It has now been over three years since the Australian sharemarket peaked in November 2007.
So, what's in store for 2011?
To put this year in perspective, let's look at how the last three years shaped up.
2008
The year of Crisis, with markets in turmoil as the sub-prime crisis turned into the GFC.
2009
The year of the Bounce, with the Australian sharemarket up nearly 40% as governments around the world opened up their stimulus cheque books.
2010
The year of Doubt, with major concerns about a double-dip recession in the US and sovereign debt issues in Europe causing investors to question a global recovery.
2011
I believe this year could eventually be known as the year of Belief, as investors’ confidence in the future of the global economy rebounds. That said, it will unlikely be a smooth ride.
Source: Bloomberg, ASX are prices indices, Perennial Investment Partners Limited, end point 28 January 2011
This is typical of a major financial crisis, where growth assets have a substantial pause before the next leg of the recovery. More importantly, what does this mean for the major asset classes in 2011? To get you thinking about possible strategies, a quick summary is set out below.
Growth Assets
Australian Shares: The Australian dollar (AUD) has caused many overseas investors to be wary of the Australian market. However, with shares trading at 12.8x forward PE and trailing the US in terms of returns, I see some great upside from this point.
Australian Property: After being the asset class that in many ways suffered the most during the GFC, Australian property has now recapitalised and is trading at 12.6x forward earning with good (plus 6%) dividend yields. Importantly, the underlying real estate fundamentals now look healthy with good pricing anomalies to exploit over the coming year.
International Shares: Confidence will return as the year plays out, with countless opportunities for stockpickers in a two speed (developed vs emerging) world. Currency will most likely not be a headwind this year, strengthening the case for unhedged international allocations.
International Property: Low interest rates globally have fuelled asset prices and the sector has already re-rated. I see this market as being a bit overvalued at current levels.
Defensive Assets
Australian Cash: The RBA said it will look through near term growth and inflation volatility from the floods. A period of steady cash rates is in store but, as the economy recovers over the second half of the year, the RBA is expected to nudge the cash rate higher. By end 2011, expect a cash rate of 5% to 5.25% and 5.25% to 5.5% by the end of 2012.
Australian Fixed Interest: Australian bond yields have risen back to longer run levels (running yield around 5.5%), with most of the capital loss from rising yields behind us. Overall, expect returns at least around cash levels, with scope for some upside during periods of heightened risk aversion.
International Fixed Interest: This sector is outright expensive and has yet to experience the capital loss associated with yields rising back to longer run levels. Advanced economy yields are vulnerable to better economic data and adverse sovereign debt and fiscal developments.
Currency
Australian Dollar: If we see a run of volatile flood affected data, there is scope for a reduction in tightening expectations, which could see the AUD fall. However, once the economy recovers from this shock, expectations will likely shift back to further tightenings and this should be supportive of the AUD. Looking further ahead, once the ECB and Federal Reserve begin tightening, short term interest rate differentials should begin to narrow, which could see a period of sustained decline for the Aussie Battler.
· ipac portfolios positioned to perform particularly well over the medium term driven by strong corporate profitability
· clients are invested in high quality global companies benefiting from exposure to fast growing emerging economies
· it may not be all smooth sailing as old problems, like the debt crisis in Europe or overheating in Asian economies, may re-emerge and create short term volatility
· a well diversified portfolio anchored on high quality global companies is the best way to navigate the complex investment landscape
Judging by the number of newspaper headlines painting a picture of doom and gloom, many investors might feel that 2010 was a disappointing year for their investment portfolios. In fact, headlines notwithstanding, diversified investment portfolios recorded positive returns for the year, although the outcome was still somewhat shy of our long term average expectations.
Market sentiment shifted direction on several occasions through the year, as ongoing evidence of positive surprises in global corporate profitability was displaced by higher profile episodes of unfavourable macro-economic news, particularly in Europe. The arm wrestle between these countervailing forces ended the year pretty much in deadlock.
This year’s headlines are again likely to focus on macro-economic risk as countries and regions continue to work through the imbalances exposed by the financial crisis. The resolution of the sovereign debt crisis in Europe, the medium term outlook for growth in the US, and rising inflation risk in emerging economies are all important unresolved issues which deserve investor attention, especially for their impact on government bond prices and exchange rates. However, it is important to remember that over the medium term it is corporate profits that more profoundly influence our portfolio returns. And here the news remains positive.
There has been a sharp rebound over the past year in the profitability of companies in which we invest. Corporate earnings for the third quarter of 2010 were more than 20 per cent higher than a year earlier, and are approaching a new all-time high. Business profitability, especially in the US, remains exceptionally strong.
While some of this profit can be attributed to cost-cutting measures applied by companies over the past few years, an increasingly important contribution has come from overseas sources, particularly from emerging economies. The shift in contributors to global activity has altered the source of revenue for many companies, and with emerging economies expected to soon represent more than a third of global activity, this will become increasingly important for understanding corporate prospects. Indeed, investment in a diversified portfolio of high quality global companies may well be seen as a ‘safe’ investment in a world of sovereign uncertainty.
Australia remains well positioned in the face of these developments. We have a strong fiscal position, well developed trade linkages with the fast growing economies of Asia, and investment spending is expected to drive economic activity for a number of years. That said, with monetary conditions likely to remain tighter than normal, and the exchange rate higher than average for a considerable period, this environment will be quite testing for a number of segments of the economy (eg, non-resource exporters). The challenge for companies operating in these sectors is to find a way to respond by identifying new markets, boost productivity and thereby re-establish their profitability.
In the year ahead it will continue to be important to distinguish between shifts in investor sentiment which influence the short term pricing of financial assets and the trends in corporate earnings which determine share prices in the medium term. With the global financial crisis still vivid in the memory of investors, these shifts in sentiment are likely to produce some sharp bouts of downward volatility followed by more extended upward trends. However, as time progresses, the influence of the current macro-economic concerns on the share market is likely to wane and the strength of corporate performance will win out.
Jeff Rogers, Ipac Chief Investment Officer
What are the overall growth prospects for 2011?
Overall growth forecasts for the global economy in 2011 suggest a continuation of anaemic growth in developed economies and more rapid growth in emerging economies. That said, with the recent monetary and fiscal policy stimulus announced in the US there is scope for some upward revision for developed economy growth, at least in the near term. In contrast to the US, many governments in Europe have started to tighten spending. It will be interesting to track the relative performance of the US and European economies in 2011 as they adopt divergent strategies to deal with the debt overhang in the aftermath of the global financial crisis.
Global growth forecasts by the International Monetary Fund for the next five years average 4.5 per cent (see chart below). This forecast is for higher growth than the average experienced during the 1990s and 2000s which was 3.0 per cent and 3.6 per cent respectively. The increasing contribution to global activity from emerging economies is largely responsible for this, and it is expected that emerging economies will represent more than 50 per cent of global activity within the next few years.
With economic activity so dependent on emerging economies, particularly those in Asia, investors are focused on what might go wrong and upset the anticipated growth trajectory.
One fear is the potential inflation risk in asset markets resulting from the stimulus packages introduced in response to the financial crisis. Rising food prices globally may also impact on inflation. Investors are paying close attention to attempts to slow down capital flows and cool speculative activity, especially in China. We believe that markets will respond favourably to evidence that authorities can successfully engineer a controlled slowdown.
Our managers have positioned portfolios to take advantage of increased growth in emerging economies. This growth is accessed in two different ways – directly through exposure to companies located in emerging markets, and indirectly through exposure to companies headquartered in developed economies whose business strategies are increasingly focused on emerging markets.
What does this mean for the Australian economy?
Australia’s close trade ties to Asia mean that it is well positioned to benefit from the region’s growth. The strength of commodity prices is direct evidence of our favourable position while the level of our interest rates and the appreciation of the exchange rate provide indirect evidence of economic strength.
The conditions leading to high commodity prices, the Australian Dollar are likely to remain in place for some time.
This sets up the potential for a three-speed economy with industries linked to the resources sector performing very strongly, the domestic services sector generally benefitting from the increase in national income, while those sectors that export manufactured goods and services or compete with imported goods face significant pressure. What does this mean for markets?
While there are strong growth prospects and genuine opportunities to capture returns, growth stands side by side with the negative tide of deleveraging in developed economies.
Continued news of deleveraging may, at times, dominate headlines, overshadowing growth story. Therefore, thriving in this environment is going to require perspective.
Equities
The outlook for equities remains constructive. Many of the companies in which we invest have strengthened their balance sheets, repaired their profitability and are continuing to access growth opportunities in emerging economies.
Given their strong cash flow, they are in a good position to reward shareholders with increased dividends as well as by making new strategic investment decisions.
Given investor concern about macro conditions it is still possible to buy these companies at attractive valuations as shown in the chart below.
Investment in high quality global companies makes an excellent bedrock for a long term portfolio given their ability to move their sources of production to control costs and target sales to high growth economies.
These companies include global businesses such as Nestle, Apple, Google, Nokia and Samsung as well as leading Australian companies like BHP, Brambles, and Rio Tinto.
Listed property
Over the past year, there has been a rebound in price levels, particularly in the global listed property sector.
This is in part due to a stabilisation in economic conditions and an improvement in the capacity to finance the purchase of high quality property assets.
We are taking advantage of the rebound in prices in this asset class by reducing exposure and allocating funds to alternative growth strategies that offer significantly higher prospective returns. In contrast, Australian listed property has been somewhat of a laggard so there is scope for improved returns for this asset class in the period ahead.
Debt markets
In the second half of 2010 government bond rates fell to very low levels, especially in the US, and ipac took the opportunity to reduce exposure to interest rate risk in the portfolios. However at the end of 2010 these rates began moving upwards in response to improved US growth prospects.
In the shorter term, we don’t think that inflation will be a major concern in the US and Europe. If the rising trend in rates were to continue, we would look to re-establish a larger interest rate exposure to take advantage of the higher returns those yields would imply.
In Australia, a combination of a higher exchange rate and potentially higher cash rates should ensure that inflation is contained near the top end of the 2-3 per cent inflation band set by the Reserve Bank of Australia. This would tend to limit any material sell-off of bond yields domestically.
How are portfolios expected to perform over the coming year?
When we consider which investments are best suited for the portfolios, we make medium term forecasts that are driven by the fundamental prospects for cash flows and the price we have to pay today to access those cash flows. Based on our assessment, the forecast returns from our portfolios are quite attractive. We often ask ourselves whether other market participants disagree with our assessment, and as far as we can determine, there is no major disagreement with our baseline assumptions. While memories of the financial crisis remain vivid in the minds of investors, many investors are waiting for more certainty before they commit. By the time the required evidence arrives, prices will be higher and prospective returns somewhat reduced.
At ipac, we have made a number of changes to portfolios over the past year to ensure that they remain on track to meet client investment objectives. We have increased manager diversification in global emerging markets and alternative growth sector portfolios. We have also restructured the fixed interest segment of the active diversified portfolios into two new sectors (multi strategy fixed interest and government bonds) to more effectively manage interest rate exposure in the portfolios.
While we expect that over the short term markets will continue to be dominated by news from macro events, we do believe that favourable fundamentals will eventually end up reflected in market prices. As a consequence, client portfolios are expected to perform particularly well over the next few years, delivering returns in excess of long term expectations.
This publication has been prepared for distribution to professional financial advisers only and is intended to provide general information. ipac asset management limited ABN 22 003 257 225 (ipac) AFS Licence No. 234655 does not authorise the distribution of this publication to or use by existing or potential investors. Existing or potential investors should base their investment decision on the detailed information contained in the current Product Disclosure Statement (PDS) and should consult their financial adviser. While ipac has released this information for guidance purposes only and believes the information contained herein is correct, no warranty of accuracy, reliability or completeness is given and, except for liability under statute which cannot be excluded, no liability for errors or omissions is accepted.
ipac asset management limited Level 31 Grosvenor Place 225 George Street Sydney NSW 2000 Australia; Sydney Office Locked Bag 15 Grosvenor Place NSW 1220. DX 10328 Sydney Stock Exchange. Telephone 02 9373 7000. Facsimile 02 9373 7111. Adviser Services 1800 812 950. Investor Services 1800 624 542.
The Government has announced it is spending $42 billion stimulating economic activity through cash payments, tax breaks and infrastructure projects, which it says will keep Australia from sliding into recession.
It sounds like a dream come true. Some are refering to it as the 'recession lottery', where almost everybody wins. But is it too good to be true?
If you find the idea of it a little confusing, you're definitely not alone. Find out exactly how Mr Rudd's 'rescue' package will impact you.
Families
$12.7 billion for immediate one-off payments to working Australians, families with school-age children, farmers, single income families and for those undergoing training.
$900 - If you earn up to $80,000
$600 - If you earn between $80,000-90,000
$250 - If you earn between $90,000-100,000
$900 - If you earn up to $150,000 (single-income, two-parent family)
$950 - Low and middle-income families with a school aged child (payout per child)
$950 - Students and apprentices
$950 - Farmers affected by drought
Homes - $10.5 billion
Provide free insulation to 2.7 million homes
Solar hot water rebates
Increase the national stock of public and community housing
20,000 new homes
Schools - $14.7 billion
Invested in school infrastructure and maintenance
$200,000 - Paid to each school to cover repairs
Bringing forward funding for trade training centres
Small Business - $2.7 billion
Small and general business tax breaks
These will provide deductions for equipment purchases before the end of June 2009
Roads - $890 million
Fix regional roads and blackspots
Install railway boom gates
Regional and local government infrastructure
When can you claim your family bonus?
Payouts will be delivered in March and April 2009.
Tax Relief for Small Business
The Rudd Government will take further action to help Australian small businesses to weather the global financial crisis by cutting the quarterly pay-as-you-go (PAYG) instalment payable on 21 January 2009 or 28 February 2009 by 20 per cent.
Small business is the backbone of our economy, and today’s announcement by the Rudd Government will offer some much-needed relief to around 1.3 million small businesses – many of them doing it tough due to the global financial crisis.
This 20 per cent cut in the February instalment will more accurately reflect small businesses’ average actual profit growth in the current economic environment. It will provide immediate and much-needed cash flow relief to small businesses and encourage small business confidence.
While there is a tolerance in the existing provisions that allows taxpayers to vary instalments down of their own accord, many small businesses are reluctant to do so, especially those with unpredictable income streams. This action by the Government will reduce uncertainty for those small business taxpayers and relieve them of the cost of doing their own calculations.
This 20 per cent reduction will be available to small business entities – generally those with aggregated turnover of $2 million per annum or less.
Details of the PAYG instalment reduction are below.
The cost of the initiative is estimated to be $440 million for 2008-09. This consists of bringing forward the expected lower revenue collection from small businesses in 2009-10 caused by the current economic conditions. However there will be no net cost to the Commonwealth over the full forward estimates period.
Today’s announcement – along with our $10.4 billion Economic Security Strategy to strengthen the economy, boost confidence and support jobs – shows the Rudd Government is determined to act decisively to bolster small business in the face of the global financial crisis.
Who will receive the reduction?
The 20 per cent PAYG instalment reduction applies to ‘small business entities’ as defined in the tax law. In general a ‘small business entity’:
carries on a business; and
satisfies the $2 million aggregated turnover test.
How will it apply?
The 20 per cent reduction applies to the instalment amount shown on the Business Activity Statement (BAS) dispatched by the Australian Taxation Office (ATO) in December 2008 for the quarter ending on 31 December 2008. This instalment amount is due on or before 28 February 2009 (which will be extended to 2 March 2009 as 28 February 2009 falls on a weekend) for most small business taxpayers. For some small business taxpayers (for example, small businesses which elect to report and pay the goods and services tax on a monthly basis), this due date is 21 January 2009. As such, for the quarter ending 31 December 2008, small business entities are only required to pay 80 per cent of the instalment amount shown on the BAS on 21 January 2009 or 2 March 2009.
Small businesses can further vary their instalments based on the reduced amount in accordance with the existing law.
This reduction does not apply to taxpayers who calculate their instalments based on the instalment rate notified by the ATO. Their payments will automatically adjust when they apply the given rate to their actual income for the quarter.
Buy American. I Am.
By
WARREN E. BUFFETT
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
The last week was memorable for many reasons, not least the fact that it was the worst week in history for the US markets. The S & P 500 and Dow both lost 18% during this fateful week with the Dow plummeting through three psychological barriers in that time, the 10,000, the 9000 and then 8,000 barrier, a level not seen since the 90s. It was only the end of last month that the Dow was above 11,000 (Sept 29 to be exact) with the Dow having fallen more than 36% during 2008.
One trader put it very succinctly when he said at the end of the worst day on the stock market for twenty years "This is worse than a divorce. I've lost half my net worth and I still have a wife".
To put this into context, it was a week that saw almost US$5 trillion (yes 5 thousand billion) wiped of the values of the worlds stock markets.
The meltdown has been called the Crash of 2008 with some comparing it with 1987. The fall this week was less than that 21 years ago, but some traders were saying it was worse, "At least then it was a short, sharp, shock on one day. This has been relentless all week!"
The UK Government unveiled ?500 billion rescue plan to help their banks and over the week-end partially nationalized three of them and in the process has allowed the merger of two of the big four (imaging the National and Westpac having to merge as an example) and the US is looking to revise its rescue plan along the lines of the UK model. The G7 and EU have suddenly shown solidarity and pledge to coordinate efforts.
The crisis has spread way beyond its origins in the US financial system. with concerns for example about General Motors, whose shares tumbled 31% to their lowest since 1950 on worries that it might go bankrupt (yes GM!).
Such events prompted the following headline, "Financial crisis: Countries at risk of bankruptcy from Pakistan to Baltics" with the copy explaining that a string of countries face the risk of "going bust" as financial panic swept Asia, Eastern Europe, and Latin America. The only times in the last century that we've seen year on year declines like these was in the 1930s and the 1970s.
So how long did it take for the markets to reach their bottoms then?
Before the Great Depression, the market peaked in September 1929. In inflation-adjusted prices, it took three years, until June 1932, for the market to stop dropping and start rising again.
Before the bear market of the 1970s, the S.&P. 500 peaked in December 1968. In inflation-adjusted prices, it took six years, until December 1974, for the market to bottom out.
After the tech bubble's burst, the S.&P. 500 saw a peak in October 2007, 1 year ago believe it or not.
The New York Times considered how long it would take the market to recover to its pre crash peak. After the Great Depression, it took 29 years, until 1958, for the market to reach its pre-Depression, inflation-adjusted peak. After the 1970s recession, it took 24 years, until 1992, for the market to make a full "recovery" by the same measure. That suggests we may have some time to go to reach the inflation adjusted peak once again.
Having said that, many will simply look at the nominal number for their definition of recovery, which means the Dow has to get above 14,279 again (reached in October 2007).
But, as I mentioned last week, there are no clear signs or announcements saying "here is the bottom, buy now". Anyone who read my series on Dollar Cost Averaging in the ATC Monthly Digest will know that falling markets are ideal for this type of strategy. When markets turn around, that constant investment pays of in a big way.
A number of seasoned investors are suggesting that perhaps we have reached that point, arguing that the sell-off has gone much too far and stocks are poised to rally. Indeed, by many measures stocks are as cheap as they have been in the last 25 years.
Anyone who has studied Behavioural Finance will understand that the market plunge in the last week was not driven by rational analysis. It is highly likely that a great portion of that collapse was caused by sheer panic, aided and abetted by forced selling from hedge funds having to meet margin calls.
According to finance professor David Stowell, in years to come this will be perceived as having been a great value-buying opportunity, "Two and three years from now, it will seem very smart" he says.
Martin Whitman, who manages the $6 billion Third Avenue Value fund, argues that as long as economies worldwide avoid an outright depression, stocks are amazingly cheap adding that "This is the opportunity of a lifetime with the most important securities being given away".
The problem is not with the markets, but with the investors. Many often sell on the way down and/or at the bottom and then don't buy again until the market has risen well above where they sold. It is a classic strategy that tends to be repeated over and over.
As I have said before, in any other market place, when prices are slashed like this, it is called a sale and people view it as a great time to buy. Hopefully the new found optimism will last, at least until the next time (and there WILL be a next time, but hopefully not for a while).
Finally, I shall not be posting articles for a few weeks as I have to make a trip to the UK to visit ailing relatives. Hopefully by the time I come back, markets will have returned to some semblance of normality.
Copyright All Things Considered 2008: This publication is copyright. Subject to the conditions prescribed under the Copyright Act, no part of it may, in any form, or by any means (electronic, mechanical, microcopying, photocopying, recording or otherwise) by reproduced or transmitted without permission. Inquiries should be addressed to the authors
Get Ready for the End of the Year
Don't miss the boat, there are many things you can do before the end of the financial year that can help save tax and grow your money.
Reduce your Tax Through Super
People who derive less than 10% of their income from employment may claim a 100% tax deduction on their super contributions. To qualify, your assessable income and reportable fringe benefits from employment must be less than 10% of your total assessable income and reportable fringe benefits for that year. A tax deduction is available until age 75, but from age 65 you must be gainfully employed for at last 40 hours in a 30 consecutive day period so be eligible to contribute to super.
While a 100% tax deduction is available, contributions in excess of the concessional contributions cap will be taxed at an effective rate of 46.5% Your financial adviser can give you information about the caps and whether this strategy is right for your situation.
Spouse Contributions
A tax offset of up to $540 is available for a spouse contributions of $3000, where the recipient spouse's assessable income, plus reportable fringe benefits, does not exceed $10,8900. The offset reduces by $1 for each $1 above $10,800 cutting out at $13,800. The good news is there is no 'work test' required for either the contributing spouse or recipient spouse, unless the recipient spouse is aged 65 or more but less than age 70.
Sacrifice to Get Ahead
Salary sacrifice is one of the simplest ways to grow your super tax effectively. It involves contributing to your super in pre-tax dollars and is organised through your employer. As always, there are a few rules - you must be an employee under age 75 and there are caps in place that you must take care not to exceed.
Government Co Contribution
The government co contribution scheme was introduced to assist people boost their retirement savings. Essentially the government rewards people who make additional contributions to their super fund in the lead up to retirement. The government will contribute $1.50 each dollar contributed, up to a maximum co contribution of $1,500 for employees whose assessable income, plus reportable fringe benefits, does not exceed $28,980. The maximum co contribution reduces above this threshold to the point where no co contribution is payable above $58,980
Pay Your Life Insurance Premiums Through Super
It makes good financial sense to package life insurance within super. Where premiums for life insurance are being funded through super contributions, the cost of insurance cover is lower for self-employed and unsupported persons, employees making salary sacrifice contributions and those making eligible spouse contributions. There may also be the opportunity to ensure you have salary continuance insurance in place as super is a very efficient way of funding this cover.
Minimise Capital Gains Tax
If you are eligible to make personal concessional super contributions, then you can also reduce your tax liability on capital gains realised during the year. When transferring assets into your super fund (such as listed securities), you may incur a CGT liability. By being smart about the way you contribute to your super, you could potentially claim a tax deduction to minimise or even eliminate this liability.
Do you know how to crystallise losses to offset capital gains? Where you have a potential tax liability on capital gains from selling an asset during the year, such as shares or a rental property, it may be appropriate to sell another asset to make a loss. however, there are some strict rules around this, for example, don't sell and immediately buy back the same asset and the ATO does not view this favourably and will disregard the disposal of the asset in the first place. We can help youput in place a strategy that's right for you.
Fancy a Night on the Town?
Parkside InvestorPlus, the financial planning arm of the Parkside Financial Group relies on word of mouth and referrals from it's happy clients and strategic partners. We believe that the endorsement of our existing clients is the best way to generate new business. We're on the path of growth and since our equity partnership with ipac now have even more research, technical advice and resources at our disposal to build a truly remarkable financial planning advisory business.
Because we want our clients to be our advocates and our best advertisement . . . we reward those who refer like-minded people to us for advice by not only assuring them that we'll take good care of their friends, relatives and colleagues, just as we did for them . . .but with a 'thank you' mystery event at the end of each year.
If you think you know someone who might benefit fromour help just as you have, please don't keep us a secret and who knows . . . you might be in the running for an exclusive invitation to our Mystery Client event at the end of the year.
