Investing – Educational
A sensible approach to SMSF stock market investing
Guest Post
by Chris Batchelor, CFA (Certified Financial Analyst)
Successful investing on the stock market for SMSF trustees needn’t be confusing, overwhelming and time-consuming, or require a finance degree.
A typical business starts with a savvy idea, at least one shareholder, cash and a sustainable business model. Staff may be employed and dividends may be paid.
So why do we approach investing in companies listed on the stock exchange differently from acquiring a 50% stake in the local newsagent?
Both represent part-ownership of a business.
Its all about risk – Part 3
Guest Post
Dr Stephen Nash
FIIG Securities
As each week passes, we see more and more support for the groundswell that is leading Australian investors back to a more conservative asset allocation. Dr. Ken Henry kicked off proceedings, while David Murray followed, and now Lindsay Tanner has confirmed the validity of concerns about questioning the motives of funds that chased return, without adequate concern for risk. As Tanner indicates,
The thing I found troubling were responses to the very legitimate questions being raised by, in many respects, the ultimate heavyweight crew of Ken Henry, David Murray, Jeremy Cooper and Mark Johnson. All essentially saying that our super fund system is overexposed to equities … One thing I did learn during my time in government was when people of this calibre and background assert something serious like that you pay a lot of attention. Comments from people of this stature need to be viewed as a serious thing and should be listened to not just by super funds but by governments and by society more broadly … On any measure, your typical Australian superannuation fund is massively overweight equities*.
Its all about risk – Part 2
Guest Post
by Dr Stephen Nash
FIIG Securities
Introduction
In Part one of this series, we commented on the way Dr. Ken Henry has supported some of our common sense arguments and this week we look at how investors are compensated for the risk they take, in terms of return. David Murray, the departing chairman of the Future Fund, agrees with Henry and with the FIIG position, as the following excerpt indicates,
Mr Murray said the heavy weighting to equities by superannuation funds was exposing the nation to dangerous financial instability and the public to excessive risk, and that funds should be giving far greater allocations to fixed income-related investments — a message that has been oft repeated in recent years but gained new prominence in the past week after former Treasury secretary Ken Henry stressed the need for increased investment diversity in the country’s superannuation sector.
Use only “investment grade” Bonds in a SMSF
Guest Post
by Gavin Madson
FIIG Securities
Standard & Poors last week released their 2011 Annual Global Corporate Default Study and Ratings Transitions report. This report reviews all rating activity undertaken by the agency across the globe including monitoring defaults as well as rating movements (upgrades and downgrades). In 2011 there were a total of 53 defaults in the S&P universe, only one of which was rated ‘investment grade’. How big is S&Ps global universe? For 2011 this covered a total of 5,847 ratings globally (3,331 investment grade ratings and 2,516 sub-investment grade ratings).
Do the reputation of CFDs in a SMSF get a raw deal ?
Editor’s Post:
The SMSF world is a place where things can often get misrepresented. Especially by writers who need to write a column, but may not be particularly experienced in the topic they are writing about, and fall into the trap of just feeding common misconceptions.
One example of this is CFDs, and particularly the use of them in a SMSF.
Its all about risk – comparing two portfolios
Guest Post – by Dr Stephen J Nash
Director – Strategy & Market Development
FIIG Securities.
Introduction
We have commented previously on the way Dr. Ken Henry has supported some of our common sense arguments, and the press reaction has been predictable; equity market proponents have steered the discussion back to return and away from volatility and capital stability as evidenced in the article, “The pros and cons of being overweight equities: Franking credits and high yields create a powerful incentive to be long equities” in The Weekend Australian last Saturday. Initially, this article will review the press response to Dr. Henry’s comments, and then compare two portfolios:
- A “default” portfolio, with 70% equities, 20% bonds, and 5% cash
- Then a portfolio weighted towards bonds, with 70% bonds, 20% equities, and 5% cash
While the returns of each portfolio are comparable, the risk is not. In other words, investment is not just about the overall return, but it is also about the potential volatility and the risk of loss in any one year. A greater allocation to bonds smooths the ride, allowing investors to achieve their investment goals in a more effective way, where investors receive adequate return for the risk that they are taking.
Click Here To Read More
What are the underlying risks of bank hybrids and what are the alternatives
Guest Post : by Elizabeth Moran
Director of Education and Fixed Income Research, FIIG Securities.
ASX listed bank hybrids often look attractive, and some investment groups have “buy” recommendations on all of them but, if you look beneath the surface of a major bank paying an attractive return, you’ll find some big differences in the level of risk you’re being asked to assume. In many cases, you can beat the bank hybrids in terms of risk or return if you consider investing in over-the-counter (OTC) markets.
How to gain exposure to physical gold through your SMSF
Guest Post
By Adam Offermann
ABX
Have you ever been asked “How do I gain exposure to physical gold through my SMSF?”
Even if you knew the answer, you would probably want to save your breath with the long winded explanation and simply say… no! The processes and costs involved have been daunting and for many are more trouble than it’s worth. Recently however, the Australian Bullion Exchange Limited (ABX) launched, providing Australian investors access to a simple, secure and highly accessible marketplace for physical investment grade bullion.
Property & SMSFs – Growing industry but beware the spruikers
by Adrian Harrington
Investors are using self managed super funds (SMSFs) to drive a new wave of residential property investment.
SMSF’s investing in property has grown rapidly since 2007 when laws were first introduced allowing gearing to be used in superannuation to buy property and shares. According to the ATO, at June 2010, the exposure of SMSF’s to property has almost doubled in just over two years to $58.4 billion. The Investment Trends 2010 SMSF Borrowing Report survey of SMSF’s identified a 115% increase to 29,000 in the number of SMSF’s using a gearing strategy.[1]
Unlisted real estate funds – back to basics for SMSF investors
by Adrian Harrington
The GFC has reminded all real estate fund managers that you are investing other peoples money, and you should always put their interests first. From an SMSF investors viewpoint, the GFC reminded them how important it is to select the right manager, and fund.
A number of DIY Superannuation investors in both unlisted and listed real estate funds got burned in the past few years. As a result, a new level of scrutiny will be applied to real estate fund managers by investors and their advisers.
Investors generally understand that markets have cycles, and investment values may go up and down. Over the years, we have found most investors are quite pragmatic so long as the manager is upfront about the facts, can clearly articulate the reasons why and demonstrate how they plan to rectify under-performance.
