Budget 2012 – How did SMSFs fare ?
With the Federal Budget handed down just a few hours ago, we thought we’d do a quick post on the main items that came through just from a SMSF trustee perspective. Luckily, super has been spared from being tinkered with too much with just a few issues raised.
1. Deferral of higher contribution cap limit
This one’s not going to go down well !
How is Basel III going to affect you?
Guest Post
by Gavin Madson
FIIG Securities
One of the major outcomes of the global financial crisis was the crash of Lehman Brothers, ensuring credit crunch and multiple bank bailouts by governments across the globe. This led to a significant increase in the scrutiny of financial institutions and the implementation of more stringent regulations on the sector. This has been undertaken in part to avoid governments having to bailout banks in the future. The effect of this increased scrutiny, currently embodied in the implementation of Basel III regulations, will have a dramatic effect on how banks and the broader markets will interact in coming years.
RBA rate decision – More than expected, more to come
Guest Post
by Dr Stephen Nash
FIIG Securities
As expected, the RBA statement yesterday indicated that the cash rate was lower, yet the cut of 50bps from 4.25% to 3.75% was more than expected. When the RBA moves, it typically moves over consecutive periods and the growth and inflation numbers allow room for another easing of interest rates. Given the widening in credit spreads of late, corporate debt is now returning more than double the government rate in most cases. Lower government bond yields mean that financial markets expect low growth, which, in turn, means that equities should continue to do what they have of late; add risk and not return to investment portfolios. Much more detail on the RBA view will become apparent on Friday with the release of the Statement of Monetary Policy, and beyond that, the looming fiscal tightening in the Federal budget is due next Tuesday night, 8 May 2012.
A sensible approach to SMSF stock market investing
Guest Post
by Chris Batchelor, CFA (Certified Financial Analyst)
Successful investing on the stock market for SMSF trustees needn’t be confusing, overwhelming and time-consuming, or require a finance degree.
A typical business starts with a savvy idea, at least one shareholder, cash and a sustainable business model. Staff may be employed and dividends may be paid.
So why do we approach investing in companies listed on the stock exchange differently from acquiring a 50% stake in the local newsagent?
Both represent part-ownership of a business.
Its all about risk – Part 3
Guest Post
Dr Stephen Nash
FIIG Securities
As each week passes, we see more and more support for the groundswell that is leading Australian investors back to a more conservative asset allocation. Dr. Ken Henry kicked off proceedings, while David Murray followed, and now Lindsay Tanner has confirmed the validity of concerns about questioning the motives of funds that chased return, without adequate concern for risk. As Tanner indicates,
The thing I found troubling were responses to the very legitimate questions being raised by, in many respects, the ultimate heavyweight crew of Ken Henry, David Murray, Jeremy Cooper and Mark Johnson. All essentially saying that our super fund system is overexposed to equities … One thing I did learn during my time in government was when people of this calibre and background assert something serious like that you pay a lot of attention. Comments from people of this stature need to be viewed as a serious thing and should be listened to not just by super funds but by governments and by society more broadly … On any measure, your typical Australian superannuation fund is massively overweight equities*.
Its all about risk – Part 2
Guest Post
by Dr Stephen Nash
FIIG Securities
Introduction
In Part one of this series, we commented on the way Dr. Ken Henry has supported some of our common sense arguments and this week we look at how investors are compensated for the risk they take, in terms of return. David Murray, the departing chairman of the Future Fund, agrees with Henry and with the FIIG position, as the following excerpt indicates,
Mr Murray said the heavy weighting to equities by superannuation funds was exposing the nation to dangerous financial instability and the public to excessive risk, and that funds should be giving far greater allocations to fixed income-related investments — a message that has been oft repeated in recent years but gained new prominence in the past week after former Treasury secretary Ken Henry stressed the need for increased investment diversity in the country’s superannuation sector.
Use only “investment grade” Bonds in a SMSF
Guest Post
by Gavin Madson
FIIG Securities
Standard & Poors last week released their 2011 Annual Global Corporate Default Study and Ratings Transitions report. This report reviews all rating activity undertaken by the agency across the globe including monitoring defaults as well as rating movements (upgrades and downgrades). In 2011 there were a total of 53 defaults in the S&P universe, only one of which was rated ‘investment grade’. How big is S&Ps global universe? For 2011 this covered a total of 5,847 ratings globally (3,331 investment grade ratings and 2,516 sub-investment grade ratings).
ATO ID 2012/27 – Foreign ‘super’ transfers and changing who gets taxed
The ATO have recently released an interpretative decision (ATO ID 2012/27) around the issue of taxation of transfers of foreign pension plans (like our super funds) to an Australian super fund.
To be more specific, they have ruled on the ability to change your mind as to which entity can pay the tax that applies on the rollover where it has happened 6 months after becoming a resident here.
Some background
To understand this one, we need to just summarise some background information, and we’ll do it in the form of an example to make it a bit easier to understand.
Do the reputation of CFDs in a SMSF get a raw deal ?
Editor’s Post:
The SMSF world is a place where things can often get misrepresented. Especially by writers who need to write a column, but may not be particularly experienced in the topic they are writing about, and fall into the trap of just feeding common misconceptions.
One example of this is CFDs, and particularly the use of them in a SMSF.
Its all about risk – comparing two portfolios
Guest Post – by Dr Stephen J Nash
Director – Strategy & Market Development
FIIG Securities.
Introduction
We have commented previously on the way Dr. Ken Henry has supported some of our common sense arguments, and the press reaction has been predictable; equity market proponents have steered the discussion back to return and away from volatility and capital stability as evidenced in the article, “The pros and cons of being overweight equities: Franking credits and high yields create a powerful incentive to be long equities” in The Weekend Australian last Saturday. Initially, this article will review the press response to Dr. Henry’s comments, and then compare two portfolios:
- A “default” portfolio, with 70% equities, 20% bonds, and 5% cash
- Then a portfolio weighted towards bonds, with 70% bonds, 20% equities, and 5% cash
While the returns of each portfolio are comparable, the risk is not. In other words, investment is not just about the overall return, but it is also about the potential volatility and the risk of loss in any one year. A greater allocation to bonds smooths the ride, allowing investors to achieve their investment goals in a more effective way, where investors receive adequate return for the risk that they are taking.
