Tag Archives: Superannuation
Government pulls back on proposed changes to super
By Robert Wright /October 06,2016/
The government has announced changes to three key 2016 Federal Budget proposals—the most significant being that it would not go forward with its proposal to introduce a $500,000 lifetime cap on non-concessional (after-tax) super contributions.
In a nutshell the new proposals include:
- From 1 July 2017, the existing annual cap of $180,000 on after-tax super contributions will be reduced to an annual cap of $100,000. The proposed $500,000 lifetime limit will be scrapped
- The commencement date for the proposed carry-forward arrangements for concessional (before-tax) contributions will be deferred to 1 July 2018
- Work test requirements will remain in place for those wanting to make contributions after age 65.
What the changes could mean for you?
The good news is that for the current financial year, the after-tax contributions limit will remain at $180,000. This also means that the ability to contribute up to $540,000 by using the bring-forward rules (where eligible) is still available until 30 June 2017.
There are however some proposed changes which could apply in future years. It’s important to note that these proposals are not yet set in stone and the details could change as legislation passes through parliament.
- Lowering the after-tax super contributions cap
The government will not be proceeding with the proposed $500,000 lifetime cap on non-concessional contributions announced in the 2016 Federal Budget.
Instead, the government has proposed that from 1 July 2017, an annual after-tax contributions cap of $100,000 be put in place, replacing the current cap of $180,000. Those under age 65 will still be able to bring forward three years’ worth of after-tax contributions, up to $300,000 using the bring-forward rules.
Further, the government has proposed that from 1 July 2017, individuals with a total super balance above $1.6 million will no longer be eligible to make after-tax contributions.
- Deferring the start date for before-tax arrangements
The government plans to defer the commencement date for the proposed carry-forward arrangements for concessional (before-tax) contributions.
Earlier in the year the government proposed that from 1 July 2018 individuals with a super balance of less than $500,000 would be allowed to make additional before-tax contributions where they hadn’t reached their concessional contributions cap in previous years.
As a result of the new proposal, eligible individuals will only be able to start making additional before-tax contributions, where they hadn’t reached their concessional contributions cap in previous years, from 1 July 2019.
- Not proceeding with the removal of the work test
The government intends to keep work test requirements in place for those aged 65 to 74 wanting to make contributions to their super.
Previously the government had proposed that from 1 July 2017 individuals aged 65 to 74 would no longer need to meet work test requirements, whereby they must have worked for a set period of time in the financial year to be able to make voluntary super contributions.
At this stage, draft legislation has not yet been released, and available details are limited.
To find out more about how the government’s latest proposals could affect you, please contact us.
Source: AMP
3 key considerations for SMSF investors in the lead up to Retirement
By Robert Wright /December 01,2015/
Australians are enjoying longer and more active retirements than ever before, so what can you do to help make sure your money lasts?
Baby boomers are retiring in greater numbers and many have taken more control over their retirement savings by self managing their super. Over a third of self managed super funds (SMSFs) are in the pension phase and 56 is the average age of SMSF members[1], which means that many are approaching retirement.
What’s more, Australians are living longer and healthier lives than previous generations[2]. This means that it’s important to have plans in place to help ensure your money lasts when you stop working.
So how can you try to make sure that your investment strategy caters for your long and healthy retirement? You may need to take a fresh look at your investment choices, as well as consider what your lifestyle and spending habits will be like when you retire.
Here are three key factors to consider.
- The diversification of your assets
Investing in a mix of defensive and growth assets may lower the risk that all your assets will underperform at the same time. For Laird Abernethy, Head of Investment Sales at Colonial First State, the fundamental principles of a diversified investment portfolio stand no matter what your superannuation structure – and it’s something that SMSF investors need to be mindful of.
“If you look at SMSFs as a whole sector, there’s a significant portion in Australian direct equities and a significant portion in cash – and that’s not a diversified portfolio. I think SMSF members need to consider other areas to invest in and how they structure their portfolio to last them over the next 15, 20 or 25 years.”
Referring to the global financial crisis, Abernethy suggests that “baby boomers may be carrying an element of caution with investment decisions they’re making into retirement. They may not get the returns they need just by investing in cash and fixed income. They may also need some level of equity exposure to ensure they minimise the risk that they outlive their retirement savings.”
It’s also important to keep in mind that equities are tied to the ups and downs of the market, so they are generally considered to be a riskier investment than cash or fixed interest, although they offer the possibility of higher returns. It’s wise to seek professional financial advice to help you work out what types of investments are right for you.
- Your lifestyle and financial needs when you enter retirement
The early years of your retirement are likely to be the most active, which means you’ll probably be spending money on things like recreational activities and travel.
“You don’t automatically stop your lifestyle when you enter retirement,” says Rick di Cristoforo, Head of Retail Sales at Colonial First State. “In fact, it might actually be more expensive because you’ve got more free time to spend money on your enjoyment.”
Abernethy agrees. “That first phase of retirement is probably where you’re pulling out the most in terms of your pension or other income streams, so it may be worth considering growth strategies and market linked strategies.”
For Abernethy, the trick is doing that in a way that ensures you don’t draw down your capital too early and protects against market risk.
“You want to lower the volatility of your investment returns so you have more certainty around the possible outcomes, especially if you’re investing in assets that are linked to the ups and downs of markets, like equities. What we’re seeing now are a lot of products that are focused on minimising volatility and products that minimise draw downs.”
- How your needs may change during retirement
Your lifestyle goals and spending habits are likely to change as you get older, so you should also adapt your investment strategy.
“You’ve got to think about how you adjust your asset allocation as your needs change during retirement and that’s where advice is really important,” says Abernethy. “It can take into account not just the income stream you require, but also your goals, such as taking a trip every year.”
“Everyone’s different, so talking to a financial adviser is important.”
Source: Colonial
[1] Source: ATO: Self-managed super funds: A statistical overview 2012–13.
[2] Australian Federal Government: Intergenerational Report 2015.
Dollar Cost Averaging – An investment strategy for volatile times
By Robert Wright /September 18,2015/
Trading on the share market is widely regarded as being motivated by two powerful human emotions; fear and greed. In recent weeks, share market volatility has many investors fearful and compelled some to sell off their investments. More often than not, basing investment decisions on emotions and following the herd tends to be a poor course of action. It’s a poor move because it crystallises what may be just a temporary loss and runs the risk that you could miss out on any rebound or recovery in share prices.
Attempting to time the market in this way is rarely successful. An alternative approach to investing is a practice known as dollar cost averaging. Dollar cost averaging can remove the fear and emotion from investing as it works like a regular savings plan, the difference being that rather than making a regular cash deposit into a bank account, make a regular contribution into investments held in the share market.
Dollar cost averaging can be an attractive investment strategy for those who are new to investing on the share market as it can help to reduce the overall volatility risk of your portfolio and maximise its long term growth by smoothing out the market’s ups and downs.
How does it work?
Dollar cost averaging involves investing a set amount of money on a regular basis over a long period of time. This could be an investment in a specific stock, managed fund or an index fund. Consider the following example. Say you put $100 per month into a managed investment that had an initial unit price of $10. Over the next few months, the market falls (causing the unit price to drop) before recovering to its original value.
| Month | Investment | Unit Price | Units Purchased |
| 1 | $100 | $10 | 10.0 |
| 2 | $100 | $8 | 12.5 |
| 3 | $100 | $5 | 20.0 |
| 4 | $100 | $8 | 12.5 |
| 5 | $100 | $10 | 10.0 |
| Total | $500 | 65 |
At the end of 5 months, you have 65 units each worth $10, so you have $650. You only invested $500, so your profit is $150 even though the unit price is the same as when you first invested.
Had you invested a lump sum of $500 at the beginning of month 1, you would still only have $500 at the end of month 5. So even though the market declined during the 5 month period, you were better off investing small amounts over regular intervals rather than attempting to time the market by investing a lump sum when things looked rosy.
Of course, dollar cost averaging doesn’t guarantee a profit. But with a sensible and long term investment approach, dollar cost averaging can smooth out the market’s ups and downs and reduce the risk of investing in volatile markets.
Getting started with a Dollar Cost Averaging Strategy
The first step in planning a dollar cost averaging strategy is to decide how much you can realistically afford to invest over an extended period of time. The next step is to establish an appropriate investment vehicle as it’s important to consider how diversification may further reduce risk. By combining a dollar cost averaging strategy with a diversified a portfolio, an investor can maximise the profit potential and minimise risk. Remember that you need to stay with this investment strategy for many years in order for it to be effective. The aim is to remain committed to this investment strategy over the medium to long term and to not allow short term fluctuations in price to influence your buying strategy.
As always, before making any decisions about an investment strategy for your needs, it’s important to seek professional advice. Please contact your financial adviser for further information.
What should you do during market volatility?
By Robert Wright /September 18,2015/
When markets are volatile, many investors become anxious about their investments and begin to question whether their investment strategy is really working for them. Anxiety is a normal reaction when markets are falling but making investment decisions based on emotions is more often than not an unwise course of action. It can be tempting for inexperienced investors to pull out of the market altogether and wait on the sidelines until it seems safe to return. The risk here is that you could risk selling at the bottom of the market and buying when prices are high. And that’s a recipe for disaster.
It’s important to realise that share market volatility is inevitable. It’s the nature of the market to move upwards as well as downwards and while dramatic swings can be unsettling it’s wise to remain calm. Often, the most sensible thing to do during periods of extreme market volatility is to stick with the investment plan you already have in place.
A ‘do nothing’ approach might seem tough to swallow if you’ve been caught off-guard by recent volatility but remaining calm while others are losing their heads could be the most prudent course of action in the long term. In fact it’s a good time to remember Warren Buffett’s classic mantra: “Be fearful when others are greedy, and be greedy when others are fearful.”
Warren Buffet is widely regarded as one of the world’s most successful investors. What he means by this statement is that when people are rushing to invest in a particular stock or asset class then it is wise to remain cautious. In other words when something looks too good to be true, it probably is. And conversely when the majority of people are reluctant to buy into the market then it may just be the right time to consider investing. The rationale behind this approach is that most retail investors base their investment decisions on their emotions, which is precisely the wrong thing to do.
The key to surviving turbulent times is to accept that volatility is a natural occurrence in the share market. Investors who get spooked by sharp market shifts and decide to sell when share prices dip effectively crystallise the loss – which up until the point of the transaction – was really a loss on paper only. Investors who panic and dump stocks when markets dip, forego the opportunity to participate in the rebound when markets recover. And this is where most inexperienced investors fail. They attempt to ‘time’ the market.
The most effective way to protect your investments is to ensure that your portfolio is broadly diversified and has the appropriate balance for your financial goals, time horizon, and tolerance towards risk.
Seasoned investors recognise that investing in the share market is a medium to long term proposition. They understand the importance of resisting the urge to modify their long term investment strategies when short term swings occur.
While many economists and share market commentators make a comfortable living from providing a day to day analysis of market movements and short term predictions, no one really knows what the future holds. Experienced investors learn to ignore the ‘noise’ of market commentary in the media and to approach market swings when they do occur with a cautious eye.
Providing your investment strategy remains consistent with your long term goals and objectives, you may find that ignoring short term swings is the best course of action. However should you have any issues or concerns, please contact your adviser.
Source: Capstone