Franking credits - gone?

Outside super and structured not to be in my name.

What would be your key words of wisdom for your younger self? What made you overshoot your objectives?

 

There would be many but four main ones would be:

1. Understand the importance of property vs shares vs cash and how each interacts and contributes to one's Net Worth a lot earlier.
2. Understand the importance of cashflow and how it contributes to and speeds up one's investment journey. The more you have, the safer it is and the faster you can go.
3. Understand the importance of having one's own (successful) business, not only for cashflow generation but also as a major contributor to one's net worth with its valuation. (see next section below).
4. Develop a Financial Independence Plan (FIP) a lot earlier.

There were many reasons but the main one was I did not understand the true value of having one's own business.

When I wrote our FIP in 2004, we were onto our 4th business. At that time, I thought a successful business was important because we were dependent on it paying our wages/salaries (to pay our mortgage, living expenses, etc).

Then I started to understand that it was a lot more than that. A successful business allowed us to have the excess cashflow to ramp up our investments by :

1. Maximising our contributions to our SMSF every year . For example, thanks to Peter Costello, we were able to contribute $200,000pa for 3 years. This really boosted our share investments in our SMSF.
2. Having the income to borrow more money and buy IPs at a faster rate than we had planned. In one year, we bought four IPs.
3. Having sufficient cash in bank accounts as buffers should things go pear shape like the SARS virus outbreak, 9/11 events, etc.

So, while it is nice to have a one person business turning over $1M and making 20% net profit ($200,000), it is far better to grow that business to turn over $10M and make 15% net profit ($1,500,000).

I still didn't realise the full story. That is, the valuation of a business when one goes to sell it using the capitalisation rate (typically between 3x and 4x of the true net profit).

Taking the two business examples above, the one person business would be valued as basically zero. Why? Because it is not a business, it is a job for someone.

The second business would be valued at between $4.5M and $6.0M. If one meets a whole stack of criteria and disburses the funds correctly, one can receive this money tax-free.

That is why I am such a big fan of owning one's own business, running it successfully, growing it as large as possible without impacting its profitability and sustainability, ...

I am a slow leaner. It only got to this point on our fourth business .

 

For those who are interested, I am aiming “to tell all” in my new book .

Completion and publishing dates are yet to be determined .

 

What’s that got to do with investing?

 

It is going to increase my cashflow which will allow me to invest more .

 

I'll keep an eye out for it in the Remainders bin

Dang my fingers are a bit sore

 

, stop it or you’ll go blind.

 

My favourite shopping at Dan Murphy’s.

 

Nah, it will be on the Top Selkers list

 

Yes, get it right and business is a financial supercharger, the only comparable would be a massive lotto win. Of course, works both ways and can move the needle in both directions in a way that PAYG earners can’t !

9 years in I am only finally hitting my straps now - Until very recently would have happily sold the thing. Ups and downs. As St Jack Bogle often said “stay the course”.

 

You are doing a lot better than me .

It took me 14 years for the penny to drop .

Then I spent two years building “the supercharger” (growing the business, big focus on sustained profitability, etc).

Then the last 4 years letting “the supercharger” rip and hanging on for dear life.

Totally agree.

The two guys who bought our business were forced into liquidation 30 months later and they lost everything (the business, their homes, cars, etc) and declared bankruptcy.

One needs to develop the knowledge and skill set to control “the supercharger”.

 

Is it lawful for you to purchase a sufficient quantity of your own publication?

 

I am so ****** off at the lack of financial knowledge with my generation and the load they are placing on our welfare system.

So, the book is aimed at young people, with the main target audience being 17 to 25 year olds.

Unfortunately I am way outside this target market . There is no point me buying one copy; it would classed as insanity if I bought multiple copies .

Hopefully future generations will be better educated and more will achieve financial independence.

My kids (in their 30’s) and now my grandkids are benefiting from what I have learnt on my investing journey.

I have a desire to share it will a wider audience. TBH, I am not aiming to make any dollars from the exercise, it would be great if it just covered costs.

Based on my career/working life, my lawyers and my accountants have been pressuring me to write a book on “buying, merging and selling small businesses “ from a business owner’s perspective.

I might do this later but I feel my current cause is far more urgent and will have a greater impact.

 

Where can I preorder?

 

Ha! Ha!!

Let me finish the book first .

 

Does anybody know where the franking credit thread got moved too?

Or the LIC thread

Or....... .....

 

That’s what happens when you let geriatrics post on forums. It’ll happen to you too one day

 

I went from minority stake in a smaller business to majority in a larger business....same business though. When it got to a solid valuation the desire to cash in the chips was almost overwhelming because I was not in the mindset to make the necessary changes to facilitate the next stage of growth, I’ve grappled with that and come out the other side now. Afterburners on now for the next 3 years.

 

Hi @Nodrog do you have a view on which fund might be better - RINC ETF or the Real Income Fund?

 

I always prefer listed to unlisted but the issue with RINC is whether there’ll be enough FUM in the active ETF over time for it to survive.

There’s also the mFund unlisted Fund option through some online brokers to avoid the paperwork crap especially when held in SMSFs / Trusts:



mFunds Fund information

The unlisted fund has been very successful in the relatively short time of operation. It caught my eye early on when it was first launched as I really liked the concept of a Real Asset Income Fund. Being ASX only though there’s a high level of concentration but better than a Areit only Fund I felt.

Unfortunately Real asset Valuations are currently very high. However should franking credit refunds get abolished local real asset valuations could get even higher? I would also think that there will be more no / minimal franked product along these lines for the same reason.

Unfortunately yield is expensive to buy given current global interest rate conditions. I’m being patient at the moment but whether this patience is rewarded is yet to be seen. I’m optimistic it might be.