SMSF

28/08/15: Busting the bond myth

Rate expectations...

The decline in interest rates to historic lows in recent years has led to anxiety among Australian investors about what will happen to their fixed interest holdings when overnight interest rates begin to rise.

This apprehension is based on the conventional view that longer-dated bonds underperform in this type of rising interest rate environment.

Dr Steve Garth provides another perspective in Cuffelinks.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

25/08/15: The Patience Principle

What we all know deep down inside...

DFA's VP Jim Parker weighs in on the latest market volatility. As always, Jim's 'Outside the Flags' issue is worth a quick read. Read here.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

24/08/15: Market Update 2 - 24 August 2015

The rout continues

Following a 3.5 percent sell-off on Wall St last Friday night, local and Asian markets continued to shed hard won gains with China leading the way, falling 8.5 percent in just one day. For some background on what has been happening, please read my previous note (Market Update 1 - 21 Aug 2015). For an updated viewpoint Read more here from Russell Investments.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.

24/08/15: Let's compare...

A few surprises...

Sometimes it helps to take look the world through an unconventional perspective when thinking about the size of things.

So here’s a pretty awesome map from Bank of America Merrill Lynch’s Chief Investment Strategist Michael Hartnett that shows the world according to free-float equity market capitalisation in billions of dollars measured by the MSCI.

The US, with a market cap of $US19.8 trillion, is the biggest and represents 52% of the world’s market cap. Japan is in second place at $US3 trillion, followed by the UK at $US2.7 trillion, and then France at $US1.3 trillion.

Notably, Hong Kong’s market cap is nearly the same size of China (both of which are significantly smaller than countries like the US and Japan).

Meanwhile, Russia, which has a bigger surface area than Pluto, is about the same size as Finland in terms of market cap.

Check out the whole map below.

Capital
Capital

Rick MaggiWestmount Financial Clear Focus. Better Solutions.

21/08/15: Market Update 1 - 21 August 2015

The Share Market Correction...

Since April, local share markets have been extremely volatile to say the least, gradually drifting lower by about 10% (as of today). Other markets have also fared poorly, e.g. Chinese shares -32%, Asian shares (ex Japan) -18%, Emerging market shares -18% and Eurozone shares -13%. Even the US share market, which has been relatively stable during this period has given back about 6%.

What's happening?

First the backdrop. It should be recognised that the seasonal pattern for shares typically sees rougher conditions over the period May to November, consistent with the old saying "sell in May and go away, buy again on St Leger's Day" (a UK horse race in September).

So with this typically difficult May-November period as our blank canvas, consider the following list of worries...

Greece: Between April and June the immediate, highly publicised concern was, understandably, Greece. Thankfully, the emotional charge surrounding Greece and the Eurozone has, at least for now, greatly subsided, with the general agreement to a third bailout program. Of course, we could see a small flare-up again with today's news of a snap Greek election.

China: More importantly, bubbling away in the background, have been legitimate concerns about China's slowing economy, and the impact this might have on the global economy, particularly commodity reliant countries like Australia. These worries have come to the fore in recent weeks in response to soft Chinese economic data, fuelled by China's recent decision to devalue their currency - an unpopular move, but I suspect a positive in the long run - what's good for China generally helps Australia.

It should also be noted that before China's share market 'crash' of 30%, the Shanghai Index had risen by over 250% in just the previous two years. And this phenomenon is not new. In 2007/2008, the Shanghai Index rose 90%, only to fall 70%. So I believe the takeaway here is to not read too deeply into the Chinese share market.

Commodities: Commodities were already in a secular bear market, reflecting a surge in supply and price upswing during the 'boom' years. Slowing growth in China and the rising trend in the value of the $US only adds further pressure on commodities and Australia's challenged resource sector.

Unfortunately slowing growth in China and its subsequent currency devaluation has also put further pressure on already weak emerging market economies, which these days represent more than 50% of world GDP. Emerging economies really do 'matter'.

US interest rates heading-up: The combination of slower growth in China, falling commodity prices, weakness in the emerging world and the fragility of growth in developed countries indicates that inflation will not be a problem for a while yet. Just the same, the US Federal Reserve appears to be heading towards a rate hike soon and this is creating intense uncertainty - markets don't like uncertainty.

Is it a correction or something worse?

While it's certainly no fun, periodic sharp falls in the range of 5% to even 20% are actually quite normal and healthy. Of course, it becomes more concerning if the rising trend in share prices gives way to a declining trend and a new bear market sets in.

But as Sir John Templeton once observed "bull markets are born on pessimism, grow on scepticism, mature on optimism and die of euphoria". There seems to be a lot of scepticism out there. Shares are simply not seeing the sorts of conditions that normally precede a new cyclical bear market: shares are not generally overvalued; they are not over loved by investors; and low interest rates are likely to remain for quite some time.

Of course, this update hasn't taken you particularly circumstances into account, therefore, if you need personal advice speak to us, or contact your financial adviser.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.

20/08/15: Time is on your side...

The Vanguard 2015 Index Chart

Every year, fund manager Vanguard produce a graphical, chronological 'snapshot' of the performance of local and international sharemarkets, property, cash and bonds, along with significant news events of the day. Always worth a look. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

29/07/15: China: What you need to know

Market update...

The Chinese share market has fallen dramatically in recent months. So what does this mean for you? Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

06/07/15: Greece after the "no" vote

Should you be worried?

As generally expected, the "No" vote won the day, with over 60% of Greeks rejecting further 'austerity' measures. So clearly it's back to the negotiating table, for now. So what does this mean for investors going forward. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

18/06/15: Tax concessions and tax reform in Australia

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A well balanced commentary...

As house prices rise and/or when economic activity slows, the inevitably cries for tax reform can be heard from both sides of politics. This note focuses on the debate around the four major "tax concessions" in Australia - negative gearing, capital gains tax discounts, dividend imputation and, of course, superannuation. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

03/06/15: The Australian economy...

Where are we headed?

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As local markets slide and interest rates fall, it would be easy to assume that Australia's fortunes have taken a sudden turn for the worst. That would be a mistake. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

27/05/15: Super Co-contribution: Are you eligible?

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Still worth it...

The Government's superannuation co-contribution for lower income earners seems to shrink by the year, but it's still worth the effort. Read here for more information.

Or if in doubt, call us on 9382 8885 before June 30th.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

21/05/15: Don't look back - what drives potential returns?

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A medium term view...

AMP Capital's Dr Shane Oliver discusses the thinking behind their investment projections, and offer some interesting insights for the medium term.

This is an excellent read for retirees and investors - a little technical in parts, but worth persevering. In the end, I think the most important takeaway is that we should have reasonable return expectations going forward, and watch your asset allocation more than usual. Please call me if you have any questions.

Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

20/05/15: EOFY strategies to consider, right now...

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A checklist

With just over a month to go, and the Federal Budget behind us, now is the time to prepare for the end of the financial year. Created by AMP, this is an excellent link for those clients needing a checklist. As you would expect, it's AMP-centric, but the fundamentals are universal. As always, feel free to call me personally if you'd like to take a closer look at your personal situation. Read EOFY checklist

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

07/05/15: 'Wealthier' retirees to take a hit

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Age Pension eligibility tightens...

This morning, the Social Services Minister, Scott Morrison, announced a plan that targets wealthier retirees by reducing the threshold at which part pension cuts out.

Currently, couples can own $1.15 million in assets on top of their family home and still qualify for the part pension. However, starting in 2017, that threshold will be reduced to $823,000 for couples.

To help compensate, the assets test threshold (for the full pension) will be increased from $286,500 to $375,000 for couples who own their own home.

If passed, it is estimated that about 91,000 people will no longer qualify for the Age Pension, while another 235,000 will have their pension reduced.

While we anticipate a significant number of our clients being adversely impacted by this proposal, the bulk of retirees (across Australia) will either see no changes to their pensions, or will receive a small boost.

Thankfully, the Government also stated that the family home would not be included in the asset test, and that those affected by the tighter pension rules will be guaranteed access to the Commonwealth Seniors Health Card, which provides the same concessional access to pharmaceuticals as given to those on the pension.

I'll keep you posted of any further developments.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

13/05/15: 2015/16 Federal Budget

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Just the facts...

Last night the Federal Government handed down the Budget for the 2015-16 year, and as foreshadowed, the Budget contained relatively few surprises, with a number of announcements made in the previous weeks.

Of course the most notable announcement impacting clients were the 2017 Age Pension changes and the ‘no new superannuation taxes’ commitment I highlighted last Friday (click here for another copy).

Self-managed super funds also dodged a bullet with no mention of implementing proposed changes to limited recourse borrowing arrangements.

The Government appears to be banking on small business to lead the recovery and has set out a series of generous new tax concessions for businesses with turnovers of less than $2 million. These include a drop in the corporate tax rate to 28.5 percent, immediate tax deductions of up to $20,000 for capital expenses, and FBT exemptions.

Primary producers also do well, regardless of their size with generous depreciation concessions for fencing, water rights and fodder.

So where is the sting in this Budget?

The Government has been careful in its targets. Rather than increasing taxes, the Government has focused on loopholes where there is a clear argument for ‘fairness’.

For example, Multi-national companies who avoid paying tax on business profits in Australia are in the firing line, and GST will be extended to imported digital products and services.

Also, fly-in fly-out (FIFO) clients may lose the zone tax offset, and caps will apply to salary sacrificed meal and entertainment expenses for employees of charities, hospitals and public benevolent institutions.

For a more detailed summary of the Federal Budget Click here.

Even better, feel free to call me personally if you’d like to know whether this year’s budget is likely to impact on you personally.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.