The Biggest Investment Myth of All

I didn’t think it was possible but Mario is lost for words. Absolutely speechless.

On the meeting table in front of he and Maria is a plastic hand grenade and a three bedroom house made out of lego. It’s a disturbing site and Mario is not even game to guess why it’s there. Especially since I told him three weeks ago his house is not an asset!

Welcome to the final lesson of the End of Financial Year Master Class – ‘Exploding the Biggest Investment Myth of All’.

I regard this week’s lesson as the most important of the Master Class series and I am determined to make sure Mario and Maria ‘get it’.

Mario’s eyes are transfixed so I begin with…

The Three Bedroom House
I ask Mario and Maria to imagine they have $100,000 to invest. If they held those investments in the first bedroom, all earnings (e.g. rent, interest, dividends) would be taxed at their current marginal rate of tax. For them, this would be 40%.

If they held those exact same investments in the second bedroom they would be taxed at 15%.

And if they held those same investments again in the third bedroom they would be taxed at 0%.

“Mario and Maria, in which bedroom would you prefer to hold your investments?”

“Obviously the third bedroom! But how can we get 0% tax on our investments!” Mario asks

It’s very simple. All we have to do is set up a super fund and begin transferring your money into it. But as soon as I mention superannuation Mario says “No way!”

Mario doesn’t want anything to do with superannuation because he saw how much money people lost during the GFC.

Expecting this reply, I grab…

The Hand Grenade
Mario and Maria make the same mistake as most other investors. They assume super was the reason investors lost money during the GFC. It wasn’t. It was the investment strategy inside their super. It wouldn’t have mattered which bedroom they held their investments, the outcome would’ve been the same.

Exploding the Myth
To demonstrate my point, I pull out a chart to show Mario and Maria that every stock in the top 20 on the Australian Stock Exchange (which makes up 60% of the ASX) is now trading at the same level or higher than where they were before the GFC.

In other words, for all the noise we’ve heard about the stock market post the GFC, all the good stocks have recovered, and then some. It’s the rubbish which has hurt investors. Especially property trusts.

The GFC taught us to never buy a farm when it’s full of grass. Instead, buy it during a drought to see how it performs in the worst of conditions. That’s what characterises a blue-chip investment.

I explain to Mario and Maria their ultimate goal should be to get as much money into super with a tax effective investment strategy. It is no more risky than holding their assets outside super. However the returns are definitely better.

Mario is lost for words, again.

Superannuation is still the best game in town. And that’s not a myth.

That completes the End of Financial Year Master Class series. I hope it was of some benefit to you.

Happy New Financial Year!

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