A letter to Myer

I met a young bloke on the weekend who fancies himself as the next Rene Rivkin, but with a vapestick instead of a cigar.

'Myer's looking cheap' he confided in me, shrouded in orange smoke.

Myer: from the Latin 'a way to lose millions of dollars'

What he was trying to tell me was this:

'I've noticed that Myer's share price has fallen a long way, so I'm going to buy some, and when it recovers, I'll be richer than Christopher Skase.'

FFS. Even Solomon Lew can't get it right with Myer, so how a 21-year-old who sells funeral insurance from a call centre's going to smash it's beyond me.

So I thought I'd better warn others.

I was going to write about changing retail spending, shifty management and onerous lease commitments, but it's a long weekend and I have wine open, so here's a letter I sent to Myer earlier in the year instead.


Dear Mr and Mrs Myer,

I visited your Brisbane CBD store today, so I thought I'd provide some useful feedback on the experience.

It sure is a nice place, particularly the ground floor. Shop assistants were everywhere, flogging a bewildering array of cosmetics. People were spending like crazy.

I understand the importance of cosmetics. My ex-wife looked terrifying without them, so I encouraged her to spend up big at Myer at every opportunity.

Here's a random thought - all the customers were women. As we know, women love shopping as a rule. Most of them would happily climb ten flights of stairs to buy a pair of shoes that didn't fit, as long as they were on sale.

On the flip side, most men would rather have a prostate check than go clothes shopping. Yes, I know there are exceptions to that rule, but you get my drift.

So why, in every city, do you put the mens' section at the top of the building? Why not on the ground floor, where there's at least a small chance a man might wander in, probably lost, and buy something on impulse?

I don't wear much makeup these days except on special occasions, so there was nothing on the ground floor for me. I travelled up your maze of escalators and eventually found the mens' section, on level 12, hidden behind a screen advertising Katy Perry.

I was after a few things - a suit, a couple of pairs of trousers, a few shirts. Perhaps a jaunty hat like the ones you can buy at David Jones. 

When I was younger and more stylish I'd have gone straight to the Zegna section, but it seems you don't have one anymore. Perhaps that's a good thing. I'm getting a bit porky these days and can't pull off the Paul Keating look very well.

Anyway, it seems you've got a great range despite the lack of Zegna (as long as you're a size 30 in slim fit). There's just one thing I couldn't find.

Someone to help me.

As I've already  mentioned, I've got the physique (and sex appeal) of a bag of spuds these days, and wouldn't have a clue what size I am. So I needed someone to measure my waist, and if I got really lucky, my inner leg.

But there was nobody there. Zip. Like the aftermath of the Zombie Apocalypse, which I know hadn't happened because I'd have read about it on Twitter.

So I wandered around for 23 minutes, randomly picking up suits and putting them elsewhere. I hope the next person browsing the Ted Baker section is amused to to find some Country Road garments.  I mean, what else was I to do? You wouldn't let me spend my money.

Here's the thing - it wasn't always like this. Back in the good 'ol days before Venture Capital sucked the soul (and all the cash) out of the business and listed the corpse on the ASX, Myer was a great store.

I would have walked out of there with three bags of expensive clothes.

Today, I just walked out.

Up next - how to lose all your money in three easy letters

Got a few bucks saved up? Looking for a good return on your money? 

Next, I'll explain how you can get rid of all your money quickly and easily with just one signature.

Help! Dad's leaving my inheritance to his floozy!

I could tell Alicia was really pissed off with her mother-in-law because she called her a witch, a money-grubbing bitch, and far, far worse before she even stopped for breath.

I let her go for a while. My life’s pretty vanilla these days, and this was getting spicy. Like a cross between Fifty Shades of Grey and an estate planning textbook.

The Office Fling and the Strumpet

I might add this is a true story, not something lifted from Desperate Housewives of Wangaratta.

Here’s the guts of Alicia’s rant, edited for a mixed audience.

Years ago, Alicia’s dad had an office fling with somebody 14 years younger. It got hot and steamy. They didn’t exactly get caught naked on the boardroom table, but they did get caught out.

These days, I suppose it would be called an inappropriate relationship.

Within a few months, the sugar daddy had left the marital home, the strumpet (Alicia’s words) was pregnant, and as you guessed, not everybody lived happily ever after.

Then a few weeks ago, he let slip to one of his three daughters from marriage #1 that they’d had all the financial support they were going to get from him.  The gravy train had ground to a halt.

Give Me the Money

The rest of his estate (quite a large one, as it happens) was to be left to the strumpet.

That’s why Alicia was pissed off. She had a right to a decent cut of dad’s money, or so she reckoned.

When she stopped to draw breath, I told her under the law (well, in the 19th Century at least), I’d soon inherit six generations of accumulated Naked family property, just by being clever enough to be the eldest son. She didn’t seem interested.

But a lot's changed since then. Laws, alongside community expectations, have moved with the times and Alicia might not get a cent.

She won’t be the only one to be mightily pissed off.

One Day, All the Baby Boomers Will be Dead

Over the next 40 years or so, the richest generation in history will all die, and give up trillions of dollars in assets. Yep, trillions.

And if you thought the Age of Entitlement was over, then you’re wrong. It’s not even warming up on the sidelines yet. (Get it? Footy analogy in Grand Final Week?)

Anyway, those trillions will be mostly tax-free, thanks to John Howard’s superannuation handouts and the CGT exemption on the family home.

Even if they won't admit it, millions of people, just like Alicia, can’t wait to get their grubby mitts on all that money.

Alicia’s dad’s an adult with all his faculties intact. He’d paid for Alicia’s education, bought her a car, and given her a house deposit.

Now, he’s got another family, with three more kids to look after.

So I told Alicia she should respect her dad’s right to leave his money to whomever he chose.

The Fight of the Century

In the black corner, we’ve got the Baby Boomers, who Y-Gen reckons are the most selfish generation in history.

In the red corner, there’s Y-Gen, often accused by Baby Boomers of being the most selfish generation in history.

Most Baby Boomers hope to enjoy a long and extravagant retirement, paying no tax and if possible picking up the Age Pension along the way (Noel Whittaker would be proud).

Y-Genners know there’s not going to be an Age Pension forever, so they hope their Baby Boomer parents enjoy about a decade of thrifty retirement, then drop dead.

Sound harsh? Nope. It’s playing out already.

In fact make a note of this, because intergenerational wealth transfer will be the biggest financial battleground (and the biggest money spinner for lawyers) over the next couple of decades.

Better Get a Lawyer, Son

Back to Alicia’s philandering father. Should he be sharing his legally acquired loot with all his offspring?

I don’t have an opinion on that. It’s none of my business, and I reckon that's up to him and his partner to work out.

What I do know is this; families have been torn apart over the distribution of a super payout of a few thousand dollars.

So at the risk of putting money into the pockets of lawyers, here are my three best estate planning tips:

1.     Lawyer up. Find a solicitor who specialises in estate planning. Get it all sorted – wills, powers of attorney, testamentary trusts. Review it every five years, or the next day if you divorce, separate or your kids disappoint you.  Trust me here – lawyers will make ten times as much when you die if you skip this step.

2.     Tell your family what your wishes are. If you’ve feeling brave, do this when they’re all in the same room. Some people might get hurt, but if they love you, they’ll get over it eventually.

3.     There are some great financial planners out there. But never, ever let one of them ‘sort out’ your estate planning. It’s not what they’re paid to do. Likewise, best not fill in forms called ‘binding nomination’ with your super fund, unless your solicitor advises it.

The Naked Takeaway

I saw Alicia’s mother-in-law a few days after the phone call, driving a new Audi. Perhaps that’s why Alicia was cranky – her dad only gave her a VW.

But like I've already suggested, Alicia's dad should be allowed to do whatever the hell he likes with his money. Even leave it do the dogs' home (yes, plenty of people do that. All power to them.)

A final comment – without going all Zen on you, here are two tips for a happy life:

Accept what life hands you with grace and humility. And be kind to others.

Happy Grand Final Week!

Why You Should Buy a House. Right Now.

Houses are great. If you own one, you can party in it, raise a family in it, dig up the lawn and plant potatoes (your neighbours won't like it, but there's stuff-all they can do about it).

A castle. Complete with sandpit in backyard.

You can bash nails in the wall and hang your 3-year-old's masterpieces without being scolded by a property manager.

Build a sandpit in the backyard. Paint your bedroom black. You can do whatever you bloody like, because it's your castle.

A home is where you create the memories that will sustain you for a lifetime. Trust me here, a home with a couple of kids and a dog is as good as life gets.

Big Hair. Big Promises.

To a lot of people though, a house is just another entry on their personal spreadsheet.

Something they've been told will make them rich.

Every year, more and more people become convinced that owning property is a magic carpet ride to fame, wealth and fortune.

There's an entire industry built on the back of this obsession. Think big hair, big promises and big mortgages. Buyers' agents. Property consultants. Mortgage brokers. These days, you can even hire a property stylist.

Forget about all that. If you're looking to buy your first home, think of it as a step towards lifelong happiness, not a step on some fantasy property ladder.

Today, I'm talking to those people who want to buy a home, just not in Sydney or inner Melbourne. 

Beware of Sharks

Sydney's a great place. It's not perfect though -- property prices are out of control, a toasted sandwich costs $22 and there are sharks in the harbour. Plenty of sharks in Martin Place too, most of them trying to convince you that if you don't buy property now, you'll wind up living in a caravan somewhere west of Cessnock.

You've probably read stories about young people in Sydney having to live with their parents until their mid fifties, just to save a deposit for a stinking suburban flat with views of the local Hungry Jacks and a $1.3 million pricetag.

That's no way to live, so let's talk about housing affordability everywhere else in Australia.

Because in most places, it's never been cheaper or easier to buy a home.

Huh? Yep, that's right.

Down Down, Prices are Down

Statistics don't lie. The ones based on fact that is, not the rubbery marketing numbers published by the real estate industry and fed to the media.

Hobart, Adelaide, Darwin, Brisbane and Perth house prices are actually lower in real terms (that's after taking inflation into account) than they were in 2008, back in the days of the GFC.

Nearly every regional area in Australia's the same.

If you bought in 2008 and don't live in Sydney, Melbourne or Canberra, chances are the value of your castle has gone backwards.

I think that's great news for people wanting to buy a home. And it gets even better.

Boss, We Need to Talk

When did you last score a decent pay rise. Can't remember? That's because wages growth is crap. Still, over time, incomes have risen 2 or 3% every year. Over a decade or so, those penny-pinching pay rises start to add up.

Average salary - up from $900 week to more than $1,150 now

In most of Australia, house prices have been flat for a decade, but wages have been creeping up.

Want more good news? 

At the start of 2008, the average mortgage interest rate was 8.3%. That went up to 9.5%, before falling to where it is now, 5.1%. (And if you're paying 5.1% now, you're being ripped off).

So we've got higher wages, record low interest rates and house prices lower than a decade ago. Now let's look at how you can go and buy one.

Remember - there's nothing in the Constitution that says you have to buy your first home in Sydney or Melbourne.

Love in the City of Wine

Meet Kate and Cate, who want to get married and buy a house in the City of Wine.

Their local MP, Corgi Bernardi, wants to stop them getting married, so in protest, I'm going to show them how to buy a house (which in a perfect world would be next door to Corgi).

They're an average couple earning the average salary (for Adelaide) and want to buy an average sort of house.

Half a million still buys some decent digs in Adelaide, so to stump up a 20% deposit, pay the lawyer, stamp duty and the other bits and pieces, they'll need $100,000 or a bit more.

Here, I've found one for them, priced at $470,000. That's lower than Adelaide's median price, so here's my first tip: buy a house you can afford, not one to impress your friends.

BYO paintbrush. Your first house doesn't have to be your dream home.
If Kate and Cate start from scratch and live on a single income (it's not that tough, plenty of families live on less than $55,000), they'll have put away more than $100,000 in two years and three months. 

Zero to Hero --- In Ten Years

Let's say K & C buy a place for $470,000 and keep paying one income off the mortgage, plus add half the money they were forking out in rent.

If interest rates don't go up (stay with me here...), they'll be debt free in their own home less than ten years after they started with zilch.

Meanwhile, their Sydney friends are still living with the old folks, and whining about house prices on Facebook.

Okay, I've make some big assumptions here, the biggest being to use two people with decent incomes as an example.

Confession time -- I've been a single parent. It's a tough gig. Trying to buy a home on one wage with kids under your feet is daunting.

It's not impossible though. It's a subject close to my heart, and something I'll be writing a lot about very soon.

What I'm trying to do today is show the sooks who keep crying about housing affordability that the dream is still alive.

Lock and Load

Back to interest rates for a moment. The average rate paid by homebuyers in Australia is currently 5.1%.

You don't have to get financially mugged by the banks by paying anywhere near that.

According to the interwebs, you can get a five-year fixed rate of less than 3.75%. My advice? Lock it in Eddie, and load up your repayments.

In ten years, you'll thank me. Send me a picture of your kids playing in the yard of your mortgage-free house.

Yes I know, fixed rates usually end up costing the borrower more. This time, it's different.

While there's no guarantee house prices will go up, interest rates certainly will.  You might never see a rate below 3.75% again.

The Naked Takeaway

To a lot of people, what I'm saying is rubbish. They'd be the people who read Property Investor magazine and go to seminars called Financial Freedom in Five Years.

My way is different, but it also works.

The simple summary -- Save a 20% deposit. Buy somewhere you can afford. Pay it off as quickly as you can (without having to eat Aldi food and collect discount coupons).

And if you're buying right now, lock those rates in for five years.

How to Survive the Coming Crash

This week, I'm giving you the chance to be a hero to an older person in your life.

Get this right, and one day you'll be able to pop your grandchildren on your knee and tell them why your rellies didn't lose their undies in the Great Bond Crash of 2018.

A bond crash? That's right. Yes, it's happened before - in 1994. A lot of you probably don't remember it (or weren't even born). Doesn't mean it wasn't painful.

Pensioners With Pitchforks

Back in those glory days of the early nineties I was a youngish financial advisor working for a stockbroking firm.

They were the best of times. Nirvana was still a band (just), Paul Keating was Prime Minister and interest rates were only 4.75 per cent.

So what was it that got so many retirees worked up? The oldies weren't exactly storming head office with pitchforks, but it was a close call. The reason? Bond prices.

So let's talk about bonds, the fixed interest ones, not the Y-fronts.

Interest Rates Go Up, Bond Prices Go Down

Bond prices, like a lot of investments, are influenced by interest rates. Like I said, in '94 interest rates were 4.75 per cent.

Then the Reserve Bank popped the pensioner party and cranked rates up to 7.5 per cent in the space of four months.

Hang on, higher rates are good for retirees, aren't they?

Yeah, nah.

You see, when interest rates rise, bond prices actually fall.

Doesn't sound right, does it? It's true though. Here's why.

You'd be familiar with term deposits - you give the bank a wad of cash, and they reward you with regular interest for the term of the deposit. In short, you're lending the bank money.

Bonds are much the same, except instead of the bank, you're lending the government (or a big corporate) money.

Trust Me, I'm With the Government

Let's suppose you invest in a ten-year Commonwealth Government bond paying 2.5 per cent interest.

Every six months you get an interest payment. After ten years you get your ten grand back. In total, you've pocketed $12,500 including interest. Safe as houses, right?

No, not really.

Okay, your $10,000 isn't at risk (unless Barnaby, Morrison, Turnbull & Co default) but strange things happen when interest rates rise.

Let's suppose just after you buy your bond, rates rise from 2.5 per cent to 5 per cent (stay with me here, it's just an example. I'm not saying that's going to happen). If you had the funds you'd be able to invest in another ten-year bond, this time paying 5 per cent.

Over the term of the bond, you'd get back $15,000 including interest.

So what's your first bond worth now?

Yes, it's Maths Time

If you're keen, you could work out the value of your bond using this formula:

If you couldn't be bothered, then here's the snapshot: all else being equal (sum invested, loan term), the bond paying the lower interest rate is worth less. A lot less.

Let's look at it another way. If you were going to buy a $10,000 bond, would you prefer the one paying $250 per year, or the one paying $500? That's a big difference over the life of the bond, and it's why the first one is worth less.

You could argue if you hold them both until they maturity, both are worth $10,000 because that's how much you end up with (not knowing how much your investment is actually worth isn't clever though).

If you revalue them every single day, like your super fund does, the ugly truth comes out - bonds can lose money.

The Capital Stable Myth

Back in '94 if you'd invested in a fixed interest fund or your super was loaded up with bonds, chances are your super balance came tumbling down.

And in '94, a lot of retirees had money in bonds. That's because they got burned in the '87 stock market crash, lost even more money in the '91 property crash, and wanted to invest their savings somewhere safe.

Their clever advisors usually talked them into 'Capital Stable' or 'Capital Secure' super funds.

What that means is most of their money was in bonds, with a bit in shares to provide some growth.

In 1994, they got screwed over twice. First, when interest rates rose from 4.75 per cent to 7.5 per cent, the bond market crashed. Then, the share market collapsed in sympathy.

Those Capital Stable funds got smashed, some of them losing more than 15 per cent. If you're a share market type, you'll know that shares can (and do) drop that much every year or two. If you're a conservative type though, losing 15 per cent is scary stuff.

Avoiding the Coming Crash

You mightn't be too fussed about investing in bonds personally. I'm certainly not - I've got better things to do with my money than lend it to the Government just so they can blow it on helicopter rides and business class flights.

Chances are you've gold older friends and relatives though. People who might be retired, or heading that way.

If they think their money is 'safe', they might need to think again, so share this with them.

Here's what you need to do. Ring the super fund (or wherever their money's invested) and ask for the latest asset allocation pie chart. It'll look something like this:

That red bit? That's what should have your dad or your Auntie Jenny worried. 

Actually, it would worry me too. That's because bonds are returning less than cash at the moment. And in the medium term, if you think interest rates will go up, then bond prices can only go down.

You don't need to change super funds, take more risk or anything like that. You just need to turn the red bit into the green bit. 

Which means making sure you've got bugger-all bonds, and lots of cash.

After all, cash is king. The time to have money in bonds is when interest rates are falling, not when they're about to go up.

The Naked Takeaway

Suppose I'm wrong and rates fall, not rise. If the economy's totally buggered we could end up with negative interest rates (yes, that's a thing. Look at Switzerland).

There's not much chance of that. And the risk of sitting in cash is far, far lower than what could happen if we get rapidly rising rates.

Got questions? Ask them on the blog or in the Facebook group and I'll be happy to answer them. Just don't get cranky if you ignore me and your dad loses his jocks next year.