SMART MONEY
Welcome To the Blog
Superannuation Contribution Fundamentals.
Four New Year financial resolutions that won’t cost you a cent but could save you a pretty penny.
With interest rates on the move this article discusses some of the factors that drive interest rate changes.
Australian Property values increased strongly in 2021. I argue the equity we have in our homes is more important than the property's value and that now is a great time to use the equity for investment purposes.
What do you get if you cross an already property obsessed nation with a slashing of interest rates, a bunch of property purchasing incentives, a global pandemic and a media driven fear of missing out?
Five simple ways to kick-start a wealth strategy before meeting an adviser: How to analyse your net wealth and get your number The spreadsheet I use for tracking my own wealth
Many investors want to know that their investments are making a positive impact on our world and its inhabitants. Socially responsible investment or ethical investing fits this bill with investors asking the hard questions about how profits are being made. Companies that make their millions through environmentally destructive behaviour or are socially irresponsible may find it harder to raise money when going public. What is “ethical”? Of course, “ethical” is a subjective term. For example, an ethical fund manager could define tobacco and gambling as unethical yet consider alcohol to be okay. Another ethical fund could be reluctant to invest in banks because they lend to companies that damage the environment. We are seeing this affect lenders that fund coal mining for example. Obviously the important issue is what you, the investor, considers ethical. If you are contemplating an ethical investment then not only will you need to understand the financials of the potential investment but also ensure that the underlying businesses and their activities meet your standards. Whilst it is difficult to lay down an exact formula for ethical investments, there are some basic values which many people share: Avoid causing illness, disease, or death; Avoid destroying or damaging the environment; Avoid treating people with disrespect. In Australia, many well-recognised investment names are on the list of ethical fund providers. Although some ethical funds have achieved good results, as with any share-based investment, the focus is on long-term investing and sound management capabilities of the fund manager. What about the risk? Be aware that when the range of stocks available to fund managers is reduced because of ethical considerations, extra risk and volatility could occur. If you are interested in learning more about ethical investing, contact us. The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
When it comes to financial management, no single investment will continually outperform all other investments all of the time. To minimise potential losses and to smooth your investment returns over the longer term, you should spread your portfolio across various investments. But that can be easier said than done so there are different ways to diversify. Diversify across asset classes Asset classes are the broad categories of investments and include equities, fixed interest, property and cash investments. Equities include both Australian and international shares. Fixed interest includes government, semi-government and corporate bonds. Property includes residential, retail and commercial properties. Cash includes term deposits and at-call cash accounts. Lower risk asset classes, including fixed interest and cash, protect your capital during adverse market conditions. On the other hand, higher risk assets, such as Australian and international shares, can deliver good returns during the boom times. Holding a mix of asset classes may help to provide more stable returns over the medium to longer term as markets rise and fall. Diversify within asset classes This could mean spreading your share portfolio across different industry sectors because certain sectors may outperform others over a given period according to economic conditions. Two good examples are mining and manufacturing. The Australian resources industry helped keep Australia’s economy a shining light against a gloomy international backdrop following the Global Financial Crisis. Manufacturing, on the other hand, struggles with high labour costs making Australia less competitive against low income countries such as China. Nobody knows what the future holds – both of these industries are facing volatile conditions a few short years later – so a balance across industries is crucial. It can be simple Even with a relatively modest amount to invest and very little time, you can achieve a balanced portfolio with the right mix of investments. Managed funds offer easy access to a wide range of investments. By investing in a managed fund, professional fund managers select individual investments for you. In addition, most managed funds offer several different options to cater for varied levels of investment risk. Other options include purchasing shares in Listed Investment Companies (LICs) and Exchange Traded Funds (ETFs) on the stock exchange. Depending on its charter, a LIC holds shares in a wide range of companies, while ETFs invest across all stocks making up a particular index, such as the S&P/ASX 200. Buying shares in an ETF or LIC gives you exposure to all the stocks held by the fund. Talk to us about the best ways to manage your investment risk. Note: past performance is not an indicator of future results. The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
The core-satellite investing strategy One of the most important elements of your investment strategy is how you construct your portfolio. One popular approach is the ‘core/satellite’ strategy. ETFs are an efficient tool to help investors employ the method across their portfolios. Summary Core-satellite investing involves an allocation to diversified investments, whether broad domestic or global exposures, which are essentially bought and held for the long term – this is known as the ‘core’ component Along with this ‘core’, more tactical positions are added to the portfolio as the more ‘actively managed’ portion – these positions form the ‘satellite’ component and can be, for example, specific regional or sector exposures What are the benefits of using ETFs as a core? Some of the many benefits of this investment approach include decreased cost and portfolio turnover, particularly if you use low-cost passive index funds (eg ETFs) as the core. Apart from lower management costs, since the core portion of the portfolio is left alone, turnover costs are additionally reduced significantly. Part of the reason ETFs have seen such enormous growth in popularity over recent years is that active fund managers have generally found it difficult to beat the broader market over the longer term. Even those that do one year, find it difficult to repeat the feat the next. Having the discipline to hold a low-cost, diversified “core” exposure reduces the fee load otherwise felt when using active managers or regularly adjusting an entire portfolio, and has historically demonstrated outperformance potential vs. equivalent active managers. For the core part of your portfolio, a diversified asset allocation is conventional wisdom. Holding multiple asset classes can help reduce the risk of poor performance in any single asset class jeopardising your entire portfolio, and can also help counter market uncertainties. Of course, it’s useful to review your portfolio regularly and rebalance to ensure you stay in line with your original investment objectives. Where do exchange traded products fit into the satellite component? From the above, it should be clear that a low-cost ETF providing exposure to the broad market can be an excellent option for the investment ‘core’. However, it does not need to end there. Exchange traded products (ETPs) are increasingly being used for the ‘satellite’ or tactical parts of investment portfolios as well. Traditionally, the satellite portion has been allocated to low-correlated active managers. However, with the range of exposures expanding on the ASX, both passive and active ETPs are increasingly being used as a “satellite” tool. For example, using ETPs to employ tactical overweight exposure to certain sectors or regions removes the pressure to pick individual stock winners, but can still provide the opportunity for outperformance. The satellite portion of your portfolio is where you can really put a personal touch and where you may attempt to generate portfolio alpha. As mentioned earlier, ETPs allow you to take a tactical view for typically low fees, without putting all your eggs into one basket.
As we move towards the end of yet another year and ponder how fast the last 12 months have come and gone, many of us find ourselves thinking about the coming year and our aspirations for the future. Let’s face it, we’ve worked hard throughout the year and now is the time to reflect on what we have achieved; where we want to go; and what we need to get there. These times of reflection are critical to our lives whether we run our own business, are employed or retired. A financial checklist is an excellent tool to see how you are progressing towards your goals and to help identify any specific areas you might need to focus on in the immediate future. The key issues to consider are: Home loan review If you’re still making repayments, is it time to revisit your progress? Are you able to increase your payment amounts or frequency to save interest? With interest rates on the move upwards, should you investigate locking in at a fixed rate? Other debts Review the amount of personal loans, credit card or other debts currently being paid off. If the total of all loans exceeds 10% of household income, you need to implement a plan to reduce them as a matter of priority. Consolidating debts could help control interest costs but take steps to ensure this doesn’t become an excuse to spend more. Savings How much money did you save this past year? Are you spending first and saving what’s left? If your savings aren’t as healthy as you would have hoped by this time of the year, remember to pay yourself first by allocating up to 10% of your income to a regular savings plan. Insurance When illness or accidents strike, most people are caught insufficiently protected. It’s important to regularly review your insurance policies to ensure that you and your family have adequate cover. When was the last time you reviewed your insurance cover? Superannuation What is the current value of your super? If you don’t know, now is a good time to check. Is it working as hard as it should be? Are the fees reasonable? Are you on track to meeting your retirement needs or should you start making extra contributions? Your Will Making a Will itself is not particularly difficult or even terribly expensive. It is a fact of life that people get married, have children, change relationships, get divorced or establish new interests. Left unaddressed, any of these may result in a Will being legally challenged. Estate planning matters such as Powers of Attorney and Medical Directives should be regularly reviewed in addition to your Will. You don’t have to wait until the first day of January to review your financial situation … do it today, and you may find that your other “New Year” resolutions are more easily achievable as a result! The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
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