Advice you can Bank on Matt Brennan Australias banking sector is dominated by Westpac (WBC) ANZ, Commonwealth (CBA)

and NAB, who combined have an 80% share (and growing) of the market. This leads to some understandable disgruntledness from the average customer who has a slight hernia (according to credible sources like Today Tonight) when time after time, record banking profits are recorded yet their fees keep tallying up. But if you cant beat them, join them. Steven Bradbury can confirm, that just like speed skating, the market is all about timing. Had an investor picked any of these four stocks when the market slumped to 4000 points back in late May, they could have made over 20% on their money in fewer than 6 months. But to all the novice investors out there who have posters of Commsecs Craig James on their walls, its not too late. The banking sector is so lucrative (or the alternatives are so lousy) that regardless of the premium to enter at the moment, the income generated will far exceed that of an investment of similar risk (i.e.; a term deposit). Lets take Westpac for example, which out of the big four banks offers the highest term deposit rate of 5.2%p.a over 5 years, and do a comparison of investing $5000 into Westpac shares at the price as of when this article was written ($24.52). Buying and selling the shares will incur brokerage (this may vary, but generally $19.95) so acquiring 203 shares takes into account the brokerage on acquisition and keeps total investment under $5000. Before we get started, lets assume the investor opts for a DRP (Dividend Reinvestment Plan), so all dividends are reinvested which accumulates extra shares with no brokerage.

Year 1 Term Deposit $5000 Westpac Shares Income New Shares

Year 2

Year 3

Year 4

Year 5

5,260

5,534

5,821

6,124

6,442

5,329

5,679

6,053

6,450

6,873

13

14

15

16

17

Total Holding

216

230

245

261

278

For my calculations, I used last years dividends and I assumed they remained constant. In reality this doesnt happen. They have in fact been increasing (providing greater returns) year on year since 1993 (except during GFC). I also did not take into account that when an investor nominates for a DRP, the investment price has a 2.5% discount applied to the shares on a rate that is generally lower

(calculated on a 10 day weighted moving average post ex-dividend; that is to say after the appeal of the share has gone and the shares are dumped resulting in a price drop). To those uninitiated, when a company provides a fully franked dividend, this means the company has already paid tax on that amount and therefore the investor does not need to (as this would be double taxation which the Gillard government would be happy to do were it not illegal at the moment). Without going too deep into tax legislation, when the investor lodges their return they are entitled to receive the tax paid by the company as a refund. As Westpac provide fully franked shares, in my previous example this equates to $803 receivable over the 5 year period. Unlike a term deposit, the investor has full discretion when to sell, but now after 5 years and they have all this money to their name one of two things can happen 1. The share price has slipped: well the investor does not have to sell and can just keep accumulating dividends, or sell and use the loss to offset future gains. 2. The share price has lifted: A 50% discount on capital gains (i.e.; the profit they make on selling) as the investment has been held for over 12 months. The struggling Aussie families are waging war with the big 4 banks (again, according to Today Tonight) and whilst they achieved a victory recently against ANZ in the high court in regards to unfair fees, the money refunded represents a drop in the vast pool of cash generated by all the big four banks. And whilst these banks do not have a habit of looking after their customers financial interests, they certainly look after their shareholders.