Well, it's finally happened. The Australian official interest rate was lowered to 1% last week. This is a new low that we perhaps never thought we'd see in this country, having been protected by our mining boom when most other developed countries were riding down the wave of the GFC 10 years ago. One commentator has asked whether Australians are now simply going through what the US and Europe went through 6 and 7 years ago, only on a delayed time frame? So, what will the latest interest rate cut mean for you? We've listed some relevant points to keep in mind:

For savers
These are the investors who will be feeling the interest rate drop the most. For a term deposit now, you'll be doing well to earn over 2%, which is particularly painful when inflation is running at 2.5%. If you haven't already, now is the time to consider adding additional asset classes to your investment mix and taking on some more risk.

For bond holders
Bonds (also known as fixed interest) are not dissimilar in nature to term deposits, but they can be bought and sold, which means the underlying price of the bond can change. When interest rates are falling it's normally a good thing for bond holders, as the price of the bond will increase and therefore the overall value of the bond will go up. When interest rates rise, however, bonds will tend to behave in the reverse manner and the underlying value of the bond will drop for a period of time until an adjustment is made towards the higher yield (income) that the bond will generate. A good rule of thumb for bonds is to aim for a return of between 1.5% and 2% better than the cash rate, provided the bond term is around 5 years. A shorter-term bond can actually perform better when interest rates are rising.

For mortgage holders
If you have debt, this is your chance to get ahead and you should grab it with both hands. Contact your bank and ask for a mortgage review, as a typical variable home loan should now be costing you well under 4%, ideally closer to 3.65%. The real key is to keep making the same repayments during this time and more of your repayments will go towards actually paying off your loan balance and less will go towards paying the interest component.
Also, be aware of the temptation to borrow more while interest rates are down. At some stage, they'll come back up and if you haven't done the work to reduce debt while rates are so low, you'll be in for a rude shock when they're higher.

For property owners and investors
Money and capital will always flow to the areas where it can receive a better rate of return for a certain amount of risk. When interest rates drop, it's not uncommon to see money poured into the property market if people have been sitting on cash for some time. And while most property investments will give you a better return than you would receive from leaving money in the bank, the rental income has also come down over time. For example, a commercial property once returning 9% income is now more likely to be returning around 5%. This is still superior to the cash rate.

For share investors
For those who invest in shares, we're now seeing the income generated by dividends as being at a higher rate than bank interest. This is historically unusual, but the income generated by shares (particularly when franking credits are included) can be very attractive to investors. Of course, share values can move up and down on a daily basis, but a large degree of spread across your share mix will help to smooth your ride. Initially, the share market has gone up after the interest rate drop as investors have diverted money into buying more shares, looking for a better return than bank interest.

The interest rate drop can be seen as both a blessing and a curse, depending on your personal situation. If you'd like to discuss how to make the best use of the rate drop, please don't hesitate to contact us. We're only a phone call or email away.

Recent Market Activity = Time & Patience

This week we'd like to comment further on the recent market instability, while also trying to introduce some perspective into the narrative.

In Leo Tolstoy's great novel 'War and Peace', a Russian general charged with defeating Napoleon and expelling the French from Russian soil argued against rushing into battle, saying the strongest of all warriors were "time and patience". It's an observation worth recalling as the media runs thousands of words analysing the causes and consequences of the latest share market dip. It's also worth using the historical example of the Global Financial Crisis of 2008 to highlight some important facts.

The GFC, as it's known in Australia and New Zealand, is widely considered by economists to have been the worst financial crisis since the Great Depression.

What began as a breakdown in the US subprime mortgage market morphed into a series of credit shocks, bank crashes and a deep recession in much of the developed world. The climax of the crisis was the collapse of US investment bank Lehman Brothers in September 2008, triggering a bailout of the banking system and extraordinary fiscal and monetary stimulus by governments and central banks.

For investors, it was clearly an anxious time. Global equity markets plunged by 40% or more. By late 2008 Queen Elizabeth, whose personal fortune had fallen by more than $50 million, demanded economists explain why they hadn't seen the crisis coming.

At the World Economic Forum in the Swiss town of Davos in early 2009, the most popular session was one in which a panel of economic experts, many of whom had not predicted in the first place, lined up to provide their analysis of why the crisis had occurred and what would most likely happen next.

In terms of economic analysis, there clearly was a spectrum of opinion. Some blamed lax regulations; others too much regulation. Many cited excessive debt, irresponsible lending, complex financial products, compromised rating agencies, an over-reliance on mathematical models or just plain old greed.

But aside from a temporary seizure in short-term money markets, where banks lend to each other, global share and bond markets performed as you would expect at a time of heightened uncertainty. Prices adjusted lower as investors demanded a higher expected return for the risk of investing.

In mid-March 2009, sentiment started to turn. By the end of that year, the Australian benchmark S&P/ASX 300 Index had risen 37.6%, recovering just as dramatically from the near 39% plunge it had suffered the previous year. The New Zealand market rebounded by more than 19% after a near 34% decline in 2008.

By the end of 2017, the Australian index had delivered an annualised return of 4.0% even to someone who had begun investing just before the crisis began. Using a global balanced strategy of 60% equity and 40% fixed interest, the return was 5.2%.

By the end of the same period, an investor who had begun investing in the New Zealand market at the start of 2008 would still have experienced a 7.6% annualised return by the end of 2017. Using the same global balanced strategy, the New Zealand dollar return was 5.4%.

The lessons from this experience are familiar. Emotions are hard to keep in check during a crisis. There can be an overwhelming compulsion among investors to "do something". But, as it turned out, those who listened to their advisors and stayed disciplined within the asset allocation designed for them have done considerably better than many people who capitulated and went to cash in 2008-2009.

Think of two people reluctantly encouraged to take a rollercoaster ride. One of them focuses on every sharp turn and sudden decline, his sense of terror compounded by the attention he is paying to the screams of those around him. The second person focuses on a static point on the horizon and tells herself the ride will soon be over.
The arguments over the causes and consequences of the GFC will go on and on. But as investors, there's much to be said for focusing on what we can control.

Timing the market is tough, as is basing an investment strategy on economic or market forecasts. But we can do ourselves a favour, both materially and emotionally, by accepting that volatility is a normal part of investing and by sticking to a well-thought-out investment plan agreed upon in less stressful times. Like Tolstoy's general said, the strongest warriors are time and patience.

The 2018 Federal Budget. Making Sense of it All

The Federal Treasurer, the Hon. Scott Morrison MP delivered his third Federal Budget on 8 May 2018. Income tax cuts will be delivered over a six-year period, through a combination of tax rate threshold changes and tax offsets. With regard to superannuation, the maximum number of members in a self-managed superannuation fund will increase, and those with good record-keeping and compliance history may move to a three-yearly audit cycle. The work test for certain individuals aged 65-74 will be removed, and certain longevity retirement income products may be more concessionally treated under the age pension means testing than originally proposed.

This Summary Provides Coverage of the Key Issues in Relation to You:

1. Personal income tax - A number of changes have been proposed to reduce personal income tax on a staggered basis over a six-year period from 1 July 2018.

Increase in tax bracket thresholds

The 32.5 per cent upper threshold will be increased from $87,000 to $90,000 from 1 July 2018. This reduces the tax liability of those earning $90,000 or more by $135. A further increase in this threshold to $120,000 is proposed from 1 July 2022. In addition, the 19 per cent upper threshold will increase from $37,000 to $41,000 from 1 July 2022. From 1 July 2024, the Government will extend the top threshold of the 32.5 per cent personal income tax bracket from $120,000 to $200,000, to recognise inflation and wage growth impacts. Taxpayers will pay the top marginal tax rate of 45 per cent from taxable incomes exceeding $200,000 and the 32.5 per cent tax bracket will apply to taxable incomes of $41,001 to $200,000.

Denying deductions for vacant land

Expenses associated with holding vacant land will cease to be deductible from 1 July 2019 and will not be able to be carried forward. Such expenses for land that was previously vacant will only become deductible when construction is complete, approval for occupancy has been granted and the property is available for rent, or the land is used in carrying on a business.

Ensuring tax compliance for individuals
Additional funding will be provided to the ATO to assist its compliance activities around taxpayers that over-claim deductions or entitlements.
The funding will complement and strengthen the ATO's data matching and pre-filling activities.

Improving the taxation of testamentary trusts
Current rules allow minors to be taxed as adults in respect of income paid on assets or cash proceeds held within a testamentary trust. This new measure, commencing on 1 July 2019, will ensure that minors are taxed in a manner consistent with other income earned and prevent assets being placed into a testamentary trust that were not related to the deceased estate.

2. Business owners
Economy-wide cash payment limit of $10,000
From 1 July 2019, any payments for goods or services to businesses that exceed $10,000 will no longer be allowed to be paid with cash. They can only be paid electronically or via cheque.
Transactions with financial institutions and consumer to consumer (non-business) transactions will not be subject to this cash limit.

Extension of the immediate deduction for business assets purchased under $20,000
This will extend for a further 12 months through to 30 June 2019

3. Superannuation
SMSF member limit increase
The maximum number of members allowable in self-managed superannuation funds (SMSFs) and small APRA funds will increase from four to six from 1 July 2019.

SMSF three-yearly audit cycle
SMSFs with a good record-keeping and compliance history will move from an annual audit to a three-yearly audit from 1 July 2019. To qualify the SMSF will be required to have three consecutive clear audit reports and lodged their annual returns on time.

Work test exemption for those with balances of less than $300,000
From 1 July 2019 those aged 65 to 74 with a total superannuation balance of less than $300,000 will be eligible to make voluntary contributions in the financial year following the year they last met the work test. Eligibility will be assessed based on the individual's total superannuation balances at the beginning of the financial year following the year that they last met the work test.
Individuals with multiple employers able to opt out of Superannuation Guarantee. Individuals who earn over $263,157 from multiple employers will be able to nominate that their wages from certain employers are not subject to the Superannuation Guarantee (SG) from 1 July 2018. This will allow eligible individuals to avoid unintentionally breaching the concessional contributions cap as a result of receiving SG contributions from multiple employers. Employees who use this measure could negotiate to receive additional income, taxed at marginal tax rates.

Opt-in basis for default insurance inside superannuation
The Government proposes to amend the default insurance arrangement in superannuation funds, which currently requires members to opt-out of cover, to be on an opt-in basis. This change will apply to members with a balance of less than $6,000, under the age of 25 years, or whose account has been inactive (ie hasn't received a contribution) for 13 months or more. The changes are proposed to take affect from 1 July 2019. A transition period of 14 months will allow affected members to decide whether or not to opt-in. The Government will also consult publicly on how to balance retirement savings objectives and insurance cover inside super.

Passive fees, exit fees and inactive super
From 1 July 2019, a three per cent annual cap on passive fees will apply to superannuation accounts where the balance is below $6,000. In addition, exit fees will be banned on all superannuation accounts. Superannuation funds will also be required to transfer inactive accounts (ie that have not received a contribution for at least 13 months) with a balance of less than $6,000 to the ATO. The ATO will proactively reunite inactive accounts with active accounts where the value of the consolidated account will be at least $6,000.

Requiring superannuation fund trustees to offer CIPRs
The Government will introduce a retirement income covenant into the Superannuation Industry (Supervision) Act 1993 that requires trustees to develop a strategy that would help members achieve their retirement income objectives. The covenant will require trustees to offer CIPRs which provide individuals with income for life. The Government will be releasing a position paper for consultation on this measure shortly.

4. Social Security
Expansion of the Pension Loan Scheme
From 1 July 2019 all Australians of age pension age will be eligible, including full rate age pensioners (currently excluded from the scheme). The maximum loan amount will increase from 100 per cent to 150 per cent of age pension. The loan is paid fortnightly, is tax-free and currently attracts compound interest of 5.25 per cent on the outstanding balance.

Extension of the Pension Work Bonus
From 1 July 2019 the bonus will increase from $250 to $300 per fortnight. This means that the first $300 of income from work each fortnight will not count towards the pension income test.
Eligibility will be extended to the self-employed, subject to a 'personal exertion' test, reflecting the intention that the bonus not apply to investment income. 

New means testing rules for lifetime retirement income products
From 1 July 2019 a fixed 60 per cent of all pooled lifetime product payments will be assessed as income. Sixty per cent of the purchase price of the product will be assessed as assets until age 84, or a minimum of 5 years, and then 30 per cent for the rest of the person's life.

5. Aged care
Improving access to residential and home care
The Government will provide additional funding to deliver a package of measures to improve access to aged care for older Australians. The More Choices for a Longer Life package includes 14,000 new high level home care packages over four years from 2018/19 and 13,500 residential aged care places in 2018/19.

Why We Needed the Royal Commission Shake Up

The headlines coming out of the current Banking Royal Commission are a tragic and timely reminder that bad advice can have enormous consequences. It is important to us that you have a clear understanding of what it all means, so we will be giving an explanation as to what some of the problems are with the banking and big insurance company's current advice structures in order for you to make informed decisions.

If you go to a bank or insurance company for financial advice, the reality is that the person providing you with financial advice is employed by the institutions that also have a direct financial interest in you taking out one of their products. This problem of "vertical integration" is a relatively new phenomenon. The early 2000s saw an explosion in corporate deal-making as investment banks reaped handsome fees from their less flashy cousins by advising Australian domestic banks to go on a buying spree of wealth management companies. It was at the time when, Australia's now $1.6 trillion superannuation honey pot was just beginning to flourish, and the banks and AMP thought they'd better get a piece of the action. Fast forward to today and we now have over 85% of the financial planning industry in Australia owned either directly or indirectly by the big four banks and AMP.

Consider this – if you went into a Commonwealth Bank branch and asked to see a financial planner, it's highly unlikely that this financial planner would recommend you put your superannuation with a Westpac super fund, or take out personal insurance with an ANZ policy. Instead, they'll try to sell you the Commonwealth bank super and insurance products and while it may be understandable, it's not necessarily in your best interests.

For this exact reason, the financial planning arm of Schuh Group has always been a non-aligned advice offering, meaning we're in no way tied to the big four banks or AMP. This means we're able to give you completely unbiased advice that's in your best interests, and while we may sometimes recommend a bank owned product, at other times we may not – it just depends on your situation and what's right for you. And this is key.

When it comes to financial advice much like anything else in life, there is no one size fits all solution. The right plan and structure for you and your family will depend on your personal goals, your current circumstances, earning capability and risk level analysis. The role of a financial planner is to support you to clarify your goals and find suitable sustainable solutions to help you realise them. Yes, as a financial adviser there is a return from the products you choose, however, the return we make is only as good as the returns you receive. An independent advisor understands that having clients in a long-term sustainable solution with positive returns is the right path to success. This is not to say that a bank employed financial planner is not aiming for the same outcome, it just means that their portfolio of solutions is limited to the products that their bank or institution offers.

It will be interesting to see what happens to the banking landscape in times ahead, as their advice arms seem to be unravelling of their own accord. This may not necessarily be a bad thing though, provided it doesn't leave customers any worse off during the process and it forces all advisers to provide the best advice possible.

If you'd like a second opinion on any of your bank-owned products, please don't hesitate to ask. We'll compare these to the other products available and give you an unbiased opinion on what's right for you and your situation. 

Our vested interest is seeing your wealth grow over time, not to line the pockets of the bankers. Call us today on 5482 855.

Market Wrap For The Week That Was

An overnight rise in commodities lifted miners but the Australian share market swung in and out of the red as housing market related risks hit domestic-focused stocks. Wall street closed marginally firmer last night, but the S&P-ASX 200 index opened 0.4 per cent up before sliding 0.2 per cent into the red following another official warning about mortgage lending risks and the need for higher capital levels. But bargain hunters stepped into buy the banks and the index rallied to close up 19.7 points, or 0.34 per cent, at 5876.2. The Australian dollar is trading at 76 US cents.

What this means for you:
With the current wet weather, people who have their house in order won't have anything to worry about in terms of leaks and property damage. But when was the last time you really got your "financial house" in order? Is everything working as well for you as it possibly can be? This includes your investments, your savings accounts, your loan structures, estate planning, and of course insurances. Your "financial house" is what pays for the physical house, so make sure you review it regularly.

Are interest rates on the way up? We don't know for sure, but if they are, it may mean property prices will also cool off a little. So, all is not lost if you miss out on the lower interest rates, as you may be able to pick up a new property at a reduced price. Sometimes there is a silver lining.

The Week in Review

The Australian share market rallied on soaring Chinese debt extension and Commonwealth Bank's profit report and finished off high for the day. Last night the US S&P 500 index gained 0.4 per cent, but the S&P/ASX 200 index climbed to a 1.1 per cent gain, and finished up 53.9 points, or 0.94 per cent, at 5809.1 as bank stocks followed US financials higher. Wall Street's record-setting run entered its fifth day on Wednesday, as President Donald Trump repeated his promise of tax cuts and on upbeat economic data that increased the odds of a rate hike and lifted bank stocks.

What this means for you:
What a difference a year can make. This time last year investors suffered through one of the worst Januaries for markets on record, and now investors are enjoying a fantastic start to the current year. Some investors panicked 12 months ago and sold their shares, but for those who have stayed the course and not let their emotions get in the way, they've enjoyed double-digit returns over the 12 months. It just goes to show why it's so important not to make a short term decision on a long-term investment.

The heat wave power blackouts in parts of Australia have featured on the news recently, which reignites the issue of reliable energy. For individuals and businesses, there is a definite financial benefit to taking up solar for your power needs, provided you're going to stay in the same building for some years. Depending on the size of your solar installation, it will pay itself off in a number of years, meaning energy savings after that will fall straight to your bottom line. This may be worth considering for those who don't like their current utility bill.

What is happening this week in the market?

Market Update

What is happening this week in the market?

The Australian sharemarket has added to its 2 per cent losses from Tuesday, sinking for a fourth straight session as Brexit worries continue to create havoc on the global markets. At the 4.15pm (AEST) official market close, the benchmark S&P/ASX 200 index was down 56.2 points, or 1.08 percent, to 5147.14, while the broader All Ordinaries index had weakened 52.1 points, or 0.99 percent, to 5230.4.

Investors were also cautious ahead of the US Federal Reserve's interest rate decision and accompanying statement tomorrow morning (Australian time) despite markets pricing in an only 2 percent probability of a rate hike. It's getting closer and closer to tax time, and news from the ATO is that they will be focusing on Australians with rental properties and work-related expenses such as cars, mobile phones, broadband, and travel.

What does this mean for you?

It's been an ugly week on the share market due to the uncertainty around Britain leaving the EU, but this is certainly not the time to start to panic and move into selling mode. The markets often go through periods of uncertainty, and this is no different. Hold on to your long term investment plan and use the drop to drip-feed in cash if you can. 

While we all want to maximise our tax savings, be aware that the Tax Office has different areas they focus on each year. Claim what you can and just don't go overboard with "fudging" your expenses. If you're in doubt about what you can and can't claim, don't hesitate to contact us.

Australian data shows that China's transition to consumption-led growth is intensifying and helping to boost non-resources industries Down Under at a crucial time for both economies. 

At the same time, Australia is emerging from a China-fueled mining boom and seeking new opportunities to provide food, services and health products to its biggest trading partner. "Australian exports provide clear signs that middle class incomes are continuing to gain and preferences are shifting in China toward service and higher quality food products," said Paul Bloxham, chief economist at HSBC Holdings Plc. 

China is seeking to encourage consumption following the nation's rapid industrialisation, a transition that will force its communist rulers to cede even more economic freedom to its population. The shift is critical to boost productivity as China seeks to avoid a middle income trap and regain its place as the world's top economic power, a position relinquished in the 17th century.

Reserve Bank of Australia Governor Glenn Stevens sounded a note of caution about China in a speech recently: "The real question is how successful they will be in landing a transition to a sustainable but still strong growth model. The truth is that we can't know how all this will turn out. No one has done such a transition on this scale before."

Speeding Up Your Bookwork at Tax Time

Now that the new financial year has started, make sure you get your tax work into us as soon as possible. As always, our aim is to give you a quick turnaround, so that you can get your refund sooner.

If you want to do what you can to help speed up the process, make sure you provide all your relevant information in an electronic format, such as an Excel spreadsheet. This will speed up the process even further.

If you have any questions about what you need to supply us with to expedite the process, contact our office on 07 5482 2855.

Compiled every five years by the Australian Government, the Intergenerational Report details how Australia is changing, economically and demographically. It can be used by business, scientists, economists and governments to help understand how our nation is changing, and to help plan for the next 40 years.

Key challenges ...the report outlines two key challenges and opportunities facing our nation right now.

1. First, by 2055 the number of people aged 55 and over will double. At the same time, the ratio of potential workers to every older person is projected to nearly halve. That means fewer workers and less income for Australia.

2. Second, with the mining sector now levelling out, we need to consider which emerging industries and technologies can help us create a new and sustainable economy. And there's a huge opportunity for us to export our thinking and skills to Asia, the fastest growing region in the world, and across the globe.

Big challenges mean big opportunities. If we make the right decisions now, Australia could be standing on the threshold of its greatest era.

What this means to us ...

1. It is difficult to see taxes in one form or another being reduced. While there might be a shift to more broad-based consumer taxes i.e. GST – demand on our tax dollars will remain high.
2. Clients need to consider where they are positioned to take advantage of the changing demographics. For example, if you are not a direct exporter to Asia – is your business a "supporter" of that industry. For example Do you provide forklift services to an export based industry? If you are a farmer – is your product able to be exported and what is involved in marketing transport? Health practitioners – how do you support the increasing elderly population?
4. If your asset base is strong – consider "counter-cyclical" investment. Interest rates are at a very low level and if you have good assets and a strong cashflow, now is a great time to borrow and invest in active business. Remember "walk when others run and run when others walk".

How A Market Correction Plays Out In The Media

There is a good reason we continue to highlight the benefits of discipline, keeping your emotions in check, not reacting to market movements and ignoring emotive news headlines. It's because history has shown the investors who can't be disciplined, put aside market movements and media headlines, will inevitably suffer lower than market returns. 

The recent correction has provided a great opportunity to illustrate exactly how the media responds throughout two months of volatile market movements. Importantly, we can demonstrate these media reactions while the correction is still fresh in all of our minds. 

Below is a chart of the ASX All Ordinaries from the beginning of September until close of trade on October 30.

Overlayed are actual headlines from the Australian Financial Review with arrows indicating when they were published during the correction. We've observed these headlines as being an accurate barometer of how the media reported the correction throughout September and October 2014.

At the beginning of September the ASX was near its high point for the year and the equity headlines were positive, with a "Flood of Money Tipped to Keep Shares Going". From there, the market had a swift decline and halfway through September the AFR noted a "Storm Alert for Investors". As the declines continued readers are told of "Fears of More Losses after ASX Wipeout" along with a story detailing past market horrors in October. This one is written every year because the 1929 and 1987 crashes happened during October. Strange that the other 80 odd Octobers that were relatively uneventful haven't rendered this story useless by now, but journalists need to write stories so they can eat.

Early October and AFR asks "Is This the Last Gasp of the Bull", while local investment experts begin musing on further bad times ahead – at this stage the market was down over 7%. The market declined another 2% before hitting bottom for the correction. Notably, this was the exact point the AFR capitulated and started talking about bailing out, writing "Knowing When to Use Your Parachute".

The market moved off the bottom and posted consecutive positive days for over a week. During this time AFR reminded us "It's Volatile, but Don't Panic". A headline that would have been more useful a month earlier after the market had dived and they talked of a "Storm Alert for Investors". As the market continued to pull back losses, the reminders about buying opportunities appeared. 

Yet there were significantly better buying opportunities when they told us to use our parachutes! 

With the market going up again AFR clearly felt safer about suggesting it was time to buy. When the market shot back into positive territory for the year, AFR decided to roll out their hindsight machine and smugly suggest "Volatility Is Not a New Thing, Nor Necessarily a Bad Thing". Again, something that would have been more useful before or during the correction, not when it appeared safely behind us.

We understand market declines can be emotionally trying because as the market falls, so does the equity portion of your portfolio, but here we can see how the media can exacerbate those feelings of nervousness by acting as some form of authority on what's ahead. 

As the headlines on the chart show, they have absolutely no idea what is happening. They're in reaction mode and their predictions and advice are late, wrong and ignorant. When the market was at its peak they predicted it would continue. After the market fell for half a month they started the panic headlines. When the falls continued, the panic headlines turned to doom with a reminder of past crashes.

As the market bottomed out, they gave advice on jumping. When the market moved upwards for over a week, they then reminded us not to panic. As the market continued to move upward they told us about the bargains we should buy and reminded us to be brave!

Finally, with the market back in positive territory, and after all their emotion charged headlines, they brazenly tell us what just happened isn't new, nor a bad thing! Little wonder why today's newspapers are lining bird cages tomorrow.

The 2014 Federal Budget has been delivered, and has brought with is a great deal of heated and mixed emotion.
Do you understand how the proposed changes may impact on you? If not, you are certainly not on your own. The budget has, as much as anything else, created a good deal of confusion, as people struggle to grasp what it will mean to them, from a 'hip pocket' perspective.

We have prepared a concise "at a glance" summary of the major changes, to cut through the confusion and emotion, and simplify the key points. They have been grouped into the following specific areas:

Tax Planning

1. Temporary Budget Repair Levy of 2% on incomes over 180,000 per annum for the next three years from 2014-15.
2. Fuel excise indexation.
3. Mature Age Workers Tax Offset abolished.
4. Dependent Spouse Tax Offset abolished.
5. Increased Medicare Levy from 1 July 2014.

Retirement Planning

1. Indexing pensions to the CPI, rather than wages, from September 2017.
2. Increase to the Age Pension age to 70 by 1 July 2035.
3. Pausing of Pension Assets Test & Income Test eligibility thresholds for three years.
4. Resetting the Assets Test Deeming Rate thresholds from 20 September 2017.
5. Annual Seniors supplement to be abolished
6. Indexation of the Commonwealth Seniors Health Card income thresholds from September 2014.
7. Untaxed superannuation income to be included in the income test for the Commonwealth Seniors Health Card for new recipients.
8. Change to the schedule for increasing the superannuation guarantee rate to 12%
9. Increase in the concessional contributions cap from $25,000 to $35,000 for individuals aged 49 and over from 1 July 2014.
10. Increase in the concessional contributions cap from $25,000 to $30,000 for individuals aged younger than 49 from 1 July 2014.
11. Increase in the non-concessional contribution limit to $180,000 from 1 July 2014.
12. Deeming rules for account based pension income.
13. Defence Forces Retirement Benefits & Defence Force Retirement & Death Benefits superannuation payments indexation.

Government Benefit Planning

1. Medicare co-payment of $7 from 1 July 2015.
2. Increased costs of Pharmaceuticals Benefits Scheme medicines and Safety Net thresholds.
3. Medicare Safety Net changes.
4. Tightening the eligibility for Family Tax Benefit Part B.
5. Indexation of many payments and programs will be temporarily paused, including: Eligibility thresholds for Family Tax Benefit and Newstart; Thresholds for the Medicare Levy Surcharge; Private Health Insurance Rebate and most Medicare Benefits Schedule fees; Official Development Assistance funding; Local Government Financial Assistance Grants; 112 Government grant programs.
6. Indexing Disability Support Pensions to the CPI, rather than wages, from September 2017.
7. Disability Support Pension reduced portability.
8. HELP debt repayment threshold decreased to $50,638 from 1 July 2016 & interest rate applied changed to a rate equivalent to yields on 10 year bonds rather than CPI.
9. First Home Saver Account Scheme cessation.

Strategy Options from the Budget

Here are some possible strategy modifications arising from this year's budget:

1. Those earning more than $180,000 per annum and not maximizing concessional contributions into super, consider increasing salary sacrifice contribution levels.
2. Those in the workforce who will be 49 or older on 30 June 2014 should consider strategies to increase the level of concessional contributions being paid into superannuation up to the new $35,000 limit from 1 July 2014.
3. Those in the workforce who will be younger than 49 on 30 June 2014 should consider strategies to increase the level of concessional contributions being paid into superannuation up to the new $30,000 limit from 1 July 2014.
4. Those who are looking to add more to an account based pension or switch provider may want to plan for this to occur before 1 January 2015 due to the changes to means testing deeming rules.
5. Those who are making the maximum allowable concessional contributions into super should consider the implications of receiving 9.5% standard employer super contributions from 1 July 2014 and adjust salary sacrifice levels accordingly.
6. Salary sacrifice strategies to be re-assessed under the new Medicare Levy arrangement and the increases in concessional contribution limits from 1 July 2014.
7. Personal superannuation contribution strategies to be re-assessed due to the increases in non-concessional contribution limits from 1 July 2014.
8. Those with a HELP debt may want to consider a voluntary repayment before 1 June 2016 to reduce potential increases in interest increases.
9. If turning Age Pension age before the end of 2014 but ineligible for the pension due to means testing, consider applying for the Commonwealth Seniors Health Card before superannuation income stream income assessment rules change.

If you are in the dark about what all of this means for you, we strongly suggest you make time to review your position with one of our staff. Accurate information, clarity and perspective all help to bring much greater peace of mind. And having a clear strategy in place in anticipation of these changes will very firmly place you in a position of strength to play to the new rules being laid out to us.

You can call our office on 5482 2855 to make an appointment.

Economic Overview

The March quarter was one that included speculation about US monetary policy, a modest recovery in developed economies, geopolitical strains and continued adjustment in emerging markets. In the US, weather conspired to obscure hiring and consumer spending increases. However, new Federal Reserve chair Janet Yellen said with the economy still slack, stimulus would be maintained. Across the Atlantic, the Euro area began its recovery from recession. Economic sentiment in the 18-nation single currency zone hit its highest levels in nearly three years, although jobs growth was sluggish and inflation remained at extremely low levels.Weak indicators continued to emerge from China, fuelling expectations of stimulus to keep the economy growing at around 7.5%. Beijing aims to reduce exports in favour of domestic consumption, but it's been a challenge. As usual, concerns over China played out in commodity markets. Mounting iron ore stockpiles at Chinese ports drove the commodity downward in March. New Zealand's economic strength led their Reserve Bank to raise official cash rates in March. 

Market Overview

Asset Class Returns.
The following outlines the returns across the various asset classes to the 31st March 2014.

The first quarter of 2014 highlighted the benefit of country, sector and asset class diversification. Australian, developed and emerging equity markets all diverged, as did equities and fixed interest.
Soft economic data and geopolitical tensions made for a shaky first quarter for global equity investors, resulting in negative global returns. For unhedged Australian investors, the strength of the $A amplified the negative result.
In the US market, economic and interest rate uncertainty appeared to trigger a rotation toward perceived defensive sectors. REITs, utilities and healthcare outperformed the S&P500 Index, while consumer discretionary stocks fell sharply.
In emerging markets, the focus was on the tensions between Russia and the West. Further weighing on sentiment were weaker-than-expected economic indicators and concerns about the systemic risk in China after the first corporate debt default there.
The contrast with global markets extended to the sub-asset classes with value lagging growth and small lagging large, weighed down again by resources. On a sector basis, top local performers were REITs and utilities, followed by financials.
New Zealand's equity market, as measured by the NZX50 Gross Index experienced stellar performance, returning more than 8.51% in local currency terms.
The global bond market defied predictions to broadly outperform equity indices. Yield curves flattened in the US, the UK and Germany, with the narrowing term spread driving a positive term premium. Corporate bonds outperformed government debt and the contracting credit spread driving a positive credit premium.

As always there are no consistent patterns to be found amongst asset class returns.

Why Do Investors Think They Know Better?

DALBAR is a US based research firm who've been monitoring investment returns for three decades. At the end of last quarter they released their annual "Quantitative Analysis of Investor Behaviour". The report compares US investors' equity fund returns against the returns of the S&P 500 Index. And no matter what timeframe DALBAR chooses to measure the average investor against the market, the investor loses.
Because many investors think they know better than the market. Assume that there's an investment fund that has achieved a 10% average return over the last 10 years â€" that's the investment return. Now assume you're the investor and put your money in that fund and kept it there for the whole 10 years. Your return as the investor would also be 10% and equal to the investment.

Unfortunately, this rarely happens because of our behaviour.



Every time we move in and out of an investment we will inevitably concede returns to the market. We think we know of a better fund. Markets go up and we feel good so we want to buy in. Some website on the internet is predicting the next depression. Another website is predicting gold will be going to $2000. Markets go down and we feel bad so we want to sell out. Or one of our friends or family members is investing another way, which makes us feel itchy to test it out.

We do have an excuse... we can't help it!

We're hardwired to try and do things that give us pleasure and flee from things that cause us pain. It's kept us alive over thousands of years, but it makes us terrible investors. So when following our natural instincts we end up buying things when they've gone up and selling when they've gone down â€" which all markets inevitably do. As investors we do this believing we're protecting our future, but we're doing the opposite and DALBAR's figures show the cost.

In 2013 the average US equity fund investor achieved a 25.54% return, which seems quite impressive until you notice the S&P 500 Index returned 32.41%. 

To put that in perspective, an extra 4.2% pa, over twenty years, would mean more than doubling an investment balance.

Another damning revelation from DALBAR comes from their 'Guess Right Ratio', which measures inflows and outflows of funds. In 2013 it showed investors sold up in the two months of negative returns, before then piling back in after the markets went up again.

DALBAR concluded in its report, "attempts to correct irrational investor behaviour through education have proved to be futile. The belief that investors will make prudent decisions after education and disclosure has been totally discredited."

Here we disagree; DALBAR assumes those investors who trail the market have been thoroughly educated and are aware of potential mistakes. From our experience, investors who embrace education make prudent decisions. They understand they don't know better than the market and instead of today, tomorrow or next week, their eyes are focused on their long term goals.

With thanks to DFA Australia.

This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor's objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.
Schuh & Company Financial Planning Pty Ltd ABN 67 144 756 856 is an Authorised Representative (No. 377298) of FYG Planners Pty Ltd ABN 55 094 972 540 Australian Financial Services Licensee No. 224543. This information is general in nature and readers should seek professional advice specific to their circumstances.




September Economic Overview

Economic Overview

The dominant theme in the global economy during the September quarter continued to be the prospect of the US Federal Reserve's tapering of its stimulus program. With US economic signals still mixed, 'The Fed' surprised markets in September by postponing its monthly $US85 billion bond buying program.

The Fed expressed it was disappointed with the speed of improvement in the job market and downgraded its economic growth forecasts.

China appeared to be emerging from its slowdown, with improvements in retail, industrial output and exports. India, however, found its currency at record lows as inflation soared and growth hit a 10-year low.The Eurozone emerged from a two-year recession, yet its banking system remained weak. While in the UK, The Bank of England upgraded its growth forecasts for the rest of the year.

Australia grew at an annual pace of around 2.5% and unemployment rose to a 4-year high of 5.8%. Mining investment showed signs of peaking, consumer spending remained soft, yet interest rate cuts were beginning to be felt in the housing sector.

Market Overview

The benefits of international diversification were highlighted in the September quarter with divergent performances by Australian, developed and emerging equity markets.

Having lagged the world in the previous quarter, Australia recorded its best quarterly performance in four years. The gain of over 10% doubled that of developed markets broadly and tripled the return from emerging markets.

The Australian market also took encouragement from early indications of a lift in domestic demand as the RBA's rate cuts and lower Australian dollar fed through. This news boosted sectors linked to the economic cycle, like consumer discretionary and industrials. In contrast, the less defensive mood left sectors like healthcare, utilities and REITs lagging.

In Europe, the easing of Eurozone concerns helped fuel strong equity gains by Spain and Italy, while over in the US the market hit record highs after the Federal Reserve decided not to taper its bond buying program.

Emerging markets again slipped behind their developed counterparts, this reflected the ongoing belief of reduced capital flows if the Federal Reserve had tapered its bond buying. There were divergences though; while India and Indonesia underperformed, Korea and Russia had solid gains.

Gold continued its volatile run, racing to an almost yearly high in late August, before erasing virtually all of those gains as it plunged during September.

In fixed interest, term and credit premiums narrowed, again as a result of the Fed's change on tapering. Longer dated bonds outperformed shorter dated, while corporate debt beat government debt.


The randomness of returns chart remained random. Once again it reveals no discernible pattern over the previous three years of quarterly returns, showing there's no better choice than diversification. After a poor June quarter Australian small companies pulled themselves off the canvas this quarter to lead the pack, followed by the Australian large cap sector. Global equities showed more modest returns after a strong June quarter, while Global REITs (the only negative asset class this quarter) finally slipped into the red with a 2.12% loss after seven consecutive quarters of growth.

                                                                        Investment Strategy Recognised


We've long strived to find the best investment options available. This means ignoring fads and focussing on rigorous research. Currently, much of the investment strategy we implement comes with the benefit of consistent historical data and decades of academic backing.

So it gave us great pleasure recently to see one of the pioneers of that academic research, Eugene Fama, awarded the 2013 Nobel Prize in Economic Sciences. Fama's research is the reason we emphasise the futility of picking stocks and making predictions. It's also the reason we encourage investment discipline over guessing what the market will do next.

"Fama's research at the end of the 1960s and the beginning of the 1970s showed how incredibly difficult it is to beat the market, and how incredibly difficult it is to predict how share prices will develop in a day's or a week's time," said Peter Englund, professor in banking at the Stockholm School of Economics and secretary of the committee that awards the Nobel Prize in Economic Sciences. "That shows that there is no point for the common person to get involved in share analysis. It's much better to invest in a broadly composed portfolio of shares."



She'll be right, mate!

Finally, an interesting comparison of central bankers and possibly cultures. As debate again began to rage over the prospect of low interest rates fuelling a property bubble in Australia, the RBA's Head of Financial Stability, Luci Ellis said the following:

"I think there are a lot of people, the minute housing prices start to pick up they say, 'Oh my goodness, we'll all be rooned.' The minute housing prices start to pick up they imagine it's a bubble."

In contrast, the German Central Bank sounded a note of caution in its monthly report after an 8.25% rise in German property prices over the past three years, saying:

"Housing prices in German cities have been rising so strongly since 2010 that a possible overvaluation cannot be ruled out."

And to give the statements a little context, according to The Economist:

Australian property prices, 46% overvalued against rents and 24% overvalued against incomes.

German property prices, 15% under-priced against rents and 18% under-priced against incomes.

With thanks to DFA Australia.

This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to the investor's objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly. Mancell Financial Group is an Authorised Representative No. 226266 and Credit Representative No. 403187 of FYG Planners Pty Ltd, AFSL/ACL No. 224543. ABN  29 009 541 253 This information is general in nature and readers should seek professional advice specific to their circumstances.

*Your full financial situation would need to be reviewed prior to acceptance of any offer or product. 


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