In This Issue
Dear Friends
There is strength in diversity
It will be no surprise to anyone that I detest gambling; if you want to do so (and I have plenty of friends who enjoy a flutter) that’s fine – but as a financial strategist, accountant and economist, I find the idea of losing hard-earned money illogical.
As far as is possible I like to back ‘certain’ winners. It is why our investment committee recommends fully diversified Index investment portfolios.
It is not uncommon to read media reports of PhD qualified ‘stock pickers’ on behalf of active fund managers, spruiking their ‘scientific’ approach to selecting the best performing stocks as a guaranteed path to wealth… and for this expertise the justification of their very high investment management fees. It is also not uncommon for the stock pickers outperform in one year, trumpet that success for the next three… followed by silence for the next seven.
As with all investments, there is a correlation between risk and reward. If your 20 - 1 horse wins the Melbourne Cup you do very well, but it is far more likely that one paying $1.25 will cross the line first. I prefer to recommend investing in long term winners for my clients.
I like to use the analogy of the stock market being a bit like ‘sphygmomanometer’ (the technical term for a blood pressure monitor). Measurements rise and fall, but in the case of the stock market, it is the long-term average measurement which matters.
And as many of you will have heard me say, “if I knew how to beat the market, even though I like you, I wouldn’t tell you how to do it. I certainly wouldn’t charge you fees to show you how to do it. I would keep that my secret and corner the market for my benefit!”
In the real world, the overall share investment returns for real investors will be greatest by investing in an appropriate Australian share index fund (which as the name suggests) holding the index comprising top blue chip Australian shares – most of whose names we all know or whose goods or services we all use. Added to this, you should have an international share index fund holding the index of top blue chip International shares (this will cut out most of the ‘donkey’ stocks but include many of the multinational companies, whose names we also all know).
The results are evident in the SPIVA Report Card (S&P Index Versus Active) which continues to demonstrate that the long term returns from index funds far outweigh the ‘expert’ selected (or ‘active’) portfolios.
As many of you will know, portfolios which were more defensively invested underperformed in 2022 due to negative returns on bonds as interest rates rose quickly and suddenly. Long-term investors should not be concerned, as this is precisely why we recommend diversifying your portfolio. You will often find that last year’s hero asset class is this year’s dog, so the smart thing to do (as always) is to stick to your medium to long term strategy.
One of my clients, now in his 70s, is delighted that his, and his wife’s investment balances are close to where they were when we first began our advice relationship. This is despite drawing combined tax-free Account Based Pension (ABP) income of about $150,000 pa, over and above his small retained UniSuper Defined benefit pension.
As they get older, I expect their need for cash will reduce, as they are unlikely to remain as active as they are now – and at that stage we will start building up their savings outside of super. Many people are not aware that the government mandates that you take an increasing amount of cash out of your ABP each year as your age increases. By the time you reach your 90s the minimum income drawdown equates to 16% of your account balance.
Income strategies outside of super
An alternant strategy from age 75 will (or can) be to take your excess ABP cash and invest outside of the super environment. ABP income is tax exempt after age 60, and as senior Australians can earn significant non ABP taxable Income before having to lodge tax returns or pay tax (approximately $32,279 pa for singles and $28,974 pa each for couples) and pay little or no tax on these non-super/ABP investments, funds can be invested more actively (but still diversified) given the ABP and retirement income is carefully and fully diversified.
In other words, with your retirement income appropriately invested you can speculate/gamble a bit with the excess. Personally, I would never advise it (I would invest the excess funds the same way as our Super and pension funds) but for those who like a bit of a flutter …
The message here is the long recommended one – “get rich slowly and stay rich” – by sticking to your long-term strategy.
And one more thing: Avoid paying the ‘laziness’ rate
Home loan interest rates are now a topic of regular reporting. If you still have a mortgage, now is the time to renegotiate it with another lender – and avoid paying the ‘laziness’ rate applied to loyal customers. It may be that you need to extend the period of the loan, or to find more income for the family, either by a second partner working more or taking on another job. These are tough times. Speak with us if your family is feeling the pinch; we are here to help.
Media
Please click here to see my latest contribution to the national retirement savings debate.
As always, if I or any of the staff can be of assistance, please don’t hesitate to contact us on (08) 8130 5130 or via admin@marinisgroup.com.au
Yours sincerely
Theo Marinis B.A., B.Ec., CPA., FPA®
Financial Strategist
Authorised Representative