Positioning your portfolio in turbulent times

23 September, 202017 September, 2021 Updated on17 September, 2021 Finance, Investing, Superannuation

As any experienced investor knows, all investment markets have their ups and downs. Regardless of investor experience, turbulent times are a cause of anxiety, and that can lead to poor decision-making. So, if turbulent markets are inevitable, even if their timing is not predictable, how should portfolios be positioned in anticipation of and in response to market volatility?

What’s your objective?
First up, it’s important to go back to your investment objective. Is it to grow wealth over the medium to long term? Or are you more concerned with preserving capital? Your objective also needs to take account of your risk profile.

With your risk tolerance and objectives clarified, it’s time to get to grips with asset allocation. This is the process of deciding what proportion of your portfolio will be allocated to each of the major asset classes: cash, fixed interest, property and shares.

Asset allocation is the engine room of your portfolio. The amount that you apportion to the major asset classes has the biggest effect on your portfolio performance. It has a greater bearing on your returns than individual asset selection.

Asset allocation is also your key risk management tool, the more you allocate to shares and property the greater the volatility, and therefore the risk. However, in this context, risk isn’t always a bad thing. A higher risk portfolio may at times fall more in value than a lower risks portfolio, but over the long term it is also more likely to generate higher returns.

Oops, too late
Unfortunately, the motivation to position a portfolio for turbulent times is often a sudden upset in investment markets. But this doesn’t mean it’s too late to do anything. If your investment objectives and risk tolerance haven’t changed, rebalancing your portfolio (i.e. bringing the asset allocation back to its ideal position) may help to position it for the next upswing in investment markets.

Waiting out the storms
While positioning can help with portfolio risk management, many investors opt to wait out any storms. Why? Because for all the ups and downs, bull markets and bear markets, bubbles and crashes, major share markets have delivered solid long-term growth. In fact, it has been claimed that investors have lost more money trying to anticipate corrections, than they would have lost in riding out actual corrections.

A detached view
Concerned about the financial outlook and your portfolio’s current position? We can provide an impartial assessment of your portfolio, help you identify your objectives and your risk tolerance, and recommend investments to help you weather the turbulent times. Talk to us today to get started.

The information provided in this article is general in nature only and does not constitute personal financial advice.

The ‘what, why and how’ of contributing to super

22 December, 20213 February, 2022 Updated on3 February, 2022 Superannuation

Despite frequent changes to its governing rules, superannuation remains, for most people, a tax-effective environment in which to save for retirement. Here’s a quick Q&A on the ‘what, why and how’ of contributing to super from this point on. Why should I contribute to super? Some super contributions and the investment earnings within super funds are taxed at 15%. As this is lower than the marginal tax rate for people earning more than $18,200 per annum, less tax is paid on the money going into super than if it was paid to you as normal income. The higher your marginal tax rate, the greater the benefit. What types of contributions can I make? Concessional contributions. These are contributions on which you or your employer has claimed a tax deduction. They are taxed at 15% within the super fund. If you earn more than $250,000 pa you will be taxed an additional 15% on the concessional contributions above this threshold. Concessional contributions include: Compulsory employer (Superannuation Guarantee) contributions. Your employer must pay 10.0% (10.5% as from 1 July 2022) on top of your ordinary time earnings to your super fund when you earn more than $450 per month. Salary sacrificed contributions made from your pre-tax income. Personal contributions on which you claim a tax deduction. Cap: $27,500. The unused portion can be carried forward and used in future years if your total super balance is under $500,000. Non-concessional contributions. Contributions on which a tax deduction has not been claimed, including: Personal contributions on which you do not claim a tax deduction. Spouse contributions. These can generate a tax offset of up to $540 if your spouse earns less than $40,000 pa. Government co-contributions. Worth up to $500, co-contributions are available if your taxable income is less than $56,112 and you make a non-concessional contribution. Caps: $110,000 pa, or $330,000 if a further two years of contributions are brought forward. Note: you cannot make non-concessional contributions if your total superannuation balance exceeds the general transfer balance cap (the amount that can be transferred to pension phase), currently $1.7 million. Who can contribute to super? You can make personal contributions to super if: you are under 67 years of age; you are aged between 67 and 75 and were gainfully employed (including self-employed) for at least 40 hours over 30 consecutive days during the financial year. You can claim a tax deduction for these contributions, but make sure you don’t exceed the $27,500 annual cap for concessional contributions from all sources; or the $110,000 cap on non-concessional contributions. Spouse and government co-contributions can only be received up to age 70 provided you pass the work test. You are eligible for mandated employer contributions, including Super Guarantee payments, regardless of your age. Get it right A successful super contribution strategy can mean the difference between looking forward to retirement and dreading it. Talk to your qualified financial planner and get the right advice on the best ways to boost your super. The information provided in this article is general in nature only and does not constitute personal financial advice.

Navigating the reality of divorce after 50

17 June, 202418 June, 2024 Updated on18 June, 2024 Budgeting, Education, Retirement

Adjusting to life after divorce, particularly later in life, is akin to navigating through some of life’s most challenging events, psychologists say. It’s a journey comparable to coping with loss, relocation, major illness or injury, or job loss. While these upheavals are often beyond our control, how we choose to manage them greatly impacts our recovery. Is grey divorce on the rise? Unfortunately, yes. Despite overall divorce rates declining since the 1990s, both the age at divorce and the rate of divorces among couples in long-term marriages are on the rise. According to data from Australian Seniors and the ABS, 32% of divorces now occur after the age of 50. What are some of the key financial impacts of divorce? Superannuation is typically regarded as part of the assets in any pre-divorce financial settlement. Understanding that superannuation can be divided without the need for fund withdrawals or meeting specific conditions is crucial if no prior agreement has been reached with your partner. While splitting it isn’t obligatory, ensuring its inclusion in the settlement is vital due to its significant role in overall wealth. However, dividing it can substantially diminish what was once a solid nest egg, potentially impacting retirement plans. Aside from the emotional toll of asset division, the process can be difficult. Factors like investment properties, primary residences, or self-managed super funds (SMSFs) with less liquid assets—such as business holdings, real estate, closed funds, or art—can further complicate matters. Selling assets without proper advice can trigger capital gains, while shifting assets from tax shelters like superannuation or trusts can result in hefty tax liabilities. Centrelink entitlements and thresholds will also alter with your changed circumstances. Seeking the professional advice of more than just a lawyer is the smartest thing to do. Divorce is also expensive Many shared expenses, such as utilities, become the sole responsibility of each party post-divorce. For instance, while the average monthly living expenses for an Australian couple total around $4,118 ($2,059 per person), for a single person living alone, it’s estimated at $2,835. In essence, each individual spends roughly 70% of what a couple would spend. After divorce, with each person potentially having only half of their assets but needing around 70% of their income to cover living expenses, budgets become tight. So, how can you rebuild financial stability post-divorce? In other words, review your financial plan and seek professional advice. A qualified financial adviser can help you learn to take control of your finances and plan your future. Remember, the benefits of compounding mean that the sooner you start, the better off you’ll be! The information provided in this article is general in nature only and does not constitute personal financial advice. 

Quarterly Economic Update: July-September 2024

10 October, 202410 October, 2024 Economy, Finance, Investing

The Australian economy is still growing, but things are moving slower than usual, and the Reserve Bank of Australia (RBA) is being cautious with any changes to interest rates. They’re waiting for inflation to settle before taking further action. GDP Growth: Slowly But Surely While the economy is growing, it’s not as fast as we might like. Over the June quarter, the economy expanded by just 0.2%, with a 1.5% growth over the financial year. While these numbers sound positive, when you factor in Australia’s growing population, the story changes. For the sixth quarter in a row, GDP per capita (which looks at economic growth per person) has actually fallen. This shows that while Australia as a whole is growing, individuals may not feel that impact, especially with rising costs of living. Interest Rates: Holding Steady In September, the RBA decided to keep interest rates on hold at 4.35%, with the next decision due in November. While the US recently cut rates, Australia hasn’t followed suit, and it’s unlikely we’ll see any rate cuts before Christmas. The RBA is holding off to ensure inflation is well under control, despite it being much lower than the peak in 2022. Inflation: Better But Still Stubborn Annual inflation hit 3.8% in the June quarter, slightly up from March. However, there’s good news: underlying inflation (which strips out the more volatile price changes) has been falling for six straight quarters, down from its peak of 6.8% in late 2022. That said, prices for everyday goods remain high, and the overall cost of living is still squeezing households. Households Are Tightening Their Belts With cost-of-living pressures building, many Australians are cutting back on things like travel and entertainment. Even grocery spending is down, with households trimming their food budgets by 1%. However, spending on household goods, like furniture and appliances, increased by 4%, which propped up discretionary spending overall. Housing Market: Prices Still Going Up The property market remains strong, with housing values continuing to rise across Australia, although at a slower pace than before. CoreLogic reports that the national Home Value Index rose by 0.5% in August and a further 0.4% in September. Despite the cost of living, demand for property remains high, which is keeping prices elevated. Jobs Market: Still Tight, But Productivity Is Falling Australia’s unemployment rate remains low, sitting at 4.1% as of June, which is historically strong. However, total hours worked rose only slightly, and productivity—measured by GDP per hour worked—fell by 0.8%. While jobs remain secure for many Australians, people are working more for less output, and this could become a concern for long-term economic stability. Global Outlook: Uncertainty Ahead Globally, central banks are starting to look at easing monetary policies, but it’s still unclear how much they’ll ease up. Ongoing conflicts in the Middle East, Ukraine, and northern Africa are causing further instability. Meanwhile, Asia’s economy, a key trading partner for Australia, is expected to slow in 2024, which could have a knock-on effect on our own economic growth. What It All Means for You For everyday Australians, the combination of high interest rates, sticky inflation, and rising living costs means it’s more important than ever to manage your finances carefully. Mortgage holders won’t see relief from rate cuts soon, and households should continue to be mindful of their budgets, especially with the cost of essentials like groceries and petrol still fluctuating. If you’re feeling the pinch, now is a good time to seek professional advice and ensure you have a financial plan in place that helps you navigate these uncertain times. The information provided in this article is general in nature only and does not constitute personal financial advice. 

Super success for women

2 December, 202017 September, 2021 Updated on17 September, 2021 Retirement, Superannuation

While women earn less and spend less time in the workforce than men, sharply reducing their super contributions throughout their working lives, there are some simple steps women can take to boost their retirement savings. The Simple Facts This inequality is simply due to women earning and working less. Women in full-time work earn on average 18 per cent less than men, while almost half of all women in the workforce work part-time with an estimated 220,000 women missing out on any super contributions each year simply because they earn less than $450 a month – the lower threshold for super guarantee contributions. Women also miss out on super contributions because they are often absent from the workforce for extended periods while on maternity leave or looking after loved ones, be they children or other family relatives. When they do return to the workforce, it is frequently in casual positions or working for themselves, where the need to make super contributions is so often overlooked. Check your super fund fees and charges The solution lies with women taking control of their super and choosing the best possible super fund, which typically means low fees and good, low-risk investment options. Regularly check what, if any, personal insurance premiums are paid from your precious super savings. While insurance is essential while you are raising a family, as you get older, you might find your need for insurance diminishes. You may be able to reduce your coverage and with it the cost of premiums from your super. (Remember to always check with your adviser before cancelling any insurances.) Make sure you take the time to consolidate your super accounts into one low cost super fund. Visit the Australian Tax Office website to consolidate your super or ask your adviser to do this for you. Wherever possible, ensure you continue to make contributions throughout your working life, starting as early as possible and not neglecting your superannuation during periods when you are out of the workforce, working on a part-time basis or self-employed. Maximise Your Contributions Make sure you speak to your adviser to maximise your contributions, and in doing so, minimise your tax bill at the end of the financial year. If you expect your income to be less than $52,000 in a financial year, make sure you take advantage of the Federal Government’s co-contribution scheme. By putting just $20 a week of after-tax income into super, you will receive up to $500 from the Government directly into your super account as soon as you lodge your tax return. That’s a guaranteed 50 per cent return on your money and the best investment you will ever make. If you are earning less than $37,000 a year, you should receive the Federal Government’s low-income superannuation tax offset of $500. Both payments happen automatically, meaning you don’t have to apply or complete additional paperwork to receive them. Still, you should check your superannuation account to make sure these payments are there. If you need more advice about your super, talk to us today. The information provided in this article is general in nature only and does not constitute personal financial advice.

To gift or not to gift

31 October, 20188 September, 2022 Updated on8 September, 2022 Finance

With Australia’s age pension being subject to an assets and income test, a simple way for part-pensioners to increase their pension payments is to give away some assets. Not surprisingly the government is on to such an obvious strategy. It’s called gifting, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess, what it calls “deprived assets”, for five years. The limits Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples. If you give away less than $10,000 within a single financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts. Any gifts in excess of the allowable amount will be assessed as an asset (and, where applicable, subject to the income test) for a period of five years from when the gift was made. Planning ahead These rules don’t just apply to existing pensioners. They also concern anyone who is applying for the age pension, as recent retiree Frank discovered. Frank has reached age pension age and based on his current assets and income he should be eligible for a part pension. However: Four years ago he gave his daughter one of his cars, valued at $25,000. At the same time he gave his son $25,000 in cash, to match the value of the car. Two years ago Frank sold a beach house on the open market for $210,000. This was $40,000 less than the initial valuation from the estate agent. In the past year he spent $35,000 on home renovations and $15,000 on an overseas trip. What does this mean for his pension assessment? The money spent on renovations and holidays count as normal living expenses, not a gift. Likewise, with $210,000 being the best offer Frank received for his holiday home after it had been on the market for a couple of months, the property would not be considered to have been disposed of for less than its market value. Whilst he understands that the money he gave to his son is clearly a gift, Frank’s biggest surprise is the treatment of the car. Four years after he gave it to his daughter it’s about to be treated by Centrelink as an asset Frank still owns. That means Frank gave away $50,000 in one year. The annual ‘Gifting Free Area’ is $10,000, so the difference, $40,000, will be counted as an asset for the next year. This will reduce his pension by more than $100 per fortnight. If Frank had thought about his pension five years before he was eligible to apply for it, he could have achieved a better outcome. Seek advice To gift or not to gift? It’s an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner. He or she can help you work through all the issues, including the complex calculations of the impact of multiple gifts over several years. To gift or not to gift 31/10/2018 This is general information only

Are you investing or gambling?

26 August, 202017 September, 2021 Updated on17 September, 2021 Investing

The potential financial results of investing can feel limitless, and it can be tempting to think that just one stock pick could make you an overnight millionaire. Yes, stock-picking can have a place in your investment strategy, but if you’re using a “get rich quick” mentality, you may be gambling, not investing. What’s the difference? One of the key differences between investing and gambling is process and strategy. If you don’t have a process and strategy in place, it is a sign that you need to establish or refine your plan. Further, gambling focuses on emotions such as hope. Investing, on the other hand, is all about strategy. With a clear strategy, you know approximately how much your investments will grow and over what time horizons. How do you know if you’re investing effectively? If you’re unsure whether your current investment approach is working to realise your goals, think about your investment process and how many of the below five elements are included in your approach. Completing no research If you’re not completing any research and putting money into assets based on tips from friends or what you see on social media, you’re exposing yourself to increased risk and not doing enough due diligence. Investing in micro-cap stocks only Micro-cap stocks typically have a market capitalisation under $500 million and are ranked from 350 to 600 on the Australian Stock Exchange. With a relatively small market capitalisation, buying stocks in these companies can be cheap. The downside, however, is that these companies are usually in their infancy and experience volatile price fluctuations. There’s a place for micro-cap stocks in your investing. However, if you’re putting all of your money into these companies, you’re likely exposing yourself to unnecessary risk. Investing with short time horizons Putting all of your money into short-term investments or activities such as day trading is an indication that you’re too focused on short-term gains without a long-term strategy. There’s a place for short time horizons in your investing, but only once you’ve mastered the foundations such as establishing a long-term plan and ensuring you have adequate cash buffers. Lack of diversification If all of your money is invested in one asset class, you’ll be over-exposed to volatility in a single market. To ensure your money grows consistently over time, your money needs to be balanced across a range of asset classes and sectors. Having no investment strategy If you don’t have an investment strategy, your investing won’t be as effective as it could be. To start putting together an investment strategy, you need to think about things such as: building up adequate cash buffers; how much money you need invested to live comfortably off your returns; and when you anticipate you’ll start drawing an income from your investments. Moving forward with a long-term wealth strategy Investing in different asset classes such as equities, commodities, and fixed-income assets is a great way to build long-term wealth. To build this wealth, however, you need a strategy and process to follow. If you’re unsure how to develop an investment strategy, be sure to seek qualified financial advice. Investing in this advice now can reap great rewards in the years to come, ensuring your money is working to help you realise your financial and lifestyle goals sooner. Contact us to get started. The information provided in this article is general in nature only and does not constitute personal financial advice.

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