SMSF Investor Strategic Update 10/04/2014

 

 

The World in Numbers:

The USA

  • The U.S. trade deficit unexpectedly widened in February as exports hit a five-month low, suggesting first-quarter growth could be much weaker than initially anticipated. Despite the trade setback, the economy remains on track to regain momentum as the year progresses. Other data on Thursday showed activity in the services sector accelerating in March after being hampered by unusually cold weather. The Commerce Department said the deficit on the trade balance increased 7.7 percent to $42.3 billion, the largest since September last year. The inflation-adjusted gap widened to $50.1 billion from $48.5 billion in January.
  • The US economy gained more than 190,000 additional jobs last month and employers ramped up the hours their workers put in on the job, in a sign of confidence in the economy. At the same time, the jobless rate sat near a five-year low of 6.7 per cent, even as Americans poured into the labor market to hunt for work, another upbeat signal of the economy’s health.
  • There are more job openings in the U.S. today than at any point since January 2008, according to the Job Openings and Labor Turnover (JOLTS) report released Tuesday by the Labor Department.

SMSF Investor Strategic Update 10/04/2014

  • There were 4.2 million jobs open in the U.S. in February, up from 3.9 million in January. The largest increase in job openings occurred in the retail and professional business services sectors, while there were slight dips in the number of openings within the construction, manufacturing, and government sectors between January and February.

 

China:

  • Activity in China’s non-manufacturing sector continued to expand in March, but at a slower rate than in the previous month, according to official data. A statement from the China Federation of Logistics and Purchasing said China’s non-manufacturing purchasing managers’ index (PMI) printed at 54.5 in March, after a read of 55 in February. A reading on the PMI above 50 indicates expansion, while a reading below signals contraction. The non-manufacturing PMI covers services including retail, aviation and software as well as the real estate and construction sectors. The data are based on replies to monthly questionnaires sent to purchasing executives in 1,200 companies in 27 non-manufacturing sectors. The federation issues the data along with the National Bureau of Statistics.
  • China’s imports and exports both contracted in March, with trade data falling well short of forecasts and raising concerns over the health of the world’s second-biggest economy. Exports decreased 6.6 per cent in March from a year earlier, missing forecasts for a 4.9 per cent rise. It was the second consecutive weak month following February’s 18 per cent year-on-year contraction. Imports fell 11.3 per cent year-on-year in March, also much weaker than forecast and hoisting a red flag over the strength of Chinese demand. That left China with a small trade surplus on the month of $7bn, rebounding from its $23bn deficit a month earlier.

Australia:

  • Approvals to build houses and apartments in Australia fell in February, a pause after strong gains over the past year fueled by record low interest rates. Building approvals declined 5.0% from January, the Australian Bureau of Statistics said Wednesday. In January, approvals jumped 6.9% from December. Building approvals were up 23.2% in February from a year earlier, the data showed. Permits to build houses fell by 2.1% in February from a month earlier, while approvals for apartments, townhouses and other dwellings dropped by 8.7%.
  • Retail spending lifted for the 10th consecutive month in February but missed analyst expectations, official data shows. Australian retail sales rose 0.2 per cent to a seasonally adjusted $22.972 billion in February, according to the Australian Bureau of Statistics. The reading follows a 1.2 per cent rise to a seasonally adjusted $22.925 billion in January, as shoppers opened their wallets in the post-Christmas sales. Bloomberg economists were expecting the data to show a lift of 0.3 per cent. Retail sales are 2 per cent higher in the March quarter to date. Spending on household goods remains strong, while both food and department store spending subtracted from growth in February.
  • A widely-watched survey shows Australian households are pessimistic about the economy’s long-term outlook. The Index of Consumer Sentiment by Westpac and the Melbourne Institute rose by just 0.3 per cent in April to 99.7. That is below the key 100-point-level which indicates optimists outnumber pessimists.
  • The unemployment rate has fallen against expectations of a rise in March. The total number of jobs in Australia rose by 18,100 to a seasonally adjusted 11.553 million in the month, compared with an upwardly revised 11.535 million in February, according to Australian Bureau of Statistics data. The unemployment rate fell to 5.8 per cent in the month, compared with 6 per cent in February.

 

SMSF Investor Strategic Update 10/04/2014
SMSF Review: Portfolio Strategy – April 2014
Investment Horizon (Yrs) 3+ 4+ 5+ 6+ 7+
Strategic Asset Allocation (%) Conservative Moderately Conservative Balanced Growth High Growth
Cash 25% 15% 5% 3% 0%
Fixed Interest 40% 29% 18% 9% 0%
Property and Infrastructure 5% 9% 12% 14% 15%
Australian Equities 15% 22% 28% 34% 40%
Global Equities 10% 14% 17% 24% 30%
Alternatives 5% 13% 20% 18% 15%
Total 100% 100% 100% 100% 100%
Asset Class Tactical Commentary
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.
Further information
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:

Cash:
  • 30 days or less
Fixed Interest:
  • TD’s longer than 30 days
  • Australian Sovereign Bonds
  • Australian Investment Grade Corporate Bonds
  • Global Sovereign Bonds
  • Global Investment- Grade Corporate Bonds
  • Non-Investment Grade Bonds
Property and Infrastructure:
  • A-REITs, Global Property, Global Infrastructure
Alternatives:
  • Real Assets: Commodities, Gold Bullion
  • Private Investments
  • Absolute Return Strategies: Fixed Income Macro, Global Macro, Equity Market Neutral, Alternative Beta

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.

SMSF Investor Strategic Update 04/04/2014

 
 
 
The World in Numbers:

The US: Strong manufacturing

  • The number of Americans filing new claims for unemployment benefits rose more than expected last week, but the underlying trend continued to point to some strength in the labor market. Initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 326,000, the Labor Department said overnight. Economists had forecast first-time filings for jobless aid rising to 317,000 in the week ended March 29. The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, hovered near six-month lows, indicating a firmer bias in the labor market.
  • Pending home sales in the United States declined for the eighth straight month in February, according to the latest index from the National Association of Realtors. The data reveals that modest increases in the Midwest and West were offset by declines in the Northeast and South and all regions are below a year ago. The Pending Home Sales Index, a forward looking indicator based on contract signings, dipped 0.8% to 93.9 from a downwardly revised 94.7 in January, and is 10.5% below February 2013 when it was 104.9. The February reading was the lowest since October 2011, when it was 92.2.
  • Growth picked up last month for the U.S. service sector and other non-manufacturing companies. The Institute for Supply Management said its non-manufacturing index rose to 53.1% last month from 51.6% in February. Economists polled by MarketWatch had expected a March reading of 53.3%. Readings over 50% signal expansion — the higher the reading, the faster the expansion. ISM said the non-manufacturing employment gauge shot higher, rising 6.1 points to 53.6% in March. Meanwhile, the new-orders barometer rose 2.1 points to 53.4%. Among 18 industries tracked by ISM, 13 reported growth last month, while five contracted.

China: What are the real numbers please?

  • Activity in China’s factory sector edged up slightly in March, a government survey showed, though the figure is unlikely to dispel concerns that the world’s second-largest economy slowed more than expected in the first quarter. The official Purchasing Managers’ Index increased to 50.3 in March from February’s 50.2, the National Bureau of Statistics said on Tuesday. That was in line with economists’ forecasts, and just above the 50-point threshold separating growth from contraction. A string of weak economic indicators this year, including falling exports and a preliminary PMI survey last week by HSBC and Markit Economics that put factory activity at an eight-month low, have pointed to the Chinese economy losing some momentum. This in turn has raised speculation that the government would step in to support growth. Premier Li Keqiang said last week the necessary policies were in place and the government would push ahead with infrastructure investment.
  • A closely watched monthly gauge of China’s manufacturing activities fell to a final reading of 48.0 in March from 48.5 in February, marking the third consecutive monthly decline and the worst reading since July of last year, HSBC said Tuesday in a report. HSBC’s China Purchasing Managers’ Index (PMI) was in contrast to an official version of the PMI released by China’s statistics authority earlier in the day, which saw a small improvement in March to 50.3 from 50.2 the previous month. A reading above 50 signals an expansion in manufacturing activity, while a reading below 50 indicates contraction. The HSBC report said the deterioration in factory activity reflected quicker decreases for both output and total-new-orders subindexes, mainly due to softer domestic demand in China.
  • Staffing levels in March declined for the fifth month running, although the rate of job losses eased. The final reading in March confirmed “the weakness of domestic-demand conditions,” said HSBC chief China economist Hongbin Qu, estimating that China’s GDP growth in the first quarter may have fallen below the annual growth target of 7.5%. He expected the Chinese government to fine-tune policy “sooner rather than later” to stabilize growth.

Australia: Quiet week.

  • As was widely predicted, the RBA announced it will be keeping the cash rate on hold at 2.5%.
  • “The latest housing market statistics are likely to have caused the Reserve Bank some additional deliberation at their latest board meeting,” said RP Data’s head of research Tim Lawless. The amount of investment in the housing market would be causing concern to the central bank, Mr Lawless said. He added that while the headline growth rate is very high, Australia’s two largest cities, Sydney and Melbourne, are responsible for driving such high capital gains. “Clearly the rate of value appreciation across the Australian housing market has been unsustainably strong over the short term,” Mr Lawless said. “However, the national economy is seeing a great deal of benefit from the increased level of both developer and buyer confidence, which the RBA is likely to see as a positive outcome from the currently exuberant housing market conditions.
  • Home prices surged in March in a sign that the boom in the property market is continuing after a pause in February, just days after the Reserve Bank warned borrowers and banks against property speculation.
  • Prices surged by 2.3% last month over Australia’s eight capital cities to take the total growth for the first quarter to 3.5%, new figures released by RP Data and Rismark today showed.
  • In related news, Australian household debt has hit a record 177% of annual disposable income while housing valuations are “flashing red”, according to Barclays’ chief economist, Kieran Davies. “House prices now equate to 4.3 times annual income and 28 times annual rent, both within a fraction of their historic highs,” Mr Davies said. The respected former treasury economist believes the RBA is “worried about the strength of the housing market, where the evolution from recovery to boom has brought jawboning by the governor into play.”
  • Official figures show there has been a bigger than expected fall in the number of homes approved for construction. Bureau of Statistics figures show the number of new building approvals dropped by 5% in February, seasonally adjusted, after surging by nearly 7% the month before. Economists had generally expected some payback after January’s strong rise, but the fall was steeper than the 2% decline that analyst forecasts centred on. However, February’s fall still leaves the annual rate of growth in building approvals at just over 23%, foreshadowing a significant rise in residential construction over coming months. Analysts also point out that the fall was driven by the more volatile apartment sector, which fell 7.7%, while the more stable detached house sector fell a smaller 2.8%.

 

SMSF Investor Strategic Update 04/04/2014
SMSF Review: Portfolio Strategy – April 2014
Investment Horizon (Yrs) 3+ 4+ 5+ 6+ 7+
Strategic Asset Allocation (%) Conservative Moderately Conservative Balanced Growth High Growth
Cash 25% 15% 5% 3% 0%
Fixed Interest 40% 29% 18% 9% 0%
Property and Infrastructure 5% 9% 12% 14% 15%
Australian Equities 15% 22% 28% 34% 40%
Global Equities 10% 14% 17% 24% 30%
Alternatives 5% 13% 20% 18% 15%
Total 100% 100% 100% 100% 100%
Asset Class Tactical Commentary
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.
Further information
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:

Cash:
  • 30 days or less
Fixed Interest:
  • TD’s longer than 30 days
  • Australian Sovereign Bonds
  • Australian Investment Grade Corporate Bonds
  • Global Sovereign Bonds
  • Global Investment- Grade Corporate Bonds
  • Non-Investment Grade Bonds
Property and Infrastructure:
  • A-REITs, Global Property, Global Infrastructure
Alternatives:
  • Real Assets: Commodities, Gold Bullion
  • Private Investments
  • Absolute Return Strategies: Fixed Income Macro, Global Macro, Equity Market Neutral, Alternative Beta

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.

Who is Investing in What?

 

 

Each quarter the ATO releases self-managed super fund statistics derived from annual return data.

Some of the more interesting data outlines the investments that SMSF trustees choose, and how much SMSF money is invested in the different asset types.

More than half a million SMSFs (516,925) run by nearly 1 million trustees (986,441) control more than $500 billion in assets. A more impressive statistic is that SMSF trustees control around a third (31.5%) of all superannuation money held by Australians.

Only a decade ago, SMSFs controlled just 10% of all superannuation money, such has been the growth in this space.

A fascinating aspect of this growth in SMSFs is that the investment behaviour of the 980,000-plus SMSF trustees is capable of influencing investment markets.

Last year’s run up in banking stocks has been attributed by some as the desire by SMSF trustees for shares which pay franked dividends.

Another recent example is the interest of SMSFs in the property market. Due to relaxed borrowing rules (introduced in 2007) and to the ever-growing SMSF fund balances, now averaging more than $1 million, estate agents, property developers and banks believe there is money to be made by promoting property, using gearing, to SMSF trustees.

The three most popular investment classes for SMSF trustees are: direct shares, cash and direct property.

In 2004, these three asset categories represented two-thirds (66%) of all SMSF investments. As at June 2011, the three asset categories – Australian shares, cash and direct property – represented a massive 75% of all SMSF investments.

As at September 2013, the three main asset categories represented 77% (76.6%) of all SMSF assets.

SMSFs held 32.3% of fund assets’ in direct Australian shares, 29% in cash and term deposits, and 15.3% in direct property.

Of the remaining 23.4% of the $531 billion in total SMSF assets, 12.8% was held in trusts (9.2% in unlisted trusts and 3.6% in listed trusts), 4.3% in ‘other managed investments’ and the remaining 6.3% spread across 12 other categories.

Eight years earlier, as at June 2004, SMSFs held 31% of fund assets in direct Australian shares, 23% in cash and term deposits (and debt securities), and 12% in direct property.

Of the remaining 34% of the $127 billion in total fund assets, 21% was held in trusts (10.5% in public trusts and 10.5% in other trusts), 6% in managed funds, and the remaining 7% spread across six other categories.

Does the asset allocation change for different size SMSFs?

The ATO also publishes statistics listing the asset allocations for different fund sizes.

Fund balance: at least $150,000 and up to $200,000

SMSFs of this size hold 28% of fund assets in direct Australian shares, 45% in cash and term deposits, and 6% in direct property. Of the remaining 21% of assets, 9.5% was held in trusts (6% in unlisted trusts and 3.5% in listed trusts), 4% in ‘other managed investments’ and the remaining 7.5% spread across 12 other categories.

In 2004, SMSFs of this size held 31% in direct Australian shares, 30% in cash, term deposits and debt securities and 10% in direct property.

Presently there is a greater weighting to cash but this trend could simply be a product of volatile sharemarkets and the after-effects of the GFC on portfolios.

The weighting to direct property for this fund size has dropped by nearly half over the past eight years, which could simply be a consequence of a hike in property prices meaning that SMSFs holding property will also have higher fund balances due to asset revaluations.

Fund balance: at least $200,000 and up to $500,000

ISMSFs of this size held 28.3% in direct Australian shares, 38% in cash and term deposits and 12.2% in direct property. Of the remaining 23.5% of assets, 10% was held in trusts (6% in unlisted trusts and 4% in listed trusts), 4.5% in ‘other managed investments’ and the remaining 8.5% spread across 12 other categories.

In 2004, SMSFs of this size held 30% in direct Australian shares, 25% in cash, term deposits and debt securities and 12% in direct property. Percentage of property holdings have remained steady over the last eight years.

Fund balance; at least $500,000 and up to $1 million

SMSFs of this size held 28.5% in direct Australian shares, 35% in cash and term deposits and 15% in direct property. Of the remaining 21.5% of assets, 11% was held in trusts (7% in unlisted trusts and 4% in listed trusts), 4.5% in ‘other managed investments’ and the remaining 6% spread across 12 other categories.

In 2004, SMSFs of this size held 31% in direct Australian shares, 22% in cash, term deposits and debt securities and 12% in direct property. More recently there is a greater weighting to cash.

Fund balance; at least $1 million and up to $2 million

SMSFs of this size held 29% in direct Australian shares, 34% in cash and term deposits and 16% in direct property.

Of the remaining 21% of assets, 11% was held in trusts (7.50% in unlisted trusts and 3.5% in listed trusts) and 4% in ‘other managed investments’. The remaining 6% was spread across 12 other categories.

In 2004, SMSFs of this size held 32% in direct Australian shares, 21% in cash, debt securities and term deposits, 13% in direct property and a 22% weighting to trusts. Presently here is a greater weighting to cash and a drop in the money allocated to trusts, compared to 2004.

The takeaway from the above numbers is that the behaviour of trustees is essentially replicated across different portfolio sizes, i.e. the size of the fund makes little difference to the investment behaviour of trustees.

For SMSFs valued at between $150,000 and $2 million, around three-quarters (78%) of SMSF money is invested in three asset classes (direct Australian shares, cash and direct property).

Based on overall statistics, all SMSFs, on average, invest around 77% of SMSF money in the three main asset classes. On average, around a third of SMSF assets are invested in direct Australian shares, a third is held in cash and term deposits, and between 10 to 15% held in direct property.

What is the Magic Number?

 

 

One of the most important questions that people need to ask themselves when setting performance goals for their super is, ‘how much money will I need to fund my retirement?’

A realistic assessment of the financial requirements of retirement will ensure that appropriate steps can be taken early to make up any potential shortfall and/or recalibrate expectations to make them more realistic. 

It used to be that $1 million sounded like a mountain of money. These days, it may not even be enough to fund a comfortable retirement. Those likely to retire with $1 million, dreaming of strolling along beaches in exotic parts of the world, could be disappointed.

The Australian Securities and Investments Commission’s Money Smart retirement planner shows a home-owning couple with $1 million at age 65 could expect an annual after-tax income of $61,000 a year until they reach age 90. That includes the part age pension. From age 90, the couple would receive the full age pension of $32,000 a year.

The Association of Superannuation Funds of Australia’s Retirement Standard estimates a home-owning couple needs almost $58,000 a year for a ”comfortable” retirement.

At first glance it may seem that a home-owning couple with $1 million will achieve their goals. Upon reading the Retirement Standard’s definition of a ”comfortable” retirement however, the picture becomes more murky. The definition of comfortable is described as being able to afford a reasonable car, good clothes, a range of electronic equipment, and domestic and occasional international holidays.

For many, particularly those on higher incomes, the Retirement Standard’s definition is not all that comfortable.

The Retirement Standard also assumes both partners will not start their retirement until age 65. The definition therefore leaves out people couples wanting to retire before 65, even if it is only one of the couple.

Furthermore, the road to retirement is full of potholes which could include prolonged unemployment, illness and taking time out to raise children; all of which mean less compulsory super going towards the retirement savings pot and therefore the need to make adjustments.

Then there is the very sobering reality that we are all starting to live longer; the Actuaries Institute report last year said advances in medicine could eventually see half of all 65-year-olds live beyond 100.

The bottom line is that even $1 million may barely be enough for many people. Some will come into an inheritance and some may free up some of the capital they have in their homes by downsizing. But closing the retirement savings gap – the difference between the expectations we have for retirement and what we will save – will not be achieved by compulsory super alone.

The factors underline the importance of making salary sacrifice contributions as early as possible. Working for longer or continuing to work part-time will also make a big difference. Each year worked is an extra year of saving for retirement and one year less of retirement to fund.

There are no easy solutions and many unknowns. There are the vagaries of the investment markets and the question of how much of the nest egg should be in shares and how much in income-producing investments, for example. A good financial planner is able to show the range of likely outcomes. That may even mean being brutally honest about the sort of retirement that can be afforded.

SuperStream Guidance – Letter from the ATO

 

 

Late in February, the ATO sent a letter to SMSF trustees with links to employers with 20 or more employees, outlining compliance obligations moving into the new SuperStream world.

In the letter the ATO Deputy Commissioner laid out the new requirements for SMSF trustees who receive employer contributions.

Moving into the new world, instead of contributions going directly into the fund bank account, as is presently the case, an SMSF will now have to obtain an “electronic service address” from a “service provider”. The ATO helpfully goes on to advise that: “A small fee may be required to establish and maintain this service”. 

“From 1 July 2014, employers with 20 or more employees are required to send contributions electronically to all superannuation funds, including SMSFs,” the letter explained. “This will provide a consistent and more efficient process for receiving contributions, improve data quality and simplify employer’s obligations.”

The letter explained that under the new regime, each SMSF member will be required to provide the ABN and bank account details of the fund to their employer by 31 May 2014.

In addition, SMSF members will need to obtain an electronic service address – which the letter explains is “different to an email address” – by which communications regarding contributions can be facilitated.

These message delivery tools can be obtained from various service providers including administrators and e-commerce gateways, potentially at a cost, the letter states. 

This is significant new information that trustees and their advisers need to be aware of, as this is the first time it has been clear that there is an obligation.

Whilst the SuperStream regime may have a number of long-term benefits for trustees, insofar as efficiencies result in downward pressure on administration costs and better quality service, the immediate impact is that it will at least increase the cost – and perhaps the complexity – of running an SMSF.

SMSF Investor Strategic Update 27/03/2014

 

 

The World in Numbers:

The USA

  • Janet Yellen sparked a selloff in bonds recently, by sticking to her guns regarding quantitative easing and predicting that the next interest rate change will be a rise probably in April 2015.
  • Applications for U.S. unemployment benefits rose in the second week of March but remained near the lowest level since the end of the recession almost five years ago, according to the latest government figures. Initial jobless claims climbed by 5,000 to a seasonally adjusted 320,000 in the period of March 9 to March 15, the Labor Department said Thursday. The average of new claims over the past month, usually a more reliable gauge than the weekly number, dipped 3,500 to 327,000, marking the lowest level since the end of November.
  • U.S. manufacturing activity slowed in March after nearing a four-year high last month, but the rate of growth and the pace of hiring remained strong, an industry report showed on Monday.
  • Financial data firm Markit said its “flash” or preliminary U.S. Manufacturing Purchasing Managers Index slipped to 55.5 from 57.1 in February. Readings above 50 indicate expansion. That fell short of economists’ expected reading of 56.5 but was still comfortably ahead of 53.7 in January, suggesting the effects of a harsh winter have started to fade.
  • US consumer confidence has rebounded to the highest reading in six years, providing a further sign that the economy’s prospects should brighten with warmer weather. The Conference Board said Tuesday that its confidence index rose to 82.3 this month from a February reading of 78.3. It was the strongest reading since the index stood at 87.3 in January 2008, just as the Great Recession was beginning. Conference Board economist Lynn Franco said consumers are moderately more upbeat about future job prospects and the overall economy, though less optimistic about income growth.
  • New-home sales fell in February, the latest sign of severe weather and rising mortgage rates slowing the housing recovery. Sales of newly built homes fell 3.3% to a seasonally adjusted annual rate of 440,000 from a month earlier, the Commerce Department said Tuesday. January’s strong gain was revised down, to an annual rate of 455,000. New-home-sales data represent a small portion of homes purchased in the U.S. and can be subject to large revisions. 

SMSF Investor Strategic Update 27/03/2014

China:

  • HSBC Flash Manufacturing PMI misses at 48.1 – another sign the world’s second biggest economy is on the way down. PMI is a survey of factory manager expectations about what they are buying as inputs to production. It’s a leading indicator of economic health – businesses react quickly to market conditions and their purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy.

SMSF Investor Strategic Update 27/03/2014

 

SMSF Investor Strategic Update 27/03/2014
SMSF Review: Portfolio Strategy – March 2014
Investment Horizon (Yrs) 3+ 4+ 5+ 6+ 7+
Strategic Asset Allocation (%) Conservative Moderately Conservative Balanced Growth High Growth
Cash 25% 15% 5% 3% 0%
Fixed Interest 40% 29% 18% 9% 0%
Property and Infrastructure 5% 9% 12% 14% 15%
Australian Equities 15% 22% 28% 34% 40%
Global Equities 10% 14% 17% 24% 30%
Alternatives 5% 13% 20% 18% 15%
Total 100% 100% 100% 100% 100%
Asset Class Tactical Commentary
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.
Further information
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:

Cash:
  • 30 days or less
Fixed Interest:
  • TD’s longer than 30 days
  • Australian Sovereign Bonds
  • Australian Investment Grade Corporate Bonds
  • Global Sovereign Bonds
  • Global Investment- Grade Corporate Bonds
  • Non-Investment Grade Bonds
Property and Infrastructure:
  • A-REITs, Global Property, Global Infrastructure
Alternatives:
  • Real Assets: Commodities, Gold Bullion
  • Private Investments
  • Absolute Return Strategies: Fixed Income Macro, Global Macro, Equity Market Neutral, Alternative Beta

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.

SMSF Investor Strategic Update 20/03/2014

 

 

The World in Numbers:

The US:  Strong Numbers Pack a Punch

  • Retail sales in the U.S. rose for the first time in three months in February, easing concerns over the strength of the economic recovery, official data showed last Thursday. In a report, the U.S. Commerce Department said that retail sales inched up by a seasonally adjusted 0.3% last month, beating expectations for a 0.2% increase. Retail sales for January were revised down to a 0.6% decline from a previously reported fall of 0.4%. Rising retail sales over time correlate with stronger economic growth, while weaker sales signal a declining economy.
  • The number of building permits issues in the U.S. rose more-than-expected to hit a four-month high in February, while building permits eased down modestly, official data showed Tuesday.
  • In a report, the U.S. Commerce Department said that the number of building permits issued last month surged by 7.7% to a seasonally adjusted 1.018 million units from January’s total of 945,000.
  • Analysts expected building permits to rise by 1.6% to 960,000 units in February. The report also showed that U.S. housing starts declined by 0.2% last month to hit a seasonally adjusted 907,000 units from January’s total of 909,000, disappointing expectations for an increase of 3.4% to 910,000 units.

China: 

  • China’s industrial output rose 8.6% in January and February year-on-year, the National Bureau of Statistics (NBS) has announced, the worst result in nearly five years.
  • The figure, which measures production at factories, workshops and mines, was the lowest since 7.3% was recorded in April 2009, according to previous NBS data.
  • China’s latest read on domestic spending  came in worse than expected, offering little comfort to markets already spooked by the prospect of a weakening economy. Combined retail sales for the period, meanwhile, were up 11.8% on year, also missing Reuters expectations for an increase of 13.5%.
  • Iron Ore – The commodity based out over the week, up from $104 to $110.
  • China’s Premier Li Keqiang said last week the country was likely to see a series of defaults on bonds and other financial products as financial deregulation accelerates.
  • Haixin Steel defaulted on loans, sending iron ore prices plunging.
  • Even before Haixin’s troubles became public knowledge, BofA Merrill was calling for China to reach what it called a “Lehman moment” in less than a year.  Its strategists wrote: “We doubt that the financial system in China will experience a liquidity crunch immediately because of this default but we think the chain reaction will probably start.” Lehman Brothers was the start of the sub-prime credit crunch.

Australia: 

  • Australian inflation expectations over the next two years rose slightly to 5.1% per year in January. This is up 0.1% in a month and shows Australian inflation expectations starting 2014 slightly higher than the yearly average for 2013 of 5.0%
  • Australia boosted full-time payrolls in February by the most in more than 22 years, sending the Aussie dollar higher and signaling the central bank’s bid to spur local demand with record-low interest rates is gaining traction.
  • The number of people employed full time rose by 80,500, the biggest increase since August 1991, just after the country’s last recession, and the second largest rise on record. Overall employment climbed 47,300, compared with the median estimate for a 15,000 rise in a Bloomberg survey of economists, as part-time jobs dropped.
  • The jobless rate held at 6%.

 

SMSF Investor Strategic Update 20/03/2014
SMSF Review: Portfolio Strategy – March 2014
Investment Horizon (Yrs) 3+ 4+ 5+ 6+ 7+
Strategic Asset Allocation (%) Conservative Moderately Conservative Balanced Growth High Growth
Cash 25% 15% 5% 3% 0%
Fixed Interest 40% 29% 18% 9% 0%
Property and Infrastructure 5% 9% 12% 14% 15%
Australian Equities 15% 22% 28% 34% 40%
Global Equities 10% 14% 17% 24% 30%
Alternatives 5% 13% 20% 18% 15%
Total 100% 100% 100% 100% 100%
Asset Class Tactical Commentary
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.
Further information
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:

Cash:
  • 30 days or less
Fixed Interest:
  • TD’s longer than 30 days
  • Australian Sovereign Bonds
  • Australian Investment Grade Corporate Bonds
  • Global Sovereign Bonds
  • Global Investment- Grade Corporate Bonds
  • Non-Investment Grade Bonds
Property and Infrastructure:
  • A-REITs, Global Property, Global Infrastructure
Alternatives:
  • Real Assets: Commodities, Gold Bullion
  • Private Investments
  • Absolute Return Strategies: Fixed Income Macro, Global Macro, Equity Market Neutral, Alternative Beta

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.

SMSF Investor Strategic Update 13/03/2014

 

 

Week in Review – China Woes

The big news from the past week was the shock 18% contraction in Chinese exports year-on-year, which caused iron ore and copper prices to fall sharply.

On Monday night iron ore price tumbled 8% but found support around $105 a tonne before bouncing back more than 2% last night.

Iron ore is now technically in a bear market, as it has dropped from $140 a tonne last November to a low of $104.50.  A bear market is defined as a correction of more than 20%.

Below is a chart of Chinese iron ore stockpiles versus the iron ore price.

SMSF Investor Strategic Update 13/03/2014

The message here is that last time stockpiles (in blue) were this high, we saw iron ore fall to $85 a tonne.

It also turns out many steel mills and copper mills have borrowed money against these stockpiles in trade finance deals meaning a rapid de-leveraging could see extreme volatility.

 

The World in Numbers

US:  Recovery Slow but Steady 

  • Service sector activity in the U.S. grew at the slowest pace since August 2010 in February, underlining concerns over the economic outlook. In a report, the Institute of Supply Management said its non-manufacturing purchasing manager’s index fell to 51.6 last month from a reading of 54.0 in January. Analysts had expected the index to ease down to 53.5 in February.
  • The number of Americans filing new claims for unemployment benefits fell more than expected and hit a three-month low last week, a sign of strength in a labor market that has been hobbled by severe weather. Initial claims for state unemployment benefits dropped 26,000 to a seasonally adjusted 323,000, the Labor Department said on Thursday. That was the lowest level since the end of November and the drop more than unwound the prior week’s rise. Claims for the week ended February 22 were revised to show 1,000 more applications received than previously reported.
  • Data showed US employers stepped up hiring in February, easing economic concerns. US payrolls rose by a seasonally adjusted 175,000, the Labor Department said. The data beat forecasts of a 152,000 gain.

China: 

  • China’s exports unexpectedly tumbled in February, swinging the trade balance into deficit and adding to fears of a slowdown in the world’s second-largest economy despite the Lunar New Year holidays being blamed for the slide.   Imports rose 10.1 percent, yielding a trade deficit of $23 billion for the month versus a surplus of $32 billion in January.
  • Within these numbers goods exported are down a whopping 8% when the market expected a 6.7% increase = commodities plunge. China is the biggest taker of iron ore and copper in the world.
  • China’s inflation slowed more than estimated to a 13-month low in February while factory-gate deflation deepened as prices cooled following a week-long holiday. The consumer price index rose 2% from a year earlier, the National Bureau of Statistics said today in Beijing, compared with the 2.1% median estimate in a Bloomberg News survey of analysts. The producer-price index fell 2%, more than estimated, extending to 24 months the longest decline since 1999.

Australia: Stronger Numbers Despite Weakening Sentiment 

  • Retail sales rose strongly in January from December in the latest sign record-low interest-rates are boosting consumer sentiment and spending.
  • Retail sales climbed 1.2% from December, the ABS said, compared with the 0.4% rise expected by economists.
  • December sales growth was upwardly revised to 0.7% from 0.5%.
  • Australia’s trade balance improved sharply in January in line with strong export growth.

 

SMSF Investor Strategic Update 13/03/2014
SMSF Review: Portfolio Strategy – March 2014
Investment Horizon (Yrs) 3+ 4+ 5+ 6+ 7+
Strategic Asset Allocation (%) Conservative Moderately Conservative Balanced Growth High Growth
Cash 25% 15% 5% 3% 0%
Fixed Interest 40% 29% 18% 9% 0%
Property and Infrastructure 5% 9% 12% 14% 15%
Australian Equities 15% 22% 28% 34% 40%
Global Equities 10% 14% 17% 24% 30%
Alternatives 5% 13% 20% 18% 15%
Total 100% 100% 100% 100% 100%
Asset Class Tactical Commentary
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.
Further information
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:

Cash:
  • 30 days or less
Fixed Interest:
  • TD’s longer than 30 days
  • Australian Sovereign Bonds
  • Australian Investment Grade Corporate Bonds
  • Global Sovereign Bonds
  • Global Investment- Grade Corporate Bonds
  • Non-Investment Grade Bonds
Property and Infrastructure:
  • A-REITs, Global Property, Global Infrastructure
Alternatives:
  • Real Assets: Commodities, Gold Bullion
  • Private Investments
  • Absolute Return Strategies: Fixed Income Macro, Global Macro, Equity Market Neutral, Alternative Beta

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.

SMSF Investor Strategic Update 06/03/2014

 

 

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 US:

-       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

SMSF Investor Strategic Update 06/03/2014

 

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 Investor Strategic Update 06/03/2014
SMSF Review: Portfolio Strategy – March 2014
Investment Horizon (Yrs) 3+ 4+ 5+ 6+ 7+
Strategic Asset Allocation (%) Conservative Moderately Conservative Balanced Growth High Growth
Cash 25% 15% 5% 3% 0%
Fixed Interest 40% 29% 18% 9% 0%
Property and Infrastructure 5% 9% 12% 14% 15%
Australian Equities 15% 22% 28% 34% 40%
Global Equities 10% 14% 17% 24% 30%
Alternatives 5% 13% 20% 18% 15%
Total 100% 100% 100% 100% 100%
Asset Class Tactical Commentary
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.
Further information
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:

Cash:
  • 30 days or less
Fixed Interest:
  • TD’s longer than 30 days
  • Australian Sovereign Bonds
  • Australian Investment Grade Corporate Bonds
  • Global Sovereign Bonds
  • Global Investment- Grade Corporate Bonds
  • Non-Investment Grade Bonds
Property and Infrastructure:
  • A-REITs, Global Property, Global Infrastructure
Alternatives:
  • Real Assets: Commodities, Gold Bullion
  • Private Investments
  • Absolute Return Strategies: Fixed Income Macro, Global Macro, Equity Market Neutral, Alternative Beta

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.

A MATTER OF TIMING – Protecting Against Poor Returns When You Can Least Afford Them

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.

5. Diversification

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