Cash Vs. Natgen Investment Trust? | MD Steven Goakes | Education | Natgen

Summary

In this video, Steven Gos from NatGen Group explains the comparative income returns from cash deposits versus NatGen Investment Trusts in a high-inflation environment. Using a $100,000 investment, he demonstrates how cash deposits at 4.9% yield only $2,450 after tax, while a NatGen Investment Trust with an 8% return offers $8,000, with tax benefits in the first few years. The analysis also highlights the long-term capital gains potential in commercial property investments, providing a more substantial return than cash deposits. Gos emphasizes the importance of considering both income return and taxation advantages when making investment decisions.

Takeaways

• 😀 NatGen Investment Trusts offer higher returns compared to bank deposits, especially in high inflation environments.
• 😀 Bank deposit rates have increased over the past year, with a current rate of up to 4.9% for a 5-year fixed term.
• 😀 In contrast, NatGen Investment Trusts offer around 8% return for the same 5-year term, potentially outperforming bank deposits.
• 😀 Taxation plays a significant role: cash deposits are taxed at a higher rate (50%), whereas NatGen Investment Trusts have tax advantages in the initial years.
• 😀 A $100,000 investment in a bank deposit would yield $2,450 after tax, while the same amount in NatGen Investment Trusts would yield $8,000, tax-free in the first year.
• 😀 Inflation reduces the purchasing power of your investment. In the case of 7% inflation, a cash deposit results in a real loss, while NatGen Trusts provide a positive return in real terms.
• 😀 The real impact of inflation: For $100,000, bank deposits would lose purchasing power, while NatGen Trusts would increase the value by about $11,000 in real terms.
• 😀 Over time, the capital profits from commercial property (like those in NatGen Investment Trusts) can further increase the value of the investment.
• 😀 NatGen Investment Trusts may benefit from capital gains, which are taxed at a lower rate (50%) compared to income gains.
• 😀 Historical data shows that Australian commercial property has provided consistent returns of 12-15% annually, factoring in both income and capital gains.
• 😀 Even during financial crises, NatGen Investment Trusts have historically shown positive capital growth, providing long-term value for investors.

Q & A

What is the main comparison discussed in the video between bank deposits and NatGen Investment Trust?

The video compares the returns, taxation, and inflation impact of investing $100,000 in a bank deposit versus a NatGen Investment Trust. It highlights how NatGen Trust offers higher returns, potential tax benefits, and capital gains over time, compared to a bank deposit which provides stable but lower returns and is fully taxed.

How much income can one expect from a $100,000 investment in a 5-year fixed term bank deposit?

A 5-year fixed term bank deposit currently offers a 4.9% annual interest, meaning an income of $4,900 for the first year from a $100,000 investment.

What is the expected income from a $100,000 investment in a NatGen Investment Trust?

In a NatGen Investment Trust, the expected income is approximately 8% per year, which amounts to $8,000 in the first year from a $100,000 investment.

How does taxation impact the income from a bank deposit?

For a bank deposit, the income is fully taxable. With a 50% tax rate, an individual would pay $2,400 in tax, leaving them with $2,450 of after-tax income from the $4,900 earned in the first year.

What tax benefits are associated with a NatGen Investment Trust?

NatGen Investment Trusts typically offer tax shelters for the first 3 to 4 years, meaning that the $8,000 income in the first year would not be subject to taxation, providing the full $8,000 in hand.

What role does inflation play in the comparison between bank deposits and NatGen Investment Trust?

Inflation erodes the purchasing power of investments. At a 7% inflation rate, a $100,000 investment in a bank deposit would effectively lose $7,000 in value, resulting in a negative real return of -$4,550. On the other hand, the NatGen Investment Trust’s higher returns help offset the inflationary loss, leaving an investor ahead by approximately $11,000.

How does capital gains factor into the returns of a NatGen Investment Trust?

Capital gains are a potential source of returns in a NatGen Investment Trust, as investments in commercial property can appreciate over time. This contrasts with a bank deposit, which does not generate capital gains. The potential for capital gains increases the total return on investment in a NatGen Trust.

What is the typical long-term performance of Australian commercial property as shown in the video?

The video presents a chart showing the historical returns on Australian commercial property from 1986 to 2022, indicating an average total return of around 12-15% over the long term. The returns consist of both stable income and capital gains, with some periods of negative returns due to economic downturns, such as during the global financial crisis.

Why do NatGen Investment Trusts provide better returns in inflationary environments compared to bank deposits?

NatGen Investment Trusts provide better returns in inflationary environments because they offer higher income rates (8% vs. 4.9% from a bank deposit) and potential for capital gains, which help offset inflation. Bank deposits, by contrast, provide lower returns and are fully taxed, leading to a negative real return after inflation.

How does the taxation on capital gains differ from income gains in the context of NatGen Investment Trusts?

Taxation on capital gains is typically lower than income gains. In the case of NatGen Investment Trusts, income is often tax-sheltered in the first few years, and when the capital gains are realized, they are taxed at a rate that is 50% lower than the income tax rate, providing a tax advantage.