All posts by Robert Wright
Market volatility during COVID-19
By Robert Wright /November 17,2021/
Market volatility refers to extreme price movements over a given period. These movements may occur in a particular area, such as real estate or shares, and may be upward or downward.
Ever since COVID-19 started spreading across the world in late 2019, affecting every aspect of our lives, the term ‘market volatility’ has been hitting headlines.
But, what does market volatility mean? And what might it mean for your finances?
Market volatility can feel like a one-off crisis. However, it’s important to remember that volatility is in the very nature of markets. Fluctuations are bound to occur and, sometimes, they’re rather extreme.
For instance, in February and March 2019, markets dropped 37%, but fast-forward to the June quarter, and they picked up 16%. That’s quite a wild swing. Anyone who panicked and withdrew from the market at the end of March would have missed out on the subsequent gains.
In the scheme of things, three months isn’t long at all. In the 141 years since the ASX was established, there have been 28 negative years, and the rest have been positive. In other words, each year, the average investor has a 1 in 5 chance of a setback, but a 1 in 4 chance of making gains.
Further, in the 20 years leading up to 2018, the ten best days in the market were responsible for 50% of returns.
During downturns, it’s easy to be swayed by the news. Headlines often focus on the negatives. When the COVID-19 pandemic began, the emotional impact of worrying financial news was intensified by the fact that the virus itself was new and unknown. Plus, so many people were unable to go to their workplaces, or catch up with friends and relatives.
If you were reading the headlines and not speaking to anyone about them, you may have been susceptible to making big financial decisions based on your emotional reactions.
That’s why it’s important to speak to your financial adviser, who will remind you of your long term plan—and that a downturn is just a short term blip, when you think of the next 20 years.
Source: TAL
Economic and market commentary
By Robert Wright /November 17,2021/
Investors remained focused on rising inflation and the possibility of policy settings being tightened worldwide.
Bond yields continued to rise – particularly in Australia – as investors brought forward their expectations for interest rate hikes. This hampered returns from fixed income markets.
Equity markets performed much more strongly, aided by the release of pleasing corporate results for the September quarter.
Australia:
The latest surveys indicate conditions have improved modestly for both manufacturers and services companies, although backward-looking economic data were largely ignored given recent restrictions in NSW and Victoria. Instead, like elsewhere, the main focus was on potential changes to central bank policy.
In early October the Reserve Bank of Australia reiterated its yield target of 0.1% on 3-year government bonds. Later in the month, market movements had pushed the yield on these securities above 1.0%, seemingly with limited effort from the Reserve Bank to defend the target. This prompted investors to question whether officials were changing their stance on policy settings.
At an annual rate of 3.0%, headline inflation for the September quarter printed in line with consensus forecasts. The Reserve Bank’s preferred measure of inflation – the trimmed mean – rose at a more modest 2.1% over the year. Official interest rates are unlikely to be changed for the foreseeable future.
New Zealand:
As had been widely anticipated, official interest rates were raised by 0.25%, to 0.50% in October.
Reserve Bank of New Zealand officials appear to be concerned about quickening inflation – consumer prices rose by more than 2% in the September quarter alone, and are nearly 5% higher on a rolling 12-month measure.
As a result, some commentators are suggesting interest rates could be raised by a further 0.75% at the Bank’s next meeting in late November.
US:
At an annual pace of 2.0%, growth in the world’s largest economy fell short of expectations for the September quarter.
Pandemic-related supply shortages and bottlenecks continued to hamper manufacturers. Car production fell around 7% in September, for example, due to a shortage of semiconductors.
Services sectors are enjoying better operating conditions, as consumers continue to increase spending following months of lockdowns and disruptions.
There were mixed signals of the jobs front – new payrolls were lower than expected, but the unemployment rate dropped 0.4%, to 4.8%.
All of these data releases were overwhelmed by comments from Federal Reserve officials on the outlook for inflation and, in turn, potential changes to interest rate policy. The Federal Reserve is still expected to start tapering its quantitative easing program during November, likely reducing its monthly purchases of Treasuries and mortgage-backed securities.
Afterwards, attention is expected to increasingly shift to the likely timing of interest rate hikes. Inflation remains very high and whilst officials continue to suggest this will prove temporary, pricing pressures owing to supply disruptions seem likely to persist into 2022 and longer-term inflation expectations are rising due to elevated energy prices.
Consequently, some investors are now anticipating two interest rate hikes in the US before the end of next year.
Europe:
The latest GDP data in the Eurozone beat expectations. The region’s economy grew by 2.2% in the September quarter, meaning overall activity levels have rebounded to 99.5% of pre-Covid levels. The upturn has been attributed to an encouraging recovery in services sectors.
The increase in discretionary spending is being reflected in higher inflation; consumer prices rose 0.8% in October alone. Like elsewhere, this prompted suggestions that the European Central Bank might have to raise official interest rates.
Less encouragingly, the latest data highlighted a slowdown in industrial production in Germany; Europe’s largest economy. Moreover, ongoing reports of supply shortages suggest weakness in the manufacturing sector could persist through the December quarter and, potentially, into next year.
Asia:
In China, large property developer Evergrande Group avoided a bond default following a last-minute coupon payment. This failed to calm investors’ nerves, however; high yield credit spreads in Asia widened sharply over the month, resulting in disappointing returns from the region’s credit markets.
In Japan, there was an unexpected upward revision to economic growth forecasts for 2022. Officials expect growth to rebound back towards pre-pandemic levels in the next 12 months or so.
Australian dollar
The dollar reversed its recent weakness and strengthened by 4.0% against the US dollar. The ‘Aussie’ appreciated similarly against a trade-weighted basket of international currencies.
Performance relative to the Japanese yen was particularly impressive. At the end of October the Australian dollar bought nearly ¥86, an increase of 6.6% over the month.
The dollar was buoyed by rising commodity prices – coal and oil increased, which offset slightly lower iron ore prices.
Australian equities
The local share market started October on the back foot, as concerns about rising inflation drove the S&P/ASX 200 Index more than 2% lower on the first day of the month.
Equities quickly recovered and had moved nearly 2% higher towards the end of the month thanks to positive trading updates from the start of the AGM season. A sudden jump in bond yields on the last day of the month saw these gains reverse, however, and caused the Index to finish the month close to where it started, with a total return of -0.1%.
The Energy sector fell 2.7%, despite higher oil prices (Brent oil rose 7.5%). Energy companies struggled late in the month as news releases indicated oil supplies could soon increase, given a surprising jump in US inventories and the possibility of a resumption in Iranian oil exports.
Weakness among iron ore miners drove Materials stocks -0.5% lower. Iron ore prices fell around 5% due to Chinese steel production restrictions and weakening demand expectations.
In contrast, Materials stocks helped drive the S&P/ASX Small Ordinaries Index 0.9% higher thanks to strong performances from several gold and rare earth mining companies.
Listed property
Global property stocks fared well, with the FTSE EPRA/NAREIT Developed Index increasing by 1.9% in Australian dollar terms.
The best performing regions included Sweden (+14.0%), USA (+7.8%) and Hong Kong (+6.1%), while laggards included Germany (-0.3%), Japan (-0.3%) and Australia (+0.4%).
Global equities
Several major share markets enjoyed their strongest month of performance of the year. The S&P 500 Index in the US closed October 7.0% higher, for example. Technology stocks continued their good form, enabling the NASDAQ to perform even better; up 7.3%.
In Europe the Stoxx 50 added 5.0%, while in Asia Hong Kong’s Hang Seng and Singapore’s Straits Times rose 3.3% and 3.6%, respectively. Japan was the only major market not to participate in the rally, with the Nikkei closing the month 1.9% lower.
Returns from all major markets were diluted for Australian investors due to the strength of the dollar. Nonetheless, global shares made a positive contribution to diversified portfolios over the month.
Global and Australian Fixed Income
Bond yields rose in most major regions, as investors continued to focus on high inflation and the possibility that interest rates could be raised earlier than previously thought.
The yield on 10-year Treasuries rose 6 bps over the month, to 1.55%. Similar moves were seen on 10-year yields in other countries (Germany +9 bps, Japan +3 bps and the UK +1 bp).
The most significant yield movements were seen in Australia, where 10-year yields skyrocketed by 60 bps and closed the month above 2% for the first time in more than two years; well before the Covid pandemic began.
Global credit
Spreads on investment grade and high yield credit were little changed in October, at least in the US and Europe. Asian markets were a little weaker, partly reflecting ongoing concern about high leverage in the Chinese property sector. Consequently, returns from global credit markets were broadly neutral over the month.
Source: Colonial First State
11 things everyone should know about their super
By Robert Wright /October 25,2021/
Super is there to provide you with an income when you stop working and it may provide a tax-effective way to save for your retirement over the long-term.
What’s probably more interesting, is in time, your super may become one of your largest assets. We don’t often think about that, but it’s a good reason why you may want to pay closer attention to it.
Here are some things worth knowing or which may even interest you to investigate further.
1. Who pays your super
Generally, your super savings will build up over the course of your working life, as money you earn is put into super by yourself, or by your employer under the super guarantee, if you’re eligible.
You can make additional voluntary contributions to your super to boost your retirement savings if you choose to. However, there are limits on the amount you can contribute each year and there are separate caps, depending on the types of contributions you’re making.
2. Where your money’s invested
Any time money is deposited into your super, it’s invested on your behalf by the trustee of your super fund.
Investments can be made into property, shares, cash deposits and other assets depending on your default investment profile, or if you’ve made your own investment selections.
Most funds will allow you to choose from a range or mix of investment options and asset classes and choosing the most suitable option will typically come down to your attitude to risk and the time you have available to invest.
3. How to see what your employer’s paying you
Super guarantee (or SG) contributions made by your employer, if you’re eligible, should be at least 10% of your ordinary (not overtime) earnings if you’re making $450 or more each month. Note, others may also be eligible.
Meanwhile, as these contributions may be the foundation of your future savings, it’s important to check they’re being paid correctly. You can do this by reviewing your payslips, checking your super statements, calling your super fund or logging into your online account to see what’s been put in.
Keep in mind, employer super contributions also only have to be paid into your fund four times a year (at a minimum), on dates set by the ATO, which means your super may be paid at different times to your employment income.
4. Where to go if something doesn’t look right
If your employer hasn’t paid your super, speak to the person who handles the payroll at your work. If you’re not satisfied with what they tell you, you can lodge an unpaid super enquiry with the ATO.
5. How your current super balance stacks up
In many cases you can check out your super balance online via your super fund’s website or the statements they send you.
Meanwhile, if you’re interested to know how your balance fares and what you might need each year in retirement, the Association of Superannuation Funds of Australia puts out a report each quarter.
If you’re curious to know how your super balance shapes up against others your age, check out the average super balances for employed people of different age groups across Australia.
6. How to find your lost or unclaimed super
At last count, there was more than $13 billion in lost and unclaimed super waiting to be claimed across Australia.
That can happen when you set up a new super fund and forget to roll over what you accumulated in a previous one, or if you forget to update your details with your providers when you change them.
You can search for lost or unclaimed super by doing a super search with your current super fund or by logging into your MyGov account to find your super funds.
7. What to look out for if you roll two funds into one
If you have more than one super account, there may be advantages to rolling your accounts into one, such as paying one set of fees and less paperwork.
If you do decide to consolidate, make sure you don’t risk losing features and benefits including life and other insurance that may be attached to the account you’re considering closing
8. How to check your insurance if you have it
Most super funds let you pay for personal insurance out of the money in your super fund, but there are pros and cons worth weighing up.
For instance, insurance through super can often be cheaper than personal insurance bought outside super, but you may not get the same level of cover.
9. How to make sure the right people get your money if you pass away
If you don’t nominate a beneficiary with your super fund, your super fund may decide who receives your super money when you pass away, regardless of what you have in your will.
There are generally two types of beneficiary nominations you can make, binding and non-binding.
If you make a binding nomination, your super fund is required to pay your benefit to the person or people you’ve nominated, as long as the nomination is valid when you pass away. Keep in mind, some binding nominations are lapsing and may only remain valid for three years.
If you make a non-binding nomination, your super fund will have the final say as to who receives your super benefits, but they will attempt to find all potential beneficiaries and decide who’s the most appropriate.
10. What age you can withdraw your super
The government sets general rules around when you can access your super, which typically won’t be until you reach your preservation age (which will be between 55 and 60, depending on when you were born) and meet a condition of release, such as retirement.
At this time, you may choose to take the money as a lump sum, income stream, or even a bit of both.
Meanwhile, there may be some special circumstances where you may be able to withdraw your super early.
11. When can you no longer contribute to super
Once you turn 75, generally you can no longer make voluntary contributions to your super, with some exceptions, which may include if you’re selling your home and making a downsizer contribution. Compulsory SG contributions made by your employer, if you’re still working, can still be paid.
Many people think of their super as an investment that takes care of itself, but the choices you make about your super today, could make a big difference to your quality of life later on.
Source: AMP
Your 7-point retirement planning checklist
By Robert Wright /October 25,2021/
You might feel emotionally ready to retire but you’ll want to make sure you’re financially ready too. Socialising with mates, enjoying leisurely activities and indulging in the odd trip away are all things that have likely crossed your mind when thinking about how you’ll spend retirement.
Beyond that though, have you given much thought to the logistics and what it’ll cost? If you haven’t, there are a number of big points worth considering, which is where this checklist may come in handy.
1. Do I have to retire by a certain age?
The retirement age in Australia isn’t set in stone. You can retire whenever you want to, but factors that could play a part might include:
- your health
- financial situation
- employment opportunities
- your (and your partner’s) individual preferences
- the age you can access your super.
2. What’s on my to-do list?
Think about what you may like to do in retirement and what the bigger and smaller priorities may be. Consider things such as:
- your social life and recreation
- staying active and healthy
- different retirement living options, which might include relocating to a new city
- helping the kids, if you have any.
3. How much money will I need?
According to March 2021 figures from the Association of Superannuation Funds of Australia (ASFA), individuals and couples, around age 65, who are looking to retire today, would need a certain annual budget to fund a comfortable lifestyle versus a modest one.
ASFA figures are based on the assumption people own their home outright and are relatively healthy. Check out the suggested annual budgets below compared to current maximum Age Pension rates being paid by the government.
| Comfortable lifestyle | Modest lifestyle | Full Age Pension rate | |
| Single (annual budget) | $44,412 | $28,254 | $24,770 |
| Couple (annual budget) | $62,828 | $40,829 | $37,341 |
4. Where will my money come from?
The money you use to fund your life in retirement will likely come from a range of different sources, such as:
Your super fund
Generally, you can start accessing super when you reach your preservation age, which will be between 55 and 60, depending on when you were born, and retire. Knowing your super balance is a crucial part of planning for retirement, as it’s likely to form a substantial part of your savings.
Investments, savings or an inheritance
You may be planning to sell or use income you’re generating from shares or an investment property, or use money you’ve saved in a savings account or term deposit to contribute to your retirement. An inheritance or proceeds from your family’s estate may also help in your later years.
Government benefits
Depending on your circumstances, as well as your income and assets, you may be eligible for a full or part Age Pension from age 65 to 67 onwards (depending on when you were born), or you mightn’t be eligible at all.
Along with your savings, government benefits, such as the Age Pension, as well as Carer’s Allowance and the Disability Support Pension, could be an important part of your retirement income.
Concession cards, which are provided if you receive certain government income support payments, or the Commonwealth Seniors Health Card could also help you access discounts on health care and other things.
5. How can I withdraw my super?
Depending on how you withdraw your super and at what age, there will be different tax implications worth investigating, which will depend on your individual circumstances.
In the meantime, some of the options you’ll have around withdrawing your super include:
Transition to retirement pension
A transition to retirement pension enables you to access some of your super via regular payments (once you’ve reached your preservation age), whether you continue to work full-time, part-time or casually.
Account-based pension
If you’d like to receive a regular income when you do retire from the workforce, an account-based pension (also known as an allocated pension) could be a tax-effective option, noting the value of it will be based on the super you’ve saved, so won’t guarantee an income for life.
You also won’t be limited in what you can take out, but each year you’ll need to withdraw a minimum amount. Note, you can only transfer up to $1.7 million in super into this type of pension too.
Annuity
Another option is an annuity product, which generally provides guaranteed payments over a set number of years, or the rest of your life, depending on whether you opt for a fixed-term or lifetime annuity. They tend to be a more secure option as they provide a guaranteed income regardless of what might happen in financial markets. However, you’ll be sacrificing some flexibility as you can’t usually make lump sum withdrawals and your life expectancy may also be a consideration.
Lump sum
Taking some or all of your super savings as a lump sum can be tempting, particularly if you want to pay off debt, assist the kids, or go on a holiday. However, it might not be the best option for everyone, as you’ll need to consider how you fund your lifestyle after the money is gone. While you may be eligible for government entitlements, such as the Age Pension, it might not cover the type of lifestyle you’d like to have after you finish working.
6. What other matters will I need to address?
Existing debt
When planning retirement, you may want to consider what outstanding debt you have and ways you may be able to reduce it while you’re still earning an income.
Insurance
You might have personal insurance, possibly tied to your super fund, but it’s worth checking you have the right type and that it’s appropriate for you. After all, what you require in retirement could be quite different to when you’re working.
Investment preferences
Investments are part of many retirement planning strategies, and when you’re retiring, it’s worth reviewing your investment style and the options you’ve chosen.
For instance, in retirement, you might consider a more conservative approach with less risk, as when you’re younger you generally have more time to ride out market highs and lows.
Estate planning, including your will
It’s important to think about your estate planning needs. For instance, have you documented how you want your assets to be distributed after you’re gone and how you want to be looked after if you can’t make decisions later in life?
7. Do I want to make any final super contributions?
The more you can put into super before retiring, the more money you’re likely to have when you retire. You may also be interested to know that when you reach age 65 or over, you can make a voluntary contribution to your super of up to $300,000 using the proceeds from the sale of your main residence.
For couples, both people can take advantage of this opportunity, which means up to $600,000 per couple can be contributed toward super. There are however, downsizer contribution rules you’ll want to be across.
Source: AMP