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Some general interest stats on SMSFs

Mixed phase SMSFs holding greatest assets

         

 

While mixed phase SMSFs are not the largest SMSF member segment, they hold significantly more in net assets per member than those in either accumulation or pension phase, according to a recent report.

The Class SMSF Benchmark Report for March 2018, based on data from Class software users, indicated that 50.6 per cent of SMSFs are in accumulation, 18 per cent are in pension phase SMSFs and 31.4 per cent are mixed phase SMSFs.

While mixed phase SMSFs account for just under a third of all SMSFs, on average they have the highest net assets per SMSF.

Mixed phase SMSFs hold $2,306,000 in net assets on average, compared to $1,215,000 for pension phase SMSFs and $781,000 for accumulation phase SMSFs.

The statistics on members reflect similar numbers with 51 per cent of members in accumulation, 16 per cent of members in pension phase and 33 per cent of members in mixed phase SMSFs.

The average age of members in these categories was 52 for accumulation, 65 for mixed phase and 72 for pension phase.

Members in mixed phase SMSFs hold the highest balances at $1,143,000, while accumulation members hold $411,000 in net assets on average and pension phase members hold $729,000 in net assets on average.

 

 

By Miranda Brownlee
18 May 2018
www.smsfadviser.com

 

Time to check your risk exposure?

For equity investors, 2017 was an epic year. And it came on the heels of an historic bull market in global stocks stretching back to the spring of 2009.

           

 

So far 2018 has been epic, but in a different way. Markets in North America, Europe, and the Asia-Pacific region fell sharply in early February, rebounded, fell again, rebounded, and remain somewhat unsettled.

Given this backdrop, now might be a good time to check your portfolio's asset allocation—that is, how your money is divided among shares, bonds, and short-term reserves (cash). Thanks to the equity market's long rally, there's a chance your allocation to shares may be greater than you originally intended.

What's your comfort level?

Owning a higher percentage of shares might be a good thing—especially if the market resumes its ascent. But if the market heads in the other direction, it puts your portfolio at risk. Because no one knows which way the market will go, Vanguard suggests choosing a mix of equity and bond investments that you'd feel comfortable with over the long run and rebalancing back to that mix when market movements veer you off course.

Here's an example of how the markets can change your risk level: Based on market performance alone, an investor who owned a 60 per cent /40 per cent mix of U.S. shares and bonds in early 2003 would have drifted to a 75 per cent /25 per cent mix four years later, just as the global market was heading for a hard fall. History may or may not repeat itself. But you can keep your risk level constant by rebalancing your portfolio.

Guidelines for rebalancing

We recommend that you consider rebalancing once a year or after your allocation shifts by 5 percentage points or more. If you haven't rebalanced before, here's how to get started:

  • Determine your target asset allocation, taking into consideration your financial objectives, time frame (that is, how long you plan to keep the money invested), and comfort with risk exposure.
  • Evaluate your current allocation. If your current mix differs from your target mix by 5 per cent or more, you may want to rebalance.
  • Avoid unnecessary taxes. If you rebalance by buying and selling investments in taxable accounts, you'll face tax consequences. So you may want to take a cautious approach by directing future investments to your under allocated asset types, rather than shifting existing money around.

Put it on autopilot

It takes discipline to keep your portfolio balanced. After all, it often means moving away from stocks after they've provided high returns. If you're having a hard time putting a rebalancing plan into practice, consider these options:

Invest in a balanced or multi-asset fund. You can choose from different types of balanced funds depending on your needs. Many funds provide a mix of equities and bonds that are professionally managed to maintain a steady asset allocation.

Contact an advisor. A professional financial advisor can rebalance your portfolio for you. He or she should compare your current asset mix with your target every few months to help you stay on track to meet your long-term goals.

Buying low and selling high

After equities have a great year, it can feel wrong to consider trading them for bonds. Instead, investors tend to get carried away, often investing more money in funds as prices climb.

But the oft-repeated advice is to “buy low and sell high.” That's why rebalancing works—it encourages you to cut back a bit on a rising investment and buy a bit more of the lagging category.

 

By Robin Bowerman
Head of Corporate Affairs at Vanguard Australia
22 May 2018
www.vanguardinvestments.com.au

Cryptocurrency audits tipped to increase this EOFY

Audit activities around cryptocurrency are set to spike this tax time as part of the ATO’s broader risk analysis in its black economy crackdown, says one mid-tier.

       

 

Speaking to Accountants Daily, HLB Mann Judd partner Peter Bembrick said the injection of $318.5 million to the ATO to tackle the black economy, as announced in the budget papers, would likely see a flow on effect to audits around cryptocurrency due to its surge in popularity over the past 12 months.

“It's a bit like the black economy or the cash economy – this could be another aspect of that and there may be certain taxpayers who are being targeted,” said Mr Bembrick.

“It has a reputation of being a black mark and a criminal element to it but it is now more mainstream and you're going to see people do legitimate transactions … and this could be part of a broader risk analysis by the ATO.”

New register requirements for digital currency exchange providers introduced last month are also a clear direction of the government’s broader plan to close out any tax loopholes related to cryptocurrency.

CPA Australia’s head of policy, Paul Drum, earlier predicted that accountants would have to watch out for an increase in audit activity as they start to deal with clients with cryptocurrency profits for the first time.

“There could be more money and more activity for audits of cryptocurrency traders and many accountants might be facing clients with cryptocurrency profits for the first time, so watch out for any activity because more money going into cryptocurrency audits translates into business advisory work,” said Mr Drum.

“[Many accountants] are not across cryptocurrency trading and the tax implications of that and many of them might have clients that are doing that but they are not even aware of it yet because it's only the last 12 months that cryptocurrency trading profits really came to the fore.”

However, Mr Bembrick believes the ATO needs to update its guidance to help give practitioners greater certainty as they head into tax time.

“I expect we'll hear a lot more from the ATO as we go on but it is interesting that at this stage all that's been talked about are guidelines that are a couple of years old,” he said.

“They've got people consulting and looking at it but they haven't come out with anything too detailed at this stage.

“These guidelines have been around for a while now but most people are only thinking and hearing about this now in the last six to 12 months.”

 

 

By: Jotham Lian
16 MAY 2018
www.accountantsdaily.com.au

Assess your retirement financial resources

#4 in a series of informative blogs on this topic, links to three others are below.

Assessing financial resources is surely at the top or near the top of most investors' lists of what really matters for their retirement planning. Have you given this issue enough attention?

         

 

Without a proper assessment, you may be pleasantly or unpleasantly surprised at how far or how little your financial resources stretch in retirement. Further, you may miss out on opportunities to improve and efficiently manage your finances.

A recently-published report, Vanguard's roadmap to financial security: A framework for decision-making in retirement, provides a useful summary of what retirement financial resources should be all about. “The role of financial resources in retirement is to help reach the goals that have been set and to protect against the risks that could ruin the chances of achieving them.”

The report suggests a four-part framework for retirement planning covering retirement goals, risks, financial resources and finally bringing it together with the creation of a retirement plan.

Smart Investing is looking at each of these parts of retirement planning in a series of weekly blogs, examining this week how to assess your retirement financial resources. (Blogs published earlier in the series are: How to plan for a better retirement, Determine your retirement goals and Understand your retirement risks.)

Your retirement financial resources can be broadly divided into: guaranteed income, liquid assets and additional resources (which may include part-time work in retirement and your home equity).

Guaranteed income

Full-or-part Government Age Pensions are, of course, the main source of guaranteed income for the majority of retirees. Income annuities and defined-benefit pensions are other forms of guaranteed income. Considerations here include knowing your Age Pension entitlements and understanding whether an annuity is appropriate for your circumstances.

“In many cases,” the Vanguard retirement report notes, “using one resource to mitigate one risk may actually increase another risk. “For example, purchasing an annuity increases income security but decreases liquid reserves in the near term.”

Liquid assets

In short, these are assets for which a retiree makes the investment decisions. These are typically account-based superannuation pensions and non-super assets. Key decisions concern how these assets are invested and spent throughout retirement.

Additional resources

These include possibly working past traditional retirement ages, working part-time in retirement and perhaps accessing the value of a retiree's home.

Apart from supplementing retirement income, a longer working life provides a chance to save more for what will be a shorter and, therefore, less-costly retirement.

Possible ways to use housing wealth – if financially feasible and appropriate for a retiree's circumstances – include paying off a home mortgage before retirement to remove monthly repayments or downsizing to a less-valuable home.

Taking a reverse mortgage is another way to access the wealth in a retiree's home. (ASIC's MoneySmart website emphasises that reverse mortgages are complex financial products with risks and other potential implications that should be understood before signing a loan agreement.)

Retirement spending

A crucial factor to take into account when assessing your retirement financial resources is your intended approach to spending in retirement, given from your super and non-super assets.

As the authors of Vanguard's report comment: “Developing and implementing an effective portfolio-spending strategy can increase peace of mind and the likelihood of reaching retirement goals.”

Factors that affect how much retirees spend from a portfolio include their expected time horizon (an anticipated long retirement may mean a lower withdrawal rate from savings), portfolio asset allocation (a more conservative portfolio may also mean a lower withdrawal rate) and degree of flexibility in your spending (this depends on the split between non-discretionary and discretionary spending).

Asset allocation

Repeated studies over the past three decades confirm that an investment portfolio's long-term performance largely depends on its long-term, strategic asset allocation. In turn, this means that having an appropriately-diversified portfolio is a vital consideration when assessing your retirement financial resources.

 

By Robin Bowerman
Head of Corporate Affairs at Vanguard Australia
08 May 2018 
www.vanguardinvestments.com.au

Federal Budget 2018 – Overview

       

 

The Australian economy in its 27th year of consecutive growth.

Business conditions are at the highest level since the global financial crisis.

1,000 jobs a day on average over the past year.

Global growth at fastest pace in six years.

The budget focuses on 5 main areas:

  1. Tax relief to encourage and reward working Australians
  2. Keep backing business to invest and create more jobs
  3. Guaranteeing the essential services that Australians rely on
  4. Keeping Australians Safe
  5. Ensuring that the Government lives within its means

Read more ……..

 

Australian Federal Government

 

Determine your retirement goals

Determining retirement goals is undoubtedly at the core of most personal financial plans.

           

 

Ideally, the setting of at least broad retirement goals should begin early in our working lives – and then continue to be refined as we age and gain a better impression of our likely future retirement finances.

The rapid ageing of the population should act as one of the numerous prompts to determine and periodically review our retirement goals.

As Smart Investing discussed earlier this month, the recently-published report Vanguard’s roadmap to financial security: A framework for decision-making in retirement proposes a retirement plan that best aligns with retirees’ achieving their goals while mitigating their risks.

This plan has four parts: Determine your retirement goals, understand your risks, assess your financial resources and, finally develop a plan to achieve your goals and mitigate your risks. Over coming weeks, Smart Investing will take a closer look at each of these elements, beginning with determining your retirement goals.

“To achieve financial security,” the report comments, “investors must first establish and prioritise their unique goals for retirement. This provides them with a starting point for the planning process, from which they can then determine the appropriate allocation of resources toward meeting these goals and the potential risks that can derail them.”

Common goals of retirees include:

  • Paying for basic living expenses: This includes creating a fundamental and sustainable retirement income to pay such nondiscretionary, reoccurring living expenses such as food, housing (including home maintenance, rates and home insurance), electricity and gas, and transport. Other basic nondiscretionary expenses include recurring medical expenses (such as hospital insurance and prescription drugs), communications (phone and broadband) and clothing.
  • Having a contingency reserve: This goal is to have a readily-accessible reserve for unexpected costs including extraordinary health care needs, sudden aged-care needs and large, unavoidable home repairs.
  • Having enough income for discretionary spending: This is to finance your preferred lifestyle with spending above basic living expenses. Such discretionary spending typically includes taking local and possibly overseas holidays, regularly eating out going to the cinema, buying a new car and updating your kitchen or bathroom.
  • Leaving an inheritance to your children and gifts to charities: Achieving this goal much depends, of course, on personal financial circumstances and preferences. The intention to leave an inheritance underlines the need for adequate estate planning.

When setting your goals, consider reading the ASFA retirement standard report, published by the Association of Superannuation Funds of Australia. It provides a guide to the income needed for retirees to have what are termed as “adequate” or “comfortable” lifestyles. And an accompanying retirement budget report lists the types of expenses that retirees are likely to face.

Once your goals are listed, you can then decide which matter most to you. The setting of goals could be described as the backbone of sound retirement planning.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard.
26 April 2018
www.vanguardinvestments.com.au

Australia by numbers – Update

Armed with this information you'll be a conversation magnet at any party.

         

 

Please click on the following link to see all this interesting information. The areas covered are:

  • Overview
  • Markets
  • GDP
  • Labour
  • Prices
  • Money
  • Trade
  • Government
  • Business
  • Consumer
  • Housing
  • Taxes
  • Climate

 

Access all this data here.

tradingeconomics.com

How to plan for a better retirement

Many investors concentrate on accumulating wealth during their working lives to pay or help pay for their retirement, yet don't give enough attention to planning for a retirement that may last 25 years or longer.

       

 

A lack of retirement planning makes retirees more financially vulnerable than necessary in numerous ways.

The possibility of outliving retirement savings, overreacting to higher market volatility (as we are now experiencing), holding inappropriately-diversified portfolios and having insufficient savings set aside for unexpected costs, are a few of their potential financial vulnerabilities.

Some retirees who have not properly planned for retirement may have underestimated the amount required to finance their anticipated lifestyles, yet others may be living too frugally given their financial needs.

A recently-published research paper, Vanguard's roadmap to financial security: A framework for decision-making in retirement*, suggests a practical approach for creating a retirement plan that aligns with retirees' often-unique goals while mitigating their risks.

The retirement roadmap is based on the overall objective of obtaining financial security in retirement if possible. The report defines this financial security in the broad sense of gaining “peace of mind”: the point where retirees are confident that they have reached their financial goals and can continue to meet these goals in the future.

This is more than simply having a specific amount of income each month and/or having their portfolios continuing to grow in value. It has a strong emphasis on a retiree's personal circumstances.

The research paper's framework for moving towards financial security or financial peace of mind in retirement has four main elements:

Determine your retirement goals: These goals typically include having enough income to pay for basic living expenses, a contingency reserve (such as for medical treatment, home repairs and aged care) and discretionary spending (such as eating out and holidays). And you may plan to leave an inheritance. Once your goals are listed, retirees can then prioritise their importance.
Understand your risks: These include market risk, health risk, longevity and mortality risk, event risk (again such as medical treatment, home repairs and aged care), and tax and policy risk (changes to government policies and health care coverage). The research suggests that these risks should be addressed in the context of their impact on achieving their retirement goals.
Assess your available financial resources: This will help ensure that your capital is used as efficiently as possible. Financial resources include superannuation and non-superannuation savings, age pension if eligible, annuities, insurance, housing wealth, insurance, and any additional income if planning to work in retirement.
Develop a plan to achieve your goals and mitigate your risks: This is a matter of bringing together the various elements of your retirement planning. As the report comments: “The right mix of resources should be tailored each household or individual. It should take into account the relative importance of competing goals and the risks that a retiree may be susceptible or sensitive to.”
Few financial retirement goals matter more than obtaining peace of mind, keeping in mind that retirement could last at least a quarter of our lives.

*Vanguard's roadmap to financial security: A framework for decision-making in retirement by Colleen Jaconetti, Jonathan Kahler, Kelly McShane and Nathan Zahm.

 

Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
17 April 2018
www.vanguardinvestments.com.au

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