Eureka Correspondence

An after-tax bonus from shares, emerging markets, model portfolios, and dividend dazzlers.

An after-tax bonus from shares

I enjoyed Scott Francis’s article, An after-tax bonus from shares, that compared returns from different asset classes. As a dyed in the wool share investor the conclusion came as no surprise. I am assuming when we talk about residential property we are looking at it from an investment point of view. In my experience these pieces of research normally do not include the impact of land tax.

If land tax is included and franking credits then the differences would be even starker. Maybe we should also include stamp duty just to be completely clear that equities are the way to go.

Name withheld

An after-tax bonus from shares

I have an issue with the residential property returns mentioned in Scott Francis’s recent article, An after-tax bonus from shares. I expect they do not account for renovation capital expenditure (as opposed to maintenance costs). This can be significant, especially in areas of older housing, but even for typical kitchen/bathroom and some landscaping/fencing style renovations. For example, our own house was very small, purchased in early 1990s and the renovation and extension cost 2.5 times the purchase price. This must skew the 20 year returns – I would guess at least 2% but I can only recall seeing figures that included an estimate once and can't locate that article now. For my house, the 20 year returns drop from around 10% to 6%. Even, say, kitchen & bathroom renovations would easily cost $40,000 to 80,000-plus.

MH

Scott’s response: Thanks for the comments. Renovation costs, stamp duty and land tax are important considerations in thinking about the costs associated with property investments. Another that is often forgotten is the time cost of property – I own an investment property (a duplex building with two, two bedroom units). The value of the property and the value of my share portfolio are roughly the same – however I know I spend more time looking after the property assets and making decisions around that. That said, I do know people who spend many hours looking after their sharemarket investments as well.

Emerging markets

I enjoyed the recent articles on emerging markets, but could you give some more information on how to invest in these markets?

Joan Croll

Editor’s response: ETFs are an easy way to gain exposure to emerging markets. Managed funds are another popular possibility. Cliona O’Dowd looked at both of these options in her recent article, Sweet spots in emerging markets.

Model portfolios

I’ve noticed John Abernethy’s Model Income and Growth portfolios are dated April 2012 with prices as of June 2012.

As these are more than 12 months out of date, I am wondering when they’ll be updated?

Neville Davies

Editor’s response: Thanks for your letter. The portfolio was created in April 2012 and each week the figures are updated to reflect the latest returns and closing prices.

Dividend dazzlers

I enjoyed Brendon Lau’s article, The next dividend dazzlers, but would be interested to know the basis on which he has listed his companies since I note that it is not an alphabetical listing.

Kind Regards

Lester Jones

Brendon’s response: Thanks for your letter. The companies discussed in the article are those which I believe have the muscle to increase dividends most in the coming years and are listed based on FY14 yield estimates.