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This animated chart is simply amazing.  It's fascinating to see how the world has changed and is changing.  Food for thought!!

         

 

Simply click on the image and see how things have changed but also how, in many ways, they've stayed the same.

 

 

 

 

 

 

 

 

 

 

 

 

 

6 new financial videos

Videos are a good way to learn more about a topic or show to others who my be new to financial management.

         

 

Six new videos have just been added to our website. The topics covered are: 

  • Understanding Estate Planning
  • Update your will
  • How interest rates affect your mortgage
  • Car and personal loans
  • Caring for elderly parents
  • Cup of advice – Financial divorce

Click on the Video menu entry above to view our new collection.

 

 

 

 

 

 

 

 

Downsizer contributions offer more than meets the eye

Retiree clients looking to sell their property can often contribute more to their SMSF than expected through the government’s recently introduced downsizer contribution rules, due to the flexibility to split contributions between spouses and use them in conjunction with other contribution rules, according to Fitzpatricks Private Wealth.

       

 

Speaking at SMSF Adviser’s SMSF Summit 2019 event in Brisbane, the advice firm’s head of strategic advice, Colin Lewis, said it was possible for clients approaching their 65th birthday in particular to double their contribution amounts by making use of the downsizer and bring-forward contributions and potentially splitting contributions with their spouse.

“Clients must be age 65 at the time of contribution [to use downsizer], not when they sell the house, it’s when they wish to contribute the proceeds into super,” Mr Lewis said.

“So, when they sell the house they can be under 65, but if within a 90-day period they turn 65, they can make contributions, so it’s the timing that is the essence here if you are dealing with a client that is 64 and thinking of selling their home.”

Mr Lewis gave the example of Ron and Paula, who were 76 and 64, respectively, and planning to sell their $1.5 million home before Paula’s 65th birthday in December 2019. Ron had an existing account-based pension worth $1.6 million while Paula had $1 million in accumulation phase, and the couple had a joint investment portfolio worth $1.5 million outside super.

“On 16 October, they enter into a contract to sell their home for $1.5 million with settlement on 27 November,” he said. 

“From the proceeds, Ron and Paula make the following contributions within 90 days: Ron makes a $300,000 downsizer contribution; prior to her 65th birthday, Paula makes a $300,000 non-concessional contribution; and after turning 65 she makes a $300,000 downsizer contribution and commences an account-based pension of $1.6 million.

“So, they’ve rearranged their affairs, they’ve now got a new house worth $1.6 million, Ron’s got an accumulation benefit worth $300,000, Paula’s got an account-based pension of $1.6 million, and their money outside super is $500,000. So, what they’ve been able to do is upsize, put more into super and make a downsizer contribution.”

Mr Lewis added that splitting contributions between a couple was another good way to make the most of the downsizer rules, given that a client’s spouse did not need to have been an owner of the property to use the proceeds for their contribution.

“The spouse doesn’t have to be on the title to contribute — with spouses, it all hinges on whether the owner of the property is eligible, and if they are, the spouse can contribute too provided they’re 65 or above,” he said.

 

Sarah Kendell
29 October 2019
smsfadviser.com

 

The main benefits of professional financial help.

Unfortunately, of recent times there has been no shortage of negative press, comment and sentiment about financial planners but what is the real picture?

         

 

Firstly, a 16-year long study by Vanguard found financial planners improve investment performance over time by around 3% net.

This is not insignificant and means that even for small investors, a financial planner will not only pay for themselves but provide the expertise to help navigate and manage two major threats to the success of investment strategies, namely, market volatility and emotion. A win-win for all.

There are many tasks a planner undertakes on your behalf on top of managing investment strategies and they are best summarised as behavioural coaching.

Put simply, behavioural coaching is the way a financial planner manages investor 'emotion' and 'reaction’ to short-term market ‘volatility’ to ensure long term goals are achieved.

A good example of this was the GFC. Planners often talked of the stress of having to explain the correct path under such extreme circumstances. In the end, though, the majority of investors who played the ‘long game’ have recovered well.

This form of control is hard to achieve when an investor is acting alone, it almost always requires teamwork and professional help.

Behavioural coaching centres on four issues:

  1. 1. A financial plan as the anchor to all actions.
  2. 2. The setting of clear expectations at the beginning.
  3. 3. Managing the emotions that accompany periods of market volatility.
  4. 4. Working together to ensure an effective planner / client relationship rather than simply reacting to market activity.

Behavioural coaching may also involve assisting in areas such as budgeting to save money now to help attain goals later.

There are four components that you and your planner work on together. These are:

Goals

Without goals there can be no planning. However, goals must be realistic and for many investors this is itself difficult because of their starting age. The earlier a person has a financial plan, in most cases, the better the outcomes.

Discipline

Market noise and emotion means decision making is difficult. It may even mean cuts now to help win in the end. Discipline is very hard to maintain on your own so help in this area is a major contributor to attaining long term goals.

Balance / asset allocation

This simply means not putting all your eggs in one basket. Spreading the risk may mean the full extent of up swings aren't gained but it means that the full extent of down swings aren’t either. Balance means 'slow and steady' and we all know how that works out.

Costs of investing

A planner needs to be able to show that they manage the costs in your portfolio, so they can be as low as possible. History shows that on average, lower costs means better performance.

Finally, a financial planner will struggle to help you achieve your goals if they aren't continually kept up to date with any changes in your life. This is one of the most important jobs the financial planner’s clients has.

 

Peter Graham
BEc, MBA
PlannerWeb / AcctWeb

 

ATO opens applications for SG exemption

High-income-earning SMSF trustees with multiple employers will be able to apply from mid-October to gain exemptions from super guarantee contributions, according to the ATO.

         

 

An update posted on the ATO website on Friday revealed that following the recent passage of the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 through Parliament, individuals would be able to apply for contribution exemptions from 16 October.

“Individuals with more than one employer, who expect their employers’ compulsory super contributions will exceed their annual concessional contributions cap for a financial year, will be able to apply for an exemption certificate to release some of their employers from their SG obligations,” the ATO said.

“Individuals will still need to receive SG payments from at least one employer.”

To apply for the exemption, trustees would need to submit the relevant form 60 days before the start of the next quarter. However, given the laws had only been passed recently, the deadline would be extended for the January quarter, the ATO said.

“The Commissioner of Taxation has extended the lodgement period for the quarter commencing 1 January 2020 only, and will accept applications lodged on or before 18 November 2019,” the office stated.

“The application form provides the commissioner with the information required to make an assessment, including which employers the exemption certificate will apply to [and] the quarters in the financial year for which the exemption is sought.”

The new rules will give high-income earners, such as doctors, the flexibility to ensure they do not breach the concessional cap through having multiple employers. However, SMSF members affected will need to consider alternative arrangements to ensure they are not shortchanged in their contributions, according to Heffron SMSF Solutions managing director Meg Heffron.

“The certificate process is completely silent on whether the individual and their employer have negotiated some form of alternative compensation for the loss of the superannuation contributions,” Ms Heffron said in a recent blog post.

“This is left entirely to the two parties to resolve themselves and may sometimes mean it is better not to use the new rules. For example, an individual who is unable to reach an agreement with their employer to provide additional wages in lieu of compulsory contributions may choose not to apply for the notice.”

Ms Heffron suggested a number of contribution options to ensure affected trustees were still maximising their concessional contributions, including negotiating a mix of contributions and additional salary from their exempt employer, or asking for additional salary sacrifice contributions from the employer that was still paying SG contributions.

“As with any negotiations around salary and superannuation, both parties would need to carefully consider the impact of their chosen arrangement on other benefits that are linked to salary,” she said.

 

 

Sarah Kendell
30 September 2019
smsfadviser.com

 

Australia by the numbers – September 2019

One great source of data about Australia. Become better acquainted with the country we love.  An up-to-date snapshot of Australia's vital statistics.

         

 

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/australia

ATO letters indicate a wider SMSF warning

Letters sent by the ATO to nearly 18,000 SMSFs may serve as a warning to a far greater number of funds with similar strategies, an SMSF expert has claimed.

         

 

Letters sent by the ATO to the trustees of nearly 18,000 SMSFs may have a potential impact on, and serve as a warning to, a far greater number of funds who have invested in a single asset or asset class, an SMSF expert has claimed.

Smarter SMSF chief executive Aaron Dunn said while the ATO sent letters to the trustees of 17,700 funds the total number of SMSFs with more than 90 per cent of investments in a single asset or asset class was 180,000.

“The ATO has made people aware that nearly one third of funds have invested 90 per cent or more within a single asset or asset class and the thing that will be picked up from these letters will be the expectations that now exist around diversification and the investment strategy,” Dunn said in a webinar held yesterday.

“In my view this heightens the requirements to ensure the investment strategy documents do spend more time satisfying the audit process and the regulator as to how the diversification requirement is satisfied by that single asset class, and this is not just for property investments or property with an LRBA but where a fund has any heavy asset allocation.”

Dunn said the letter writing campaign was a targeted approach but was bringing a wider awareness of investment strategy requirements to the SMSF market for trustees as well as for auditors.

He pointed to the letters also being sent to auditors by the ATO and legal cases, such as Cam & Bear and Baumgartner, as demonstrating auditors were also open to higher levels of exposure in relation to inadequate investment strategies.

“What are going to be the expectations of auditors in making sure trustees have complied with Superannuation Industry (Supervision) Regulation 4.09?,” Dunn said.

“Which is why I go back to the 180,000 figure because auditors are going to be spending more time looking at same set of principles and considerations for all funds that have heavy asset concentration and looking to improve the documented decisions for diversification.”

 

 

Jason Spits
September 26, 2019
smsmagazine.com.au

 

Choosing your investment strategy

Investors are faced with a significant and growing challenge. Stretched government balance sheets and an ageing population will likely place a growing emphasis on retirees to “self-fund” their retirement. 

         

 

At the same time, the expectations for market returns have fallen in line with record low interest rates in Australia and elsewhere.

Official term deposit rates published by the RBA remind us that the traditional safe haven of term deposits, popular following the financial crisis given more attractive cash rates, are now offering on average just 1.5%, which may not even keep pace with inflation.

So for most of us, the requirement to take on some investment risk will be essential to achieve our long term savings goals. This is where the options can get a little complicated, so let's break it down.

There are many ways to take more risk, but let's focus on the two key actions that can easily be implemented within your portfolio – changes to asset allocation, and/or – investment strategy selection.

Changes to Asset Allocation

In its simplest form, varying your equity / bond mix can be an effective way to match your required return to your investment goals, but keep in mind that the potential for extra return does not come without taking on added risk.

Too much risk and you may not be able to stay the course through the inevitable market downturns on the journey to achieving your goal. Behavioural mistakes made along the way can cost years of investment returns, so best to match the risk of the strategy to your own tolerance, as best you can.

Strategy Selection

Within each asset class, another way to seek a higher return is through the strategies that you select for your investment portfolio.

An active investment strategy generally seeks to take positions that differ from broad cap weighted market indices, to deliver a higher return. Unlike changes to your equity / bond mix, which can increase the total risk of your portfolio, selecting an active strategy introduces what is referred to as “active risk”.

To borrow a driving analogy, if the most direct route to your destination, which may be a main arterial or freeway, is akin to a cap-weighted index, then using your local knowledge of back-roads and traffic conditions to arrive at your destination ahead of time, could be considered the active strategy equivalent.

Traditional active managers employing skill and experience to outperform is not the only way however.

Over the last few decades, other strategies have emerged which can be used to pursue outperformance. Just like more traditional forms of active management, these strategies – commonly either quantitative strategies employing sophisticated modelling techniques, or factor based strategies, seeking to harvest identified risk premia – endeavour to deliver a positive “active return” against a benchmark.

To extend the driving analogy, systematic strategies could be likened to the rise of driving algorithms, such as Google Maps, which help to get us to our destinations faster by analysing data sets of past and present driving conditions. Whether you prefer to test your own driving skill, utilise google maps or simply take the direct route, understanding the likelihood for success, and the risk you are taking if your choice doesn't work out, is critical to making an informed decision.

Active risk

When selecting an investment strategy, the promise of greater rewards will likely come with higher risk. This is referred to as “active risk”.

Active risk is typically measured in terms of the expected difference between the returns of the strategy and the returns of the underlying benchmark, which more often than not will refer to a comparable cap weighted market index. You can look for active risk indicators from the fund manager which may be disclosed as “tracking error” or “active share”.

Other indicators of active risk which can be useful when comparing across a range of different product choices include the number of securities held by the portfolio, the maximum position size in any one security, the rules listed for deviations of sector or country weights in the case of a global strategy, and past results.

The spectrum of risk

At the lower end of the spectrum, market cap index funds can be characterised by low cost, low to no active risk, and high transparency owing to the rules-based nature of market cap indices.

Systematic strategies such as factor funds can span a broad spectrum when it comes to active risk, however, most follow a set of rules which drive the weighting of securities in the portfolio, providing transparency of approach, assuming the rules are disclosed, and are typically lower cost than more traditional active strategies.

Traditional active strategies, come in many forms, from highly diversified, low active risk approaches, to very concentrated, high active risk strategies. The cost you are willing to pay should be scaled according to the level of outperformance you expect and the perceived skill of the manager.

Where you end up with your choice is highly personal, as a successful strategy is one that is structured to deliver on your investment goals. Recognise that your asset allocation choice, where you land on the growth / defensive spectrum, will be the main driver of your overall return.

Patience is critical to success, and remains an accessible edge for those who possess it, whether you are a professional investor responsible for the goals of others, or an individual investor saving for your personal goals.

(This article originally appeared in Cuffelinks)

 

Aidan Geysen
Head of Investment Strategy Group
30 September 2019
vanguardinvestments.com.au

 

Interest rising in SMSF set-up

Interest in setting up an SMSF among those in APRA-regulated super funds is on the increase, while the average balance and age of new SMSF trustees have declined, according to Investment Trends data.

         

 

The research firm’s 2019 SMSF Reports surveyed almost 5,000 investors and found that 21 per cent of those who did not have an SMSF were either planning to or actively in the process of setting up a self-managed fund, up from 19 per cent in 2018 and 18 per cent in 2017.

At the same time, the data indicated that the age and balance level of new SMSF members were falling, with those who had set up a self-managed fund between 2015 and 2019 having a median age of 47 and a super balance of $230,000.

This compared to a median age of 50 and balance of $320,000 for those who had set up an SMSF between 2011 and 2014, and a median age of 52 and balance of $420,000 for those who had set up a fund between 2006 and 2010.

Among those who intended to set up an SMSF, balance levels and ages were even lower, with an average super balance of $40,000 and age of 35.

A higher level of investors than previous years also indicated they planned to set up an SMSF based on word of mouth, with over 25 per cent of those who intended to set up a self-managed fund saying they were planning to do so on advice from a friend who already had an SMSF, up from 21 per cent in 2018.

Around 23 per cent of potential new SMSF members said they wanted a self-managed fund to achieve more control over their investments, while 21 per cent said they were planning to set one up to achieve better returns.

Among existing SMSF trustees, direct shares continued to be the most popular asset class to achieve these improved returns, with an average of 35 per cent of SMSF portfolio assets allocated to shares outside managed funds and ETFs.

However, this was down on 36 per cent in 2018 and 37 per cent in 2017, while over the same period, direct property allocations had increased by 1 per cent per year to 13 per cent in 2019.

While the top three SMSF asset classes were still direct shares, cash and property, trustees demonstrated a preference for gaining international equities exposure, with 35 per cent saying they planned on investing in international shares within the next year.

Enthusiasm for international investing was highest among those with a financial planner, where trustees on average expected to have 18 per cent of their portfolio invested in international assets by 2020.

 

 

Sarah Kendell
19 September 2019
smsfadviser.com

 

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