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Noel's share winners and loser plus budget reality check

Everybody wants to pick a share price winner, and there is no shortage of information. There is a plethora of investment newsletters, stockbrokers always have recommendations and the papers feature share buys and sells continually.

Picking a few winners

I don’t fancy myself as a stock picker which is why over 95% of my portfolio is in managed funds. However, the successes I have had were based on observation. I got into Magellan at $1 a share way back in 2010 when I noticed that every time they ran a session for advisers, there would be double the numbers of advisers present versus the previous time. The six-monthly dividends now from that purchase are more than the original investment.

Then there was Iress, which I bought for $4 a share about 15 years ago. I knew that the ‘Holy Grail’ of the financial planning industry was software and also knew that every piece of software I had been shown was a dud. Then suddenly Xplan appeared and it was a winner. Iress was behind Xplan.

A friend told me recently how he made a nice chunk of money as a result of taking his granddaughter to a morning tea. She told him they had to go to Smiggle to buy some merchandise that was in hot demand by young people. He had never heard of Smiggle but when they arrived, he was astounded to see the long queues of people outside their store. He bought a parcel of shares in Premier Investments which have appreciated rapidly in just seven months.

... but on the other hand

But there is also the opposite. You can dump a share because your dealings with the company are so bad you wonder why they are still are in existence. And this is how I came to sell my Telstra shares an hour before I wrote this.

We have persevered with Telstra for many years despite the difficulty of communicating with them. Earlier this year, when the NBN became available in our area, Telstra rang us continually to convince us to remain with them by switching our Telstra cable internet service to Telstra NBN. We declined and moved the home service to Aussie Broadband.

The Telstra service was discontinued and the associated landline number ported over to a new provider. The problem was that Telstra kept sending us bills telling us that the direct debit to our account would continue.

I rang Telstra where a recorded message told me to use the MyTelstra app on my phone. That was a disaster. Naturally they start the conversation by asking for my full name, date of birth and account number which I duly provided. The next message advised me I was on a contract and there were termination fees. When I asked for a copy of said contract and what the termination fees were for, there was no reply.

What followed was a nightmare. Every time I re-joined the message conversation the cycle re-started with the usual request for name, date of birth etc. and what was I calling about. After having provided the details more than six times, I finally gave up and made my first ever complaint to the Telecommunications Industry Ombudsman. It took three minutes online.

In less than 24 hours after I lodged the official complaint, Telstra had emailed me an apology and promised to refund all the disputed charges. I then tweeted what had happened and within five minutes, Telstra tweeted another apology.

The lesson is obvious – don’t spend weeks fighting with your telecommunications provider. Use Twitter or go straight to the ombudsman. Through either action you’ll get your fast results.

 


Thoughts on the 2021/2022 budget hype

It was a perfectly crafted election budget: full of goodies for everybody. But let's have a reality check on two measures, downsizing and the first home scheme.

Downsizing 

I just don’t get the hype about rules being relaxed to enable people over age 60 to downsize and contribute up to $300,000 each into superannuation from the sale of the house.

Think about it. The work test is being abolished from 1 July 2022 which means everybody will be able to contribute to super in some shape or form up to age 75, whether they are working or not. The only limitation is that once you have $1.7 million in super you cannot make more non-concessional contributions apart from the downsizer special contribution.

But the average retiring couple would be pushed to have $800,000 in super between them, so they could already both contribute $330,000 using the normal contribution rules. They don’t need to access the downsizing contribution. The only winners from the new rules will be the wealthy, who have more than $1.7 million in super now.


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Government contributes to cycle of rising house prices

A bigger issue facing Australia is the thinking by both major political parties that 'something must be done' to make housing more affordable. Yes, right now we are in the middle of an extraordinary residential real estate boom, but this has been caused by our Reserve Bank cutting rates to historic lows. Low rates increase the number of people who can qualify for a housing loan, and at the same time turbo charges their loan potential. The rush started as soon as mortgage repayments became cheaper than rent, and of course, once a rush starts, everybody wants to jump on the bandwagon for fear of missing out.

And so it goes on and on.

Every government initiative to help first home buyers simply increases the number of buyers in the market fighting over a rapidly declining amount of residential housing stock. This feeds the vicious cycle of prices going up.

Any asset is only worth what somebody is prepared to pay for it, and how much they are prepared to pay is governed by how much they can borrow.

This budget has also further increased the number of people who are eligible for a housing loan by enabling them to take part in the First Home Loan Deposit Scheme, which is really a lottery allowing them to buy a home on a minimal deposit. This was a disaster in the UK and may well become a disaster here. The interest rate cycle around the world is turning upwards and at some stage homebuyers will face an increase in their mortgage repayments. This will put many under financial pressure, which may well cause a downturn in the housing market.

The Government also announced that more money can be saved in the superannuation system for a deposit on a first home (the First Home Super Saver Scheme, or FHSSS). The maximum releasable amount of voluntary concessional and non-concessional contributions will rise from $30,000 to $50,000. Basically, first home buyers can make additional personal contributions of up to $15,000 a year as a tax deduction, and then withdraw the money when needed to buy their first home. The sting is that the contribution loses 15% going in and is taxed at marginal rates less a 30% rebate on the way out.

For example, someone earning $85,000 putting $15,000 of gross salary into super for a home deposit would save $5,175 in income tax and Medicare levy up front while losing 15% or $2,250 in contributions tax. However, the maximum in the FHSSS has been left at $15,000 a year per person, and it does not start until 1 July 2022, so the change is of no benefit to anyone who wants to buy anytime soon. It’s a relatively small amount to most first home buyers, especially given the huge amount of paperwork involved.

 

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. See www.noelwhittaker.com.au for details or write to noel@noelwhittaker.com.au. This article is general information and does not consider the circumstances of any investor.

 

23 Comments
Rick
June 21, 2021

I moved from my house 9 months ago to a retirement village and in the process swapped from our previous internet provider to Telstra.There was a glitch when we first arrived and I had no problems with Telstra customer service ,problem rectified and they were pleasant in the process.Sorry others have not had the same results, but for us ,so far smooth sailing and I am happy with their service.

Jeremy Dawson
May 30, 2021

Yes, the Telecommunications Industry Ombudsman are great. I'm just using them for the 8th time - 7 times experiences like yours, one genuine dispute as to what's reasonable. Definitely to be recommended.

Greg
May 25, 2021

Day 5 without Telstra landline functioning. We aee in the country without mobile reception, so landline is a must. Neighbour has same issue and because of health issues has access to the Telstra priority emergency number to deal with fauls etc. He has been told maybe six different times when the fault would be rectified. So, when attempting to report the fault, they tell you to go to their app. You sign is, click of the report fault link and ity makes you sign in again, but as far as I can see there's no place to actually type up the problem. Then it refers you to their phone number but, wait on, our phone doesn't work that's why I'm on the app. It's the dopiest app around and that may be a reflection of a company that is yet to transition from a government outfit and one that doesn't quite know what it's there for. Oh well, we wait.

Joey
May 24, 2021

I know a guy who had a land release on the market in Coffs at the time of the $25,000 grant, and he immediately put up his prices by $35,000. The first home owners think they were the winners, $25,000 in free money, but who did it really go to?

Frank
May 23, 2021

Dropped into two Telstra shop fronts to buy a sim card - at both was told that they had a next vacant appointment time several hours later - to buy a sim card! 'nuf said!?

Aart Hofman
May 23, 2021

I had the problem of being charged by Telstra for things I didn’t have which amounted to theft to my thinking. I soon gave up on the call centres and went straight for the top and gave Andy Penn a lacing about his organisation. Things improved markedly within days including a personal letter of apology. Moral of the story, don’t try to work the boot uphill, it works best from the top down. The main problem is that the chief is unaware of what’s happening underneath him so it pays to put him in the picture.

David
May 21, 2021

Bad customer service from Telstra for my business with ongoing unresolved problems. Been through the ombudsman payed out known costs nothing for unknown costs such as loss of businesses for no phones or internet for 2 weeks Sold my shares wondering how profitable they could be if they actually cared.

Fred Dixon
May 20, 2021

Noel, the downsizer contribution helped us no end. We are 78 and 80 years old and wanted to move into a retirement village closer to specialists. Because of our age there was no way we could get a bridging type loan so we ended up having to draw down on our super funds and then when our former home was sold to replace the money into super. Our ages would have precluded us from using the normal contribution rules. That is a limitation you have not considered.

David Wilson
May 20, 2021

Noel is right on the money when he says: "Every government initiative to help first home buyers simply increases the number of buyers in the market fighting over a rapidly declining amount of residential housing stock. This feeds the vicious cycle of prices going up". Further, the First Home Super Saver Scheme (FHSSS) is a cynical measure implemented by this government in an attempt to appear to assist first home buyers, but actually doing very little at all. Unfortunately for the young, they are pretty much voiceless in this debate and are being royally ripped off by a government that simply doesn't care about them. In order to give the young a fighting chance in the property market, at the very least, there needs to be a winding back of the property tax concessions that favour investors (including negative gearing and the CGT discount). That would represent real reform that would at least provide a level playing field.

Steve
May 20, 2021

It's a classic catch-22 problem. We are seeing at the moment a very tight rental market; just imagine how much worse it would be if the concessions for investors were removed as in Labors policy at the last election. Not saying a level playing field isn't a bad thing, just how to get there without killing the existing market? At the end of the day an investor needs to make a profit, either through capital gains or by rental income. Either prices or rents (or a combination) need to comfortably exceed the ownership cost (interest, rates, maintenance etc) to take the risk of getting the tenant from hell! I also expect on day 1 of having a mortgage any new young owners would be just as vocal as their parents/grandparents in wanting to avoid anything that devalues their investment to make it easier for their friends to get into the market! And so it goes.....

David Wilson
May 20, 2021

The potential impact on the rental market of the removal of tax concessions has been massively overstated by property investment advocates for many years. It represents scaremongering and has effectively been used to stifle reform in this area. The rental increase argument was also effectively debunked by the Grattan Institute Report, 'Hot Property', that was released a few years ago. https://grattan.edu.au/wp-content/uploads/2016/04/872-Hot-Property.pdf (Refer pages 33-35).
Such reform won't "kill the exisiting market" it will simply serve to make it fairer.

JJ
May 21, 2021

The argument that less investors will push up rental prices is misleading because it is only half the story.

By removing negative gearing, yes there will be less investors and less houses to rent, but prices will come down due to less demand for buying. The result is that more people will buy because they can finally afford it, and this increase in owner occupier percentage will bring down the demand for rentals.

Rod in Oz
May 23, 2021

Totally agree David. Could go on about housing costs but will restrain myself.
There's a lot that could be done if the Govt. had a social conscience but they apparently don't and sadly as you say the young people caught in this seeking to purchase are not heard. A sad reflection on the general consensus.

Ajay
May 24, 2021

Very true , since the time Builders grant or First home owners grant started the price of new build houses have gone up with almost same amount. So who is the loser here owner and gainer the building company

Neil
May 20, 2021

My daughter found the administrative requirements of the FHSSS a nightmare. She also missed out on the Low and Middle Income Tax Offset because the amount taken out of super is added to assessable income.

Oscar Stevens
May 20, 2021

Hi Noel, I feel your pain with your Telstra experience. The "customer service" is excruciatingly poor; we too finally gave up and recently swapped providers.
I believe that the only way the Board and management at Telstra will really understand the depth of the problem and level of frustration experienced by their (former) customers is if they were to go through the channels that 'ordinary' customers have to go through in order to address an issue - I have no doubt they would be equally surprised and appalled.
Maybe the Directors and management could set aside a few days / weeks to try this?

John
May 20, 2021

I tossed Telstra many years ago but it was for the same lack of customer service reasons.
I moved states and got my landline connected, at my new address something that was relatively easy. However then I started receiving phonecalls for the previous owner of the number - their business had gone bust. This was frustrating but eventually slowed.
After that it got worse, I started receiving bills addressed to me that were for the former business that had gone bust - something I had no association with apart from their previous phone number. After many phonically to Telstra that produced no results, I went to a Telstra shop where I found out that it seemed that a Telstra business had passed on my name and address to creditors of the failed business. To say that the Telstra shop person was horrified was an understatement but she immediately changed my landline number and profusely apologised.
Shortly after I ported all of the family mobiles to another provider, changed to another ISP and got a VOIP phone and was finished with Telstra.
If anyone needs any more indication of Telstra's customer service look for the reports of what they have done with people in remote indigenous communities with mobiles where they do not have other provider choices - I recall the recent fine was very substantial!

David
May 20, 2021

Excellent idea. I’ve had an appalling experience trying to help my aged father not get the nbn on and his landline cut off. Even though Telstra say it’s all sorted, people keep turning up to connect him to the nbn he doesn’t want. If you could talk to a customer service person it might get sorted , but otherwise no hope. And they’re marketing spin you can’t talk to them because then they couldn’t deal with everyone else. Seems like they can’t deal with anyone. Noels suggestions to seek shares and move your services seem the only solution

Gadget
May 20, 2021

Not a LNP voter but the age reduction will benefit my wife who is under 60. The new downsizer policy will enable her to contribute $0.3m to her super next year, then in the following year she'll most likely contribute another $0.3m (inherited) under the 3 year bring-forward rule. Couldn't get $0.6m into her super and commence an income stream before 2026 otherwise.

Chris
May 20, 2021

David....Noel seems to be saying you can just put in up to $330,000 as a non concessional contribution and forget about the downsizing contribution. What I’m not sure about is if you could do both...put $300,000 in as a downsizing contribution and also put in $330,000 as a non concessional contribution under the bring forward rules...maybe some one knows the answer?

Simon
May 20, 2021

Yes, you can. The downsizer contribution does not count towards the non-concessional contributions cap.

David L Owen
May 20, 2021

Re the downsizing opportunity, I am fairly sure that it is not available to "everyone". It is my understanding that one still has to have owned and lived in the property being sold for at least ten years. I have extracted the following from the ATO's listing of eligibility criteria:

"Your home was owned by you or your spouse for 10 years or more prior to the sale – the ownership period is generally calculated from the date of settlement of purchase to the date of settlement of sale."

We are caught in this trap. As part of our preparing for retirement we purchase in July 2013. Now, we would like to release some of the significant capital tied up with our current home. To qualify for the downsizing contribution, I understand we cannot sell until July 2023.

John
May 23, 2021

Another issue with the downsizing contribution. The home is presumably "your principal place of residence" and therefore exempt from the Pensions assets and income tests. Once you contribute it to super won't it be counted as an asset (and income counted) in determining your pension?

 

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