How will Australia's younger generation get ahead?

[luutzu]

If you employee one who's award hourly rate is $20, you have to pay them $20 for every hour they work, and then pay $1.90 into their super.

Super is always an additional amount added on top of what ever their wages are.

What you do in your family business is your business I guess, but when dealing with outside employees, if you offer them $20 / hour, you don't deducted super from that, you pay super onto of that.

eg. if the minimum wage is $10, the person will earn $10 + $0.90 super. its always additional.

All that mean is that an employee could technically asked to be pay their current wage plus the super, if the "employer contribution" weren't in place.

Since it is, the employer will use maths to figure out how much is this employee "worth"... $21.90 per hour? Alright, I'll offer them $20 per hour.

It's like GST. Businesses would charge $X +GST. The $X is their best price. The GST goes to the taxman.

 

[basilio]

There is fair bit of irony in the extended debate about exactly where/how young people should invest to secure their future.

A near rolled gold certainty of life is that managing to buy an affordable home relatively early in life is one of the soundest and most versitile investments a person can make. It puts a roof over their heads that over time can be finally paid off. It offers security of tenure that rental properties can't at this stage. When the house is paid off a person could be close to retirement and, with a paid house, live more comfortably on a smaller income.

Nothing magic here. Just our collective experience. And yet this critical lifestyle/investment opportunity is now largely out of reach of young people in the major cities. Perhaps even worse many young people are buying apartments and flats because at the bottom end that is all they can afford. And yet in 30 years time how much value will a tired flat in a tired apartment block hold ? Not much land value for a start. Possibly facing some big body corporate costs for lifts. Possibly built on the cheap and facing expensive renovations.

 

[Smurf1976]

eg. if the minimum wage is $10, the person will earn $10 + $0.90 super. its always additional.

That has always been my experience both with pay received and any negotiations relating to it.

The figures being discussed are before any tax is deducted and before super is added.

So $50 an hour is $50 + super

Income tax will be deducted from that so you don't actually receive all of the $50.

Anything else such as a car or phone is in addition to the pay rate.

Never seen it done differently unless we're talking about someone giving their mate a hand in return for a carton of beer etc or a self-employed situation.

 

[HelloU]

(for completeness....if less than 450 a month then nil super required - no matter what the hourly rate...but some still pay, which is proper to me)

 

[Value Collector]

For a typical passive investor, yes I did agree that Index fund is probably their best chance for a good return if they want to expose their portfolio to the market/general economy.

Over 90% of the people out there would be "typical passive investors"

I was referring to the professional money managers who simply invest in Indices, or closely track the index. I did say that yes, their non-work work generally beats the more "active" fund managers... but that's the scary bit. To do nothing and beat other more active smart money "pro".

as I said mathematically it has to be that way, on average those actively trading the market must make less than those passive guys.

Me pointing to other options beside publicly listed stocks just mean those who are supposed to be smart about these things, charging crapload of money for their geniuses... maybe they ought to do more than track the index or actively play with only publicly listed ones.

The index funds charge the smallest fees, typically less than 0.8%, so they aren't "charging crapload of money for their geniuses" they are charging a fair amount for the work of managing the index, and compete with other funds to reduce costs.

Active funds on the other hand is where the huge fees are, often called " 2 & 20 fees"

eg. 2% of funds under management and then 20% of any return above 8%

Then, imagine the kind of returns they, and their clients, can achieve if they take good opportunities wherever it's found (private or public, depends on the quality and price etc.)... That and not having to automatically buy or sell out of holdings when it's added or dropped from an Index.

Again all I am discussing here is what is the best way for the average person to enter the Stockmarket.



I agree with you there.

I never said it's irrational to invest in the stock market. I said it's reckless to only invest in the market and only buy or sell according to an index.

How can it be reckless when on average the indexing method delivers the best return from the stock market?

I am not comparing it to other industries etc, I am just saying once a person has decided to enter the Stockmarket, they then must choose a strategy, if the choose the indexing method, how exactly is that reckless?

You have already admitted that in general the Stockmarket is a good place to park some investment dollars, and you admit that index tend to perform ok and better than the average active fund operating in the same market, so how is it reckless?

It's a red herring to say that money should be going else where, because nothing is stopping people investing else where, I am talking about the billions of dollars that will be invested in the market no matter what.

 

[luutzu]

Over 90% of the people out there would be "typical passive investors"



as I said mathematically it has to be that way, on average those actively trading the market must make less than those passive guys.




The index funds charge the smallest fees, typically less than 0.8%, so they aren't "charging crapload of money for their geniuses" they are charging a fair amount for the work of managing the index, and compete with other funds to reduce costs.

Active funds on the other hand is where the huge fees are, often called " 2 & 20 fees"

eg. 2% of funds under management and then 20% of any return above 8%



Again all I am discussing here is what is the best way for the average person to enter the Stockmarket.



I agree with you there.




How can it be reckless when on average the indexing method delivers the best return from the stock market?

I am not comparing it to other industries etc, I am just saying once a person has decided to enter the Stockmarket, they then must choose a strategy, if the choose the indexing method, how exactly is that reckless?

You have already admitted that in general the Stockmarket is a good place to park some investment dollars, and you admit that index tend to perform ok and better than the average active fund operating in the same market, so how is it reckless?

It's a red herring to say that money should be going else where, because nothing is stopping people investing else where, I am talking about the billions of dollars that will be invested in the market no matter what.

0.8% of, say $100B = 0.008 * 100,000, 000, 000 = $800M.

What's the world's total Index's funds under management? A few trillion?

That's a lot of fees for admin and keeping track with the Index.

Like I said, and we both agree, that the Index is better, the stockmarket is a good way for investors to invest or park their cash.

But why a professional fund manager, with all that cash and all the brain power some of that cash can hire... it is reckless for them to simply track the Index and blindly buy or sell depends on a certain company's market capitalisation.

We would agree that for any company we care to name... at a certain point in its life it is a great buy, at others it'd be terrible.

That not all companies with high market cap are worth that crap.

So a "professional" money manager ought to do more than blindly track the Index.

And as Basillio points to... if the Index includes only high market cap companies, kick out established ones currently suffering from some bad news or corporate setback... adding on ones that's currently in favour. Doesn't that imply that they're always buying high and selling low; always "improving" their results because their results always include rising market cap without taking into consideration the true value beneath the market cap?

Take Asaleo, that tissue, toilet paper and personal hygeine company. From memory it was floated for some $2B by private equity.

I'm no smart money but any idiot who care to look at the company would run away from it because it's a risky, poor performing business... and its price is too high.

But an Index Fund Manager doesn't care for it. The higher the price, the more they'll buy into.

 

[Value Collector]

0.8% of, say $100B = 0.008 * 100,000, 000, 000 = $800M.

What's the world's total Index's funds under management? A few trillion?

That's a lot of fees for admin and keeping track with the Index.

.

I said less than 0.08%

but 0.8% is pretty cheap really, I mean that covers all the expenses everything from the the actual trading costs and all the business costs etc etc.

If you think 0.8% is a lot, check out the fee structure of the average active fund.

But why a professional fund manager, with all that cash and all the brain power some of that cash can hire... it is reckless for them to simply track the Index and blindly buy or sell depends on a certain company's market capitalisation.

dude, they don't track the index unless you tell them too.

lots of funds are happy to avoid the index for you, because for a start they will charge you nearly triple in base fees, then they get to speculate with your money and if they do earn over 8% they get 20% of the "excess" earnings,

Heads the win, tales you lose.

Take Asaleo, that tissue, toilet paper and personal hygeine company. From memory it was floated for some $2B by private equity.

I'm no smart money but any idiot who care to look at the company would run away from it because it's a risky, poor performing business... and its price is too high.

But an Index Fund Manager doesn't care for it. The higher the price, the more they'll buy into.

The index might put say 0.003% of its funds in stock in Asaleo, but your active manager might think its a great stock and put 20% of your funds in it, Hell he doesn't care he is earning triple fees no matter what, and the investment bank took him out on a boat for drinks and hookers to explain the deal, so he felt obliged to underwrite it.

 

[luutzu]

I said less than 0.08%

but 0.8% is pretty cheap really, I mean that covers all the expenses everything from the the actual trading costs and all the business costs etc etc.

If you think 0.8% is a lot, check out the fee structure of the average active fund.

dude, they don't track the index unless you tell them too.

lots of funds are happy to avoid the index for you, because for a start they will charge you nearly triple in base fees, then they get to speculate with your money and if they do earn over 8% they get 20% of the "excess" earnings,

Heads the win, tales you lose.



The index might put say 0.003% of its funds in stock in Asaleo, but your active manager might think its a great stock and put 20% of your funds in it, Hell he doesn't care he is earning triple fees no matter what, and the investment bank took him out on a boat for drinks and hookers to explain the deal, so he felt obliged to underwrite it.

You know there's opportunities in the current head they win, tale we lose model right?

 

[Value Collector]

You know there's opportunities in the current head they win, tale we lose model right?

I don't think there is anyway of knowing which managers will be the ones that out perform the market.

And, given that on average as a group they will underperform, I find the situation a bit like being at a roulette wheel, where you might have 18 chances to win by the ball landing on red, but 19 chances to lose by the ball landing on Black or Zero.

So if I had to recommend an investment fund to my mother, I would recommend a low cost index fund and tell her to hold it no matter what and just spend hers dividends.

I would be crazy to think that she might be able to go and have any edge on picking which fund manager will be the one who will out perform.

 

[Value Collector]

I recommend listening to some of Jack Bogles interviews or reading one of his books.

He is the father of value investing, and started vanguard, which is not for profit and it is one of the largest indexers.

 

[basilio]

And as Basillio points to... if the Index includes only high market cap companies, kick out established ones currently suffering from some bad news or corporate setback... adding on ones that's currently in favour. Doesn't that imply that they're always buying high and selling low; always "improving" their results because their results always include rising market cap without taking into consideration the true value beneath the market cap?

This is the core of my reservations about allegedly folowing the index and therefore gradually building up shareholder value through such a process.

There are no losses or costs when the index is rebalanced to drop off poorer companies and replace them with new ones. However as far as I can see in real life companies that follow the index so religiously will lose on each turnover. The situation could be even worse of course if one had a "set and forget" strategy. For example just establishing a portfolio of the top 15 shares in the index and then walking away for a few years.

I suppose my concern is the use of stock market indexs as, somehow, a measure of how successful an investor could be if he/she ploughed their funds into the market.

 

[basilio]

And just to add to my comments regarding indexed funds. I accept that Vanguard is a well managed low cost index fund. I can certainly see how the managed funds of other investment organisations mahnge to charge far higher feees for active management and still manage to return even less that indexed funds. Not hard to do when you take big licks off the top and not too astute with buying and selling stocks.

 

[Value Collector]

This is the core of my reservations about allegedly folowing the index and therefore gradually building up shareholder value through such a process.

There are no losses or costs when the index is rebalanced to drop off poorer companies and replace them with new ones. However as far as I can see in real life companies that follow the index so religiously will lose on each turnover. The situation could be even worse of course if one had a "set and forget" strategy. For example just establishing a portfolio of the top 15 shares in the index and then walking away for a few years.

.

I think you are over stating problems here.

if a company drops out of the index, it will be one of the smaller ones on the fringe on the index, perhaps making up say 0.003% of the index, and if it were worth $2 Billion when it dropped off it will be replaced by a new company worth approximately the same.

the affect of companies dropping off or coming on is tiny compared to the size of the index I recommended.

I suppose my concern is the use of stock market indexs as, somehow, a measure of how successful an investor could be if he/she ploughed their funds into the market

I don't understand what your concern is.


Warren Buffett understands how index's work, and he is one of the biggest supporters of indexes.

In fact when Warren Dies, the money he leaves to his family is going straight in vanguards index fund.

The instructions left for his wife is to be 10% cash 90% vanguard index fund.

 

[Value Collector]

I recommend listening to some of Jack Bogles interviews or reading one of his books.

He is the father of value investing, and started vanguard, which is not for profit and it is one of the largest indexers.

Warren Buffett says Jack Bogle has done more for American Investors than anyone else but creating the first index fund.

 

[Value Hunter]

Value Collector you are a smart guy but I have to disagree with you about the impact of investors providing capital to the economy. We have had this argument before but I will bring it up again because you mentioned it on the thread.

There are two kinds of capital investment:

1) Asset shuffling (i.e. purchases and sales of existing assets). This does not grow the economy much. If you buy and existing house or shares on the secondary market in an established business this does not do much for the economy. There is an argument to be made that higher liquidity for existing assets lowers the cost of capital and therefore has an indirect impact on how much capital can be raised, but in many cases we are well beyond the point of declining marginal utility. BHP Billiton or CSL already have enough more than enough liquidity in there shares. Additional liquidity in their shares will not lower their cost of capital. I acknowledge it can help in the case of small cap stocks, and certain other assets. The primary effect of more money into the existing asset pool is to push up their price.

2) Investment into new capacity. This is when you start a business, invest money into a IPO or share purchase plan, renovate an existing investment property, build a granny flat, buy a block of land and build a house, etc. This does wonders for economic growth.

Number 2 is a massive driver of economic growth. However option 1 is where a lot of investors direct the vast majority of their capital. By engaging in option 1 you are not really adding much to society or the economy. We really should have a system which incentives more of option 2 and less of option 1 if we want to enhance growth.

 

[Dona Ferentes]

Searched for Inheritance but the threads are usually specific questions from neophytes/ people out of their depth.

Some numbers about estates and who gets what, when.
....
in Victoria, the median estate is worth around $500,000. About 20% are worth more than $1 million, and 7% are more than $2 million. Property is the largest component, accounting for half of the average value.

The main beneficiaries of ‘final’ estates – estates without a surviving spouse – are children, who get about three quarters of all inheritance money. And average inheritances are growing about 2% above the rate of inflation each year, and that’s expected to accelerate in future.

 

[SirRumpole]

Searched for Inheritance but the threads are usually specific questions from neophytes/ people out of their depth.

Some numbers about estates and who gets what, when.
....
in Victoria, the median estate is worth around $500,000. About 20% are worth more than $1 million, and 7% are more than $2 million. Property is the largest component, accounting for half of the average value.

The main beneficiaries of ‘final’ estates – estates without a surviving spouse – are children, who get about three quarters of all inheritance money. And average inheritances are growing about 2% above the rate of inflation each year, and that’s expected to accelerate in future.

View attachment 156287

Are you suggesting death duties should return ?

 

[Dona Ferentes]

Are you suggesting I should suggest the reintroduction of death duties?

 

[SirRumpole]

Are you suggesting I should suggest the reintroduction of death duties?

Dunno, do you think they should be ?

 

[macca]

Those figures seem rather logical, when we are in our 50s our parents would be in their 70s and 80s and folk tend to die around about then.

In time, the now grandkids, will inherit the wealth from their parents and so it continues on in perpetuity.

I am always amazed that these sort of studies seem shocked to discover the Bleeding Obvious