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Financial Happenings Blog
Sunday, May 30 2010
Scott Francis' latest contribution to Alan Kohler's Eureka Report provides an interesting insight into the government's proposal to amend the rules around the use of First Home Savers Accounts.  We need to wait for the changes to pass through parliament which given the current debate around other proposed tax changes is by no means given.

To read all of Scott's thoughts please refer to his article - Housing's fast track is getting faster
Posted by: AT 09:48 pm   |  Permalink   |  Email
Wednesday, May 19 2010
The recent volatility on stock and currency markets around the world is an unsettling experience especially if you do not consider the recent stock market movements in terms of history.  In his latest Outside the Flags article, Jim Parker from Dimensional reminds us to keep that longer term perspective.

From Greek to Geek

Investors shun Europe amid fears the Greek debt crisis will spread. Across the Atlantic, Wall Street suffers a gut-wrenching 15-minute dive because of a suspected computer snafu. What's wrong with markets?

The alarm over sovereign risk and technical malfunctions has certainly sparked renewed volatility in markets. But amid all the learned analysis and soul searching, it's worth reflecting for a moment on the long-term view.

It is now only a year and half since the collapse of Lehman Brothers had markets staring into the abyss. After several years of extraordinarily low volatility when nearly all the focus was on return, investors were reawakened rather rudely to the notion of risk.

The sudden spike in volatility—and the preceding long lull - can be seen in this chart, which records the performance of the Chicago Board Options Exchange Volatility index, a yardstick of investor anxiety.


This volatility was also reflected in ordinary stock prices. The US share market in 2008 suffered its second worst performance in eight decades. For the Australian market, it was its worst year on record; in Canada, the worst since the Great Depression and in Europe the worst since records began.1

The turnaround in sentiment from March 2009 was just as stunning, with major indices registering their best performances in years. In Europe, the broad market registered its biggest annual gain in a decade, in Australia in 16 years and, in the US in 20 years and in Canada in 30 years.2

So the performance of markets in the past two years has been extreme by historical standards. But the important point for investors is to note that over time, the positive return years from equities have outnumbered the negative and that investors who can bear the risk of stocks and stay committed through these various periods are rewarded for their discipline.

This chart shows the historical distribution of US equity market returns since 1926. The performance years are stacked in order of return range, with the down years in red and the up years in blue. The past two polar opposite years are in black. As you can see, the positive years over this eight-decade period outnumber the negative by a factor of almost three to one.


So investors may feel legitimately worried about the current sovereign debt strains in Greece or sudden computer-driven volatility in US stock exchanges. But it's important to understand that markets have a way of working through these things and rewarding those who over the long term risk their capital.

Saying markets work doesn't mean they don't make mistakes from time to time and are perfectly efficient. But these mistakes make less difference the longer your horizon. What matters ultimately is that markets are extremely competitive, and absorb new information almost instantly.

Trying to second-guess how markets might move in the next day or month or year tends to be counter-productive, because no-one knows the future.

We can deal with this volatility through diversification and by taking only those risks we feel comfortable with, while noting that risk and return are opposite sides of the same coin.

Whether ancient Greek or modern geek, the language of long-term investment remains the same.

1Closing Stock Market Indices, Reuters, Dec 31, 2008

2Reuters data

Posted by: AT 08:14 pm   |  Permalink   |  Email
Monday, May 17 2010
Scott Francis' latest contribution to Alan Kohler's Eureka Report provides an investor's perspective of the budget.  In his article Scott focuses on the following issues:
  • Making the most of the income tax cuts
  • Reductions in tax payable on interest income
  • Further restrictions on the government co-contribution
  • Clarity for SMSFs on instalment warrants
  • The benefit to investors from a reduction in company tax rates
  • Future increases to contributions going into superannuation

To read all of Scott's thoughts please refer to his article - Time to tweak the portfolio
Posted by: AT 05:43 am   |  Permalink   |  Email
Tuesday, May 11 2010

We have just emailed out our summary of the 2010 Budget as it relates to  personal finances and financial planning strategies.

This year's budget has provided a number of significant changes impacting on financial planning strategies.  These have been outlined in this summary.  The major changes include:


-          Confirmation of income tax changes from July 1st 2010 increasing the effective tax free threshold from $15,000 to $16,000 for those earning $30,000 or less, the bottom of the 30% marginal tax rate threshold increasing from $35,000 to $37,000 and the current 38% marginal tax rate being reduced to 37%.


-          A 50% discount commencing July 1st, 2011 on the tax payable on the first $1,000 of interest income generated by bank, credit union and building society accounts along with income from bonds, debentures and annuity products.


-          A $500 standard deduction for work related expenses starting 2012-13, increasing to $1,000 for 2013-14 to simplify tax returns and lead to tax savings for many individuals.


-          Superannuation guarantee contributions to rise from the current 9% to 12% by July 2019.


-          A $500 superannuation tax rebate, commencing July 1st, 2012, of the contributions tax for those with incomes of up to $37,000.


-          The superannuation guarantee age limit to rise from 70 to 75 starting July 1st 2013.


-          A reduction in the company tax rate from 30% to 29% in 2013-14 and 28% in 2014-15.


-          The company tax rate reductions to be brought forward for small businesses with the rate of 28% applicable from 2012-13.


-          Small businesses to be able to immediately write off asset purchases of less than $5,000 compared to the current limit of $1,000.


-          A permanent extension from 1st July 2012 of the eligibility for those over 50 to receive $50,000 of concessional contributions into super p.a. as long as superannuation balances do not exceed $500,000.


-          The Net Medical Expenses Tax Offset to increase from $1,500 to $2,000

To take a look at the full summary please click on the following link - 2010 Budget - Personal Finance Summary

Scott Keefer

This Summary has been prepared as a brief summary of the 2010 Federal Budget as it impacts on personal finances.  It is a publication of A Clear Direction Financial Planning.  It contains general financial information.  Readers should check this information with a professional financial adviser before acting on any of the material contained in this document.

Posted by: AT 10:00 am   |  Permalink   |  Email
Wednesday, May 05 2010
There is a growing stream of research in business and finance faculties throughout academia looking at the issue of investor behaviour.  We think it is extremely important for all investors to have an understanding of the theories to help inform each individual's approach to investing.

Scott Bosworth from Dimensional in the United States of America has put together a really informative online presentation which steps users through the various aspects of behavioural biases.  The full presentation is about 25 minutes in length and in our opinion a good investment in time.

Click on the following link to be taken to the presentation - Behavioural Biases
Posted by: AT 07:30 am   |  Permalink   |  Email
Wednesday, May 05 2010
Scott Francis in his latest Eureka Report article highlights three key changes from the Henry tax review including:
  1. Employer contributions to rise to 12% gradually from July 2012
  2. Superannuation splitting strategy becomes more useful
  3. Lower company taxes means bigger dividends
Scott concludes that the new shape of superannuation, and more generally personal finance strategies, might be summarised as:
  • A focus on employer contributions and non-super investments until the age of 50.
  • The return of income splitting between spouses to take advantage of concessional contribution limits.
  • Renewed focus on building wealth through superannuation for the over 50s until retirement.
Click on the following link to read Scott's full article - Reforms and your super
Posted by: AT 07:17 am   |  Permalink   |  Email
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