Tag Archives: Investments

FOUR TIPS FOR WOMEN TO TAKE CONTROL OF THEIR SUPER

By Robert Wright /March 22,2019/

Faced with average lower earnings, possible time out from the workforce to raise children, and longer life expectancy, it can be a struggle for women to save enough money in their super. According to the 2017 HILDA survey, Australian women are retiring with an average superannuation balance of $230,907 while men are retiring with about twice this amount.

But if you’re a woman earning an income, it’s never too late to play catch up. Looking at your super and taking action now could make a difference over time to how much savings you have in super for retirement.

1. Get to know your super better – it’s your money
Superannuation, or ‘super’, is money set aside while you are working so that when you stop working it will provide you with an income in retirement. If you are an employee, your employer should be making super contributions to a superannuation fund on your behalf. These payments, known as super guarantee contributions or concessional (before-tax) contributions, will be equivalent to 9.5 per cent of your salary or wages.

If you are self-employed, you will need to pay yourself super to provide for your retirement. You can make regular contributions or make lump sums less frequently, to suit your cash flow. To get to know your super better, start by checking your balance regularly, along with the insurance and investment options you have to make sure they are the best fit for your circumstances.

The Australian Taxation Office (ATO) recommends that you check your employer is paying the correct amount of super on your behalf. If you are unsure how much your employer should be paying you can use the ATO’s Estimate my super tool. If your employer is not paying the correct amount you can report this to the ATO online.

Many super funds arrange life and disability cover for their members, for a fee. Having insurance can provide a good sense of security for you and your family. It’s important that you know what cover you have as you might have similar cover under another type of policy. This might mean you are paying for the same cover twice, however you will not be able to claim twice.

2. Consolidate your super and save on fees
It’s a good idea to make sure all your super is in the same place. If you’ve changed jobs, different employers might have made your super guarantee payments to different funds over the years. This means you could have ‘lost super’ in accounts you’ve forgotten about. If your super is in multiple funds, you also have to pay separate administration fees to each fund, which eats into your retirement savings.  

3. Contribute more and watch your super savings grow

Want to see your super grow faster? You can make payments into your super fund account in addition to the Super Guarantee 9.5 per cent that your employer pays on your behalf. This could really boost your super over time, and can help you make up for periods when you are not working. Even small amounts could make a difference.

The different types of additional contributions that can be made to your super fund are:

• Concessional (before-tax) super contributions – these are super contributions you make before you pay tax on them.
• Non-concessional (after-tax) super contributions – these are super contributions you make from sources that have already been taxed.

Be aware that the Federal Government applies monetary caps to these contributions to limit the tax concessions associated with making super contributions. Some types of contributions if made in excess of these caps are subject to tax rates of up to 49 per cent.

4. Don’t forget your TFN, otherwise you may pay more tax
To confirm if your super fund has your tax file number (TFN), take a look at your super statement. If your TFN is not listed, contact your fund and give it to them.

The benefits of providing your fund with your TFN are:

• Your fund will pay less tax on employer contributions (and pass the savings on to you)
• Concessional contributions are generally only taxed at 15 per cent, which means you could lower your taxable income
• You are less likely to lose track of a super account
• You will not miss out on government super payments – for example, the government co-contribution if applicable
• You will be able to make personal (after-tax) contributions to the fund.

Source: Colonial First State, 20 December 2018

How women can build their financial literacy

By Robert Wright /March 22,2019/

Recent studies show that more than two in five Australians lack confidence when it comes to financial decision making.

The Federal Government believes this is largely due to a lack of financial literacy within the community, which is why it has developed the National Financial Literacy strategy. This initiative aims to motivate Australians of all ages, genders and socioeconomic backgrounds to engage more with their finances. In turn, this will help people make informed financial decisions that will improve their economic wellbeing.

What does it mean for women?

As social norms and family structures have changed, financial decision-making is no longer the sole domain of the male breadwinner – these days it’s just as important for women to take charge. Yet women experience higher levels of stress when it comes to managing money, with more than a third saying they find it overwhelming.

That’s why it’s vital for women to build their financial literacy. Becoming more financially savvy can change a woman’s life, by empowering her to be self-sufficient and make confident decisions that will improve her financial situation. Currently only 10% of Australian women retire with enough savings to fund a comfortable lifestyle – so by arming women with strategies to help close the ‘super gap’ at each life stage, they may become less reliant on social services in retirement.

How you can take control

The financial decisions women make throughout their lives can impact their financial position in later years. With this in mind, here are some things you can do to take control at each stage of your life journey.

Starting out

Generally speaking, the gender pay gap puts women on the back foot as soon as they enter the workforce. Although there may be greater equality between the sexes than ever before, women’s average salaries are still 17.3% lower than those of men doing the same job.

This highlights how important it is for women to be able to budget if they want to build their savings and get ahead.

Raising a family

Women are still more likely than men to take time out of the workforce to raise kids, which means they receive less in employer super contributions during their careers. This leads to a significant super gap – men have an average super balance of $292,500 when they retire compared to $138,150 for women.

That’s why you need to prepare carefully for your career breaks, and top up your super either before or after to make up any shortfalls. The Government’s Parental Leave Calculator and Career Break Super Calculator make it easier to plan your finances around having a family. Visit https://www.moneysmart.gov.au/tools-and-resources to access these calculators.

Paying off debts

If you’re like most women, the largest debt you’ll ever have to pay off is your home loan. Before taking the plunge into home ownership, a Mortgage Calculator can show you how much you can afford to borrow, so you can work out a repayment plan that fits your budget. And if you’re prone to splurging on your credit card, a Credit Card Calculator could help stop your debts from spiralling out of control. Visit https://www.moneysmart.gov.au/tools-and-resources to access these calculators.

Investing for the future

With lower confidence levels and a smaller appetite for risk in their investments, women are less likely than men to choose high-growth investments like shares. This also means they miss out on potentially higher returns. But as women generally retire earlier and live longer than men, they can expect to spend more time in retirement – which makes it even more important for them to have enough money to last the distance. As the first step, make sure your investment mix matches your life stage. That way your super and other investments will have the best chance of growing over time.

Your financial adviser can help

Because women face so many distinct challenges, they need customised solutions – which is where a licensed financial adviser comes in. If there’s ever an aspect of your finances that you’re unclear about, let your adviser know. They’ll be able to explain it in a way that makes sense to you, so you can make wiser financial decisions.

Source: AMP News & Insights.

Economic Update

By Robert Wright /February 19,2019/

Market and Economic overview

Australia

• Economic data continues to paint a mixed picture of the domestic economy. The manufacturing PMI survey – a useful gauge of activity levels in the sector – came in below the 50 level; indicating challenging conditions.
• Job advertisements have also been weak and are running -3.7% below the corresponding period a year ago.
• A closely-watched consumer confidence reading also deteriorated sharply in January. The confidence data does not augur well for discretionary spending, which the Reserve Bank of Australia (RBA) is relying on to help inflation return towards the midpoint of its target range.
• For now, inflation remains below target, coming in at an annual rate of 1.8% in the December quarter.
• Over the long-term, the RBA continues to suggest that Australian inflation will return to the target band of between 2.0% and 3.0%.

United States

• The most important market developments occurred towards the end of the month, when the Federal Reserve signalled that US monetary policy is unlikely to be amended in the first half of 2019, at least.
• Commentary from Federal Reserve Board members suggested they may be willing to be patient in determining whether further interest rate hikes are appropriate.
• The focus on the Federal Reserve diverted attention from economic data that was released. More than 300,000 jobs were created in the US in December and there was further evidence that labour market tightening is resulting in wage pressure. Average earnings growth quickened to an annual pace of 3.2%.

Europe

• Growth in the Eurozone economy moderated in the December quarter, declining to an annual rate of 1.2%. This was the slowest pace of growth for five years.
• In spite of the challenging economic conditions, the employment picture has not deteriorated. The unemployment rate remained unchanged at 7.9%; the lowest level since the GFC.
• In the UK, the Brexit debacle descended into further chaos as Members of Parliament rejected Theresa May’s Brexit latest withdrawal proposal. Confidence in the leadership remains fragile, however and lawmakers remain divided over key elements of the UK’s proposed withdrawal from the European Union.

 

New Zealand

• At 1.9% yoy, the pace of inflation was unchanged in the December quarter. For now, there appears to be limited chance of the RBNZ amending policy settings – interest rates remain at 1.75%, where they have been since late 2016.
• Credit and debit card spending plunged in December, adding to concerns that the economy might be cooling.
• Business confidence remains subdued, though has rebounded somewhat from the very low levels seen in the middle of 2018.

Asia

• Chinese authorities injected more than 1 trillion yuan (around A$230 billion) into the financial system ahead of the Chinese New Year holidays. This followed a stream of subdued economic data.
• Chinese exporters continue to be affected trade tariffs – the value of exports in December declined 4.4% from a year earlier.
• Imports were lower too, suggesting consumer demand is tailing off and unable to offset the impact of lower export demand.
• In Japan, inflation eased to a 14-month low of 0.3% yoy; perilously close to moving into negative territory. This is in spite of ongoing stimulus from the Bank of Japan.

 

Australian dollar

In early January, the Australian dollar fell below the US$0.70 threshold for the first time since early 2016. The currency then made quite a sharp recovery, closing the month at US$0.729 – an appreciation of 3.6% in January as a whole. The ‘Aussie’ strengthened towards the end of January in particular, following comments from the Federal Reserve that took the wind out of the US dollar’s sails.

Commodities

Commodity prices finished mostly higher in January, led by iron ore (+17.4%) and oil (Brent +11.6%). Easing US/China trade tensions supported commodity prices generally, while iron ore prices rose sharply towards the end of the month following a tailings dam collapse at Vale’s Feijao mine in Brazil. Oil prices rose on improved demand prospects, as US/China trade talks appeared to progress well, and as OPEC continued to sideline supply. Gold (+2.0%) rallied after Federal Reserve policy guidance pushed back timing expectations of the next US interest rate rise. Industrial metals reversed recent losses, with zinc (+14.3%), lead (+9.3%), copper (+7.5%) and aluminium (+4.1%) all seeing gains.

Australian equities

Following the slump in the fourth quarter of 2018, the Australian equity market started the year off with renewed optimism as the S&P/ASX 100 Accumulation Index climbed +3.7% higher. Resurgent global markets, rising commodity prices, solid local employment data and a growing belief that domestic interest rates will stay lower for longer helped ‘risk assets’, such as equities, rally over January. The Energy sector (+11.2%) provided the best return, benefiting from a recovery in oil prices after the near 40% drop in the fourth quarter of 2018.

The 20% climb in oil prices through January helped all constituents to provide positive returns, with WorleyParsons (+21.5%) and Caltex Australia (+5.3%) at the extremes. The Financials sector (-0.2%) not only provided the lowest return, but was the only sector to decline over the month. Small cap stocks outperformed their large cap counterparts, evidenced by the +5.6% rally in the S&P/ASX Small Ordinaries Accumulation Index.

 

Listed property

The S&P/ASX 200 A-REIT Index returned 6.2% in January. Industrial A-REITs (+9.7%) was the best performing sub-sector, followed by Office A-REITs (+8.0%). Retail A-REITs was the weakest performing sector in January (+2.8%). Major offshore property markets also delivered strong returns, bouncing back from disappointing performance in December. The FTSE EPRA/NAREIT Developed Index returned 10.9% in USD terms and 10.5% in AUD terms, well ahead of broader equity markets. In local currency terms, Hong Kong (+13.3%) was the best performing market, while New Zealand (+4.0%) lagged

Global equities

Global equity markets bounced back solidly in January after a dismal end to 2018, driven by resurgent emerging markets and the US S&P 500 delivering its strongest January return since 1987. The appreciation of the Australian dollar (AUD) over the month dulled returns a little, but the MSCI World Index nonetheless finished up 4.1% in Australian dollar terms.

The S&P 500 rallied just over 8.0% in USD terms on a combination of broadly pleasing earnings results, ongoing progress towards a US/China trade resolution and increasingly dovish commentary from the Federal Reserve. The FTSE 100 in the UK struggled under the continued Brexit debacle, but still returned a respectable 3.6% in sterling terms. Emerging markets brought up their third month of positive returns in style, with the MSCI Emerging Markets Index rallying 5.0% in AUD and outperforming developed markets for the third successive month as well.

MSCI Latin America was again the strongest region, up 11.0% in AUD, whereas MSCI Asia was the weakest, but still up 3.6% even though MSCI India just fell short of a positive result, down -0.1% in Indian rupee. The Brazilian stock market powered the Latin America results, hitting a string of record highs and the MSCI Brazil Index finished the month up 10.7% in local currency terms.

Global and Australian Fixed Interest

Treasury yields drifted lower as investors digested the change in commentary from the Federal Reserve and readjusted their interest rate outlooks for the remainder of 2019 and beyond. Ten-year Treasury yields closed January 5 bps lower, at 2.63%.

The somewhat gloomy economic picture and an expectation that US interest rates are likely to be unchanged for the foreseeable future saw yields in other major bond markets follow Treasury yields lower. Yields declined 9 bps and 6 bps in Germany and the UK respectively, for example, though were almost unchanged at 0.00% in Japan.

Australian government bond yields followed the lead of other major markets and declined during January. The 10-year yield closed the month 8 bps lower, at 2.24%, dragged lower by the subdued inflation reading for the December quarter.

Global credit

Global credit markets were supported by the more optimistic outlook for equity markets, as well as expectations that US interest rates might not be increased as aggressively as previously anticipated.

The yield on the Bloomberg Barclays Global Aggregate Corporate Index fell 19 bps, to 1.36%. The improved sentiment was reflected even more clearly in the high yield sector – the Bank of America Merrill Lynch Global High Yield Index (BB-B) spread narrowed 93 bps, to 3.66% – close to its level from the end of November prior to the December blow-out.

There was a reasonable amount of new supply – less than January 2018, but nonetheless a significant increase from the closing months of last year – and pleasingly there appeared to be no signs of indigestion. New offerings were generally met with reasonable demand and tended to fare well in the secondary market.

 

Source: Colonial First State.

Market Volatility: An Overview

By Robert Wright /February 19,2019/

Many investors become concerned when volatility occurs in global financial markets – particularly about the impact on their superannuation and other investments. In times like these, it is important to understand the causes of market movements and how to minimise your risk.

Why do markets move so much?

Markets are influenced by many things – industrial, economic, political and social factors can all have an impact. For example, consumer and business confidence affect spending and therefore company profits. Global trade and production naturally affect economic growth.

Poor political and fiscal decisions in some countries may lead to a flow-on effect in other countries who are owed money. And of course, natural disasters can cause major damage to any economy with no warning. During times of market volatility, it’s important to remember one of the fundamental principles of investing – markets move in cycles.

What is the effect of market volatility on super funds?

In times of market volatility your super balance may decline, but it is important to remember that markets move in cycles. Volatility is a natural part of the economic cycle. Markets are influenced by a range of factors and are inherently unpredictable.

The Australian Securities & Investments Commission’s (ASIC) MoneySmart website states ”Don’t panic if the short-term returns are negative: remember that super is a long-term investment.” History demonstrates that over the long-term, the general trend of share markets has been upward.

Don’t lose sight of the bigger picture

Super is a long-term investment. Shares, which usually form a large part of most balanced super accounts, are also generally a long-term investment. They are designed to provide capital growth over a period of five years or more. Think in years, not days.

The time frame for super may be 20 years or more, so short term volatility shouldn’t diminish the long-term potential of your investments. Growth assets (such as shares) tend to fluctuate in the short-term, but have historically provided excellent returns for investors over the long-term.

When share markets fall in value, it may be tempting to sell up. However, trying to time the market by selling now and buying back later is a risky strategy that rarely results in investors coming out ahead. By taking a long-term view of investing, you can ride out any short-term fluctuations in the market and take advantage of growth opportunities over the long-term.

Diversification

Diversification is one of the most effective ways of managing volatility. It can help deliver smoother, more consistent results over time. Your investment may benefit by being spread across a variety of asset classes, including shares (domestic and global), fixed income, cash, direct and listed property and alternatives.

This diversification should help soften the effects of any share market falls as some asset classes often tend to do well whilst others are struggling. Also, spreading your assets around means you are less reliant on any one asset class at any particular time.

Understand your risk profile

All investments carry some risk. How much risk you’re willing to accept will be influenced by your financial situation, family considerations, time horizon and even your personality. If market volatility has caused you to reassess the way you feel about risk, it’s important that you see your financial adviser to discuss any necessary changes to your financial plan.

Understanding the implications of withdrawing

• Before you withdraw from an investment you should understand all the implications, risks and costs involved.
• Crystallising losses. If the value of your investment is falling, you are technically only making a loss on paper. A rise in prices could soon return your investment to profit without you doing anything. Selling your investment makes any losses real and irreversible.
• Incurring capital gains tax (CGT). Make sure you know what your CGT position will be before selling any asset.
• Losing the benefits of compounding. If you’re thinking about making a partial withdrawal from an investment, remember that it’s not just the withdrawal you lose, but all future earnings and interest on that amount.

Key takeaways

Keep in mind that:

• Super is a long-term investment designed to generate sufficient money so you can enjoy your retirement.
• Diversification is an important part of a long-term super investment strategy. To create the lifestyle you want in retirement, it may be necessary to invest in growth assets like shares so that your returns stay ahead of tax and inflation.
• It may be beneficial to ride out the bad times in order to achieve long-term growth.
• Your financial plan was designed exclusively for you to suit your investment objectives and risk profile. It’s important to stay focused on your long-term goals.

 

Source: Colonial First State