We're super excited to dive into today's episode because we know firsthand how confusing investing can be. Trust us, we've been in your shoes as beginners, scratching our heads and wondering about the same questions you have. The jargon, the complex concepts, the uncertainty—it can be confusing and overwhelming.

In this episode, we answer insightful questions we received from listeners of our podcast. This Q&A session demystifies investing concepts and empowers you to take control of your financial decisions.

Let’s dive right in!

Q: “How often should I invest?”

Finding the right investment frequency can be a bit perplexing. But we've got a nifty solution for you—an investment frequency calculator. It's a simple tool that can help you determine the ideal investing rhythm based on your unique financial circumstances.

Here's how it works:

1. Fill in your savings each week: Start by entering the amount you're able to save on a weekly basis. Remember, consistency is key when it comes to building wealth.
2. Expected annual growth: While estimating the future rate of return can be tricky, a general rule of thumb is to consider an average annual return of around 7%. Of course, this number may vary based on your investment choices.
3. Brokerage: If you plan to invest in individual stocks or other investment vehicles that involve brokerage fees, include the estimated fees in this section.

Once you've filled in these details, let the investment frequency calculator work its magic. It will provide you with insights into how often you should consider investing based on the information you've provided.

Remember, this calculator serves as a helpful guide, but it's essential to adapt it to your personal circumstances.

Q: “Hey Tash, why do you use 7%, since sometimes see 5% or 10% when people are doing calculations on returns.”

Long-term investing can make you wonder: “ where will the sharemarket be in the future? ” While there's no crystal ball to predict future returns accurately, we like to use 7% as a conservative estimate for illustrative purposes. The actual average annual return of the S&P 500 from 2002 to 2021 was 8.91%, but when adjusted for inflation, it was around 6.4%.

By using 7%, we aim to be cautious while understanding that precise future returns are unpredictable. When you know what to focus on as a long term investor, you get the freedom from stressing too much about the exact number to use.

Q: “ This is a question from Lizzy- I’ve had investing paralysis for about a year and it feels like you two will set me up to get in the game! Something that is holding me back is that I’m quite transient- I’m British, live in Australia and hope to move country a bit in future. When I was looking up an investing platform it seemed they all needed an Australian residential address. Any ideas how to handle this if you want to invest for the long term?”

Tash, too, faced a similar situation when she moved to Australia. Here's what we suggest: if you don't have permanent residency, there are a few things you need to consider.

1. First and foremost, consult a tax advisor in the UK. They'll guide you through the intricacies of residency and non-resident taxes, which have different implications. You should also speak to an accountant in Australia to understand how you can navigate investing as a non-Australian resident.
   
   
2. Certain countries have double taxation treaties, so it's crucial to seek professional advice. Additionally, think about where you plan to settle in the long run. It can affect how you choose the right investing strategy for you. The worst-case scenario would be having to withdraw your investments during a market downturn due to unexpected relocation.
   
   
3. For some extra reading, we recommend a helpful book called "Millionaire Expat" by Andrew Hallam. It provides valuable insights into investing while living abroad.
   

Now, let's switch gears a bit. Ana here, and I want to share my experience as a Canadian living in Australia. When I initially moved, I was classified as a resident of Canada but a non-resident in Australia. This meant I only had to pay taxes in Australia for my Australian income and in Canada for my foreign and worldwide income.

However, as time went on, I decided to stay longer in Australia. This led me to change my status to a non-resident in Canada. It came with some tax implications (including repaying money from a first home buyer program).

Fast forward to the present, and I'm now a resident of Australia and a non-resident of Canada. As a result, I need to report my foreign and worldwide income in Australia, and only my Canadian income in Canada.

Q: “ Hi ladies! I loved your most recent podcast. You spoke about the benefits of franking credits in it. If I’m invested in an ETF tracking the ASX (VAS) will I still get the benefits of franking credits in the distributions? Thanks!”

The answer is yes! VAS:AU is the Vanguard Australian Shares index ETF, and it holds the 300 largest companies in Australia. You can easily find out if an ETF has franking credits by googling the ETF name followed by "dividends" or "distribution."

For example, searching "VAS dividends" will give you the information you need. On the ASX website, it states that VAS has a franking rate of 86%. So, 86% of your dividend will be franked. If you're unsure about what franking credits are, we recommend checking out episode 9 of our podcast .

Q: “ Hi! Question about DCA, I’ve just joined Pearler and have 4 different ETFs I invest in. How do I DCA if the minimum per buy is $500 and say I want to invest $500/week. Do you alternate between a different ETF each week? How does this work with the auto invest feature as well?? Could be a Q for the podcast! Xx”

DCA, which means dollar cost averaging is a strategy where you invest a fixed amount regularly, regardless of market fluctuations. We discussed this strategy and others in episode 3, so be sure to check it out.

Now, if you have four different ETFs, you'll need to consider the percentage split among them. Is 25% of your portfolio allocated to each ETF, or is it split differently, like 10%, 80%, 5%, and 5%? It's worth taking some time to think about this allocation.

Now, let's discuss your options for investing:

1. Lowest share: Invest in the ETF that is furthest from your target percentage. This option incurs only one brokerage fee per transaction.
2. Rebalance your portfolio: This option brings your portfolio back to the target percentages you've allocated for each ETF. You'll purchase across all ETFs, but multiple brokerage fees may apply.
3. Equally invest across your portfolio: This option lets you split that $500 per week equally across all four assets, so each ETF gets $125. Multiple brokerage fees may apply to this transaction option. Personally, Tash invests in one ETF each time to save on brokerage fees. It's a simple and cost-effective approach.

Q: “ So I’m finally in a position where I am comfortable to start pushing money towards investments. No debt, a higher income and in a stable job. My goal, like many is getting FIRE, own a home, and then move to part time work to supplement my income while I spend my days with friends and family.

I’m considering investing primarily in dividend stocks, sacrificing capital gain for a regular passive income. So my question is, what should I know before doing this? What are the tax implications, what are the risks, is this even recommended considering my goals?? And if this is a viable avenue, what strategies would you recommend?”

1. Check your income and marginal tax rate: This will give you an idea of how your investment returns will be taxed.
2. Capital growth over dividends: For younger or higher-income investors, targeting capital growth might be more beneficial. Why? Well, there's a CGT discount (that's short for Capital Gains Tax) when you hold investments for longer than 12 months. This means you may pay less tax on your investment gains down the line.
3. Calculate your franking credits : These credits can help reduce your tax liability, but it's important to note that future changes in legislation might impact this. Be sure to stay informed and keep an eye on any potential shifts in the tax landscape.

Now, here's something Tash discovered on her own investing journey. Initially, she was drawn to dividends. But then she learned that during the accumulation phase of life, it might not be the most tax-effective strategy. Currently, the highest tax bracket is a whopping 45% for any income over $180,000. That's quite significant!

Even if you're not making that much now, it's important to plan for the future. As your income increases and you potentially consider purchasing a rental property or other investments, your tax situation could change. That's why it's worth considering tax planning with an accountant to explore strategies to reduce future income and tax liabilities.

Q: “Which Pearler micros are ethical?”

Let's quickly recap what ESG means. ESG stands for Environmental, Social, Governance, and it's often used to refer to ESG investing.

In one of our previous episodes ( episode 8, to be exact ), we discussed different types of investments such as CHESS, custodial, and micro. Pearler Micro, in particular, is a managed fund that holds ETFs (Exchange-Traded Funds), making it easier to invest smaller amounts. Plus, you can even use the roundups feature, which allows you to invest small amounts by rounding up your everyday purchases.

Now, let's answer the burning question: which Pearler Micros are ethical? There are two ESG funds that you can explore:

1. ESGI:AU - This fund focuses on global large ESG companies. It's a managed fund that holds the VanEck MSCI International Sustainable Equity ETF.
2. GRNV:AU - If you prefer to invest in Aussie large ESG companies, this is the fund for you. It's also a managed fund, but it holds the VanEck MSCI Australian Sustainable Equity ETF.

To find these ESG funds on Pearler, simply click on the ESG tab on the Pearler Micro page . There, you'll discover more about these funds and the companies they are invested in.

(Exciting news: we have an ESG interview coming up soon, where we'll dive deeper into the world of ethical investing. Stay tuned for that!)

Q: “ Hi Tash, love the two episodes that have dropped so far! Can I please ask - are you only going to get the compounding result with investing if you re-invest dividends that you are paid? Many thanks - Victoria”

The short answer is no, you don't need to reinvest dividends to experience the magic of compounding interest.

Here's how it works in a nutshell:

Imagine you own a share that's worth $10, and it has an annual return of 10%. Over time, the value of your share will increase. So, in the next year, it'll be worth $11, and the year after that, $12.10.

Compounding is all about your returns making more returns. It's like a snowball effect. Even if you don't reinvest your dividends, the capital growth of your shares will still compound. Reinvesting dividends just adds an extra boost to the compounding process.

When analyzing investment returns, it's common to consider total returns, which include both capital growth and dividends. That's why we recommend using tools like Sharesight or Navexa to track and monitor your investments. These tools give you a clear picture of your total return and the compounding effect it has on your portfolio.

Action of the week

And there you have it! Remember to take it one step at a time, stay disciplined, and always seek knowledge. Feel free to revisit this article whenever you need a refresher. Share it as well with your friends who are keen on joining your investing journey.

We'll be here every step of the way. So, keep listening to the podcast, keep asking those insightful questions, and get rich slow with us.

Happy investing!

Tash & Ana