Is it time to panic yet over Donald Trump’s bid for the US presidency?

DONALD Trump may be a worry but the US has had its fair share of loonies in the oval office, writes Scott Pape.

Republican presidential candidate Donald Trump gives a thumbs-up as he speaks at campaign stop, Thursday, March 2, 2016, in Portland, Maine. (AP Photo/Robert F. Bukaty)

DONALD Trump may be a worry but the US has had its fair share of loonies in the oval office and yet in the past 100 years the US market has still risen 18,520-fold.

DAVE ASKS: Should investors panic if Donald Trump wins the Republican nomination for US president ... or panic only if he wins the presidency? He has managed to offend almost every minority group in America as well as quite a few foreign nations who may no longer wish to have dealings with the US as long as such an ignorant and arrogant moron is in charge of the world’s largest economy. Will he have an effect on world markets?

BAREFOOT REPLIES: In my un-qualified opinion, Trump is a complete trainwreck. The idea that in order for America to “win”, other nations have to lose, makes me want to repeatedly smack him over the head with Adam Smith’s Wealth of Nations. Still, it’s easy to get sidetracked watching this idiot. The truth is that the US has had its fair share of loonies in the oval office, but over the past 100 years, the US market has still risen 18,520-fold.

PERLS OF WISDOM

REG ASKS: I am a 93-year-old self-funded retiree. We’re in a comfortable position, however the drop in rates has dented our income badly. We have $156K in CommBank’s Hybrid securities known as PERLS, which are terminating on April 16, and they are offering to convert it to Perl VIII. The rate is attractive: bank rate plus 5.2 per cent, but there is added risk, too. Would you agree and is there a better alternative? Not interested in capital gains, only income.

 

BAREFOOT REPLIES: I wouldn’t let my grandparents invest in these so-called hybrid securities. CBA’s PERLS are sold as an alternative to term deposits, but in terms of risk, they’re closer to shares, mainly because there’s no guarantee you’ll get your money back, or get paid interest. There’s a lot of fine print, but that’s the guts of it. I’d be even more conservative, and stick with term deposits. Remember, you also have the option of drawing a little bit down, conservatively.

TIME TO MOVE ON

KIRSTY ASKS: Warning: we’re completely insane. I’m married with two kids (one and three years old), work fulltime ($85k plus super). Hubby works two days a week and clears $650 a week. We’ve finally paid off our tiny two-bedroom flat (about $400k), which we rent out to a friend for $300 a week (mate’s rates). We, in turn, rent a three-bedroom townhouse for $550 a week. Here’s my question: Should we sell the unit? Keep the current scenario? Pack up the kids and live in our tiny flat? Or do we give in and buy a house-and-land package in the outer ’burbs?

BAREFOOT REPLIES: The only evidence that you are indeed crazy is if you actually decided to move your family of four into that “tiny two-bedder”. You paid off a $400,000 investment, pat yourself on the back! If I were you I’d sell your investment property. Even after accounting for capital gains tax, it’ll provide, to quote Donald Trump, a “Yuge” deposit. On your household income, you could comfortably borrow another $300,000. I’d buy an existing home, in a good suburb, that you can see yourself living in for at least 10 years.

TIME AT PREMIUM

JOAN ASKS: I’m in my 70s and I’m very anxious. One of my grandchildren doesn’t have enough savings to qualify for a housing loan, and is short by about $160,000. I’m prepared to use my apartment as a guarantor for that amount to enable the loan to be approved. My question is, if in the future the loan is defaulted on, and my property has to be sold to pay back this money, would only the $160,000 be taken back by the bank, or would they take it all? Hoping you can help?

BAREFOOT REPLIES: If things go bad, the bank won’t want your apartment, they will just want their money back. How you cough up the cash is totally up to you. You could sell your apartment, and move in with your grandchild — for the rest of your life — for instance. You’re being very financially prudent asking this question. So, my advice would be not to go guarantor for your grandchild, and instead help them become financially prudent. Buy them a copy of my old book, the Barefoot Investor. It’ll teach them that they’ve got a wonderful opportunity: time. You don’t have as much of that. That’s why you shouldn’t be taking risks.

LONG-TERM VIEW

DAVE ASKS: I work 80 hours a fortnight and am the main provider for my family. Four months ago, I got a new job that pays $86,000 a year. Earning over $80,000 means I am now in the higher tax bracket, so I pay more tax. I worked out that if I reduce my work to 70 hours and keep my income to just under $80,000, I would take home the same amount of money as do I now. Is it worth reducing my overall income to avoid paying too much tax?

 

BAREFOOT REPLIES: Dude! You’re the main provider of your family, why are you playing defence? Besides, if lowering your tax is your endgame, I can show you how to slash it to zero: just buy a bunch of negatively geared properties. In quick time, you’ll be so negatively geared you’ll be positively screwed. Jimmy Barnes wrote a song about the slog of a salary, it’s called the Working Class Man. There’s honour in working hard, delivering value, and providing for your family. To answer your question, yes you can game the system by cutting back on your hours. But what’s the long-term cost? Where will that thinking take you and your family in 20 years?

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The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Is it time to panic yet over Donald Trump’s bid for the US presidency?