Smart Investing
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The Federal Budget’s confirmation that the annual cap on concessional superannuation contributions for all fund members over 50 will halve to $25,000 from the 2012-13 financial year, has some investment commentators envisaging that more investors will turn to negative gearing.
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We've been told by the financial community at large that it's a tough time to be an investor. The financial markets are extremely volatile. Bond yields are near historic lows. The outlook is uncertain.
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The latest bouts of sharemarket volatility and this month’s cut in official interest rates once again highlight the crucial role of bonds in a properly diversified investment portfolio.
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Self-managed super funds typically have a much high exposure to cash than fixed interest.
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The Australian superannuation industry reverted this week to its unwanted status as one of the government’s favourite Budget ‘hollow logs,’ with billions of dollars in savings extracted from the system by reneging on a tax break meant to encourage higher retirement savings, and a doubling of the concessional tax rate on the super contributions of those earning more than $300,000.
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News & Commentary
Stosur plan an antidote for volatility 16 Sep 11
The sporting and investment worlds share many parallels.
Like the need for a plan.
Clichés can fly thick and fast after any sporting contest but Sam Stosur’s historic win in the US tennis Open this week kept things simple.
Faced with some unpredictable volatility at the other end of the court Stosur stuck to her game plan and let the emotional swirl between umpire and opposition pass her by.
It didn’t guarantee success – Serena Williams after all is a 13-time Grand Slam Singles Champion and there was the real prospect of it sparking an overwhelming emotional comeback effort.
Even if it had, Stosur could have walked off the court without the sort of regret she clearly experienced after losing the French Open last year when the emotion of the day affected her and the game plan that had got her into the final was forgotten.
Fortunately for Stosur – and Australian tennis – the plan was executed brilliantly and the result is now history.
A solid financial plan is probably one of the most effective tools investors have to help them navigate their way through their own Serena Williams-like moments.
And arguably, at times of market volatility and uncertainty the likes of which we are living through at the moment, a financial plan is never more important.
It doesn’t guarantee success but it can help keep the long-term goals and objectives clearly in sight and the short-term emotional swirl in context.
While much of the focus of the proposed government reforms to the financial planning industry has focused on correcting poor practice and removing remuneration structures that distort advice, a longer term challenge for the reform package is ensuring that good financial advice is accessible to more Australians.
At the moment only around 30 percent of people who could use advice actually seek it out. That is partly a reputation issue that makes investors wary about the quality of the advice they may receive but also comes down to the cost of delivering advice. Good advisers have to run good businesses and in many cases that means they segment clients and naturally favor those with considerable assets and probably complex affairs where they can add most value and charge fees commensurate with the service provided.
Not everyone needs or can afford to pay $4000 - $5000 for a full financial plan.
So one of the challenges facing financial planning firms and superannuation funds is how to provide cost-effective and scaleable advice.
Financial advice reform will surely not be deemed a success if it results in good quality advice only being provided to the rich and famous.
Certainly market conditions and investor concerns are reminding us that a good financial plan that sets out a balanced, long-term game plan can be a valuable antidote to the short-term fear that market volatility can inflict.
* Written by Robin Bowerman, Principal, Corporate Affairs & Market Development at Vanguard Investments Australia.
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