Financial Newsletter Sunshine Coast
Welcome to Unique Financial Partnerships, keeping you up to date with all financial planning, self managed superannuation funds, tax minimisation, life insurance, on the Sunshine Coast and around Australia.
The information in this newsletter is current at the time of printing. Contact us for updates.
So it is worth wondering how this landscape may be affected into the future with a new Labor government in office. Here are the three key areas in the Federal Budget that Labor has focused on to implement reform changes.
· Taxation
Labor went into last November's election with a commitment to continue the personal tax cuts that had been a Coalition policy over the past few years. These were confirmed in the May Federal Budget and most taxpayers are due to receive some relief from 1 July 2008.
Elsewhere, individuals with private health insurance who earn more than $50,000 but less than $100,000 will be reassessing the value of their cover. Under Labor's proposed changes to the Medicare levy surcharge, these individuals will no longer pay the extra 1% of their income as a "penalty" for not having insurance. These issues will also arise for couples earning between $100,000 and $150,000.
Finally, Labor has proposed several tax rebates designed to address the increasing costs of raising a family - namely, a new Education Tax Refund, and an increase to the Child Care Tax Rebate. It has also outlined a First Home Saver Account scheme that will provide bonuses and tax concessions for people to save through a superannuation-style account.
· Superannuation
The simple super regime enacted by the previous Coalition government appears set to remain largely untouched for the time being. In the Federal Budget, Labor announced a comprehensive review of the Australia's overall tax system, but noted that the review would reflect its policy to preserve tax-free superannuation benefits for people over age 60.
One measure that could impact on popular superannuation strategies is the tightening of access to the government co-contribution from 1 July 2009. In the Budget, Labor proposed that people could no longer salary sacrifice into superannuation in order to bring their income down to the level that qualifies for the co-contribution.
· Social security
The proposed means testing of the baby bonus grabbed many headlines in the aftermath of the Federal Budget. This benefit will no longer be paid to those families who earn over $150,000 pa, and the same applies for access to the Family Tax Benefit (Part B).
Elsewhere, headlines were also made by pensioners claiming they had not received much from the budget, save for a one-off Seniors Bonus of $500 to be paid by 30 June. For many people who do or will qualify for a part-age pension, the relaxation of the assets test rules from September last year is still an important factor in their financial planning strategy.
Regardless of your situation, the rules set by the current Federal Government are worthy of consideration when setting or reviewing your financial strategies. Make sure you seek professional advice when making big decisions.
Diamonds in the rough
From time to time, investors become attracted to – or deterred from – adding shares to their portfolio based on what they hear about the performance of “the sharemarket”. Recently, this approach would give rise to considerable anxiety, as the Australian market has had a volatile 12 months and is currently trading at around 15% below its peak in November last year.
But to make an informed investing decision, it is worthwhile looking closer to determine what actually makes up the sharemarket whose performance is often quoted on the nightly news. Are there some types of shares that are doing better than others?
· Measuring the performance of the Australian sharemarket
The standard measure of share performance in Australia - the S&P/ASX 200 index - comprises the 200 biggest companies listed on the Australian Stock Exchange. Crucially, these companies are weighted based on their relative size, so the performance of the index depends more on the largest companies than those ranked, say, 150 to 200.
In the current ASX 200 index, BHP Billiton is the top company with a weighting of around 14%. Along with the four big banks and BHP’s rival Rio Tinto, these six companies make up almost one third of the Top 200's performance all for itself. So it is not surprising that we often hear how the market was led higher or lower by the miners and the banks.
· How have different industries performed?
To help us measure how different sectors of the economy are faring, the ASX maintains an index for companies in each of the key industries. We can see in the table below that there are varying results for the individual industries that contribute to our overall market's performance.
|
Examples |
Performance * |
||
This month |
This quarter |
This year |
||
ASX 200 |
|
3.08% |
7.70% |
-9.02% |
Consumer Discretionary |
Billabong, Flight Centre |
-1.46% |
-8.47% |
-29.12% |
Consumer Staples |
Woolworths, Wesfarmers |
2.26% |
0.95% |
-9.64% |
Energy |
Woodside, Santos |
17.79% |
29.70% |
23.74% |
Financials ex-Property |
C'wealth Bank, AMP |
-1.55% |
2.55% |
-22.18% |
Health |
CSL, Cochlear |
-1.74% |
4.85% |
-1.87% |
Industrials |
Brambles, Qantas |
-1.66% |
-4.13% |
-20.83% |
IT |
Computershare, Iress |
9.75% |
10.68% |
-2.35% |
Materials |
BHP Billiton, Rio Tinto |
10.05% |
20.39% |
12.27% |
Property |
Stockland, Westfield |
-7.90% |
-3.97% |
-22.52% |
Telecommunications |
Telstra, Telecom NZ |
4.79% |
7.80% |
-1.42% |
Utilities |
AGL Energy, Transfield |
-2.58% |
5.47% |
-13.03% |
* performance up to 23/5/08; ie. this month = 1/5/08 to 23/5/08; this quarter = 1/4/08 to 23/5/08; this year = 1/1/08 to 23/5/08
Following the credit crisis emanating from the US last year, it is no surprise that financial stocks have continued to experience a difficult time in the market. Property trusts - which typically rely on high levels of debt to fund their operations - have also been one of the poorest performing sectors.
On the other hand, our mining companies have continued to ride the back of the resources boom, and this has provided particular momentum to the market given that these companies constitute about one quarter of the index. Energy stocks have also had a positive start to 2008, although their influence on the index is not as significant.
The above indicies are critical for both professional investment managers and active investors in determining where opportunities lie for investing. And they are particularly important when you cannot achieve a double-digit return by simply following the index.
Time in, not timing, the market is the secret
Over the course of this decade, we have seen property booms and a sharemarket bull run occurring at different times and different segments of the market. In these situations, we commonly read about investors making massive gains shortly after making an investment, with a property or share portfolio sometimes doubling its value in just a couple of years.
But when the overall share or property market has ceased providing these phenomenal short-term gains, it is crucial to remain focussed on your long-term strategy to avoid reacting to short-term volatility. It can be a natural reaction to get out of the market when the going gets tough, but your investment objectives and goals need to be top of mind when making these important decisions.
The benefits of taking a long-term view when investing in "growth" assets are shown in the table below. These results are from the All Ordinaries Index of the Australian sharemarket over the period 1988 to 2008.
|
1 day |
1 month |
1 year |
3 years |
5 years |
Average return |
0.03% |
0.64% |
8.29% |
26.6% |
44.6% |
Chances of a negative return (ie. capital loss) |
1 in 2 |
2 in 5 |
1 in 4 |
1 in 8 |
nil |
We can see here that on a daily basis, the overall sharemarket shows a negative return about as often as a positive one (more precisely, it has risen on 53% of the trading days in this period, and fallen 43% of the time). But these results show that the longer you leave your investment in place, the better your chances are of achieving a positive return.
Many Australians who invested into the market in the last 12 months will have seen a fall in the capital value of their money. Over the past 20 years, this has happened on about one in four years, yet the market has still managed to average a healthy 8.29% return per annum. By comparison, a term deposit might earn you 8% or more at the moment, but this is higher than their long-term average.
The above results also demonstrate why most investment professionals recommend a minimum timeframe of five to seven years for share investment. In the last 20 years, the market has never had a negative return over five years. So if your portfolio matched the index, you would only have had a negative return if you took your money out of the market at the wrong time.
If you have any concerns about the suitability of your portfolio and your investment objectives, please talk to us.
Thinking your way to your ideal life
Need some help to achieve the big goals in your life? Here's a philosophy that might just do the trick:
How many of us have read the autobiographies of people who have "made it" and noticed that there always seems to be a common thread as to why they are so different from the majority of the population?
By looking closely at their stories we find that even before they were rich and famous, they already believed they had everything they needed to fulfil their dreams.
How often do we think to ourselves that we need something before we can go on to 'be' or 'do' something?
For example, "if only I had more money/time/love, then I could "do" something (get fit/retire early/fix my relationship), and then I'd be happy/healthy/in love".
If you are reading this and finding your head nodding as you recognise yourself making similar statements, there are some things you can do to help change your way of thinking. And it's as simple as changing the statements (or excuses) you are making.
Start making statements as if you are already living them.
There is a well-tested theory that goes along these lines… "Be – Do – Have". It's the exact opposite to how many of us think. And it's such a simple concept.
Let's use a common example: you're not happy in your current job and you think that you need a new one … so that you can make more money … which will allow you to take a wonderful holiday, and then you will be happy!
Have you ever noticed that by being miserable you find that nothing works for you… the smallest things annoy you and you end up constantly complaining?
Back to our example… you are desperate for a change, so you start a job search. The forces behind this action are two very strong emotions - misery and desperation. They will be hard to hide when you walk into your job interviews. People can sense desperation and you will probably find that your words and body language will reflect this negativity. Chances are your job search will take longer than you had anticipated (therefore making you more unhappy), or even worse, you get a job with the same conditions as your old one and end up in the same position!
Looking at the initial formula (not happy - new job - money - happy), what would happen if you changed that order to being happy first, then allowed the things that happy people attract (usually good things) into your life?
Be happy, do happy things, and you will have more of what happiness brings!
Try this today just by consciously making a decision to "be" before you "do" … and you may just "have" whatever you wish for!
If what you’ve tried so far hasn’t worked, what have you got to lose? You might just succeed this time!
Disclaimer
All representations and information contained in Futuro in Focus are made in good faith and are believed to be correct at the time of preparation. Articles are of a general nature and they do not purport to be specific investment advice. Individual needs or other considerations have not been taken into account, thus information contained herein should not be relied upon as a substitute for detailed advice. Futuro Financial Services will receive fees or brokerage from the provision of advice or placement of investments. You may, by contacting our Privacy Officer on 07 3018 0400 or by writing to Futuro Financial Services Privacy Officer GPO Box 942 Brisbane QLD 4001, request not to receive further editions of Futuro in Focus.
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