What’s stopping you from saving for a retirement you can really look forward to? Take a look at these four common barriers to saving more super and make a plan for having all your goals and financial priorities in order...
THE THREAT OF WAR: IMPLICATIONS
Investing In Your Kids Education
When kids are starting school, will your finances be ready too? You’ll often have many other financial commitments at this time - your mortgage, family holidays, insurance, grocery bills and more. If you think a fee-paying school could be on the cards, how will you cope with another big bill to pay?
The $A: THIS IS NOT 2007!
Contrary to our expectations, the Australian dollar has recently broken out of the $US0.72 to $US0.78 range of the last 15 months or so on the upside and spiked above $US0.80, its highest in over two years.
So what gives? Why has the $A broken higher? Is it an Australian dollar or US dollar story? What will be the impact on the economy? Is it on its way to parity again or will the downtrend resume? Read more here.
ESG GAINING IN POPULARITY
According to the Global Sustainable Investment Alliance, over $22 trillion of assets were managed under responsible investment strategies globally in 2016, up 25% from 2014.
The rise of ESG (environmental, social and governance) investing can be attributed to a number of factors, such as generational change (Millennials and Generation X increasingly taking over from Baby Boomers in positions of influence), shifting energy sources (like renewable energy), climate change finally becoming a reality, and public-private collaborations. The list goes on.
Make no mistake, ethical/socially responsible/sustainable investing is not a vanity project or a niche thing. These days you can help out the planet by getting your money out of fossil fuels, or give the human race a break by divesting from weapons or tobacco, and still make a nice return.
For more information call us on 9382 8885.
Rick Maggi
5 GREAT INVESTMENT CHARTS
Investing is often seen as complicated. And this has been made worse over the years by the increasing complexity in terms of investment products and choices, regulations and rules around investing, the role of the information revolution and social media in amplifying the noise around investment markets and the expanding ways available to access various investments.
But at its core, the basic principles of successful investing are simple. And one way to demonstrate that is in charts or pictures – after all, a picture tells a thousand words.
This note looks at five charts I find useful in understanding investing. Check back soon as another 5 charts are coming your way.
2016/17 Review
The past financial year turned out far better for investors than had been feared a year ago. This was despite a lengthy list of things to worry about: starting with the Brexit vote and a messy election outcome in Australia both just before the financial year started; concerns about global growth, profits and deflation a year ago; Donald Trump being elected President in the US with some predicting a debilitating global trade war as a result; various elections across Europe feared to see populists gain power; the US Federal Reserve resuming interest rate hikes; North Korea stepping up its missile tests; China moving to put the brakes on its economy amidst ever present concern about its debt levels; and messy growth in Australia along with perennial fears of a property crash and banking crisis.
Predictions of some sort of global financial crisis in 2016 were all the rage. But the last financial year provided a classic reminder to investors to turn down the noise on all the events swirling around investment markets and associated predictions of disaster, and how, when the crowd is negative, things can surprise for the better. But will returns remain reasonable? After reviewing the returns of the last financial year, this note looks at the investment outlook for the 2017-18 financial year.
Market Volatility
Three reasons not to be fussed...
For much of this year, there has been a surprising divergence between share and bond markets with shares up in response to improving growth and bond yields down in response to weak inflation.
Some feared that either bonds or equities had it wrong, but in a way it seemed like Goldilocks all over again – not too hot (ie benign inflation) but not too cold (ie good growth). However, the past week or so has seen a sharp back up in bond yields – mainly in response to several central banks warning of an eventual tightening in monetary policy.
Over the last week or so, 10 year bond yields rose 0.2-0.3% in the US, UK, Germany and Australia. This may not seem a lot but when bond yields are this low it actually is – German bond yields nearly doubled. This caused a bit of a wobble in share markets.
The big question is: are we seeing a resumption of the rising trend in bond yields that got underway last year and what does this mean for yield sensitive investments and shares? Since central banks are critical in all of this we’ll start there.... Read on
HEADLINE BLUES
It’s a tough gig being a nancial media pundit whose job requires making eye-grabbing calls on the outcomes of major world events. But at least the pundits rarely have to deal with the consequences of their bad predictions. Read more
GLOBAL POLITICAL RISKS
It's now 12 months since the British voted to leave the European Union, an event that some saw as setting off a domino effect of other European countries looking to do the same. This was also followed by a messy election result in Australia, Donald Trump's surprise victory in the US presidential election, increasing concern around North Korea and a steady flow of terrorist attacks.
The combination of which seemed to highlight that geopolitics is now more important, and perhaps more threatening, for investors than had previously been the case. But while political developments have figured highly over the last year, the impact on markets has been benign. Since the Brexit vote, global shares are up 22% and Australian shares are up 13%.
So what gives? This note looks at the main issues. Read more here
The perils of forecasting...
I am regularly called on to provide forecasts for economic and investment variables like growth, interest rates, currencies and the share market. These usually come in the form of point forecasts as to where the variable that is being forecast will be in, say, a year’s time or its rate of return. Such point forecasts are part and parcel of the investment industry. In fact, forecasts about all sort of things – from the environment to economics to politics to sport – have become part of everyday life.... Read more here
Federal Budget 2017: Snapshot
On Tuesday 9 May, the Federal Government handed down its Budget for the 2017–18 financial year.
According to Federal Treasurer Scott Morrison, this year’s Budget is founded on the principles of fairness, security and opportunity. Mr Morrison claims that the government’s proposed measures will raise almost $21 billion in revenue over the next four years, returning Australia’s budget to surplus by 2021.
Here are some of the key Budget announcements. Note that each of these proposals will only become law if it is passed by Parliament...
Read Budget Summary Here (Colonial First State)
ASX 200 to hit 10,000...
Australia's sharemarket could jump as much as two thirds over the next decade, underpinned by a booming superannuation sector and the nation's status as a 'growth haven', according to a new report by Macquarie Research.
The report released today, says the ASX 200 could climb from its current level at just below 6,000 points to 10,000 points over the next 10 years, and to 20,000 by 2040.
Jason Todd, head of Australian macro-economic research at Macquarie, said Australia's super pool, which is expected to rise from $2.3 trillion to around $8.8 trillion over the next 25 years, would provide a "backstop" to equity markets and demand for new listings.
He argues that while many view the Australian market as expensive, it is currently trading at 16 times earnings versus a long-run average of 19 times. The US sharemarket is trading at 29 times.
James McIntyre, head of economic research for Australia at Macquarie, described Australia as a "growth haven", pointing out that economic growth has outstripped other advanced economies by 0.7 per cent over the past 25 years.
...While recent changes to Australia's immigration policies showed it would not be untouched by this shift, which Macquarie sees as structural rather than cyclical, Mr McIntyre said support for immigration was still relatively high compared to other nations. He estimates this support gives the Australian economy a 1 percentage point boost compared to other advanced economies.
The Macquarie report suggests four sectors that should do well over the next few decades: education, tourism, services and agribusiness.
RATES ON HOLD
The RBA has opted to leave the official cash rate on hold at 1.5%.
As lenders continue with their out of cycle rate increases, at its board meeting today the Reserve Bank of Australia decided to leave the official cash rate unchanged.
This follows new data released yesterday that indicates the strong Sydney and Melbourne property markets may be close to peaking following APRA's intervention into the levels of interest only and investment lending the banks are funding.
It also appears the Reserve Bank is waiting to gauge the impact of next Tuesday's federal budget on overall economic sentiment.
The July 1 Super Changes...
We're now only a few months away from sweeping changes to the superannuation and pension environment, but for most people, the impact of these changes will be either positive or neutral.
At the end of the day, super remains a very attractive place to save for retirement. So with all of the 'noise' surrounding the super changes coming on July 1st, its important to remember some basic super facts...
Fact 1: While you are building your super, pre-tax contributions and investment earnings will generally continue to be taxed at the low rate of up to 15%, not your marginal tax rate of up to 49%. That alone is a massive advantage in favour of super versus other forms of savings.
Fact 2: When you eventually retire, you can still transfer a generous amount into a superannuation pension, where no tax is paid on investment earnings - and payments are generally tax-free from age 60.
The major changes the are occurring from July 1st, primarily revolve around 'limits' - limits on how much you can contribute to super (pre or post tax), and limits on how much you can start a super pension with (i.e. $1.6 million each).
In addition, the 15% contributions tax will be doubled if your income is greater than $250,000 - this single rule change is an unpopular one, and might be a 'game changer' for some higher income earners.
Moving closer to July 1, there is some work to do, especially if you run your own self-managed super fund. Please, contact your financial adviser asap to see if any of the upcoming changes will impact you, and if so, find out what action you need to take, before it's simply too late.
Rick Maggi
Global growth looking healthy
Despite numerous geopolitical threats (Eurozone elections, tensions between the US and China, North Korea, etc.), worries about the demise of the so-called "Trump trade" and shares being overbought and due for a correction at the start of the year, share markets have proved to be remarkably resilient with only a minor pull back into their recent lows. This despite a more significant fall back in bond yields. Partly this is because the geopolitical threats have not proven to be major problems (at least so far) and Trump remains focussed on his pro- business policy agenda (he has already embarked on deregulation and his tax reform proposals – while lacking in details – indicate that tax reform remains a key objective). More fundamentally though, markets have been underpinned by an improvement in global growth. This is likely to continue.
Rates: Where do we go from here?
The RBA provided no surprises following its April board meeting leaving the official cash rate on hold at 1.5%. The RBA remains more confident regarding global growth, see Australian economic growth as moderate, regards the labour market as being mixed, sees a gradual rise in underlying inflation and continues to see conditions in the housing market as varying considerably across the country, but sees recent regulatory measures as reducing the risks associated with high and rising household debt.
This note looks at the outlook for the cash rate, the impact of bank rate hikes and the implications for investors. Read more here
HOUSING OVERVALUED?
The cooling in the Sydney and Melbourne property markets evident in late 2015 in response to macro prudential tightening deployed by APRA has proved ephemeral.
Price gains have reaccelerated and auction clearance rates & lending to property investors have rebounded.
Over the last five years Sydney dwelling prices have risen a ridiculous 73% and Melbourne prices are up 47%. As a result the Australian housing market continues to cause much angst around poor affordability and high household debt. This note looks at the main issues. Read more
Investment Shock Absorbers
Ever ridden in a car with worn-out shock absorbers? Every bump is jarring, every corner stomach-churning and every red light an excuse to assume the brace position. Owning an undiversified portfolio can trigger similar reactions. Read on
Rick Maggi
WILL THE SUPER REFORMS HURT?
From 1 July 2017, a range of super reforms announced in the 2016 Federal Budget will take effect.
For most people, the impact of these changes will be positive or neutral.
Super remains a very attractive place to save for retirement. And there may be opportunities to grow your super and retire with more.
If your income is below $250,000 (for 2017/18), while you build up your super, pre-tax contributions and investment earnings will generally continue to be taxed at the low rate of up to a maximum of 15%, not your marginal tax rate of up to 49%.
Also, when you retire, you can still transfer a generous amount into a superannuation pension, where no tax is paid on investment earnings and payments are generally tax-free at age 60 and over.
Next steps...
Once you have read through this guide, you should consider making an appointment with your financial adviser. They can assess the impact the super reforms could have for you, as well as review your retirement savings plans and the strategies you are using.
Beyond that, as we head towards the end of another financial year, now is a great time to see if there is anything else you could be doing to tax-effectively build and protect your wealth.
If you don’t have an adviser, you call us (Westmount Financial) on 9382 8885 to arrange an appointment.
View a basic, 'at a glance' guide here.
Rick Maggi