FNCE20003 Introductory Personal Finance Lecture 6 PDF

FNCE20003 Introductory Personal Finance Lecture 6 Asset allocation and investment choices II Lecturer – Tony Cusack August 2024  Lecture 6 topics Investing in equity (cont.) – Stock selection techniques – Managed investments and index funds – Taxation of equity...

FNCE20003 Introductory Personal Finance Lecture 6 Asset allocation and investment choices II Lecturer – Tony Cusack August 2024  Lecture 6 topics Investing in equity (cont.) – Stock selection techniques – Managed investments and index funds – Taxation of equity investments Taxation Investing in property – Home ownership – Direct and indirect property investment August 2024 FNCE20003 Lecture 6 2  Why do share prices move? there are many factors in the markets that contribute to share price movements, including new information, economic cycles, herd mentality, etc. in relation to individual company shares, the main drivers of price movements are general market ‘drag’ and new information (recall the EMH) as we have discussed previously, it turns out that in practice the EMH holds quite well (to the testable level, i.e. semi-strong form) in simple terms, when new information is released to the market, participants will interpret it as either good news, bad news, or no news the consensus interpretation will essentially drive the direction and degree of movement in the company’s share price, e.g. AD8 last week August 2024 FNCE20003 Lecture 6 3  Which shares to buy? how do investors go about selecting specific stocks / equity securities from the vast range available? in broad terms, there are different recognised methods, including: 1. Fundamental analysis 2. Technical analysis (also known as ‘charting’) 3. Random selection each of these methods has a finance theory implication – e.g. random selection is consistent with portfolio theory / diversification there is a huge industry associated with providing stock selection services, typically based on 1. or 2. August 2024 FNCE20003 Lecture 6 4  Fundamental analysis many professional investment advisers build their practice on performing detailed fundamental analysis, involving the following: – examination of available company data (e.g. annual reports, information releases, profit/loss, balance sheet, generate financial ratios, etc.) – evaluate current management – compare with similar companies in same line of business to be efficient, the market requires that fundamental analysis is undertaken yet the Efficient Markets Hypothesis (EMH) assumes that information has already been impounded into share prices – this is the ‘paradox’ of the EMH August 2024 FNCE20003 Lecture 6 5  Technical analysis technical analysis, or charting, is a ‘time series’ prediction technique – it uses price history charts and other indicators chartists take the view that there is additional information contained in the behaviour (movement) of the price over time – and sometimes, in the volume of trade (e.g. Japanese Candlesticks) three sources of information are therefore required: 1. price 2. volume of trade 3. open interest August 2024 FNCE20003 Lecture 6 6  Technical analysis technical analysts do not examine why a price moves; instead, they: – study charts of financial time series – evaluate patterns – evaluate indicators derived from time series – analyse trends – evaluate “bull/bear dominance” and similar jargon the problem with charting is that it implicitly refutes the weak-form EMH, which is the easiest form to prove see next slide from “Try this on your Chartist” Ball and Officer (1991) August 2024 FNCE20003 Lecture 6 7  Getting share information share prices for ASX-listed companies are quoted in real time on the ASX web site (along with other listed securities, e.g. rights, options and futures) the daily financial press also provides price listings in addition, both the ASX and financial press also provide research in relation to individual companies and sectors most overseas stock exchanges have similar services brokers also play a role in this area – in addition to using a broker to transact (buy, sell) on your behalf, they also provide research on equities – many brokers have dedicated teams of analysts that produce regular reports with buy/sell/hold recommendations August 2024 FNCE20003 Lecture 6 9  Transaction costs and documentation as is the case with most things in life, transactions prices vary according to service offered, e.g. – transacting online is usually cheapest – company/sector advice and research most expensive the following are the forms of documentation that relate to a shareholding: – contract note, to evidence purchase – Holding Statement (there are longer share certificates for ASX companies) Holder Identification Number (HIN) specifies company and number of shares held – dividend or distribution statement, where relevant August 2024 FNCE20003 Lecture 6 10  Buying shares so, you’re now ready to start investing in shares – how do you do it? as noted, the starting point is to find a broker and set up an account there are plenty of choices available and in many cases, you will be able to get started via your current banking arrangement, e.g. CommSec, CMC Markets you will need to decide on your investment strategy, which will be a function of available savings and investment philosophy (relative risk aversion) – e.g. fixed regular savings, or one-off transactions? – preferred technique: random, fundamentals or charting how will you obtain appropriate / sufficient information to enable you to implement your strategy? ASX is a good starting point August 2024 FNCE20003 Lecture 6 11  Strategy after selection process investing in individual stocks/shares is an example of the micro decision recall that once both macro and micro decisions have been made, there are different ongoing strategies that investors might employ : – ‘buy and hold’ (fully passive) – maintain the percentage-value allocation, by making appropriate balancing adjustments over time (essentially passive) – regularly make active adjustments to asset classes and/or individual assets these changes are based on current and forecast economic environment active management / market timing in pursuit of abnormal returns August 2024 FNCE20003 Lecture 6 12  Valuation of ordinary shares in theory, the price at which shares should be valued depends on all future expected cash flows (dividends) it (the price) also depends on the appropriate rate of return required by investors, ke (based on relative risk, β) forming expectations of future dividends and the required rate of return is never easy – investors need to make some assumptions about future cash flows – the required rate of return depends on the risk associated with the shares this has been extensively studied in academic literature and there are some popular pricing methods (CAPM, etc. covered in other subjects) August 2024 FNCE20003 Lecture 6 13  Earnings, dividends and share prices how are earnings, dividends, and prices related? stock analysts often focus on the price-to-earnings (P/E) ratio as a method for determining share value – e.g.: assume the typical P/E ratio for industry X is 15, and firm Y in that industry has prospective earnings per share of $0.20 (e.g. 10m shares, $2m earnings) – Y’s estimated price = E*(P/E ratio) = $0.20*(15) = $3 – often applied (loosely) in pricing IPOs identifying the P/E ratio is used in valuing privately held companies – the earnings of the private firm can be multiplied by the P/E ratio of a similar publicly held firm to obtain an estimate of the private firm’s ‘market’ price August 2024 FNCE20003 Lecture 6 14  Equity investments to this point, we have examined investing in two major asset classes – cash / debt and equities we noted that since investment in debt securities is ‘lumpy’ (i.e. high unit price), smaller investors need an alternative to secure their investment in that asset class – hence the popularity of CMTs / ETFs of course, investors don’t have the same problem with investing in equities, as many share prices are low, so parcels of shares are affordable the more important issue that small investors are faced with is that they may have insufficient investment capital to achieve diversification – this means that they are bearing too much portfolio risk for expected return August 2024 FNCE20003 Lecture 6 15  Diversification total risk = unsystematic risk + systematic risk  total portfolio risk unsystematic (diversifiable) risk systematic risk No. of assets August 2024 FNCE20003 Lecture 6 16  Managed investment funds this reality explains, at least in part, the proliferation of equity investment funds, often called managed investment funds numerous equity investment funds (in the form of mutual funds) now exist to enable investors to take advantage of the pooling of funds they are available for a broad range of assets including local shares, international shares, fixed income products, foreign currencies, precious metals and commodities one well-known type of managed investment fund, which can be bought and sold on a securities exchange market is Exchange-Traded Funds (ETFs) – ETFs usually have lower fees than other managed funds, and other differences August 2024 FNCE20003 Lecture 6 17  What are index funds? many managed funds (in particular, ETFs) are in the form of index funds, which are passive investments that track a benchmark such as a market index (e.g. the S&P ASX200 share index) (see here and here for more information) – i.e. they do not try to outperform the market; rather, their goal is to match the index / benchmark performance (return) – their value will go up or down in line with the index they are tracking why have index funds come into being? – they fulfilled a market need for investors seeking to replicate the return on an asset class (e.g. Australian equities) – in addition, most actively managed investment funds have not been able to beat the benchmark returns on a consistent basis after fees, taxes and costs August 2024 FNCE20003 Lecture 6 18  Appeal of index funds it follows that if an actively managed investment fund cannot perform consistently better (after taxes and fees) than an index fund for the same asset class, rational investors would choose to invest in index funds empirical evidence shows that index funds have consistently outperformed most actively managed funds after fees, taxes and expenses – actively managed funds reduce performance (return) through excessive trading and high fees – winners rotate – there is no correlation between last year’s winners and this year’s winners for actively managed funds – the data strongly shows that it is very difficult to beat index funds on a consistent basis after all fees and taxes August 2024 FNCE20003 Lecture 6 19  Some views on index funds Warren Buffet commented: – “by periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.” (Warren Buffett, Letter to Berkshire Hathaway Shareholders, 1993). He later had a bet on it. Jason Zweig, a senior writer for Money Magazine commented: – “with an index fund, you’re on permanent auto-pilot: you will always get what the market is willing to give, no more and no less. By enabling me to say: “I don’t know, and I don’t care”, my index fund has liberated me from the feeling that I need to forecast what the market is about to do. That gives me more time and mental energy for the important things in life, like playing with my kids and working in my garden.” August 2024 FNCE20003 Lecture 6 20  Summary – index funds as noted, most actively managed funds will generally under-perform index funds in the long run after all taxes, costs and fees the competition in stock-market research is intense and may be expected to become more competitive going forward, making markets more efficient and indexing even more attractive buying an index fund or “passive investing” is essentially a free-ride on the competition passive investing takes very little time and has generally outperformed most actively managed funds index funds are also available for other asset classes (bonds, property) August 2024 FNCE20003 Lecture 6 21  Equity investments – tax issues in general, tax will apply to share (equity) investments as follows: – most dividend income is assessable to income tax, but subject to tax imputation (franking) rules under the dividend imputation system there are some investments where tax is reduced / not applicable – transaction costs are tax deductible – capital gains are taxable at marginal rate, but in many cases after a reduction in the taxable amount (depends upon holding period) – capital losses may be used to offset a capital gain but are not deductible outright – non-capital losses can be carried forward to future tax years – withholding taxes will apply to foreign distributions August 2024 FNCE20003 Lecture 6 22  Investing in property investment in property (real estate) comprises the third portfolio asset class property investment may be undertaken in either of two forms: 1. Direct (residential, commercial or land) 2. Indirect (property trusts, property index funds, etc.) the objective of property investment is to generate returns in the form of rental income (residential or commercial), and/or capital gains (again residential or commercial, plus land) of course, residential property is also commonly acquired for occupation purposes, i.e. as the family home – we will address this separately August 2024 FNCE20003 Lecture 6 23  Direct property – risks like any investment undertaken where returns are to be generated in the future, there are many risks of property investment including: – income risk, related to vacancy rates (i.e. no tenant, no rent) – property damage, repairs and maintenance costs – interest rate risk on borrowings – market risk, since capital gains are not assured, and can be negative (i.e. capital losses might be suffered) – liquidity risk, since property is an illiquid asset – time and cost of buying and selling August 2024 FNCE20003 Lecture 6 24  Direct property – negative gearing in property investment, what is relevant to investors is the net return in a period after all expenses relating to the property are deducted – e.g. interest on the loan, rates, agent fees, repairs, insurance, etc. note that where negative gearing (expenses exceed income) is undertaken, there is an implicit assumption made as to future capital growth specifically, negative gearing occurs when an investor borrows to acquire an investment property, and the interest and other tax-deductible costs exceed the income received from the investment – see negative gearing example – note that the rest of the ‘story’ is covered by the next slide and a tutorial question August 2024 FNCE20003 Lecture 6 25  Indirect property investments indirect forms of property investment include: – property companies, i.e. listed entities in the business of investing in properties (e.g. Scentre Group), and property ETFs – property trusts (listed or unlisted), commonly known as Real Estate Investment Trusts (REITs), and property ETFs listed Australian entities are A-REITs income is often tax-advantaged – property syndications relatively uncommon in Australia due to a number of problems experienced by syndicate operators, and very few have been established since the GFC August 2024 FNCE20003 Lecture 6 27  REIT investments most REITs are unit trusts that raise funds from the public in a manner similar to companies issuing shares; in a listed REIT, units are bought and sold on a stock exchange (liquid secondary market) REITs are comparable to managed (index) funds, in the sense that they comprise a number of individual assets of the same class, purchased with pooled investor funds a common purpose of REITs is to invest in commercial property, such as: – CBD office buildings / supermarkets / shopping centres – factories and other industrial sites – hotels / holiday resorts August 2024 FNCE20003 Lecture 6 28  REITs – issues there are some tax advantages that would need to be assessed are they a property or equity investment? – the underlying assets of a REIT are property, so on that basis they can be classified as a property investment – on the other hand, those that trade on the ASX do so as a business, and tend to be priced along equity valuation principles does the distinction matter? – probably not in general, but perhaps it does for asset allocation purposes Are ASX REITs a good investment right now? (fool.com.au) August 2024 FNCE20003 Lecture 6 29  Taxation of income recall that in Australia, income tax is levied on taxable income taxable income is made up of assessable income, less allowable deductions assessable income of individuals includes (but is not limited to) the following amounts received: – earned income (salary, wages, fees, etc.) – interest income – dividends and distributions – rental income – royalties – short- and long-term capital gains August 2024 FNCE20003 Lecture 6 30  Treatment of expenses allowable deductions include losses and outgoings (expenses) incurred in gaining or producing assessable income or in carrying on a business – e.g. protective clothing, home office, travel* expenses that are not tax deductible include those of a private or domestic nature, i.e. not incurred in producing assessable income or in a business – e.g. housing costs, living expenses, personal travel (including to and from work) there are also specific inclusions and exclusions of both income and expenses under tax laws – in addition, special rules can apply (e.g. higher deduction for R&D expense) to re-iterate, taxable income = assessable income - allowable deductions August 2024 FNCE20003 Lecture 6 31  Personal tax rates 2023-24 and 2024-25 source in addition, Medicare Levy is charged at 2% on income above $29,033 * August 2024 FNCE20003 Lecture 6 32  Calculating income tax payable August 2024 FNCE20003 Lecture 6 33  Taxation of investment income since the returns from investments – interest, dividends, rent – are (assessable) income, they will be taxed in the hands of the investor the amount of tax payable is dependent upon the investor’s marginal tax rate (MTR), which is determined by other income of the investor e.g. assume two individuals, A and B, each receive $1,000 of interest income – A earns a salary of $200,000 p.a. – B is semi-retired and earns $30,000 p.a. A would pay $470 tax on the interest (MTR = 45+2%) B would pay $180 tax on the interest (MTR = 16+2%) August 2024 FNCE20003 Lecture 6 34  Taxation of capital gains whilst in most cases every extra $ of income is assessed at the individual’s MTR, special rules apply in relation to dividends and capital gains (CG) in relation to CG, if gains are classified as long-term (asset held > 1 year), a discount applies to the amount that is subject to tax (generally, 50%) example: you purchased 1,000 WBC shares @ $25.98 on 3rd June 2024 – in mid-August 2024, you observe that WBC was trading at $30.40 per share and decide to ‘take some profit’, selling 600 shares at that price – your assessable income in FY 2024/25 would include 600*($30.40 - 25.98) – ($11.00*2) = $2,630 – taxed at your MTR – if you held for > 1 year then sold at the $30.40, your taxable gain would be $1,315 August 2024 FNCE20003 Lecture 6 35  Taxation of dividends (imputation system) the effect of the dividend imputation system is to ensure that the tax rate applicable to dividends will be the MTR of the recipient shareholder the amount of corporate income tax that was paid before dividends are paid is added to the net dividend to get to taxable income (gross up), and it is also the amount of a tax (franking) credit that reduces individual tax i.e. the (net) dividend received by a shareholder is ‘grossed up’ by the amount of corporate tax paid, to bring it back to the pre-tax corporate income it is best explained by example, starting with the classical tax system for comparison (the previous tax system, which resulted in an effective double taxation of corporate income; it is still the system in some other countries) August 2024 FNCE20003 Lecture 6 36  Classical taxation system Example: company has EBIT of $1,000,000 COMPANY LEVEL Net Operating Income $1,000,000 Interest expense 400,000 Taxable income $ 600,000 Tax (30%) 180,000 Net Distributable Income $ 420,000 August 2024 FNCE20003 Lecture 6 37  Classical taxation system SHAREHOLDER LEVEL assume Shareholder A owns 1% of the company and that all net income is distributed as dividends A’s marginal tax rate (tp) is 45% Dividend received $ 4,200 Tax payable (tp = 45%) 1,890 Net (after tax) Income $ 2,310 August 2024 FNCE20003 Lecture 6 38  Classical taxation system originally, the company earned $6,000 to pay this dividend (i.e. 1% of $600,000) however, a total of $3,690 – being $1,800 (1% of corporate tax) + $1,890 (personal tax) – has been diverted in taxation, leaving an after-tax net return of only 38.5%, i.e. 3,690 = 61.5% (effective tax rate) 6,000 August 2024 FNCE20003 Lecture 6 39  Dividend imputation system introduced to eliminate double taxation Example 1: details as per Classical example COMPANY LEVEL (same) Net Operating Income $ 1,000,000 Interest expense 400,000 Taxable income $ 600,000 Tax (30%) 180,000 Net Distributable Income $ 420,000 August 2024 FNCE20003 Lecture 6 40  Dividend imputation system SHAREHOLDER LEVEL assume Shareholder B (MTR = 45%) owns 1% of the company and all net income is distributed as dividends: Dividend received, D (franked) $ 4,200 Imputed income [= tc.D/(1 - tc)] 1,800 Total (taxable) dividend $ 6,000 imputed income is a notional income amount that is included in taxable income, to ‘gross up’ the dividend received so that it is the (proportionate) equivalent of the untaxed company profit note that the ‘gross up” tc.D/(1 - tc) is always 3/7*D at the 30% corporate tax rate August 2024 FNCE20003 Lecture 6 41  Dividend imputation system Notional Cash Cash dividend received $ 4,200 Taxable Dividend income * $ 6,000 * includes imputed income from previous slide Tax payable (45%) (2,700) Less: imputation credit 1,800 Net tax liability $ (900) Net (after tax) Income $ 3,300 (i.e. $4,200 cash received less $900 net tax paid) August 2024 FNCE20003 Lecture 6 42  Dividend imputation system total tax paid on company income distributed as dividend is from two sources: 1,800 + 900 = 45% 6,000 i.e. shareholder’s marginal tax rate the overall effect of this system is to subject individual shareholders to tax on company net income before tax, at their marginal rate of tax August 2024 FNCE20003 Lecture 6 43  Income tax calculation example assume an individual who earns a gross salary of $125,000 (including super*) in addition, she received a franked dividend of $1,400, unfranked dividend of $750, interest income of $500 and had work-related deductions of $1,800 – LITO doesn’t apply due to income level taxable income (TI) is determined by income and deductions, noting taxable salary is the gross reduced by the mandatory superannuation contribution i.e. 11.5% of $125,000 = $14,375 (this amount is credited to the super account) TI = $112,075 (see spreadsheet) tax on TI = $4,288 + 0.30*(112,075 - 45,000) + (0.02*112,075) – 600 = $26,052.00 [note: total ‘retained’ = $112,075 – 600 – 26,052 + (14,375*0.85) = $97,641.75] August 2024 FNCE20003 Lecture 6 44  Rules amending tax payable as indicated, the tax-free threshold is the first $18,200 of income – important exception: unearned income of a minor (threshold is $416) the Low Income Tax Offset (LITO) applies to reduce tax (but not Medicare Levy) for taxpayers earning up to $66,667 – there is a maximum reduction of $700 for income up to $37,500 – an individual can earn up to $21,884 before any income tax is payable various other offsets / rebates apply in limited circumstances August 2024 FNCE20003 Lecture 6 45  Home ownership aside from portfolio considerations, one of life’s major financial decisions relates to the personal acquisition of residential property (home ownership) financial considerations include: – rent v buy decision – savings discipline – capital appreciation – tax treatment of owner-occupied housing (e.g. CGT exemption) in addition to the financial aspects, there are important non-financial considerations of home ownership for self-occupation, such as: – location, functionality, efficiency, ambience (internal / external), mobility, safety August 2024 FNCE20003 Lecture 6 46  Home purchase process purchasing a home in Australia involves a number of steps: – determine your price range – approach selected financier typically require evidence of income, savings (deposit) – consider financing alternatives – find an appropriate dwelling – make an offer (direct or at auction) ‘Section 32’ ‘cooling-off’ period (not for all purchases, e.g. auction) – await the outcome August 2024 FNCE20003 Lecture 6 47  Home mortgages as previously noted, home loans and home mortgages are two different things, although they tend to occur together under a home mortgage, the borrower is prevented from disposing of the property, or from using it as security for another loan of equal priority the market for providing home mortgage loans is very competitive, with many available providers: – the ‘big 4’: CBA, NAB, ANZ and Westpac – Australian branches of large foreign-owned banks such as Citibank*; HSBC; ING – smaller providers (e.g. St George, ME Bank) – mortgage brokers, e.g. Aussie Home Loans (an early disruptor?) August 2024 FNCE20003 Lecture 6 48  What information will lenders require? 1. details of employment such as evidence of salary / wages sufficient to service the mortgage, i.e. pay interest and principal as regular payments over the life of the loan; along with proof that employment is ongoing – they often incorporate a “stress test” using a higher interest rate than the current one, to assess your capability to handle interest rate rises 2. evidence of a savings discipline history (e.g. statements) 3. evidence that you have the required deposit for the loan 4. a credit check may be necessary to prove that no default loans exist 5. a valuation or other proof that the purchase price of the desired property matches its value August 2024 FNCE20003 Lecture 6 49  Additional costs in addition to the purchase price and mortgage interest, other costs arise on a property purchase, e.g. – loan application fee(s) – State Government stamp duty on both the transfer of property and the mortgage – Registration fees – transfer fee – title and search fees – legal fees – mortgage insurance – indirect costs, including moving expenses August 2024 FNCE20003 Lecture 6 50  Deposits and mortgage insurance usually, a lending institution will require a deposit, i.e. they will not finance the full purchase price of the property in practice, many lenders require a deposit of at least a 20% of the purchase price, meaning that most mortgage loans are for about 60 - 80% of the value (purchase price*) of the property the loan can be for a higher percentage, but mortgage insurance – which protects the lender against default on the loan – will usually be payable – the borrower is the party that pays mortgage insurance – the cover required increases as Loan-to-Valuation Ratio (LVR) increases – it is nearly always compulsory on loans with a LVR > 80% (calculate) August 2024 FNCE20003 Lecture 6 51  Mortgage insurance specifically, mortgage insurance covers an ‘event of default’ by the borrower (e.g. non-payment of instalments) in such cases, where a trigger event of default occurs, the insurer would compensate the lender for the loss incurred note that the mortgage insurance premium can usually be capitalised into the loan principal (payment deferral, but interest accrues) in addition, a lender will require that the property over which it holds a mortgage is insured (property insurance); maybe also contents insurance – the cost of these will naturally depend on the size, type of structure, location, contents, etc. of the property August 2024 FNCE20003 Lecture 6 52  Land (Stamp) Duty state governments levy land duty – more commonly known as stamp duty – on a property’s sale price (note different rules and rates in different states) it is roughly proportional to the price paid, so the more expensive the property, the higher is the stamp duty this can be a substantial amount, e.g. Victorian stamp duty on an $850,000 property would amount to $46,070 (calculate) it is worth noting that you can reduce the amount of duty payable by purchasing land, then building (this way, you only pay duty on the land) special reductions of duty apply to first home-buyers, and where the property is purchased “off the plan” August 2024 FNCE20003 Lecture 6 53  Other costs other government fees include a mortgage registration fee and a transfer fee – in the case of an $850,000 property, these amount to $119.70 and $2,088.00, respectively when the loan is agreed, there will be other fees, including an up-front fee for lending often called an establishment fee – this usually amounts to $400 - $600 the lender may also require a fee for performing a valuation of the property – this could be around $250 solicitors’ conveyancing fees will also be payable, at around $500 August 2024 FNCE20003 Lecture 6 54  Alternative home loans Fixed rate mortgages Interest only (including bullet loan) mortgages Mortgage offset accounts – sanctioned by the Taxation Office - TR 93/6, this is a genuine concession that results in tax savings to mortgage holders (why is it allowed?) Low-start loans Capital indexed loans “Cocktail loans” – part fixed and part variable rates August 2024 FNCE20003 Lecture 6 55  Example – mortgage offset account August 2024 FNCE20003 Lecture 6 56  Rent v. buy decision one of the most challenging decisions faced by young people is whether to buy or rent a home, i.e. it is the choice between: 1. Buying property pay a mortgage and eventually own the property 2. Renting, and investing the difference in an investment portfolio or superannuation of course, for many, there is no choice at all – many rent by default, lacking the substantial deposit required to enter the property market the “rent v. buy” decision is an area in which there is a substantial amount of both industry and academic study August 2024 FNCE20003 Lecture 6 57  Rent v. buy decision these studies are looking at optimising the rent v buy decision recent results – a US industry study found that renting is superior – a study by the RBA found that it is a very close call – a 2013 academic study in Australia found that buying is superior, but perhaps the result was driven by the study covering three decades of strong property growth note: the amount of deposit paid typically influences the outcome one element in favour of the ‘buy’ decision is that the ‘rent’ choice requires a savings discipline that most individuals don’t display key advantage: at least buying enforces savings August 2024 FNCE20003 Lecture 6 58