Financial Happenings Blog
Friday, September 28 2007
Our investment philosophy clearly shows that we believe that fees and costs matter. One cost effective way to access a well diversified portfolio of shares is through listed investment companies where fees are less than one tenth of the size of the average managed fund bumping around in the Australian market place. However, as Scott Francis reports in his latest Eureka Report article, the performance of these funds has been less than what investors should expect to receive from their capital investment - the market return.
Please take a look at Scott's article - Why L-I-Cs can be D-U-Ds for more details.
Tuesday, September 25 2007
Scott Francis has compiled a broad breakdown of the financial strategies relevant to four broad stages of life:
Starting Out (Ages 20 to 35)
Mortgages & Family Commitments (Ages 35 to 50)
Planning for Retirement (Ages 50 to 65)
Retirement (Ages 65+)
The general points are a good starting point / reminder for everyone who is concerned about their financial journey. Of course the stages for every one will be different and, as always, you should seek your own personal advice. Click here to be directed to the page on our website.
Tuesday, September 25 2007
This week's Monday's Money Minute looks at the power of a Transition to Retirement Income Stream in the lead up to retirement. Click here to be taken to the podcast.
Monday, September 24 2007
The latest edition of The Financial Fortnight That Was has been emailed to subscribers. This edition looks at demystifying the Simple Super reforms. If you would like to receive this free email service go to the Sign Up page found on our website.
Please rea on for the latest market news for the fortnight concluding Monday 17th September.
Since our previous edition, Australian and global sharemarkets have had flat fortnights. The S&P ASX200 Index has risen 0.06% from the 3rd to 17th September, up 10.61% for the calendar year so far. The S&P Global 1200, a measure of the global market, on has fallen by 0.63% over the same period, placing the index up 5.08% for the year.
Emerging markets also been flat with the MSCI Emerging Markets Index rising 0.04% for the fortnight and is now up 17.98% for the year so far.
Property trusts have had mixed performances over the past fortnight with the S&P ASX 200 Property Trust Index rising 0.92%, and is now in positive territory for the year so far up 0.72%. The S&P/Citigroup Global Real Estate Investment Trust (REIT) Index, a measure of the global property market, however was down 2.21% for the fortnight and has fallen 6.94% this year so far.
As of 4pm the 17th September, the value of the Australian dollar had again risen strongly over the past fortnight with the Aussie dollar up 2.60% against the US Dollar at .8439, up 6.65% for the year so far, and up 1.96% against the Trade Weighted Index at 67.6, now up 4.16% for the year so far. (The Trade Weighted Index measures The Australian dollar against a basket of foreign currencies.)
The Australian Bureau of Statistics published the labour force data for August 2007 with unemployment rate steady at 4.3% and participation rate rising to 65.1%.
Tuesday, September 18 2007
This week's Monday's Money Minute looks at the traps involved with using Early Release Superannuation Schemes. The podcast concludes that if you need to access such a scheme you should be very careful and definitely seek independent financial advice. Click here to be taken to the podcast.
Sunday, September 09 2007
Today's 'Monday Money Minute' looks at a powerful personal finance strategy - the salary sacrifice to superannuation.
The power of this strategy is that a significant amount of tax is saved by salary sacrificing income to superannuation, where it is taxed at a maximum of 15%, rather than paying income tax on this money which might be up to the rate of 46.5%.
However, some employers use a nasty trick. They only pay the 9% contribution on the after salary sacrifice income. Let's look at how that works. Let's say you earn income of $50,000. Your employer has to pay compulsory 9% contributions of $4,500. Let us now say that you decide to salary sacrifice $10,000 to superannuation - which will save you $1,650 in tax. Your income, after the salary sacrifice, is now $40,000. Some employers will only pay the 9% contribution on this amount - $3,600. You still end up ahead, however not by as much as if the employer had paid contributions on the full $50,000.
Only a minority of employers do this - most continue to pay the 9% on your full $50,000 salary. However, it is worth knowing what your employer is doing. You might just be better of moving on somewhere else......
Friday, September 07 2007
Yesterday saw the publication of the Financial Literacy : Australians Understanding Money report published by the Financial Literacy Foundation. There is a lot of interesting material presented in the report for an educator and financial planner such as myself. It also provides a timely reminder on how a financial adviser can assist a client in the educative process of how to manage money and investments.
The commentary on the report has mostly been positive focussing on the findings that:
- 83% of adults say they have the ability to deal with credit cards
- 90% say they have the ability to budget
- 88% say they have the ability to save
- 89% say they can manage debt
- 69% say they have the ability to invest money
- 63% say they can ensure they have enough money for retirement
However the report goes on to find that:
- 48% say that dealing with money is stressful and overwhelming
- 48% say they do not budget regularly for their day to day finances
- 66% would not consider both risk and return when choosing an investment
These statistics suggest to me that having ability does not necessarily carry over into successful and stress free experiences managing money. This is where a good financial adviser can be of service.
The role of a financial adviser is not solely about developing investment portfolios, they also can provide clients a relationship similar to that between a coach and athlete. The financial advisers can help clients with the basic techniques and strategies necessary to build wealth:
- Ensuring you save more than you spend and keeping to that
- Understanding the trade off between risk and return
I also believe that good financial advisers provide their clients with someone to keep them committed to their saving and investment strategies.
We believe that our free initial consultation and low fee structure provide all Australians to benefit from a relationship with a professional financial adviser. If you do not have an adviser that is doing this for you please get in contact by sending an email or forwarding through a request for more information. Click Here
Tuesday, September 04 2007
The latest edition of our fortnightly email publication - The Financial Fortnight That Was - has been emailed to subscribers. This edition looks at our bias against actively managed funds. It also gives a market update of for the past fortnight which reads as follows:
Since our previous edition, Australian and global sharemarkets have had strong improvements. The S&P ASX200 Index has risen 5.64% from the 20th August to 3rd September, up 10.54% for the calendar year so far. The S&P Global 1200, a measure of the global market, on has also risen, up 3.86% over the same period, placing the index up 5.74% for the year.
Emerging markets also experienced strong upward movements with the MSCI Emerging Markets Index rising 8.94% for the fortnight and is now up 17.94% for the year so far.
Property trusts have had seen strong growth over the past fortnight rising 7.74% as measured by the S&P ASX 200 Property Trust Index. Since the beginning of the year this index has fallen 0.20%. The S&P/Citigroup Global Real Estate Investment Trust (REIT) Index, a measure of the global property market, was up 3.83% for the fortnight and has fallen 4.84% this year so far.
As of 4pm the 3rd September, the value of the Australian dollar had risen strongly over the past fortnight with the Aussie dollar up 3.34% against the US Dollar at .8225, up 3.94% for the year so far, and up 3.11% against the Trade Weighted Index at 64.3, now up 2.16% for the year so far. (The Trade Weighted Index measures The Australian dollar against a basket of foreign currencies.)
The Australian Bureau of Statistics published the gross domestic product (GDP) figures for the June quarter on the 4th of September with the economy growing 0.9% over the quarter and 4.3% through the year. The Reserve Bank board met on Tuesday and has decided to keep the official cash rate target unchanged at 6.50%.
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Tuesday, September 04 2007
If you have read through a lot of the information on our website you wil soon gather that we do not support the theory that active managers can add significant value to the performance of investment portfolios for investors. In fact we believe the opposite that active managers actually can cost you money.
As with all of the investment philosophy used at A Clear Direction Financial Planning we do not just idealistically follow theories rather we put these theories to the test through research and analysis of markets at work. This is definitely the case when it comes to looking at the performance of actively managed funds. Scott Francis has published an article in last Friday's edition of Alan Kohler's Eureka Report where he looked at the one and five year returns of some of the best known managed funds in the Australian market place. Funds coming under the banners of the largest financial players in Australia - AMP, ANZ, Challenger, the Commonwealth Bank, Macquarie bank, National Australia Bank, Perpetual, St George, Suncorp-Metway and Westpac.
Scott concluded that despite the almost perfect conditions for 19 leading fund managers in the year to June 30, 2007, the outcomes for retail investors are hopelessly inadequate.
Over the five years to the June 30, 2007, only three of the 19 funds managed to beat the average market return.
In the year to June 30, only one managed to beat the average market return, of the ASX300 index.
The average one-year income from the sample of managed funds was 15.46% - about four times the sharemarket average. Because this income is taxable, it makes the funds very tax ineffective.
Over one year, the average managed fund in the survey underperformed the average market return by a whopping 3.56%. (Think about that in terms of an investor with a $100,000 fund holding and paying a fee of 2%. They paid $2000 to a fund manager to end up $3560 behind the average market return).
He finishes by saying that there are two clear conclusions in this survey. First, investors who look to managed funds to provide an above-market average return should take the time to look at the performance of managed funds as a whole (and then the returns from their individual holdings) to see whether this faith is justified. They will invariably be disappointed.
Second, the tax-effectiveness of managed funds is under question and the sooner all funds move (or are forced) to report after-tax returns the better. It is not hard and surely, if investors are paying fees of up to 2% a year they deserve to know how their funds have performed in terms of 'take home' returns. After all, that's all that matters.
The details contained in the article are well worth a read and can be found by clicking on the link that follows. Full Article