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the new school of super podcast series

Episode 7

Seven investment rules to live by

January 2019

The Dream Team return. Join us as Chief Economist Brian Parker and Head of Advice and Retirement Anne Fuchs deliver Brian's seven top investment tips to live by to help you achieve your retirement dreams.

Voice-over: Welcome to the New School of Super, a fresh look at money matters, your super and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist Brian Parker and head of Advice in Retirement Anne Fuchs.

Anne Fuchs: Hello and thanks for listening. Welcome to the New School of Super. Sunsuper podcast series covering investment markets, money matters, your superannuation and most importantly, making sure you fulfill your retirement dreams. With me is my good friend Brian Parker, our Chief Economist here in Sunsuper. Brian is so entertaining, we've had such wonderful feedback about you Brian, because you really do apparently know everything there is to know about money and investment markets..

Brian Parker: Well, thanks so much Anne. I'm so glad about you too. I'm glad to be here with you again, but before we start, as always we need to let our listeners know that what we're going to talk about today is general information only. Any advice doesn't take into account your personal situation. You should consider your circumstances and think about getting personal advise before acting on anything we talk about today. You can also get a copy of that product disclosure statement from our website or give us a call on 131184..

Anne Fuchs: Before we get into it, Brian, I should point out, I actually head up advice here at Sunsuper. So I'm the head of advice and retirement here and we have a fabulous advice offering for our members here at Sunsuper so they can get to trust the advice they need and financial resolutions. [crosstalk 00:01:32] So, happy New Year to you sir..

Brian Parker: Thank you..

Anne Fuchs: [crosstalk 00:01:35] Financial learnings or things that you could explain to our members to help them to get financially fish in 2019 and yeah, are you happy to have a chat about that today?.

Brian Parker: Yeah, absolutely. As I sort of travel around the country talking to members and talking to a lot of the employer groups who use Sunsuper, I've, and really over many, many years, this is ... I've found this is some of the smartest people I've met, really successful people, successful business people, doctors, lawyers, engineers, et Cetera, often have very little clue about money. I've seen some really, really smart people make some really dumb decisions with money and it just kind of struck me that we really didn't get told a lot about money matters. We don't really get taught a lot about investments and financial matters at school and so now we're all grown up and have to my grown up decisions about our super and about whether we can afford a mortgage or in decisions which really our education system hasn't really prepared as for..

Anne Fuchs: Culturally too, I might point out, Brian. That culturally Australians are really uncomfortable generally talking about money. I'm married to a German, Germans are very comfortable talking about money a bit too comfortable-.

Brian Parker: They're too comfortable talking about it..

Anne Fuchs: Too comfortable actually. So we thought in this safe environment of a podcast, people we can have a chat about money today without being judged as you normally would be at a barbecue or at a family function. So there are some lessons, you've got I think six just- <p class="p--xl">Brian Parker: Seven..

Anne Fuchs: Seven? I got it wrong, seven-.

Brian Parker: Seven rules-.

Anne Fuchs: Goodness gracious-.

Brian Parker: When it comes to investing money..

Anne Fuchs: Okay. All right. So the seven top tips, and you've got a really catchy name for this, don't you Brian? The seven top tips. What do you call that?.

Brian Parker: Honestly, this is the seven rules to live by and it's how to keep your face off a current affair..

Anne Fuchs: Yeah. No one wants to be on current affair..

Brian Parker: Yeah, you don't want to be one of those people who turns up on a current affair because of some really, really stupid thing you've done with money. You don't want to be one of those people looking mournful and having Tracy Grimshaw look at you in sort of politely nod at you and feel sorry for you. You just don't want to be one of those people. So I've got seven rules to live by and probably rule number one, we all grew up with the saying that there's no such thing as a free lunch. But in an investment speak, people need to realize there's this long run trade off between risk and return. Anybody who actually comes to you and say, "I've got this great investment idea, is going to deliver a really, really strong returns and it has no risk", run a mile, get out of there..

Anne Fuchs: That was one of the things about story financial, I remember. I've been an advice for 20 years that it sadly when there is risk, but actually understanding what that risk is too. So, this goes back to financial literacy, doesn't it?.

Brian Parker: Absolutely, and when we think about financial markets, we often think about risk in terms of volatility. But for our members, risk is really, "Will I have enough to live on retirement? Could I lose my money completely? Could I suffer a catastrophic loss of capital?" This is what we find a lot of members are really worried about. So understanding risk in return and the trade off is an absolutely crucial part of investing and again, a lot of people get caught up with it on a very basic point..

Anne Fuchs: Actually I'm just thinking it'll might be really good in our next episode when we've got the fabulous Joshua Van Gestel who's our expert in all things SMSF to explore that concept of risk return when it comes to SMSF as well and the risks attached to investing your own superannuation. But not to confuse things now, but maybe something to get our listeners excited about for the next episode..

Brian Parker: Yep, absolutely..

Anne Fuchs: Okay. But what's the next lesson we need to know?.

Brian Parker: Okay, rule two. Now we all again grew up at the saying, "Oh, you shouldn't put all your eggs into one basket", right? Now and again, in investment speak, this is the power of diversification. It's about having lots of eggs and lots of different baskets investing in a whole range of different assets and a whole range of different markets so that if something goes wrong with one particular investment, it's not going to be fatal to your overall strategy and it's not going to ruin your retirement dreams by itself. Diversification is often ... People often say it's the only free lunch in investing, lots of eggs, lots of different bars.

Anne Fuchs: But would that mean having a property portfolio with houses in Redfern, Hornsby and Bondi Beach? Is that diversification?.

Brian Parker: No, probably no. Just means you go both sides of Sydney harbor covered, but that's not really diversified portfolio..

Anne Fuchs: Okay. So what does that mean? What does diversification mean? So it's still breakdown that jargon. So ....

Brian Parker: Yeah. It's like investing in a range of different asset classes for example some shares-.

Anne Fuchs: So what's an asset class? Okay..

Brian Parker: Like shares or fixed interest or property. Lot's of different asset classes but also within that asset class, ensure that you're not just investing in say one or two properties or you're investing in say three shares. It's about investing in lots of different companies and ideally lots of different properties so that you're spreading your risk, you're not going to be ... So if something goes wrong with one particular investment, it doesn't destroy your retirement dreams. Diversification is crucial..

Anne Fuchs: That sounds like a good insurance policy, really protection..

Brian Parker: Yup, it is. It is a way of protecting your downside. It's a way of basically ensuring that if something goes wrong with one thing, it doesn't destroy your retirement..

Anne Fuchs: Okay, well that's a really and very important lesson when you have to live in your retirement savings. Lesson number ....

Brian Parker: Lesson number three..

Anne Fuchs: Three, yes..

Brian Parker: When it comes to investing, jealousy is a curse. I know I hate this old time when someone says, "Oh, but I made a lot of money by doing this" or if you tell "My old boss actually used to call it barbecue risk". Is the risk that you turn up at a barbecue thinking you're doing really well. Let's say you turn up at a barbecue, you've turned up at the barbecue earlier this year and you've just got your statement from your Super fun and you think you've done well and someone turns up and they've done a whole lot better. Now the temptation is to say, well, what did you do? How did you get a better return than me?.

Anne Fuchs: But we don't talk about that in Australia, do we?.

Brian Parker: No, we don't. But if someone says, they might've said, "Oh, I invested here, I invested there and I've made a lot of money" and you think, "Hang on a minute, I was really happy with the way I did. Now I'm feeling really annoyed about how I've done cause I didn't do as well as this other person" and that's a challenge. In other words, my point about jealousy being a curse, it's about your retirement dreams, no one else's. It's about your appetite for risk, it's about your financial needs. What someone else does with their money and how well or how badly they do with their money is utterly irrelevant to you and that's real, and it's particularly dangerous when I go to my rule number four, rear view mirrors and knowledge useful is windscreens both in driving a car and an investing money. So the person you met at the barbecue, what worked for them last year may or may not work for them or work for you over the next few years..

Anne Fuchs: But surely to, I think the media has a role to play here, Brian. Cause when they publish the top performing super funds for 2018 or whatever it might be or talking about investment markets, it does create, as you said, whether it's jealousy or concern, they're missing out the form or panic and as a consequence, people make rash decisions without getting professional advice..

Brian Parker: Absolutely. But the key thing, absolutely right, a short info on some performance makes no sense. Especially when you're talking about superannuation where this is the longest term asset most people will ever hold..

Anne Fuchs: And the second biggest asset they'll probably hold..

Brian Parker: Pretty much, exactly. So really [inaudible 00:08:41], it's about being forward looking. It's about realizing that what worked last year may not work next year. So, really mirrors not being as useful as windscreens. Look, the rule number five is the power of common sense and I call it a BS detector. It's the ability ... Call it a sniff test if you like..

Anne Fuchs: Pretend I don't know what that means, as being the lady I am..

Brian Parker: Well, call it a sniff test. If someone comes to you with an investment idea and it just sounds too good to be true. Well guess what? It probably is. The ability when someone gives you this really hot investment idea they go, "You know what, that's just no, that just doesn't sound right"..

Anne Fuchs: Well, that goes back to my earlier point when you were talking about risk and still-.

Brian Parker: Absolutely-.

Anne Fuchs: What happened there, which was incredibly sad..

Brian Parker: Yeah. But, anyone implying that you can actually generate really, really high returns with no risk, that person is either a fool or a charlatan or both. The best strategy when dealing with those sort of people is to run away and fast..

Anne Fuchs: Cause you will end up on a current affair..

Brian Parker: You'll end up in a current affair. Now rule number six is really, really ... It's very difficult rule to tell any Australian audience. Getting a tax bill is good news. Australians, we hate paying tax and a lot of people in-.

Anne Fuchs: I'm not sure this is Australian phenomenon to be honest?.

Brian Parker: No, I don't think its Australian phenomenon, but do you remember like Kerry Packer famously said that he didn't think politicians were spending money so well that he ought to be paying them any extra. I kind of agree with that, but getting a text bill is good news, it's for the simple reason you made money. If you're getting something back from the tax office because of something you've done with investing, you have lost money and the tax department is saying they're, "Sorry for your loss. Here's a little bit of your money back", but you're still fundamentally staffed..

Anne Fuchs: Yeah..

Brian Parker: So getting a tax bill is good news. Now I also, one of the interesting things about, if you think about Australia's history, we used to have really, really high rates of income tax. The top marginal tax rate used to be over 60 cents in the dollar, close to 65 cents in the dollar. Now, if the tax man is going to take 65 cents of your marginal dollar, well by God you do everything you could to avoid nine techs and a lot of people did and a whole industry sprung up to help you do it. Think macadamia nuts, think olives, think tea tree, think a whole range of these things. All designed to basically lose money, so you save tax. Getting a text bill is good news and it's funny how that industry and that sort of mentality to not want to pay tax and to try and get out of paying tax has survived the fact that the top marginal tax rate is now miles below where it used to be. But getting a tax bill is good news, making money good, losing money bad, fairly basic investment preposition..

Anne Fuchs: So if you don't want to lose money, what would be? One, what's your final tip?.

Brian Parker: My final tip is a good advice pays. Good medical advice, good legal advice and good financial advice pays and we believe very passionately advice here and the good financial advice can make a really meaningful difference to people's retirement outcomes. It also means that a financial advisor worth his or her salt should never balk at saying, "I kept your face off a current affair for another year. Here is a bill, here's the cost of my professional services" cause that advice absolutely has a value..

Anne Fuchs: Okay and do you know, we were doing some analysis, the sort of tail end of 2018 looking at those members at Sunsuper who have sought financial advice and have got financial advice and those that haven't, and there is, I mean, you're not going to be surprised by this Brian, but there's a profound gap difference in terms of what people ending up with in retirement. The activity on their account is much more sort of engaged activity around, making the right investment choice, making sure they've got binding nominations when something bad happens. They're really, really so much better prepared for their retirement. Which is why we bang on about it so much to put a cross like we just want more members to do this because you'll be better off as a consequence, that's why we come to work every day..

Brian Parker: Absolutely..

Anne Fuchs: I think we have covered the main points very succinctly today, Brian..

Brian Parker: I think we have indeed. Absolutely. So look, there's my seven rules to live by. I'm very much looking forward to the next podcast..

Anne Fuchs: Look, I am sure Josh Van Gestel is quite a force of nature. I don't know how you're going to contain yourself, Brian in the next episode. You'll have some serious competition..

Brian Parker: I'm sure I'll be fine..

Anne Fuchs: Okay. All right. Well thank you very much for listening and we look forward to you joining us at the next episode of the New School of Super..

Voice-over: This has been the New School of Super. For information and inspiration to help you plan your future, manage your super and enjoy your retirement, visit Sunsuper.com.au/thedreamproject or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, Then get in touch at Newschoolofsuper.com for it to feature in one of their future New School of Super Podcasts.

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