All posts tagged Asset Allocation

SMSFs – allocation to international shares


According to the Self-Managed Super Fund (SMSF) statistical report March 2019 published by the Australian Tax Office, Australian listed shares made up approximately 30% ($224 Billion approx) of total SMSF assets while overseas shares and managed funds only made up approximately 1% ($7.6 Billion approx). Well to be honest that statistic is rubbish and the true figure is nearer 10-15%.

Graham Hand on the Cuffelinks website delved deeper in to these figures and found the $1.8 Billion in International shares only represented  direct shares listed on Overseas exchanges and did not include the multitude of managed funds, listed investments like ETFs and LICs and other managed investments.

Why do we stay so close to home and what do we miss out on by doing so:

SMSF investors do seem to have a home bias for a number of reasons

Ease of access

 Their preference for direct investing rather than investing   through managed funds tends to mean they favour Australian shares because   investing directly into international shares is complex and harder to access.   Issues may include whether or not to hedge, the type of hedging strategy and   implementation.

Performance history

 Australian shares have historically outperformed   international shares over the long term which has influenced many SMSF   investors to be underweight international shares in favour of the better   performing and higher yielding Australian shares.

Quasi global exposure

 Some SMSF investors believe that investing in   Australian companies that have a global presence, such as BHP and Rio Tinto,   provide adequate exposure to international economies and investment themes.

High yielding shares with franking credits

 Australian shares tend to provide relatively   higher levels of income with franking credits.  This can be an important   source of tax effective income for retirees and pre-retirees. The franking   credits can be used to offset other tax within the SMSF (in the accumulation   phase).

Investor understanding and awareness

 A SMSF investor will typically have   a deeper knowledge and understanding of the Australian share market and   companies that make up the market than overseas companies. As a result they   may feel more comfortable investing domestically.

 An excessive home bias has its downside which needs to be considered

Some of these considerations are discussed below:

Concentration of the   domestic market

 It is well-known that the Australian share market represents a   small portion of the global universe (around 3% as measured by the MSCI   index). Our share market is highly concentrated in a few sectors and a   handful of companies. The resource and banking sectors comprise over 60% of   our market and the top 10 stocks represent 52% of the index (S&P/ASX 200   Index). The biggest company BHP alone makes up 13% of the index. This is   illustrated in the graph below which shows the extent of over-exposure and   under-exposure of Australian shares in various sectors relative to   international shares.This high level of concentration in Australian shares means   that investors are prone to shocks or underperformance affecting these key   sectors and companies. This may derive from such things as legislative   changes and/or events such as a sharp slowdown in China’s economy.

Impact of currency on   returns

 SMSF investors should take into account that a   significant amount of the long-term underperformance of international shares   has been due to the appreciation of the Australian dollar. A rise in the   Australian dollar translates to currency losses which detract from the overall   returns from international assets. To rely on the historical performance of   international shares relative to Australian shares as a guide to future   performance assumes that our Australian dollar will continue to appreciate   over the next few years.

Other domestic investments

 SMSF investors that operate a small business and/or own   investment property (either within or outside of their SMSF) already have a   heavy exposure to the direction of the Australian economy. An excessive home   bias to Australian shares in their SMSF exacerbates the extent of their   reliance on the performance of the Australian economy. According to the SMSF   statistical report, 46% of total SMSF assets are either domestic listed   shares or real estate assets.This sort of weighting means SMSF investors are likely to have   a lower level of diversification in their portfolio due to limited exposure   to countries, economies, industries and companies that are either not   available or well represented in Australia. Also, by not investing offshore   the investor has little access to countries with stronger economic growth   prospects than Australia, such as the emerging markets with their rapidly   expanding population and development prospects. It is important to keep in   mind that Australia represents less than 3% of the total world share market.

What is the best way to go about diversifying into international shares?

There are a number of ways of accessing international shares including through the use of managed funds, ETFs, LICs and direct equities with an international focus including those listed on offshore share markets. There are different types of international share funds such as global diversified funds, sector specific funds, market capitalisation funds, country funds and specialist funds.

The best way to access international shares will depend on the investment strategy of the SMSF fund and the amount of money to be placed in international shares. Some guidelines include:

  • SMSF investors with a preference for direct investments may consider buying international ETFs which track an international index or new listed option like MGE which is a close sibling to Magellan’s unlisted Magellan Global Equities fund
  • Investors with a small amount to invest in international shares may prefer a global diversified managed fund that provides broader diversification
  • Investors with a higher risk tolerance and larger amounts of funds may consider a combination of global, diversified funds supplemented with specialist and regional/country funds

Here is a good short video that explains the Home Country Bias well

 

https://www.youtube.com/watch?v=CagdMM9hVUI

How investors can deal with currency risk when investing offshore

Currency can pose a significant risk for international investors but it can also provide benefits. When the Australian dollar depreciates, currency gains can be made from the international asset when it is converted back to Australian dollars. Any currency gains will boost returns from the international investment.

Hedging the currency exposure will mean that investors miss out on this gain if the Australian dollar falls. The currency exposure can also add to the diversification benefits of investing overseas. However, if the Australian dollar appreciates the investor will experience currency losses that detract from returns.

Predicting currency movements has proven to be very difficult and is fraught with risk. Nonetheless, if SMSF investors are concerned about the risk of a continued rise in the Australian dollar, they can hedge some or all of their currency risk by the following methods:

  • Investing in a managed fund that actively manages the currency exposure, thereby leaving the hedging decision to the fund manager
  • Investing in a managed fund that has a set amount of hedging in place at all times such as 50% and 100% hedged international share funds
  • Investing in currency ETFs that effectively increase in value if the Australian dollar appreciates, thereby offsetting some or all of the losses made in the international share portfolio.

I hope these thoughts  have been helpful and please take the time to comment.

We can help you determine the right asset allocation for you!

Would love some feedback as well or arrange a meeting by clicking on the Schedule Now

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

3 Comments
by SMSF Coach - Liam Shorte on March 10, 2012  •  Permalink
Posted in Asset Allocation, Investment Strategies
Tagged , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on March 10, 2012

https://smsfcoach.com.au/2012/03/10/smsfs-allocation-to-international-shares/

7 Common SMSF Pension Errors


Having set up over 120 pensions and taken over many other clients we know that having the right documentation and following the guidelines set down for accessing pensions is essential to remain compliant and access tax exempt status. Here are some of the common mistakes we see on documentation of pensions that clients bring to us from other sources.

1.  Pension entitlement – don’t bend the rules

You must be over the preservation age to commence a pension. This means that you must have reached the preservation age at the time the pension documents say the pension starts.  A common mistake is to assume this means at the time the first pension payment is made, which is wrong. For example, you may be turning  which is your preservation age on the 1st of October and think that you can start the pension on the 1st of July but not pay any pension payments until after the 1st of October and get the full year of tax exempt  income. This is not possible; in order to start the pension you must have reached the preservation age at the 1st of October. the income for that year will be split pro-rata across the period in accumulation phase pre- 1st of October and in pension phase after that date.

2. Market valuation of assets funding the pension

SMSF Advisors, Accountants and trustees must make sure the assets of the fund are valued at market rates before the pension is calculated. Further they should ensure the assets are revalued at the end of financial year. This is important in determining the level of pension in the coming year is correct and reflects the true value of the assets in the fund. There used to be some leeway especially with property but auditors now seem to be implementing a more rigorous checking system to ensure property values are updated annually.

3. Use a Comprehensive Pension Kit

Timely documentation is essential to ensure that the pension actually commences when you want it to commence. Typically, a pension may start well before an actual pension payment is made as often the financials for the SMSF are not completed yet. Often the pension start date will be 1st July and the actual pension payment may be made quarterly or half-yearly later in the year. The pension kit should reflect this and include at a bare minimum such things as a pension request form from the member to the trustee(s), minutes of the trustee acknowledging and agreeing to the request, notification from the trustee to the member with a draft pension agreement stating the type of pension, start date, frequency of payments and if a reversionary pension is to be applied.  Importantly, it should also include a Product Disclosure Statement which is a legal requirement. The initial pension documentation does not have to have the exact figure of the pension amount but should refer to the fact that this figure will be clarified once the financials are completed. We update the initial kit with a set of minutes after the financials are provided which shows the exact amount in the pension and the relevant minimum and maximums or selected pension payment for that year and the Tax free component of the pension.

Your SMSF advisor of accountant should be able to help with this documentation.

4. Minimum Pension Payments (don’t ignore letters from your advisor!)

Pension payments are only tax-free if you met the conditions required to take advantage of the Tax Exempt Pension Income within the fund (0% tax on the income from the assets supporting the pension). The minimum pension amount must be paid within the financial year. This means that the pension payment must physically leave the SMSF bank account by the 30th June. That is a benefit is paid when the member accepts the money, banks the cheque which is subsequently honoured or receives a credit by way of electronic transfer from the SMSF. As an example, if at the 30th June you have made $6,000 worth of pension payments but your minimum pension payment for the year is $10,000, the $4,000 cannot be carried over and paid at a later date.  In this instance the fund has failed to meet its pension requirements and the pension would be invalid and the entire pension account subject to tax for the full year.

During the financial year all pensions paid must be paid in “cash”;. That is a benefit is cashed when the member accepts the money, banks the cheque which is subsequently honoured or receives a credit by way of electronic transfer from the SMSF. Therefore if a member receives a cheque dated 30/6 and banks it after 30/6, this amount cannot be classed as “cash” for the year ending 30/6 on the cheque. Also a member cannot receive a pension via an in-species transfer from the SMSF to the member.

Our process is to remind clients in April/May each year by advising them in writing the minimum amount payable by the 30th June. We ask clients to confirm they have taken these payments by ticking a questionnaire and returning it to us. If you are receiving a Transition to Retirement Pension the advice also indicates the maximum amount of pension and requests confirmation that this has not been exceeded.

Some strategies are in place for correcting errors before the 30th of June but once that clock ticks over to 1st of July there is little that can be done to amend strategies.

5. Tax and Estate Planning -Tracking the Tax Free Component Amount/Percentage

On commencing a pension the Tax Free and Taxable Components need to be calculated. This percentage split remains the same for the life of the pension. The tax free percentage is calculated by dividing the Tax Free Components by the total starting balance of the pension. The Tax free component should be shown in your Pension Kit (once financials completed) and then reaffirmed in your members account statement annually.

Why is this important if Pension payments are tax free?

The tax free component does not refer to the annual pension payments. The Tax Free Component percentage becomes relevant upon death of the last member without a reversionary beneficiary and can make significant difference to the tax paid by your dependents (particular adult children). Good pension planning may see more than one pension being set up for a member with each Pension allocated towards the most tax efficient recipient beneficiary. i.e. spouse may receive pension with low tax free % while adult children receive the pension with a higher Tax free %.

Some smaller accountants or those who do not have the relevant software may not be tracking your Tax Free component and this may cause a problem later when your remainder pension needs to be distributed.  Check your last statement and If in any doubt you should discuss with your accountant or SMSF Advisor.

6. Ongoing Contributions

A member’s pension account cannot receive new contributions during the year. You can make contributions but these contributions must be credited to a separate accumulation account. A SMSF a member may have more than one pension account but cannot have more than one accumulation account. As an aside this is necessary for a Transition to Retirement Strategy combined with Salary Sacrifice to work properly.

You can rollback (stop) a pension and add the accumulation account balance and then start a new pension.  We term this as RCR (Rollback, Consolidation and Recommencement). Before stopping a pension you must ensure that you first pay the minimum pension to keep the fund tax exempt for the year to that date. For this reason we often rollback the pension at the end of the financial year and recommence on 01st July.

7. Actuarial Certificate

If you have a pension account and accumulation account during the year (i.e you have made contributions) and the fund’s assets have not been segregated you will need to obtain an actuarial certificate to identify the tax exempt percentage of the investment income. The Actuarial Certificates are normally outsourced by the Accountant to an Actuary but you should ensure that they do take responsibility for arranging it for you annually.

As you can see these pension rules can be a minefield to negotiate and advice from a SMSF Specialist Advisor is highly recommended. Through Verante’s SMSF Coaching Service we remind our clients that when it comes to “their money” that there is no such thing as a silly question. With pensions it is essential to get it right up front and double-check before June 30th!

I hope these thoughts  have been helpful and please take the time to comment if you know of other common mistakes as I know this is not an exhaustive list. Would love some feedback as well.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of  Viridian Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

1 Comment
by SMSF Coach - Liam Shorte on February 25, 2012  •  Permalink
Posted in Divorce, Financial Planning, SMSF, Superannuation, Tax Planning, Trustee
Tagged , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on February 25, 2012

https://smsfcoach.com.au/2012/02/25/7-common-smsf-pension-errors/

10 common mistakes made by many SMSF Trustees


I run regular sessions educating Trustees in small groups on how to utilise their SMSF and to avoid common mistakes so I thought I should share the more common ones. Self managed superannuation funds can be kept simple or they can involve very complex strategies. The superannuation system has many rules and regulations that members need to adhere to.  To ensure that you avoid the traps when it comes to self managed superannuation read on! Errors happen

1.    Jumping in too early with a low balance.

Unless you expect to make regular large contributions in the coming years or expect to put a large lump sum (e.g. inheritance) in soon, the administration fees of maintaining a Self Managed Superannuation Fund will erode away any profits and may also eat into your contributions.  The general agreed rule of thumb among honest SMSF professionals for a minimum balance for a Self Managed Superannuation Fund would be $200k. This would only be on the proviso you would be making contributions at or near your concessional cap depending on your age and that you may also be adding some non-concessional funds on a regular basis so that your fund has $400-$500K within 3-5 years.

If there are 2-4 members that are contributing to the fund with frequently largely sized contributions this can justify the use of a self managed superannuation fund earlier.  Just remember that generally it costs around $2,200.00 per annum in auditing, accounting, tax agents fees and ASIC fees for the fund as well as a general 1% investment fee.

2.    Failing to educate yourself first, before you open your fund so you know the basic SMSF rules.

Self managed superannuation funds can be very complex, if you do not know the basic rules of a fund and you are not using a fund administrator like an Accountant or a specialised service, you are asking for trouble! As the number of self managed superannuation funds increase rapidly the ATO as regulators will begin to take a stronger position.  Currently non compliant funds can lose up to 46.5% of the funds assets to tax plus fines for the Trustees!

There is jargon like concessional and non=concessional contributions and tax free and taxable components so take the time to understand them.

The main reasons of funds losing their compliance status is due to providing loans members. Anyone who has just started a self managed superannuation fund whether they have a manager or not that controls the funds should know the basic rules.

Here are some places to start:

ATO central access point for information on SMSFs  http://www.ato.gov.au/super/self-managed-super-funds/

The SMSF Association is pleased to provide you with this ATO SMSF Trustee online resource. ATO approved SMSF Trustee Education Program

By the end of this course, you will have learnt;

  • The basic facts about Superannuation and Self-Managed Superannuation Funds
  • How an SMSF works
  • The investment rules for SMSFs
  • The administration process to keep your SMSF healthy.

http://www.smsftrustee.com/ The Self Managed Superannuation Fund Trustee Education Program has been released by the Joint Accounting Bodies

We run regular seminars on educational topics for SMSF Trustees in groups of 6-10 people. Contact us for more details liam@verante.com.au 

 3.    Drawing on your SMSF for business or personal needs – Read and learn to stick by the Sole Purpose Test

Always remember it is your money but not yet! You are receiving generous tax concessions for providing for your retirement. Break the rules and you will lose those concessions! Self managed superannuation funds are not to be used to fund personal or business needs of the members of the fund or their relatives.  While many may be able to justify a small loan for a short period of time there is a total restriction on lending to members of the fund or related parties which may be extended family members or entities such as Family Trusts, Companies or partnerships.

Another example would be if you invested in a holiday resort unit managed independently by a management company and as part of the arrangement, you are entitled to private use of the apartment, 2 weeks per year. This arrangement would breach of the sole purpose test if used by your or any related party.

4.    Arranging for your SMSF to own your business premises without thinking the strategy through to the end

I actually love this strategy but there are positives and negatives to this situation and you will need guidance from your legal, accounting and SMSF Specialist Advisor. Many owners of small to medium enterprises use this as an effective strategy but others do a half-baked job and leave themselves exposed.

Pros:

  • Direct control of your super investments and a real understanding of where your money is invested.
  • The fund will pay only 15% tax on commercial rent paid
  • If the premises is sold no capital gains tax may be applicable once you are in pension phase and 15% or less if earlier.
  • You can be your own landlord with secured tenancy which allows you greater certainty when fitting out or installing equipment.
  • Keeps liquidity in the business to fund other costs.

Cons:

  • There are thousands of dollars in set-up costs and there are sometimes higher fees involved in getting a loan through your SMSF.
  • If a member of the fund dies without the proper insurance in place the fund may have to pay out death benefits leading to a rushed sale of the commercial premises.
  • If sold to a third-party then there is a possible loss of tenancy to the business which could destroy it.
  • There are strategies that can be built to avoid the cons, it is best to speak to an advisor so that they can see what is best for your personal situation.

5.    Choosing the wrong type of Trustee for the job

 76% of funds in this country still have Individual Trustees or a Trading company as trustee when a Sole Purpose Corporate Trustee would be much more suitable for long-term planning.

With individuals as trustees you need to change the name on all investments if one person leaves (divorce, death, Incapacity to act) or you add a new member (bring in a child, business partner or second spouse!). The paperwork involved is time-consuming and expensive just when it usually most inconvenient.

Please see my previous blog on this subject for more detailed discussion on this topic https://smsfcoach.com.au/2012/08/09/trading-company-as-smsf-trustee-or-sole-purpose-smsf-trustee-company/

 

6.    Failing to plan for death or serious illness of a member

If the fund is run by a husband and wife or run predominantly by one member, if that member passes it could have devastating impact on the remaining member and the self managed superannuation fund.  Strategies should be put in place so that all members involved in the fund understand the rules and regulations as well as the funds investment strategy.

Effort should be made to ensure the “silent” member is aware of and has met the Accountant, Auditor, and Financial Advisor and is comfortable that they could deal with them in the event of needing them. What’s the use in having a city based advisor if your spouse does not feel comfortable driving into the CBD. Choose a local Advisor for your later years.

All shares should be properly Chess sponsored and all members should have access to account numbers and passwords.

Binding Death Nominations and Reversionary Pensions should be reviewed regularly to ensure they still meet your wishes. The idea of leaving 20% to a son or daughter may have been fine when the fund was doing well but is it still a good idea in 2017? Make sure you do not leave your spouse short!

7.     Rolling to a SMSF without maintaining or transferring Insurance First.

One of the most important factors is to undergo a review of current insurances and to have life insurance integrated into your self managed superannuation fund.  When transferring from retail, employer or industry superannuation fund look to get “Transfer Terms” from insurers to open a new policy in the name of the SMSF without extensive underwriting. DO NOT LEAVE THIS UNTIL AFTER YOU HAVE ROLLED OVER! Despite your own perception of your health and vigour, you may find it hard to find new cover on the same terms or any terms so preserve what you have. Often we keep a small balance in a retail or industry fund just to continue the insurances in there at the group or discounted rates available.

8.    Getting behind on paperwork

More than just filing statements, trustees are required to document every decision that is made whether this is to make an investment, take out insurance, or change bank accounts. This should come in the form of minutes with details regarding who made the decision, on what day and where the decision was made.

The record keeping requirements of an SMSF can be quite onerous and failing to meet them is an easy way to fall foul of the ATO. Business owners usually have enough paperwork as it is, so paying professionals who can look after your record keeping may make sense for you.

9.    Exceeding the contributions cap

The cap on concessional contributions has changed so often in the last decade that confusion reigns each year.

The cap on concessional contributions for 2018/19  is $25,000. The after tax contributions (non-concessional) is capped at $100,000 per annum

There are a number of ways members can get caught out and exceed the cap. For example,

  • if you are paying for life insurance held in another super fund, the insurance premium can be deemed as a contribution. This premium would then be levied at penalty tax rates.
  • If your employer made last year’s June Super contribution in July of this year.

We can show you strategies for a couple to get up to $800,000 to $1,200,000 into super in one year by using a mix of contributions and a holding account strategy.

10.  Not having a proper Cash Hub and losing interest and paying unnecessary fees

If you go to your normal bank to set up a bank account for your SMSF, they will most likely suggest that you use a business bank account. These accounts generally have high monthly fees, transaction fees and provide little to no interest.

We estimated the average cash balance of SMSFs to be between $50,000 and $80,000. Based on these figures, by using business bank accounts, trustees may be costing themselves approximately $3,000 per annum in fees and lost interest.

There are better options out there. Look at Macquarie’s Cash Management Account almost matching the RBA cash rate (noting for first $5K). Link these to an ING Direct Savings Maximiser for the Fund or a RaboDirect Notice Saver Account paying up to 1.8 to 2.35% higher for cash. Use 6, 9 and 12 month Term Deposits where funds are not needed short-term.

Make sure all accounts are opened correctly in the name of all trustees. Get it wrong and it can cost a lot to rectify.

I hope these thoughts  have been helpful and please take the time to comment if you know of others common mistakes as I know this is not an exhaustive list.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of  Viridian Advisory Pty Ltd (ABN 34 605 438 042) (AFSL 476223)

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

3 Comments
by SMSF Coach - Liam Shorte on October 20, 2011  •  Permalink
Posted in SMSF, SMSF Management, Superannuation, Trustee
Tagged , , , , , , , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on October 20, 2011

https://smsfcoach.com.au/2011/10/20/10-common-mistakes-made-by-many-smsf-trustees/

Managing the Government Guarantee on Term Deposits as an SMSF Trustee


ID-100264824

SMSF trustees are able to take advantage of cash accounts backed by the Federal Government’s Financial Claims Scheme (FCS), commonly known as the government guarantee, to improve the security of their capital and achieve good levels of interest.

In 2012 the Government announced the guarantee on deposits was to be reduced to a $250,000 cap, down from $1m cap in place since 2008. The lower limit is a concern to many SMSF Trustees given that it reduces competitiveness between the Big 4 banks and smaller the regional banks and the building societies.

The initial reaction especially for the risk averse was for Term Deposits larger than the cap to drift back to the CBA, ANZ, Westpac and NAB, given their much higher credit ratings. They have capitalised on the move and as a consequence we see lower term deposit rates from the Big 4 for amounts more than $250,000 since February 2012.

So what strategies are available to retain the government guarantee and to secure the higher interest rates.  Here are some ideas for the SMSF Trustees and Self funded Retirees to consider:

  1. Do your research on your target providers and consider if the guarantee is really needed. If you are willing to take the risk on the solid backing of many of Australia’s financial institutions. If you are happy with them then you may just opt for the highest interest rate paying one and don’t be afraid to ask them to get you a better deal than advertised as you can get 0.05 to 0.2% by asking! It all adds to your bottom line so don’t be shy.
  2. If you have more than $250,000 to invest, you could split your investment between a number of providers. At www.ratecity.com.au and www.mozo.com.au  they give you details of a number of different institutions such as ING DIRECT, ME Bank, Greater Building Society and Rabobank. Don’t be afraid of these names not being too familiar, they have the guarantee! You could split deposits across 3-4 institutions as well as your current Big 4 favourite and maintain the guarantee on your portfolio.  It does involve a bit of work to set up initially but if you’re wanting a government guarantee, then it’s worth the initial effort, think of it as an Insurance policy application!
  3. The added benefit is that should you need access to some funds urgently then you may only have to break one of the Term Deposits instead of previously breaking the one large one and incurring Break Fee, which we all hate. You may stagger the terms to ensure even more flexibility.
  4. Now you may not be comfortable with this one as the level of knowledge about this sector is not great among individual trustees but you might consider buying some bonds for a higher return. By investing lower in the capital structure in those well-known banks where you are confident that they will continue to trade, you can pick up a higher return. While senior bonds are higher risk than term deposits, the main benefit they have is that they are liquid and can be sold very quickly.
  5. Yields on Australian dollar bonds are not great at the moment as market expectations for a low growth world economy spreads with the IMF this week reducing forecasts even further. Your adviser or fixed interest broker can guide you towards the better risk and decent yielding bonds and you can expect 2.5 to 5.5% for what I would consider suitable risk for a moderately conservative investor if well diversified.
  6. Don’t chase a guarantee or safety to far and limit exposure to underpaying securities like the 10-year government bond, 2.58 per cent. For $50,000, some of the best-paying, three-year term deposits with the deposit guarantee are paying in excess of 3.2 per cent.
  7. If you want diversity without the extra paperwork think about outsourcing this sector to a professional fund manager like Macquarie Income Opportunities Fund. Schroders or Henderson also have decent offerings in this conservative end of the sector. Look for a mindset in a Fund Manager that sees Capital Preservation as a core to their strategy.
  8. Instead of lending to the bank, buy the bank or at least blue chip shares that provide decent dividends. Buy no more than a handful of reliable blue-chip stocks that pay a regular dividend and are forecast to continue to do so through thick and thin. These should be “bottom drawer” stocks. If you have only got a small part of your wealth invested in them then you can afford to let them ride the volatility but you still need to watch their sector for any major changes (think Blockbuster video demise after online streaming). I am talking about the 1 or 2 banks, the consumer staples like Wesfarmers and inflation linked income companies like APA Group which owns Australia’s largest natural gas distribution and storage infrastructure network, constituting mainly gas transmission and distribution, mostly servicing power generation, industrial, and commercial customers.

All to0 hard? Well at Verante Financial Planning we have access to a facility that can access over 20 Term Deposit providers in one place with a one-off application form and easy transfer from institution to institution at maturity for the best rates.Have a look at Australian Money Market

In summary it appears most people are unsure about the future and want guarantees on their investments while on the other side younger people don’t want to take on additional debt at this time. This means we’re likely to see rates remain low for some time. By doing some research and comparing what’s available in the market and maybe seeking advice for a second opinion you can find the Term Deposit that suits your needs.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

1 Comment
by SMSF Coach - Liam Shorte on September 27, 2011  •  Permalink
Posted in Asset Allocation, Bonds, Investment Strategies, SMSF, Term Deposits
Tagged , , , , , , , , , , , , , , , ,

Posted by SMSF Coach - Liam Shorte on September 27, 2011

https://smsfcoach.com.au/2011/09/27/is-the-reduced-guarantee-on-term-deposits-a-manageable-risk-for-smsf-trustees/

Five pointers to consider when looking at dividend investing


Ok so you are looking to get back in to the market or use the current dip to add to your portfolio and everyone in every article is saying look for Yield! Well how do you do that or how  do you explain it to a client? I found this article on Morning Star and it was very easy to read and understand so I thought it would be appropriate to pass it on. It discuss 5 points to consider when looking a Dividend Investing:

  1. Look at the past and future – where have dividends come from in the past and can the company sustain them into the future.
  2. Look behind the yield – why is the yield high. Is it because the capital value has fallen or because dividends increasing over time. Capacity to grow its dividends is essential.
  3. Look closer at cyclical stocks – Cyclical companies like Newcrest Mining (NCM) may also have a tendency to pay sporadic dividends and you do not want to be buying into a story that will change in the short-medium term. Again consistency and future capacity are the core.
  4. Look beyond banks – don’t get overexposed to one sector . Look at consumer staples (MTS, WOW, WES), Healthcare, Infrastructure all defensive high yielding sectors. Because the Global financial Crisis revolved around banking, this sector has been more volatile in the recent past and looks to continue in this vein for years to come.
  5. Look for tax implications – what is useful for one type of investor is not for another. Franking Credits are the “CREAM” for a SMSF Pension Investor but of little or no use to someone on a higher Tax Bracket. Look at the after tax implications of an investment for your particular circumstances

So as I said some good points to consider and if you want to read the article in full please go to Click here

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Leave a comment
by SMSF Coach - Liam Shorte on September 12, 2011  •  Permalink
Posted in Asset Allocation, Franking Credits, SMSF, Tax Planning
Tagged , , , , , , ,

Posted by SMSF Coach - Liam Shorte on September 12, 2011

https://smsfcoach.com.au/2011/09/12/five-pointers-to-consider-when-looking-at-dividend-investing/

How to react to this volatility as a SMSF Trustee / Investor.


The volatility over the last 6 months has been staggering but it is not unusual in historical terms as it has happened many times before. The difference now is that we are bombarded through all the forms of media with the daily movements of our investments and you just cannot ignore that weight of news. Also many people are now able to take more control of their investments via their own Self Managed Super fund or retail Master Trust / Wrap account.

It’s enough to make an anxious investor abandon shares entirely. But if you jettison equities from your portfolio in favour of cash, bonds and term deposits, it will take you much longer to reach your savings goals, and you may not get there at all.

When you look at current interest rates as being a pretty good predictor of what bonds/fixed interest will return in the future, the outlook isn’t particularly good with the 3yr bond yield hovering around 3.87% and inflation tickling the 3% band.

Likewise, interest rates from term deposits and high interest cash accounts have been dropping sharply in the last 2 weeks with 4s and 5s now in front of 6 month rates where 6s were common last month and forecasters now looking at rate cuts in October.

While short-term fluctuations in the market can be unnerving, they rarely affect long-term returns, for example investors who moved their savings into cash at the end of 2008 and stopped contributing to their superannuation accounts now have an account balance worth 20% less than investors who remained in the market.

With no end to volatility in sight, how do you keep your head while all around you are losing theirs? Here are some coping strategies:

Rebalance, Rebalance, Rebalance. Volatile markets can distort your portfolio. For example, if your goal is to have 35% of your savings in Australian equities, 20% in International Equities, 10% in property, 25% in Fixed Interest and 10% in cash, a big market meltdown could increase the amount you have in Fixed Interest and lower your allocation in equities and property.

To rebalance, you should sell some of your best-performing funds (fixed Interest, bond and cash funds) and put the money in your worst performers, something many investors lack the fortitude or commitment to do. We all know in theory what we’re supposed to do, but in reality do the opposite and flee to the best performer or cash. I know it hurts but you have to understand market cycles as opposed to “herd mentaility”. Look at Warren Buffet this week investing $5 Billion in Bank of America when most were fleeing the stock. He has a strong track record of buying when stocks are out of favour with the mainstream.

Don’t be blind to significant changes in markets like the rise of Asia or the risk of sovereign debt. Look out for changing trends like the move towards income orientated stocks. Your adviser should be pointing these matters out to you and identifying strategic asset allocations to allow for them.

How often should you rebalance? We recommend conducting regular portfolio reviews every six months, but only rebalancing when your allocation is at least 5 percentage points way from your benchmark.

Revisit you long term strategy and stick to it.  If the thought of rebalancing makes your palms sweat, consider investing your savings a “life cycle” strategy. This name for the common strategy, which has become much more popular in the last decade, invests in a mix of shares, bonds and cash and gradually become more conservative as you approach retirement. It is nothing new and most advisers will adjust your portfolio this way as part of your overall strategy but maybe you have not discussed this with them for awhile and the volatility may have led to inaction. Well now is the time to consider your future strategy and get that down in writing so you and your adviser are clear on your objectives, timelines and changing strategy over time.

Resist chasing this year’s ‘winner’ is just as likely to be next year’s ‘loser’. Even during the darkest days, some investments will shine. Lately, the flavour of the day has been gold, which is up considerably this year vs. a decline of almost 9% for the All Ordinaries.

The rise of exchange traded funds and similar products in the past few years has made it easier for small investors to invest in “hard” assets, such as gold and other commodities. In small doses, such investments can diversify your portfolio, but they’re easily abused. For example, while gold has been a winner this year, it’s not for the fainthearted. Factoring in inflation, it would have to reach $2,113 an ounce to reach its 1981 high of $850. That was a long time in the doldrums in between its peaks!

Have a look at the Russell Long Term Investment Returns report for more insight in to this subject. http://www.russell.com/AU/_pdfs/market-reports/asx/ASX_Report_2011.pdf

Save more. In this uncertain world, the amount you save is one of the few things you can control. If your employer matches super contributions or you take advantage of the Government co-contribution fro you or your spouse, you’re guaranteed an investment return — something even gold can’t deliver.

If you look back at just how complicated and volatile the last 10 years have been, people who diversified and rebalanced and kept contributing are well ahead of where they were a decade ago.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Leave a comment
by SMSF Coach - Liam Shorte on August 30, 2011  •  Permalink
Posted in Asset Allocation, Financial Planning, SMSF, Superannuation, Tax Planning
Tagged , , , , , , ,

Posted by SMSF Coach - Liam Shorte on August 30, 2011

https://smsfcoach.com.au/2011/08/30/how-to-react-to-this-volatility-as-a-smsf-trustee-investor/

Are we crazy to invest overseas?


Unless you have been in limbo for the last 10 years, you would have noticed that the Australian share market has outperformed international markets over the past decade. Australian shares have outperformed while the US and Europe have been like a quagmire slowly sucking up and depleting our investment funds. SMSF funds have traditionally had a low exposure to this sector and that has paid off in the last 10 years but prior to 2000 it meant they were underperfoming. Has the time come to look at this sector again with potential for another significant drop in the Aussie dollar over the next few years and stellar returns on international funds  as well as improved outlook for the US and Europe as our economy slows? International Investing

The  question for investors is “why should we invest our savings anywhere else other than Australia?  Time to look deeper into an explanation of why Australia has done so well and can it continue or do we need to be looking ahead of the pack for likely changes.

I read recently on the Motley Fool website a warning about false statements like “Diversification is the monster that needs stabbing, because world markets are actually becoming more closely correlated to our home markets, not less”. If this was true then why would we take on currency risk and invest internationally?

Fund managers, asset consultants and financial advisers maintain that good asset allocation is the biggest key to long-term investment returns. However, looking at the ASX200, we realise immediately that our Banking(financial services) and Mining & Resources(20%) sector account for 52% of our index. In comparison, the commonly used benchmark S&P500 only has 30% in these two sectors.

This huge bias is the key reason for the outperformance over the past decade as both of these sectors have had strong returns. The banks prospered through low international borrowing costs and massive consumer driven spending financed through increased household debt while the Chindia (China & India ) story was and still maybe the basis for resources growth here in the “lucky country”. This bias also provides greater risks and when the resources/commodities boom ends and/or our residential housing sector slows down, investors will truly need to think twice about having their money so heavily invested in these two sectors. Now don’t kill the messenger or rush to argue, I am not saying its imminent or that these are poor investments but the markets do go in cycles and better to be ready than blind. Even for a long-term investor you need to choose your entry and exit points in to any investment and while I don’t recommend trying to time markets, neither do I recommend ignoring historical trends and experiences of past cyclical highs and lows!

This is one of the big reasons why it is still important to allocate a certain percentage to international markets. I look for funds and investments that are easy to explain and one of those for example is the Magellan Global fund that invests in global household names like Ebay, Microsoft, Yum Brands (owner of KFC and Pizza Hut) and Novartis (global drug company owns brands like Voltaren and Ritalin). These are brands we all know and use and what is more important, the emerging middle classes in China, India and South America will aspire to obtain their products , so I can see where their current income and future earnings growth will come from.

I wish I knew the exact time when Australian markets would start to underperform and when international investments would pay off  but no one can be certain and by the time it becomes “blatantly obvious” we probably will have missed the boat, so I continue a strategy of diversification with a allocation into international funds with a proven record of  investing in companies with consistent earnings and potential for income growth over the long-term.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Leave a comment
by SMSF Coach - Liam Shorte on August 27, 2011  •  Permalink
Posted in Asset Allocation, Investment Strategies
Tagged , , , , ,

Posted by SMSF Coach - Liam Shorte on August 27, 2011

https://smsfcoach.com.au/2011/08/27/are-we-crazy-to-invest-overseas/

Newer Posts »