Light at the end of the coronavirus tunnel – what does it mean for investors?

Key points

  • After a strong rally, in the short-term shares are vulnerable to bleak economic and earnings news.
  • However, positive news on the coronavirus outbreak is starting to get the upper hand – with evidence of curve flattening, an easing in lockdowns and massive policy stimulus pointing to a possible return to growth in the second half, which should ultimately underpin a rising trend in share markets beyond short-term uncertainties.


The blanket coverage of coronavirus and its impact on the economy can lead to a lot of confusion right now. Some reports are hopeful of anti-viral drugs, others say a vaccine is at least a year away. There is talk of curve flattening but still rising cases and deaths. There is news of an easing in lockdowns but also worries about “second waves”. All this against a backdrop of collapsing economic data and surging unemployment. Some prognosticators say now is a great buying opportunity for investors whereas others see more financial pain ahead. This is a horrible time for humanity and particularly those directly affected by coronavirus, but I must say if ever there was a time to turn down the noise and listen to The Carpenters or Taylor Swift, this is it. Here is a summary of where we are currently at. First the bad news and then the good. I will keep it simple.

The bad news

  • The reported number of coronavirus cases globally is still rising and has now gone through 2.5 million.
  • The reported death rate is still rising and is now up to 6.9%.
  • Many worry about a “second wave” of cases. This occurred in the 1918 Spanish flu outbreak, and Singapore and Japan which had been cited as models for containment are now cited as examples of this (although they really still seem to be in part of a first wave as their quarantining efforts failed).
  • Most medical experts still say a vaccine may be a year or more away. I remember around 1984-85 constantly hearing a vaccine for HIV was a year away – but we are still waiting.
  • In the absence of a vaccine some worry about coronavirus outbreaks every winter as it migrates around the world.
  • Economic activity data is literally falling off a cliff. This was highlighted last week by the IMF’s forecast for a contraction in the global economy of 3% this year and in advanced economies of around 6%. And this masks a likely 10 to 15% slump in GDP centred on the June quarter. Falls of that magnitude have not been seen since the Great Depression. The collapse in economic activity in the US and Australia is highlighted by weekly economic activity trackers we have constructed based on data for things like restaurant bookings, energy usage, confidence, foot traffic and jobs.
Source: Bloomberg, AMP Capital
Source: Bloomberg, AMP Capital
  • We are constantly hearing forecasts of unemployment going to 10%, 15% and maybe even 30% in the US (which does not have the benefit of Australian JobKeeper wage subsidies – if you are having a salary paid by JobKeeper then you will not be unemployed).
  • This in turn is creating much consternation around whether there will be an economy left once the shutdowns end and/or how governments will get their debt down.
  • Finally, the blame game is on. While partly politically motivated, US China tensions seem on the rise again.

The good news

  • While the total number of coronavirus cases is rising, new cases appear to be levelling off or in decline.
Source: Worldometer, AMP Capital
Source: Worldometer, AMP Capital
  • Numerous European countries, led by Italy, look to be following the same path as China which saw a blowout in new cases, a lockdown followed 2-3 weeks later by a peak in new cases and then falling new cases. Australia appears to have been very successful in following this path (with the peak coming faster) and the US now seems to be following the same path, albeit its yet to show a decent downtrend in new cases. Social distancing clearly works! (Just out of interest – with various countries following the same pattern China has reported it makes me think the Chinese data on new cases is roughly right despite emerging scepticism.)
Source: Worldometer, AMP Capital
Source: Worldometer, AMP Capital
Source: Worldometer, AMP Capital
Source: Worldometer, AMP Capital
  • Following this, the focus is shifting towards an easing of lockdowns. Various European countries and New Zealand have already announced some easing, allowing some shops to open/activities to occur. The US has released guidelines for states to move through a three phased reopening if they meet various criteria (in terms of falling new cases & hospitals coping) before moving to each new phase.
  • While Australia’s PM Scott Morrison has indicated that current restrictions will remain broadly in place for another few weeks, he has indicated three criteria for an easing in restrictions: better testing; better contact tracing; and confidence in containing outbreaks all of which makes sense given the risks Australia faces coming into winter. Of course, successful anti-virals and/or a vaccine would make it all a lot easier, but we can’t rely on either just yet.
  • Most countries talking of easing are well aware of the risk of a second wave (although President Trump’s bravado about “liberating” states is worrying). Hence a focus on phased easing only once certain criteria – around testing, new cases and quarantining – have been met. This is very different to what happened in relation to Spanish influenza where there really wasn’t any testing. For Australia this is likely to mean a gradual opening up from May. In the absence of a vaccine, full international travel is likely to be the last thing to return. That’s not great but given that in net terms its worth less than 0.5% of GDP to the Australian economy, it’s trivial compared to the 10-15% hit that’s come from shutting or partially shutting about 25% of the economy as it would be this mainly domestically driven activity that would bounce back as the shutdown is eased.
  • Fiscal and monetary stimulus has been ramped up to the point that they should help minimise second round effects on economies enabling them to bounce back faster. This is particularly the case in Australia where the focus has been on job subsidies to preserve jobs, support businesses and low-cost RBA funding has enabled banks to offer loan payment holidays. Yes, there may be longer term issues in paying down debt, but they are small compared to the cost of allowing a bigger and deeper hit to the economy from not protecting businesses and incomes through the shutdown.

If, as appears likely, an easing of the lockdowns becomes common place in May/June, then April or maybe May should be the low point in economic data much as February was in China. This does not mean that things will quickly bounce back to normal – some businesses will not reopen, uncertainty will linger, debt levels will be higher and business models will have to adapt to different ways of doing things around working and shopping. On our forecasts it will look like a deep V recovery in terms of growth rates, but looked at in terms of the level of economic activity it will take a lot longer to get back to normal and this will mean that it will take a while to get unemployment down – from a likely peak in Australia of around 10%. But at least growth will be able to return and spare capacity and high unemployment will mean that it will take a while for inflation to pick up and so low rates will be with us for a long time.

This is all very different to five or six weeks ago when there was talk of six-month lockdowns, no confidence as to whether they would work and the policy response was seen as inadequate.

What does it mean for investors?

From their high in February to their low around 23 March, global shares fell 34% and Australian shares lost 37% as all the news was bleak. Since that low to their recent high, shares have had a 20% plus rally helped by policy stimulus and signs of coronavirus curve flattening. But this strong rally has left them a bit vulnerable in the short term – particularly as we have now entered a period which is likely to be see very weak economic data and news on profits. The ongoing dislocation in oil prices – to a “record low” of -$40 a barrel for West Texas Intermediate – has added to this, although lower petrol prices are ultimately more of a help than a hindrance to a recovery in economic activity. So, the very short-term outlook for shares is uncertain and a re-test of the March low cannot be ruled out.

However, shares are likely to be higher on a 1-2 year horizon as evidence of curve flattening, easing shutdowns combined with policy stimulus ultimately see a return to growth against a background of still very low interest rates and bond yields.

From a fundamental investment point of view the historical experience that covers recessions, wars and even pandemics (in 1918) tells us that the long-term trend in shares and other growth assets is up and that trying to time bottoms is always very hard. No one will ring the bell at the bottom, which by definition will come at a time of maximum bearishness when all the news is horrible. Maybe the low was back in March, maybe it wasn’t. To borrow from John Kenneth Galbraith’s famous quote on forecasters I will admit that I know that I don’t know1. So a good approach for long-term investors is to average into markets after bear market falls over several months.


How do you plan for an uncertain future?


The problem with the good times is that they make it easy to forget the hard times. The past decade, and indeed the past four months, have seen the major US share market indexes hit all-time highs despite the uncertainty surrounding trade disputes, potential rate hikes and a slowing global economy.

This has resulted in many investors expecting above-average returns, in-line with higher-risk portfolios. While there’s certainly been volatility, so much optimism makes it easy to believe the good times will continue and forget that the future is uncertain.

But is basing your investment decisions on ‘hope’, in which you hope markets will continue to deliver the returns you need, the right approach when you have so much at stake? Especially in those years closer to retirement when big market corrections can do substantial damage to your future lifestyle.

A risk-based approach makes more sense

There’s no point trying to predict the future, but you can increase your understanding of the risks of your investment decisions by considering as many distinct potential scenarios as possible. By taking a risk-based, rather than a hope-based, investment approach we have a clear understanding that the future is not predetermined. We can better understand the potential futures that could arise. All options and scenarios are on the table, it’s not simply influenced by what occurred in the past.

We also uncover how, in the past, we have labelled assets into growth and defensive’ buckets but these no longer reflect their risks. Bonds, which have traditionally been known as defensive assets, will not perform that role in certain scenarios.

We aim to capture enough broad scenarios to assess a long list of impacts on GDP, inflation, monetary policy and innovation. We also analyse a more tailored set of scenarios that are more specific to the time and issues at hand. They’re updated as asset price change, and together they function as a comprehensive framework of the potential sources of future risk. This helps us work out the mix of assets our portfolios should be invested in.

So what are we wary of today?

US rate hikes

Interest rates in the US have been low for a long time and buoyant share markets are increasingly reliant on it staying that way.

The search for yield has led investors to accept greater and greater levels of risk, but if interest rates are pushed higher the returns on cash will improve and returns on risky assets will pull back.

Global economic slowdown

Corporate borrowing is on the rise and that’s highly susceptible to slowing growth.

Much of the rising debt has been directed to industries that are now exhibiting excess capacity which can lead to lower prices and lower returns on investment. If too many loans go bad it becomes a problem for the banking sector, and other holders of the debt in the shadow banking system, which has serious implications on the health of the overall economy. While policy makers wish to avoid a slowdown, doing so through more debt that is poorly deployed will inevitably end badly.

Similarly trade negotiations with the US are ongoing and any unexpected dislocations there could have far-reaching impacts for China which is highly reliant on exports.


There’s certainly the potential for a significant negative impact on trade between the UK and Europe if the exit is disorderly. But, there’s also a chance the division won’t happen at all. Either way, the potential downside can’t be ignored.


No one really knows what will happen tomorrow, next week, next year or into the future. But by identifying the risks we could potentially face, we can at least prepare our investments so that our investors’ future lifestyle isn’t depending on the hope that the ‘share markets gods’ remain kind to us.

Important information

This article is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (“MLC”), a member of the group of companies comprised National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686), its related companies, associated entities and any officer, employee, agent, adviser or contractor (“NAB Group”). An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, NAB or any other member of the NAB Group.

The information in this article is general information only and is not financial product advice. It is not intended to be an offer of any products or services or recommendation to invest in specific or class of products.

Opinions constitute the judgement of MLC at the time of preparation and are subject to change. MLC believes that the information contained in this article is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made at the time of compilation. However, neither MLC nor any other member of the NAB Group, nor their employees or directors give any warranty as to their accuracy or reliability (which may change without notice) or other information contained in this article.


Aussies making a slow transition to retirement

This article originally appeared in The Australian

Retirement used to be a clearly demarcated milestone in the life of working Australians. Cake and speeches on a Friday and on the next Monday you started your life as a retiree.

That’s not so simple any more. More Australians transition into retirement over a few years. Let’s explore the growing cohort of Australians who work past the age of 65.

A decade ago 10 per cent of all persons between 65 and 85 were part of the labour force. At the last census this number had increased to 15 per cent. A total of 417,000 workers older than 65 help to keep our economy going.

With old age the nature of work changes and part-time work becomes more common. Between the ages of 22 and 65 more than 50 per cent of workers are employed full-time (peak full-time work is age 29, with 75 per cent).

From age 52 the slow transition from full-time to part-time work starts. At 52 a solid 72 per cent work full-time, by age 65 this is down to 53 per cent. From the mid-70s the share of the remaining workers that works full-time stabilises at around 34 per cent.

As a general trend, workers reduce their workload every year as they grow older. The 80,000 workers aged 65 worked on average 33 hours every week. The remaining 1400 workers aged 85 put in 26 hours. No rest for the wicked.

So, in what industries are our un-retired retirees working in?

While retail and hospitality are typical industries for people’s first job, they aren’t common last jobs. The most dominant industries are health care and social assistance (58,000 workers over 65), agriculture (44,000), education (40,000) and professional services (37,000).

Agriculture deserves a special mention here. Only 2.6 per cent of all Aussies work in agriculture but 35 per cent of workers aged 85 are working in the field (no pun intended). Besides financial necessity or pure passion, we see yet another reason why elderly people might stay in employment — succession planning. Farm aggregations are common as the younger generations choose not to continue to run the family farm. As a result, the old farmers just hang in there and continue to manage their farms until it becomes physically impossible to do so. They might need the income, they might be passionate about farming, but mostly they simply can’t bear the thought of having to sell the farm to a large agribusiness.

Many of the 1500 farmers over the age of 85 would have probably been all too happy to hand over the farm if only their kids had shown some interest.

For the fortunate well-paid workers (often in knowledge industries) retirement increasingly turns into a slow transition. They gradually reduce their weekly working hours over several years. For them, working past retirement age is a lifestyle choice rather than a financial necessity.

Workers in this group are truly financially independent, likely to own their own home and have well-stocked super accounts. This growing class of lifestyle workers are excellent consumers as they are both cash and time rich. This group is of large interest to cruise companies and luxury travel agencies among other high-end service providers.

Another group of grey-haired workers are not that lucky. Their superannuation accounts haven’t been topped up enough. Their savings simply don’t allow for a comfortable retirement yet. At this end of the spectrum work simply is a financial necessity.

The preparation for retirement starts early, with picking your future profession. Once you are in the hamster wheel of work your financial planning efforts determine whether you will be free to choose your own destiny at age 65.

If you played your cards right (and lived in prosperous times and didn’t fall victim to negative external influences) you will be free to choose whether to prolong your career and become a lifestyle worker or not.

If you fear you might not be able to retire comfortably in the future, seeking financial help now might be the first step to get you on your journey for a comfortable retirement. You will want to enjoy a Friday of cake and speeches after all.


Empowering women to own their finances

Money is still a taboo topic of conversation. Although we live in a world where our lives are digital and readily shared, talking about money is still off limits. But it shouldn’t be because having a keen grasp on personal finances is crucial.

On average, women earn 18.2% less than men for the same job. Their earning potential often takes a dive after they have children and, as a result, they retire with significantly less in superannuation than men. Strong financial literacy can be the difference between a woman reaching her financial goals or being left at the starting gate.

Yet too many women, no matter how smart and savvy, lack the confidence to truly own their finances. It can be hard to reach out and ask for advice.

With this in mind, and to commemorate International Women’s Day, MLC set out to break this taboo with a panel discussion featuring four female financial gurus – Financy Founder and CEO, Bianca Hartge-Hazelman; Corporate Super MLC and Plum General Manager, Helen Murdoch; MLC and Plum Superannuation Education Consultant, Martina Taylor; and MLC Director of SMSF and Investor Behaviour at NAB, Gemma Dale – who are also working mothers.

They shared practical tips on how they manage their money. So, what can you do today to get your finances into gear?

Have ‘the money talk’

Finance is the leading cause of relationship breakdown in Australia.

“A lot of people don’t want to talk about money – we’re happier to talk about sex, religion and even politics,” Martina says. But when it comes to your partner, there’s no substitute for a frank and open conversation about the shape of your finances. This means coming clean about income, joint accounts, goals and, of course, debt.

Bianca suggests being clear about the things you need to feel financially empowered in your relationship, such as open communication, and deal breakers like handing over full control of your assets. Being clear about these can help you both through tricky financial conversations and keep you on the same page.

It’s important to remember that people react differently when discussing money. If you’re worried about your partner feeling uncomfortable during ‘the money talk’, Gemma recommends thinking of your finances as “just numbers” to take the sting out of the conversation.

“If you can take the emotion out of it and just say ‘can we get the numbers on a page’, it makes it less anxiety-inducing,” she says.

While it can be uncomfortable to discuss, all our experts recommend having financial conversations early in your relationship and regularly.

“Transparency matters in a relationship and even more in a breakdown,” Gemma says. “But make sure you get help if you need it too.”

Log into your super

Many Australians have a mental block surrounding their superannuation and don’t think of it as their money. But super can be the most significant financial asset that you own.

“It’s very hard to get people thinking about retirement until they’re closer to it,” Helen says, “But we can only impact the future – not the past – and every little bit counts. Even just getting online, looking at your account balance and knowing that’s your money is really important.”

Martina says the question many women ask is: “How much should I aim to have in my super?” The oft-cited million-dollar number can make many people switch off because they don’t think it’s possible to accumulate that much in their fund.

“It’s a myth – you don’t need a million dollars,” she says. “Go to the MLC website and there’s content to help you work out a realistic target. This will help you think about the next phase.”

If you’re taking a career break or think it’s on the cards, Bianca says it’s critical to work out if your employer pays superannuation on parental leave. It’s also useful to think of innovative ways to top up your super while on leave.

“When I was on maternity leave, I used to match the cost of nappies each week in my superfund,” she says.

Do your research

Despite progress, the gender pay gap persists, putting an extra hurdle in front of women and their finances. A simple step women can use to improve their finances is to stop underselling themselves at work and ask for the salary they deserve.

Gemma suggests doing your research first. It’s often hard to divorce yourself emotionally from what you feel you deserve to be paid but, by understanding your industry, you can better illustrate your contribution – and your worth.

“You’ll have a more objective view of your worth and you’ll go into that conversation with more confidence,” she says.

Our experts don’t suggest sacrificing flexibility for pay. Increasingly, workplaces are becoming more flexible and they say there’s no reason you can’t enjoy that and a better salary.

Take a financial day out

Above all, our experts agreed it’s critical for women to engage in their finances if they want to be financially fearless. Bianca’s advice? Take a financial day out. Dedicate some time on a Saturday morning, or whenever you have time, to look at your overall finances.

Once you have a clear grasp of your income, liabilities, assets and expenses, it will become obvious what you need to focus on – whether that’s paying down debt, saving or investing.

Gemma suggests once you decide on a course of action, automate it. Using apps and technologies to take the decision-making out of the process makes it easier. “You’ll find in 12 months that mortgage will be paid down a little more, or you’ll have a saving account with a couple of thousand in it,” she says.

Helen agrees the first step in owning your finances is hardest, but it’s also the most important. “Work out what you want and then seek help,” she says. “Don’t be afraid to ask – nobody has all the answers but you’d be surprised how much advice is out there.”


How to diversify when investing in bonds no longer works

Bonds have traditionally helped diversify the risk of shares because bond and share prices tend to move in opposite directions. But what if both bond and share prices fall at the same time, so that this diversification no longer works? MLC provides some insights about how they manage this challenge in their portfolios.

Why does diversification matter?

In an investment portfolio, diversification, or investing across many types of assets, is essential. The prices of different assets tend to rise and fall at different times, so investing in a mix of assets means risk is spread out and the portfolio is less exposed to the ups and downs of returns of individual assets.

Bonds, the traditional diversifier, aren’t working

Over the long term, the highest returns tend to come from shares. Shares do particularly well when economic growth is strong. If economic growth and therefore company earnings are lower than expected, share prices tend to decline. Bonds tend to do well when the economy is weak, so when share prices fall, they should reduce the negative impact on a portfolio.

Bonds have traditionally been used to diversify the risk of investing in shares because bond and share prices tend to move in opposite directions. But what if both bond and share prices fall at the same time, so that this diversification doesn’t work? In today’s market, there’s a much higher risk of this than usual. That’s because bond yields are unusually low, which means bond prices are unusually high (bond yields and prices move in opposite directions). Any asset which is expensive is vulnerable to a fall – for example, bond prices are vulnerable to higher than expected inflation and interest rates.


But why are bond yields so low, and bond prices so high?

After the global financial crisis struck, central banks took extraordinary steps to support the financial system. This included drastically lowering interest rates and buying bonds to increase liquidity. This reduced the supply of bonds, which raised their prices and lowered their yields. Investors hunting for returns were forced into more risky assets, making everything expensive at the same time.

This has been great for investors, who have received strong returns. But it also means that almost all assets are potentially vulnerable to rising interest rates as central banks move back to more normal policies. The normalisation process has begun and this is a key reason for more volatility in both bond and share markets. Since the prices of bonds and shares may fall together, bonds may not play their normal diversifying role.

Because of this risk and unusually low bond yields, we’ve had very little or no exposure to conventional bonds in our MLC Inflation Plus portfolios, and have been significantly underweight in the MLC Horizon and MLC Index Plus portfolios, for some time. This means it’s been important to find other ways of diversifying share market risk. A key strategy has been using foreign currency exposure.


How can foreign currency exposure help solve the diversification problem?

Australia’s economy relies heavily on exporting natural resources, such as iron ore. This means our dollar tends to rise when the global economy is growing strongly. Global share markets also tend to perform well in these circumstances.

When global share markets weaken due to concerns about economic growth, the Australian dollar tends to decline. So reducing our exposure to the Australian dollar, by holding more of other currencies, can help to insulate our portfolios against losses when global share markets fall.

In recent years we’ve increased the exposure to foreign currencies such as the US dollar in our portfolios, allowing us to benefit from the returns of global share markets while helping to manage the risk of those markets falling. This diversification strategy has been very successful, both for making returns and reducing risk. This is particularly so for the MLC Inflation Plus portfolios, where we’ve used derivatives to manage the exposure at zero cost. By using derivatives, we’ve benefited more from rising share markets, while helping manage their risks.

Our dollar has fallen against the US dollar over the last couple of years. This makes foreign currency exposure less powerful as a diversifier, so we’ve reduced our exposure over time. However, the investment environment has very few diversification opportunities and exposure to foreign currency – including the yen, the British pound and the euro – is still a helpful strategy for controlling risk in our portfolios.

In unpredictable and constantly changing markets, we’ll continue to look for new ways to help provide returns and manage risk for our investors.


Freelancing or in a startup? Here’s five ways to look after your super

Now that the government has tightened up the amount of money you can get into super via concessionally-taxed contributions, fresh strategies are called for to ensure you’re well-positioned for retirement.

When you strike out on your own, making regular super contributions can be difficult to justify – especially when retirement is seemingly such a long way away. But, Caleb Dozzi of Brisbane-based dozzi Financial Advice says, failing to budget for super is not just a mistake but a missed opportunity – for all ages.

“A lot of people think super is optional but that’s not looking at the real cost of doing business,” he says. It’s also the most tax-efficient way to build long-term wealth.

Yet, the stats show that if you’re self-employed you’re likely to have an under-baked nest egg come the end of your career. Nearly 10% of the workforce is self-employed, but almost one quarter has no superannuation, and those who do are seriously lagging behind. Only 27% of self-employed people in their 60s have more than $100,000 in super compared with 50% of employees who receive the Superannuation Guarantee (SG).1

You don’t want to be one of the statistics, right? You want to live the dream now and later in life. Here’s five tips to make sure you’re building up your superannuation fund while being your own boss:

1. Make super part of your business plan

Before you start a business, it’s important to model your future cash flows, taking into account estimated business income, expenses, your living costs and whether you can afford super on those projections.

“If you’re not contributing to super from day one, then you need a plan for when and how you will incorporate super into your cash flows in future,” says Dozzi.

If you’re incorporated and employed by your own business you’re required to pay yourself the SG, which is currently 9.5% of your employment income. If you’re a sole trader or partner, it’s optional but that doesn’t mean you shouldn’t.

2. Pay yourself first

When Marisa Wikramanayake was ready to enter the workforce in 2008 it was at the height of the GFC. She couldn’t secure a full-time job, so started to freelance and has been a freelance writer ever since.

“It took a long time to get enough income that was not just sufficient for rent but also to put some aside for savings and super,” she says. It wasn’t until last year that she started to think seriously about super.

“I set up a direct debit of $20 a week. I also set up a direct debit of $100 a month into a high interest savings account,” she says. “After I build that up I’ll probably transfer more into super.”

Dozzi agrees that if you receive regular income the best way to funnel money into your super is to set up a direct debit from your bank account aligned with your pay cycle. Otherwise the temptation is to spend the money on yourself or your business.

If your income is lumpy or irregular, you might prefer to transfer part of each payment into super. Alternatively, you can transfer it into a separate bank account and tip it into super quarterly or annually.

All that’s left to do then is decide which super investment option best fits your age, risk tolerance and values, and whether to make your contribution before or after-tax.

Failing to budget for super is not just a mistake but a missed opportunity.

3. Maximise personal pre-tax contributions

If you make personal concessional (pre-tax) contributions to your super fund you can generally claim the full amount as a tax deduction. Concessional contributions are subject to an annual cap of $25,000, with additional tax applying to amounts above the cap. It’s important to note that to be eligible to claim a tax-deduction, you must have first submitted a valid deduction notice to your super fund within required timeframes, and had it acknowledged by your fund in writing.

While contributions tax of 15% (in most cases) will be deducted, the difference between that and your marginal tax rate is your effective risk-free return before you factor in the return on your investments inside super. Say you earn $80,000 a year, which puts you on a marginal tax rate of 32.5c in the dollar. You receive a risk-free return of 17.5c on every dollar of concessional contributions you put into super.

The flip side is that people on lower incomes with an effective tax rate of less than 15% receive no tax benefit from concessional contributions. To counteract this, people earning less than $37,000 may be eligible for a contribution to super up to a cap of $500 under the government’s Low-Income Superannuation Tax Offset scheme.

Even so, some low-income earners may be better off making a non-concessional contribution.

4. When after-tax contributions make sense

Wikramanayake soon realised she would be better off putting her $20 a week into super as a non-concessional contribution. These are after-tax payments up to an annual non-concessional contributions cap of $100,000, or $300,000 in any three-year period2.

Because income tax has already been paid on after tax contributions, contributions tax doesn’t apply. You don’t receive a tax deduction, but non-concessional contributions are still a good way to boost your retirement savings because earnings inside super are taxed at a maximum of 15% rather than your marginal rate.

What’s even better, the government will sweeten the deal with a co-contribution of up to a maximum of $500 for eligible low and middle-income earners. Wikramanayake receives the full $500 which she says more than covers her fund’s management fees.

5. Know your options

You wouldn’t dream of running your business on autopilot, and your super is no different. A recent survey by Investment Trends found that Millennials are not only driving the trend to switch super funds, but they are also more likely to choose a fund with socially aware investment options.3

Even though Wikramanayake’s super balance is still small, she takes an active interest in where it’s invested.

“I go in every quarter and look at my options. I don’t mind a bit of risk; I want to invest in overseas infrastructure and property, and I also want to know my money’s invested in ethical things,” she says.

The reality is that superannuation is a long-term game and you need to start playing early and actively to ensure you have the most rewarding retirement.



Golf Day Rundown – 2017

The Total Wealth Management $10,000 hole in one tournament supporting Team J & J to raise funds for the Leukaemia Foundation has been ‘run and won’. GolfDay

Unfortunately no one aced the par 3, 10th hole with the nearest shot from Ian McNabb who was only 4’ away. Ian won a dinner for two donated by Sirromet Wines. Our winners were Martin Manning and Troy McGuinness with a net 60; they won a round for 4 at Brookwater Golf Club as well as the usual member’s prize. The best score from one of the TWM teams was from John King and Steve Lampard who handed in a net 64. A strange coincidence occurred when one of the nearest to the pin prizes of a bottle of red wine that I personally donated was handed straight back to me when I won the prize for that hole. Oh well, I guess I’ll just have to donate it again next year.

The atmosphere on the 10th tee was fantastic as each player from the field of 169 attempted to pick up the cash prize. A big thank you to Narelle, Anne, Monica and Emma for supervising the hole in one attempts on the day and for some fun interaction with the players.
I can announce that a total of $3,200 was raised thanks to the tireless work of Gayle, Kate and Robert on the day and over the weeks leading up to the event. We all look forward to another successful day next year so mark your calendar for 2018 and the 1st weekend in May. ArticleSponsors

Advice for 20 year olds and Investing

AMP have put together a great article where they have asked a number of leading investment advisers what advice they would give to their 20 year old self. Well worth a read. Please click on this link, Investing

If you have any questions please give our office a call, having a mentor to help you move forward through the financial markets is very important and that is what we specialise in. It costs nothing to ask and little effort to organise an appointment. It may well be the best decision you ever make.Advice-20-yr-olds_596x328

Financial adviser ipswich

Understanding the Value of Advice- Why Get a Financial Adviser?

For those who have never engaged the services of a financial adviser it can be difficult to understand how an adviser can deliver valuable advice, year in, year out.
Simply, financial advice is much more than picking a managed fund or recommending a superannuation investment. Financial advice is about delivering overall value to the client – both in terms of financial and non-financial return.

To understand how an adviser can add value, it is helpful to understand a few things financial advisers can do for their clients.

Knowledge and Experience
One of the biggest advantages of using a financial adviser is the knowledge and experience you can draw upon to make financial decisions. Financial advisers are specialists in a wide variety of financial matters, including investments, superannuation, insurances and estate planning.

But just as important, they are experienced in guiding clients through complex decisions, hard times and periods of uncertainty.

For example, they ensure their clients don’t make silly decisions, like panicking and moving all their super to cash, every time the share markets crash. They do this by helping their clients understand themselves better and make the right decisions for themselves. A great financial adviser educates as well as advises.

Choosing the right investments
A financial adviser can help you in picking the right investment. But, what is the right investment?

The right investment is one that suits your risk tolerance, your timeframe, your previous investing history and your end goal.

Because investing can be both an exciting and scary venture it helps to have a professional guide you through the process. An adviser can be invaluable when they guide you through market corrections or periods of uncertainty. They can educate you on the different asset classes and how these perform through different economic cycles. They make sure you are not taking unnecessary risks to achieve your goals.

They can give you confidence to invest in assets you may not have considered before, because you lacked knowledge (and confidence) in picking the right investment.

Understanding Superannuation
Superannuation can be a very complicated area and without a solid understanding of how super works, it can be both an extremely time consuming and administrative process. Financial advisers help you through this process by keeping up to date with changes in legislation and providing a team who can assist in all of your superannuation matters.

A great advice team can remove the confusion from super and explain it to you in a simple manner. Even better, they can manage all of your paperwork and save the amount of time you spend chasing up super funds.

Finding the right insurance policy for you
Like super, insurances can be quite complicated and the paperwork involved in implementing a quality insurance plan can run into many, many hours. Financial advisers spend a lot of time researching and reading insurance Product Disclosure Statements – the long document that outlines what the policy will and will not payout for – so they can provide advice that is relevant and appropriate for you.

Now, you might be thinking “I don’t need help finding the right policy as they are all the same. So just give me the cheapest policy, and I’ll be fine.”

Unfortunately, you would be wrong!

There can be many differences between the benefits and features provided by each insurance company and this makes it vital that you get the policy that best matches your needs.

For example, if you are single with no dependants then life insurance probably isn’t essential for you, but a disability insurance policy is probably going to be appropriate.

Perhaps you have a family history of cancer -if so you would want to get the policy that has the Best cancer definitions.

Probably more importantly though, financial advisers have firsthand experience dealing with the insurance companies they recommend. This includes the claim – which can be both a confusing and stressful process for those who are not accustomed to dealing with insurance companies on a regular basis.

financial adviser ipswichRetirement Planning
Retirement planning varies from client to client. No two people have the same idea of what makes a great retirement, when the best time to retire is and how to manage their finances once they stop working.

This is where a financial adviser’s experience is highly beneficial.

While a good financial adviser can get the right superannuation structure in place and maximise Centrelink benefits etc., a Great financial adviser works with their client to transition into retirement and then guides them through the retirement years, ultimately assisting them in the transition into aged care .

People all react differently to retirement – after all retirement is effectively the cessation of full-time gainful employment and this leaves a substantial amount of spare time in one’s week.
Because of an adviser’s experience in helping clients make the financial adjustment to retirement, it is not uncommon for them to discuss the non-financial aspects of retirement as well.

Considerations such as what a client plans to actually do in retirement, the type of lifestyle they wish to live in retirement and what they want to happen to their estate on their passing are all common conversations that are had with a financial adviser.

Planning for Beyond Retirement
An often-missed consideration of how an adviser can add value is the advice they deliver in relation to estate planning. Being a sensitive matter, estate planning can often fall by the wayside. However, as part of the advice a financial adviser delivers, estate planning is a subject matter that is often brought to the attention of the client.

An experienced adviser is able to raise potentially difficult issues and help the client determine what they would like to happen to their estate, such as who is the most appropriate person/s to appoint as executor. They can also help you in talking through your wishes with other family members/beneficiaries.

Why seek advice from a Financial Adviser?
Financial advice is more than picking the right shares or recommending an insurer. It is about finding the right financial path for clients and delivering that through a financial plan.

A great adviser shares their knowledge and experience with their clients, so that they don’t have to learn by making mistakes themselves. A great adviser provides more than a financial return, they also add a non-financial return by being a sounding board to the client and allowing the client to make educated decisions for themselves.

This is the value of advice from a financial adviser.

aged pension no holiday

The Age Pension is No Holiday

I took a holiday a few weeks back and while checking my emails I saw the latest report on how much it costs to live a comfortable retirement. In order for a couple to live a comfortable retirement, the report says they need an income of approximately $59,160 each year.

Now, the figure of $59,160 didn’t surprise me all that much, given this has been the standard for many years, but while on my trip it struck me how the cost of living and doing those extra things is starting to creep up more and more.

What really struck me was how something as simple as a two-week holiday in Australia was starting to be really expensive. Case in point, I calculated that for a husband and wife to do a scenic driving tour around somewhere like Tasmania or Victoria could easily end up costing up to $6,000!

Have a look for yourself;

aged pension no holidayThe interesting thing is that none of those figures seem extravagant. A hotel for $150 a night is not going to be terrible – but it certainly isn’t luxury 5 star.

Now, fast forward to your retirement and ask yourself – how does $6,000 fit into my budget as a retiree? Is it easily afforded? Does it cause a major black hole? Or can you afford to add an extra week to your holiday (or even go overseas)?

A determining factor for your response will be whether you are fully self-funded, fully reliant on the Government Age Pension or a combination.

Expanding on this, I have put 2 charts together, so you can see how much this domestic holiday would take up of your pension income – based on if retired on the Age Pension Solely or with sufficient capital to achieve a comfortable income in retirement. (For ease I have based our assumptions on couple rates).

aged pension

Overall, it doesn’t look too bad. Until you start to look at the numbers.

See, on a comfortable retirement, whereby you are funding your retirement income through a combination of Age Pension, Super savings and other income, you are looking to still have $53,020 left to meet your ongoing expenses – that works out to be about $1,019 per week.

Comparably, if you were to go it alone on the Age Pension – you’re left with $28,242 – or about $543 a week – for two people.

Put another way – the maximum Age Pension is approximately $1,322 per fortnight for a couple. In order to save for a $6,000 holiday that couple must set aside between 9 and 10 weeks of Age Pension Income – for a two-week holiday.

So, what’s the point?

Firstly, a holiday does not have to cost $6,000. After all there is camping, there are motels, there are day trips and weekends away. However, retirement is about getting on the open road and exploring – doing things you’ve always wanted to do.

It turns out though, these things cost a little more than we might imagine.

The point then, is that if you foresee your retirement being filled with adventures and trips away – you would do well to have a plan in place to ensure you are not surprised by the cost of things, when you do eventually retire.

Yes, the age pension is available for many retirees and it is likely to play an important role in financial planning strategies for the foreseeable future – however if you want to live a comfortable, rather than a modest retirement, you need to take a hold of your retirement plan.

After all the Age Pension (alone) is no Holiday.


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