In the latest edition of Alan Kohler's Eureka Report, Scott has added some commentary to Eureka Report's 2008 Budget analysis.

In his comments, Scott looks at a change hidden in the detail of the budget that may have an impact on salary sacrifice strategies.  He also points out the beneficial changes to the Senior Australian Tax Offset.

Click on the following link to read Scott's article - 2008 Budget: Salary Sacrifice Rethink - Eureka Report insert

In today's podcast, Scott Keefer outlines some of the detail from this week's Federal Budget which may impact on personal finances.

He suggests that there have been no major surprises but notes that each individual will need to look at the details to consider the bottom line impact on their situation.

Please click the following link to be taken to this podcast - 2008 Federal Budget - Personal Finance Summary.

Every year we put together a summary of the major items from the Federal Budget that may impact on the personal finances of our clients.  The Budget presented yesterday by Wayne Swan provided few financial planning surprises.  The really significant development might possibly come from the taxation system review that has been funded in this budget.  One other important point to note from the outset is that there have been no changes made to the Simpler Superannuation system that has been introduced over recent years.

We have posted a summary on our website and encourage anyone with questions regarding the details to get in contact.  The following is a brief summary of the major points.  For more details please click on the link to the full summary - 2008 Personal Finance Budget Summary.

-          Confirmation of the income tax cuts and increases in low income tax offset

-          Increases in the Senior Australian Tax Offset levels of income before tax is payable to $28,867 for singles and $24,680 for each member of a couple in 2008/09 and increasing in future years

-          Increases in the Medicare levy low income threshold to $17,309 and surcharge threshold to $150,000

-          Introduction of the First Home Saver Accounts with a government co-contribution of up to $850 per year and taxed at 15%

-          Confirmation of the Carer's Bonus at $1,000 and Carer's Allowance at $600 for each eligible person in their care

-          Confirmation of Senior's Bonus at $500

-          Confirmation of Senior Concession, Telephone and Utilities Allowances

-          Increases in the level of Child Tax Rebates from 30% to 50% with The maximum out-of-pocket expenses claimable increasing from $4,354 to $7,500 (indexed) per child per year

-          Introduction of the Education Tax Refunds of up to $750 per primary student and $1,500 per secondary students

-          Increase in the baby bonus to $5,000 but no longer eligible for families earning more than $150,000

-          Introduction of means testing to Family Tax Benefit - Part B limiting payments to where the primary earner has an adjusted taxable income of $150,000 a year or less

-          Expanded definitions of income in terms of income tests to include certain superannuation sacrificed contributions, net financial investment losses and net rental property losses and reportable fringe benefits for certain income support payments

-          Dependency Tax Offsets limited to those earning less than $150,000

-          Senior's Health Card Income Test amended to include gross income from superannuation income streams from a taxed source and income which has been salary sacrificed to superannuation

-          Tightening of Fringe Benefit Tax exemptions specifically around laptop computer purchases and meal cards

-          Increase in the luxury car tax from 25% to 33%

The Australian Securities Exchange (ASX) have recently released some interesting charts and data looking at the long-term performance of the Australian Share Price Index and Accumulation Index over the past 109 years - Long-term Australian sharemarket returns.

The ASX have published the data in the context of the recent sharemarket volatility to show Australian share prices moving steadily higher through history.  They also provide charts on the difference between the Share Price Index (dividends not reinvested) and the Accumulation Index (dividends reinvested).  The charts show the strength of reinvesting dividends backk into the market.  Over the 109 year history the average return from the Price Index was 7.48% with the accumulation index providing a return of 12.42%.

(Please note - we believe that this does not necessarily mean reinvesting the income back into the share from which it came, but more broadly about reinvesting back into the market as a whole.  Take a look at Scott Francis' Eureka Report article - When it pays to reinvest - for more details on our views about dividend reinvestment.)

The ASX publication is another source of evidence that a long term approach to investing, with regular incremental investments over time, will lead to a successful investment outcome.

In the latest edition of Alan Kohler's Eureka Report, Scott has added some commentary to James' Kirby's article - Bookmakers Caught by MFS.

In his comments, Scott delves into the MFS Premium Income Fund to anlyse how this fund has hurt investor returns - including the NSW Bookmakers Suparannuation Fund.

Click on the following link to read Scott's article - Bookmakers Caught by MFS - Eureka Report insert

My parents are visiting after returning via Brisbane from a recent trip.  While chatting over Mother's Day brunch yesterday, my mum reminded me of a saying her grandfather passed on to her during her upbringing - "Look after the pence and the pounds will look after themselves."

I could not help thinking that this is similar to the philosophy we use when talking through financial strategies with clients.  Get what some might say are the "smaller" issues right and the larger issue - i.e. a successful financial outcome will look after itself.

So what are these "smaller" issues?

Firstly the importance of spending less than you earn - if you don't have any surplus money you will have nothing to invest. (including putting funds towards the mortgage or saving for a deposit)

Secondly, making sure you are not paying too much tax - just what you are legally required to contribute.

Thirdly, making sure you are keeping the fees and costs of investing to a minimum.  We see this as a bit of a sleeping giant slug that sits in portfolios and sucks away the benefits from investments.

If clients can get these strategy, or "Pence", issues structured right, the "Pounds", will follow.  (Another way of looking at this is that decisions about investments should be the last, not the first considerations for clients when setting in place plans for future or ongoing financial independence.)

Mums can be relied on to provide that special bit of wisdom - so thanks to all the mums who read our blog and hoping you all had a great Mother's Day.  Have a great week and watch this space for a personal finance summary of the Federal Budget on Tuesday night - there should be some interesting points of interest.

Regards,

Scott Keefer

The latest edition of our fortnightly email newsletter has been sent to subscribers.  If you would like to be added to the mailing list please click the following link to be taken to the sign up page - The Financial Fortnight That Was Sign Up Page.

The financial topic discussed this fortnight was making the most of superannuation  The latest edition also contained the following Market Update:

Market News

Market Indices

Since our previous edition, Australian and global sharemarkets have both experienced positive movements over the past fortnight.  The S&P ASX200 Index has risen 4.99% from the 18^th to the 2^nd of May.  It is now down 8.61% from the same time last year and down 10.09% for the calendar year (2008) so far.  The MSCI World - ex Australia, a measure of the global market, has risen 2.35% over the same period.  The index is down 5.34% from the same time last year and down 8.16% for the calendar year so far.

Emerging markets have also experienced positive movement with the MSCI Emerging Markets Index rising 2.78% since the 18^th of April.  It is up 18.44% from the same time last year but down 4.09% for the calendar year so far.

Property trusts have also risen since the 18^th of April with the S&P ASX 200 A-Reit Index (formerly known as the Property Trust Index) rising by 6.95%.  The index is down 27.08% from the same time last year and also down 15.49% for the calendar year so far..  The S&P/Citigroup Global Real Estate Investment Trust (REIT) Index, a measure of the global property market, has risen 2.24% over the same period.  It is down 17.52% from the same time last year but now up 1.74% for the calendar year so far.

Exchange Rates

As of 4pm the 2^nd of May, the value of the Australian dollar has had mixed movements.  It has fallen against the US Dollar since the 18^th of April being down 0.70% at .9318.   It is up 12.99% from the same time last year and up 5.69% for the calendar year so far.  Since April 18^th the Aussie has risen 0.43% against the Trade Weighted Index now at 70.8.  This puts it up by5.83% since the same time last year and up 3.06% for the calendar year so far.  (The Trade Weighted Index measures The Australian dollar against a basket of foreign currencies.)

General News

Since our last edition the Australian Bureau of Statistics has released the latest consumer price index data.  The March quarter of 2008 has seen prices rise 1.3% with this taking the annual inflation rate to 4.2%.  The board of the Reserve Bank of Australia met today and has decided to keep official interest rates steady at 7.25%.

In today's podcast, Scott Keefer outlines some of the benefits involved with making extra contributions into superannuation - tax effectiveness, investing for the long term, givernment co-contribution, self employed tax concessions and spouse contribution rebate.

He concludes that these benefits need to be weighed up against the inability to access this money until the lead up to retirement.

Please click the following link to be taken to this podcast - Benefits of Extra Super Contributions.

Wouldn't it be great if we could turn to expert to tell us where the market is going for the remainder of 2008!  Well the Weekend Australian Financial Review, 24^th to 27^th April, tried to do just that.  They canvassed the views of 8 leading economic and investment experts from some of the the well known organisations in the investment world - ABN Amro, AMP, Citigroup, CommSec, Credit Suisse, Morgan Stanley, Ord Minnett and the Russell Investment Group.  Surely putting together the thoughts of these industry experts should provide a pretty clear picture of things going forward.

Well, unfortunately, the forecasts made by the market experts painted an anything but clear picture.  They were asked to provide a forecast for the S&P/ASX200 as at the 30^th of June and 31^st of December.  The forecasts for the 30^th of June, two months away, ranged from 4,913 to 6,100.  (As of yesterday, the ASX200 sat at 5,797.7)  The forecasts for the 31^st of December ranged from 5,000 to 6,800. 

So what to make of this?  In all probability, one of these experts will go very close to getting in right but which one?  For us it clearly shows the difficulty in forecasting what markets, yet alone individual shares, are going to do.  What hope does the average investor have if market experts, who spend most if not all of their working days pouring over the data, can't get close to consensus for a period as short as two months?

A much better approach is to have a long term outlook based on the fundamentals of capitalism and how markets work, have a well diversified portfolio of cash, fixed interest securities, Australian shares, international shares and listed property and then hold these into the future.  Then you can sit back and watch from the sidelines as the experts differ between themselves with most getting their forecasts wrong.

Have a great week,

Scott Keefer

Fairfax newspapers are currently running their 4 week stock picking contest.  At the beginning of the 4 weeks, 8 contestants are asked to allocate $10,000 towards 10 stock picks, $100,000 in total.  The contestants include media commentators and stock analysts along with a random selection identified as the Dartboard.

The latest report (29th April) on the progress of the competition has the Dartboard as a clear leader, $9,000 ahead of second place David Potts - a financial journalist.  Four of the share racers are in negative territory.

This surely anything but a strong affirmation of the usefulness of individual stock picking!!

Regards,
Scott Keefer