The Barefoot Investor answers some questions from fellow Barefooters, if you’ve got a question for Scott, ask him here.
Slugging my girlfriend
Hi Scott,
I am an avid reader of your Sunday Herald investment column. My girlfriend is not. The other day I looked at her (already opened) bank statement and found she’d been slugged $60 in the last month on ATM fees! When I confronted her with it, she just shrugged her shoulders. Do you have any recommendations?
Ta, Sam
Hey Sam,
In most relationships one person is usually the bookkeeper, the other is the client from hell. You’re the bookkeeper. I’d suggest you do two things:
First, take her out for a nice (but cheap) dinner, buy her nice (but cheap) flowers, end the night with a romantic walk and a nice (but cheap) ice cream. Explain that the night cost less than $60. Ask her which made her happier.
Second, have her sign up for an ING Orange Everyday account. It has no monthly account-keeping fees, and as long as she withdraws $200 or more at a time there are no ATM fees at all.
My Best Investment: Empowerment
Hello.
I used to manage my own share portfolio (with some degree of success), but my returns were only subject to market performance and I often felt powerless. Your Blueprint stock advice has helped me gain a much deeper understanding of investment. I now feel a sense of ownership and individual achievement, and I see the benefits daily.
Good to hear Brad. I genuinely see our Blueprinters as investment partners, and I’m honored to help.
Should I be Worried about America’s Debt Bomb?
Hi Barefoot,
I’m a new investor (thanks to you), but I’m worried about what’s happening in the US right now. I have to admit that I only have a limited understanding of economics, and I don’t really understand how the Federal Reserve ‘tapering’ will affect me? I’m hoping you can explain it to me in English!
Thanks, Daniel
Hey Daniel,
The first thing to understand is there’s no textbook explanation for what has happened over the last five years.
Essentially the world was hoodwinked by a bunch of greedy bastards on Wall Street. And infuriatingly, they haven’t learned their lesson: according to the Bank of International Settlements, the share of “leveraged loans” in global credit markets is now at an all-time high – ten per cent higher than the pre-crisis peak of 2008.
To mop up their mess, the US Federal Reserve created an emergency stimulus program – that’s been going on for five years. The centrepiece of the program sees them inject a staggering $85 billion straight into the veins of the US economy every single month.
And this week Fed boss Ben Bernanke decided that the American economy was still too fragile to turn off the debt drug – or even begin tapering them off. Eventually the US will have to wean itself off the drugs – and it’ll be painful for everyone when they do (so like a junky, they keep putting it off).
Here’s how it affects you:
First, share markets will more than likely continue to rise – right up until the drugs are shut off, or their potency begins to wear off – and make no mistake, it will happen.
Second, the Aussie dollar will continue to be strong. By printing so much debt, the US is weakening its dollar – and the more they print – they less it’s worth. Like a sea saw, that makes our dollar go up.
RBA boss Glenn Stevens has made it very clear it wants the Aussie dollar to go down, to help rebalance our economy away from the mining boom, and give our manufacturers a fighting chance.
And finally, that explains why there’s a good chance the RBA will cut rates again by the end of the year. However the one thing the US has taught us is that ultra-low interest rates aren’t always a good thing.
Good luck, and thank-you for your support.
Sneaky Girlfriend
Hi Scott,
I fooled around in my early twenties and managed to build up quite a substantial personal debt (I’m now 33). It was never an issue when I was single, living the life and earning enough money to pay the minimum repayments.
I thought I had enough money to go on overseas holidays but was scared I may run out of cash, so rather than using my credit card I’d take out an extra personal loan. The intention was obviously always to return, work hard and pay it straight off. This never happened.
Then I met a lovely boy from the country. After 12 months of long-distance dating, I made the move to the country and thought it would be easy enough to find work. Of course, I couldn’t move until I went on one last little sneaky 6-week overseas jaunt with my girlfriends.
Upon my return, I had a lovely man waiting for me. But I also had no job, no money and a $50,000 personal debt. Scary! I am now working a job where I earn 50 per cent less than I used to and am struggling big time to make repayments, let alone live and contribute to the household. PLEASE HELP!
Cheers, Danielle
Hi Danielle,
First things first: there’s nothing ‘sneaky’ about taking a six-week overseas holiday.
Now if I were Dr. Phil I’d probably suggest that your holiday was a subconscious attempt to sabotage your new relationship. But I’m the Barefoot Investor, and instead, my area of expertise is shaped by years of dealing with people who do stupid things with their money. So let me give it to you straight:
You’re an 18-year old girl trapped in a 33-year old woman’s body. The real reason you went on the trip is because you’ve spent your entire adult life behaving like a teenager, and you correctly sensed that you were about to have to ‘grow up’.
Don’t ask, or expect, your boyfriend to help you out financially. Until he puts a ring on it, it’s not his problem. You need to learn your lesson today – or you’ll bankrupt him in ten years time.
The best outcome would be to prove to yourself that you’re a strong, independent, mature woman who can mop up your own mess. How? Well, by taking a second (or third) job, and smashing your debt in around four years. Unfortunately it’s going to take some old-fashioned hard work.
Good luck… to both of you.
Rent or Buy?
Hi Scott,
I am a 23-year old university graduate in my first year of full-time work. I earn about 57k and have about 12k in shares, 16k in an FHSA and 10k in my ‘Mojo’ account.
My girlfriend and I have been dating for 3 years and are looking at moving out in the near future. We are both currently living with our parents. However, even with historically low interest rates, Sydney property prices make me physically sick.
My question is: is the Australian ‘dream’ of owning a house all that it is cracked up to be? Given the interest payments on a large mortgage (even with a 20 per cent deposit), wouldn’t we be better off just renting wherever we wanted to live and building a nice portfolio of shares through a discretionary trust? At least we would see some income from the shares!
Thanks, Mitchell (Or… every first home buyer in Sydney)
Mitchell,
There’s nothing saying you need to buy a home, except for the fact that you’ll lose the money in your First Home Saver Account (FHSA), which will be rolled over into your superannuation fund if you don’t purchase a home. Oh, and you might also eventually lose your girlfriend, because if you two get married, she may want to raise a family in a home of her own – most people do.
Should I Dump My Shares?
Hello Scott,
I have 2,000 Goodman Fielder shares that I purchased when they floated at $2 a share. Should I sell them and cut my losses?
Cheers, Jackie
Jackie,
Don’t compare today’s price with what you paid. The stock doesn’t know that you got on board at $2. Its value today is based on what its future prospects are – not the past. The question you need to ask yourself today is: “If I didn’t own Goodman Fielder shares, would I buy them now?”
I wouldn’t buy Goodman Fielder shares today. It’s been struggling for years, has a low return on equity and doesn’t look like turning the corner anytime soon. I’d cop the loss and invest in something that is offering better prospects.
HELP! Should I pay off my debts?
Hey Barefoot,
I’m thinking about voluntarily paying my entire HELP (uni) debt of $17,500 and credit card debt ($880) with my $23,000 savings so I can be debt-free, and have $4,380 left over to begin my emergency fund. Then I’d begin saving to increase my emergency fund to $9,000 (6 months living expenses). And finally, my third move would be to save towards investments. Does this sound like a good plan?
Thanks, Paul
Paul,
While I think it’s great you’re so committed to becoming debt free, I don’t want you to use your savings to pay off your HELP debt. While technically it is a debt, its repayment is contingent on your level of income, and there’s no interest rate applied other than a yearly revaluing to reflect the cost of living.
Right now you only get a 10 per cent discount for making a voluntary payment against your HELP debt (and from the 1st of January next year the Government will scrap the entire discount). I’d rather you instead put that money into a Mojo savings account and begin building your wealth through a combination of shares in your own name as well as contributions to superannuation.
How much do I need to start investing in shares?
Hi Scott.
I really love your approach to money, and I’ve been thinking about investing in shares. My question is how much do I need to begin? Right now I have $4,000 that I’d like to invest, but I’m not sure if that’s enough.
Thank you, Sarah
Sarah,
You’ve got more than enough to start. I’d suggest you set up an account with an online discount broker (Google them), and buy some shares in a Listed Investment Company like the Australian Foundation Investment Company (AFIC), or Argo Investments (ARG). Then sign up for their dividend reinvestment plan when they send you the paperwork.
And don’t worry about having a small amount. If you’d stuck a $1,000 into the CBA when they first floated in 1991 it would be worth around $38,000 today!
And some more feedback…
Dear Barefoot
I just wanted to drop you a quick email to give you a “pat on the back” for providing a great service!
I recently purchased a subscription to another financial newsletter and a mate purchased a subscription to the Blueprint.
I have to say that the sense and information coming out of Barefoot is much better than the other newsletter. Even things like the graphic design of the blueprints make them a pleasure to read compared to the other business’s reports.
They seem to be clutching at straws every month trying to find a recommendation in this inflated market. I find that Barefoot “think out of the box” a bit more.
Here’s a bit of advice from a customer (well I will be next year anyway).
Please do not feel that you need to give a monthly recommendation if you truly cannot find value in the market, remember there are a lot of Australians who rely on your guidance and for the sake of them (us) I’d prefer to see “sorry guys nothing this month but our recent recommendations are still below the buy price so fill your pockets!” than a poor recommendation.
Cheers and happy investing. Dicken Patterson.
Dicken,
Thanks for the feedback. The difference between us and other “investment newsletters” is that we don’t believe that we are one. The Blueprint is about creating a community of wealth-builders and providing you with the tools you need to make your own informed decisions.
Cheers to dropping us a line. It sounds like you have the right attitude and we are looking forward to having you in the Blueprint next year.
Best, Scott.
Stock Goes Up 240 per cent, is it a buy?
Hey Scott,
I have been following XERO Ltd for a while now and they seem to be killing it. I’m only new at investing, but I wonder, have I missed the boat in investing in this company? Is there a still lot of growth here?
Cheers, Ali.
Hi Ali,
I use Xero in my small business – it’s great accounting software. Yet I haven’t invested in the company – even though it’s up 240 per cent in the past year. Why? Well, because the business is burning through millions of dollars, and has yet to turn a profit.
Help us Buy a Business
Papey,
Love your work mate – appreciate what you’re doing for us all!
My partner and I are both 24, and are looking at tackling a business in a country town where we grew up.
Our dilemma is this: the business purchase price is around 500k. We have about 50k in savings and about 20k in assets, which we can sell for cash. The business has about 200k in plant/equipment. The business profits about 100k per year.
From what I can tell, our only real options are:
1. Get our parents to go as guarantor
2. Get the fellow to vendor finance / partially finance us
3. Attempt to buy a house with the 70k deposit we have, build equity and in 12 months’ time, try and borrow off that – will the bank lend against the business’ turnover / profits?
We are a young couple and are willing to have a crack at the business, and can really see it growing. The current owner wants to help us make it bigger in the first 12 months, and then he would peel-off all together.
What would you suggest?
Thanks, Ben and Sarah.
Hi Guys,
The first thing I want you to do is get an accountant to value the business for you. I’m from a small business, country family, and I can tell you that there are very few small businesses that sell for three times earnings ($500,000 purchase price, minus $200,000 plant and equipment – based on $100,000 a year).
If you’re the only one bidding – lower your bid.
In regards to paying for it, leave your parents alone – they need to focus on their retirement.
Your only realistic scenario is option two: offer a small down payment (but keep at least three months of expenses spare in your Mojo account), and then offer to earn-out the balance over a number of years.
Losing Sleep Over Buying a House
My wife and I are both 32 and have a two year old. I make about $200k per year after tax and we have about $200k in the bank with about $40k in the share market. We had been saving a 20% house deposit (hence the large sum of cash), but we have now moved to the USA for a 3-year period.
We never bought a house in Australia as it seemed too overvalued. We bought a house in the USA, but I’m really worried we will never be able to afford a house in Australia if prices keep going up at 4-6 per cent a year (we want to buy a $1 million house).
It might seem like a really middle-class problem, but this is really stressing me out to the point I am losing sleep over it. I really want to make sure I don’t mess things up for my wife and daughter and that I can create a comfortable life for them.
What should we do to make sure we can afford a house when we come home?
Mike.
Hi Mike,
A first world problem indeed. You’re not going to ‘mess things up’ for your family if you don’t buy them a million dollar home. It’s likely that they’d be ‘comfortable’ in a $600,000 home, especially if it meant they’d have a chilled father who’s getting plenty of sleep.
Alternatively, keep an eye out for your dream home here – if you find it (and you can afford it), you have the option to rent it out until you return.
Please do my assignment for me!
Hello, my name is Dale, and I am a student at a high school in Adelaide.
One of my subjects, Society and Culture, requires me to contact at least three experts in the field of economics. My topic is “The effect of rising house prices on young adults in Australia”. I have a few questions that I need to ask in order to gain the information.
Here they are:
1) Is the government doing enough to assist young adults with buying their first home? What do you suggest could be done?
Barefoot’s answer: The government has already done too much. When has throwing money at anything made it cheaper?
2) Who controls local house prices?
Barefoot’s answer: Ultimately, banks control house prices by how much they’ll lend people. In the boom years they were happy to lend 105 per cent of the value of a property. Today they’ve wound it back to around 90 per cent. That’s why bankers have a lot of power – arguably as much as some politicians.
3) When young adults remain living with parents, what effects does this have on society and the economy?
Barefoot’s answer: Well, socially… they tend to spend the third date in their Kia Rio…
The effect on the economy is that many people put off home-ownership until later in life. Housing is one of the main drivers of the economy, so politicians like to encourage it, regardless of the unintended consequences (see my response to question one).
4) Do you think that rising house prices and falling birth rates are related?
Barefoot’s answer: No, I think rising house prices are directly related to people’s willingness to take on increasing amounts of debt.
5) Do you think that the government grant of $15,000 (for a new home) and $5,000 (for an older home) is adequate? Why?
Barefoot’s answer: No, see my response to question one.
6) Do you think that financial literacy should be taught at a young age in Australian schools?
Barefoot’s answer: Yes, and it is. I’m working with the ASIC MoneySmart team to roll out financial education to every school across the country this year. Good luck with the assignment!
Have you got a burning (or even warm) question for the Barefoot Investor?
Ask him here.
Tread your own path.
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