How will Australia's younger generation get ahead?

[Smurf1976]

Security of employment is the big thing that seems to have changed.

In the past someone out of work could always just put their name down with the council, utilities or any of the many factories and have themselves a manual labouring job straight away. Not glamorous and a temporary thing for many but it ensured they could pay the bills and in many cases lead to better opportunities with the same employer.

In 2018 licensed trades and more in demand professions are about the only thing that's certain to get you some sort of job. Even taxi driving is pretty much stuffed these days whereas it was always a fallback option in the past. No point putting your name down with a dozen factories that have all closed or with a government department that outsourced the work to someone who's using FIFO workers from interstate. Etc.

I'm not saying it's all doom and gloom but I do think the security aspect has been eroded greatly for most workers.

I also think there's a huge problem with the concentration of work in Sydney and Melbourne. Trying to be objective given that I don't live in either but I do think it's a problem and not a good thing. In the past there were plenty of major companies that had offices in other states such that those seeking such employment weren't forced to move to Sydney or Melbourne as they are today.

 

[Triathlete]

If people starting out today think they are going to get ahead working just a 38 hour a week then they are sadly mistaken.....

Even when I started I was on about $450 (as a tradesman )a week trying to pay a mortgage of$60,000 (my part was $30,000) when interest rates were 13-17% it was not easy in 2 years all I could pay off was $2000 off the principal ......Then I left my job of 10 years and got into construction and shutdown work around Australia and working 6/7 days a week 10-16 hours a day for 5 years. My income increased substantially from $1500 - $3000 a week and then I was getting ahead.

It was definitely a hard slog and certainly do not want to do that again but it certainly set me on my way and was able to get ahead......last of the baby boomers.

 

[Tisme]

Maybe it didn't make it simple enough for you to understand, instead of insults and name calling, which even I gave you more credit for, I ask if you could explain what you where trying to say.

If that is being a troll or hysterical then that is what it is, sorry I am not up to date with modern jargon, as I clearly stated I am a simple person and look for simple and clear explanations to problems/issues and discussions.

As you cannot or are not willing to provide then it is you my friend who is being a hysterical.

You ride in from nowhere a few weeks back with the sole intention of sorting me out with inflammatory yadda yadda and find out you are bested instead. Now you are trying the victim card.

Simple codec 0.6 = 5 days x 0.6 = 3 days a week. This is not my invention, it's employment contract talk.

 

[sptrawler]

Interesting perspective from Tisme on how the last 50 years years have rolled for us baby boomers. I have to say that I'm confident the basics of my observations are quite sound.

It was a fact that any fulltime worker in the 60's could scape together a deposit for a house, and depending on relative income become a house owner in various parts of Melb, Sydney wherever.

It was a fact that we had largely full employment in the 50's and 60's ( and that meant almost everyone with a pulse) that most of the jobs were full time, many were secure and if you didn't like it you could find another one relatively easy.

True we (largely) didn't get handouts from our parents. But to be fair that wasn't as necessary as today.

Other peoples thoughts ?

In the 50's and 60's, the population of Australia was around 12 million. Most jobs were Government or local council, those that weren't were mainly agriculture based, which broad acre farming has all but killed off.
The underlying problem is, the majority of a "normal persons" wealth, is their prime residence.
The baby boomers enjoyed an ongoing increase in wages, which to be honest was inflation driven, over the last 40 or so years.
This has made the value of the baby boomers prime residence rise, their wages rise and in turn made the relative amount they paid for their prime residence fall.
Due to the GFC and the fall out, inflation has fallen and wages have stagnated, therefore the cost of property as a percentage of wages will be a problem. IMO
If inflation remains low, which I think the Governments are really scared of, then growth will stall, eventually.
If there is no incentive to invest, people will just grunt away and pay off their mortgage, the downside to that is the building industry will fall off a cliff.
Australia really can't afford to have a massive contraction, on any front ATM, if they do, my call is we go into recession.
Time will tell.
But the thread has stimulated some great debate.

 

[Value Collector]

The underlying problem is, the majority of a "normal persons" wealth, is their prime residence.
.

If someones only "wealth" is their place of residence, there is fundamental flaw in that.

You need to own more than just your primary place of residence because you need to consume more services than just your primary place of residence, So if you limit your capital base to simply owning your own home, you will be forever tied to a job or government welfare to supply the rest of the products and services you need/want to consume.

If you want to be completely financially independent, you not only need to own your home, but you need to own enough other assets to cover all the other expenses eg- food, water, energy, transport, luxuries etc etc.

you can do this simply by owning a global index fund, you then pretty much own a cross section of the global economy, that can provide you with you share of the out put of the global economy and allow you to eat, maintain your home, have the lights on and maybe go on a holiday.

If there is no incentive to invest, people will just grunt away and pay off their mortgage,

there is a huge natural incentive to invest, its just the average person isn't made aware of it.

 

[SirRumpole]

If you want to be completely financially independent, you not only need to own your home, but you need to own enough other assets to cover all the other expenses eg- food, water, energy, transport, luxuries etc etc.

I don't think so.

Tax free superannuation supplies the needs and wants of retirees and by then they should have also paid off the mortgage so their expenses are reduced.

 

[PZ99]

I don't think so.

Tax free superannuation supplies the needs and wants of retirees and by then they should have also paid off the mortgage so their expenses are reduced.

Let's just hope the goalposts aren't moved in this area. The super industry will want to raise the preservation age to 125 because we all live longer apparently...

 

[luutzu]

I don't think so.

Tax free superannuation supplies the needs and wants of retirees and by then they should have also paid off the mortgage so their expenses are reduced.

Super managed by the smart monies are stuffed too. It was supposed to be enough for retirement but creative billings together with creative incompetence have seen people's retirement fund siphoned off for win or losses.

With the current property bubble, super are permitted to be taken out and into their one property. Well, maybe that's a better of the bad options.

 

[moXJO]

You don't think that perhaps you are coming into contact with a fairly select group who have the gumption to join the Reserves whereas the "average" of the younger generation may be different ?

The reserves and regular grunts were full of some of the biggest social retards in my day. If anything they were behind the curve.

 

[luutzu]

Let's just hope the goalposts aren't moved in this area. The super industry will want to raise the preservation age to 125 because we all live longer apparently...

They'll definitely try again to have a higher rate of contribution. Their performance have been so good that they need more money to make it gooder.

 

[Value Collector]

I don't think so.

Tax free superannuation supplies the needs and wants of retirees and by then they should have also paid off the mortgage so their expenses are reduced.

That is my point, you need to own more productive assets than just your house, if you plan to build up those assets in super thats fine, however relying solely on super has its flaws.

1, A lot hit retirement age with insufficient super unless they have contributed extra.

2, money in super is locked away until retirement age, so you will have trouble retiring early even though you may have the funds.

3, you might not be able to work your whole life, and unless you have been putting away extra investment funds you may find your self redundant years before retirement age, with a house with 7 years of payments remaining but no assets to feed you.

So yeah, you should definitely be building up a nest egg outside of super, or at a minimum be contributing more than the standard employer contribution.

 

[SirRumpole]

So yeah, you should definitely be building up a nest egg outside of super, or at a minimum be contributing more than the standard employer contribution.

All valid points, but then investing in shares has it's risks too.

AMP seemed a great investment (my broker told me so ) and looked what happened.

 

[luutzu]

That is my point, you need to own more productive assets than just your house, if you plan to build up those assets in super thats fine, however relying solely on super has its flaws.

1, A lot hit retirement age with insufficient super unless they have contributed extra.

2, money in super is locked away until retirement age, so you will have trouble retiring early even though you may have the funds.

3, you might not be able to work your whole life, and unless you have been putting away extra investment funds you may find your self redundant years before retirement age, with a house with 7 years of payments remaining but no assets to feed you.

So yeah, you should definitely be building up a nest egg outside of super, or at a minimum be contributing more than the standard employer contribution.

Why is it called "employer contribution"?

Employers simply take waht they would otherwise pay to the employee and send it off to the smart money.

What you're saying is true. Just that for most people it's hard, if not impossible, to.

Most that I know who managed to save enough would put it on a second property, then a third. Some might think that that's reckless and lack diversification etc., but that's what they know and feel comfortable with.

Then, if, the property market goes to heck. That's all their life's savings gone.

Don't think most have the luxury of a do-over.

 

[Value Collector]

All valid points, but then investing in shares has it's risks too.

AMP seemed a great investment (my broker told me so ) and looked what happened.

I suggested investing in a global index fund and not trade, that is basically risk free over the holding period we are discussing, pretty much impossible to lose if your holding period is over 15 years and you aren't trying to trade it.

Doing that means your investment is spread across 1,649 of the worlds biggest companies, spread around the world, You aren't going to notice any single company go bankrupt.

you will own a cross section of the global economy, and earn dividends from 100's of companies.

 

[luutzu]

Check this property out.

$2.375M asking price.
493m2 block right next to a stormwater easement and major highway.
The cost of construction would be $250K, or $350K max.

And the Feng Shui is all wrong.

https://www.realestate.com.au/property-house-nsw-croydon+park-124655554

 

[SirRumpole]

I suggested investing in a global index fund and not trade, that is basically risk free over the holding period we are discussing, pretty much impossible to lose if your holding period is over 15 years and you aren't trying to trade it.

Doing that means your investment is spread across 1,649 of the worlds biggest companies, spread around the world, You aren't going to notice any single company go bankrupt.

you will own a cross section of the global economy, and earn dividends from 100's of companies.

I feel like a member of your family now, but thanks for the advice.

 

[Value Collector]

The reserves and regular grunts were full of some of the biggest social retards in my day. If anything they were behind the curve.

lol, You should have joined the Engineers.

 

[basilio]

I suggested investing in a global index fund and not trade, that is basically risk free over the holding period we are discussing, pretty much impossible to lose if your holding period is over 15 years and you aren't trying to trade it.

Doing that means your investment is spread across 1,649 of the worlds biggest companies, spread around the world, You aren't going to notice any single company go bankrupt.

you will own a cross section of the global economy, and earn dividends from 100's of companies.

I suppose that sounds "safe" but there is certainly a part of me that has reservations. The biggest flaw I have found in this logic is the role of indices as a measure of increasing value. From what I have seen it is quite possible for an index to keep rising but investors lose.

How ? The index is made up of many companies that at one time represent good value. Inevitably a number of those companies start to fail, their SP falls and they end up being booted out of the index and replaced with a new upcomiing company. So yes the index is still healthy because it has the 50% good companies 25% average and then keeps churning over the 25% that fall away.

However at what stage has your investment fund sold out of the failing stock (and at what loss) and replaced it with an upcoming one ? I note this because one of the tricks of investment funds has been to point to ever increasing indexs as a measure of showing the value of investing in the stock market. However when one looks at the net returns they offer .... not true. Costs, fees, churns whatever you want to call them create a far more modest result that the advancing index would suggest.

Also there is the risk of black swan events. There have been world wide crashes of investments. 1930's 1987, 2008 smaller ones in between. Consider this scenario :

You have been investing and watching your interest in "Global international" for 20 years. It has risen by , say, 5% a year which after 20 years sees the fund increase your $100,000 stake to $278,596. (Compound Interest)

In year 21 there is world wide crash. The index value drops 50%. After 20 years you now have $140,000.

I don't think these figures are out of the ordinary. In fact projecting a year in, year out 5% gain is probably heroic. And stock crashes have often exceeeded 50%. Just a thought.

 

[luutzu]

I suppose that sounds "safe" but there is certainly a part of me that has reservations. The biggest flaw I have found in this logic is the role of indices as a measure of increasing value. From what I have seen it is quite possible for an index to keep rising but investors lose.

How ? The index is made up of many companies that at one time represent good value. Inevitably a number of those companies start to fail, their SP falls and they end up being booted out of the index and replaced with a new upcomiing company. So yes the index is still healthy because it has the 50% good companies 25% average and then keeps churning over the 25% that fall away.

However at what stage has your investment fund sold out of the failing stock (and at what loss) and replaced it with an upcoming one ? I note this because one of the tricks of investment funds has been to point to ever increasing indexs as a measure of showing the value of investing in the stock market. However when one looks at the net returns they offer .... not true. Costs, fees, churns whatever you want to call them create a far more modest result that the advancing index would suggest.

Also there is the risk of black swan events. There have been world wide crashes of investments. 1930's 1987, 2008 smaller ones in between. Consider this scenario :

You have been investing and watching your interest in "Global international" for 20 years. It has risen by , say, 5% a year which after 20 years sees the fund increase your $100,000 stake to $278,596. (Compound Interest)

In year 21 there is world wide crash. The index value drops 50%. After 20 years you now have $140,000.

I don't think these figures are out of the ordinary. In fact projecting a year in, year out 5% gain is probably heroic. And stock crashes have often exceeeded 50%. Just a thought.

Great points.

I always thought I should wonder about companies being kicked off and included in the indices, but didn't managed to put it together like you have there.

It seem like a pretty bad idea to sell out of companies that had fallen in market price - thereby realising the fund's losses; then add new and rising market cap stocks to the list - potentially buying high priced businesses.

With the fees being paid and the billions and trillions they're responsible for, it's pretty reckless and stupid to just mechanically follow these indexing style of managing other people's money. But apparently it's the best performing type of fund management.

Imagine what all those billions and trillions could do if they're properly invested.

 

[Value Collector]

I suppose that sounds "safe" but there is certainly a part of me that has reservations. The biggest flaw I have found in this logic is the role of indices as a measure of increasing value. From what I have seen it is quite possible for an index to keep rising but investors lose.

How ? The index is made up of many companies that at one time represent good value. Inevitably a number of those companies start to fail, their SP falls and they end up being booted out of the index and replaced with a new upcomiing company. So yes the index is still healthy because it has the 50% good companies 25% average and then keeps churning over the 25% that fall away.

However at what stage has your investment fund sold out of the failing stock (and at what loss) and replaced it with an upcoming one ? I note this because one of the tricks of investment funds has been to point to ever increasing indexs as a measure of showing the value of investing in the stock market. However when one looks at the net returns they offer .... not true. Costs, fees, churns whatever you want to call them create a far more modest result that the advancing index would suggest.

If you buy a low-cost index fund that tracks the index by largely holding the companies that make up the index, it doesn't matter if companies come and go from the index, as they come and go they will be sold and replaced by the new entrant.

I am not saying buy some active fund, I am am saying buy into a genuine index fund that is largely holding the underlying securities.

Also there is the risk of black swan events. There have been world wide crashes of investments. 1930's 1987, 2008 smaller ones in between. Consider this scenario :

None of those events would have had a negative impact on the strategy, if anything they may have had a positive one.

Obviously if you are regularly contributing funds into an index fund, and the index drops in value, you will be getting a larger slice of the underlying companies than you would have been able to had their price not fallen.

Hence why I said, own the index and don't trade it, and you are guaranteed to do ok.

You have been investing and watching your interest in "Global international" for 20 years. It has risen by , say, 5% a year which after 20 years sees the fund increase your $100,000 stake to $278,596. (Compound Interest)

In year 21 there is world wide crash. The index value drops 50%. After 20 years you now have $140,000.

You are missing a huge point here, even given your worst case scenario eg - a 50% crash in the final year (not to mention that a 50% crash would normally follow a boom and the two would offset each other some what)

1, your capital is still 40% above where it was at the start, so its performed much better than cash.

2, While your principle grew by 5% per year for 20 years, so did your dividends, and your dividends would be largely unaffected by the crash, they may reduce a bit but you would continue receiving income, so shouldn't need to sell.

during the crash you are temporarily handing back some of your capital gain, but the dividends should keep flowing at the compounded rate, only slightly reduced.

I don't think these figures are out of the ordinary. In fact projecting a year in, year out 5% gain is probably heroic. Just a thought.

the actual index I refer to has averaged 8% over the last 30 years, take of 1% for fees and you have a 7% return.

And stock crashes have often exceeeded 50%.

Let chicken little worry about that.

look at any chart and you will see there is almost always a spike in growth just before to the crash, So as I said a lot of the crash is just wiping of that prior higher growth rate, that won't effect your long run return of 5%.

Then look at the chart after the 2008 crash, 1 year after it hit bottom it was 58% above that bottom.

So it is nothing to fear, just focus on building a big enough stake in the index that you can survive on its dividends, and hold throughout the ups and downs.

The only people hurt in crashes are those that panic and sell out after its crashed and then are to scared to buy back in until after the recovery.