Investing for your children
I read Dr Turek's article in which he talks about investing for children (Eight ways to invest for your children, November 26) and have a query on point 5, "How $10,000 now could finance a distant retirement", in which he mentions:
"While gifts to a minor are tax free, only the recipient person can contribute that tax free to super as a personal contribution – otherwise they are treated as a concessional contribution, like those from an employer being taxed at 15% (all subject to limits)."
My query is that he points out contributions will be taxed at 15% unless contributed by the minor or employer, but doesn't mention if there is a legitimate way for a child to make the contribution without resulting in the 15%.
I wonder whether it would be possible to please seek clarification?
Dr Doug Turek’s response: As I’m not an accountant I’m unable to give tax advice, however I can point you to the ATO’s website which seems to imply a friend or a relative can make a tax-free, non-concessional contribution to an under 18 child (see this link) and even gives an example of “Bill” contributing $1,000 each to his three children under 18 here. See also this link and be careful contributing to anyone’s super if they are over 18.
In May 2007 I purchased some BHP shares as an 18th birthday present for my daughter. They were then a shade over $30.
I advised her to hang on to them. With luck they may be the deposit on a house.
Now after 7 years and a mining boom, the share price is less than $30. All this time dividends have been pathetic.
How can I convince her that the stock market is a good place to invest? During most of this time most analysts have had BHP as a "must have in a core portfolio". Where did I go wrong?
Editor’s response: Thanks for your letter. We recently published an article by Doug Turek on investing for your children that might be of interest. Dr Turek talks about his recommendations for a first investment, as well as approaches to buying a house. The article is here.
Clay Carter says this week: “If you were an Australian investor fortunate enough to own an S&P500 exchange-traded fund you have a 19% return, turbocharged by a declining Australian dollar” (Global equities: The year ahead). How does the falling Australian dollar turbocharge overseas investments, when sometime repatriating the overseas investment back into Australian dollars will mean it's worth much less because our currency has depreciated? The expected overseas gain is wiped out by the expected Australian dollar loss! Is there a simple explanation I am missing?
Clay Carter’s response: Thanks for your letter. Good question. If as an Australian dollar investor you purchase say a US stock for $US100.00, the broker converts your AUD at the prevailing rate that day. Let’s say it was 90 cents. Subsequently the Australian dollar decreases 5% against the USD to 85 cents. The value of your USD holding is now 105.00 plus or minus any share price movement. If you sell you have made 5%. If you invested in a S&P 500 ETF on Jan 1 of this year, as of today you would have gained the 11.23% return of the S&P 500 plus 8.26% which represents the percentage decline of the AUD. That is a total return of 19.5%. If you sell you will get a higher amount of AUD from your USD investment because the US dollar has increased in value.
Currency is a relative game. The AUD decline is translated in a higher USD therefore your investment is worth more. If you had purchased a Japanese stock or ETF the weak Yen would have dealt you a loss of about 6% YTD.
Australia’s investing appeal
I have a strong hunch that your suggestions to go offshore for investing make extreme sense. What a shame, and I hate to say this, but I think our wonderful country is getting to be “on the nose” as an investment locale. Thanks, Canberra pollies. Thanks a million. Though I guess you are all doing the best you can.