Shares slow to take off
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QUESTION: I’m really disappointed with Qantas and need your opinion on what I should do. I first bought shares when the float started 22 years ago. They haven’t been paying dividends since 2009. My shares, if I were to sell them, are worth about $2000. That’s the same price I bought them for! So much for being patient and watching my money grow. What should I do?
Denise
ANSWER: Rightly or wrongly, you chose to become a part-owner of a business. You just invested in a dog. Sir Richard Branson once quipped “the easiest way to become a millionaire, is to be a billionaire and start an airline”. In 2012 the stock was trading at under a buck, today it’s $3.26. So it could be a lot worse. My advice? Cut your losses and take flight.
JOB IS FOR LEARNING ABOUT MONEY
Q: My very young teenage son has just started a casual job. I’ve told him not to spend more than 10 per cent of what he earns. How can he make the best use of his other 90 per cent to grow his wealth?
Trevor
A: Well that’s a little freaky. You’re rationing 90 per cent of his earnings? He’d have more fun in communist Cuba! His casual job isn’t actually about the money — it’s a tool to teach him financial education, and an insurance policy so he’s not sleeping in your spare room when he’s 30. My advice would be to recommend that he splits his money equally in three ways: spending (on whatever he wants, he’s earned it), saving (something long term, like a car), and giving some money away to a worthy cause, like Kiva. I know that last bit sounds a little flaky, but trust me: if you want to raise a grateful, well-adjusted kid who understands just how lucky he truly is to live in the best country on earth, open him up a Kiva account and get him to give.
LINE OF CREDIT TAKES DISCIPLINE
Q: My husband and I are both in our 40s with a combined income of $155,000 a year. We are steadily reducing our mortgage but our adviser says we can pay it off more quickly by converting the loan into a line of credit. Apparently, our salaries would both go directly into the line of credit each month and then we would redraw our living expenses. This is supposed to reduce the interest we pay and help us pay off your mortgage quicker. What is your view on this idea?
Mary
A: This strategy has been around for years — and it looks really good on a whiteboard in a mortgage broker’s office. The catch comes when they walk out of the office and life smacks you in the face. The danger is that you’ll use your home like an ATM machine and find yourself whacking through your wage, and then spending up on your line of credit. The bottom line is that it can work, but you have to be disciplined. I’ve never done it. But maybe you’re smarter and more headstrong than me. Good luck.
POSITIVE CASH FLOW THE BETTER OPTION
Q: We own our home and have nearly paid off an investment property. recently I plunked down $20,000 on a block of land worth $165,000, thinking I’d build a new investment property on it. But I’ve got cold feet as the building costs are going to be almost $500,000 and I don’t think the rent will justify the cost. Should I keep the block and keep claiming the tax deduction (because I pay way too much tax) or sell it?
Mario
A: You’re obviously a smart sausage if you’ve managed to pay off your home and (almost) an investment property. So if you’ve run the numbers and the investment doesn’t stack up, why would you hold a vacant plot of land that generates no income? It makes absolutely no sense to me. Sell the block and invest in something that will give you positive cash flow.
CASH CAN OFFER PROTECTION
Q: My wife and I read your column every single week. Thanks to you we’re both doing a transition to retirement where we are boosting our super as we wind down work (we’re both 60). We have paid off our home and have $450,000 in our SMSF (combined), which we have invested 50/50 in AFIC and Argo. Is there anything else we should do?
Caroline
A: Yes, there is. You should build up a strong cash buffer with your contributions to super, starting right now. I don’t want you to sell your shares — they’re fine; just build up a three-year cash buffer. I know, right now cash is trash — so it’s very tempting to invest in shares that are offering higher dividend returns, with the additional boost of the tax credits. However, this market is being pushed higher not on fundamentals but because of low interest rates. The most dangerous time to take a hit to your portfolio is the ages 55 to 65. Protect yourself with cash.
WHAT TO DO WITH ADVISER PRESSURE
Q: We own our home and two investment properties. We’ve also got $200,000 in super and now our adviser is pressuring us to use it to buy another investment property, but we’d need to set up an SMSF to do that. What should we do?
Grant
A: An adviser who is pressuring you is a red flag for me. You can ask him to disclose commissions or financial rewards he’ll get from the recommendation — but I don’t know whether I’d waste my breath. Seriously, your adviser sounds like a drongo: you already have enough property and you don’t have enough money in super to justify borrowing in an SMSF. Kick him to the kerb. You deserve better.
Originally published as Shares slow to take off
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