I have spent this morning cleaning up my email in box and catching up on some reading.  (A sure sign of procrastination before my upcoming CFA exam.)

During my reading I came across an article written by John Kavanagh published in the Sydney Morning Herald - The importance of being idle.

The article looked at analysis conducted by Standard & Poor's regarding managed equity and fixed interest Fund managed fund returns for the 5 year period ending 31^st December 2008.  S&P found:

" that the S&P 500 index outperformed 71.9per cent of actively managed large-cap (investing in large-capitalisation stocks) funds. The S&P MidCap 400 index outperformed 79.1per cent of actively managed mid-cap funds and the S&P SmallCap 600 outperformed 85.5per cent of small-cap funds."

The report also looked at results for the 2008 year separately and found the following:

BEAR MARKETS - PERCENTAGE OF ACTIVE FUNDS OUTPERFORMED BY BENCHMARKS

                        2008%

All Large-Cap Funds     54.3

All Mid-Cap Funds       74.7

All Small-Cap Funds     83.8

Large Growth            90

Large Core              52

Large Value             22.2

Mid Growth              89

Mid Core                62.3

Mid Value               67.1

Small Growth            95.5

Small Core              82.5

Small Value             72.6

SOURCE: STANDARD & POOR'S

Apart from the returns for the Large Value segment, the data points out that active managers have underperformed benchmark indices last year.  This result flies in the face of the argument that active managers better protect clients during bear markets.

The report adds further evidence that active management of investments does not benefit investors and provides further support for the approach taken by A Clear Direction in using passive, index based investments.  Please take a look at our Building Portfolios page for more information about this philosophy.

Regards,

Scott Keefer

A friend of mine has been in contact recently explaining that her superannuation contributions for the past year had not yet been paid by her past employer.  After ringing her employer she was informed that the company she had previously worked for had been put into receivership.  However we later found out that the business she worked for was still operational just under a new company structure.

After we rang the  ATO they explained that there was nothing that they could do to follow up this breach and that my friend need to contact the receivers to make a claim on any remaining assets of the previous company.

Without wanting to comment on the ethics of this situation I thought it would be useful for readers to know what they should do as early as possible if their employer has not been paying superannuation entitlements.

The ATO sets out the following points on their website:

If you're concerned about unpaid super guarantee contributions you should:
 
Step 1
 
Talk to your employer. You should ask them how often they are currently paying your super, into which fund they are paying it, and how much they are paying. It's a good idea to ask these sorts of questions when you start work with an employer.
 
You should also make sure you are eligible to receive super. Usually an employer has to pay super contributions for you if you are over 18 and you are paid at least $450 in salary and wages (before tax) in a month. It doesn't matter if you work casual, part time or full time hours. You can also be eligible if you are a contractor working primarily for labour (eg. graphic designer).
 
Step 2
 
Check your last Member Statement from your super fund, or contact them to confirm if your employer has paid your super.
 
Step 3
 
If you have completed steps 1 & 2 and still believe your employer is not paying enough or any super, and/or is not paying the super to your chosen fund, you can lodge an enquiry about unpaid super by phoning the Tax Office on 13 10 20.
 
Before phoning the Tax Office on 13 10 20 you will need to prepare information to help us record your enquiry. Please refer to:
       What information do I provide when I lodge an enquiry about unpaid super?
       What process does the Tax Office follow to investigate unpaid super enquiries? 
 
Other ways to obtain unpaid super
 
If you lodge an enquiry with the Tax Office, we will take action on the information you provide.

Jim Parker, a Regional Director from Dimensional Fund Advisors always has interesting insights into the world of journalism stemming from the many years spent working in the industry.  He has posted another item on DFA's website today which provides more ammunition as to why we should try turning off, or at least down, the financial media commentary we are listening to.  (Don't switch off from my blog or website though!!!)

The following is the article published by Jim:

A Really Bad Day

With economic pessimism becoming a growth industry, it's interesting to note that the glummest of the glum work in a field with the most potential to influence how everyone else is feeling: the media.

Pollsters Ipsos MORI recently asked the people of Britain to cite the most pressing issue facing their country. Out front by a country mile was 'the economy', with two thirds citing it as the most important challenge.¹

And in terms of occupations, Ipsos found journalists were the most negative, with 96 per cent of that grouping believing the economy would get worse.

"Out of all the audiences we look at?businesses themselves, consumers, employers, the people who are most negative are the journalists," Ipsos managing director Ben Page told the Financial Times.²

As to why journalists are so gloomy, there are a number of theories. One is that things really are that bad. Journalists, being closer to the newsmakers, see through all the 'happy talk' and feel compelled to tell their audiences and readers how it really is.

But if that were the case, why are investors expressing greater optimism, as reflected in the large bounce in risk assets recently? As of early May, the US S&P-500 was 34 per cent above the lows struck two months before. Other major world indices were up by between 20 and 40 per cent.³

Of course, no-one knows whether the bottom really has been reached. But it seems for now that there are enough green shoots of recovery to encourage those risking their capital to move back into the market.

While journalists are routinely plugged into hundreds of news sources, it seems highly unlikely that they would have any better access to new information than the market in aggregate, which?unlike the media?tends to be a forward looking indicator.

A second explanation for the media tendency to gloom is that pessimism is a professional hazard for journalists. It goes with the territory in a job that requires the individual journalist to exercise extreme skepticism in a world driven by PR spin doctors.

But this tendency to see the glass always as half empty means journalists can be late to break the story when the news really is good.

A third theory is that bad news sells. Like ghoulish spectators at grizzly car accidents, the public is pathologically drawn to tales of the misfortunes of others. Knowing this, the media tends to give prominence to the gloomy.

But is that really true? What sells are great stories?good or bad. When the media seems routinely focused on the negative, it is often because the individual editors and reporters concerned have grown lazy and reflexive.

A final theory is that the newspapers are full of gloom because the mainstream media itself is in something of a death spiral as the internet robs it of advertising revenue, circulation, ratings and jobs.

Newspapers and network television were already facing a structural crisis before the global recession came along. For journalists, then, the economic crisis is just the icing on an already unappetizing cake. One estimate puts the loss of newsroom jobs in the US alone last year at nearly 6,000.⁴

That last theory might be the closest to the truth right now.

For the average investor struggling to comprehend the daily financial news headlines, it may be worth reflecting on all this. Are things really as gloomy as the headline writers say they are or are they just having a really bad day?

¹'Economy Still the Most Important Issue Facing Britain, Ipsos MORI, May 1, 2009

²'Truth Tellers or Doom Mongers?', Financial Times, May 4, 2009

³Bloomberg data

⁴'The State of the News Media 2009', Pew Project for Excellence in Journalism

In this edition we:

Click on the following link to have a look at the full newsletter - Financial Fortnight That Was - 26th May 2009.

The market update section is set out below:

The latest edition of the Monday's Money Minute podcasts has been uploaded onto the website - Taking Stock - What Should Investors Do Now?

The following provides a transcript of the podcast:

In this edition of our podcasts I wanted to provide a simple update on the movement of markets so far in 2009 and then turn listeners attention to considering what their response should be to the current climate.

To the end of last week - 22^nd May - we have seen the following performance in share asset classes:

·         Australian shares are now up 1% for the year, up 20% since the bottom reached in early March

·         Australian listed property still down 26% for the year but up 17% since the bottom.

·         International listed property is also still down 19% for the year but up 16% since the bottom.

·         International shares up 2.5% for the year and up over 30% since the bottom.

·         Emerging Markets are now up 27% for the year so far, up 38% since early March.

As I always profess - as my family and closest friends can confirm - I have no idea whether markets will continue this projection in the short term.  There is still potential for "icebergs" to create more havoc such as the downgrading of the UK's or even the US credit rating.  Let's hope the global economy can avoid these icebergs but we should be prepared for this.

So What Should Investors Do Now?

For clients and regular visitors to A Clear Direction's website you will be well aware that I currently favour the use of Dimensional Fund Advisor investments within portfolios.

Last Friday, Dimensional have uploaded to their public website a really useful series of online presentations done by Weston Wellington, Vice President of Dimensional in the United States.  The series is titled - What Should Investors Do Now?

Today I have come across some really simple but useful videos presented by Vanguard.  It is a bit of a marketing tool for Vanguard but the initial commentary provides a good summary of the fundamentals of a range of asset classes with data updated to the of March 2009.

I particularly liked the Fixed Interest presentation.  Please click on the following link to be taken to the videos - Vanguard Investment Insight videos.

If you would like to discuss any of the details please be in contact.

Regards,
Scott Keefer

Every year Iput together a summary of the major items from the Federal Budget that may impact on the personal finances of our clients.  The Budget presented last week by Wayne Swan provided a number of significant financial planning changes which have been outlined in this summary.

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 - 2009 Budget - Personal Finance Summary.

A copy was also sent out to subscribers of our email newsletter the day after the budget was delivered.  Please click on the following link to take a look at a copy of this email - Email Newsletter Budget Summary.

If you would like to subscribe to this free email newsletter please Sign Up.

The budget has provided a number of significant financial planning changes which have been outlined in this summary.  Some readers will not be interested in all of the details so I start with a brief summary of the major changes introduced:

-          Reduction of Tax Deductible Contributions to Superannuation from $50,000 to $25,000 for those under 50 years old and from $100,000 to $50,000 for those aged 50 and older.  Effective July 1^st 2009.

-          Reduction of the Superannuation Co-contribution to $1 per $1 of eligible personal contributions up to a maximum of $1,000.  Effective 1^st July 2009 until 30^th June 2012 (3 years) and then increasing to $1.25 per $1 of eligible personal contributions up to a maximum of $1,250.

-          Continuation of the 2008-09 drawdown relief for superannuation pensions through 2009-10 reducing the minimum draw down rates by 50%.

-          Single Age Pension rate to increase by $32.49 per week with the Combined Couple Age Pension rate to increase by $10.14 per week.

-          Increase in the Age Pension income test taper from 40 to 50 cents in the dollar for a single pensioner and 20 to 25 cents in the dollar for each member of a couple.

-          No new entrants to the Pension Bonus Scheme from the 20^th of September 2009.  Replaced in some way by the Work Bonus for pensioners which will leave exempt from the Income Test half of the first $500 of fortnightly income.

-          Qualifying age for Age Pension to increase to 67 by 2023.

-          Increase in the Senior Concession allowance for singles by $129 per annum.

-          Introduction of a new carer's supplement, $600 per annum to all Carer Allowance recipients for each person being cared for, $600 per annum to all Carer Payment recipients.

-          Commonwealth Senior's Health Card income test will not be amended to include gross tax-free superannuation pension income however it will include income which has been salary sacrificed to superannuation.

-          First Home Owners Boost to continue as is until the 30^th September and then be wound back by $3,500 for existing home purchases and $7,000 for building a new home up until the 31^st December 2009.

-          Introduction of paid parental leave for up to 18 weeks at the Federal Minimum Wage - currently $543.78 per week.

-          Introduction of new Private Health Insurance Incentive Tiers with existing arrangements remaining unchanged for singles earning less than $75,000 and families earning less than $150,000 per year.

-          Increase in the Small Business Tax Break from 30% to 50% of eligible purchases from 13^th December 2008 to 31^st December 2009 as long as the equipment is installed by 31^st December 2010.

-          Previously announced income tax cuts left untouched.

Regards,

Scott Keefer

Scott Keefer has recently been quoted in an article written by James Dunn for the Australian's wealth section - Value in offshore portfolio exposure.

In the article a number of commentators were discussing the potential benefits from having international share exposure.  Scott was also part of an online discussion based on this topic as broadcast on Boardroom Radio Australia.  A copy of the audio webcast can be found here - International Shares: Where the opportunities are.