Weekly Commentary – Russia Roils Markets
The last week has been notable given the increased volatility stemming from the geopolitical turmoil in Ukraine.
In the weeks leading up to the crisis, Ukraine was gripped by violent protests against its former President, Viktor Yanukovych.
The opposition to Yanukovych’s rule eventually led to his ouster from government and caused him to flee to neighbouring Russia.
The resultant power vacuum caused angst in the Kremlin, which then authorised Russian President Vladimir Putin to use military force in Ukraine.
The rationale being that ethnic Russians comprise a majority of the population of Crimea, and so a Russian troop presence would be needed to protect them from politically motivated attacks.
Putin followed by effectively seizing control of Crimea, which forms Ukraine’s southern peninsula and serves as a base for the Russian navy’s Black Sea fleet.
The de facto takeover of Crimea by Russian forces ignited a firestorm of criticism against Putin by western nations, led by the USA.
Western leaders have largely condemned the move by Putin to seize control of Crimea and have spoken openly about slapping sanctions against Russia.
Although the actual Russian presence in Crimea made all the news headlines, it was the threat of trade sanctions that really spooked markets.
Russia, which is the world’s biggest gas exporter, supplies around 30% of Europe’s gas and 60% of Ukraine’s gas. Crucially, Europe’s gas is fed by pipelines that run from Russia through Ukraine.
It’s true that Europe’s hobbled economy cannot afford for Russia to retaliate against any sanctions but choking off its gas exports to the region.
At the same time Russian government coffers are highly dependent on the revenue generated from gas exports.
The World in Numbers:
- The big news out of the U.S. in the past week was the government upgrading the county’s GDP forecasts to the highest since 2005
- Gross domestic product will expand 3.1% in 2014 after rising 1.9% last year, the administration said in forecasts accompanying its 2015 budget plan released in Washington
- The jobless rate will average 6.9% this year, compared with 7.4% last year, and average 6.4% in 2015, according to estimates based on information as of mid-November
- New home sales are on the rise, with the February annualised number coming in at 468k versus an expected 406k – this is a good sign as the new home sales numbers are a leading indicator of economic health because the sale of a new home triggers a wide-reaching ripple effect
- Manufacturing has bounced back – Durable goods orders were up 1.1% in February versus an expected 0.1% fall. Chicago PMI was also up strongly, with the read coming in at 59.8 versus the previous month’s 59.6 and an expected read of 57.9
- The ISM Manufacturing number also came in better-than-expected, at 53.2, versus the previous month’s 51.3 and an expected 52.3
China: Slowing, slowly.
- Chinese manufacturing PMI came in at 50.2, which was in line with expectations but lower than the previous month’s 50.5
- The HSBC Manufacturing PMI came in at 48.5, again in line with expectations but weaker that the previous month’s 48.3. These two numbers show the Chinese economy slowing down but only gradually
- Iron ore prices have continued to fall from last week, from around $119 to $116.70 overnight
Australia: Tough Times Continue but Growth Improving.
- The RBA left rates on hold on Tuesday, at 2.50%, but indicated it wants the Australian dollar to keep falling
- The AUDUSD remains stubbornly high however, holding around the 90 cent level versus the greenback
- HIH new home sales increased 0.5% over the month, versus the previous month’s 0.4% fall
- ANZ job ads surged 5.1% in February, after five months of contracting jobs ads – the previous month was a 0.3% decrease
- Building approvals surged 6.8% versus an expected 0.7% gain and the previous month’s 1.3% decline
- GDP q/q came in up 0.8% (2.8% annually) – stronger than expected. The expectation was for a 0.7% increase
|SMSF Review: Portfolio Strategy – March 2014|
|Investment Horizon (Yrs)||3+||4+||5+||6+||7+|
|Strategic Asset Allocation (%)||Conservative||Moderately Conservative||Balanced||Growth||High Growth|
|Property and Infrastructure||5%||9%||12%||14%||15%|
|Fixed Interest||Underweight||We prefer shorter duration, high quality bonds at this point in the cycle. Indexing looks risky.|
|Property and Infrastructure||Benchmark||Listed property looks to be fully priced at this point in the cycle.|
|Australian Equities||Benchmark||We remain comfortable with a benchmark position at this time.|
|Global Equities||Overweight||Major economies continue to have potential for growth. Tend towards unhedged exposure. Continued risk in emerging markets due to sovereign bank intervention.|
|Alternatives||Benchmark||Continue the search for non-correlated returns.|
|This material has been prepared by FMD Financial for long term investors.The material has been prepared by FMD Financial using various sources including van Eyk’s strategic asset allocation. It is not intended to be comprehensive and should not be relied upon as such. In preparing this publication, we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained in this publication to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained in this publication. FMD Group Pty Ltd ACN 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of Paragem Pty Ltd 297276.|
ASSET CLASS DEFINITIONS:
|Property and Infrastructure:||
For further information or advice on how this may apply to your portfolio, please fill out the ‘Leave a reply’ section below with your name and contact details and an FMD Representative will be in touch with you shortly.
For those nearing retirement age and looking to begin drawing a pension around the same time as the onset of the GFC in late 2007, it would no doubt have been a very harrowing time.
All those years of building up a retirement nest egg, only to see the value of those investments erode as much as 50% in a short time, right at a time when you could least afford it.
In finance, this type of risk is known as sequencing risk, i.e. the risk of receiving lower or negative returns early in a period when withdrawals are made from the underlying investments.
The order or the sequence of investment returns is a primary concern for those individuals who are retired and living off the income and capital of their investments.
Many of you out there who filled out our recent survey identified ‘a negative change in the stock market and the economy having a huge impact on the value of your savings’ as one of the main concerns regarding your SMSF – the response received a 52% strike rate – and this speaks directly to the sequencing risk issue.
A portfolio is typically at its largest in the five years leading up to retirement and in the five years after commencing retirement. This 10-year period is the ‘danger zone’ for sequencing risk.
While it is not possible to control the order of returns achieved, it is possible to take steps to mitigate the detrimental impact of sequencing risk.
1. Regular contributions
Making regular contributions during the accumulation phase is the first major step in mitigating the impact of sequencing risk. This has the effect of dollar cost averaging into the market.
When markets fall, these contributions are used to purchase relatively cheap assets. It also has a positive impact that, even if the investment returns for the year have been negative, the portfolio balance is more likely to increase. In a good year the portfolio powers ahead with the positive returns plus the additional contributions.
2. Asset Segregation
A key measure of protection for those already in the pension phase is a strategy that segregates risky and secure assets into separate ‘buckets’ in a client’s portfolio.
The risky assets are essentially put to one side and allowed oscillate in line with the market conditions in their own segregated bucket, without being disturbed.
The secure bucket is used to pay for cash outflows such as pension payments and fees.
We suggest that retirees should have at least five years of future cash outflows contained in the secure bucket. This way, in an extended market downturn a risky asset never needs to be sold at a low price in a weak market.
3. Sensible pension draw downs
It is important to ensure that sensible pension amounts are drawn from retirement portfolios, subject to satisfying minimum drawdown requirements. The rule of thumb is 5% a year, or less, of the value of the fund.
If clients draw larger pensions, say 10% a year, they can become too reliant on achieving very good returns each year to sustain this high-income payment. The impact of sequencing risk means this can never be guaranteed.
4. Minimising large allocations to direct property in SMSFs
Recent reports that trustees of SMSFs have an increased appetite for direct property investment has real implications for sequencing risk.
Property is a lumpy asset that can take a long time to sell, and property prices can be adversely affected by market conditions.
Being in the position of needing to sell a property at a time when the property market is in a slump is not a position trustees would like to find themselves in, particularly if the property represents a large portion of the SMSF’s total assets.
As we should all know by now, diversification is a technique that reduces risk by allocating investments among various asset classes and holdings.
It aims to maximize return by investing in different areas that would each react differently to the same event.
Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-term financial goals while minimizing risk.
The key with an SMSF looking to avoid the impact of sequencing risk, is to ensure that you have a fully and properly diversified portfolio.
This sounds obvious, but how many people out there would have been chasing higher returns in the lead up to the GCF and were subsequently torched by having the majority of their portfolio in equities?
Where were the fixed interest and cash components?
It’s all good and well to chase higher returns in a portion of your portfolio but you must protect against downside risk, particularly as you’re moving into drawdown phase and you want to ensure an adequate income stream.
Analysing the average returns of funds in different risk categories, it is only the Growth, Balanced and Conservative sectors that are now back above their pre-GFC levels of October 2007.
The higher risk All Growth and High Growth categories, with their higher weightings to listed shares and property, are still some way off regaining their previous highs.
So, even though over the long-run the higher growth categories would be expected to comfortably outperform, an unusual event like the GFC has a devastating impact on these aggressive growth portfolios in the short-term and, as we’ve discussed, if you’re about to or have just commenced retirement, you may not be invested long enough to come back out in front.
Furthermore, if you’re drawing down whilst the market is recovering, you’re going to need even better returns or more time to get back to breakeven, as you’re working with a diminishing asset base.
In short, make sure you are diversified correctly for your circumstances
On February 21 the ATO released ID 2014/7, an interpretive decision regarding whether a contravention of section 34 of the Superannuation Industry (Supervision) Act 1993 (SISA) has occurred if a Self-Managed Superannuation Fund (SMSF) shares a bank account with related unit trusts.
Before exploring the decision, it is worth revisiting the distinction between an ATO ID and an ATO TD – remember the distinction is quite significant.
An ATO TD is a public ruling where the ATO will apply the law in that way. It provides you with far more certainty than an ATO ID, which is what we have in this case.
An ATO ID, on the other hand, is an interpretative decision, which provides less protection.
If you read an ATO ID and go ahead and apply a strategy as per the ID and a decision is later found to be incorrect, then you may still be liable to pay tax.
In the case at hand, the trustees of the SMSF are members of a family.
The fund has a standard employer-sponsor and all the trustees work for the standard employer
There are several unit trusts owned and operated by the SMSF and/or the trustees.
The trustees have stated that, for administrative simplicity and cost savings, unit trusts jointly owned by the SMSF and trustees as well as unit trusts owned solely by the SMSF all operate using the one bank account.
The account is held in the name of the SMSF.
It was found that ‘yes’, an SMSF must open and maintain its own bank account, as it is required to keep its assets and money separate from that of other entities.
Reasons for Decision
Subsection 31(1) of the SISA provides for the regulations to prescribe standards applicable to the operation of regulated superannuation funds (which includes a complying (SMSF) and to trustees of those funds.
Subsection 34(1) of the SISA requires each trustee of a superannuation entity to ensure that the operating standards are complied with at all times. A failure to do this is considered to be an offence under subsection 34(2) of SISA.
Regulation 4.09A of the Superannuation Industry (Supervision) Regulations 1994 (SISR) states that for the purposes of subsection 31(1) of the SISA, a trustee of an SMSF must keep the money and other assets of the fund separate from any money and assets respectively:
(a) that are held by the trustee personally, or
(b) that are money or assets of a standard employer- sponsor, or an associate of a standard employer-sponsor, of the fund.
The unit trusts are associates of the standard employer-sponsor of the fund in accordance with section 12 of the SISA.
Keeping all of the unit trusts’ money in the SMSF’s bank account, including those trusts jointly owned by the SMSF, is not in line with the requirements of regulation 4.09A of the SISR and therefore constitutes a contravention under subsection 34(1) of the SISA.
Note: While this ATO ID looks specifically at bank accounts, the principles of regulation 4.09A of the SISR apply to all types of assets, including shares, units in a trust and other property.
A quick look at what’s happening around the world and the key numbers:
US: Blame it on the weather
• The market seems to have taken the stance that any economic bad news is due to the weather. This argument will only hold for so long and we will need to see a bounce across the board in March.
• Building permits, housing permits and home sales all down
• PPI – producer prices in line – outlook for inflation benign
• Philly Manufacturing – big miss, is this statistical noise or not?
• Flash PMI down from 56.7 to 52.7
• Consumer confidence down to 78.1
• Iron Ore prices broke through their support two nights ago, trading down to $119.
• The Japanese government has announced its intention to restart the country’s 48 nuclear reactors, after two years of inactivity.
• Manufacturing is contracting – a print of 48.3 for PMI Japan
• It has been a quiet week apart from Hockey’s and Abbot’s jawboning about stimulating global growth at the G20.
For further information or advice on how this may apply to your portfolio, please fill out the ‘Leave a reply’ section below with your name and contact details and an FMD Representative will be in touch with you shortly.
At the start of a new calendar year, it is always worth considering what the major themes most likely to impact upon global markets will be over the next 12 months.
The value in embarking upon such an exercise lies not in the ability to make millions of dollars, but rather to prepare oneself for what lies ahead.
Good luck is a residue of preparation, so being mindful of what’s on the horizon will hopefully mean less of a shock and a greater ability to effectively deal with issues when they arrive.
With that in mind, we turn our attention to the major themes to look out for in 2014.
U.S. Federal Reserve Stimulus Tapering.
Like it or not, the reduction of the Federal Reserve’s unprecedented stimulus programme will continue to dominate the investing world.
We’ve already seen emerging markets shudder at the prospect of reduced stimulus and we’re very likely to see considerable further impacts as the programme is wound down over the course of the next 12 months.
QE3 has been the biggest quantitative easing the Fed has undertaken – US$85 billion per month of asset purchases. The Fed has been doing that since September 2012 and they have put over US$1.3 trillion back into the liquidity system.
With the US economy seemingly on the mend, the “taper” will be withdrawn and the programme downsized, but the ramifications for global markets remain to be seen.
The China Story
China’s latest GDP figures showed a growth rate of 7.7% for last year, which is well below the average in the last decade and well above the 7.2% floor set by Premier Li Keqiang in November, which would be sufficient to maintain employment at present levels.
However, year-end statistics for Chinese car sales provided a welcome surprise as they rose by nearly 14%, indicating robustness in the domestic market.
Exports expanded by 7.9%, reflecting improving demand from Europe and the US, although December was slower than the previous month.
While the 7.7% growth rate slightly exceeded expectations and is fairly positive, it is still the most tepid in 14 years and many observers are predicting that China’s economy will decelerate further this year.
This pessimism was supported by a gloomy report released on December 25 by National Development and Reform Commission Minister Xu Shaoshi.
Even if China’s growth is slowing however, it is still on target.
The 12th five-year growth plan for 2011-15 set an average annual growth target of 7%.
Since the economic growth rate was 9.3% in 2011 and 7.7% in 2012, it seems that a further slowdown is part of the plan, as China switches its focus from exports to domestic consumption.
Where to for the Aussie dollar?
In recent years the Aussie dollar has been very strong, trading between parity in 2011 to around 95 US cents throughout 2013.
Those lofty days for the Aussie appear to be over heading into 2014, as the factors holding up the local unit in early 2013 are now no longer present.
Instead there are numerous factors, both local and international, which are likely to force the AUD lower.
On the international level, there are four main drivers which will push the US dollar higher comparative to the Aussie;
- Rising US-Rest of World interest rate spreads, led by rising long-term bond yields
- Continued US Fed tapering
- A stronger US fiscal outlook and reduced uncertainty following the recent budget deal
- Better-than-expected US growth
From an Australian perspective, the following factors should also push the Aussie lower;
- Lower interest rate spreads
- Sluggish commodity prices
- Slower relative growth
With all of these factors in play, most commentators are expecting the Australian dollar to push into the low to mid 80’s throughout 2014.
Where are we Growing?
Australian September quarter GDP data didn’t provide much cause for optimism, but then again it wasn’t expected to either.
GDP growth came in at 0.6% quarter on quarter or 2.3% year on year. This is quite soft for a country where potential growth is around 3-3.25%. The sub-par figures reflect modest growth in consumer spending, weak investment and falls in inventories but helped by a boost from net exports (or trade).
While there remains a bit of short-term uncertainty, there are some grounds for optimism that economic growth will improve through next year. Specifically:
- Interest rates have fallen to past cycle lows. This means huge savings for the key demographic responsible for marginal consumer spending in the economy – those with a mortgage. For a family with a $250,000 mortgage the annual interest saving versus the rate peak two years ago is about $5000. Eventually some of this will be spent.
- The $A is down 15% or so from pre-May average levels.
- Household wealth is up over the last year reflecting the rising share market and rising house prices.
- Household caution seems to be fading. The proportion of Australian’s nominating paying down debt as the “wisest place for savings” has fallen to its lowest since 2007.
There are other solid signs of growth in the Australian economy, namely;
- A solid recovery in housing construction appears to be getting underway. Approvals to build new homes are pushing up towards past cyclical highs.
- While the recovery has been more gradual than normal, consumer and business confidence are well up from their lows of a year or two ago and seem to be trending up.
- The combination of improved confidence, rising wealth and rising housing construction is likely to drive a recovery in retail sales growth over the year ahead. This should see nominal annual retail sales growth break out of the 2-3% range it has been in for the last four years and move up to around a 4-5% pace in the year ahead. This may already be underway with retail sales showing improved growth over the last six months and annual growth picking up to 3.6%.
- The latest survey of investment plans for 2013-14 indicated that while mining investment has likely peaked, the overall outlook has improved a touch reflecting an improvement in non-mining investment. Three months ago investment intentions were pointing to a 1% slide in investment this financial year. Now they are pointing to a 1% gain and most of the turnaround is due to investment outside of the mining and manufacturing sectors. In fact investment in what the Australian Bureau of Statistics calls “other selected industries” (mainly services, which is six times as big as manufacturing investment) is now expected to expand 3% this financial year versus a 3% contraction indicated three months ago.
- Finally, it should be noted that while mining investment is likely to trend down going forward, its impact on economic growth will be partly offset by reduced mining related capital goods imports and a pick-up in resources exports as new projects start producing.
Whilst there may be further headwinds which emanate from the May Federal Budget, the indicators above suggest that a sustained improvement is gradually coming into sight.
Through this year growth could return towards the 3% pace. In the absence of fiscal cutbacks it will likely be stronger.
In recent years, SMFS trustees have developed an increasing appetite for adding residential property to their portfolios.
Data from the Australian Tax Office (ATO) shows that from 2008 to 2012, residential investments increased by 56%.
In total, real estate assets make up around 15% of SMSF portfolios, compared with 8% for the rest of the superannuation industry.
There are a number of risks associated with property investment however, not all of which are merely symptoms of the vagaries of the property market.
There are three issues relating to high exposure to direct property: yield, liquidity and the indivisibility of property.
If an investment property fails to deliver the yield required and the SMSF members are in their pension phase (65 or older) they face the problem of addressing the liquidity issue of the fund for pension payments and meeting compliance requirements.
This may require the fund to liquidate assets.
Property is not noted as being an easily liquidated asset. In some cases it can take months to sell a property and realise the cash for payments.
Where a pension member is reliant on that regular monthly income for lifestyle, the illiquid nature of the asset can create serious issues and could result in a property being sold on less than optimal terms.
The issue of liquidity is a problem because of the indivisibility of property compared with other more liquid investments such as cash, shares or bonds.
In most cases direct property can’t be sold in pieces to provide the needed liquidity to meet pension payments.
This means where cash is short in the fund to meet pension payments of the pension member who is in need of a lump sum to meet medical bills, holidays or for special occasions, there isn’t the ability to partially redeem a direct property.
It’s not all bad news however, as there are a number of ways around the liquidity issues.
One solution is to buy units in property trust, either listed or unlisted.
A-REITs – Australian Real Estate Investment Trusts
Listed property trusts are readily easily accessible and liquid, with units able to be bought in exactly the same way as shares.
On the ASX there are many A-REITs specialising in different types of real estate. For instance, GPT Property Group (GPT) is a diversified property group, with ownership interests in a number of shopping centres and offices.
When buying units in an A-REIT, you are effectively buying a unit of a property asset portfolio. Obviously it would be nearly impossible for a retail investor to develop or purchase a major shopping centre.
A trust pools together the necessary capital to make the investment, with the investment then broken up into smaller units that you can then purchase.
Indirect property investment allows you to buy and sell units on the stock exchange at any time, so this is a more liquid option than direct property investment.
Because of the varied nature of the property portfolio, an A-REIT can offer diversification across different types of property.
The diversification benefit can also extend to different geographies and tenants. The loss of one tenant among many property assets will have less of an impact on rental income than if there was the one property with the single tenant.
A drawback of indirect property investment is that individual investors have little to no say in how the property is actually managed.
Unlisted Property Trusts
Investing in unlisted property schemes allows you to buy units in a professionally managed property investment vehicle not listed on an exchange.
Because unlisted property is not subject to daily market fluctuations, it has comparatively lower volatility than listed property.
This means it is more likely that the assets trade closer to their true value and are not impacted as much by general equity market sentiment.
As part of the due diligence when investing in unlisted property trusts, you’d be wise to assess the skill of the property manager by looking at things like their level of experience, track record and reputation.
The amount of debt taken on by the fund is another important consideration, along with the fund’s structure/restrictions and nature of the asset (e.g. the property type and location).
* * *
One of the benefits of new ownership is that The SMSF Review is now able to present new and exciting investment opportunities.
Subsequently, we’re proud to invite your interest in the Neerim Unit Trust, an unlisted property trust like those described above.
The SMSF Review, via Rockwell Financial Services Pty Ltd, have secured an allocation of investment units in the trust, which is being developed by the Steller Group. The details of the investment are as follows;
- 20% p.a return on equity (minimum targeted) with potential upside of 26%+ pa return
- Expected 1.5x investment return (at 26% IRR)
- Anticipated 14 month investment term (stated returns based on 18 months)
- Site secure
- Development application before Council
- Experienced development manager
- Fixed maximum price construction contract
If you are interested in learning more about this exciting opportunity, please CLICK HERE.
By Kath Walters
It is the freedom to choose how, when and where you invest your hard-earned cash that inspires most people to start a self-managed superannuation fund (SMSF). There’s an exciting range of potential investments.
But current data shows many SMSF trustees don’t make the most of this opportunity. Instead, SMSFs are not as diversified as industry super funds, recently published data shows, and they are heavily weighted towards cash assets.
On average, a SMSF holds about 30.5% in cash and deposits, compared to an average of 4% cash in industry funds. SMSFs are also low on international shares (0.3%), while industry funds have, on average, 24.3% in international shares.
This is worrying thought, since diversity is the basic building block of any investment strategy. “If you haven’t got diversification, you might be on a hiding to nothing,” says Colin Owens, a director at WealthWithin.
Sophisticated investors understand that success depends on constant reading and self-education; it’s not enough to rely on financial advisors.
Sue Dahn, executive director of Investment Advisory, Pitcher Partners Advisors, says the first question SMSF trustees typically ask when they sit down in her office is which stock to buy. This, she says, is the least influential decision in any investment strategy.
A more effective approach is to take the following four steps.
Step one: Study the four pillars of investment:
- Understanding the difference between risk and volatility
Many trustees confuse the concepts of risk and volatility. Volatility is the day to day, week to week or month to month change in the price of your assets, she explains. This is very different from the risk of losing all your funds completely.
A low-risk strategy, for example, could include investments in volatile shares, provided that the volatile assets formed a small proportion of the total funds invested.
- Learning all the asset classes and sub-asset classes
The language of investment is complex and confusing; even experienced investors can quickly get out of date with new ideas and investment products. Learning about the various classes of assets and their sub-classes, is an essential first step and an on-going challenge. In the year to September, for example, the S&P/ASX 200 Index went up by 24%, while the S&P/ASX Small Cap index grew 1.5%. “Sometimes people will say to me, ‘I am diversified. I’m in tin mining and biotech’,” Dahn says. “But of course, both those assets are small cap.”
- Appreciating the impact of economics and economic cycle
Economic cycles can be more influential in investment returns that the choice of particular assets. The global financial crisis is the obvious example.
- Recognising the limits of diversification.
Diversification does not insulate investors from all market risk. On 11 September 2001, the day of the attack on the World Trade towers in New York, all global markets fell. Likewise, diversification may reduce risk, but may not deliver the best returns.
Step two: Set your fund’s objectives. These need to take into account the age, stage and risk tolerance of each member of the fund, which may not be the same for all members. (You can find some handy risk-tolerance questionnaires on the web to help with this step). Setting objectives is the second most influential decision of your investment strategy.
Step three: Design your portfolio. This is a two-pronged step: deciding on the asset classes that will achieve your objectives, and then deciding on individual assets.
Research shows that the choice of asset allocation accounts for 90% of the variation in returns. In other words, choosing to invest in Australian shares rather than international shares will affect your returns more than whether you invest in banks or mining companies.
By this stage, the choice of individual assets to invest in will be a simple matter, and will be less fraught because it has far less an impact on your success than the previous two steps.
Step four: Maintain discipline. Sticking to your strategy is easier to do once you have clear objectives and have set the time frame needed to achieve it. Wavering on your decision regarding individual assets will not have a big impact your returns, unless you start fiddling with your objectives and the mix of asset classes.
Managing a SMSF doesn’t make sense if its performance is lower than the retail and industry funds. Developing a more sophisticated investment strategy means that the SMSF members get a better return on their super investment.
And it is easy when you understand which decisions are most important and which to make first.
In December, the ATO released a draft tax ruling TR2013/D7 which considers the apportionment of expenses incurred by a super fund only partly in gaining its assessable income. The reality is that this particular subject is overwhelmingly aimed at SMSF accountants and administrators in terms of how they apportion expenses when doing the annual accounts and tax return.
By way of background, expenses of a SMSF are not deductible where they apply to non-assessable income (such as pension income), but of course generally are deductible where they apply to assessable income (such as members in the accumulation phase). This is fairly well accepted by industry.
Strategic Update from The SMSF Review for SMSF investors covering big picture themes, economic recession indicators, and portfolio strategy: for the week starting 09 December 2013.
Key Indices and Rates, with weekly change (as at 09 December 2013)
ASX 200 index: 5,186 (-2.52%)
US Dow Jones index: 16,020 (-0.41%)
10 year Bond rate: 4.35% (+17 bps)
3 yr bond rate: 3.16% (+7 bps)
90 day BBSW: 2.59% (unchanged)
RBA official cash rate: 2.50% (unchanged)
AUD / USD: 0.9127 (+ 28 pips)
The Big Picture
- The past week has highlighted exactly how bipolar the investment markets have become. For most of the week, a steady stream of good economic data saw the equity markets fall on the basis that the US Fed would be more likely to taper their bond buying program sooner rather than later.
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Strategic Update from The SMSF Review for SMSF investors covering big picture themes, economic recession indicators, and portfolio strategy: for the week starting 25 November 2013.
Key Indices and Rates, with weekly change (as at 25 November 2013)
ASX 200 index: 5,335 (-1.22%)
US Dow Jones index: 16,064 (+0.61%)
10 year Bond rate: 4.22% (+9 bps)
3 yr bond rate: 3.12% (+5 bps)
90 day BBSW: 2.59% (unchanged)
RBA official cash rate: 2.50% (unchanged)
AUD / USD: 0.9178 (-199 pips)
The Big Picture
- US stocks have moved up again for the 7th straight week and are now into record high territory. It’s the longest period of straight gains for nearly 3 years.
- Remember – the 3 rounds of bond buying by the US Fed has helped push the US S&P 500 index up 167% from its low point in 2009, and is up 26% this year so far. If it can hold onto those gains, it will be its best year since 1998.
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