Market movements & review video – October 2021

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

Our October update takes you through key economic indicators, as September was a mixed bag on the economic front.  After reaching record highs in August, global sharemarkets stumbled in late September.

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.

October 2021 Super Evolution Newsletter

It’s October and with grand finals season almost over the countdown to summer begins. Despite ongoing lockdowns, rising vaccination rates are paving the way for the re-opening of borders and business.

September was a mixed bag on the economic front. After reaching record highs in August, global sharemarkets stumbled in late September. There are concerns about rising inflation and bond yields if the US Federal Reserve begins tapering their bond purchases later this year as expected. Markets also grappled with rising COVID cases, the potential collapse of the Chinese property developer Evergrande, supply chain blocks and rising oil prices. The US S&P500 and the Australian ASX200 finished the month down 5% and 3% respectively.

In Australia, consumer confidence is growing in response to State and Federal governments revealing their re-opening plans. The ANZ/Roy Morgan consumer confidence rating rose over the last three weeks of September to a 10-week high of 103.7. Prior to that, retail trade fell 1.7% in August and 0.7% over the year. And while the unemployment rate fell from 4.6% to 4.5% in August, participation and hours worked all fell. This reflects the large numbers of Australians who have been stood down due to COVID but not actively seeking work.

On commodity markets, oil prices surged almost 10% to three-year highs in September. That pushed up local petrol prices, with unleaded petrol at record highs in some cities. Meanwhile, iron ore prices fell 25% in September on falling Chinese demand. This put downward pressure on Australian mining shares and the Aussie dollar, which fell by one cent to finish the month at US72.2c.

Spotlight on super performance

Spotlight on super performance

Superannuation has provided most fund members with stellar returns since last year’s COVID lows. As always though, some funds performed better than others and recent government reforms make it easier to find out how your fund compares.

Indeed, you may have noticed recent media reports naming 13 super funds that failed a performance test conducted by the super industry regulator, the Australian Prudential Regulation Authority (APRA).

While the news may have come as a shock to members of those funds, it’s important to understand the aims and limitations of the new test.

Background to super reforms

Under the federal government’s Your Super, Your Future reforms passed in June, super funds that fail to meet an annual performance test must notify their members about their underperformance. Funds that fail the test for two consecutive years won’t be able to accept new members until their performance improves or they merge with another fund.

The government has also made it easier to compare funds. As of July 1, anyone can jump onto the ATO’s new YourSuper comparison tool, which ranks funds by fees and investment returns. For now though, the tool only compares MySuper funds which are the default products for employees who don’t choose a fund.

While it’s hard to argue with any initiative that aids transparency and protects people from poorly performing super funds, caution is needed when interpreting the super tool.

Compare like with like

When you compare super funds, it’s important to compare like with like. Awarding funds a simple pass or fail does not take into account a variety of factors such as the risk and return trade-off in investment options and whether the fund is a lifecycle product that reduces risk as a member ages.

Conservative options with a higher percentage of cash and fixed interest investments tend to deliver more modest returns in the long run but with a smoother ride along the way. Whereas balanced and growth options with a higher allocation to shares may deliver higher returns in the long run but with more volatility.

That means a fund may underperform in the short term but still provide members with their desired level of risk and returns. Working out the most appropriate option for you will also depend on when you plan to retire and how much longer your money will be invested in the market. Generally, the shorter your time frame, the more conservative you are likely to be.

The YourSuper comparison tool also doesn’t consider the value of insurance offered by funds or other member services.

The value of advice

While the government’s super reforms are aimed at those who may not be engaged with their super or understand how their savings are being managed, you don’t need to go it alone. This is where our expertise can assist, ensuring your choices are tailored to your circumstances and guiding your decision.

In fact, a recent study by Russell Investments quantified the value of advice. It found that financial advisers added an estimated 5.2 per cent in value to their clients’ portfolios in the tumultuous period from the beginning of the pandemic through to the market’s stunning recovery by mid-2021.i

The report broke down this figure of 5.2 per cent into five key elements:

  • Preventing behavioural mistakes, like switching to cash and crystallising your paper losses after a market fall (2 per cent)
  • Advising on appropriate asset allocation (1.1 per cent)
  • Optimising cash holdings (0.6 per cent)
  • Tax-effective investing and planning (1.5 per cent)
  • Expert wealth management knowledge derived from years of market experience – priceless.

The report found the beneficial impact for an investor who started 2020 with a portfolio worth $250,000 and stayed in the market until 31 May this year – rather than switching to cash when markets were volatile in March 2020 – was as large as $40,000.

The bottom line

It’s important for all investors to understand how their super is performing. Even more important though, is having a financial plan that takes into consideration not just your choice of super fund, but all your personal goals and circumstances.

If you would like to discuss your super in the context of your overall investment strategy, give us a call.

i https://russellinvestments.com/us/resources/financial-professionals/value-of-advisor

Decision making your way to the best outcome

Decision making your way to the best outcome

Throughout our lives, making a decision is something we do thousands of times a day. Our first thought occurs as soon as we wake, and our final thought when we drift off to sleep. Researchers have found on average, that most people will have approximately 6,200 thoughts per day.i

Having so many thoughts requires us to make thousands of decisions. Whilst majority of these decisions are simple and will have no significant consequence, there are times when more difficult and complex decisions will need to be made and require creative thinking techniques and a deeper thought process to ensure a more successful outcome.

Deep thinking vs shallow thinking

Two types of methods can be used when it comes to decision-making and while neither is right nor wrong, it’s important to understand the difference between the two and choose the method that works best for you and the situation. After all, if we all thought the same way, life would be pretty boring right?

Deep thinking requires effort and mindfulness and someone who is considered a deep thinker will usually look at the whole chain of events throughout this thought process. They will explore different pathways to reach different outcomes and have a greater understanding of the consequences based on that specific decision.

Contrary to deep thinking is shallow thinking, and these decisions are instinct-driven – they are made immediately. This type of thinker is decisive and won’t necessarily spend time exploring different pathways to reach an outcome or consider the consequences of their decisions as much as a deep thinker would.

Can you learn to become a deep thinker?

Some may say, with so much technology and information on hand, shallow thinking is now far outweighing the deep thought process and we are losing the ability use these creative thinking skills to make certain choices. Our attention span is limited; we are distracted easily therefore, our thought process is constantly being interrupted, meaning we spend less time thinking about the outcomes of the choices we are making.

There are several steps you can implement to learn how to become a deep thinker. Firstly, you must fully understand the situation in detail – what is being asked and what impact it will have – only then, can you spend time creating a constructive environment to make decisions. In creating a constructive environment, you will need to determine whether other people should be included in this process.

By including others, you have the opportunity to take into account other people’s ideas. This is a fantastic way to explore ideas that you may not have previously considered and give the process the time and attention it deserves. Once you have reviewed all options, you can determine the risks and impacts of each, then decide what the best outcome is likely to be.

Alternate ways to make decisions

Some decisions won’t be as complex or require the same level of creative thinking to make the right choice. Some alternate options could be as simple as – sleep on it. While this may seem like a ‘no brainer’, this can be one of the most effective ways to make a decision. While you are sleeping, your subconscious is still hard at work.

Talk to friends, relatives, or colleagues whose opinion you value – they can offer a different perspective if you are unsure about your decision.

Schedule a specific time in the day to help you focus – do you do your best thinking in the morning, afternoon, or evening. Remember, to focus completely, you need to remove all distractions during this time – turn off your email notifications and put your phone on silent.

If the decision is work-related, try delegating tasks as this could help reduce stress if work is piling up.

Change your environment – going for a walk or meditating can help you relax which then allows you to free space in your mind and shed new light on the way you think.

No right or wrong

Remember, there is no right or wrong when it comes to making decisions. Whether they are personal or business-focused, by applying some of these methods, you may alleviate stress and reach a better outcome when you next make a decision.

i https://www.newshub.co.nz/home/lifestyle/2020/07/new-study-reveals-just-how-many-thoughts-we-have-each-day.html

Responsible investing on the rise

Responsible investing on the rise

For many people, there’s much more to choosing investments than focusing exclusively on financial returns. Returns are important, but a growing number of people also want their investments align with their values.

Everyone’s values are different but given the choice most people would wish to make a positive difference to their community and/or the planet. Or at least to do no harm.

Indeed, four out of five Australians believe environmental issues are important when it comes to their investment decisions.i

As a result, there has been a surge in what is called responsible investing. Also known as ethical or sustainable investing, responsible investing includes investments that support and benefit the environment and society, rather than those whose products or way of conducting business have a negative impact on the world.

Millennials driving growth in sustainability

The trend toward responsible investment is growing rapidly. According to the Responsible Investment Association of Australasia (RIAA), Australians invested $1.2 trillion in responsible assets in 2020.ii While money flowing into Australian sustainable investment funds was up an estimated 66 per cent in the year to June 2021.iii

Responsible investing is particularly popular among millennials, now in their late 20s and 30s and beginning to get serious about building wealth. Many in this group are getting a foot on the investment ladder via exchange-traded funds (ETFs). A recent survey of the Australian ETF market found 28 per cent of younger investors had requested more ethical investments.iv

More sustainable investment options

As awareness of responsible investing grows, so does the availability of sustainable investment options, beginning with your super fund.

Most large super funds these days offer a sustainable option on their investment menu. While relatively rare even 10 years ago, the availability and performance of sustainable options has grown strongly over the past three to five years.

According to independent research group, SuperRatings, the top performing sustainable options now surpass their typical balanced style counterparts in some cases.v

If you run your own self-managed super fund (SMSF) or wish to invest outside super, there is a growing number of managed funds that actively select sustainable investments, or ETFs that passively track an index or sector.

There were 135 sustainable funds in Australia and New Zealand in 2021, so there is plenty of choice.iii

How to screen

So how do you find the ethical investments that best suit your values?

There are several methods used with the most common being negative screening. This is where you exclude investments in companies engaged in unwelcomed activities such as gambling, tobacco, firearms, animal cruelty, human rights abuses or fossil fuels.

Positive screening is the opposite, where you actively seek out investments in companies making a positive contribution. Some examples might be companies involved in renewable energy, health care or education.

Another criterion is to look at companies that monitor their environmental, social and governance risks. This cuts across all industries and is more about the way the company conducts its business.

Environmentally they may monitor their carbon emissions or pursue clean technology, socially they may be active in ensuring a safe workplace and on the governance front they may pursue board diversity or anti-corruption policies.

Greenwashing on the rise

As the popularity of responsible investing grows, so do concerns about the practice of so-called greenwashing. This is where a company or fund overrepresents the extent to which its practices live up to their promises. The Australian Securities and Investments Commission (ASIC) recently announced a review into the use of greenwashing in Australia, prompted in part by the demand for such funds.iii

Another trend is impact investing in companies or organisations helping to finance solutions to some of society’s biggest challenges. This might include investments in areas such as affordable housing or sustainable agriculture.

Solid returns

While some investors are driven by their values alone, many more want value for their money. The good news is that it’s possible to have it both ways.

The RIAA survey found super funds that engage in responsible investments outperformed their peers over one, three and five years.
Clearly responsible investing is a trend that is gaining momentum, with the financial performance of sustainable investments attracting a wider following.

If you would like to discuss your investment options and how they might fit within your overall portfolio

i https://www.canstar.com.au/investor-hub/ethical-investing/

ii https://responsibleinvestment.org/resources/benchmark-report/

iii https://www.morningstar.com.au/funds/article/australias-sustainable-funds-market-is-growin/214505

iv https://www.betashares.com.au/insights/millennials-on-top-betashares-investment-trends-etf-report-2020/

https://www.lonsec.com.au/2021/07/21/media-release-stellar-fy21-returns-as-super-funds-deliver-for-their-members/

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.

September 2021 Newsletter

It’s September and spring is here, providing a welcome lift in spirits. After some spectacular performances by our athletes at the recent Tokyo Olympics and Paralympics, hopefully you are inspired to achieve some personal goals of your own.

August provided mixed economic news, with central banks, business and consumers remaining cautious. In a widely-reported speech, US Federal Reserve chair, Jerome Powell said there remained “much ground to cover” before he would consider lifting interest rates, sending stocks higher and bond yields lower.

In Australia, shares and shareholders were boosted by a positive company reporting season. According to CommSec, of the ASX200 companies that have reported so far, 84% reported a profit in the year to June, 73% lifted profits and dividends were up 70% to $34 billion. One of the COVID “winners” is the construction sector. While the value of construction rose 0.4% overall in the year to June, the value of residential building was up 8.9% and renovations rose 24.5%, the strongest in 21 years. One of the COVID “losers”, retail trade was down 3.1% in the year to June.

While unemployment fell from 4.9% to 4.6% in July, full-time jobs and hours worked were lower due to the impact of lockdowns. The Westpac-Melbourne Institute index of consumer sentiment fell 4.4% in August while the NAB business confidence index fell 18.5 points in July, the second biggest monthly decline since the GFC. Wages grew 1.7% in the year to June, well below the 3% the Reserve Bank wants before it considers lifting interest rates.

Iron ore prices fell 18% in August, while the Aussie dollar finished the month weaker at US73.2c.

Aged care payment options

Aged care payment options

When it comes time to investigate residential aged care for yourself, your partner, parent or relative, the search for a facility and how to pay for it can seem daunting. The system is complex, and decisions are often made in the midst of a health crisis.

Factors such as location to family and friends, reputation for care or general appeal are just as important as the sometimes-high price of a room and other fees in residential aged care.

Even so, costs can’t be ignored.i

Accommodation charges

The first thing to be aware of when researching your residential aged care options is that there are separate costs for the accommodation and the care provided by the facility.

The accommodation payment essentially covers your right to occupy a room. You can pay this accommodation fee as a lump sum called the Refundable Accommodation Deposit (RAD), or a daily rate similar to rent, or combination of both.

The daily rate is known as the Daily Accommodation Payment or DAP and is effectively a daily interest rate set by the government. The current daily rate is 4.04 per cent. If the RAD is $550,000 then the equivalent DAP is $60.87 a day ($550,000 x 4.04%, divided by 365 days).

A resident can pay as much or as little towards the RAD as they choose, but any outstanding amount is charged as a DAP.

The RAD is fully refundable to the estate, unless it is used to pay any of the aged care costs such as the DAP.

Daily fees

As well as an accommodation cost there are daily resident fees that cover living and care costs. There is a basic daily fee which everyone pays and is set at 85 per cent of the basic single Age Pension. The current rate is $52.71 a day and covers the essentials such as food, laundry, utilities and basic care.

Then there is a means tested care fee which is determined by Services Australia or Veteran’s Affairs. This figure can range from $0 to about $256 a day depending on a person’s income and assets. The figure has an indexed annual and a lifetime cap – currently set at $28,339 a year or $68,013 over a lifetime.

Some facilities offer extra services, where a compulsory extra services fee is paid. It has nothing to do with care but may include extras like special outings, a choice of meals, wine with meals and daily newspaper delivery. It can range from $20-$100 a day.

A means assessment determines if you need to pay the means-tested care fee and if the government will contribute to your accommodation costs. Everyone who moves into an aged care home is quoted a room price before moving in. The means assessment then determines if you will have to pay the agreed room price, or RAD, or contribute towards it.

How means testing works

A means-tested amount above a certain threshold is used to determine whether you pay the quoted RAD and how much the government will contribute towards the means-tested care fee.

A person on the full Age Pension and with property and assets below about $37,155 would have all their costs met by the government, except the $52.71 a day basic daily fee.

A person on the full Age Pension with a home and a protected person, such as their spouse, living in it and assets between $37,155 and $173,075 may be asked to contribute towards their accommodation and care.

To be classified a low means resident there would be assessable assets below $173,075.20 (indexed). It is also subject to an income test.

A low means resident may pay a Daily Accommodation Contribution (DAC) instead of a DAP which can then be converted to a Refundable Accommodation Contribution (RAC). They may also pay a small means-tested care fee.

Payment strategies

The fees you may pay for residential care and how you pay them requires careful consideration. For example, selling assets such as the former home to pay for your residential care can affect your aged care fees and Age Pension entitlements.

If you would like to discuss aged care payment options and how to ensure you find the right residential care at a cost you or your loved one can afford, give us a call.

i All costs quoted in this article are available on https://www.myagedcare.gov.au/aged-care-home-costs-and-fees

Don’t take super cover for granted

Don’t take super cover for granted

Buying insurance through super has many advantages, but you need to make sure you are getting the right cover for your individual needs. In some cases, you may be paying for nothing.

Most super funds offer life and total and permanent disability (TPD) insurance to fund members and, in some cases, income protection cover.

But since the introduction of the Protecting your Super reforms in 2019, this cover is no longer automatic.

If you have less than $6000 in your account or it has been inactive, then the insurance component will have been cancelled unless you advised the fund otherwise. An account may be deemed inactive if, for example, it has not received a contribution for more than 16 months.

In addition, insurance cover is no longer offered to new fund members aged under 25.

Is it right for you?

If you do have insurance in your super account, then it’s a good idea to check the cover is right for you. This is particularly the case now that the stapling measure has been introduced as part of the recent Your Future, Your Super legislation.

From November 1, unless you choose a new fund when you change jobs, the first fund you joined will be ‘stapled’ to you throughout your working life. This is where problems can arise; while the fund stays the same, so will the insurance cover.

Say you move from a low-risk job where the insurance offered in your super was more than adequate to a high-risk job such as in construction or mining. Would your insurance now cover you if you were no longer able to work? And if it did, would the cover be sufficient? It may well be that your new occupation is not even covered.

Most TPD policies within super are for “any” occupation rather than “own” occupation. This three-letter definition can make a world of difference. If you still have the capacity to work in some other occupation, then it is likely your insurance will not pay out.i

Many benefits

Despite this, there are still many benefits from having insurance cover in your super. Firstly, the premiums are generally lower because the fund buys the insurance cover in bulk. In addition, your premium payments are effectively lower as they come out of your pre-tax rather than your post-tax income.

What’s more, you are not having to put your hand in your pocket to pay the premiums as the money automatically comes out of your super. Of course, the flipside is you will have less money working to build your retirement savings.

So, when it comes to taking out insurance, going through your super has lots of positives.

But the downside is that the default level payout may be lower than you might need. You should check if this is the case and maybe consider making additional premium payments to give yourself and your family more appropriate cover. Be aware though that opting for a higher payout could mean you have to undergo a medical.

Also, life insurance cover in super actually reduces over time to the point where your cover reaches zero by the time you are 70. And for TPD cover it ceases at 65.ii

Regular checks

Wherever you get insurance cover, it’s important to remember that its purpose is generally to cover any outstanding debt and ongoing financial obligations should you pass away or become unable to work.

For this reason, it is important to regularly check your insurance within your super to ensure it is sufficient to maintain your lifestyle.

If it falls short, then you might also consider taking out a policy outside super.

While income protection is sometimes available through your super, it may be necessary to look outside. Such policies pay you a regular income for a specified period if you are unable to work through an illness or injury, and premiums are tax-deductible outside super.

When you are leading a busy life with lots of claims on your income, insurance may be seen as an unnecessary expense. But when it comes to the crunch, it can play a valuable role in you and your family’s life when you need it most.

Please call us to discuss your insurance needs and whether your existing cover, both inside super and outside, is sufficient.

i https://moneysmart.gov.au/how-life-insurance-works/total-and-permanent-disability-tpd-insurance

ii https://thenewdaily.com.au/finance/dollars-and-sense/2021/08/02/insurance-life-tpd-superannuation/

Not feeling yourself? You could be languishing

Not feeling yourself? You could be languishing

Feeling a bit lacklustre as the days roll by? Hitting the snooze button more than usual? It’s a feeling that can be difficult to put your finger on, but it has a name, languishing.

Whether it’s feeling exhausted and unmotivated, or restless and eager to do more, we can be off kilter from time to time. It’s no surprise that many are feeling this way, as we continue to deal with ongoing uncertainty and snap lockdowns due to the pandemic. Knowing this is normal is important, particularly in the current circumstances, but we can also make changes to improve our overall wellbeing.

Flourishing vs languishing

Often, we think of good mental health as the absence of mental health issues, but as the diagram below shows, there is a spectrum between high mental health and low mental health.

While flourishing sits at the top, languishing is at the bottom.

Source: Dual continua model ( Keyes & Lopez , 2002)

You’re kicking goals at work, your relationships with family and friends are harmonious, you’re growing as a person – these are examples of flourishing. On the flipside, languishing can see you struggling to get out of bed in the morning, disengaged from your work, feeling negative about your relationships, or frustrated at not getting to where you want to be.

Called “the dominant emotion of 2021”, languishing has been described as if “you’re muddling through your days, looking at your life through a foggy windshield.”i

Moving towards flourishing

The pandemic has reminded us of how little control we have over external circumstances. While lockdowns are likely to remain in our near future and the way we work and socialise are impacted as a result, there are ways we can improve our outlook.

Take time out

Working from home and remote schooling has become a reality for many of us, meaning we are busier than ever. Scheduling in some time-out is crucial to being able to switch off and feel more refreshed. Even if it’s just a day spent not checking your email and doing something restorative, you’re prioritising self-care.

Start small

When you’re languishing, it can be difficult to get motivated, it’s not likely to be the time you embark on a new fitness regime, study or career move. However, starting small can make changes in your life while building motivation for you to make further changes.

Whether it is going for a morning walk each day, reading a book the whole way through or getting to one of those tasks on your to-do list, you’re taking a step towards flourishing.

Cut out the noise

Back-to-back Zoom calls, the 24/7 news cycle, pings of social media, the distraction of everyone being at home together – no wonder it’s hard to focus.

Tap into your ‘zone’ or flow, by switching off from external noise where possible to concentrate on one task at a time. When you’re in the state of flow, time flies by as you’re engrossed in an activity that takes your full attention.

Reach out for help

It’s also worth acknowledging when you need a helping hand. It may be delegating at work so you’re not feeling overloaded or having someone to talk to if you’re struggling through the day.

Mental health issues are on the rise due to the pandemic and there is no shame in asking for help – more than ever, Australians are reaching out for mental health support in these turbulent times to help stay on track.ii

i https://www.nytimes.com/2021/04/19/well/mind/covid-mental-health-languishing.html

ii https://www.lifeline.org.au/resources/news-and-media-releases/media-releases/

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.

Super Evolution Pty Ltd August 2021 Newsletter

It’s August, and this chilly winter and periodic lockdowns can’t end fast enough for many of us. One bright spot, along with the golden wattle at this time of year, is the golden performance of our athletes in Tokyo.

The economic fallout from on-again, off-again lockdowns continued in July. The annual rate of inflation rose from 1.1% to 3.8% in the June quarter. This temporary blip was due to higher prices for childcare (which was free in the June quarter last year), petrol and goods in short supply due to supply chain and workforce disruptions. Even so, the Reserve Bank has said it won’t consider lifting interest rates until inflation is “sustainably” within its 2-3% target range.

The Australian economy is expected to contract and unemployment to rise in the September quarter, after the jobless rate fell from 5.1% to a 10-year low of 4.9% in June. Not surprisingly, consumer confidence as measured by ANZ and Roy Morgan fell to an 8-month low of 100.7 points in July. Retail trade fell 1.8% in June but remained 2.9% up on a year earlier.

There are positive signs though for Australian miners’ profits and dividends. Crude oil and natural gas prices are up around 50% this year, while iron ore prices are up 24% due to the gradual reopening of global economies and China’s strong growth, up by an annual rate of 7.9% in the June quarter. Record exports pushed Australia’s trade surplus to a record high of $13.3 billion in June. Australia’s housing boom is also increasing demand for materials, with housing construction hitting a two-and-a-half year high in the March quarter.
The Australian dollar fell one cent to around US74c in July.

A trusted investment vehicle

A trusted investment vehicle

Family trusts are a popular and effective investment structure to manage and protect your family’s fortune, but you don’t have to be worth a fortune to benefit from having one.

Despite their appeal, they are not for everyone. Indeed, it is suggested that if your assets are less than $300,000, and that is not counting your super, then it may well not be worth your while.

But for those with sufficient assets, a family trust can be an effective way to protect your family’s assets and limit your tax liability at the same time. So how do they work?

What is a family trust?

A family trust is a discretionary trust, where assets are placed in the care of a third party, the trustee, who manages it on behalf of the beneficiaries.

Discretionary trusts are so named because the distribution each year of the income and capital gains earned by the trust to the beneficiaries is at the total discretion of the trustee.

Beneficiaries are members of the trust and might include parents, children, other close relatives, and their spouses. A beneficiary may also be a company.

Key benefits

As mentioned, the key benefits of a family trust are asset protection and tax minimisation. A trust provides protection from creditors in bankruptcy, but the contents of a trust can be included as part of the matrimonial pool when it comes to divorce.

All income of the trust, including realised capital gains, must be distributed each year. It is then included in the beneficiary’s assessable income and taxed at their personal tax rate.

As a result, a trust can work particularly well from a tax viewpoint, if you are on a high marginal tax rate but your beneficiaries are on low marginal rates. If all individual beneficiaries are on a marginal tax rate greater than the company tax rate, then a family trust may include a corporate beneficiary to reduce tax.

More flexibility

Another advantage of a family trust is that it offers a flexible, tax effective structure to accumulate wealth for retirement alongside superannuation.

Their flexibility also makes them particularly attractive for small business owners who may run the business through a company structure but hold shares in that company in a family trust. The trust can then direct different types of income such as rental income from your business premises, franked dividends from company profits or capital gains to different individuals.

A family trust can also help with succession, allowing you to pass control of the family trust to the next generation by changing the trustee, without triggering a tax event.

There are some disadvantages too. There is the loss of ownership as the trust now owns the asset, not you. Also, if the trust suffers an investment loss, those losses cannot be distributed to offset your personal tax liability but must remain inside the trust. And there are costs involved in setting up and managing the trust.

Setting up a trust

To set up a family trust you will need to consult a lawyer to create a trust deed. You will also need to do the following:

  • Appoint a trustee and determine your beneficiaries
  • Decide which assets to include in the trust (a wide range of assets including stocks, bonds, managed funds, cash, real estate, antiques and fine art can all be included)
  • Apply for an ABN and a Tax file number (TFN) and open a bank account in the name of the trust.

It can cost some $2500 to set up the trust and there will be annual fees as you have to file with the Australian Tax Office each year. Stamp duty applies in both NSW and Victoria on establishment but not in other states.

What about testamentary trusts?

Another type of trust popular with families is a testamentary trust which is created within your Will and does not come into effect until your death. Similar to family trusts, they have the advantage in estate planning of providing tax and asset protection benefits for the future.

Family trusts are popular for good reason, but you need to make sure it is appropriate for your family’s circumstances. If you would like to know more, give us a call.

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

How to manage difficult conversations

How to manage difficult conversations

Saying or hearing the words, “We need to talk,” whether it’s in the workplace or in your personal life, can be a source of tension and conflict but there are ways to manage conversations that have the potential to be difficult.

Difficult conversations can range from speaking to a family member about concerning behaviour, to ending a romantic relationship, to navigating care options with elderly parents. In the workplace, challenging conversations include raising concerns about performance or unacceptable conduct, although predictably talking about remuneration has been ranked the most difficult conversation, with 33% of those surveyed stating that they avoided conversations about their pay.i

Can you remember a time when you’ve had to initiate a conversation you’d rather avoid? Or when someone approached you for ‘the talk’? Perhaps even now you have a challenging conversation looming that you need to have, but keep avoiding? You’re not alone, research has found that one in four people have been putting off a tough conversation for more than six months, while one in 10 have been doing so for a year.ii

The thing is, avoiding it usually doesn’t help. If handled the right way, an open conversation may even improve the situation or strengthen a relationship, and at the very least your perspective will be better understood. So, let’s look at some ways to tackle a hard topic.

Preparation helps

It helps to give some thought to what you are trying to achieve by having the conversation. Examine your motives carefully and be clear about what you would like as the ideal outcome.

It can be beneficial to do some “role play” in your head before the chat. To prepare yourself for what you think will be said and practice the best way of expressing yourself. Having said that, it’s impossible to prepare for all eventualities and you do need to accept the fact that you are entering into an open-ended dialogue that could go in any direction.

Active listening

While it’s always tempting to go straight in with your thoughts on the matter, it can be beneficial to start the conversation with some questions to obtain a sense of how the other party feels. Listen to their perspective with an open mind without interrupting and ask their permission to give you the opportunity to respond if you are finding it hard to get a word in.

Use your words

When sharing your ideas, it can be helpful to use collaborative language such as ‘we’ or ‘us’ instead of ‘you’ and ‘me’. Acknowledge that you understand and appreciate the other parties’ perspective by using phrasing such as “so what you are telling me is…”.

It’s a good idea to use ‘I’ statements. So, instead of saying, ‘You don’t care about me!’, which can make the other person defensive, try: ‘I feel upset with when you…’.

Try not to talk in generalities. Get to the point, describe exactly what you want from the discussion – do you want an apology, your point of view acknowledged, or change in behaviour moving forward? This will help provide structure to the discussion and a clear way forward.

Look for solutions

The ideal outcome is a mutually acceptable solution to the problem at hand. To avoid the discussion becoming adversarial ask for ideas ie “What are your thoughts are on how we can move forward and work through this issue together?”

Of course, not all conversations are going to have a happy ending. There will be people, situations or behaviours that you just can’t talk through – and that’s okay. By agreeing to disagree you have both at least aired your respective viewpoints.

You should also be proud of yourself for taking part in a difficult conversation. It takes real courage. And remember each challenging conversation you have is a learning experience making the next one that little bit easier.

i https://www.managers.org.uk/knowledge-and-insights/news/top-10-difficult-conversations/

ii https://www.hrmonline.com.au/topics/management-of-workplace-issues/avoid-tough-conversation-quit/

Investing lessons from the pandemic

Investing lessons from the pandemic

When the coronavirus pandemic hit financial markets in March 2020, almost 40 per cent was wiped off the value of shares in less than a month.i Understandably, many investors hit the panic button and switched to cash or withdrew savings from superannuation.

With the benefit of hindsight, some people may be regretting acting in haste.

As it happened, shares rebounded faster than anyone dared predict. Australian shares rose 28 per cent in the year to June 2021 while global shares rose 37 per cent. Balanced growth super funds returned 18 per cent for the year, their best performance in 24 years.ii

While every financial crisis is different, some investment rules are timeless. So, what are the lessons of the last 18 months?

Lesson #1 Ignore the noise

When markets suffer a major fall as they did last year, the sound can be deafening. From headlines screaming bloodbath, to friends comparing the fall in their super account balance and their dashed retirement hopes.

Yet as we have seen, markets and market sentiment can swing quickly. That’s because on any given day markets don’t just reflect economic fundamentals but the collective mood swings of all the buyers and sellers. In the long run though, the underlying value of investments generally outweighs short-term price fluctuations.

One of the key lessons of the past 18 months is that ignoring the noisy doomsayers and focussing on long-term investing is better for your wealth.

Lesson #2 Stay diversified

Another lesson is the importance of diversification. By spreading your money across and within asset classes you can minimise the risk of one bad investment or short-term fall in one asset class wiping out your savings.

Diversification also helps smooth out your returns in the long run. For example, in the year to June 2020, Australian shares and listed property fell sharply, but positive returns from bonds and cash acted as a buffer reducing the overall loss of balanced growth super funds to 0.5%.

The following 12 months to June 2021 shares and property bounced back strongly, taking returns of balanced growth super funds to 18 per cent. But investors who switched to cash at the depths of the market despair in March last year would have gone backwards after fees and tax.

More importantly, over the past 10 years balanced growth funds have returned 8.6 per cent per year on average after tax and investment fees.ii

The mix of investments you choose will depend on your age and tolerance for risk. The younger you are, the more you can afford to have in more aggressive assets that carry a higher level of risk, such as shares and property to grow your wealth over the long term. But even retirees can benefit from having some of their savings in growth assets to help replenish their nest egg even as they withdraw income.

Lesson #3 Stay the course

The Holy Grail of investing is to buy at the bottom of the market and sell when it peaks. If only it were that easy. Even the most experienced fund managers acknowledge that investors with a balanced portfolio should expect a negative return one year in every five or so.

Even if you had seen the writing on the wall in February 2020 and switched to cash, it’s unlikely you would have switched back into shares in time to catch the full benefit of the upswing that followed.

Timing the market on the way in and the way out is extremely difficult, if not impossible.

Looking ahead

Every new generation of investors has a pivotal experience where lessons are learned. For older investors, it may have been the crash of ’87, the tech wreck of the early 2000s or the global financial crisis. For younger investors and some older ones too, the coronavirus pandemic will be a defining moment in their investing journey.

By choosing an asset allocation that aligns with your age and risk tolerance then staying the course, you can sail through the market highs and lows with your sights firmly set on your investment horizon. Of course, that doesn’t mean you shouldn’t make adjustments or take advantage of opportunities along the way.

We’re here to guide you through the highs and lows of investing, so give us a call if you would like to discuss your investment strategy.

i https://www.forbes.com/sites/lizfrazierpeck/2021/02/11/the-coronavirus-crash-of-2020-and-the-investing-lesson-it-taught-us/?sh=241a03a46cfc

ii https://www.chantwest.com.au/resources/super-funds-post-a-stunning-gain

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.

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.