Investing 101

For the investment gurus among you this episode will be too easy, too basic and too everything. But for the rest of you – who know as little about financial investments as we do – it should give you a first Investing 101 crash course.

We went to see Liam Shorte of Verante in Castle Hill who kindly agreed to answer our questions.

Here is what we learned but please listen in as Liam Shorte explains all this much better than we ever could.

To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.

1 – What is a Wrap Account?

What is a wrap account? Think of a supermarket. You walk around with your supermarket basket and pick what you need. You grab some shares. Some managed funds. Some term deposits. Maybe some ETFs. And probably some cash. You place them in your basket and head to the checkout.

When you get home, maybe you realise that you bought the wrong shares. So you just take them back and grab something that might suit you better. And you decide exactly what you want to sell. What parcel of shares.

At the end of the financial year, the wrap account provider will give you a tax report, that lists everything you did during that year. It will list the dividends and trust distributions you received, what you bought and sold, the capital gains and losses you made. The CGT discounts you received.

And then you just give this tax report to your accountant to use in your tax return. And you give it to your financial adviser to discuss your strategy.

So that is a wrap account. It gives you full transparency and the full product range to choose from. You own the underlying assets in your name. Or maybe you hold them as trustee for your SMSF. But either way, you decide what to buy, hold or sell and when.

Examples of large wrap account providers are – without recommending any in particular – Macquarie Wrap, Colonial FirstState Wrap, Panorama Wrap, MLC Wrap series and Netwealth. There are more smaller players but these are the larger ones that come to mind.

2 – What is a Managed Account?

What is a managed account? With a wrap account you decide what to buy, hold or sell and when. But maybe you don’t know. So you engage somebody else who advises you what to buy, hold or sell or does it for you. But you can always come in and issue instructions what you want to happen within your managed account.

So – just like with a wrap account – you still own all the underlying assets in your own name or as trustee for your SMSF. You still get the tax report summarising your tax position. You just have a manager managing those assets for you. That is a managed account.

3 – What is a Managed Fund?

In a managed fund you buy units in the managed fund. So you own those units. The unit trust aka managed fund then goes out and buys the assets the managed fund is to hold. This could be shares and units in a particular industry or particular country or continent. It depends on the investment strategy of that fund.

In a managed fund you don’t own the underlying assets of the fund. You just own the units in the managed fund itself.

And you don’t decide what the managed fund buys, holds or sells and when. It is the manager of this managed fund who decides all this. You just decide whether you want to hold units in this managed fund or not.

There are hundreds and hundreds of managed fund providers. Some of the older ones are huge with huge funds. Examples are Perpetual Industrial Share, Magellan Global Fund and Colonial FirstState. Some managed funds are designed for SMSFs, taking their specific position into account.

4 – Returns from Residential Properties?

Residential property in capital cities tends to give you lower returns and higher capital gains. However, this flips when you get into regional areas. In regional areas residential properties tends to give you a higher income yield but on a lower capital gains.

Property investors are also more exposed in regional areas since there is a lower number of industries providing employment. If half the town works at Factory X and Factory X closes down, you have a problem.

So if you are after consistency of returns, invest in a capital city.

5 – Returns from Commercial Properties?

For commercial properties a big factor is parking. If there is no parking nearby – for example in residential shopping strips – property returns and values will struggle.

So this is what we took away from this Investing 101 crash course. But please listen to Liam himself since he discusses all this and a lot more in much greater detail.

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Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.

Last Updated on 28 July 2020

Tax Talks spoke to Liam Shorte - Director at Verante - for more details.