Being actively involved in how and where your super is invested, could make a real difference to your retirement savings over the long-term.

If you are considering going down this route, there are some factors to think about such as your retirement goals, how long you have until you retire and the amount of risk you’re comfortable taking on.

For instance, if you’re close to retiring, you may want to avoid putting your super somewhere that’s too risky. Riskier investments tend to experience more ups and downs so time may help to ride them out.

This article considers four examples of investment strategies for your super.

The importance of diversification

Before we discuss the various investment strategies, it’s important to highlight the significance of diversification. Like any type of investment, spreading your super across different types of investment options, can help to build a strong portfolio and manage risk.

Why?

Because if you were to invest all of your super into one asset class such as property, your investment may suffer a loss if the property market was to fall in value. However, if you spread your money across multiple assets, you may have a different result.

Investment strategy type 1: Growth

If you don’t think you’ll be accessing your super for at least 10 years or more, a growth strategy may work for you as a longer timeframe may help an investment portfolio withstand volatility while aiming for returns.

A growth strategy that follows a higher risk, higher return approach tends to have a larger focus on assets that are exposed to capital appreciation. That is, investing in assets which are expected to grow at a higher rate than the industry or overall market.

For instance, this may involve an investment of around 70-85 per cent in shares or property with the rest in fixed interest and cash-based investments.

Historically, over any 20-year period, a growth strategy has delivered better returns than more conservative portfolios which would mainly be invested in fixed interest and cash. However, over a short-term period, you may experience significant losses as a result of market volatility.

Another key benefit of a growth strategy is that by making greater returns on your investment, your savings are more likely to keep up with the rising cost of living. This is arguably important because over time inflation may reduce the value of your retirement savings, which could make it difficult to maintain your standard of living when you’re retired.
Investment strategies for your super

Investment strategy type 2: Balanced

Similar to a growth strategy, if you aren’t planning to access your super anytime soon, opting for a balanced investment portfolio may be another option.

This strategy is aimed at balancing risk and return so your portfolio has enough risk to provide reasonable returns, but not enough to cause significant losses.

A balanced strategy typically involves investing around 60-70 per cent in shares or property, with the rest in fixed interest and cash-based investments.

Investment strategy type 3: Conservative

You may be considering how you could protect your capital if you want to access your super within 3-5 years.

A safe or conservative strategy follows a lower risk, lower return approach so it’s really about preserving the value of your investment portfolio. While there may be less risk of losing money, a downside could be that your returns may not
keep up with inflation.

For example, this could involve investing around 20-30 per cent of your super in shares and property, with the rest in fixed interest and cash-based investments.

Investment strategy type 4: Ethical and sustainable

You may choose not to invest in certain companies based on ethical grounds. For example, taking a stance against investing in firearms. This approach is called ethical or socially responsible investing.

There is also sustainable investing which goes beyond incorporating just ethical and social factors. That is, it approaches investing from an environmental and governance lens too. Some super funds now offer this, so if these factors are important to you, speak to your super fund for more details.

If you’re a self managed super fund (SMSF) trustee, there are a range of sustainable managed funds which you can tap into.

Review your investment approach

You may want to review your current investment approach with your super fund or SMSF to consider how it aligns with your goals and risk comfort.

For example, if you are looking to take an active role by directly investing your super in shares, exchange traded funds and managed funds, there are super products and platforms which enable you to do this.

Alternatively, a SMSF is an option that enables you to have more control over how your super is invested with the added bonus of being able to access more investment options such as direct property and commodities. You also have the ability to borrow within your super fund for investment. There are a
number of administration requirements however, as well as legislative requirements to adhere to.

You may want to consider speaking to a financial expert when determining which super product may be best for you.

This article was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 22 May 2019.

——————-

This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. It does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of investing in property, shares or superannuation can impact individual situations differently and you should seek specific advice from a registered tax agent or registered tax (financial adviser).

Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.

The post Investment Strategies For Your Super appeared first on Newcastle Financial Planners & Financial Advisors.

What are some of the benefits of diversification?

The reason for diversification is simple: By including a variety of investments in your portfolio, your risk is less than if you put all your money in one type of investment.

Three key advantages include:

1. Minimising risk of loss

If one investment performs poorly over a certain period, other investments may perform better over that same period, reducing the potential losses of your investment portfolio from concentrating all your capital under one type of investment.

2. Preserving capital

Not all investors are in the accumulation phase of life; some who are close to retirement have goals oriented towards preservation of capital, and diversification can help protect your savings.

3. Generating returns

Sometimes investments don’t always perform as expected, by diversifying you’re not merely relying upon one source of income.

Choosing a mix of investments

What goes up usually comes down.

All securities behave differently from one another, going up and down in separate cycles and to varying degrees. An individual stock is affected by a combination of different elements, including the overall stock market, health of the industry the company does business in, and the company’s own performance. Though stocks generally vary more than fixed-income investments (such as bonds), fixed income prices can be affected by changes in interest rates and the overall fixed-income market.

Diversification within and across asset classes

Diversification can be achieved in many ways, for example:

• Across different asset classes including growth and defensive assets. Growth assets generally provide longer term capital gains, but typically have a higher level of risk e.g. shares or property. Defensive assets generally provide a lower return over the long term, but also generally a lower level of volatility and risk e.g. cash or fixed interest.
• Within asset classes such as purchasing shares across different industry sectors.
• Across different fund managers if investing in managed funds.

The risk or variability of different markets are impacted by: domestic/international developments and economic factors – such as production, employment, monetary policy, and levels of investment. How you diversify across asset classes, therefore, has a direct effect on the amount of risk, or variability of returns, you are likely to have.

For example, during periods of increased share market volatility, your share portfolio may suffer losses. If you also hold investments in other asset classes such as fixed interest or direct property that may perform better over the same period, the returns from these investments can help smooth the returns of your overall investment portfolio.

Practicing diversification in your savings plan

Mutual funds that invest in both stocks and fixed-income investments (balanced funds) offer one way of diversifying both across and within asset classes.

Another way of diversifying is to choose your own mix of investments, rather than invest in a fund where the mix is determined by someone else. However, if you take this route, you need to be more diligent about evaluating your choices and may want to get assistance from a professional adviser.

Two simple rules

When diversifying your investments, remember to:

1. Reduce “security-specific risk.”

Purchase a broad range of investments across various companies and industries rather than a limited selection of individual securities. This way, no single investment will dominate the performance of your retirement account.

2. Spread your money across different asset classes: stocks and fixed-income.

Each asset class has its own unique risk and return attributes. And because the risks of one asset may complement the risks of another, it may be possible to achieve higher investment earnings and reduce your portfolio’s volatility.

By diversifying your investments, you can achieve smoother, more consistent investment returns over the longer term, balancing out the ups and downs, protecting your savings from short-term losses and allowing them the opportunity to grow over time.

Need to chat to a financial advisor – Call LT today to discuss your needs.  (02) 4926 2300

Article Source: Russell Investments

Source: Russell Investments

The post Using Diversification to Combat Risk appeared first on Newcastle Financial Planners & Financial Advisors.

Is your retirement just around the corner? Then it’s time to make your super work harder by avoiding these common pre-retirement super traps and start planning.

1. Outdated investment strategies

As you approach retirement, you should revisit your investment strategy. But that doesn’t necessarily mean putting all your money into defensive assets like cash. Diversification is the key to smoothing out the inevitable bumps when economies, sectors and assets rise and fall. A well-diversified portfolio includes a good mix of asset classes — such as cash, fixed interest, property and shares.

2. Over-insurance

Just as your investment needs change, so will your insurance requirements. For instance, if you’ve eliminated or significantly reduced your debts, you may not need as much life insurance or income cover as you once did. And, if you’re an empty nester, you’re insurance needs are likely to be very different to those of a young family’s sole breadwinner.

Your lifestyle might have also changed over the years — for example, you may no longer engage in high-risk work activities or leisure pursuits like skiing. So make sure your cover matches your needs.

3. Missing out on tax benefits

Before the end of your career, it may be worth considering a transition to retirement (TTR) strategy. This involves drawing a pension from your super savings while you’re still working, which you can start doing once you’ve reached your preservation age (currently age 55). This pension income is likely to be taxed at a reduced rate or be tax-free. At the same time, you can boost your super contributions through salary sacrificing, with any contributions of up to $35,000 taxed at just 15 per cent.

This can give a valuable boost to your nest egg during the crucial pre-retirement years. That’s why it’s worth consulting a financial planner to find out the best TTR strategy for your situation.

4. Inadequate estate planning

Although it’s probably not something you like to think about, it’s important to consider what will happen to your estate when you pass away. When it comes to super and insurance, this means nominating who you want to receive your super savings and any payable insurance benefits. The tax implications for your beneficiaries can vary depending on their age, their relationship to you and whether the payments are classified as a lump sum or as an income stream. When you’re getting your affairs in order, it’s a good idea to seek professional estate planning advice.

5. Going it alone

Everyone’s circumstances are different, so your super strategies should be too. Talking to a financial planner is the first step in getting the most out of your super.

Source: MLC, October 2014

To find out more, contact our team of financial planners today.
Call (02) 4926 2300 or email us.

To discuss pre-retirement super traps and what you should be avoiding, please contact the award winning team at Leenane Templeton.
 

The post Five pre-retirement super traps you should avoid appeared first on Newcastle Financial Planners & Financial Advisors.

US

Key considerations for fixed income investing

The Federal Reserve has continued to partially remove stimulus via further reductions in quantitative easing (QE) this year. Despite this reduction, US 10 year treasury yields have fallen from 3% in January to approximately 2.5%. We are not particularly concerned about the risk of inflation, which is usually the key driver of higher interest rates. There is too much excess capacity and structural unemployment in the global economy (especially in Europe) for us to be overly concerned of an inflation spike. However, The US Federal Reserve owns close to 35% of all US Treasuries with more than 5 years of duration remaining. There is a risk that rates could rise with the removal of Federal Reserve buying. As a result, we recommend investors allocate a significant proportion of their defensive assets to credit funds with minimal duration exposure, to reduce the risk of loss of capital if US 10 year government bond yields do indeed rise significantly.

Will stronger GDP growth lead to strong earnings growth and market gains?

Despite slow growth in the first quarter which was largely weather related, we believe US GDP growth in 2014 is likely to be in the vicinity of 2.5-3%, which is higher than the growth rates of 2013. Importantly, public sector revenues have improved due to stronger consumption and higher asset prices, which has led to higher tax receipts. The budget deficit is likely to decline to 3 to 4% of GDP, negating the need for major expenditure reductions or tax increases. The outlook for corporate capital expenditure is positive, and consumer confidence is robust due to recent gains in housing and equity prices as well as employment growth.

While the outlook for US GDP growth is reasonably positive, the outlook for corporate earnings is not particularly promising. First quarter earnings grew at close to 2%, and we are doubtful that consensus expectations for 8% earnings growth this year will be achieved. Tailwinds of reduced interest expenses, no real wages growth, productivity gains and US dollar weakness have been key drivers of US corporate margin expansion in recent years. A number of these earnings tailwinds have abated. Corporate margins may hover at their current historically high levels, but further margin expansion is unlikely to be significant. The U.S. dollar has strengthened against most major foreign currencies over the past year, which is a headwind for earnings growth (earnings from subsidiaries are worth less in US dollar terms and exports priced in local currencies are also worth less in US dollar terms).  Interest rates are likely to gradually increase in the years ahead, providing a further headwind to earnings per share growth. The consequences of this is not necessarily poor share market performance – but further price earnings multiple expansion is likely to be a prerequisite for any further equity market appreciation of considerable magnitude.

Europe

Expect slow growth and diversity in GDP growth rates

We expect Europe to exhibit slow, albeit positive GDP growth throughout 2014. Business and consumer confidence have improved, and this could lead to more robust business and consumer spending. The medium term inflation outlook in Europe is low, and is likely to fluctuate around 1% or less. Given the very high unemployment rate of close to 12% (with significant disparity between countries), and low workforce participation rates, wage inflation pressures are minimal. The output gap is also wide in Europe, with significant excess capacity. As such, with nominal GDP likely to grow at about 2%, European nations are less able to inflate their way out of their high net debt levels.

Banks remain in deleveraging mode, and credit conditions remain relatively tight. Growth rates between European nations are likely to remain varied – Germany is likely to exhibit more positive growth, with Spain and Italy continuing to lag.

The outlook for UK GDP growth is more promising – consumer spending is growing and business investment has finally started to exhibit some robustness. Inflation is also higher, equating to significantly higher nominal GDP growth than continental Europe.

Japan

Japan is likely to experience slower growth this year, mainly due to the sales tax increase in April 2014 from 5% to 8%, which is likely to dampen consumption, and also due to more constrained government expenditure post extraordinary stimulus in 2013. GDP growth is likely to be in the vicinity of only 1%.

Source: IOOF, May 2014

Our financial planners are ready to help with any economic or finance questions you may have.
Call (02) 4926 2300 or email us.

Disclaimer

The team at Leenane Templeton are here to help with any questions you may have in relation to economic growth, your investment strategy and the general economic outlook as a whole. Give us a call.

The post Economic outlook appeared first on Newcastle Financial Planners & Financial Advisors.

What are hedge funds?

The RBA says the term ‘hedge fund’ is typically applied to “managed funds that use a wider range of financial instruments and investment strategies than traditional managed funds, including the use of short selling and derivatives to create leverage, with the aim of generating positive returns regardless of overall market performance(2).

In other words, hedge funds aim to ‘hedge’ or manage the risks of a volatile market by using a variety of investment strategies.

Myth no.1 – hedge funds are only for the very wealthy

This may have been true in the past, but these days, investors can access hedge funds with as little as $20,000.

Myth no. 2 – hedge funds are risky

Most hedge funds are active managers of investment risk with defensive strategies in place.

An index fund, perceived by some as a ‘safe’ option, is at the mercy of the volatility of the market it tracks; susceptible to fluctuations which aren’t actively managed. However, a market neutral hedge fund targets a positive rate of return regardless of the return the market, which means the risk is actively monitored, positions are hedged and exposure to the market limited as required.

Some hedge funds are purely focused on preserving capital (ie. your original investment), so making strong returns over the short term is not their primary focus. Other hedge funds only trade when opportunities arise and have clear investment guidelines which act as a framework for their investment decisions – such as exposure limits, risk management frameworks, stop loss levels, etc.

Before you select a hedge fund, undertake your due diligence – people and processes are critical, as is a robust framework for managing risk.

Myth no. 3 – hedge funds have exorbitant fees

The typical hedge fund fee structure in Australia is 1.5% management fee and 20% performance fee. At fi rst glance, this appears to be high when compared to long-only domestic managers. To see true value for money, however, you need to focus on returns not just fees. If you’re paying very low fees but the fund is not performing, this is a false economy.

Performance fees are only payable when the fund outperforms the benchmark, meaning investors pay for the manager’s skills and expertise when they’re getting a good return on their investment.

Myth no. 4 – hedge funds are illiquid

In Australia, redemption restrictions and high withdrawal fees are rare. There are a number of retail hedge fund managers in Australia who price their fund daily and most have a straightforward redemption process with relatively low withdrawal minimums ($10,000).

Myth no. 5 – hedge funds are unregulated and lack transparency

In Australia, hedge funds are as tightly regulated by ASIC who have recently introduced changes to reporting and increased investment process transparency, which will further improve the current status quo.
Transparency and openness around investment processes, internal governance and compliance controls is critical when assessing hedge fund managers.

Conclusion

Hedge funds play a unique role when teamed with a portfolio of more traditional investment products. They can reduce volatility and increase returns. Next time you’re creating a personalised portfolio, consider adding a hedge fund to the mix. Speak to our friendly Financial Planning Team today.

1 http://www.basispoint.com.au/hedge-fund-directory/
2 http://www.rba.gov.au/publications/fsr/2004/sep/pdf/0904-2.pdf
Source: Bennelong Funds Management, August 2013

The post Debunking hedge fund myths appeared first on Newcastle Financial Planners & Financial Advisors.

Following changes to the SMSF sector as part of the government’s Stronger Super review measures, SMSF trustees are now required by law to consider the need for insurance cover for members, such as life or disability insurance.
 

Considering insurance for one or more of its members will come under the SMSFs broader investment strategy, which trustees will need to ‘regularly review’, taking into account the changes in circumstances of the fund and its members. The new legislation does not require an SMSF to obtain an insurance policy on the behalf of its members, but rather demonstrate that the fund has considered insurance as part of its investment strategy.
 

It is critically important that trustees review their fund’s investment strategy and that all appropriate documentation is maintained to prove that regulations have been complied with. Compliance may be shown either through decisions taken in regards to the fund’s investment strategy, or if there has been no change, then the trustee minutes will show that the required actions have been taken.

Contact Leenane Templeton today for further information.

The post SMSF Member Insurance appeared first on Newcastle Financial Planners & Financial Advisors.