Furious Friday

Is cheaper better, or do you get what you pay for?

Welcome to Finance & Fury’s ‘Furious Friday’!

Today’s misconception – Is cheaper better, or do you get what you pay for?

Met with a client this week for an initial appointment – He had been reading ‘The Barefoot Investor’

  • I haven’t read it, but he had a summary of the tips in the book.
  • His biggest take away were on the cost of things – basically, lower cost is the best option.
  • But is it? You pay for costs for a reason – to get something out of it!
    1. Super – Admin fees and Management fees
    2. Listed Investment Companies (LICs) – Management fees

Very true that when looking at ‘like for like’ products – cheapest is generally the better option

  1. When comparing the exact same: for example, buying a car – If ‘Car A’ and ‘Car B’ are the exact same, you go for the lower costs
  2. Close substitutes: If things are really similar ‘Car A’ and ‘Car B’ (Mazda and Hyundai) – Might go for a personal preference
  3. But how do you compare things like investments or superfunds?
    • Not all things are created equal
    • Comparing solely on costs can be a trap!

Not all things (like super) are ‘like for like’

  1. Admin fees
    • Host Plus – $78
    • Sunsuper – $78 + 0.1%
    • Australian Super – $78
  2. Investment options, returns and net costs: Returns – MERs – taxes = Net Returns
    • Income returns taxed at 15% on average

 

HostPlus

HostPlus

Sunsuper

Australian Super

Balanced Default

(1.45%)

Index Balanced

(0.06%)

Balanced

(0.9%)

Balanced

(0.75%)

2017

13.2%

10.3%

12%

12.44%

2016

5%

2.2%

8.9%

4.54%

2015

11%

10.8%

7.3%

10.86%

2014

13.6%

14.4%

7.6%

13.88%

2013

16.3%

18.7%

18.6%

15.63%

Cumulative returns

  • Host plus
    1. Balanced Default – 74.31%
    2. Index Balanced – 69.60%
  • Sunsuper – 67.01%
  • Australian Super – 71.59%

You get what you pay for here – because they are all managed and invested in similar ways

  • These options, however, might not be the best for all

My funds

  1. My super is with another platform that allows me to make the investments, so I can choose from 400+ other managed funds, direct shares, LICs etc.
  2. They do charge more though, so if you are going for multimanaged you will underperform, but if you go for other managers you will make up the difference.
  3. Needs to be non-index investments to make up the difference
    • Active funds
    • If you are higher growth, non-index, that increase in values more than income returns
    • My fund pays me franking credits
    • For me the costs are worth it to access the investments and franking credits

My main investment options:

 

OC Dynamic (1.72%)

Ausbil Microcap

(1.21%)

Magellan

(1.48%)

Platinum

(1.48%)

2017

29.80%

22.5%

14.23%

25.16%

2016

0.16%

2.68%

3.71%

4.65%

2015

27.60%

51.16%

15.27%

9.58%

2014

10.79%

9.16%

14.55%

7.79%

2013

25.6%

33.87%

48.69%

47.22%

Cumulative returns

  1. Average – 148.15%
  2. Not ‘like for like’ – More high growth than the industry funds.
    • But costs more – $175 flat + 0.3% of balance
    • MER – 1.4%

LICs vs ETFs

  1. LICs -Companies
    • Control Dividends
    • Make active investment decisions
  2. ETFs – Trusts (similar to managed funds)
    • Generally passive
    • Dividends, FCs – flow through to the investor

 

 

AFI (0.14%)

VAS

(0.14%)

WAM

(1% + 20% performance fee)

WAX

(1% + 20% performance fee)

1 year

8.6%

10.2%

15.5%

16.2%

3 years

3.2%

6.08%

14.9%

15.6%

5 years

6.1%

8.79%

15.9%

18.5%

10 years

5.00%

5.2%*

13.9%

n/a

*Accum index return – VAS hasn’t been around for that long but is the ASX index

Dividend payments

  • WAM – 6.6%
  • WAX – 6.4%
  • AFI – 3.96%

The take away

  1. If you know you’re comparing ‘like for like’ – Lower cost is best
  2. But you shouldn’t base all decisions around the costs only
    1. If you are comparing two large cap funds that do the exact same thing
    2. Or two super funds doing the exact same thing
    3. Go for lower costs
  3. Some things are worth the extra cost!

Say What Wednesday: Baby on Board! The Ultimate Guide to Maternity Leave

Welcome to Say What Wednesdays, where every week we answer questions from you guys, the listeners. This week the question comes from Mary; “Hey guys, love the show. Just wondering about what entitlements, I can receive if I go on maternity leave? I’m currently...

What would you do if you won the lotto?

Welcome to Finance and Fury Have you ever thought about What would you do if you won the lotto? What would you do with it? This depends on many things: the size, type of lifestyle, and how much you value money now. Today: Talk about how winners end up with no money...

Can identifying as another gender save you money on your insurance premiums?

Welcome to Finance and Fury, The Say What Wednesday Edition This week question comes from Matt - Not so sure if this is your area of expertise or have come across this at all, although I have a question regarding insurance and identification of gender. People know...

What does Central Bank issued cryptocurrency look like?

Welcome to Finance and Fury, the Furious Friday Edition Welcome to FF FF – Hasn’t been a FF in a while – but last was running through Crypto markets in relation to the BIS and powers that be Today – Want to cover the potential of what central banks using crypto and by...

Will property prices keep declining due to higher mortgage arrears?

Hey guys and welcome to Finance and Fury! Today we’re joined again by Jayden to talk about whether property prices will keep declining due to higher mortgage arrears. The RBA’s cookie cutter approach to rates will continue to try and help reduce chances of mortgage...

Are Berkshire Hathaway Class B shares a wise investment for long term capital growth?

Welcome to Finance and Fury, the Say What Wednesday edition. Today’s question comes from Mario. “With the success of Warren Buffett’s Berkshire Hathaway would it be wise to invest in their Class B shares? It is often said that Berkshire Hathaway is one of most...

Furious Friday: Do you work full time? Are new tax cuts only going to the “top end of town”? Is this “selling Queenslanders out”

Furious Friday Do you work full time? Are new tax cuts only going to the “top end of town"? Is this "selling Queenslanders out"? Welcome to Furious Friday… The Tax Bill has Passed…Yay! Now, let’s clear up a little misconception floating around, we’re going to talk...

How does corporate debt fuel market bubbles?

Welcome to Finance and Fury, The Furious Friday Edition Today – want to look at how much Corporate debt has been fuelling the top end of the share markets growth – signs that if liquidity is withdrawn, companies and markets collapse   Last FF ep – went through...

Is money the root of all evil? And, how statistics are used to perpetuate misunderstandings and f*ck with you

Furious Friday Is money the root of all evil? And, how statistics are used to perpetuate misunderstandings and f*ck with you Welcome to Furious Friday – These episodes aim to solve misunderstandings In this episode -  Furious about the muckery of statistics used to...

How to best invest for Children or Grandchildren?

Welcome to Finance and Fury, The Say What Wednesday Edition This week's question comes from Cameron "One small question we have been pondering. Our parents are gifting a small amount of money monthly to our 1yr old son (their grandchild). Rather than let in mature in...

Pin It on Pinterest

Share This