-brother even have standing to challenge your Mum’s will? In most Australian states, unless they can prove financial dependence on the deceased at the time of death, stepchildren aren’t ‘eligible persons’ under family provision laws.
 
I spoke to my lawyer, Dr Brett Davies, and he says you should chat with a litigation lawyer to see if old greedy guts is just bluffing or if he actually has a leg to stand on to challenge your mum’s estate.

If his case is weak, he could walk away with nothing – and he might even have to cough up for your legal costs, and the estate’s!
 
Regardless, tread carefully and get expert advice. In deceased estate disputes, the only guaranteed winners are the lawyers (something Brett didn’t mention!).

-Scott.

A Knife to the Throat

Hi Barefoot,

My dad, who’s 60 and nearing retirement, got a call from an Aussie company pitching an SMSF to trade daily using AI (red flag – he didn’t contact them first). They claim to use only 2% of your super per day to avoid “losing everything”. He’s already invested $500 and says he’s made $25 but is being hounded by daily calls. When I asked, “what would the Barefoot Investor say?” he admitted it’s probably a bad idea, but he seems hooked by the promises. Please give him a call to help me convince him – his number is (deleted).
 
Kate
 
Hi Kate
 
Well, I called your Dad, and he’s a ripper of a bloke!
 
Now, I didn’t have a lot of time, so here’s what I said:
 
“I’ve never heard of these guys, but they sound like a bunch of crooks. And if you transfer your super they’re probably going to steal it.”
 
Unfortunately your father was a little unsure about what specific forms he’d signed to set up his SMSF, so I advised him to call his existing fund and make sure they would not allow the transfer out.
 
He agreed.
 
Then I hung up and called the Assistant Federal Treasurer.
 
Yet he was too important to take my call, so I spoke to one of his underlings.
 
Now, I didn’t have a lot of time, so here’s what I said:
 
“Let’s say you and I are having a coffee down the street when a bloke in a balaclava walks into the cafe and yells ‘give me all the money in your till!’. What would we do?”
“We’d call the cops!” I said, answering my own question. “And they’d be there in a flash. And they’d arrest him and throw him in jail.”
 
“However, when a decent, hardworking bloke is about to get robbed of his entire life savings with a pen rather than a gun, the only thing the authorities can offer is the wet-lettuce-leaf response of ‘Report it to Scamwatch’.”
 
Silence.
 
“Well”, said the political minion, without a lot of conviction, “you could ring ASIC and report it, and also … ummm, maybe … the Federal Police?”
 
So I did that as well. Still, there weren’t sirens, stun-guns and handcuffs on offer … it had more of a cat-stuck-up-a-tree feel to it.

Thankfully, your father is okay. He dodged a bullet that is currently being aimed at thousands of naive investors.

 -Scott.

What Is Wonder Woman Worth?

Scott,
 
I’m wondering what your thoughts are around the hourly rate for a stay-at-home parent? I am unable to go back to work while we have young kids at home, one of whom has a chronic illness. My wonderful partner is supporting the family on his income. Although being the main caregiver is one of life’s most important jobs, it is seriously undervalued and underpaid. If I were to get paid a wage, what would it be?
 
Wonder Woman (aka a mum)
 
Hi Wonder Woman,
 
My wife Liz left me last week.
 
She’s flown to Europe to produce a documentary for the next three weeks (“or so”). In the lead-up to her departure she sat me down and took me through what I call ‘Liz-gistics’:
 
It’s an actual spreadsheet that tracks the movements of our four kids. When I put all their activities into my calendar it honestly looks like a failed game of Tetris. The next few weeks are absolutely terrifying.
 
So, how much is a stay-at-home parent worth?
 
Well, I went looking and found a study by salary.com which calculated that stay-at-home mums work a whopping 96 hours a week, and therefore it says they should earn at least $230,000 a year. Yet that all sounds kinda clickbaity and not particularly useful.
 
Look, the home is not a workplace. If it were, I’d have taken my three-year-old to HR for verbal bullying, harassment and workplace assault after he threw his Vegemite toast at me because I mistakenly cut it into squares rather than halves.
 
My simple answer to your question is that you and your partner should share the money that comes into the family, based on the family money buckets you’ve set up.
 
However, and this is important, part of that set-up should include individual Splurge buckets: a set amount that you can enjoy without judgement or guilt from the other.
 
Oh, and you should also have a family Smile bucket so you can jointly save up for things that you’ll enjoy as a family. Working together is how you win.

-Scott.

Too Much Temu

Hi Scott,
 
I’ve just been clearing out my mother’s motor home and storage shed after she passed away. She had SO many (UNOPENED) packets with random labels, apparently all from Temu. Checking her Temu account, she had spent over $1,000 in the last five months!
 
Alex
 
Hi Alex
 
As I wrote last week, Temu has turned shopping into gambling: it’s so cheap you’re willing to take a punt on whether you’ll actually use it or not (and besides, you only need to buy a few more things to qualify for free shipping, or discounts, or both).
 
I also think they’ve tapped into the inner six-year-old in all of us: who doesn’t love the rush of waking up on Christmas morning and seeing all the presents Temu Santa has left for us? The problem that you’ve nailed with your mum is that it’s mostly just stocking-filler rubbish that you’ll discard by New Year.

-Scott.

I Can’t Sleep. I Can’t Eat. I’m a Walking, Shaking Mess.

Hi Scott,
 
I can’t sleep. I can’t eat. I’m a walking, shaking mess. We put our home up for sale in the first week of March for $1.25 million, on the advice of our agent. (At the time I thought it was on the high side, but I didn’t say anything.) It’s been eight months now and we haven’t got a single offer! Our agent has gone missing in action, and we don’t even have open-for-inspections anymore. My husband, on the other hand, is cool as a cucumber. He’s sure someone will come along and buy it. I’m climbing the walls, not just because we’re up for thousands of dollars in selling costs regardless of whether we sell or not (!), but because we’re stuck in limbo. I want to move interstate to start our new life (and my new job!) but we can’t do anything until this bloody place is sold. What should we do?
 
Wendy
 
Hi Wendy
 
I can feel your stress through my computer screen!
 
My wife says that I am too blunt, but she’s currently overseas, so I’m going to say what I damn well please:
 
Your asking price is too high.
 
If you haven’t sold your home within six weeks of listing (let alone eight months!) you have one of three options:
 
First, you can take it off the market and wait till prices recover.
 
Second, you can rent it out for a period of time.
 
Third, you can meet with your agent and discuss aggressively lowering the price so you can attract a number of bidders, and let them sort out what the market value is.
 
Which one does your head tell you is the best option?
 
Remember, it’s very likely you’ll be buying and selling in the same market. In other words, if you sell your home for less than you expect, chances are you’ll buy your next home for less than you expect.
 
The stress you’re feeling comes from a lack of control. Waiting and hoping isn’t a strategy that will work in this market. You need to take action!
 
Good luck!

-Scott.

What’s in store for property prices

Let’s take out the crystal ball and see what’s in store for property prices.
 
Nationally, they continue to creep higher – they’re up a very respectable 6.7% this year.
 
Yet it’s also clear that the market is losing steam, especially in the tinsel-towns of Sydney and Melbourne, where there are currently more homes for sale than at any time in the past five years.
 
Why?
 
“Owners struggling with mortgages at the moment are thinking, ‘I’d better get out and take advantage of relatively high prices’,” AMP chief economist Shane Oliver was quoted in the news as saying.
 
I think that makes sense.
 
But hold your handbags!. Another expert, Louis Christopher from SQM Research, predicted this week that prices could boom 10% nationally next year if we get a rate cut (or two) early next year.
 
I also think that makes sense (especially in Perth and Brisbane, where there’s a lack of supply).
 
So the question then becomes: how likely is it that homeowners will get some ‘relief’ from high rates?
 
Well, in January economists were almost unanimous that we’d get a rate cut this year.
 
Didn’t happen.
 
And now they’re equally unanimous that we’ll get rate cuts next year.
 
Tik. Tok.
 
Perhaps that’s why Treasurer Dr Jim Chalmers describes current interest rates as being “stubbornly high”.
 
Interesting. So Jim is suggesting that interest rates are behaving much like my three-year-old does when I won’t buy him a Big M at the local Romsey IGA. He collapses on the floor and starts howling like a wolf, and then goes limp as a jellyfish when I try to pick him up.
 
Now that is stubborn.
 
So, let’s zoom out and take a look at the historical chart.

From this perspective, current rates don’t look ‘stubborn’ – or particularly high –  to me.
 
The truth is that interest rates movements are as unpredictable as my three-year-old. (Just ask the former Reserve Bank Governer Philip Lowe, who famously shanked his ‘lower for longer’ forecast … despite the fact that he was the one who set the rates!).
 
Look, despite the crazy amount of airtime we give economists and experts, history has proven that they’re actually no better at picking the longer-term movements of interest rates than a dart-throwing monkey.
 
So here’s my advice:
 
Don’t be stubborn, and don’t listen to experts (including me!). If you’re making buying or selling decisions, you need to deal with the facts in front of you.
 
And that goes for you too, Jim. I know you’re hanging out for a 10% pop in prices before the election in May, but you can’t count on it!
 
Tread Your Own Path!

Should I Go to Cash?

Hi Scott,
 
Love your emails!
 
I’m sure you'll get a million questions to this effect, but what should we do with our super based on Warren Buffett’s indicator? Do we move our super investments to more conservative options (cash, etc)?
 
Hayley
 
Hi Hayley
 
I can’t tell you what you should do, but I can tell you what I’m doing:
 
Nothing.
 
Here’s the problem with converting to cash ahead of a crash:
 
You have to be right twice.
 
As in, you not only have to pick the right time to sell your shares and move to cash … but you have to pick the right time to buy in again, just before the market recovers.

And, as my wife will tell you, I’m rarely right once … let alone twice!
 
When you look at the long-term track record of the markets, things have turned out exceedingly well if you follow another piece of advice from Buffett:
 
“The trick is, when there is nothing to do, do nothing.”
 
And that’s good enough for me!

-Scott.

Young and Stupid

Hi Scott,

Our Year 12 economics teacher just read out one of your Q&A newsletters in class. An 18-year-old guy had written to you confessing he’d spent $8,000 on a credit card. He said he felt a burden to share it because many Aussie teens fall into the same trap. It dawned on me that I’m now eligible for a credit card too. The $$$ symbols flash before my eyes, just for a moment. It clearly illustrates just how easy it is to fall into stupid mistakes being young, and I really don’t want to be stupid. So I’m simply writing to say thanks. I’ll definitely be getting your book!

Annie
 
Hi Annie
 
You’re right, you can get ahead of most people in life simply by avoiding doing the ‘stupid’ stuff. That’s how people stay in loving relationships, out of jail, away from debt collectors, and with their adult teeth intact.
 
Yet if you really want to thrive, and live an amazing life, you need to go one step further. You need to actively build up the belief that you, Annie, are a really savvy woman with money.
 
How do you do that?
 
You prove it to yourself with the little actions you do, starting today.
 
Yes, you avoid credit cards, but you also open an investing app and start buying index funds. Yes, you avoid Afterpay, but you also set up your buckets and start saving for a house deposit, even if it’s years into the future.
 
I’m a self-serving grubby author, but I’ve always thought my book makes a good graduation present.
  
Good luck!

-Scott.

I Don’t Want to Adult Anymore

Hi Scott,
 
My husband and I are in our twenties. We have just gotten our first mortgage and have had a real shock at how much it costs to be adults, and frankly we don’t like it. After living with my parents for three years, and two kids later, we are finding it tough. Our mortgage is just under 60% of our income, so I don’t know how I can get our expenses to under 60%. We both work full time and our kids are in daycare. My husband is an apprentice plumber and I’m in the public service. He tries to get cash work but it’s hard competition out there. I’m just not sure how we can survive considering we got our mortgage only three months ago so refinancing is not really an option. Any tips?
 
Bindi

Hey Bindi,
 
Yes, being an adult totally sucks.
 
And, just when you think it couldn’t get any suckier, you’ll get hit with your council rates, then house and contents insurance, and the hot water service will go to god … all on the same day.
 
Now I’m assuming you went through the ‘Bank of Mum and Dad’ to help secure the loan, because you wouldn’t have gotten it on your own.
 
In that case, you serve as the ‘after’ mugshot of what happens when you give kid-ults a hand-out disguised as a help-out.
 
You’re reaching for the ripcord three months after you got the loan?!
 
Surely you looked at what your repayments would be before you signed on the dotted line?!
 
Bindi, I’m reaching for a paper bag because I’m hyperventilating at the moment.
 
BREATHE, BAREFOOT!
 
Okay, so my breathing is back under control. Let me put away my paper bag and my passively aggressive double dose of exclamation and question marks and give you some advice.
 
You’re parents now, so it’s time to behave like responsible adults.
 
So I want you to call your bank and tell them you’re in hardship. Show them your budget. They’ll likely allow you to switch to interest only on your home loan – which will reduce your repayments – perhaps until your husband finishes his apprenticeship, and he starts earning some decent coin.
 
Until then, enjoy the baked beans, do your Santa shopping on Gumtree, and sell whatever you can to get at least $2,000 Mojo in the kitty.
 
You will get through this, and it will make you stronger and wiser.
 
Promise.

-Scott.

Haul

When I was a kid we’d drive to the ‘big smoke’ (Mildura) once a year to do our Christmas shopping.
 
For my mum shopping was a social event.
 
She’d meet up with her friends. She’d try things on. And, if the sales assistant did a good job on her, she might even pop it on laybuy (stuff was expensive back then).

And while my mum was having the time of her life, my old man was … standing out the front of the shop. The thought of going into an airconditioned shop for a bit of a ‘looky look’ never crossed his mind. So he either stood in the 40 degree heat reading the newspaper, or made small talk with the other dads that were doing the same thing.
 
Isn’t that outdated with a side serving of sexism?
 
Sure, but that was my childhood.
 
Twenty years later, the internet changed shopping forever.
 
It went from being a real-world social event to a solitary pastime. There is no friction, no waiting, no talking, and an unlimited range of everything. You buy (often with Afterpay), enticed by free shipping, knowing that you can simply send it back if it doesn’t fit. The internet essentially became a giant shopping mall, and there was a sale happening all the time. (Next week: Black Friday … followed by Cyber Monday. Ho, Ho Ho!)
 
Yet in the last few years shopping has gone Tik Tok on us.
 
The fastest growing retailers on the planet right now are Temu and Shein.  
 
Here’s the model: they sell outrageously cheap junk direct from factories in China (essentially they make it on demand) and deliver it to your door in a throwaway plastic bag.
 
And this week Amazon joined the fray by launching their very own copycat service called Haul.
 
“Say hello to crazy low prices: unbelievable finds $20 and under”, the banner says on the Haul app (though Amazon has said that most of their junk – my term – will be priced under $10, and some under $1).
 
And in doing so they have announced a new chapter in retailing:
 
Shopping is now a form of gambling.
 
Yes, gambling.
 
On Temu you can buy three outfits for $20. An entire dinner set for $8. An iPhone charger for $1.25.
 
And when you hit ‘buy’, you’re taking a gamble:
 
You know it’ll likely break, it’ll be dodgy, or the sizing will be way off.
 
Yet if you wear even a couple of items from your haul, that’s a win, right?
 
And because it’s all so incredibly cheap you’re not going to bother sending it back.
 
Anyway, I spent some time on the site, and here’s my shopping review:
 
It’s the shopping equivalent of MAFS.
 
You don’t need anything on this site. You’ll be dumber for buying it. Like MAFS it’s just plastic junk designed to drill your dopamine and leave you unsatisfied.
 
And it’s also terrible for the environment.
 
Here’s the lifecycle:
 
It goes from some factory in China, to your joint, to your cupboard, to your big red bin, and then to the bottom of Sydney Harbour (or wherever those garbo trucks go).
 
Tread Your Own Path!

Social Media is the New Smoking

Scott,
 
Australia made global headlines this week after the Government moved forward with a plan to ban under-16s from accessing social media. I know you’ve been all for this, but, as a mother of three teenagers who are permanently attached to their phones, I wonder how practical it will be in the real world. Would love to hear your thoughts.
 
Zara
 
Hi Zara
 
It sounds like your kids are in the same leaky ship as many others – Mark Zuckerberg’s SS Algorithm – and it has well and truly sailed. And just like the rest of us aboard, they are doing unpaid, stressful, around-the-clock work for a billionaire.
Personally, I think these proposed laws will be about as successful as the age limit for drinking or smoking: the reality is that if kids want to drink or smoke they will. There’s always someone with a fake ID, or a loose parent who’ll buy booze for their underage kids.
 
This is how life happens.
 
Still, I think the Government should be congratulated for kicking big tech in the shins (though I draw the line at their ‘Misinformation and Disinformation Bill’, which seems a little too Orwellian).
 
As they say in the classics, “and so it has begun”:
 
Social media is the new smoking.
 
It’ll take a while to fully catch on, but, make no mistake, that is where we are heading. The problems that social media is causing young people are too big and too important to ignore. Eventually – and hopefully not too many years from now – we’ll collectively turn on them.
 
This is how life happens.

Scott.

HECS Debt is Bad Debt!

Hi Scott,
 
I understand that HECS debts don’t attract a traditional interest rate, but mine goes up like 25% a year, which is way worse. Also, I believe that there was a rule change and HECS debts now no longer die with us, which means our poor kids could be left with nothing.

Sarah
 
Hi Sarah
 
I’m taking it that you didn’t study statistics at uni … your HECS debt has not gone up by 25% in a year!
 
HECS debt is designed to keep up with ‘today’s dollars’ by increasing the debt by whatever the Consumer Price Index (CPI) does each year. No one gave a toss about this until 2023, when a bout of high inflation increased HECS debts by a massive 7.1%.
 
In response to that bill shock, HECS debts will soon be matched to whichever is lower out of the CPI or the Wage Price Index (WPI). And once legislation is passed it will be backdated, which would bring down the 7.1% in 2023 to 3.2%, and the 2024 rate of 4.7% to 4%.
 
The other thing to know is that the wage you need to earn before you start making repayments is increased every year, and there are plans to make the repayments more in line with marginal tax rates.
 
Finally, you do not have to pay off your entire debt when you cark it (and nor do your kids).
 
The executor of your will is required to file all tax returns up to your date of death. If your annual HECS repayment is owing, it’s paid from your estate. Any remaining HECS debt is then written off by the Government.

Scott.

Stoned on Weed Stocks

Hi Scott,
 
Do you know what is happening with the medical cannabis companies? I had shares in AC8 and CGB and both have been delisted. Others are only worth 1/100th what I paid for them! Should I be freaking out?
 
Andrew
 
Hey Andrew,
 
Dude, it sounds like you’ve been well and truly smoked.
 
A few years ago it felt like everyone was getting high on cannabis stocks. I vividly remember a mate of mine – a comedian – trying super-hard to persuade me to have a toke on his favourite pot stock.
 
No joke!
 
Now I don’t doubt for one second that there’s a huge market for medicinal marijuana, as well as for plain old Mary Jane. Case in point: more Americans smoke dope each day than drink alcohol, according to data collected by the National Survey on Drug Use and Health.
 
Still, the reality is that traders blew up the valuations of these start-up businesses way too much. Now the market has come off its high, and there are a lot of marginal businesses that aren’t worth anything like the prices investors paid for them in the boom.
 
Should you be freaking out?
 
I think the time to freak out was a long time ago. I’ll leave the rest to you, Scooby-Doo.

Scott.

Why is the smartest investor in the world ... selling?

Strap yourself in … the Trump trade is on, and everything is going up.
 
The day after Donald won the election, the US stock market surged 1,500 points – the biggest post-election gain in 128 years.
 
Even better, Trump says we should be preparing for a ‘golden age’ of investing returns as he slashes corporate taxes and loosens up those annoying rules and regulations for his billionaire buddies.
 
MAGA!
 
However, there’s another billionaire who’s been doing the exact opposite … he’s been selling down his holdings as share prices climb.
 
Even worse, that billionaire just so happens to be none other than Warren Buffett, the greatest investor in history.
 
What’s going on?
 
Well, Buffett famously doesn’t try to time the market, and he pokes fun at anyone who believes they can. However, he does have a valuation yardstick that lets him know when the market is out of whack.
 
It’s called the ‘Buffett Indicator’, and it takes the total capitalisation of US stocks and divides it by US gross domestic product (GDP). The idea being that if stock prices rise faster than the economy grows then it may be a sign of a bubble.
 
The Buffett Indicator flashes warning signs to investors when it surpasses 100%.
 
As it did at the height of the Dot.Com bubble.
 
… and before the Global Financial Crisis.
 
… and at the beginning of the Covid crash.
 
So where is it sitting today?
 
208%.
 
That’s the highest it’s ever been (“HUGGGE” in Donald Trump language).
 
In other words, the Buffett Indicator is screaming “SELL”.
 
And that’s what Buffett has been doing. He’s been stockpiling record amounts of cash, presumably to allow him to once again be “greedy when other people are fearful” (which is how you become one of the richest people on the planet).
 
Okay, so by now I’ve probably thoroughly confused you.
 
Which billionaire should you believe?
 
Well, I’m inclined to believe both of them … though I think Buffett will win out in the end, if for no other reason than he generally does.
 
Let me be clear: stocks could (and probably will) rise from here.
 
However, in the long run share prices always revert to their long-term averages, which means there’s a possibility that returns over the next 10 years are not as likely to be as good as those of the last decade.
 
Right now, few investors are thinking about what may be lurking around the corner.
 
 Case in point: The share market is not only at record highs, but the latest US Consumer Confidence figures show that investors strongly believe that stocks will continue powering ahead. In fact, investors haven’t been this confident that stocks are a no-brainer since (checks notes) …
 
 … since 1987, when stocks savagely plummeted 25% in a single day.
 
Still, as I said a few weeks ago, history has proven that it doesn’t matter who is in the White House. What matters is that you hold through both the good ride (like today) and the inevitable crash.
 
 Buckle up!
 
 Tread Your Own Path!

The Working Poor

Hi Scott,
 
I'm a single mum of two very active teenagers. I earn a decent full-time wage but I am overwhelmed by debt. Right now, I only have $50 left in my account until the next payday. Their father doesn’t contribute. There isn’t a facet of our lives which is not struggling and scary daily. I’m receiving defaults and letters of demand from debt collectors, and I’m behind on my rent. I’m committed to getting out of this situation and have even started selling items to raise the $2000 for a Mojo account. After escaping an abusive relationship and being homeless, I want more than anything to give my children a stable and worry-free existence. Can you recommend a financial advisor who can help me set up the investment accounts for the kids?
 
Jenny

Jenny
 
There are things your kids need:
 
A loving mum who isn’t totally stressed out and working round the clock. A warm house with food on the table. Eight hours of sleep. Part-time jobs so they can fund their active lifestyles.
 
A stock market trust fund is not one of them.
 
The way you give your kids a stable life is to get stability yourself. Research from Deakin University has found that the financial stress that you’re under feels the same to your brain as physical torture. In other words, you can’t operate like that for too long – it takes a toll on everyone.
 
So I want you to call the National Debt Helpline on 1800 007 007, and talk to a financial counsellor. They’ll sort out who you should pay, and who can bugger the hell off for the time being.
 
Jenny, I want you to know this:
 
 I think you’re doing a great job keeping it all together. All the sacrifices you’re making, and all the hard work you’re doing, isn’t going unnoticed. Your kids are watching and absorbing everything you’re doing for them, even if they don’t tell you today. You’re making a hell of a difference, you just wait and see.

Scott.

Your Password is a Problem

Hi Scott,
 
I found out about this through my work last week and I wish someone had told me sooner. It’s a government website that shows you how long it would take a hacker to crack your passwords. It’s quick and easy to use! www.nsw.gov.au/id-support-nsw/be-prepared/passwords 
 
Karen
 
Hi Karen
 
What a cracker of a tool!
 
Here’s what the site told me about my password:
 
“Warning! It would take about 2 minutes to crack your password”.
 
(Even more worryingly, apparently it has been seen in two data breaches).
 
I love it when the government comes up with something actually useful. Thanks for the tip.

Scott.

Is HECS Still a Good Debt?

Scott,

My son has two degrees but hasn't found work in his field. He is employed full-time but doesn’t earn enough to pay off his $85K HECS debt. It feels like a noose around his neck, and at 33, he’s convinced he’ll never own a home because of it. His self-esteem is plummeting, and as a parent, I’ve decided to pay it off. Schools push kids to go to uni, but now he wishes he had done a trade like his brothers. I just want young people to know—don’t be fooled by “interest-free” HECS. It adds up every year with inflation!

Megs
 
Hi Megs,
 
Well done for being in the financial position to come to your son’s emotional rescue.
Sadly, I think buying a home now depends on the Bank of Mum and Dad. Yet for the kind of people Paul Kelly sings about (‘they got married early, never had no money’), well, I think they’ve really hit the skids.
 
Anyway, do I think HECS is still a good debt?
 
Yes I do.
 
Look, the reason most people choose to go to university is so they can eventually get a well paying job.
 
Sure, it’s not as fair as, say, when Albo went to uni, he got to study being a student politician for free. However there is no interest charged on the loan, no repayment deadline (and it’s written off when you die), and the repayments only increase in line with your income.
 
That being said, you are 100% right: it is yet another piece of lead in the saddlebags of young people trying to buy their first home. Especially since 2022, when the government regulator changed the lending laws to require banks to take into account your HECS debt.
 
Here’s what that looks like:
 
Someone earning $80,000 a year, making HECS repayments of $3,200 a year, will have their borrowing capacity reduced by $32,000, according to Flint Mortgage Group. In other words, your annual HECS repayment reduces the amount a bank will lend you by a factor of ten.
 
(Note: Labor’s latest election vote bribe promises to cut your HECS debt by 20%, So vote one Albo, the battler bought up in housing commission, who now lives in a clifftop mansion, and gets to sit at the pointy end of the Qantas Club).
 
In that regard, it may be worth paying down your HECS depending on how much you need to borrow. However, that being said, that may also mean you need to factor in Lenders Mortgage Insurance (LMI), which insures the bank, not you, and will cost thousands of dollars over the life of your loan.
 
Still, I think the lesson for your son is a simpler one:
 
Don’t spend $85,000 studying two degrees that you can’t find employment for. I mean, what the hell did he study … Middle Eastern pottery?

Scott