In This Issue
Practising what you preach
When I was in my 40s, decades away from reaching my superannuation preservation age, my strategy was to hold an investment portfolio with an 80-95% exposure to growth assets – even throughout the GFC! This strategy is generally referred to as a ‘High Growth’ portfolio.
Consistent with having turned 60 late last year, my super portfolio now reflects a more ‘defensive’ approach. The adjustment was progressive; from a growth assets exposure of 80% in my early 50s, I now have a super portfolio which has a growth assets exposure of 50% – or what we call a ‘moderate’ investment strategy.
The reason for reducing investment risk at this life stage is to provide flexibility and a level of security. In my case, having now attained an age where my long-term savings have been ‘unlocked’, there is the potential to tax effectively use some of my superannuation savings for lifestyle improvements – for example, home renovations. Given the recent jump in interest rates, this strategy provides a preferable alternative to borrowing to fund this expense, but it is also important not to lose sight of the longer term.
Mitigating Death Benefit Taxes
Re-contributing funds as non-concessional contributions to super up until age 75 will not only allow the potential to replace what I plan to use now, but over time, I will improve my super for my beneficiaries by reducing the taxable component (and increasing the tax-free component) – exactly as we have been recommending to you, our clients, for many years! More information on the benefits of using a super re-contribution strategy can be found in one of my earliest media releases: No 13, 3 April 2008 – Death Taxes are Alive and Well.
The perils of forecasting in investing
As eGrow readers would be aware, I always recommend that clients avoid attempting to ‘time the market’ as it is impossible to forecast the upswings. This view is articulated by leading economist Dr Shane Oliver, who has kindly given his permission to attach a link to his recent article ‘The perils of forecasting in investing - three things for investors to consider’.
The following points are summarised in this brief extract from Shane’s comprehensive piece:
- First, minimise the reliance on expert forecasts when undertaking investment decisions. This is particularly important in being able to turn down the noise and focus on a long-term investment strategy to meet your investment goals.
- Second, invest for the long term. Get a long-term plan that suits your level of wealth, age, tolerance of volatility, etc, and stick to it.
- Finally, if you are going to actively manage your investments, make sure you have a disciplined process. The key to having a disciplined process is to stick to it and let the “weight of indicators” filter the information that swirls around investment markets, so you are not distracted by the day-to-day soap opera engulfing them. Forecasting should not be central to your process.
Long Term Investment success
Regular readers of eGrow will recall that I repeatedly refer to ‘Spooky October’ because traditionally, October is the month in which stock markets correct (or fall) in ‘stockbroker speak’.
In October 2022, however, investment markets rebounded. It was the opposite of the usual and surprised me (not that I had recommended any changes to my own or my clients’ portfolios on the back of my gloomy forecast).
To quote directly from Shane Oliver’s conclusions on long term investing: “Getting markets right is hard enough and even then, there are plenty of investors who have been “right” on some market call but lost a bundle by executing too early or hanging on to it for too long”.
Long-term investing success comes from the amount of time in the market, with the appropriate allocation of assets (depending on your stage of life), keeping investment costs low, and the use of quality administrative processes.
Looking forward, the one economic prediction I am comfortable to make, is that inflation is here to stay for the foreseeable future. Conditions are reminiscent of those in the 1970s, and we will probably see ‘shock, horror’ headlines in the tabloid press drawing the same comparison in the near future. All I can say is that the world did not end… yes, it was bumpy but we got through.
Review your mortgage, offset account, cash holdings and term deposits
There are currently some attractive interest rates available in cash management trusts and similar facilities, but if you have a mortgage, put any ‘extra' into an offset account. Don’t be seduced by a headline 4% p.a. (taxable) rate for cash and term deposits (and this is way better than it has been for years) and then forget that you are paying 6% p.a. for your mortgage, which is a tax-free return (saving)!
And one more thing
During the break afforded by the festive season I took the time to review our insurances. This action was prompted by my Board of Advice running through some crisis planning scenarios late last year, and as a result I am satisfied that what we currently have in place is appropriate. Similarly, I considered the financial situations of my children, to ensure that every opportunity was being taken to help them grow and protect their assets. This process of active review, with the ability to make changes if necessary, is important in successful long term planning – especially if you intend to practice what you preach!
If you would like to see my recent media contributions to the national superannuation and retirement savings discussion, please click here.
As always, if I or any of the team can be of assistance, please don’t hesitate to contact us either via email@example.com or (08) 8130 5130.
Theo Marinis B.A., B.Ec., CPA., FPA®