Topical Archives - Super Evolution

Summer 2022

December 5, 2022 by victoria

It’s December, summer is here and holidays are just around the corner. We take this opportunity to wish you and your family a happy festive season!

The big story on the global economic front continues to be inflation, and how high interest rates will go to tame it. November began with the US Federal Reserve hiking its federal funds target range by another 75 basis points to 3.75-4.00%. There are signs the tough approach is working, with the annual rate of inflation falling from 9.1% in June to 7.7% in October.

In Australia, the Reserve Bank lifted the cash rate another 25 basis points to a decade high of 2.85%. Inflation fell to 6.9% in the year to October, down from 7.3% in September, but remains high and economic signals are mixed. Reserve Bank governor Philip Lowe is keeping a close eye on consumer spending, where higher interest rates are having an impact. Retail trade fell 0.1% in October for the first time this year. And while the ANZ-Roy Morgan consumer sentiment index was up 5.6% to 83.1 points in the last three weeks of November, it remains 22.9 points below the same week last year. But rate hikes are not yet affecting the labour market, with unemployment falling to a 48-year low of 3.4% in October, while annual wages growth rose 1% to 3.13% in the September quarter, the fastest growth in a decade.

The Aussie dollar lifted 3c to around US67c over the month, crude oil prices fell 10% while iron ore lifted 0.5%. Shares remain skittish but positive overall. The ASX200 index rose more than 5% in November while the US S&P500 index was up more than 2%.

Sustainable investing on the rise

Sustainable investing isn’t new and is becoming more mainstream. From climate change to gender diversity, more people are aligning their money with their values.

In 2021, Australia’s sustainable investment market increased 20 per cent to a record $1.5 trillion. The Responsible Investment Association Australasia (RIAA) 2022 benchmark report found sustainable investments represents 43 per cent of total professionally-managed funds.

In addition to traditional shares and fixed interest sustainable investments offer a wide range of assets, including property, alternatives such as forestry, infrastructure, private equity and cash.

Most big super funds offer a sustainable investment option and some offer this as their default option. You can also buy sustainable managed funds, including a growing list of exchange-traded funds (ETFs).

What are sustainable investments?

Focus on people and planet

Sustainable investing is also known as ethical, responsible and ESG (environmental, social, governance) investing, with the focus on people, society and/or the environment.

Sustainable investments are selected using a variety of screening methods, including:

Positive screening selects the best investments in their class

Negative screening excludes harmful sectors, companies or activities such as arms, gambling, animal testing, tobacco and fossil fuels

Norms-based investing screens for minimum standards of relevant business practices

Impact investing has the explicit intention of generating positive social or environment impacts.ⁱ

The term ESG investing is used when a fund or company commits to sustainable investing in these three areas:

Environmental – air and water pollution, biodiversity and climate change

Social – child labour and labour standards, ethical product sourcing, gambling and human rights

Governance – board diversity, corruption, business ethics, corporate culture and whistle-blower schemes.

The report found gender diversity and women’s empowerment are also gaining popularity.

Sustainable investing is not all warm and fuzzy. Performance still matters.

Performance gains

Initially, sustainable investing often came at the expense of returns but that is no longer necessarily the case.

The report compared the performance of what it terms responsible investment funds and mainstream investments funds (on average and net of fees) over the past 10 years to December 2021.

Responsible multi-sector growth funds consistently outperformed mainstream funds and their benchmark over 1, 3, 5 and 10 years. Responsible Australian share funds generally outperformed or were on par with mainstream funds. Only responsible international share funds disappointed, underperforming mainstream funds across all timeframes.

Watch out for greenwashing

Increased demand for sustainable investments has led to a rapid increase in the number of products available. The rush to cash in on the trend has sometimes led to what is known as ‘’greenwashing”. The Australian Securities and Investments Commission (ASIC) describes greenwashing as the practice of misrepresenting the extent to which a financial product or investment strategy is environmentally friendly, sustainable or ethical.

ASIC warns investors to review the product terms. For example, a fund might describe itself as ‘’no gambling” but may invest in companies that earn less than 30 per cent of revenue from gambling.
Look for a clear explanation of how the product will achieve its aims and don’t rely on vague language like “considers”, “integrates” or “takes into account”.

Australian companies lifting their game

It’s not just super funds and managed funds taking sustainable investing more seriously, Australian listed companies are also adapting to changing investor preferences and regulatory environment. A recent analysis of ESG reporting by Australia’s top 200 listed companies, PwC found a 13 per cent increase in companies declaring a commitment to net zero emissions. However, only 55 per cent of those disclosed a transition plan or activities that will enable them to reach net zero.

There was also a 10 per cent increase in companies disclosing climate risks and opportunities, and a 30 per cent increase in companies disclosing a gender diversity policy.

For investors seeking sustainability along with financial returns from their investments, momentum and choice is growing. So please get in touch if you would like to discuss your investment options.

i https://responsibleinvestment.org/wp-content/uploads/2022/09/Responsible-Investment-Benchmark-Report-Australia-2022-1.pdf

Buying shares for kids: a gift that keeps on giving

Many parents and grandparents worry about how to help the children in their lives achieve financial independence. But the value of long-term investment can seem like a dry and complicated idea for kids to get their heads around.

In fact, many young people would like to know more about money, according to a Young People and Money survey by the Australian Securities and Investments Commission MoneySmart website. The survey found more than half of the 15-21-year-olds surveyed were interested in learning how to invest, different types of investments and possible risks and returns. What’s more, almost all those young people with at least one investment were interested enough to regularly check performance.

One way to introduce investment to children may be to begin a share portfolio on their behalf. The child can follow the progress of the companies they are investing in, understand how the market can fluctuate over the short- and long-term, as well as learn to deal with some of the paperwork required, such as filing tax returns.

How to begin

Setting up a share portfolio doesn’t need to be onerous. It’s possible to start with a minimum investment of around $500, using one of the online share trading platforms. Then you could consider topping it up every year or so with a further investment.

Deciding on which shares to buy comes down to the amount you have available to invest and perhaps your child’s interests.

If the initial investment is relatively small, an exchange traded fund (ETF) may be a useful way of accessing the hundreds of companies, bonds, commodity or theme the fund invests in, providing a more diversified portfolio.

ETFs are available in Australian and international shares; different sectors of the share market, such as mining; precious metals and commodities, such as gold; foreign and crypto currencies; and fixed interest investments, such as bonds. You can also invest in themes such as sustainability or market sectors such as video games that may appeal to young people.

Alternatively, buying shares in one company that your child strongly identifies with – like a popular pizza delivery firm, a surf brand or a toy manufacturer – may help keep them interested and excited about market movements.

Should you buy in your name or theirs

Since children cannot own shares in their own right, you may consider buying in your name with a plan to transfer the portfolio to the child when they turn 18. But be aware that you will pay capital gains tax (CGT) on any profits made and the investments will be assessable in your annual income tax return.

On the other hand, you could buy the shares in trust for the child. While you are considered the legal owner the child is the beneficial owner. That way, when the child turns 18, you can transfer the shares to their name without paying CGT. Your online trading platform will have easy steps to follow to set up an account in trust for a minor.

There is also some annual tax paperwork to consider.

You can apply for a tax file number (TFN) for the child and quote that when buying the shares. If you don’t quote a TFN, pay as you go tax will be withheld at 47 per cent from the unfranked amount of the dividend income. Be aware that if the shares earn more than $416 in a year, you will need to lodge a tax return for the child.

Taking it slowly

If you are not quite ready to invest cash but are keen to help your children to understand share investment, you could consider playing it safe by playing a sharemarket game, run by the ASX.

Participants invest $50,000 in virtual cash in the S&P/ASX200, a range of ETFs and a selection of companies. You can take part as an individual or a group and there is a chance to win prizes.

Another option, for children able to work independently, is the federal government money managed website. This is pitched at teens and provides a thorough grounding in savings and investment principles.

Call us if you would like to discuss how best to establish a share portfolio for your child, grandchild or a special young person in your life.

Celebrating the festive season, the Aussie way

If you’ve ever hosted a visitor from overseas during the festive season you may have seen them a little bemused by the way we celebrate. It’s quite understandable as we do things a little bit differently down under.

Christmas in Australia – while fundamentally a religious festival celebrating the birth of Jesus – is also a melting pot of traditions we have inherited over time, mainly from the northern hemisphere.

Look no further than our Christmas carols, many of our festive songs and imagery reference snowflakes and cosy nights by the fireside. Think of how many of our songs are about chestnuts roasting on an open fire, riding in one-horse sleighs, and building snowmen – even though this kind of imagery is not so appropriate in Australian on a scorcher of a day.

Warm weather traditions

Santa would be much more comfortable in Australia in a pair of board shorts and a t-shirt than his fur trimmed red robes and warm hat. In fact, he has been spotted at Bondi Beach on a few occasions hitting the surf, in the lead up to his busiest time of year.

Instead of playing in the snow, we are playing in the waves, with those who live near the coast hitting the beach for a picnic or game of beach cricket during the festive season.

Prawns on the barbie at lunch

While many still opt for the roast with all the trimmings, Australians have embraced the seafood platter or something they can throw on the BBQ – or better still – seafood on the BBQ. Pavlova and trifle are common alternatives to Christmas pudding. And with no eggnog or mulled wine in sight, a refreshing drink of something icy cold is the Aussie way.

As opposed to the European tradition of having dinner on the 25th of December, we Aussies tend to have a big, long Christmas lunch (preferably with a snooze on the couch after opening all the presents).

Christmas street parties

In the suburbs, entire neighbourhoods organise street parties, getting council permission to close streets to traffic. Barbeques are pulled out onto the asphalt and tables set up with goodies. Kids roam around with water pistols and inflatable wading pools are set up if it’s warm enough, with games organised. Tug of war between the odd and even house numbers anyone?

Carols and pageants

Even though we are singing about snow falling gently and jack frost nipping at our toes, we are usually watching carols on a balmy evening with bats flying overhead in the Botanic Gardens if we are in Melbourne or the Domain Gardens in Sydney.

In Adelaide and Perth millions of kinds have grown up watching annual street parade pageants which liven up the festivities with a carnivale atmosphere and floats, music, and dancing.

Boxing Day sales and the cricket

While the various origins of Boxing Day are not universally agreed upon, the day is traditionally a day of rest after the excesses of Christmas day. It is said to have its origins in England when the wealthy gave their servants a day off and sent them home to their families with boxes of gifts and leftover food from their celebrations the day before.

We don’t tend to have much of a rest on Boxing Day. If we are not hitting the Boxing Day sales or packing up the car to head off on holiday, we are at the cricket. The Boxing Day test is one of the most attended and watched games in the country since its inception in 1950.

The start of summer holidays

Christmas in Australia comes at the start of the summer holidays so the lead up to the festive season also involves workplace break ups and celebrations with colleagues.

Then after the festivities on the 25th are done and dusted it is time to take off for what will hopefully be a nice relaxing break.

Of course, there are many ways to celebrate at this special time of year. We are blessed to live in a vibrant multicultural nation, feeling the influence of other cultures and traditions from all over the globe.
However you choose to mark the occasion, we wish you much joy and happiness in your celebrations.

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 2022 Newsletter

July 4, 2022 by victoria

Welcome to our July newsletter and the start of a new financial year. With winter in full swing, it’s a great time to rug up by the fire, take stock of the year that was and make plans for the future.

June was a big month in an eventful year for the local and global economy, with inflation and interest rates continuing to dominate. The US Federal Reserve lifted official rates by 0.75% to a target range of 1.50-1.75% to combat surging inflation of 8.6% in the year to May, stoking fears of a US recession.

Australia faces similar but less acute challenges. With inflation sitting at 5.1%, the Reserve Bank lifted the cash rate by 0.5% to 0.85% in June and Governor Philip Lowe hinted at more to come in July. The Australian economy is still growing relatively strongly at an annual rate of 3.3%. Retail trade rose 10.4% in the year to May on the back of low unemployment and high household savings. Household wealth rose to a record high of $574,807 in the year to March, but since then there has been a global sell-off in shares, a slowdown in the Australian housing market and cost of living pressures are mounting. The ANZ-Roy Morgan consumer confidence reading remains weak at 84.7 points (100 is neutral).

Australia’s national average petrol price rose to 211.9c a litre in June, the second highest on record, on the back of a surge in global oil prices. Brent Crude rose almost 45% over the past year as the war in Ukraine disrupts supply. Despite a late bounce in shares, the ASX200 fell 9.6% in the year to June, while US shares were down more than 12%. The Aussie dollar lost ground over the financial year to finish below US69c.

A super window of opportunity

New rules coming into force on July 1 will create opportunities for older Australians to boost their retirement savings and younger Australians to build a home deposit, all within the tax-efficient superannuation system.

Using the existing First Home Super Saver Scheme, people can now release up to $50,000 from their super account for a first home deposit, up from $30,000 previously.

Another change that will help low-income earners and people who work in the gig economy is the scrapping of the Super Guarantee (SG) threshold. Previously, employees only began receiving compulsory SG payments from their employer once they earned $450 a month.

But the biggest potential benefits from the recent changes will flow to Australians aged 55 and older. Here’s a rundown of the key changes and potential strategies.

Work test changes

From July 1, anyone under the age of 75 can make and receive personal or salary sacrifice super contributions without having to satisfy a work test. Annual contribution limits still apply and personal contributions for which you claim a tax deduction are still not allowed.

Previously, people aged 67 to 74 were required to work for at least 40 hours in a consecutive 30-day period in a financial year or be eligible for the work test exemption.

This means you can potentially top up your super account until you turn 75 (or no later than 28 days after the end of the month you turn 75). It also opens potential new strategies for a making big last-minute contribution using the bring-forward rule.

Extension of the bring-forward rule

The bring-forward rule allows eligible people to ‘’bring forward” up to two years’ worth of non-concessional (after tax) super contributions. The current annual non-concessional contributions cap is $110,000, which means you can potentially contribute up to $330,000.

When combined with the removal of the work test for people aged 67-75, this opens a 10-year window of opportunity for older Australians to boost their super even as they draw down retirement income.

Some potential strategies you might consider are:

Transferring wealth you hold outside super – such as shares, investment property or an inheritance – into super to take advantage of the tax-free environment of super in retirement phase

Withdrawing a lump sum from your super and recontributing it to your spouse’s super, to make the most of your combined super under the existing limits

Using the bring-forward rule in conjunction with downsizer contributions when you sell your family home.

Downsizer contributions age lowered to 60

From July 1, you can make a downsizer contribution into super from age 60, down from 65 previously. (In the May 2022 election campaign, the previous Morrison government proposed lowering the eligibility age further to 55, a promise matched by Labor. This is yet to be legislated.)

The downsizer rules allow eligible individuals to contribute up to $300,000 from the sale of their home into super. Couples can contribute up to this amount each, up to a combined $600,000. You must have owned the home for at least 10 years.

Downsizer contributions don’t count towards your concessional or non-concessional caps. And as there is no work test or age limit, downsizer contributions provide a lot of flexibility for older Australians to manage their financial resources in retirement.

For instance, you could sell your home and make a downsizer contribution of up to $300,000 combined with bringing forward non-concessional contributions of up to $330,000. This would allow an individual to potentially boost their super by up to $630,000, while couples could contribute up to a combined $1,260,000.

Rules relaxed, not removed

The latest rule changes will make it easier for many Australians to build and manage their retirement savings within the concessional tax environment of super. But those generous tax concessions still have their limits.

Currently, there’s a $1.7 million limit on the amount you can transfer into the pension phase of super, called your transfer balance cap. Just to confuse matters, there’s also a cap on the total amount you can have in super (your total super balance) to be eligible for a range of non-concessional contributions.

As you can see, it’s complicated. So if you would like to discuss how the new super rules might benefit you, please get in touch.

Source: ATO

A Will to give

As baby boomers shift into retirement, Australia is on the brink of the nation’s biggest ever intergenerational wealth transfer. Yet estate or inheritance planning is rarely discussed by families.

Talking openly about how you want your assets to be passed on can help avoid family disputes that take a toll both financially and emotionally. It provides a certain peace of mind for you – that your intentions will be met – and for your family and friends.

Certainly the stakes have never been higher, with growing house prices and healthy superannuation balances contributing to a considerable increase in the wealth of many older Australians in the past two decades.

Around $1.5 trillion was transferred in gifts or inheritances between 2002 and 2018. In 2018 alone, some $107 billion dollars was inherited while $14 billion was handed out in gifts.ⁱ

The importance of planning

With so much at stake, having an estate plan in place helps to protect the interests of those you care about and to fulfil your wishes. It takes careful thought and professional advice, but that is no excuse for putting the task aside for later. If something happens to you in the meantime, your assets may not be distributed as you would like and there could be tax implications for your beneficiaries.

An estate plan includes a Will and, in some cases, funeral arrangements and instructions for the care of children and animals. Without a Will, your assets will be distributed according to state inheritance laws which may not be what you intended.

A plan may also include instructions for a testamentary trust to hold assets that are then distributed in a tax-effective way to your beneficiaries. And don’t forget your ‘digital will’, a list of any online accounts and passwords that may be important.

Meanwhile, to protect your interests in case you are incapacitated in some way, an enduring power of attorney and a medical power of attorney nominate the people you would like to handle your affairs until you are better.

Complex families

Estate planning is even more important in the case of blended families or for those with complex family relationships, especially where the emotional issue of the family home is concerned.

Disputes often centre around who gets the house when there are children from a previous marriage, but your new spouse is living in the family home. You could allocate other assets to the children and leave the home to your spouse or require that the house be sold and the proceeds distributed to all. Alternatively, your Will could grant lifetime tenure in the home for your spouse with it passing to your children after your spouse dies. Having conversations early about your intentions, can help alleviate possible conflict.

If you are concerned about protecting the interests of a family member with mental health or addiction issues, a testamentary trust can help to look after your assets and distribute funds in a controlled way. A testamentary trust is also often used to provide for young children, holding the assets until they reach adulthood.

Dividing it up

When it comes to deciding how best to allocate assets among children, some prefer to hand out equal shares no matter their individual financial circumstances, while others prefer to give extra to one who may be struggling. Given that Wills are frequently challenged by family members or others who believe they are owed a share or an even bigger share, it’s wise to make your intentions clear in your Will including reasons and documentation.

While people who receive inheritances are usually well into middle age – on average 50-years-oldⁱⁱ – and perhaps comfortably well-off, you could choose to bypass the next generation. Instead, you might consider leaving your estate to grandchildren, to help set them up with a deposit for a home or covering school fees.

Another option is to begin distributing your estate while you are alive and can share the enjoyment of the benefits the extra financial help might bring.

What’s not covered?

It is important to note that some assets are not covered by your Will. These include assets jointly held with someone else (such as a bank account or a house), super benefits and life insurance.

In the case of jointly held assets, ownership generally passes to the surviving partner and life insurance is paid to the beneficiary named in the policy. For super, it’s vital to complete a binding death benefit nomination to ensure the funds are paid to the person you choose.

With so much to consider, expert advice is critical when preparing an estate plan, so call us to begin the discussion.

i https://www.pc.gov.au/research/completed/wealth-transfers

ii Wealth Transfers and their Economic Effects – Commission Research Paper – Productivity Commission (pc.gov.au)

Your investing style – as unique as you

As interest rates start to increase after a lengthy period of historical lows, it’s a good time to think about how your money is working for you and whether your investing style and strategy is still in line with your goals.

Higher interest rates don’t just send a ripple through the economy, aside from the obvious impact on the property market, they often impact stock prices. There are a myriad of other factors that contribute to market movement and portfolio performance and trying to navigate all the things that need to be considered can be challenging but being aware of your preferred investment style and having a considered and appropriate strategy can help.

The benefits of style and strategy

Just as we are all unique individuals, our goals and approach to investing will also be different to our family and friends and it pays to be familiar with your own style and preferences.

It can be common for those new to investing to take the plunge without any real plan, let alone an investment strategy that’s likely to align with their current circumstances, future requirements, and investment goals.

Even those who have been investing for some time can be guilty of a ‘set and forget’ approach that might mean hanging on to a strategy that does not meet their present or future needs.

Having the right investment strategy – the one that’s right for you – improves the likelihood of your investments meeting your goals and allows you to sleep at night.

Your tolerance for risk at the core of your style

While approaches to, and styles of investing are many and varied, your comfort with risk is often the primary driver of any approach you may choose to take. There is of course a trade-off between risk and return that needs to also be considered. Your comfort with risk will determine the right mix of asset classes in your portfolio.

An aggressive investor, commonly someone with higher risk tolerance, is willing to take on greater risk for the possibility of better returns than a conservative investor. This type of investor will be comfortable with a higher proportion of growth assets like shares or listed property that offer higher returns over the long-term that may come at the expense of less stable returns.

A conservative investor will employ a larger proportion of defensive assets in their portfolio to provide long-term stable returns with lower volatility and exposure to risk. Defensive assets are fixed interest investment options including fixed income bonds and cash investment options.

Hands-on vs hands-off approach

Investing strategies can be further separated into two distinct groups: active and passive.
Passive investing, as the name implies, focuses on benefitting from the overall increase in market prices over time. One of the benefits of passive investing is that it minimises the mistakes investors can make when they react emotionally to stock market movement.

Active investing involves a more hands-on approach, with more frequent buying and selling to take advantage of short-term price fluctuations and is generally undertaken by a portfolio manager.

Changing your strategy over time

Most investors find that their investment style shifts as they age. Younger investors have a longer time horizon, so they may feel more comfortable making riskier investments as they have time for the market to recover from market falls. Mature investors may be more focused on preserving their savings for retirement, so they may be more interested in diversification and dollar-cost averaging.

For investors nearing or at retirement, a shift from asset growth and capital gains to a focus on income may be something worth considering and is often desired. The advantage of an income focussed strategy is that investments can produce some of the cash flows needed when you’re no longer working. Dividend stocks are a common way to achieve this goal, with companies showing stable and growing dividends providing the most value.

To ensure you are employing the right strategy to meet your objectives, it pays to be aware of your options and revisit your comfort with risk and your overall investment goals. We can ensure your investment portfolio meets both these elements throughout your various life stages.

If you are interested in exploring the options available to you, please get in touch. We can work closely with you to review your strategy or if you are new to investing, find the right mix for your unique circumstances.