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What a long-term view of the market can teach investors


The curtain coming down on another year has a way of focusing the mind on how time is passing. 



It is also the time of year when market pundits put their forecasting hats on and share their best thoughts on what is in store for us in the year ahead.

At Vanguard we take a conservative view on forecasts, preferring long-term ranges of potential returns.

You will see that the expectation is for lower economic growth and modest market returns. Restrained returns may well be the order of the day for quite some time yet, but patient, long-term investors should still expect to be rewarded on a real return basis.

Which raises a favorite issue – what do we mean by long-term? How long is long-term – one, three, five years, or does it not really get into long-term territory until after 10 years have ticked over?

Time frames matter a lot. Consider a university student graduating this year. They come back after a summer break to start their career journey in 2017. Their investment time frames will vary around major life goals – travel, property, family – but in superannuation terms they realistically have a time frame of 60 plus years to work with.

We don't know with any certainty what the world will look like in 2077, but we can have a high level of confidence it will be vastly different to today. We only need to take a trip back in time to see how much things can change.

A gap in the Australian investment research landscape has been the absence of long-term return data. In the US and UK it has been possible to access sharemarket return data going back 100 years for research purposes.

That gap has now been filled thanks to the research work of the Australian Centre for Financial Studies in Melbourne, a not-for-profit research centre that is part of the Monash Business School. The Australian equities database (AED) that has been compiled by ACFS research fellow John Fowler is the most comprehensive digital source of information for Australian shares for the period spanning 1926 to 1995.

At a time of year when it is customary to be looking forward and wondering what the year ahead will bring, the AED gives us a novel chance to take a trip back in time and gain some historical perspective of how Australian share investors have fared over the decades.

If you had had invested $100 in the Australian sharemarket back in 1926 today it would be worth $562,000 – an average annual return of 10.01 per cent. Naturally, inflation erodes the real value of those returns and when adjusted for inflation the average annual return drops to 5.6 per cent. At a time when forecast returns are lower than many investors are accustomed to it is interesting to look back at returns for shares over the decades. What is obvious is that investors have enjoyed something of a golden age since the dawn of 1970s through to 2006. The decade from 1976 to 1986 was the star performer – delivering investors 24.5 per cent in nominal terms and a stunning 14.4 per cent in real terms after inflation is adjusted for.

But when you look further back into the 1930s through to the 1960s you see long periods when returns are subdued with the decade 1946-56 having a negative return in real terms. So the concept of long-term returns being relatively low for quite long periods of time is not something new or novel. It is just that investors over the past 30 years have not experienced it.

The value of long-run data that resources like the AED provides is that long-term trends are more discernible. One thing that emerges from the initial analysis is that while returns have been relatively low since the global financial crisis market, volatility has moved higher. So a lower return world with higher levels of market risk is the reality facing investors as we turn the page over to a new year. The headlines for the New Year forecasting season will naturally focus on return expectations rather than the less exciting idea of managing risks within a portfolio. Which is why taking a longer term perspective and maintaining a balanced, well diversified portfolio is one New Year resolution that will pass the test of time.


Robin Bowerman
15 December 2016

Your New Year reading: beyond John Grisham


Behavioural economist and psychologist Daniel Kahneman has begun 2017 by retaining his place near the top of The New York Times best-seller list, wedged among the latest John Grisham legal thriller, The Whistler, and the psychological thriller The girl on the train by Paula Hawkins.



Kahneman's book Thinking, fast and slow is a consistent long-term performer – high on the list of best-selling non-fiction paperbacks for 116 weeks, currently ranking fifth.

Further, The undoing project by Michael Lewis – number five of the combined print and e-book bestsellers – tells the story behind the pioneering studies of Kahneman and fellow psychologist Amos Tversky into the psychology of economic or financial decision-making. Lewis' book is a newcomer to the bestseller list, having featured for three weeks.

The fact that the subject of behavioural economics can become a near chart-topping best seller underlines the increasingly widespread recognition that our behavioural traits can play a crucial role in our investment success – or failure. Expect to read much more about behavioural economics in 2017.

A new year provides, of course, a prompt to read and think about how to improve our personal finances including our investment portfolios.

The best publications in this genre tend to provide pointers about how to accumulate wealth slowly and progressively through an understanding of the fundamental principles of sound saving and investment practices. These are the opposite of the relentless and potentially wealth-destroying, get-rich-quick offerings.

Here are a few books to consider adding to your 2017 reading list:

  • Thinking, fast and slow by Daniel Kahneman: A winner of the Nobel Prize for economics, Kahneman points to the many flaws in financial decision-making – including overconfidence and excessive loss aversion (inhibiting appropriate risk-taking and encouraging a short-term focus) – that can have costly consequences for an investor. His views underline the benefits of having an appropriately-diversified portfolio while avoiding the potential traps of market-timing, stock-picking and making emotionally-charged investment decisions. “Much of the discussion in this book is about the biases of intuition,” he writes.
  • The only investment guide you'll ever need by Andrew Tobias: While his fellow personal finance authors are unlikely to agree with his book's title, Tobias's veteran work – it has been in publication for 40 years – has plenty to offer investors. His over-arching message is to take a common-sense approach to looking after your investments and other personal finances. For instance, only buy investments you can understand, stay away from investments that seem too good to be true, and don't carry credit card debt. It's good basic stuff worth repeating again and again.
  • The behaviour gap – Simple ways to stop doing dumb things with money by Carl Richards: This is an entertaining, easy-to-read guide by a financial planner turned personal finance columnist to keeping our negative behavioural traits under control when saving, investing and spending. His tips include: adopt strategies to avoid buying shares at high prices and selling low, don't spend money on things that don't really matter, identify your real financial goals and simplify your financial life.
  • The millionaire next door by Thomas Stanley and William Danko: Long-term research by late academics Stanley and Danko suggests that “prodigious accumulators of wealth” are typically content to progressively build their wealth while being inconspicuous in their spending. In other words, these wealth accumulators are not in a hurry to make their money by taking excessive risks or in a hurry to spend their money.
  • A random walk down Wall Street: The time-tested strategy for successful investing by Burton Malkiel: The basic theme behind this classic is Malkiel's argument that investors – individuals and professionals – cannot not expect to consistently outperform the market. Given that belief, Malkiel, a Princeton University economics professor, is a firm believer in investing in market-tracking index funds (including ETFs), dollar-cost averaging (regularly investing set amounts), appropriate portfolio diversification, periodic portfolio rebalancing, low-cost investing and how investors should understand the risks of irrational behaviour.
  • The little book of commonsense investing by Jack Bogle: As Bogle writes, “successful investing is all about common-sense”. Don't try to pick the best time to buy and sell stocks – consistent success with market-timing is rarely achieved; diversify to minimise risks (and spread opportunities); recognise the value of compounding, long-term returns; and keep investment costs as low as possible. “The more the managers and brokers take, the less investors make,” Vanguard's founder emphasises.

These books reinforce critical messages for investors. These include: get your investment basics right (including your goals and portfolio asset allocation), periodically rebalance your portfolio, don't try to time the market, minimise investment costs, and beware of the risks of trying to pick winning stocks and fund managers.

And a foremost consideration of most of these authors is that investors should be aware of the dangers of trusting their gut feelings by allowing their emotions to dictate investment decisions.

Finally, save regularly – enjoying the rewards of long-time compounding – and keep your spending under control. Conspicuous consumption should not be taken as a sign of wealth – quite often it means the opposite.


Robin Bowerman
​Head of Market Strategy and Communications at Vanguard.
18 January 2017


Areas of key focus for SMSFs in 2017.


As the new legislative changes to superannuation are rolled out, national law firm Gadens has flagged what key areas professionals will need to act on, with time already “running out” on certain items.



While there was major regulatory and legislative change across the board in superannuation during 2016, there are some key areas of focus that practitioners should be homing in on, according to partner at Gadens, Kathleen Conroy.

Contributions, in particular, was a major area of reform. Professionals are largely well-versed with the changes, but Ms Conroy noted some specific points professionals should keep in mind.

She said contributions must be received by the fund before 1 July 2017 to count as contributions for the 2016-17 year, including:

  • Changes to the law on contributions may mean that clients need to change their salary sacrificing arrangements;
  • Transitional arrangements will apply if someone has utilised the bring-forward rule and the three-year period applicable to them for this bring forward continues past 30 June 2016;
  • Clients will not be able to rely on the catch-up contribution regime indefinitely. If they have not used any unused concessional contributions after a period of five years, the ability to carry those contributions forward is lost; and
  • Time is running out if clients need to tip money into their fund to meet contractual obligations, including, for example, under any limited recourse borrowing arrangement.

The $1.6 million cap is also an ongoing area of confusion and frustration. Ms Conroy emphasised this is an area in need of serious attention.

“For the 2017-18 financial year, $1.6 million is the maximum amount that can be transferred into the retirement phase of superannuation i.e. that phase where you do not pay tax on the earnings. This amount will be indexed annually,” she said.

“Balances in excess of the cap will need to be removed to an accumulation account or out of superannuation savings and will attract an excess transfer balance tax. If you do not pay the excess transfer balance by the due date for payment, you will be liable to pay interest on that amount, calculated by reference to each day that the amount, and any interest, remains unpaid.

“Transitional arrangements apply to those who breach the cap by less than $100,000 as at 1 July 2017, but if in this category, you will have a maximum of six months from 1 July 2017 to bring the transfer balance in the retirement phase of your superannuation to the relevant figure or less.”


Thursday, 19 January 2017


Market Update – August 2016


Report supplied by Zenith Investment Partners



Key Points: 

  • The RBA cut the overnight cash rate to 1.50% during the August board meeting. The rate was kept at 1.50% during the September board meeting. 
  • In fixed income, the 3 Month Bank Bill Swap Rate and the 10 Year Australian Bond Rate fell by -0.09% and -0.06%, respectively, in August.
  • Spreads on Australian corporate debt fell in August, as indicated by the -9.70 points decline over the month of the iTraxx Australian Index to 99.97. 
  • Australian shares fell over the month, with the All Ordinaries Index and the S&P/ASX 200 Index declining by -2.03% and -2.33%, respectively. 
  • Domestic listed property fell by -3.35%, slightly underperforming the broader share market.
  • Global equities reported mixed results in various regions, with the US being the worst performer, declining by -0.17%. Hong Kong added 4.96% to be the best performer, as measured by the Hang Seng Index. 
  • Gold and Iron Ore prices reversed their recent uptrend, declining by -3.05% and -1.65% respectively in August. Oil price recovered by 7.45% for the month. The overall CRB Spot Commodity Index fell by -1.33% in US Dollar terms.
  • The Australian Dollar fell against most currencies in August; by -0.11% against the US Dollar, -0.74% against the Euro, and -0.59% versus the Japanese Yen. The AUD rose 0.56% against the British Pound, indicating a further depreciation of the Pound.
  • The Australian Trade Weighted Index (TWI) fell by -0.32% over the month, ending August at 63.20.
  • Share market volatility rose by 1.55% in the US, and fell by -0.52% in Australia.


Please click on the following link to gain access to this resource.

Click here to view the August 2016 Market Report

 Source:       Zenith Investment Partners


The gymnastics of keeping your portfolio balanced


One of the great things about the summer Olympic Games is that every four years you get to appreciate athletes and sports that don't enjoy saturation-level TV coverage.



Gymnastics is a personal favourite with the different apparatus that challenge and showcase athletic grace, strength, technical abilities and blend them together into real-life drama. There are few other sports where there is the constant risk factor that comes from the slightest slip or loss of balance.

No-one needs to tell a gymnast the value of maintaining balance. And no-one watching Olympic gymnasts is in any doubt about the hard work and dedication – usually from a young age – that has gone into getting to that point.

Investors on the other hand often grapple with the issue of balance. At investor education seminars it is not uncommon to hear investors describe themselves as “property” investors or “share” investors or even as members of the ultra-conservative group that trust nothing other than bank deposits.

Building a balanced portfolio is not nearly as hard as making an Olympic gymnastic team but it does require discipline and a level of self-awareness particularly on how much risk you are comfortable taking.

The good news for investors is that unlike gymnastic routines, one small slip is unlikely to be devastating in terms of long-term portfolio performance. However, allowing portfolios to slip too far out of your risk comfort zone can be significant – particularly when a major market event like a global financial crisis comes along.

So there are two key issues for investors – setting the right asset allocation and rebalancing to stay within your risk “flags”.

Understanding where to plant your risk “flags” has to be driven by your personal situation – age, financial situation, health, earnings capacity. If you are in career-best form, naturally your capacity to take risk will be significantly higher than the person about to retire.

The simplest way for most people is to invest in a multi-sector product offered by fund managers that typically are designed around a target level of risk – they range in flavours from conservative, balanced, growth or high growth.

The same applies with superannuation for retirement savings – the default MySuper products typically cluster around a 70/30 growth to income asset split but you can opt for lower or higher exposures to growth assets. With both super and non-super funds the rebalancing of the portfolio happens automatically.

It is when you drill down into the component parts of a portfolio that the complexity increases. The good news for investors who do not want to spend a lot of time on things like their portfolio's asset allocation is that well-tested market solutions are available.

There are a significant group of people who have opted – via setting up a self-managed super fund – to be more engaged in managing their investments (particularly their super but let's assume non-super investments as well). More engagement/involvement by investors is generally regarded as a good thing and around half of SMSFs work with a range of professional advisers to manage and invest their fund.

But the results of the recent Vanguard/Investment Trends survey highlights the fact that a lot of SMSFs have relatively concentrated portfolios. The survey of more than 3500 SMSF trustees found that 38 per cent of their portfolio is invested in Australian shares. And of those, 28 per cent have at least half their share portfolio in bank/financial companies.

This raises the issue of concentration risk within SMSF portfolios – an ongoing debate within the super industry and financial advisory circles over many years. The reasons behind the concentrated Australian share portfolios is reasonably well understood – about half the assets are in pension or drawdown mode and high dividend payout shares are attractive courtesy of the dividend imputation system providing tax credits and the income stream that provides. Wind back time to a few years ago and term deposits were also paying respectable yields so one of the primary objectives – to pay an income stream – could be comfortably achieved with the simple combination of share dividends and cash investments.

About now, given worldwide declining interest rates that Australia is not immune from, the average SMSF portfolio may be feeling like a gymnast that has just discovered their standard routine is no longer working as it did in the past.

The question is how to recover that sense of balance.

The Investment Trends research suggests SMSFs are already taking steps on the journey to diversify their asset allocation because the use of managed funds and ETFs has been rising steadily in recent years.

SMSF trustees are also flagging that they need – and are seeking – more advice.

So while setting the right asset allocation at a fund's portfolio level is important the process of building a broader, holistic financial plan that takes into account assets both within and outside the SMSF that widens the frame of the asset allocation question can help get the balance right between the risks and potential returns.

This article first appeared in the Australian Financial Review on 7 September 2016.


Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
11 September 2016
29 August 2016

‘Winners and Losers’ from new super proposals


After the government announced it will be shaking up its budgetary super measures – including scrapping the $500,000 lifetime cap on non-concessional contributions – Rice Warner outlined a list of key “winners and losers” from the new proposals.



As reported last week, several revisions were announced to the superannuation proposals, the most significant being:

  • The replacement of the $500,000 non-concessional lifetime cap with an annual allowance of $100,000, reduced from $180,000 a year;
  • The introduction of restrictions on non-concessional caps when a balance of $1.6 million is reached; and
  • Non-concessional contributions will be allowed up until the age of 74, increased from 65. Additionally, working individuals will be able to make concessional contributions until the age of 74 and non-working individuals until age 65.

With a more concrete view of what the superannuation system will look like in the future, Rice Warner said it is clear who will benefit or be disadvantaged from the proposals.

“Younger superannuants or those with smaller balances wishing to accumulate significant tax-concessional retirement savings will find it easier now to reach the $1.6 million cap for pension accounts. Given the reduced cap on concessional contributions [of] $25,000 a year, there will be an increased importance of non-concessional contributions in augmenting balances,” Rice Warner said in a statement.

“Members who have already made more than $500,000 in non-concessional contributions since 2007 but have less than $1.6 million in their superannuation account will also be better off. They can continue to make post-tax contributions to their superannuation account.”

With changes affecting those with large balances tightened, the losers will be wealthier Australians.

Members with balances exceeding $1.6 million will be unable to make non-concessional contributions, while those who have retired and are older than 65 will not be able to make concessional contributions out of investment earnings.

“The government was going to allow those over 65 to make non-concessional contributions as long as they remained below the lifetime limit of $500,000. This has now been restricted to those who are still working between 65 and 74, [although] the definition of ‘working’ has a low bar – you only need 40 hours within a 30-day period once a year,” Rice Warner said.

However, despite these revisions, Rice Warner said only a minority of Australians will be affected.

“Overall, these groups represent only a small fraction of the superannuation population. For the majority of members, interaction with super will be business as usual and they will wonder what the fuss is all about.” 


Monday, 19 September 2016

Making a fairer and more sustainable Superannuation System


Australian Government – Superannuation fact sheets



The following link is to a Federal Government publication that contains all the current Superannuation fact sheet.  Please click on this link to read more on the following:

Fact sheet 01: A superannuation system that is sustainable, flexible and has integrity

Fact sheet 02: Introducing a $1.6 million transfer balance cap

Fact sheet 03: Reforming the taxation of concessional contributions

Fact sheet 04: Annual non-concessional contributions cap

Fact sheet 05: Changes to defined benefit schemes

Fact sheet 06: Supporting Australians to save for their retirement by introducing the Low Income Superannuation Tax Offset

Fact sheet 07: Improving access to concessional contributions

Fact sheet 08: Allowing catch‑up concessional contributions

Fact sheet 09: Extending the spouse tax offset

Fact sheet 10: Enhancing choice in retirement income products

Fact sheet 11: Improve integrity of transition to retirement income streams

Fact sheet 12: Improving governance and transparency

Fact sheet 13: Impacts on key groups


Superannuation Facts Sheets 2016



Checking in on our 2016 economic outlook – and looking ahead


At the end of 2015, Vanguard Senior Economist Roger Aliaga-Diaz, Ph.D., and Vanguard's Investment Strategy Group published an economic and market outlook for 2016 and beyond.



Although their outlook was not bearish, the authors cautioned that global growth would likely remain “frustratingly fragile” and that investors should expect continued volatility. We sat down with Roger recently for an update.

A lot has happened since the beginning of the year. We've seen wild stock market swings, discouraging data from China, shifting signals from the data-dependent Federal Reserve about further policy rate hikes, and the United Kingdom's recent vote to leave the European Union. Has any of this resulted in material changes to Vanguard's outlook?

Things will catch us off guard, like Brexit or China's currency volatility earlier in the year. But to give credit where credit is due, more of our team's outlook has proved to have been on-point than off-base. That said, we're far from complacent; we know that we have to continue to evaluate market forces in this uncertain environment and adjust our forecasts accordingly.

One of our key expectations has been that the United States economy would remain resilient despite global economic fragility. We didn't expect it to grow at 4% as it did in the “good old days” when expansion was being fueled in part by debt-financed consumer spending. We have been projecting 2%, which is a more sustainable, balanced growth rate, and full employment in the United States, which would result in a slowing of job growth. We are pleased to see both outcomes playing out in the data, as these are signs that the US economy is remaining resilient.

Unlike many in the industry, we didn't believe that emerging markets would see a cyclical rebound this year, because there's a structural need for debt deleveraging. The Federal Reserve not raising the federal funds rate has probably been supportive, as have more stable commodity prices. We still think, however, that these economies need to recalibrate to a new business model and that this will likely be a long and difficult process.

The sharp drop in commodity prices, including oil, at the beginning of the year certainly surprised us, as we had believed that the global deflationary bias would ease. As we expected, however, core inflation in developed markets, while still low by historical standards, has stopped falling – and in the United States, it's slowly moving in the right direction.

We were one of the few in the industry to underscore the importance of holding high-quality fixed income for diversification purposes, even in times of low interest rates. Yes, returns from bonds are low, and are expected to stay low going forward. But investors should appreciate that bonds will continue to act as ballast for portfolios in times of stock market stress. That was clear in the market reaction to Brexit – an outcome, by the way, that we were not expecting.

There's been a lot of talk in the financial press about divergence in monetary policy around the world. Where did you stand on that late last year, and has your outlook shifted since then?

We were expecting to see a very gradual, or “dovish”, tightening by the Federal Reserve, with an extended pause in short-term interest rates at around 1%. With Brexit, it now looks like it will take the Fed longer to get there – we're now thinking we might see one policy rate hike towards the end of this year. The timing of further hikes is less important than the terminal policy rate – the level at which the Fed stops tightening. In contrast, the European Central Bank and the Bank of Japan have policy rates in negative territory, and they may further expand their extraordinarily easy monetary policies.

That might sound like divergence, but the bigger picture is that they are all very near zero. If you take a step back and look at the historical differences in US policy rates compared with those of Europe and Japan, they've usually been 300 basis points or more. So the current differences in policy rates are trivial. In fact, I'd actually categorise what we're experiencing right now as a rare period of convergence in central bank policy, one that reflects global structural forces of lower trend growth, demographics and debt deleveraging.

Moreover, we believe that the ability of other central banks to continue easing policy, including how much deeper they can go into negative rates, is very limited. I'd argue that we are getting to the limits of what central bank action can do. We haven't seen these unconventional monetary policies, whether they involve quantitative easing or negative rates, really do much to stimulate lending and investment. In order for us to see a greater cyclical thrust above trend growth, we'll probably have to first see some coordination between monetary and fiscal policies, particularly with respect to infrastructure spending.

Japan is a great example. Abenomics and its three arrows of fiscal stimulus, monetary easing and structural reforms were announced back in 2012, but that program hasn't been as successful as policymakers had hoped. It got a lot of press coverage and there were some early wins, but clearly there's been an over-reliance on the monetary policy arrow. And we haven't seen much of the promised structural reforms at all in areas where it's needed, such as the labour market.

And just a word or two about negative rates, as I get asked about this a lot and it's not very intuitive: some investors are leery of diversifying their bond holdings to include bonds with negative yields, like those seen in Japan and much of Europe. But buying an international bond with a negative yield doesn't mean you're locking in a loss. Unlike domestic bonds, international bonds come with a currency effect – which happens when the currency is converted to the investor's home-base currency – that should offset the yield differential between domestic and international bonds. For US investors, for example, a 10-year German bund would be expected to yield in US dollars as much as its US Treasury counterpart.

A defining event in the first half of the year was Brexit – the United Kingdom voting to leave the European Union. What are some of the near-term and long-term consequences of that likely to be?

The uncertainty generated by the vote to leave the European Union will likely start to show up in UK data on consumer purchases and home buying, and also in business investment and foreign direct investment.

On the monetary policy side, action by the Bank of England to cut policy rates or provide additional quantitative easing could help mitigate the fallout; on the fiscal side, so could some easing up on austerity measures. [Note: On 4 August 2016, the Bank of England announced economic stimulus measures that included a 0.25% rate cut.] The depreciation of the British pound can also help at the margin, through exports.

But all this probably won't be enough to offset the scale of the downturn in sentiment we're likely to see among consumers and businesses. Looking further out, it's hard to predict how negotiations to access the European Union's single market will go, but we do know that it will be some time until we start gaining some clarity on the type of deal the United Kingdom can strike with the European Union. There is a lot at stake for the United Kingdom in these negotiations – keep in mind that almost 50% of British exports go to the European Union, and an even higher percentage of imports into the United Kingdom come from the European Union.

So a cloud of uncertainty is setting over the UK economy, and we're likely going to see a brief recession this year or early next year. That's a significant change from the beginning of this year, when we were expecting the Bank of England to consider raising policy rates.

We'll see some fallout in the European Union as well. Its economy, which has only been growing at around 1%, is likely to decelerate further. The farther you move away from Europe, the less the impact you're likely to see. That's assuming financial conditions remain robust – which is a big “if”, because headline risk is not going to go away overnight.

I have to add that the unexpected outcome of the Brexit vote was a reminder of what we've said many times, that we should “treat the future with the deference it deserves”. And this also applies to other issues that the vote brought to the fore: unity within the European Union, public opinion on trade globalisation and the momentum of anti-establishment movements, to name just a few.

Concerns about growth in China sent global markets sharply lower early in the year. Did that catch you off guard?

Well, we mentioned that “growth scares” were to be expected, and China proved a case in point. Global stock markets retrenched on fresh signs of slowing in the world's second-largest economy along with unexpected movements in its currency and sharp stock market losses.

We were not expecting – and still do not expect – to see a hard landing, though. The Chinese government has ample policy tools to cushion an economic slowdown and recent data for Q2 growth seem to confirm this expectation. That said, maintaining a relatively steady pace of growth while rebalancing the economy away from investment and exports will remain challenging. It won't be a linear process, and potential policy missteps can't be ruled out. We've also noted that there's a growing buildup of leverage in the Chinese economy that policymakers need to address, and we don't expect to see how that story plays out before the end of this year.

You said you were “guarded, not bearish” about the outlook for market returns, given not-cheap stock valuations and the limited income on offer from bonds. In an environment like this, what's the right approach for investors to take?

Lower global trend growth and lower fixed-income yields relative to historical norms are likely to translate into a more challenging and volatile investment environment. However, our long-term return expectations are muted but positive. Patient investors with broadly diversified portfolios are likely to be rewarded over the next decade with fair inflation-adjusted returns. So our guarded outlook doesn't warrant some radically new investment strategy. The principles of portfolio construction still hold true, even in such an environment.

Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
29 August 2016

Advisers the key to retirement stability, research shows


A new study has found that while a majority of Australians feel unprepared for retirement …..

….. those who engage a financial planner are three times more likely to feel confident about their retirement nest egg.



The Australia Today white paper, released today by MLC in partnership with research firm IPSOS, explored the attitudes and perceptions of Australians towards their financial security and how they expect to live in retirement.

The survey of more than 2,000 people revealed that 66 per cent of Australians feel unprepared to retire.

However it also indicated that Australians who seek professional financial advice are three times more likely feel confident about retiring.

Women felt less prepared than men, with 74 per cent of women feeling unstable about retiring compared with 57 per cent of men, while 79 per cent of Millennials also felt unprepared.

Executive general manager, wealth advice, Greg Miller said that despite Australia's having an incredibly strong superannuation and retirement system, too many Australians are uncertain about their retirement savings.

“This research shows that regardless of age and income, the majority of Australians are feeling unprepared for retirement,” Mr Miller said.

“The constant political tinkering [with] the super system has also confused the conversation, and we run the risk of Australians becoming ambivalent to planning for retirement due to this confusion.

“Advisers regularly experience this uncertainty in super first-hand among their clients,” said Mr Miller. “If we can get policy certainty around super, advisers will be better able to help more Australians understand the value of super and saving for their retirement.”

Executive general manager, superannuation and investment platforms, Paul Carter says that more needs to be done as a nation to help the situation.

“We need to help Australians equip themselves with the knowledge and information they need to progress on their paths to a self-funded retirement,” he said.

“By doing so, we not only improve our quality of life but also reduce the budgetary burden of an ageing population for future generations.”


Monday, 22 August 2016

The toughest tasks for self-managed super


What are the hardest aspects of running your self-managed super fund (SMSF)?



Is it the paperwork, all of the investment rules or the fundamental challenge of choosing where to invest your money?

If you named choosing investments for your SMSF as the toughest task, you would be far from alone.

A comprehensive survey for the Vanguard/Investment Trends 2016 Self-Managed Super Fund Reports, released during the past week, asked SMSF trustees to list the hardest aspects of running an SMSF. Their main responses included:

  • Investment selection (43 per cent). This percentage has risen over the past year as SMSF trustees, along with other investors, attempt to come to terms with the low-interest environment and widespread expectations for more challenging and volatile investment conditions over the medium-to-long term. (See Vanguard's economic and investment outlook, Australian edition, from our Investment Strategy Group.)
  • Administration and regulation (40 per cent). This includes having trouble keeping track of changes in the rules.
  • A lack of time including to review and plan for their SMSFs (24 per cent).

Interestingly, 22 per cent of respondents to the survey did not find any aspect of running their fund difficult.

The finding that more SMSF trustees have difficulty choosing investments would also partly explain another finding from the survey that a large proportion of SMSFs recognise that they have unmet needs for advice.

An estimated 255,000 SMSFs – out of 572,000 funds at the time of the survey – had unmet needs for advice. This is the largest number recorded by Investment Trends over the years.

“Advice needs most often relate to retirement,” the report comments, “though more [SMSFs] are citing investment-related advice gaps.”

For instance, an estimated 146,000 SMSFs have broad unmet needs for advice on retirement strategies while 139,000 have unmet needs for investment advice. And an estimated 100,000 funds have unmet needs for advice on tax optimisation.

Drilling down on more specific unmet needs for advice, SMSFs recognise their need for advice on inheritance and estate planning (an estimated 61,000 funds), SMSF pension strategies (57,000), age pension and other social security entitlements (55,000 funds), investment strategy/portfolio review (52,000), identifying undervalued assets (51,000), Exchange Traded Funds (46,000), offshore investing (43,000), trying to ensure members don't outlive their savings (42,000 funds) and protecting assets against market falls (39,000).

The finding that 44 per cent of Australia's SMSFs recognise that they have unmet needs for professional advice is extremely positive. This should lead to more fund trustees working with advisers to set appropriate asset allocations for their diversified portfolios, checking on the adequacy of their retirement savings and setting suitable retirement income strategies for retired members.


By Robin Bowerman
Smart Investing 
Principal & Head of Retail, Vanguard Investments Australia
15 August 2016

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