Barefoot Investor: High hopes for a financial super hero

All super funds are about as genuine as an Instagram selfie but this week the game changed when the “Amazon of finance”, Vanguard, announced its intention to set up its own fund Down Under. Stay tuned for a super revolution, writes the Barefoot Investor.

What I’m about to share with you could possibly be the biggest change to superannuation since I wrote my book The Barefoot Investor: The Only Money Guide You’ll Ever Need a few years ago.

But first, a cute analogy to explain how Aussie super works:

Retail super funds — those owned by the banks and AMP — are the financial equivalent of Facebook. We all signed up for them years ago before we had a clue, then gradually worked out that they made their money by shagging us — so they’re now well and truly on the nose.

Industry funds, on the other hand, are like Instagram: they’re just so hot right now. Following the banking royal commission, billions of dollars are flowing their way as people switch out of expensive retail funds.

The problem is that, when it comes to fees, all super funds are about as genuine as an Instagram selfie: #it’s-not-all-about-fees-barefoot!

And, as a result, Australia has some of the highest investment fees in the world.

Yet this week the game changed: the world’s largest index fund manager, Vanguard, announced its intention to set up its own super fund Down Under.

Why is that such a big deal?

Because Vanguard is known as the “Amazon of finance”. The index fund pioneer is no pouty Instagram influencer: it has a history of aggressively, and relentlessly, lowering its fees. (Case in point: over the past decade alone, Vanguard Australia has cut its fees more than 25 times.)

Bottom line?

It’s high time for a super revolution, and my hope is that Vanguard helps deliver it. I’ll be watching closely to see what they come up with and I’ll let you know what I think when they do.

Tread Your Own Path!

Remember to abide by the three rules of investing.

Q&As

SHOW METTLE WITH INVESTING RULES

JAMES WRITES: My wife and I received $370,000 from the sale of our house, which
I decided to invest in an Australian lithium producer.

But over the past six months the share price has halved, leaving me (on paper at least) with a very distressing loss.

My question is: do I let this ride until things pick up or am I in a situation that could get even worse?

BAREFOOT REPLIES:

This could get much worse — especially if you haven’t told your wife about the share price plunge yet.

She will likely process your confession as follows: you have taken her security — literally the roof over her head — and gambled it away at the casino.

And you know what? She’s right.

Dude! What the hell were you thinking? Are you on lithium?

A quick google shows me that it’s been a wild ride for lithium stocks lately. Two headlines from the same publication, just four months apart, tell the story:

November 2018: “Why I think these lithium miners offer great growth potential for investors.”

March 2019: “Have lithium stocks hit rock bottom?”

I have three (boring) rules when it comes to investing:

First, I don’t like investing in speculative companies that don’t have a track record of making money.

Second, I don’t like investing more than 5 per cent of my portfolio in any one stock.

Third, I would never, ever invest money I thought I might need within the next 10 years (say, to buy another house) in the stock market. While good in the long term, shares are just too risky in the short term.

I’m afraid you’ve broken all three of these rules. And, if you’re tempted to keep playing at the casino, remember that things can always get worse from here.

My advice is to stop listening to investment gurus who can’t predict the future, and start listening to someone who has a real interest in your future: your wife.

Sit down and make a plan together.

Why is the government offering a no-questions-asked amnesty on bosses who haven’t paid super?

DODGY BOSSES NEED A SERVE, NOT AMNESTY

KELLY WRITES: I feel like everybody learns to check their super the hard way — by not being paid it at some point thanks to a super-crappy boss.

I am a 22-year-old uni student and have mostly had hospitality jobs while studying.

I have in fact done two years of hard work with no super, thanks to the slimy owner of one of those neon-coloured hole-in-the-wall doughnut shops (that Instagram is so obsessed with).

I contacted the ATO,
I contacted the Fair Work Ombudsman, and I even maintained contact with the boss himself after I rage-quit. In the end I lost my time as well as my money.

The company just “phoenixed” (went bankrupt, started a new company, then “bought” the restaurant from the old company free of super debt).

Scott, after you have got banks out of schools, the next thing you should throw your weight behind is stronger punishments for super theft.

BAREFOOT REPLIES: Since last week’s column about a couple who had been dudded on their super, I’ve been inundated with people telling me similar stories to yours, and a lot of them are young people working in hospitality. It seems there really are a lot of crappy bosses out there.

To add some salt to your doughnut, I should point out that you didn’t just lose two grand. From age 22, with compounding over your lifetime, that money would have grown into tens of thousands of dollars!

And that’s why this theft — and that’s what it is — needs to be stamped out.
I also don’t understand why the government is offering a no-questions-asked amnesty on bosses who haven’t paid super. I guess some employees might receive a bit of what they’re owed, but I reckon it sends the wrong message.

The people I feel for — apart from you, of course — are the honest business owners who are doing the right thing, paying their staff the correct wages and super, yet are competing with the likes of George Calombaris. Now that’s a doughnut.

Twins will bring more than sleepless nights so hold on to a financial buffer.

TWINS TRIGGER A HOLDING PATTERN

JOHN WRITES: My wife and I — who have had an ongoing struggle with infertility — foster three children.

And it has been awesome. However, we have just been given news that has floored us. Last week our doctor called to say my wife was pregnant … with twins!

Having just picked myself up off the floor, I am trying to figure out how to fast-track our savings to raise five kids.

You have helped us wipe out $55,000 worth of debt and save $40,000 for a deposit thus far. We would appreciate any extra advice you can give us now.

BAREFOOT REPLIES: Now there’s a plot twist I didn’t see coming. I have three children under the age of six, and the most common greeting I get from people is “You look tired”. But you two have gone from a comfy Kia to Toyota Tarago territory in just one phone call!

If we’re looking “glass half full”, remember that you’ve already paid off $55,000 in debt and saved up a solid deposit in the bank.

Yet the truth is that one of you will have to take time off work and, with twins, probably for quite a while.

MORE BAREFOOT INVESTOR

My advice?

Well, I wouldn’t be rushing to buy a house.

Instead, the money you’ve saved up should stand as your financial buffer, at least until you’ve worked out the lie of the land.

The last thing you need right now is mortgage stress. You’re already going to have sleepless nights — no need to add to them.

If you have a burning money question, go to barefootinvestor.com and #askbarefoot

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

The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need (HarperCollins)RRP $29.99

Originally published as Barefoot Investor: High hopes for a financial super hero