Job switch a tough gig for family if it means a cut in income

LOOKING after your family should take priority over chasing that dream job if it would involve a pay cut, writes Barefoot Investor.

Think carefully before chasing that dream job.

LOOKING after your family should take priority over chasing that dream job if it would involve a pay cut.

CRAIG ASKS: I am 31 and my wife and I have a nine-month-old child. I am long overdue a career change — my current job is driving me insane. I want to start a career in a different field, but to do that I feel like I have to start at the bottom and work my way up. I feel like I am trapped because we have worked out our budget and cannot go below my current wage. I can’t find any entry job that pays the wage I am on now. I feel trapped. How do I get out? My wife works three days and can’t do more because of our child.

BAREFOOT REPLIES: You know, there are times when you really just have to throw caution to the wind and back yourself. Now is not one of those times, Craig. You’re a father, and it’s your responsibility to provide for your family. No Eat, Prey, Love for you, my friend. Well, not in a traditional sense. You can eat leftovers as you hustle each night (after everyone else is in bed) to get both the skills and the contacts you need to land your dream job. You can then pray that if you work hard enough, you’ll be presented with an opportunity to work in the field fulltime without taking a pay cut (though you’ll have to really hustle for this to happen). Only then will you be able to look after the people you love.

TAXING DECISION

PHIL ASKS: Due to bad advice 20 years ago, my wife and I put the family home in a company name which she had tried to get off the ground as a small business. We still have the company because we believe that to close it and return the property to our names would trigger a massive CGT impost. We just go on paying ASIC fees and land tax every year, and when the kids inherit it, same thing. Is there any point to us seeing a solicitor about our plight? Or can you see any way out for us?

BAREFOOT REPLIES: Holy smokes! The ASIC fees and land tax aren’t the issue here — it is, as you suggest, your capital gains tax bill. I’m guessing your words about the business which you “tried to get off the ground” mean it didn’t take off. Whether there’s a loss from that which might offset the gains on the house is something you could look into. The problem is that CGT will need to be paid one day (and to make matters worse, you won’t even qualify for the 50 per cent concession on CGT that individual investors get). If you’re going to stay living in the family home, then you could always handball the problem to the next generation — that is, assuming your kids inherit your shares in the company, they could decide themselves what to do. This is one of those situations where a good accountant can help — preferably not the same accountant who advised you to buy the house in a company name.

KNOWN UNKNOWNS

MARK ASKS: I am 26 years old and have about $6000 tied up in CBA and AFIC shares, with the plan of buying another $5000 worth and sitting on them for as long as possible (while incrementally buying more). However, I was recently looking into investing in virtual reality because it seems to be the next tech hit, and apparently the time to strike is now before it blows up. So I have two questions: what are your thoughts on investing in VR, and what is the best way for Aussies to buy overseas shares?

BAREFOOT REPLIES: What are my thoughts on investing in virtual reality? None. I have no thoughts whatsoever. What I do know is that most of the big tech companies are already ploughing billions of dollars into VR — Alphabet (the company formerly known as Google), Facebook (which paid $2 billion for VR company Oculus, which at least has a product on the market), Microsoft, AMD, Samsung and dozens of others. Who’ll win the race? Again, I have no idea. However, I do have a solution for you. If you invest in a global exchange traded fund (ETF), like Vanguard’s International ETF, you’ll get a small stake in all the technology giants in one easy purchase.

SPLIT THE DIFFERENCE

ARTHUR ASKS: Mate, what percentage of an investment portfolio should be Aussie shares compared to international shares? Considering Aussie shares provide dividends more than international shares (which are more growth oriented), I am not sure what mix I should have. What is your rule of thumb here? (Love your work — keep it up!)

BAREFOOT REPLIES: Very good question. When it comes to international markets, Australia is like a chihuahua at a dog show — we represent only about 2 per cent of the world market. (Though we do have a big bark for a lapdog-sized market.) Over the past century, Australia has had the best-performing stock market in the world. If you look back over 40 years, we’ve achieved roughly the same 12 per cent per annum returns as the rottweiler of the financial pound, the US. (International shares which include other countries have returned slightly less over the same period.) It’s been a remarkable run; $10,000 invested 40 years ago would have compounded into $900,000 today — even more remarkable considering the backdrop of the dot.com bubble, the Asian debt crisis, the GFC, a couple of wars in the Middle East … and Pauline Hanson. You’ll generally get better tax-effective income through Aussie shares (thanks to generous franking credits), but that’s not a reason to avoid going international. To diversify your holding, it makes total sense. For a passive, very long-term approach, consider a split along the lines of 60 per cent Aussie, 40 per cent international.

 

barefootinvestor.com

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 Job switch a tough gig for family if it means a cut in income