Insurance Bonds. Really?

Looking for a legal tax haven? There's no need to look offshore - how about one you can get in Australia that's taxed internally at 30 per cent, doesn't need to appear on your annual tax return and if you hold it for 10 years you can withdraw it without paying any tax?

Welcome to the not so new alternative to superannuation - insurance bonds.

As the dust settles from the Federal Budget earlier this month, insurance bonds have suddenly been getting a lot of love from advisers and investors, and for good reason. With the Federal Government effectively deciding that the wealthy can look after themselves, superannuation has been reduced from a five star to a four star investment, still incredibly tax effective and worth the effort, just not quite what it used to be, particularly for those with large superannuation balances. Enter insurance bonds.

What is an insurance bond? Just to refresh your memory, they are a tax-paid investment, with the bond fund paying up to 30 per cent tax on your behalf. All money invested in them comes from after-tax dollars, but there is no limit on the amount you can invest and your money is accessible at anytime.

Because the earnings accrue within the fund there is no assessable income to declare on your tax return each year, and if you hold them for 10 years or more all proceeds can be redeemed tax-free. This makes them ideal for people who want to reduce income for purposes such as maximising the family tax payment, or becoming eligible for the Commonwealth Seniors Health Card.

And if the bond is redeemed earlier than 10 years, the proceeds are taxable as normal income, but the holder is entitled to a rebate of 30 per cent, which effectively makes the bonds almost tax-free for most investors at any stage. For example there tax on $10,000 profit will be $3,250 but the rebate will be $3,000, so the holder will have just $200 tax to pay.

They also offer significant capital gains tax advantages. They can be transferred from one investor to another at any time without capital gains tax, and within the bond you can switch between a range of investment options (like Australian and international shares) without triggering capital gains tax whenever you feel it is appropriate.

Insurance bonds also handy for older investors who can no longer contribute to super, and investing for kids and grandkids.

Assuming the latest round of Budget proposals are passed, expect to hear more about insurance bonds in the coming year.

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

Jan 1 2017 Pension Changes

With the proposed changes to Age Pension rules (effective 1 January 2017) becoming law, this development now deserves your full attention. Retirees need to consider whether generally tighter eligibility rules will impact on the longevity of their current retirement strategy as a significant 'pay-cut' may be just around the corner. Read more here

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

And it's on!

With the Federal Election now confirmed for July 2 2016, we can all expect a pretty intense battle starting today. But as elections can sometimes destabilise markets and overall sentiment, is this a good or a bad thing for your investments, superannuation or pension fund? In this article, AMPs Shane Oliver takes a look back at previous election cycles with some interesting results. Read more here

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

2016/17 Federal Budget

As usual, the pre-Budget fears and scaremongering turned out to be largely unwarranted. With a significant focus on superannuation, last night's Federal Budget was in many ways a relief to the majority of Australians with superannuation and pensions. In fact, there were a number of positive proposals put forward like the removal not the work test and the reintroduction of tax deductible personal super contributions (up to $25,000). 2016-2017 Federal Budget Summary

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

Interest rate cut (finally)...

For the first time in 12 months, the Reserve Bank of Australia (RBA) has announced it cut the cash rate by 25 basis points to 1.75 per cent.

The RBA's decision to cut the official interest rate comes after a surprisingly low inflation figure of 1.3 per cent year-on-year was released last Wednesday.

The ASX futures market has been pricing in a 50/50 chance of a rate cut to 1.75 per cent versus 'no change' since the release of the inflation figures.

With a target inflation rate of between 2-3 per cent, concerns about a lack of growth in the Australian economy spurred by the low Consumer Price Index readings appear to have forced the RBA's hand.

Last week's low inflation numbers had made a May rate cut likely, despite the fact that the federal budget is on the same day.

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

The Polyphony of Markets

Dimensional's Jim Parker discusses the importance of international diversification within investment portfolios. The article serves as a timely reminder to superannuation members, retirees, and investors to look beyond attempting to pick winners and, instead, focusing on the bigger picture - or "the effect of how all the parts fit together". Worth a read. The Polyphony of Markets

Does your investment portfolio have the right balance?

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

Budget SPECULATION RIFE

There will be added interest in the Federal Budget announcement next week (May 3rd) as it's likely to be the final major economic statement the Government makes before the election later this year, quite possibly July 2nd. With the opposition taking a strong stance on capital gains tax and negative gearing, we're looking at a focus this year on taxation. Corporate tax could be cut by up to 1.5% however, there is likely to be minimal, if any, relief in terms of personal income tax.

There may also be some changes to superannuation. Some potential changes might be reduced contribution caps, the concessional 15% tax on super contributions, an end to 'Transition to Retirement' pensions and taxes on superannuation pension payments.

Overall, the outlook is for minimal growth in government spending, with spending offset by savings elsewhere in the Budget.

Where sharemarkets are concerned, historically we have seen some sideways tracking in past election years, but there has been no evidence to date of a lasting impact caused by an election. In fact, Australian economic growth has actually been strong during election years since 1980.

We'll be watching the announcements closely next week and will keep our clients informed of any meaningful developments.

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

AUSSIE DOLLAR Up (for now)...

At the time of writing, the Australian Dollar is sitting on $US0.770, which begs the question - what on earth is driving it? Read more here

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

So what did we learn?

In this article, Don Stammer adds some much needed balance and clarity, first explaining what happened during the first ten weeks of January, and then moving on to some universal lessons we all need to remember during periods of uncertainty. Read more here

This article was recently published on the 'Cuffelinks' website, a free weekly newsletter for investors and advisers which I wholeheartedly recommend to anyone looking for an intelligent, impartial investment website. For more information, go to cuffelinks.com.au

Or alternatively, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

11/03/16: Buffett's letter to investors

Once again Warren Buffett has presented a compelling long-term view of the growth potential of the US economy. In doing so he draws upon his long lifetime experience to explain that betting against the USA was and remains a foolish investment endeavor…

“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honoured and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.”

The following few sentences, from his introduction, make some telling observations about the last 80 years and the future of the USA..

“It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do. That view is dead wrong: The babies being born in America today are the luckiest crop in history. American GDP per capita is now about $56,000. As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries. U.S. citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930. Rather, they work far more efficiently and thereby produce far more. This all-powerful trend is certain to continue: America’s economic magic remains alive and well.”

“Today’s politicians need not shed tears for tomorrow’s children. Indeed, most of today’s children are doing well. All families in my upper middle-class neighbourhood regularly enjoy a living standard better than that achieved by John D. Rockefeller Sr. at the time of my birth. His unparalleled fortune couldn’t buy what we now take for granted, whether the field is – to name just a few – transportation, entertainment, communication or medical services. Rockefeller certainly had power and fame; he could not, however, live as well as my neighbours now do. Though the pie to be shared by the next generation will be far larger than today’s, how it will be divided will remain fiercely contentious. Just as is now the case, there will be struggles for the increased output of goods and services between those people in their productive years and retirees, between the healthy and the infirm, between the inheritors and the Horatio Algers, between investors and workers and, in particular, between those with talents that are valued highly by the marketplace and the equally decent hard-working Americans who lack the skills the market prizes. Clashes of that sort have forever been with us – and will forever continue. Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.”

Warren Buffett's logical and optimistic sentiments serve as a gentle reminder to investors, retirees and superannuation members alike that current economic or market conditions are not necessarily predictive. We are always in a 'cycle', and like all cycles (good or bad), they eventually must come to an end.

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

01/03/16: Will politics get in the way?

Probably ok, but worth keeping an eye on...

As if the worry list for investors isn't already long enough, politics is turning out to be a key issue for investors, retirees and superannuation members this year. Read more here

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

26/02/16: Some interesting facts about retirement...

Given the financial demands of everyday life, planning your retirement may be a relatively low priority. you may also think that you have plenty of time to plan. but before you put off planning for you retirement any longer, here are some key facts you should consider. Read more here

For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.

25/02/16: Aged Care: Plan ahead

If the need for residential aged care is nearing, following these five steps will help you make a smoother transition. Aged Care 5 Steps to Consider Aged Care, Plan Ahead For The Care You Want

For more information, contact Rick Maggi at Westmount Financial on 9382 8885.

22/02/16: Minimise risk in retirement...

...and sleep better.

Recent market declines have served as yet another reminder how quickly conditions can go pear-shaped.

Market volatility can be particularly stressful for retirees (and pre-retirees), who simply cannot afford to experience a sharp decline in their wealth, as they are less capable of returning to work to earn a salary in order to recover.

To make matters worse, retirees also face another set of risks - longevity (outliving their retirement funds) and inflation (the slow and steady loss of purchasing power).

So a fork in the road exists for retirees. While most would like to preserve (or even grow) their wealth steadily, many are, justifiably, unwilling to risk large declines in their portfolio in pursuit of higher returns. At the same time they are also acutely aware that persistently low returns (currently cash and term deposits) will significantly erode their retirement assets over time - a different kind of 'loss', but the same result nevertheless.

In our experience, the key to creating a successful, comfortable, low-stress retirement can essentially be boiled-down to finding the right investment mix and then staying within well-defined 'goal posts'. That's it.

By employing a number of key strategies to minimise portfolio risk in retirement, coupled with a deep understanding of your retirement goals, your personality and your values, an experienced Financial Advisor can create a retirement solution that get's the balance right, and keep's you informed and on track, so you can get on with enjoying your retirement.

For almost 40 years we've been helping people, just like you, achieve better outcomes. So if you're spending too much time wondering (or worrying) about the future direction of your retirement, don't panic, just call us for an initial discussion.

11/02/16: IS THIS A BEAR MARKET?

Fear of fear itself or something more fundamental?

AMP Capital's Dr Shane Oliver weighs in on the market meltdown and asks the tough questions. A must for retirees and investors looking for a calmer, mature assessment of the current climate. Read Here