July 2021 Newsletter – Super Evolution Pty Ltd

It’s July, there’s a nip in the air and winter has well and truly set in, as Australia deals with COVID outbreaks across several states. But July also marks the start of the new financial year, a good time to reflect on how far we have come since this time last year and to make plans for the year ahead.

As the financial year ended, there was plenty to celebrate on the economic front despite the continuing impact of COVID-19. Australia rebounded out of recession, with economic growth up 1.8% in March, the third consecutive quarterly rise. Interest rates remain at an historic low of 0.1% and inflation sits at just 1.1%, well below the Reserve Bank’s 2-3% target. Despite fears that global economic recovery will lead to higher inflation and interest rates, the Reserve has indicated rates will not rise until 2024 or annual wage growth reaches 3% (currently 1.5%).

In other positive news, unemployment continues to fall – from 5.5% to 5.1% in May. Retail trade rose 0.1% in May, up 7.4% up on the year, as consumer confidence grows. The ANZ-Roy Morgan consumer confidence index lifted by almost a point in June to 112.2 points.

Australia’s trade surplus increased from $5.8 billion in March to $8 billion in April, the 40th consecutive monthly rise, on the back of strong Chinese demand for our iron ore and other commodities. Iron ore prices rose 6.7% in June and almost 36% in 2021 to date. Oil prices have also surged, with Bent Crude up 8.4% in June and 45% this year. That’s good for producers and energy stocks, but not so good for businesses reliant on fuel and consumers at the petrol bowser. The Aussie dollar finished the year around US75c, up from US69c a year ago but down on its 3-year high of just under US80c in February due to US dollar strength.

Going for gold to achieve your goals

Going for gold to achieve your goals

The Olympic Games always provides a platform to marvel at what humans are capable of, as the athletes competing strive to be the fastest, the strongest or just the best, to win gold. While this year may be a little different, the Games still give us the opportunity to be inspired by the remarkable performances of the athletes as they compete.

The passion and discipline in perfecting their craft has propelled these athletes to elite level, so it’s not surprising that many have also found success outside the sporting arena by transferring this focus to new endeavours.

So how can we apply the same determination and focus to achieving success in our everyday lives?

Set clear, realistic goals

SMART (Specific, Measurable, Attainable, Relevant and Time-Bound) goals are commonly used by athletes to get closer to their medal dreams.i By following this structure, your goals will become clearer and will more likely lead you to where you want to go.
No athlete has reached gold by loftily thinking they ‘might train today’! They have a well-planned schedule and overall plan to develop their skills and abilities to elite level. You can do so in other facets of your life as well through goal setting – and then following through.

Build a great team to support your efforts

While we are focused on the athlete, there is an entire team of people behind their success. Usually from a young age, their parents ferried them around, coaches imparted their wisdom and fellow athletes helped improve their skills through competition. Then there are the trainers, physios, dietitians and life coaches who make up a champion’s team.

While you may not need to assemble an entourage, building a strong network can support your endeavours, keep you accountable and provide ongoing motivation. Perhaps this is an advisor or mentor, a business coach, a career specialist, or perhaps even a savvy friend or family member. Get them on board by sharing your vision and outlining how they can help.

Play to your strengths

While there are some athletes who have won Olympic medals in different sports, the majority specialise in one area.ii By playing to your strengths, you can dedicate your time and energy to a set goal, honing your skills and building on an already strong foundation without overextending yourself.

A much-loved story in Olympic history that illustrates playing to strengths is that of Australian speed skater Steven Bradbury. Realising he was not the fastest skater in the group, Steven’s tactic was to stay back of the pack to avoid a collision, which had happened in an earlier race trial. His smarts (and good luck!) paid off when the faster skaters collided, leaving Steven to cross the finish line and win gold.iii

Project confidence

“I am the greatest; I said that even before I knew I was,” boxer Muhammad Ali famously stated. While we don’t all have Ali-levels of confidence, we can take a note from his book in projecting an air of confidence.

This may require a bit of a ‘fake it ‘til you make it’ approach, but it won’t be long until this transforms into actual self-belief. Studies have found that adjustments we make to our bodies, such as standing up straight and smiling, can result in improved mood.iv

Embrace failure

No-one likes failing, especially those of us who are competitive. Yet athletes learn from failure, using it to improve and craft their skills, inching towards success.

Failure also builds resilience, by dusting yourself off and not giving up, you develop the tenacity to keep going when times are tough. Use failure as a learning experience that helps you grow, develop and take steps towards your ultimate goal.

As we watch the world’s best athletes perform in Tokyo, be inspired to dream big and set your own goals, making sure you then follow through to achieve your very own version of success.

i https://www.forbes.com/sites/davidcarlin/2020/01/10/why-olympic-athletes-are-smarter-than-you/?sh=77bd0d667384

ii https://en.wikipedia.org/wiki/List_of_athletes_with_Olympic_medals_in_different_sports

iii https://www.youtube.com/watch?v=fAADWfJO2qM

iv https://psychcentral.com/blog/fake-it-till-you-make-it-5-cheats-from-neuroscience#1

What

What’s up with inflation?

Fears of a resurgence in inflation has been the big topic of conversation among bond and sharemarket commentators lately, which may come as a surprise to many given that our rate of inflation is just 1.1 per cent. Yet despite market rumblings, the Reserve Bank of Australia (RBA) appears quite comfortable about the outlook.

Inflation is a symptom of rising consumer prices, measured in Australia by the Consumer Price Index (CPI). The RBA has an inflation target of 2-3 per cent a year, which it regards as a level to achieve its goals of price stability, full employment and prosperity for Australia.

Currently the RBA expects inflation to be 1.5 per cent this year in Australia, rising to 2 per cent by mid-2023.i Until the inflation rate returns to the 2-3 per cent mark, the RBA has said it will not lift the cash rate.

US inflation rising

The situation is a little different overseas where inflation has spiked higher. For instance, US inflation shot up to an annual rate of 5 per cent in May, the fastest pace since 2008, up from 4.2 per cent in April.ii As experienced investors would be aware, markets hate surprises. So with inflation rising faster than anticipated, share and bond markets are on edge.

But just like the RBA, the Federal Reserve views this spike as temporary, pointing to it being a natural reaction after the fall in prices last year during the worst days of the COVID crisis. In addition, companies underestimated demand for their goods during the pandemic and as a result there are now bottlenecks in supply that are putting upward pressure on prices.

The central banks believe that once economies get over the kickstart from all the government stimulation, inflation will fall back into line. After all, most world economies went backwards last year, so any growth should be viewed as a good thing and more than likely a temporary event.

But markets are not convinced.

Inflation and wages

Market pundits argue that if businesses must pay more for materials and running costs such as electricity then these increases will most likely be passed on to the consumer.

That’s all very well if your wages also rise, but if your income remains static then your standard of living will go backwards as you will have to spend more money to buy the same goods.

This then becomes a vicious circle. If the cost of living rises, then you will seek higher wages; this will the put further pressure on the costs for businesses. They will then have to increase their prices further to cover the higher wages bill. Some companies may react by reducing staff levels which will lead to higher unemployment.

Impact on investment

Inflation can also have a negative impact on investors because it reduces their real rate of return. That is, the gross return on an investment minus the rate of inflation.

Rising prices and interest rates also impact company profits. With companies facing higher costs, the outlook for corporate earnings growth comes under pressure.

But not all stocks are affected the same. Companies that produce food and other essentials are not as sensitive to inflation because we all need to eat. Mining companies also benefit from rising prices for the commodities they produce. Whereas high growth stocks like technology companies traditionally suffer from rising interest rates.

Markets current fear is that central banks will tighten monetary policy faster than expected. Interest rates will rise, money will tighten, and this will fuel higher inflation.

Bond market fallout

Expectations of higher inflation has already seen the bond market react, with the 10-year bond yield in both Australia and the US on the rise since October last year.

If yields rise, then the value of bonds actually fall. This is particularly concerning for fixed income investors. Not only are you faced with the prospect of capital losses because the price of your existing bond holdings generally falls when rates rise, but the purchasing power of your income will also be reduced as inflation takes its toll. Investments in inflation-linked bonds should fare better in an inflationary environment.

Inflation is part of the economic cycle. Keeping it under control is the key to a well-run economy and that is where central banks play their role.

Call us if you would like to discuss how an uptick in inflation may be impacting your overall investment strategy.

i https://www.rba.gov.au/media-releases/2021/mr-21-09.html

ii https://tradingeconomics.com/united-states/inflation-cpi

New Financial Year rings in some super changes

New Financial Year rings in some super changes

As the new financial year gets underway, there are some big changes to superannuation that could add up to a welcome lift in your retirement savings.

Some, like the rise in the Superannuation Guarantee (SG), will happen automatically so you won’t need to lift a finger. Others, like higher contribution caps, may require some planning to get the full benefit.

Here’s a summary of the changes starting from 1 July 2021.

Increase in the Super Guarantee

If you are an employee, the amount your employer contributes to your super fund has just increased to 10 per cent of your pre-tax ordinary time earnings, up from 9.5 per cent. For higher income earners, employers are not required to pay the SG on amounts you earn above $58,920 per quarter (up from $57,090 in 2020-21).

Say you earn $100,000 a year before tax. In the 2021-22 financial year your employer is required to contribute $10,000 into your super account, up from $9,500 last financial year. For younger members especially, that could add up to a substantial increase in your retirement savings once time and compound earnings weave their magic.

The SG rate is scheduled to rise again to 10.5 per cent on 1 July 2022 and gradually increase until it reaches 12% on 1 July 2025.

Higher contributions caps

The annual limits on the amount you can contribute to super have also been lifted, for the first time in four years.

The concessional (before tax) contributions cap has increased from $25,000 a year to $27,500. These contributions include SG payments from your employer as well as any salary sacrifice arrangements you have in place and personal contributions you claim a tax deduction for.

At the same time, the cap on non-concessional (after tax) contributions has gone up from $100,000 to $110,000. This means the amount you can contribute under a bring-forward arrangement has also increased, provided you are eligible.

Under the bring-forward rule, you can put up to three years’ non-concessional contributions into your super in a single financial year. So this year, if eligible, you could potentially contribute up to $330,000 this way (3 x $110,000), up from $300,000 previously. This is a useful strategy if you receive a windfall and want to use some of it to boost your retirement savings.

More generous Total Super Balance and Transfer Balance Cap

Super remains the most tax-efficient savings vehicle in the land, but there are limits to how much you can squirrel away in super for your retirement. These limits, however, have just become a little more generous.

The Total Super Balance (TSB) threshold which determines whether you can make non-concessional (after-tax) contributions in a financial year is assessed at 30 June of the previous financial year. The TSB at which no non-concessional contributions can be made this financial year will increase to $1.7 million from $1.6 million.

Just to confuse matters, the same limit applies to the amount you can transfer from your accumulation account into a retirement phase super pension. This is known as the Transfer Balance Cap (TBC), and it has also just increased to $1.7 million from $1.6 million.

If you retired and started a super pension before July 1 this year, your TBC may be less than $1.7 million and you may not be able to take full advantage of the increased TBC. The rules are complex, so get in touch if you would like to discuss your situation.

Reduction in minimum pension drawdowns extended

In response to record low interest rates and volatile investment markets, the government has extended the temporary 50 per cent reduction in minimum pension drawdowns until 30 June 2022.

Retirees with certain super pensions and annuities are required to withdraw a minimum percentage of their account balance each year. Due to the impact of the pandemic on retiree finances, the minimum withdrawal amounts were also halved for the 2019-20 and 2020-21 financial years.

Time to prepare

There’s a lot for super fund members to digest. SMSF trustees in particular will need to ensure they document changes that affect any of the members in their fund. But these latest changes also present retirement planning opportunities.

Whatever your situation, if you would like to discuss how to make the most of the new rules, please get in touch.

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

Market movements & review video – June 2021

Stay up to date with what’s happened in Australian and global markets over the past month.

Our June update video takes you through key economic indicators so you can understand how the Australian economy is faring as we recover from the COVID-19 induced recession of 2020.

Please get in touch if you’d like assistance with your personal financial situation.

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

June 2021 Newsletter

It’s June which means winter has officially arrived. As we rug up and spend more time indoors, it’s a perfect time to get your financial house in order as another financial year draws to a close. And what a year it has been!

The local economic news in May was dominated by the federal Budget, and better-than-expected economic data. Australia’s budget deficit is smaller than expected just six months ago, at $177.1 billion in April. This was underpinned by rising iron ore prices, up 22% this year, and higher tax receipts from more confident businesses and consumers.

The NAB business confidence and business conditions ratings hit record highs in April of +26 points and +32 points respectively. New business investment rose 6.3% in the March quarter, the biggest quarterly lift in nine years. Housing construction is also going gangbusters, up 5.1% in the March quarter while renovations were up 10.8% thanks to low interest rates and government incentives. Retail spending is also recovering, up 1.1% in April and 25.1% on a year ago. The ANZ-Roy Morgan weekly consumer confidence index rose steadily during May to a 19-month high of 114.2 points, well above the long-term average. As a result of the pick-up in economic activity, unemployment fell from 5.7% to 5.5% in April.

In response to all this, the Reserve Bank lifted its economic growth forecast to 9.25% for the year to June and 4.75% for calendar 2021. If realised, this would be the strongest growth in 30 years, albeit rising out of last year’s COVID recession. The major sticking point remains wages. Wage growth was 0.6% in the March quarter but just 1.5% on an annual basis, below inflation. The Aussie dollar finished May at around US77c after nudging US79c earlier in the month.

The financial rewards of optimism

The financial rewards of optimism

If it wasn’t already clear, the past 12 months certainly cemented the fact that life has a habit of throwing us the occasional curveball. The reality is we all face challenges, however approaching life with a positive mindset can help us deal with any issues we may face and improve our lives in many ways.

Having a positive outlook not only improves our health and wellbeing, it can also have a meaningful and very positive impact on our finances.

How optimism can improve our finances

If you have a cautious or anxious approach to your finances, such as worrying you’ll never have enough money or being wary of spending, it will likely come as a surprise to hear that being optimistic can improve your financial situation.

A recent study connected the link between financial well-being and an optimistic mindset, finding that people who classify themselves as optimists enjoy 62 per cent fewer days of financial stress per year compared to pessimists.

Superior financial well-being

When you are positive in your outlook, you are also much more likely to follow better financial habits in managing your money. Optimists tend to save for major purchases, with around 90 percent of optimists having saved for a significant purchase, be it a car, a house or an overseas holiday, compared to pessimists at just 70 per cent.i

However, optimism does not equal naivety and optimists still tend to have contingency plans in place for unforeseen events that may detrimentally impact their bottom line. Some 66 per cent of optimists had an emergency fund, compared to under 50 percent of the pessimists.i

This goes to show that maintaining an optimistic approach to your finances does still involve planning for the future. By being prepared, you’ll reduce the stress that comes from feeling the rug could be pulled from beneath you without a safety net.

Your career and earning capacity

An optimistic approach to life and your career leads to achieving greater career success and the financial rewards that come with being successful in your job.

Optimists are 40 percent more likely than pessimists to receive a promotion within a space of twelve months and up to six times more predisposed to being highly engaged in their chosen career.i

Changing your attitude

Knowing that optimism is great for your wallet and your health is one thing, but how do you shift your outlook? If you’re prone to worry, focussing on pessimistic outcomes or a bit of a sceptic, looking on the bright side of life can seem easier said than done.

It is possible to nurture optimism, and you get this opportunity every day. Cultivating optimism can be as simple as adopting optimistic behaviours.

So, what are the financial behaviours of optimists that we can emulate?

Optimists tend to be more comfortable talking about and learning about money and are more likely to follow expert financial advice than their more pessimistic peers.

Positive people display a correspondingly positive approach to their finances. They tend to put plans in place and have the courage to dream big. You don’t have to be too ambitious in how you carry out those plans, every small step you take will help you to get where you want to be.

Everyone experiences setbacks at various times, however optimists rise to these challenges, learning from their past mistakes and persisting in their endeavours. Don’t be too hard on yourself if you are experiencing difficulties. We all face challenges and during these times, focus on solutions rather than just the problems, be conscious of your “internal talk” and don’t be afraid to seek out support. It’s important to focus on what you can do differently going forward, this could be as simple as working towards a “rainy day” fund.

It’s never too late to change your outlook. By embracing optimism, you can reap the rewards that a more positive outlook provides.

i https://www.optforoptimism.com/optimism/optimismresearch.pdf/

Time to review your income protection cover

Time to review your income protection cover

If you’ve owned an individual income protection or salary continuance policy in recent years, you may have seen your premiums increase as insurers struggled to cover their large losses on these products.i

Given the ongoing competition and generous features in some products, the Australian Prudential Regulation Authority (APRA) has decided it’s time for some new rules to ensure income protection cover remains sustainable and affordable for customers.

This will result in sweeping changes to these types of policies from 1 October 2021, so it’s essential to review your insurance protection cover before insurers start altering their product offerings.

What is income protection?

Income protection cover protects your most valuable asset – your ability to earn an income. It acts as a replacement income if you are injured or disabled and will help support your family and current lifestyle while you recover.

What’s more, your premiums are generally tax-deductible, so they can potentially help reduce your tax bill.

Major changes to income protection

Reform of income protection policies started back on 1 April 2020, when insurers were no longer permitted to offer customers Agreed Value income protection policies. Agreed value income protection provided more certainty about the amount you would be paid if you claimed and was based on your best 12 months earnings over a three-year period.

Following this initial change, APRA is implementing further changes from 1 October 2021 that will make new income protection policies much less generous. The reforms mean insurers will be offering new policies that base insurance payments on your annual income at the time you make a claim (or the previous 12 months), not on an agreed earnings amount.ii

For people with a fluctuating income, insurance payments will be based on your average annual earnings over a period appropriate for your occupation and will reflect future earnings lost due to the disability.

To further reduce costs, new policies will no longer offer supplementary benefits like specified injury benefits.

Limits on income payments

Other changes include a requirement for the maximum income replacement payment for the first six months to be capped at 90 per cent of earnings, reducing to 70 per cent after six months.ii If your insured income amount excludes superannuation, the Superannuation Guarantee can be paid in addition to the 90 per cent cap.

One of the most significant changes is that the terms and conditions of an existing income protection policy will no longer be guaranteed until age 65. Policies will no longer be offered for longer than five years, so your policy and its terms will be reviewed every five years.

You won’t need to undergo medical review, but any changes to your occupation, financial circumstances or taking up a dangerous pastime will need to be updated in the policy. Even if your circumstances remain the same, you will still be required to review the policy.

If your policy has a long benefit period, you are also likely to face a tighter definition of disability, rather than the previous definition of simply being unable to perform your ‘normal job’. APRA is keen to ensure claimants who are able to return to some form of paid employment do so, rather than remaining at home and receiving a payment.

Impact on existing and new policies

So what does this mean for you?

If you currently have an income protection policy outside your super, you will not be immediately affected by these changes, but it would be wise to check your policy is still appropriate for your circumstances.

Given the extent of the changes to income protection cover, if you have let your insurance lapse or don’t currently have income protection, it could make sense to consider signing up before 1 October 2021 to take advantage of the more generous current arrangements.

Income protection is often overlooked because of a perception that it’s too costly or not essential, but like all insurance, the cost of not being insured can be far greater. This type of cover offers valuable benefits that should be a key component in your wealth creation – and preservation – strategy.

If you would like help reviewing or selecting appropriate income protection cover, call our office today.

i https://www.apra.gov.au/news-and-publications/apra-resumes-work-to-enhance-sustainability-of-individual-disability-income

ii https://www.apra.gov.au/final-individual-disability-income-insurance-sustainability-measures

Counting down to June 30

Counting down to June 30

It’s been a year of change like no other and that extends to tax and superannuation. As the end of the financial year approaches, now is a good time to check some new and not so new ways to reduce tax and boost your savings.

With so many of us confined to our homes over the past year, the big deductible item this year is likely to be working from home expenses.

Home office expenses

If you have been working from home, the Australian Taxation Office (ATO) has introduced a temporary shortcut method which can be used for the 2020-21 financial year. This allows you to claim 80c for each hour you worked from home during the year.i

The shortcut method covers the additional running costs for home expenses such as electricity, phone, internet, cleaning and the decline in value of home office furniture and equipment.

Some people may get a better result claiming the work-related portion of their actual working from home expenses using the actual cost method.

Alternatively, if you do have a dedicated home office, you can claim using the fixed rate method. The fixed rate is 52c an hour for every hour you work at home and covers things like gas and electricity, and the decline in value or repair of office furniture and furnishings. On top of this, you may be able to claim the work-related portion of phone and internet expenses, computer and stationery supplies, and the decline in value of your digital devices.ii

Pre-pay expenses

While COVID has changed many things, some things stay the same. Such as the potential benefits of pre-paying next year’s expenses to claim a tax deduction against this year’s income.

Some examples are pre-paying 12 months’ premiums for your income protection insurance and work-related expenses such as professional subscriptions and union fees. If you are unsure what you can claim, the ATO has a guide for a range of occupations.

If you own an investment property, you might also consider pre-paying 12 months’ interest on your loan and other property-related expenses.

Top up your super

If your super could do with a boost and you have cash to spare, now is the time to check whether you are making the most of the contribution strategies available to you.

You can make tax-deductible contributions up to $25,000 a year, including Super Guarantee payments by your employer. You can also contribute up to $100,000 a year after tax. From July 1 these caps will increase to $27,500 and $110,000 respectively, so it’s important to factor this into decisions you make before June 30.

For instance, if you recently received a windfall and are considering using the ‘bring forward’ rule, you might consider holding off until after July 1. This rule allows you to bring forward two years’ after-tax contributions. By holding off until July 1 you could contribute up to $330,000 under the new limits.

Also increasing on July 1 is the amount you can transfer from your super account into a pension account. The transfer balance cap is increasing from $1.6 million to $1.7 million.

So if you are about to retire and your super balance is close to the cap, it may be worth delaying until after June 30.
Finally, from 1 July 2020, if you are under age 67 you can now make voluntary contributions without meeting a work test. And if 2020-21 is the first year that you no longer satisfy the work test, you may still be able to add to your super if you had a total super balance below $300,000 on 1 July 2020.

Manage investment gains and losses

Now is a good time to look at your portfolio for any loss-making investments with a view to selling before June 30. Any capital loss may potentially be used to offset some or all of your gains.

Of course, any decisions to buy or sell should fit with your overall investment strategy and not for tax reasons alone.

For all the challenges of the past year, there are still many ways to improve your overall financial situation. So get in touch to make the most of strategies available to you to before June 30.

i https://www.ato.gov.au/general/covid-19/support-for-individuals-and-employees/employees-working-from-home

ii https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/home-office-expenses/

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal tax advice prior to acting on this information.

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

May 2021 Newsletter – Super Evolution Pty Ltd

May is here and in cooler regions the colours of autumn are all around. In Canberra, Treasurer Josh Frydenberg is putting the finishing touches to the May 11 Federal Budget which will no doubt dominate the national conversation in coming weeks.

Australia’s economic recovery gathered steam in April, despite a spike in coronavirus cases overseas and vaccine delays. Australia’s trade surplus stood at a healthy $8.5 billion in March, underpinned by strong export prices for our commodities. Iron ore prices rose 16% in April and 21% over the year to date, due largely to renewed demand from China. China’s economic growth rebounded an extraordinary 18.3% in the year to March. Prices for our oil, copper, coal and beef have also recorded strong gains.

Higher commodity prices pushed the Aussie dollar up 2.4% in April to US77.72c, although record low interest rates are keeping stronger gains in check.
Australian consumers are gaining confidence in the recovery, despite the winding back of government stimulus payments. The Westpac-Melbourne Institute Index of Consumer Sentiment rose 6.2% in April to its highest level since 2010. One reason could be booming house prices, up 2.8% in March and 6.2% over the year, according to CoreLogic. Not so welcome are rising petrol prices which hit a 13-month high in April. While higher prices lifted inflation by 0.6% in the March quarter, it is still running at a low annual rate of 1.1%.

Rising employment is also a cause for optimism. The jobless rate fell from 5.8% to 5.6% in April and the Federal Government has announced it is targeting a rate beginning with a 4, supported by big spending initiatives in its upcoming Budget.

The missing link in the Bitcoin boom

The missing link in the Bitcoin boom

Whether it’s the booming price of Bitcoin, or record-breaking prices for investments paid for in digital currencies, cryptocurrencies continue to feature in the media and in dinner conversation. This has reignited debate about whether we are witnessing an old-fashioned bubble about to burst or a new asset class in the making.

The price of Bitcoin has gone from around $13,800 a year ago to a recent high of $84,350.i Undoubtedly, some people have made money on the way up, but experts urge caution. While cryptocurrencies are being accepted more widely, the Australian Securities and Investments Commission (ASIC) warns they are high risk, difficult to value and unregulated*.ii

You may also have seen recently that a digital artist known as Beeple sold a work at auction for $89 million, while Twitter founder Jack Dorsey sold his first tweet for $3.8 million. Both were paid for in cryptocurrencies in a trend called non-fungible tokens (NFTs).iii NFTs are a unique bit of digital code that cannot be duplicated or counterfeited, making them particularly attractive for collectors.

Cryptocurrencies and NFTs have one thing in common – they are both enabled by a technology called blockchain.

What is blockchain?

Blockchain is a system of recording and storing information that helps keep track of ownership securely and transparently.

It is essentially a digital ledger of transactions stored in blocks that is duplicated and distributed across a network of computer systems forming a blockchain. Every new transaction that occurs on the blockchain is added to every participant’s ledger.

This means if one block in the chain is changed, it would be immediately apparent that it had been tampered with, making it near impossible to change, hack or cheat the system.

History teaches us that fortunes are more likely to be made selling shovels to miners in a goldrush, than buying a shovel and joining them. So could it be that long-term value is more likely to come from investing in the underlying blockchain technology than chasing quick profits from the likes of Bitcoin and NFTs?

Given rising concerns about hacking and data breaches, it’s no surprise that blockchain is being embraced by government and businesses alike.

Government backs digital technologies

In the 2020 Federal Budget, the Australian government set aside $800 million to invest in digital technologies, including blockchain technology pilots to cut business compliance costs.iv

This followed the launch two years ago of the government’s National Blockchain Roadmap, developed in collaboration with industry and universities to highlight the technology’s potential to save businesses money and open new business and export opportunities.

According to the Roadmap, blockchain technology is predicted to generate an annual business value of over US$175 billion by 2025. By 2023, blockchain will support the global movement and tracking of US$2 trillion worth of goods and services annually. By next year, it is predicted to save the financial services industry US$15-20 billion annually.v

Practical uses of blockchain

In Australia, the biggest user of blockchain is the financial services industry. For example, the Australian Securities Exchange (ASX) is working on a new blockchain system to finalise local equity trades which will replace the old CHESS system in early 2022.

But it also has applications across the economy in sectors including trade, logistics, real estate, energy, water, resources and agriculture. The cost to Australian food and wine producers of direct product counterfeiting and substitution was estimated to be over $1.7 billion in 2017 alone.v

Take the example of the wine industry. Blockchain can help with inventory tracking, facilitate automated payments between supply chain members, and reduce counterfeiting through provenance transparency.

Investment opportunities

Thanks to government and industry support, a growing number of blockchain companies are listing on the ASX. There are companies using blockchain to:

    • Keep track of financial data and identity documents for compliance

 

    • Verify human engagement on social media to prevent interaction with bots and fake profiles

 

  • Make supply chains transparent in combination with artificial intelligence technology.vi

Other companies have integrated blockchain into parts of their business to enhance security on digital platforms or to accept and settle payments.

While the local ASX-listed technology sector is still relatively small and high risk, it does offer investors increasing opportunities to invest in cutting-edge technologies with real world applications.

If you would like to discuss your overall investment strategy, don’t hesitate to get in touch.

*Disclaimer: We cannot advise clients on investments in Bitcoin or any other cryptocurrency as they are not regulated financial products.

i https://au.finance.yahoo.com/quote/BTC-AUD/history/?guccounter=1

ii https://moneysmart.gov.au/investment-warnings/cryptocurrencies-and-icos

iii https://www.businessinsider.com.au/what-are-risks-of-investing-in-nft-2021-3

iv https://www.coindesk.com/australia-to-spend-575m-on-tech-including-blockchain-to-boost-pandemic-recovery

v https://www.industry.gov.au/sites/default/files/2020-02/national-blockchain-roadmap.pdf?ref=hackernoon.com

vi https://stockhead.com.au/tech/these-asx-blockchain-companies-are-leading-the-distributed-ledger-race/

Salary packaging - worth the sacrifice

Salary packaging – worth the sacrifice

The principle of ‘salary sacrificing’ may not sound very appealing. After all, who in their right mind would voluntarily give up their hard-earned cash. But it can have real financial benefits for some in terms of reducing your taxable income, which could see you pay less at tax time.

As we nudge ever closer to the end of financial year, it’s worth taking a look at salary sacrificing to see if it’s a worthwhile strategy to put into place for you.

A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. In essence, a salary sacrifice arrangement is when you agree to receive less income before tax, in return for your employer providing you with benefits of similar value. You’re basically using your pre-tax salary to buy something you would normally purchase with your after-tax pay.

How does salary sacrifice work?

The main benefit of salary sacrificing is that it reduces your pre-tax income, and therefore the amount of tax you must pay. For example, if you’re on a $100,000 income, you may agree to only receive $75,000 as income in return for a $25,000 car as a benefit.

Doing this would reduce your taxable income to $75,000 which could lower your tax bill because you’re essentially earning less as far as the tax office is concerned.*

This arrangement must be set up in advance with your employer before you commence the work that you’ll be paid for and it’s advisable that the details of the agreement are outlined in writing.

What can you salary sacrifice?

According to the Australian Tax Office (ATO), there’s no restriction on the types of benefits you can sacrifice, as long as the benefits form part of your remuneration. What you can salary sacrifice may also depend on what your employer offers.

The types of benefits provided in a salary sacrifice arrangement include fringe benefits, exempt benefits and superannuation.

Fringe benefits can include:

    • cars

 

    • property (including goods, real property like land and buildings, shares or bonds)

 

  • expense payments (loan repayments, school fees, childcare costs, home phone costs)

Your employer pays fringe benefit tax (FBT) on these benefits.

Exempt benefits include work related items such as:

    • portable electronic devices and computer software

 

    • protective clothing

 

  • tools of the trade

Your employer typically does not have to pay fringe benefits tax on these.

Superannuation

You can also ask your employer to pay part of your pre-tax salary into your superannuation account. This is on top of the contributions your employer is already paying you under the Superannuation Guarantee, which should be no less than 9.5% of your gross (before tax) annual salary, though this may rise in the near future.

Salary sacrificed super contributions are classified as employer super contributions rather than employee contributions. These contributions are called concessional contributions and are taxed at 15 per cent. For most people, this will be lower than their marginal tax rate.

There is a limit as to how much extra you can contribute to your super per year at the 15 per cent tax rate. The combined total of your employer and any salary sacrificed concessional contributions cannot exceed $25,000 in a single financial year. If you exceed the cap, you could be charged additional tax on any excess salary sacrifice contributions.

Most employers allow employees to salary sacrifice into super, but not all employers will allow salary sacrificing for other benefits.

Is salary sacrifice worth it?

Salary sacrifice is generally most effective for middle to high-income earners, while there is little to no tax saving for people who are already in a low tax bracket.

If you are a middle to high-income earner, then it may be worth considering salary sacrifice to reduce your taxable income and to take advantage of some of those benefits.

Before you do, make sure you talk to us so we can help ensure it is an appropriate strategy for your circumstances.

*Note: This example illustrates how salary sacrifice arrangements can work and does not constitute advice. You should not act solely on the information in this example.

Source for all information in this article: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Salary-sacrifice-arrangements/

Here

Here’s to a happy, healthy, long life!

One of the things that we all have in common as living beings is our finite lifespan and our awareness of this also contributes to motivating us to make each and every moment count.

Yet while many of us don’t want to reflect much on our mortality, we all want to live happier, healthier and longer lives. In fact, it’s a very human trait to be fascinated by the potential of extending our lifespans.

While one 105-year-old woman, who has survived COVID and the 1918 Spanish flu outbreak, recently credited her longevity to eating gin-soaked raisins on a daily basis, there are those who go to much greater lengths.i

Living long

Over the past 100 years, life expectancy in Australia has increased from around 50 years to well over 80 years, with a boy born today expected to live around 80.9 years and a girl 85.0 years.ii Most researchers looking at trends in mortality believe life expectancy will continue to increase in coming decades.

That’s not enough for a small cohort of people termed ‘Biohackers’ who ‘hack’ their bodies to make them function better and in many cases, live significantly longer.

One high profile biohacker, Dave Asprey, is vocal in his aim to reach the grand old age of 180. Dedicating millions of dollars to the cause, Dave gets regular stem cell injections, bathes in infrared light, uses a hyperbaric chamber and takes over 100 supplements a day.iii

How to live longer and better

We’re not all Silicone Valley millionaires, able to access expensive biohacking treatments, nor do we all want to. But there are some common-sense ways to not only live longer, but live better.

Eat well

While the ‘perfect’ diet is often contested, what the experts generally agree on is that we should incorporate plenty of plant foods, limit red meat, avoid processed foods and eat healthy fats and complex carbs.iv Often the Okinawa Diet is referenced when it comes to living longer, as the residents of this Japanese island can live to 100 – Okinawa has the most centenarians per 100,000 population. The Okinawans eat a lot of plant foods, with some seafood and meat.

Move it

Being physically active is also important. Again, this can look different for different people, but regular exercise has been proven to improve heart health, control blood sugar levels, maintain or provide weight loss, and also possibly decrease our risk of developing cancer.v

Stay sharp

Staying mentally active can also improve our lifespans. As we age, our mental abilities decline, but that doesn’t mean that there’s nothing you can do about it. And it’s not all bad news either, in fact, an older brain can create new connections between neurones. As some neurones die, their roles are taken up by others to help you adapt.vi Prioritising your social life, being open to new experiences and taking up new hobbies will keep you mentally active, as will that puzzle book or game of Trivial Pursuit.

Connection

Maintaining a healthy social life won’t just help your brain, research has also shown there are many physical benefits to staying connected. Lower blood pressure, a stronger immune system and possibly reduced inflammation can be the result of being happy around other people.vii

Purpose

It’s also important to be happy within yourself. Feeling fulfilled has been linked to longevity. A research scientist call Robert Butler found that those who could express their sense of purpose or life meaning lived about 8 years longer than those who were rudderless.viii

Ultimately, it’s not just the years in your life, but the life in your years that’s important. What’s the point of living to 100, or 180, if you don’t feel content and well? Living a full and satisfying life is the main goal we should strive for, and by taking care of ourselves, we hopefully will have years in our life and life in our years.

i https://www.forbes.com/sites/brucelee/2021/02/27/105-year-old-recovered-from-covid-19-her-tip-eating-gin-soaked-raisins/?sh=1b702a2ee551

ii https://www.abs.gov.au/media-centre/media-releases/life-expectancy-continues-increase-australia

iii https://www.menshealth.com.au/how-to-live-to-180-years-old-bulletproof-founder-dave-asprey

iv https://www.nbcnews.com/better/lifestyle/what-science-says-about-best-way-eat-what-we-re-ncna1104911

v https://www.health.harvard.edu/healthbeat/5-ways-exercise-helps-men-live-longer-and-better

vi https://www.betterhealth.vic.gov.au/health/HealthyLiving/healthy-ageing-stay-mentally-active

vii https://www.betterhealth.vic.gov.au/health/healthyliving/Strong-relationships-strong-health

viii https://www.bluezones.com/2019/05/news-huge-study-confirms-purpose-and-meaning-add-years-to-life/

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

April 2021

April is here beginning with a welcome Easter break. As the vaccine rollout continues, restrictions ease, and life is a little closer to normal despite occasional setbacks. Whether you are relaxing at home, or heading off on holidays, we wish you and your family a happy Easter.

There was a raft of positive economic news in March, which should make the Federal Treasurer’s job a little easier when he hands down the Budget on May 11. The Australian economy staged a remarkable V-shaped recovery in 2020, growing 3.1% in the December quarter and 3.4% the previous quarter – the biggest 6-month lift on record – after plunging into recession in the first half year. The main contributor was iron ore, which has doubled in price since March last year.

As the vaccine rollout began and restrictions eased, business and consumer confidence rebounded. The NAB Business Confidence Index rose to an 11-year high of +16.4 points in February while the ANZ-Roy Morgan Consumer Confidence rating hit a 7-year high of 124 points in March, up 30% over the year.

Confidence was reflected in a recent surge in new vehicle sales, housing construction and property values. It was also boosted by a fall in unemployment from 6.4% to an 11-month low of 5.8% in February. Company profits have also remained strong, with 86% of ASX200 companies reporting a profit in the December half year. Although aggregate earnings fell 17%, dividends were up 5% on a year ago with an estimated $26 billion currently flowing to shareholders.

It’s not all plain sailing though. Temporary coronavirus JobSeeker and JobKeeper payments ended on March 31, and fuel prices are rising just as everyone fills up for Easter road trips. The strengthening economy saw the Aussie dollar shed 2c to US76c in March.

Bonds, inflation and your investments

Bonds, inflation and your investments

The recent sharp rise in bond rates may not be a big topic of conversation around the Sunday barbecue, but it has set pulses racing on financial markets amid talk of inflation and what that might mean for investors.

US 10-year government bond yields touched 1.61 per cent in early March after starting the year at 0.9 per cent.i Australian 10-year bonds followed suit, jumping from 0.97 per cent at the start of the year to a recent high of 1.81 per cent.ii

That may not seem like much, but to bond watchers it’s significant. Rates have since settled a little lower, but the market is still jittery.

Why are bond yields rising?

Bond yields have been rising due to concerns that global economic growth, and inflation, may bounce back faster and higher than previously expected.

While a return to more ‘normal’ business activity after the pandemic is a good thing, there are fears that massive government stimulus and central bank bond buying programs may reinflate national economies too quickly.

The risk of inflation

Despite short-term interest rates languishing close to zero, a sharp rise in long-term interest rates indicates investors are readjusting their expectations of future inflation. Australia’s inflation rate currently sits at 0.9 per cent, half the long bond yield.

To quash inflation fears, Reserve Bank of Australia (RBA) Governor Philip Lowe recently repeated his intention to keep interest rates low until 2024. The RBA cut official rates to a record low of 0.1 per cent last year and launched a $200 billion program to buy government bonds with the aim of keeping yields on these bonds at record lows.iii

Governor Lowe said inflation (currently 0.9 per cent) would not be anywhere near the RBA’s target of between 2 and 3 per cent until annual wages growth rises above 3 per cent from 1.4 per cent now. This would require unemployment falling closer to 4 per cent from the current 6.4 per cent.

In other words, there’s some arm wrestling going on between central banks and the market over whose view of inflation and interest rates will prevail, with no clear winner.

What does this mean for investors?

Bond prices have been falling because investors are concerned that rising inflation will erode the value of the yields on their existing bond holdings, so they sell.

For income investors, falling bond prices could mean capital losses as the value of their existing bond holdings is eroded by rising rates, but healthier income in future.

The prospect of higher interest rates also has implications for other investments.

Shares shaken but not stirred

In recent years, low interest rates have sent investors flocking to shares for their dividend yields and capital growth. In 2020, US shares led the charge with the tech-heavy Nasdaq index up 43.6%.iv

It’s these high growth stocks that are most sensitive to rate change. As the debate over inflation raged, the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix and Google – fell nearly 17 per cent from mid to late February and remain volatile.v

That doesn’t mean all shares are vulnerable. Instead, market analysts expect a shift to ‘value’ stocks. These include traditional industrial companies and banks which were sold off during the pandemic but stand to gain from economic recovery.

Property market resilient

Against expectations, the Australian residential property market has also performed strongly despite the pandemic, fuelled by low interest rates.

National housing values rose 4 per cent in the year to February, while total returns including rental yields rose 7.6 per cent. But averages hide a patchy performance, with Darwin leading the pack (up 13.8 per cent) and Melbourne dragging up the rear (down 1.3 per cent).vi

There are concerns that ultra-low interest rates risk fuelling a house price bubble and worsening housing affordability. In answer to these fears, Governor Lowe said he was prepared to tighten lending standards quickly if the market gets out of hand.

Only time will tell who wins the tussle between those who think inflation is a threat and those who think it’s under control. As always, patient investors with a well-diversified portfolio are best placed to weather any short-term market fluctuations.

If you would like to discuss your overall investment strategy, give us a call.

i Trading economics, viewed 11 March 2021, https://tradingeconomics.com/united-states/government-bond-yield

ii Trading economics, viewed 11 March 2021, https://tradingeconomics.com/australia/government-bond-yield

iii https://www.reuters.com/article/us-oecd-economy-idUSKBN2B112G

iv https://www.smh.com.au/politics/federal/growth-prospects-for-australia-and-world-upgraded-by-oecd-20210309-p57973.html

v https://rba.gov.au/speeches/2021/sp-gov-2021-03-10.html

vi https://www.washingtonpost.com/business/2020/12/31/stock-market-record-2020/

vii https://www.corelogic.com.au/sites/default/files/2021-03/210301_CoreLogic_HVI.pdf

Making a super split

Making a super split

Separation and divorce can be a challenging time, often made all the more difficult when you have to divide your assets. So how do you go about decoupling your superannuation?

In years gone by, superannuation was not treated as matrimonial property, so divorce settlements typically saw the woman keeping the house as she generally had the children and the man keeping his super. In a sense, neither party won. She ended up with a house but no money for her retirement while he had nowhere to live but money for his later years.

To remedy this situation, since 2002 super can be included when valuing a couple’s combined assets for a divorce settlement. After all, these days super is probably your second largest asset after your family home.

While super is counted in the calculation of the total property, that does not mean it is mandatory to split the super – the choice is yours.

Unlike the early 2000s, both partners are likely to have superannuation these days although traditionally women will still tend to have lower balances.i On average, women retire with just over half the super balance of men and 23 per cent of women retire with no super at all.

As a result, many divorcing couples may end up splitting super along with their other property.

How to split your super

If you decide to split your super, then you have three avenues, but keep in mind that all require legal advice.

The three ways to split your super are:

  • A formal written agreement that both you and your partner instruct a lawyer stating you have sought independent advice,
  • A consent order, or
  • A court order.

A court order is the last resort if you can’t agree on a property settlement.

You can split your super as you choose both in terms of the amount and the timing. You can split it as a percentage or as an agreed figure and you can choose to split it immediately or at some time in the future. Much will depend on each of your life stages.

But whatever you decide, you MUST comply with the superannuation laws. Money received from your partner’s super must be kept in super unless you satisfy a condition of release. You also need to be mindful of taxable and non-taxable components and divide them equally.

How does it work?

Say the superannuation balances of a couple is $500,000 with John having $400,000 and Susie $100,000. If the property settlement on divorce was decided as a straight 50:50 split and it included the super, then John would need to give $150,000 of his super to Susie.

Susie would nominate a fund and the money would be transferred.

If you have a binding financial agreement or a court order, this transfer of assets from one fund to another will not trigger a CGT event. But if you don’t have such an agreement, then John would trigger a CGT event on the $150,000 he transferred. Susie, meanwhile, would have the advantage of resetting the cost base on her received $150,000. So, a win for Susie, but not for John.

If John happened to be in the pension phase but Susie was still too young, the money that is transferred from his super to Susie will be treated according to his situation. As a result, Susie would be able to access the money before she reached preservation age.

What about SMSFs?

If you have a self-managed super fund, the situation could get a little more complicated as you have to deal with the issue of trusteeship.

If there are only two members/trustees in the fund and Susie chose to leave, then John would either have to find a new trustee within six months or change to a corporate trustee where he could be the sole director.

Assets within an SMSF can also prove an issue, particularly if a sizeable proportion of the fund was tied up in a single asset such as commercial premises. How easy would it be to actually sell the premises? What if the property was John’s business premises and the means by which John was in a position to pay Susie child support? These are questions that need addressing.

If you are in the process of divorce or considering it, why not call us to help you plan your finances before and after the event.

i https://www.afr.com/companies/financial-services/women-less-than-equal-in-retirement-20201203-p56khb#

Taking a break - a win for you and the economy

Taking a break – a win for you and the economy

2021 is shaping up to be a much more positive year than 2020 in so many ways. For people who put holiday plans on hold or those with itchy feet because they haven’t had much of a break for a while, this year is the year to get out and about.

While overseas jaunts are off the table for some time to come, Australia’s management of the pandemic means we are able to head off and explore the local sights, while helping local communities and industries hit hard by 2020.

Recently the Australian Government announced their latest stimulus package for these industries, with $1.2 billion allocated to help our domestic tourism and aviation sectors.i

From 1 April 2021, there will be 800,000 half-priced flights available to 13 key regions which includes the Gold Coast, Cairns, the Whitsundays and Mackay region, the Sunshine Coast, Lasseter and Alice Springs, Launceston, Devonport and Burnie, Broome, Avalon, Merimbula and Kangaroo Island.

It’s also worth keeping your eye out for state run initiatives in the form of travel voucher schemes. While the amounts offered and conditions vary from state to state, they generally enable you to wine, dine or stay the night in a location with part of your bill subsidised.

The importance of R&R

There’s nothing like a holiday to help us feel more relaxed and give us a break from our everyday lives, something we very much need after the year that was.

We know that having a break, whether it be from work or just our regular routines, tends to improve our wellbeing. It can offer a circuit breaker from some of your stressors, give you a new perspective as you take in new surroundings, lighten your mood as you do things you enjoy, give you a chance to spend some quality time with loved ones and simply recharge your batteries by sleeping in and taking it easy.

Supporting local

Perhaps you had to cancel that trip to Paris or have to let go the idea of relaxing on a beach in Bali. Fortunately, we are spoiled for choice when it comes to travelling in Australia, whether it’s a beach holiday you are after, a hike in the mountains, a trip to the snow, a tour of the outback or a foray into a rainforest. We are blessed with a myriad of natural wonders as well as vibrant cities with world class restaurants, attractions and nightlife. Not only will you have a wonderful time, you can also feel good about supporting businesses who need a hand getting back on their feet.

While it can seem like a distant memory due to the COVID-19 outbreak, 2020 was also a hard time for many Australians due to the bushfires that ravaged many parts of the country. As a result, the locations affected are needing to rebuild and welcome tourists back, so why not give them a visit.

Planning your trip

Whether you take advantage of the flight specials or instead travel by bus, train or car, seeing another part of the country will give you something to look forward to.

While we may have become nervous about forward planning due to the uncertainty of 2020, being organised will enable you to make the most of travel deals and plan your itinerary so you can fit in everything you want to do.

If you’re concerned about travelling at the present time, why not take the road less travelled and head to a private spot (perhaps an Airbnb rather than a busy hotel) in a destination that isn’t as well-known. By avoiding popular travel periods such as the school holidays, you will also avoid the crowds.

Wherever you travel in Australia, whether it’s to the other side of the country or just down the road, we hope you enjoy your well-deserved break and are able to recharge your batteries for what is shaping up to be an exciting year ahead.

i https://www.nestegg.com.au/invest-money/economy/government-launches-half-price-flights-to-kickstart-tourism

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

Market movements & review video – March 2021

Stay up to date with what’s happened in Australian and global markets over the past month.  

Our March update video also takes you through key economic indicators so you can understand how the Australian economy is faring as we recover from the COVID-19 induced recession of 2020.

Please get in touch if you’d like assistance with your personal financial situation.

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

Autumn 2021

After an eventful summer of weather extremes, on-again off-again lockdowns and the swearing in of a new US President, many will be hoping that Autumn ushers in a change of more than the season. As the vaccine rollout begins, there are also promising signs that economic recovery may be earlier than expected.

Australia’s economy has improved and the downturn was not as deep as feared. That was the message Reserve Bank Governor Philip Lowe delivered to Parliament on February 5, citing strong employment growth, retail spending and housing. Unemployment fell from 6.6% to 6.4% in January, although annual wage growth remains steady at a record low of 1.4% after a 0.6% increase in the December quarter. Retail trade rose 0.6% in January, 10.7% higher than a year ago. While home lending jumped 8.6% in December. This helped fuel the 3% rise in national home values in the year to January, led by a 7.9% increase in in regional prices.

Business and consumer sentiment is also improving. The NAB Business Confidence Index was up from 4.7 points to 10.0 points in January, although 60% of businesses say they are not interested in borrowing to invest. Halfway through the corporate reporting season, 87% of ASX200 companies reported a profit in the December half year, although earnings were 14% lower in aggregate while dividends were 4% higher. The ANZ-Roy Morgan Consumer Confidence rating eased slightly in February but is still up 67% since last March’s low.

Higher commodity prices lifted the Aussie dollar to a three-year high. It closed the month around US78.7c, on the back of a 31% rise in crude oil prices and an 8.5% lift in iron ore prices in 2021 to date.

Love and money: achieving financial harmony

Love and money: achieving financial harmony

The past 12 months have been a challenging time for many of us on a personal level, with the pandemic having a far-reaching impact on so many aspects of our lives. While the Australian economy is proving remarkably resilient, personal finances have been affected in different ways by lockdowns and government initiatives put in place to soften the economic toll of the pandemic.

Whether your finances were adversely impacted, or you came out of 2021 relatively unscathed, if you are in a relationship you and your partner’s attitude towards your finances may have shifted. Given that money has the potential to be a source of conflict in relationships, it’s a now a good time to get in sync to ensure you are on track to achieving financial harmony.

Check in and see where you stand financially

The first step is knowing where you stand financially. This involves looking through your shared and individual accounts and being open with each other about your saving and spending habits.

This is unlikely to make for a romantic date night given the potential for uncomfortable conversations, which is why one in three Australians admit having kept a financial secret from their partner.i However, by being transparent with your partner, you’ll be working through issues before they snowball into a source of greater financial and relationship stress.

Discuss or re-evaluate your goals

We can all lose track of our end goals, especially when life becomes unpredictable and we need to shift focus. So that you don’t move too far away from your financial goals, re-evaluate your priorities. These may have changed in the past year – maybe you’ve had to halt those travel plans or realised you no longer need or can’t afford that new car.

As you and your partner are two individuals, you might not always be aligned in terms of your approaches to saving and spending. We all have different deeply entrenched views and beliefs around money and it’s one area that you may never completely see eye to eye on. That also goes for goals – we all have our own dreams and ambitions. Maybe one of you sees a need to renovate the bathroom, while the other thinks the money would be better spent on a holiday. Discuss the goals you both have and be prepared for compromise to find a plan that suits the family as a whole.

Re-evaluate your priorities and how you spend

Priorities and spending habits can change over time and more recently, in response to a changed world. In 2020, 56% of Australian households surveyed believed their financial situation was vulnerable or worse due to the pandemic.ii You may have less disposable income and needed to tap into savings or your superannuation or access credit as a result.

It’s important to acknowledge if your financial position has changed, reassess your priorities and make any necessary adjustments. This may involve taking a look at your spending and saving habits and making changes so that your dollars go towards supporting what’s most important to your family. Again, it’s important to discuss this with your partner and work through it together.

Develop a budget

Budgeting is an obvious step, but you’ll need to ensure that the budget works for both of you and supports your shared goals. There are great budgeting apps you can use, but what you’ll both need to bring to the table is a commitment to sticking with the agreed upon budget. Discuss your household needs, such as mortgage or rent payments, utilities, etc, as well as your individual needs and what your shared goals are.

Try to agree on a system that keeps you both accountable. It can be as formal as filling out a spreadsheet every week, or perhaps having a monthly family meeting around how things are tracking and if there’s any room for improvement.

Money talk in relationships can be tricky as it’s often a loaded and emotive topic that can bring up other issues. This is why an adviser can help with these conversations, facilitating discussions in a safe and neutral environment and providing expert advice, tailored to your situation.

Please reach out if we can be of assistance.

i https://www.moneymag.com.au/talk-money-relationships

ii https://www.bt.com.au/insights/perspectives/2020/australian-consumer-spending-changes.html

Give your finances a shake out

Give your finances a shake out

Like trees losing their leaves in autumn, why not take a leaf out of their book and choose this time of year to shed some of your own financial baggage.

In the style of Marie Kondo, the Japanese organising whizz who has inspired millions to clean out their cupboards, decluttering your finances can bring many benefits.

While you work through all your contracts, investments and commitments, you will no doubt discover many that no longer fit your lifestyle or are simply costing you in unnecessary fees.

And if that is the case, then it is likely that such commitments will not be sparking any joy. And joy is the key criteria Kondo uses to determine whether you hold on to something or let it go.

So how does decluttering work with your finances and where do you start?

Where are you?

The first step is probably to assess where you are right now. That means working out your income and your expenses.

There are many ways to monitor your spending including online apps and the good old-fashioned pen-and-paper method.

Make sure you capture all your expenditure as some can be hidden these days with buy now pay later, credit card and online shopping purchases.

The next step is to organise your expenditure in order of necessity. At the top of the list would be housing, then utilities, transport, food, health and education. After that, you move on to those discretionary items such as clothes, hairdressing and entertainment.

Work through the list determining what you can keep, what you can discard and what you can adapt to your changed needs. Remember, if it doesn’t spark joy then you should probably get rid of it.

Weed out excess accounts

Now you need to look at the methods you use when spending. Decluttering can include cancelling multiple credit cards and consolidating your purchases into the one card. This has a twofold impact: firstly, you will be able to control your spending better; and secondly, it may well cut your costs by shedding multiple fees.

Another area where multiple accounts can take their toll is super. Consider consolidating your accounts into one. Not only can this make it easier to keep track of, but it will save money on duplicate fees and insurance. If you think you may have long forgotten super accounts, search for them on the Australian Tax Office’s lost super website. Since July 2019, super providers must transfer inactive accounts to the tax office.

Once you have reviewed your superannuation, the next step is to check that your investments match your risk profile and your retirement plans. If they aren’t aligned, then it’s likely they will not spark much joy in the future when you start drawing down your retirement savings.

If you have many years before retirement and can tolerate some risk, you may consider being reasonably aggressive in your investment choice as you will have sufficient time to ride investment cycles. You can gradually reduce risk in the years leading up to and following retirement.

Sort through your insurances

Another area to check is insurance. While insurance, whether in or out of super, may not spark much joy, you will be over the moon should you ever need to make a claim and have the right cover in place.

When it comes to insurance, make sure your cover reflects your life stage. For instance, if you have recently bought a home or had a child, you may need to increase your life insurance cover to protect your family. Or if your mortgage is paid off and the kids have left home, you might decide to reduce your cover.

Prune your investments

If you also have investments outside your super, they too might benefit from some decluttering. As the end of the financial year approaches, now is a good time to look at your portfolio, sell underperforming assets and generally rebalance your investments.

Many people who have applied Marie Kondo’s decluttering rules to their possessions talk about the feeling of freedom and release it engenders. It may well be that applying the same logic to your finances gets you one step closer to financial freedom.

If you would like to review or make changes to your finances, why not call us to discuss.

There

There’s more than one way to boost your retirement income

After spending their working life building retirement savings, many retirees are often reluctant to eat into their “nest egg” too quickly. This is understandable, given that we are living longer than previous generations and may need to pay for aged care and health costs later in life.

But this cautious approach also means many retirees are living more frugally than they need to. This was one of the key messages from the Government’s recent Retirement Income Review, which found most people die with the bulk of the wealth they had at retirement intact.i

One of the benefits of advice is that we can help you plan your retirement income so you know how much you can afford to spend today, secure in the knowledge that your future needs are covered.

Minimum super pension withdrawals

Under superannuation legislation, once you retire and transfer your super into a pension account, you must withdraw a minimum amount each year. This amount increases from 4 per cent of your account balance for retirees aged under 65 to 14 per cent for those aged 95 and over. (These rates have been halved temporarily for the 2020 and 2021 financial years due to COVID-19.)

One of the common misconceptions about our retirement system, according to the Retirement Income Review, is that these minimum drawdowns are what the Government recommends. Instead, they are there to ensure retirees use their super to fund their retirement, rather than as a store of tax-advantaged wealth to pass down the generations.

In practice, super is unlikely to be your only source of retirement income.

The three pillars

Most retirees live on a combination of Age Pension topped up with income from super and other investments – the so-called three pillars of our retirement system. Yet despite compulsory super being around for almost 30 years, over 70 per cent of people aged 66 and over still receive a full or part-Age Pension.

While the Retirement Income Review found most of today’s retirees have adequate retirement income, it argued they could do better. Not by saving more, but by using what they have more efficiently.

Withdrawing more of your super nest egg is one way of improving retirement outcomes, but for those who could still do with extra income the answer could lie in your nest.

Unlocking housing wealth

Australian retirees are some of the wealthiest in the world, with median household wealth of around $1.4 million. Yet close to $1 million of this wealth is tied up in the family home.

That’s a lot of money to leave to the kids, especially when many retirees end up living in homes that are too large while they struggle to afford the retirement lifestyle they had hoped for.

For these reasons there is growing interest in ways that allow retirees to tap into their home equity. Of course, not everyone will want or need to take advantage of these options. But if you are looking for ways to use your home to generate retirement income, but don’t relish the thought of welcoming Airbnb guests, here are some options:

    • Downsizer contributions to your super. If you are aged 65 or older and sell your home, perhaps to buy something smaller, you may be able to put up to $300,000 of the proceeds into super (up to $600,000 for couples).

 

    • The Pension Loans Scheme (PLS). Offered by the government via Centrelink, the PLS allows older Australians to receive tax-free fortnightly income by taking out a loan against the equity in their home. The loan plus interest (currently 4.5 per cent per year) is repaid when you sell or after your death.

 

  • Reverse Mortgages (also called equity release or home equity schemes). Similar to the PLS but offered by commercial providers. Unlike the PLS, drawdowns can be taken as a lump sum, income stream or line of credit but this flexibility comes at the cost of higher interest rates.

The big picture

While super is important, for most people it’s not the only source of retirement income.

If you would like to discuss your retirement income needs and how to make the most of your assets, give us a call.

i Retirement Income Review, https://treasury.gov.au/sites/default/files/2020-11/p2020-100554-complete-report.pdf

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

Market movements & review video – February 2021

Stay up to date with what’s happened in Australian and global markets over the past month.  

Our February update video also takes you through key economic indicators so you can understand how the Australian economy is faring as we recover from the COVID-19 induced recession of 2020.

Please get in touch if you’d like assistance with your personal financial situation.

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

February 2021 Newsletter

It’s February, the kids are back at school and the nation is getting back to business. It’s still not business as usual, but with the vaccine rollout about to begin there is a growing sense of optimism.

There was a sense of relief on the global economic front in January as Joe Biden was sworn in as US President. Financial markets rallied on expectations of more US government financial stimulus and a stronger focus on containing the COVID-19 health crisis. There were also positive economic signs from our other major trading partner, China where a V-shaped recovery is underway. China’s economy grew by 2.3% in 2020, the best performance of any major economy even though it was China’s slowest growth since 1976.

In Australia, there also signs of a cautious economic recovery. Consumer confidence hit a 14-month high in January, due to our success in dealing with the pandemic and supporting jobs. The ANZ-Roy Morgan consumer confidence rating hit 111.2 points, just below its long-term average of 112.6. Unemployment fell from 6.8% to 6.6% in December, a time when businesses typically hire casual staff for the Christmas-summer holiday rush. Retail trade fell 4.2% in December but was still up 9.4% over the year. Inflation remains weak, with the consumer price index (CPI) up 0.9% in the December quarter and also up 0.9% in 2020 overall. The exception is house prices, up 3% in 2020. This was reflected in the value of new home loans which rose 5.6% in November due to record low interest rates and government policy initiatives. The Aussie dollar finished the month slightly lower at US76c.

Mind the insurance gap

Mind the insurance gap

At a time when many people have been focused on their family’s health and livelihood, having adequate life insurance has never been more important. Yet the gap between what we need and what we have, has been growing.

Life insurance is all about ensuring your family can maintain their lifestyle if you were to die or become seriously ill. Even people who do have some level of protection, might discover a significant shortfall if they had to depend on their current life insurance policies.

That’s because 70 per cent of Australians who have life insurance hold relatively low default levels of cover through superannuation.

Default cover may not be enough

The most common types of default life insurance cover in super are:

  • Life cover (also called death cover) which pays a lump sum or income stream to your dependents if you die or have a terminal illness.
  • Total and permanent disability (TPD) cover which pays you a benefit if you are disabled and unlikely to work again.

If you have basic default cover and are part of what is considered an “average” household with no children, then it’s likely you only have enough to meet about 65-70 per cent of your total needs. The figure is much lower for families with children.
Indeed, a recent study by Rice Warner estimates that while current levels of insurance cover 92 per cent of death needs, they only account for a paltry 29 per cent of TPD needs.i

Such a shortfall means that you and/or your family would not be able to maintain your current lifestyle.

A fall in cover

The Rice Warner study found the amount people actually insured for death cover has fallen 17 per cent and 19 per cent for TPD in the two years from June 2018 to June 2020. This was driven by a drop in group insurance within super which has fallen 27 per cent for death cover and 29 per cent for TPD cover.

This was largely a result of the introduction of the Protecting Your Super legislation. If you are young or your super account is inactive then you may no longer have insurance cover automatically included in your super. You’ll now need to advise your fund should you require cover.

It may make sense not to have high levels of cover, or even insurance at all, when you are young with no dependents and few liabilities – no mortgage, no debt and maybe few commitments. But if you work in a high-risk occupation such as the mining or construction industries, or have dependents, then having no cover could prove costly.

Another reason for the fall in life insurance cover has been the advent of COVID-19. With many people looking for cost-cutting measures to help them through tough times, insurance is sometimes viewed as dispensable. But this could be false economy as this may be exactly the time when you need cover the most.

There is also the belief that life insurance is expensive which is certainly not the case should you ever need to make a claim.ii

An appropriate level of cover for you

It is estimated that an average 30-year-old needs $561,000 in death cover and $874,000 in TPD cover. As you and your family get older, your insurance needs diminish but they are still substantial. So a 50-year-old needs approximately $207,000 in death cover and $499,000 in TPD.

These figures are just for basic cover so may not meet your personal lifestyle. When working out an appropriate level of cover, you need to consider your mortgage, your utility bills, the children’s education, your daily living expenses, your car and your general lifestyle.

It’s also important to consider your stage of life. Clearly the impact of lost income through death or incapacity is much greater when your mortgage is still high, your children are younger, and you haven’t had time to build up savings.

While having some life insurance may be better than nothing, having sufficient cover is the only way to fully protect your family. So why not call us to find out if your current life and TPD cover is enough for you and your family to continue to enjoy your standard of living come what may?

Now more than ever, in these uncertain times, you may find that you too are significantly underinsured and need to make changes.

i https://www.ricewarner.com/new-research-shows-a-larger-underinsurance-gap/

(All figures in this article are sourced from this Rice Warner report.)

ii https://www.acuitymag.com/finance/confusion-around-life-insurance-leaves-australians-vulnerable-nobleoak

Is an SMSF right for you?

Is an SMSF right for you?

As anyone who has joined the weekend crowd at Bunnings knows, Australians love DIY. And that same can-do spirit helps explain why 1.1 million Aussies choose to take control of their retirement savings with a self-managed superannuation fund (SMSF).

As well as control, investment choice is a key reason for having an SMSF. As an example, these are the only type of super fund that allow you to invest in direct property, including your small business premises.

Other reasons people give are dissatisfaction with their existing fund, more flexibility to manage tax and greater flexibility in estate planning.

What type of person has an SMSF?

If you think SMSFs are only for wealthy older folk, think again.

The average age of people establishing an SMSF is currently between 35 and 44. They’re also dedicated. The majority of SMSF trustees say they spend 1 to 5 hours a month monitoring their fund.i,ii

But an SMSF is not for everyone. There has been ongoing debate about how much you need in your fund to make it cost-effective and whether the returns are competitive with mainstream super funds.

So is an SMSF right for you? Here are some things to consider.

The cost of control

Running an SMSF comes with the responsibility to comply with superannuation regulations, which costs time and money.

There are set-up costs and ongoing administration and investment costs. These vary enormously depending on whether you do a lot of the administration and investment yourself or outsource to professionals.

A recent survey by Rice Warner of more than 100,000 SMSFs found that annual compliance costs ranged from $1,189 to $2,738. These are underlying costs that can’t be avoided, such as the annual ASIC fee, ATO supervisory levy, audit fee, financial statement and tax return.iii

If trustees decide they don’t want any involvement in the administration of their fund, the cost of full administration ranges from $1,514 to $3,359.

There is an even wider range of ongoing investment fees, depending on the type of investments you hold. Fees tend to be highest for funds with investment property because of the higher management, accounting and auditing costs.

By comparison, the same report estimated annual fees for industry funds range from $445 to $6,861 for one member and $505 to $7,055 for two members. Fees for retail funds were similar. Fees for SMSFs are the same whether the fund has one or two members.

Size matters

As a general principle, the higher your SMSF account balance, the more cost-effective it is to run.

According to the Rice Warner survey:

  • Funds with $200,000 or more in assets are cost-competitive with both industry and retail super funds, even if they fully outsource their administration.
  • Funds with a balance of $100,000 to $200,000 may be competitive if they use one of the cheaper service providers or do some of the administration themselves.
  • Funds with $500,000 or more are generally the cheapest alternative.

Returns also tend to be better for funds with more than $500,000 in assets.

Even though SMSFs with a balance of under $100,000 are more expensive than industry or retail funds, they may be appropriate if you expect your balance to grow to a competitive size fairly soon.

Increased responsibility

While SMSFs offer more control, that doesn’t mean you can do as you like. Every member of your fund has legal responsibility for ensuring it complies with all the relevant rules and regulations, even if you outsource some functions.

SMSFs are regulated by the ATO which monitors the sector with an eagle eye and hands out penalties for rule breakers. And there are lots of rules.

The most important rule is the sole purpose test, which dictates that you must run your fund with the sole purpose of providing retirement benefits for members. Fund assets must be kept separate from your personal assets and you can’t just dip into your retirement savings early when you’re short of cash.

Don’t overlook insurance

If you considering rolling the balance of an existing super fund into an SMSF, it could mean losing your life insurance cover. To ensure you are not left with inadequate insurance you may need to arrange new policies.

If you would like to discuss your superannuation options and whether an SMSF may be suitable for you, don’t hesitate to call.

i https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

ii https://www.smsfassociation.com/media-release/survey-sheds-new-insights-on-why-individuals-set-up-smsfs?at_context=50383

iii https://www.ricewarner.com/wp-content/uploads/2020/11/Cost-of-Operating-SMSFs-2020_23.11.20.pdf

Extending that holiday feeling

Extending that holiday feeling

Does the summer break already feel like so long ago? If that holiday glow and relaxation didn’t last as long as you wanted, you’re not alone.

New research indicates that the mental health benefits of a holiday unfortunately fade quicker than a tan. The study found that it takes us just three days to get back into our normal level of stress.i Fortunately, there are ways you can hold onto that holiday feeling all year round.

Incorporate holiday habits

Morning sleep-ins, days spent outdoors in the sun, having long chats with family and friends, enjoying delicious food and drink, not being tethered to your phone – no wonder we feel more relaxed on holiday than we do in our day-to-day lives!

While most of us don’t have the luxury of sleeping in and turning up to work when we feel like it, you can incorporate some of your holiday habits into your regular working week. This can be as simple as taking regular breaks and scheduling in some outdoors time, whether it’s finding a park near the office, or going on a bush walk on the weekend. You might also like to opt for a screen-free day and instead pick up a book or have a board game night.

Take smaller breaks

Your leave allowance and financial situation may only permit you to take a small time away from work, but rather than just focusing on long holidays, try to also take regular breaks.

This could be weekends away or even just a day spent in a different town close to where you live, acting as a tourist and exploring the area. Just a day of adventuring will add some novelty into your schedule and allow you to unwind without needing to take an extensive period of leave or to travel far.

Rethink your workday

Rethinking your workday can improve your productivity. If you have the flexibility to do so, you may find changing your hours can have a positive effect on your productivity and motivation. For example, if you’re someone who struggles to get going before mid-morning, starting work later can have you feeling fresher and more alert.

It can also help to split your day into 90-minute windows to allow you to focus on a set number of tasks.ii Doing so can improve your efficiency and give you more free time as a result.

Reduce stress

We all know that excess stress is bad for us, but it can be near impossible to remain relaxed and care-free. Being on holiday and away from our regular lives can provide insight into what we are stressed about.

If the constant beep of notifications on your phone grates on you, having phone-free time can help. Maybe you feel under pressure at work or have an unmanageable workload – can you discuss these concerns with a colleague, boss or HR? A cause of stress can even be not having enough to do and being unsure of your purpose, in which case it could be helpful to reach out to a mentor or life coach for guidance. Whatever it may be, identifying your stressors will help you work towards reducing them.

Develop a positive mindset

Hand-in-hand with being more relaxed is having a positive mindset. Our holidays give us much to feel grateful for, such as the freedom of movement and access to beautiful locations, which we may have taken for granted pre-COVID-19.

In our everyday lives, rather than pining for that next holiday, think about what you are grateful for. This focus on gratitude and positivity makes it much easier to enjoy the day-to-day, and may lead you to adjust your priorities to reduce stress and improve your overall happiness.

We hope you all have a happy, prosperous and fulfilled year and we’re here to help if you need a hand. Enjoy your present, with a positive mindset.

i https://www.businessthink.unsw.edu.au/Pages/Rest-and-rejuvenate-why-your-summer-holiday-may-not-have-done-the-trick.aspx

ii https://lifehacker.com/why-we-should-rethink-the-eight-hour-workday-515742249

This Newsletter provides general information only. The content does not take into account your personal objectives, financial situation or needs. You should consider taking financial advice tailored to your personal circumstances. We have representatives that are authorised to provide personal financial advice. Please see our website https://superevo.net.au or call 02 9098 5055 for more information on our available services.

Latest Government Measures in Response to COVID-19

As the impact of the coronavirus on our daily lives and livelihoods rapidly evolves, below are the latest measures released by the Government to reduce both the impact to the nations health, economy, household and business finances.

At times like these it’s important to have someone to talk to, so we urge you to contact us if you have concerns about your finances.

Temporary access to super
As part of the measures taken by the government to support those impacted by COVID-19 some people will be able to access up to $10,000 of their super between now and 1 July 2020, with a further $10,000 in the first three months of the 2020-21 financial year, tax free.

Continue reading “Latest Government Measures in Response to COVID-19”