If you want your children to turn out well,
spend twice as much time with them
and half as much money on them.
ABIGAIL VAN BUREN
We’re finally coming to Melbourne!
Rachel Lane and I will be speaking at three different events on the 16th, 17th, and 18th of October.
More information further down – I hope you can make it.
Welcome to October
The year is flying by, and it’s hard to believe Christmas is just a few short weeks away.
At the time of writing, tensions around the world are running high, which prompted an interesting question from a listener during my talkback show last Wednesday on 4BC Brisbane. He asked whether he should put $30,000 into his super now, or wait until after the US presidential elections, or perhaps until things calm down in Israel and the surrounding regions.
Image by Bob Rich for Hedgeye
My advice to him was simple: you can’t time the market. There will always be some external factor making you hesitant to invest. Markets could seem too high, too low, or filled with uncertainty. But when it comes to investing, the key is to think long-term. If you’re investing in shares or share-based assets, you need to plan for at least a seven-year horizon.
With retirees now living well beyond 25 years after retirement, having a long-term perspective is more crucial than ever. Another strategy to consider is dollar-cost averaging, where you invest a fixed amount each month, like $2,500, instead of making a lump sum investment all at once. This can help smooth out the market’s ups and downs.
In the end, the choice is yours – but remember, time in the market often beats trying to time the market.
Travel insurance
Here’s a quick update on my insurance claims.
I received good news from Medibank this morning: my claim has been approved, minus the $250 excess. I’m still in negotiations with Chubb regarding the claim on my American Express card, which I used to book my flights.
The Medibank claim was straightforward since it only involved reimbursement for an additional fare. The Chubb claim is a bit more complex, as it covers both medical expenses and the cost of changing flights. I’ll keep you updated as things progress.
I must say, I’ve found Medibank excellent to deal with – their online application was very simple, and the claims process has been smooth. It’s a different experience with American Express. Their travel insurance is supposed to be included when you book flights on the card, but relying on that premise can be a bit tricky. Right now, the process seems to be moving on steadily.
Stay tuned for more updates!
Upcoming events in Victoria
We are finally getting to Melbourne. Rachel Lane and I will be speaking at the following events. I hope you can make it.
Wednesday 16 October
TIME: 6:30–7:30 pm
LOCATION: Beaumaris Library – 96 Reserve Road Beaumaris Victoria
EVENT CONTACT: Catie Maher, 0402 016 721
EVENT LINK: Noel Whittaker in conversation with Rachel Lane | Bayside Library Service (mylibrary.digital)
EVENT TYPE: In conversation with Rachel and Noel, questions time at the end.
Thursday 17 October
TIME: 2–3 pm
LOCATION: Mornington Peninsula Library – Vancouver Street Mornington, VIC 3931
EVENT CONTACT: Gail Higgins
EVENT LINK: Noel Whittaker Taxes Made Simple – Mornington Tickets, Thu 17/10/2024 at 2:00 pm | Eventbrite
EVENT TYPE: In conversation with Rachel and Noel, questions time at the end.
Friday 18 October
TIME: Noon – 2 pm
LOCATION: Cheltenham Library, 12 Stanley Street, Cheltenham 3192
EVENT CONTACT: Ivan Wong and Tia Warner
EVENT LINK: Author Talk: In-conversation with Noel Whittaker and Rachel Lane – Kingston Libraries
EVENT TYPE: In conversation with Rachel and Noel, questions time at the end.
Tax matters
Taxes are back in the spotlight, and the recent buzz around potential policy changes is creating ripples of concern among investors, business owners and everyday Australians alike. We’ve all seen headlines hinting at changes to negative gearing and adjustments to capital gains tax (CGT) rules, but these are just the tip of the iceberg. While the Prime Minister may be quick to reassure us that there’s “nothing to see here”, we know that governments have a habit of making changes when we least expect them.
Last month the Australian Tax Office (ATO) gave a clear message: they’re taking compliance seriously. They sent letters to major insurance brokers requesting details of customers with high-value assets – think fine art, marine vessels, thoroughbred horses, luxury vehicles, motorhomes and even aircraft. If you own any of these, the ATO is keen to know.
And it’s not just happening down here – let’s take a global tour of the latest international tax developments and what they might mean for you.
Canada’s recent tax changes offer some clues about directions other countries may take.
From 25 June 2024, Canada increased its effective CGT rate by reducing the discount from 50% to 33.3% for individuals with capital gains over $250,000 in a single financial year. While gains under this threshold remain taxed at the current rate, once gains exceed that amount, the new rules kick in: no exceptions, no “grandfathering”.
What stands out is how quickly these changes took effect. Canadians had just 30 days to offload assets before the new rules were applied to everything, regardless of when they were purchased. An accountant in Toronto told me those 30 days were the busiest of his career, as clients frantically moved assets.
There’s a lesson here for Aussie investors: shares can often be transferred with little hassle, but property transactions have unpredictable timelines and incur stamp duty, something to keep in mind when planning your portfolio.
Tax is also a contentious issue in the lead-up to the US elections. On one side, Trump promises a corporate Utopia (or at least lower taxes). On the other, the Democrats are floating a proposal to increase the corporate tax rate from 21% to 28%. Additionally, they plan to hike the top rate on long-term capital gains to 28% for those earning over $1 million annually. Wealthy individuals could also see their net investment income tax rate rise from 3.8% to 5%.
The UK is taking a different approach: looking to close tax loopholes and ensure the wealthy pay a fair share. They are talking about potential CGT increases, and targeting private school fees by proposing a 20% VAT. This move is shaking up many families that are already stretching their budgets to provide their kids with private education; for many, this feels like an extra burden during already challenging times. Expect more tough measures to be announced in the new UK government’s first budget on 30 October. At this month’s labour conference, the unions made no secret of their claims for massive increases as well as wealth taxes on the richest 1%.
The UK’s five-year political terms give Labour leader Keir Starmer the time to make significant changes. A sweeping majority of 200 seats almost guarantees a win in the next election, giving Labour up to 10 years to implement its plans. History suggests that tough policies often come early in a government’s term to avoid backlash closer to the next election.
The broader implications are clear: your assets are under greater scrutiny than ever before, and as we see governments globally wrestling with tax policies, Australia will not be an exception.
In a world where tax policies can change overnight, proactive planning is your best defence. Whether you’re an investor, a business owner or simply looking to manage your wealth effectively, now is the time to seek professional advice. Review your investment strategies regularly, stay informed and be prepared to pivot when needed. After all, in the rapidly evolving tax landscape, the ability to anticipate and adapt is the key to thriving, not just surviving.
Artificial Intelligence
I’m writing about Artificial Intelligence (AI) today as I think it’s the biggest game changer we may see in our lifetime.
I’ve quoted Keith Fitzgerald regularly because he’s the best financial commentator out of America I know. I never miss his daily email. This is from his latest bulletin:
People continue to talk about AI as if it’s “a” tech. That’s a mistake. AI may well be the single most important technology in recorded human history.
- 9 of 10 businesses have ongoing AI investments
- AI technology will help companies generate $15T+ in revenue within the next 10 years, a figure I think is at least an order of magnitude low, btw
- 100M+ people will work in AI by 2025
Not surprising to me that Micron Technology beat estimates and cited robust AI demand a positive outlook – In fact, I would have been shocked if the company didn’t. Micron has returned 36.14% YTD, up 16.98% today alone as I type.
The real cost of AI
– from Noel Whittaker
AI is changing the world rapidly. The latest research from McKinsey claims that 83% of companies now consider AI to be a very high priority, and within just 18 months there will be 100 million people working in that space. These are massive numbers but there is one issue that has received little publicity: the economic cost.
The technology behind ChatGPT and similar AI systems is Large Language Model (LLM), which is notable for its ability to achieve general-purpose language generation and other natural language-processing tasks such as classification. LLMs read documents and then calculate, letter by letter, word by word, how bits of information usually go together. This requires trillions of computations.
Computer chips are getting better all the time, and the latest ones can handle all the calculations. But running and processing all those calculations generates a huge amount of heat. Cooling them down requires more power and sometimes tons of water – this isn’t cheap. On top of that, there is the power needed to move the data between users and servers around the globe.
You can begin to see the challenge. AI generates enormous new energy demand on top of everything else. And the problem is that this is pure new growth, like EVs’ – it’s not the replacement for something that will go away.
It’s hard to get to Net Zero when we keep inventing new technologies that consume ever-increasing amounts of energy. The goalposts keep moving. We are also shifting some energy demand from direct burning (gasoline, heating oil) to electric vehicles and heating systems. The amount consumed may not change much but it puts more strain on the electric grid. US electricity demand growth has tripled since a decade ago.
If you google “how much energy will AI need”, you’ll find a wealth of information. There are many references to a Dutch analyst, Alex de Vries, who was an early crypto sceptic and began tracking crypto mining’s vast energy requirements.
In 2022, de Vries looked into AI’s energy demand. Since few of the companies doing AI would talk about their energy usage, he counted the number of chips Nvidia said it was shipping, how much energy they use, and then extrapolated. He estimates that by 2027, powering those chips will take well over 1% of total world energy usage – and that’s not counting the cooling and other related demand.
In the US, data centres now account for about 4% of electricity consumption, but that figure is expected to climb to 6% within two years.
You could argue that this is the perfect opportunity for renewables to fill the gap, but the problem is that renewables are intermittent – the weather has to be right. The data centres operate around the clock and generally need huge amounts of electricity non-stop. They cannot shut down if there is no wind or no sun. The entrepreneurial Americans are working hard to fill the gap. Google is now running an experimental geothermal power plant in Nevada to help run its data centres. Others are building giant battery farms to capture excess solar and wind production for later use. But all these projects are in the early stages – nothing is going to happen in that space soon.
The obvious conclusion is that there is no way we can quickly phase out fossil fuels. The world does not have sufficient clean energy to supply demand and there is no simple way to reduce demand. The most consistent source of 24/7 clean electricity generation is nuclear and many developed nations are ramping up their efforts in that direction. Unfortunately, “nuclear” is a dirty word in Australia with little chance of any progress.
From the mailbox
Commonwealth Seniors Health Card
I used your calculators and all the information in your book Retirement Made Simple and finally got approved for a CSHC. I managed to do it all with your help, so thanks a lot!!! I will be applying for my wife as well when she reaches 67.
One thing I found while going through this is that it took them 5 months to process my application. On their website it states that you can apply 13 weeks before you are eligible. I think everyone should be aware of this, just so you can apply as soon as the system will let you.
And finally
Image by Chris Robert on Unsplash
A man was asked to paint a boat. He gathered his paint and brushes and set to work, carefully coating the boat in a bright red colour, just as the owner had requested.
As he was painting, he noticed a small hole in the boat’s hull. Without mentioning it to anyone, he decided to repair the hole. Once he finished the job, he received his payment and went on his way.
The next day, the boat owner sought him out again. This time, he handed the painter a check that was much larger than the payment they had agreed upon. The painter was puzzled and said, “But you’ve already paid me for painting the boat.”
“This payment isn’t for the paint job,” the owner explained. “It’s for fixing the hole in the boat.”
Surprised, the painter replied, “But that was such a small task. Surely, it doesn’t warrant this much money.”
The owner looked at him with gratitude in his eyes and said, “You don’t understand. When I asked you to paint the boat, I completely forgot about the hole. Yesterday, my children took the boat out to go fishing, unaware of the danger. When I realized they had taken the boat, my heart sank because I remembered the hole.
“Imagine my relief when they returned home safe and sound. When I inspected the boat and saw that the hole had been repaired, I understood that your small act had saved their lives. There’s no amount of money that can truly repay what you’ve done.”
This story reminds us that even the smallest of good deeds can have a profound impact. We may never know the full extent of the help we provide, but that doesn’t make our actions any less important. Each of us has the power to make a difference, often in ways we can’t even imagine.
So, continue to be kind, to listen, to help, and to mend what is broken. You never know when your small act of kindness might save a life or bring hope to someone in need.
Make a difference, no matter how small it may seem. Be the best version of yourself.