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Financial Happenings Blog
Wednesday, May 30 2007

As the end of the financial year approaches everyone starts focussing on tax.  The financial media is no different.  In today's edition of The Age, an article entitled Tax Slug hidden highlighted the importance of tax issues when considering the choice of investment funds.  It reports that many managed funds choose not to report their after tax returns and they have good reasons in not doing so (for them, not for the investor) as their end returns would get knocked around and not look so rosy.  Unfortunately for the investor, it is the after tax returns that are most important as this highlights what they actually will get in their pockets after fees and taxes.


Two major issues affect the tax effectiveness of managed funds - the franking level of the portfolio and the amount of 'churn'. (i.e. how much trading a fund is doing)


Franking level relates to when companies, that have already paid company tax on their profits, can provide their shareholders with franking credits on their dividends.  This means that the shareholders do not have to pay tax on these dividends.  The more franking credits, the better the scenario for investors.


The more that a managed fund buys and sells shares generally the lower is its tax efficiency because as the fund sells shares it realises capital gains and tax is payable by investors on those capital gains.  Another negative aspect of portfolio churn is the increased level of transaction costs that are incurred when buying and selling rather than holding on to assets.


The article in The Age highlights the performance of Vanguard in reducing the tax consequences of its funds as they use an index style approach which focuses on buying and holding portfolios based on the market (index) rather than actively picking shares.


We use Vanguard funds in the portfolios we develop for our clients along with Dimensional funds.  Both have a similar index or index style approach where they reduce the tax consequences for investors and in doing so produce excellent returns not just before tax but after tax also.  If you would like to know more about these fund managers take a look at their websites: and .



Scott Keefer

Posted by: Scott Keefer AT 12:17 am   |  Permalink   |  Email
Monday, May 28 2007

I have just received an e-mail from a colleague about the collapse of Australian Capital Reserve (ACR).  This is a company that provided the promise of high investment yields on an income basis.  Their advertising said that 'They knocked other investment returns for six'.  (The theme of the add was a cricketing one). 

The underlying investments of ACR were loans to related parties for the purpose of propery construction.  Just like Fincorp.  Just like Westpoint.  They all collapsed too.

ACR looks to have taken about $300 million of investors money down the drain with it.  This is a disgrace - and must be so shattering for those investors who are hurt.

It's time to stop mucking around.  Do not invest your money in funds that use the money to on-lend for property construction schemes or to related parties.  It does not work.  Read my Eureka Report article here for further information.

And stay away from these 'Investments of Wealth Destruction'.


Scott Francis

Posted by: Scott Francis AT 11:05 pm   |  Permalink   |  Email
Wednesday, May 23 2007

I am pretty confident that most people in Australian society reflect on the cost of living at some point in time if not every day.  A cost that is hidden away from us is the cost of investing in superannuation.  We don't generally have access to the money until we are well into our 50s and the costs are not coming out of pocket directly.  However cost will impact the end result come retirement and should be a priority for people when setting up and monitoring their superannuation accounts.


The Australian newspaper has published today a piece highlighting that super funds are pushing up their fees. It reports that the "average member of an Australian company's default super fund is paying 1.44 % of their balance, or $748 a year, in fees and charges, up from 1.33 % last year".


Some might think a 0.11% increase is nothing.  The table below highlights the impact of such an increase on a $50,000 portfolio over the relevant time frames assuming you received 13% returns before fees.


Years to retirement:

30 Years

20 Years

10 Years

Returns on 1.44% fee account




Returns on 1.33% account













Fees of course are not the only story.  Having a super fund that offers an excellent investment philosophy, good quality insurance and excellent service is also important.


At A Clear Direction Financial Planning all four aspects are important when we discuss with our clients their superannuation needs.  However we believe that ensuring you have a low fee fund is crucial.


To put our money where our mouth is, the fees for a balanced style superannuation fund (70% growth assets) based on our investment philosophy would have fees of 1.44% at a balance of $75,000 held in the fund.  This percentage fee then reduces to 1.41% at $100,000 of investments.  On top of this clients receive ongoing personal financial planning and advice.




Scott Keefer

Posted by: Scott Keefer AT 07:52 pm   |  Permalink   |  Email
Tuesday, May 22 2007

The front page of the Australian's business section for today led with the article 'Super Stars Widen Earnings Gap'.  The article highlighted the performance of top performing super funds and suggested the gap between the best and worst funds was significant.


I think the report again highlights that holders of superannuation should be checking the performance of their funds.  In times of strong growth it is easy to slip into the trap of thinking your fund is doing well by just looking at the numbers.  Is the fund doing as well as it could or should be?


We always like to check the performance of the investments we recommend against those that are reported as doing well.  The three top Balanced funds (over the past 10 months) mentioned in the article were the Catholic Super, Telstra Super and Legg Mason Super funds.  The following table suggests that our 'Portfolio Plus' portfolios are right up there with the best over 1, 3 and 5 years as of 30 April 2007.  (All returns are quoted net of fees.)



Growth Allocation


1 Yr

3 Years

5 Years


Portfolio Plus







Portfolio Plus







Telstra Super Balanced







Catholic Super Balanced







Legg Mason Balanced







(Ranked on 5 year returns)


It should be clearly noted that past performance is no prediction of future performance.  We are confident that our approach to building investment portfolios (including superannuation) will continue to match it with the best.

Posted by: Scott Keefer AT 10:01 pm   |  Permalink   |  Email
Monday, May 21 2007

The Financial Planning Association of Australia ( yesterday released results of a study finding that over 70% of Australians have experienced financial difficulty at some point in their lives.  The most common problems were:

  • Not understanding superannuation (39%)
  • Being able to afford the home they want (35%)
  • Meeting major unexpected expenses (30%)
  • Regular expenses and the cost of living (24%)
  • Meeting the cost of education (22%)
  • Credit card debt (17%)
  • Paying large bills (11%)

The study also found that 90% of people who have had a financial planner have benefited from the experience.


How can we help?


At A Clear Direction Financial Planning we are keen to work with all people no matter where they are on the financial continuum.  We have structured our fees to make sure that we are affordable at all levels as we want to continue a relationship with clients from the initial stages of wealth accumulation right through to planning for, and living in retirement.


If you want to reduce the chance or amount of financial pain you have to experience please give us a call.



Scott Keefer

Posted by: Scott Keefer AT 05:00 pm   |  Permalink   |  Email
Sunday, May 20 2007

It's a small world.  I rang an organisation called ?Young Care' last week and was answered by Jo.  As the discussion developed we realised that our parents were well acquainted to each other.  I was born and raised in Emerald and her family had a property just out of town.  Our families went to the same church and I actually spent a month working on their property during the Christmas holidays while at high school.


The reason for phoning was that we have recently established a client referral program, Friendly Directions', whereby we will donate $50 to a charity for any client who has been referred to us from another client.  We recognise the importance of ?word of mouth' referrals of our services to other interested investors and wish to acknowledge these referrals because they are a key part of our business. We value the fact that clients and friends of the business take the time to speak positively about our service to others.


We are passionate about the independence of our business, and have chosen not to pay money for referrals, as some firms do.


We have chosen ?Young Care' as the initial recipient of these donations.  Young Care's mission is to ?provide a dignified and relevant lifestyle for young people requiring nursing care'.  If you would like more information about this nationally registered, non-profit organisation please have a look at their website:


In this quarter just gone, we have made a $150 donation to Young Care to represent three new clients coming to our service from referrals.


I encourage you to take the time to have a look at the great work that Young Care are doing.



Scott Keefer

Posted by: Scott Keefer AT 08:42 pm   |  Permalink   |  Email
Thursday, May 17 2007

Everyone likes to hear that something is more affordable.  My parents are retirees and I know for a fact that their eyes light up at the phrase.


The Association of Superannuation Funds of Australia commission Westpac to produce the Westpac AFSA Retirement Standard.  These are national figures that outline the projected costs of living in retirement.  The study provides detailed budgets for singles and couples looking forward to either a modest or more comfortable lifestyle in retirement.  The assumptions are based on the single or couple owning their own home.  Their most recent figures were:



Modest lifestyle - single

Modest lifestyle - couple

Comfortable lifestyle - single

Comfortable lifestyle - couple

Costs per year






The media release suggested that for couples seeking a comfortable lifestyle in retirement, costs had fallen for the second quarter in a row mainly due to a fall in food prices however health and transport costs had risen.


This study is good news for retirees.  It also provides a great resource for anyone planning for retirement who need help determining what income they will require.


For more details please go to



Scott Keefer

Posted by: Scott Keefer AT 07:01 pm   |  Permalink   |  Email
Wednesday, May 09 2007

Last night Scott and I had the pleasure of meeting with 25 clients and others interested in our perspective on the 2007 Budget. Scott also spent some time explaining how index funds work. We had a great evening and hope those in attendance enjoyed it as much as we did.


A few of the main points from our budget summary included:

  • Tax cuts from July 1, 2007 of $150 for anyone earning below $25,000, $1,100 if earning $30,000 - $40,000 reducing to $750 for anyone earning $48,750 or more
  • Increases in income that recipients of the Senior Australian Tax Offset can earn before paying tax, now $25,867 for singles and $43,360 for couples
  • Doubling of the government co-contribution for those who made an eligible contribution in the 2005-06 financial year


The government also painted a fairly rosy projection of economic conditions up until June 2011 with economic growth to continue on at 3%, unemployment to remain low, and inflation to be around 2.5% (smack bang in the middle of the Reserve Bank's target range).


So what are the key messages for investors?

We believe that what the budget is telling us all that if we do not take the chance to improve our financial situation now (while all the moons are aligned!!) then it is going to a lot harder when conditions are not so positive.  Take the lead from the government which

  • Spends less than it earns (government surpluses)
  • Gets rid of debt (government debt all but eliminated)
  • Invests in growth assets for the future (Future Fund & Higher Education Endowment Fund.)


We hope that you received some good news from the budget.  If you would like more detail please get in touch or have a read of Scott's article in the Eureka Report - More Cash for More Investments.



Scott Keefer

Posted by: Scott Keefer AT 07:39 pm   |  Permalink   |  Email
Tuesday, May 08 2007

'Tax Cuts for All' was the Budget Headline, and that was certainly the highlight.

A $750 tax cut for all Australian's was the highlight - and provided another year of tax cuts.  This is a tremendous economic environment in which to be creating wealth, and if people are not taking the opportunity now, they never will.  It is a time to rememer that things are not always this good financially!

There was an interesting move toward allowing the trading of forestry investment schemes.  This is potentially good for investors as a 'secondary market' will allow more flexibility in buying and selling these schemes.  It is only a small step, however it might see progress toward the development of another asset class - forestry investment - that is 'investment worthy'.

There was a bonus for people who made a superannuation co contribution last financial year.  This is a scheme where all people who earn less than $58,000 can make a contribution to superannuation and for every personal contribution of $1 the Government will add a further $1.50 - up to a set limit.

For full details of our 2007 Personal Finance Budget Summary please click here.

Posted by: Scott Francis AT 06:56 am   |  Permalink   |  Email
Monday, May 07 2007

The 'S' word is buzzing around Australian homes, workplaces and an occasional BBQ - Superannuation.  Last year's Federal budget promised some great results for near retirees and retirees and the federal parliament has delivered on these promises by passing the necessary legislation with the details ready to be implemented as of July 1.


Some pundits suggest there may even be further benefits in the budget this week.  Watch this space for more details!


However, Bina Brown in the The Australian today put a dampener on the party questioning whether the current superannuation savings by Australians is enough to sustain us in retirement. (Warning: we're not saving enough for super)


Many agree that the 9% contributions made by employers will not be enough with employers, employees and government needing to make further contributions.


The government has started down this track by implementing the government co-contribution. Some employers are also coming to the party by make extra contributions based on extra contributions by employees while some employees are making the most of salary sacrifice arrangements to make tax effective contributions.  According to the article the majority of employees are not making these further contributions.


The big deterrent of course is that these funds are not available until we are 55 or older and there are a multitude of other purposes like education, family and a home to name a few.  The new laws also provide some powerful methods of accruing superannuation funds in the final years of work.


However if you can rearrange your personal budget to squeeze out extra contributions from your income take a look at the following simple steps.


1. Do you (or your spouse / partner) receive less than $58,000 in income? If so you are most likely eligible for a government co-contribution.


2. Does your employer (or your spouse's / partner's employer) offer to make extra contributions into super if you make extra payments? If so or you are not sure, check out the arrangements from your payroll department.


3. Can you (or your spouse / partner) afford to salary sacrifice some of your income to super? If you can, these contributions are taken out of your income before income tax and taxed at the normal super contribution rate of 15%.  So it is of benefit to anyone who's marginal tax rate is 30% or higher.


Give us a call if you need more information.



Scott Keefer

Posted by: Scott Keefer AT 07:51 am   |  Permalink   |  Email
Thursday, May 03 2007

As a firm that strongly favours a 'well diversified, buy and hold, long term provides strong returns for investors' approach to investing - one that is justified by a mass of research - a headline like that in today's Australian that 'Hedge Fund Woes Hit UBS' is a quiet justification of our strategy.

Hedge Funds are really 'trading funds', with a broad scope to invest in shares, commodities, currencys - basically anything that trades and using a reasonable level of debt to boot! 

The Article in the Australian looks at Dillon Read Capital Management, and reported a loss for the quarter of about US$150 million.  Which is  a fair loss.  Keep in mind that UBS would have only picked Dillon Read Capital because they thought that they were the best at what they do.  Reporst also suggest that UBS has been hurt by hedge funds before, losing about $700 million in 1998 when Long-Term Capital Management LP collapsed.

Another $6.5 billion was lost in a recent hedge fund debacle - Amarnath Advisors.

Hedge funds sound great, however there is real risk involved and clearly when things to bad they go really bad.

Our thoughts - if one of the biggest and best financial services firms in the world - UBS - get burnt twice then it retail level investors must be doubly cautious!

Have a great (and hedge fund free) weekend!

Scott Francis

Posted by: Scott Francis AT 06:06 pm   |  Permalink   |  Email
Wednesday, May 02 2007

A big part of our investment focus is around the fact that you cannot manage to forecast what is going to happen in the markets.  Therefore we tend to keep an eye out for evidence of our opinion.  This is not hard - there is a fair bit of it out there.

Take this article from the Australian Newspaper on the 2nd of May.  It was talking about JP Morgan - one of the big financial service firms in Australia - and their forecast that the Australian stockmarket would be trading at a level of 5,930 points by the end of the year.  With the index now trading at 6,240 JP Morgan have decided that there forecast was wrong.

Of course, they don't jump up and down and say this.  They just 'revise' the forecast - up by almost 10% to 6,520 points. 

Is a forecast that is wrong by almost 10% 4 months into a year really all that useful?

Keep an eye out for failed forecasts.  They are all around us.  And don't be too swayed by them.

One important way of dealing with the lack of skill in forecasting is to carefully think about the asset allocation of portfolios.  Next week's e-mail update (Financial Fortnight that Was) will look at using asset allocation to build successful investment porfolios.  Please click here to subscribe!


Scott Francis

Posted by: Scott Francis AT 09:51 pm   |  Permalink   |  Email
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