Tag Archive for: Retirement planning

5 Important Health-Checks for your Retirement Portfolio in 2024

Retirement portfolios are like small businesses. They generate income from their assets, pay all kinds of bills, and make income payments to their beneficiaries. Some perform well and others languish, depending on their strategy and the broader environment.

Like small businesses, retirement portfolios come in all shapes and sizes. Some are conservative, highly diversified, and really quite boring. Others are geared to the gills, invested fully in mining town rentals bought sight unseen, or neck-deep in crypto and micro-cap stocks.

Reviewing your retirement portfolio

From a financial planning perspective, the most important ‘health checks’ for your retirement portfolio are as follows:

  1. Do your investments align with your risk profile?
  2. Is there a sensible amount of diversification?
  3. Is there sufficient cashflow and liquidity to fund ongoing and unexpected expenses and pension payments?
  4. Are your assets “high quality” and priced sensibly?
  5. Is your portfolio aligned with the times and the broader market environment?

2024 looks like a challenging year for small businesses around the country. Rising prices and a more cautious consumer make some business models unviable, particularly if they have large operating debts. Insolvencies are on the rise and many ‘zombie’ companies are finally being put to the sword after years of low rates and government intervention.

This flows through to retirement portfolios directly. It influences the type of investments that are likely to perform well and those that will struggle. But it also applies more practically to the ongoing management of retirement investments, particularly as it relates to cashflow and liquidity.

Like any good small business owner, investors need to have contingency plans for unexpected setbacks and periods of underperformance. “Hope for the best but plan for the worst” comes to mind in this instance. While we’ve enjoyed strong investment returns over the last six months, the year ahead promises to take many unexpected turns. Point #3 in the checklist above is a key consideration in our view.

If you would like to book a complimentary appointment with one of our Financial Advisers to review your retirement portfolio, please get in touch.

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About the author

PJ_Cameron - Financial Adviser Launceston Tasmania

Peter-James (PJ) Cameron
Financial Adviser

PJ provides proactive, strategic advice to help you invest with confidence, structure your affairs intelligently, and get the most out of your unique circumstances. Contact us today and ask to speak with PJ. 

Contact us

Peter-James Cameron is a Sub-authorised Representative (#1266801 ) of Synectic Wealth Pty Ltd (ABN 24 615 317 194) which is a Corporate Authorised Representative (#1250871) of Alliance Wealth Pty Ltd (ABN 93 161 647 007 | AFSL 449221) www.centrepointalliance.com.au. Synectic Wealth Pty Ltd is the financial services division of Synectic. Learn more here.

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.

Review your financial situation for 2024

New Year’s resolutions often fade away, but the commitment to pause, reflect and review your financial situation each year is one that should endure. At Synectic, we encourage you to make this your top priority early in 2024. To get started, consider the following:

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$3.5 Trillion -The price of “Equity and Sustainability”

Our Superannuation system is getting more “1984” by the day.

The Government is trying to legislate a “shared purpose” for superannuation that introduces a requirement for “equity and sustainability” to the existing legal requirement to grow member benefits for retirement.

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Benefits of Direct Australian Share Investments in Superannuation

There are significant benefits associated with taking an independent, individually managed approach to investments in Superannuation. This is particularly true as investment balances grow and retirement planning commences.

Australian Superannuation funds are under the spotlight as the retirement system adapts to ageing demographics and longer life expectancies, and the retirement savings pool grows to become an increasingly large asset on the Nation’s balance sheet. The Superannuation Guarantee (SG) was introduced over 30 years ago and the system has matured. Funds under management have since grown to $3.4 trillion (as at the end of December 2022).

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Super balances above $3 million to be taxed at 30% – what does it mean?

The Albanese government have announced plans which will see the earnings on super balances above $3 million taxed at a concessional rate of 30 per cent, from 1 July 2025 onwards. The current rate on these earnings is 15 per cent.

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International shares for Aussie investors

Many Australian investors prefer to invest in Australian shares rather than international shares. It makes sense for a range of reasons:

  • it’s a good rule of thumb to invest in what you know;
  • franked dividends provide tax-effective income; and
  • the Australian share market has performed strongly over the long-run, outperforming broad international share markets (MSCI World ex-Australia) by around 2% p.a. over the last 20 years.
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Investment decisions in a time of inflation risk

“I don’t want my super going to zero,” said a prospective client during a recent risk profiling discussion. “I want conservative investment decisions that won’t lose money over time.”

In uncertain economic times it’s tempting to avoid investment decisions and hold onto cash. This is opposite to the temptation to chase investment returns while everyone else is making money hand over fist (think 12 months ago).

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Financial planning in the new financial year requires a long view

Bill Gates famously quoted that, “Most people overestimate what they can do in one year and underestimate what they can do in ten years”. Regardless of your view of Bill Gates (and whacky conspiracy theories abound), the adage captures something inherent in human nature. We’re impatient to achieve our goals and equally, we aren’t accurate long-term thinkers. This doesn’t bode well for robust financial planning.

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SMSF Investments

Recently I’ve had a number of clients enquire about the pros and cons of setting up a Self-Managed Super Fund (SMSF). They have an instinct to get more control over their investments in Super. But they’re hesitant about the additional work involved in running a SMSF and are unsure of the costs.

There’s no perfect answer to the question, assuming one has sufficient funds to make it cost-effective. Anecdotally, I have seen a broad range of SMSF outcomes.

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Inflation outlook and your portfolio in 2022

Inflation in the US hit 7% in the last month of 2021, closing out the year with the highest annual increase in consumer prices since June 1982. The Federal Reserve has signalled their intention to increase interest rates this year, suggesting they might hike rates three times or more if necessary, and begin Quantitative Tightening (QT) in an effort to normalise interest rates in the bond market.

These macro factors will have a significant impact on the performance of investment portfolios in Australia and around the world, and investors are grappling with the potential impacts of rising inflation and interest rates after a period of government stimulus and easy money.

While it’s tempting to apply a simple narrative (for example, inflation is going up, which means rates will go up, which means investment markets will fall off a cliff), reality is always more complex and context dependent than we instinctively think. It pays to take a consistent, disciplined approach in the face of uncertainty, and there are a few simple questions that can help us make progress.

Where are we?

There’s no avoiding the uncomfortable fact that investment markets are moving through uncharted territory in 2022. The good news is that this is always the case, every year, and while history doesn’t repeat, it often rhymes. Some of the key points to consider are outlined below:

  • Australian and global interest rates are at historic lows (effectively 0 in Australia and the US). 
  • Many share markets around the world are at historic highs, particularly in the US.
  • Property markets around the world have also had an amazing run, with property values around Australia increasing by over 20% in 2021.
  • Bond markets have performed very well over the last 30 years (since interest rates fell from over 15% to 0.10%) but have struggled over the last year or so as investment markets begin to anticipate rising interest rates.
  • Inflation is starting to rise, particularly in the US. Concerns are growing that it may spread globally and stick around longer than expected.

In this environment, investors can get caught in the ‘TINA’ (There Is No Alternative) dilemma, where they feel uncomfortable keeping their money in the bank earning nothing and are pushed into riskier asset classes like property and shares to earn a return above the rising rate of inflation. This is the uncomfortable scenario facing all investors, but we are not entirely helpless. There are always a set of opportunities and risks to be navigated.

Investing in 2022: keep it simple, it won’t be easy

The most important thing to remember is that we need to stick to our long-term investment plan and not get overly distracted by fears around rising inflation and interest rates. It is entirely possible that inflation settles down over the year once supply chain issues are resolved and interest rates only rise moderately in response. This would be a benign environment that would likely benefit growth assets.

A second comment would be that we need to embrace some discomfort at both ends of the risk spectrum to navigate this market well.

Firstly, we need to accept the discomfort of earning less than we want from our defensive assets. Cash and short-duration fixed interest investments will likely go backwards relative to inflation over the next few years, but they play an important defensive role in a diversified portfolio that can help us get through potential periods of negative return without having to sell our growth assets at the bottom.

Secondly, we need to accept the discomfort of investing in equity and property markets that are at all-time highs. These growth assets remain the engine room of our portfolios and are important weapons against rising inflation. Real assets (property, commodities, gold) and Shares have traditionally fared well relative to inflation over the longer term, and there are plenty of technological and structural reasons to support ‘new normals’ when it comes to equity market valuations over time.

Conclusion

We have enjoyed strong market returns over the last 12 months. The next 12 months may not be so easy. The main risk, in our view, is becoming complacent and expecting more easy money to be made this year. This might tempt us to go too far out along the risk-spectrum in search of greater returns, while increasing risks within our portfolio that may not align with our longer-term strategy. The second biggest risk is becoming too fearful and holding too much cash as we wait for a market correction. History shows that timing market cycles in this way is a mug’s game, and it’s a certain way to experience the full force of inflation, whatever that may end up being.

A diversified portfolio remains the best way to navigate market uncertainty, growing wealth above inflation while protecting capital. Paying attention to what you own is critical in this environment, particularly when a lot of the broad market indexes are concentrating around a few, highly valued companies. Risks are elevated, but the time-tested approach of making long-term investments in quality assets at reasonable prices remains a sound approach and the best defence against potential inflation.

Need some help?

PJ Cameron - Financial Adviser Launceston Tasmania
Peter-James (PJ) Cameron
Financial Adviser

Contact us today and ask to speak with PJ.

PJ provides proactive, strategic advice to help you invest with confidence, structure your affairs intelligently, and get the most out of your unique circumstances. 

Contact us

Peter-James Cameron is a Sub-authorised Representative (#1266801 ) of Synectic Wealth Pty Ltd (ABN 24 615 317 194) which is a Corporate Authorised Representative (#1250871) of Alliance Wealth Pty Ltd (ABN 93 161 647 007 | AFSL 449221) www.centrepointalliance.com.au. Synectic Wealth Pty Ltd is the financial services division of Synectic. Learn more here.

This information has been provided as general advice. We have not considered your financial circumstances, needs or objectives. You should consider the appropriateness of the advice. You should obtain and consider the relevant Product Disclosure Statement (PDS) and seek the assistance of an authorised financial adviser before making any decision regarding any products or strategies mentioned in this communication.