The problem with regular reporting...

and why we do it anyway.

Over the last few days, we have started sending out quarterly reports to our investment (including superannuation) clients. And do you know something? Most clients have recorded positive returns for the three months to the end of March, 2012 of 6 - 8%. That's an annualised return of approximately 30%.

The All Ords is what now?!

This has come as a surprise to most, particularly given economic news, and property prices. (We even made sure to send ut the reports on April 2 and NOT on April Fools DaY)

So, happy days are back are they? Well, a good quarter doesn't make a recovery, and I don't think it is relevant anyway (I'll get to that in the next blog).

The problem with regular reporting is simply a matter of relevance. What does it mean if your $300,000 portfolio grew to $320,000 in the last 3 months. Well, it does beat the alternative, and positive quarters haven't been too regular over the last few years. But where you aiming for $330,000? Had you been planning to put contributions in that you haven't? Do you even know what you were aiming for?

Without some sort of context, while it is 'good' that balances rose, it doesn't make much sense, unless we know what your target is.

So why do we send the reports out? Maintaining regular correspondence keeps communication lines open. We are developing some new systems that are designed to better incorporate all of our clients goals (even the ones they didn't know they had), and to track progress towards the achievement of them all. We work on, over time, knowing what we are working towards, and so generating the reports allows us to look at the benchmarks, and track the progress. While this is only one aspect of the 5 elements of our Wealth Management Model , it is the most obvious.

And of course, everyone sleeps a little easier when portfolios are going up.

Feel free to comment. We'd love to know what you thought of the blog.

The Sandwich Generation

Does your typical workday include racing home to pick up the kids from school as well as spending time caring for, or worrying about your aged or ill parents? Welcome to the ‘Sandwich Generation’ where you feel squeezed at both ends with very little time for ‘self’ in the middle.

A growing proportion of families, women in particular, are suffering from the combined effects of an ageing population where parents live longer and teenagers are staying at home longer. No wonder we feel ‘squeezed’.

The challenges facing the Sandwich Generation

Juggling the often-competing interests of your parents and your children is fraught with challenge. Both groups require very different types of care and attention, with neither necessarily accepting of the needs of the other. And you are in the middle, feeling stretched and alone.

Despite these challenges, many of us simply can’t ignore the plight of our loved ones, especially our parents, as they begin to age and decline. Our love and care response kicks in to provide support.

What you can do

To better cope with this growing challenge:

1. Never forget your own priorities in life – try to balance your needs with those for whom you are caring. Maintaining a sense of self will help to define what gives your life true meaning and purpose.

2. Take care of your relationship with your partner – the emerging needs of your parents may raise new anxieties in your partner, who is less equipped to deal with the emotional and family bonds that are core to your life. Your partner has an important role in offering his or her support, comfort and shared views on the important issues you face together.

3. Manage your parents’ needs – listening to their needs and gauging their responses will help you address their expectations and assumptions about a mutually agreeable level of care.

4. Manage your children’s needs – be clear about the expectations you have of them and ask for their support and understanding with the importance of caring for family. Listening to their concerns will help you to reinforce your key message that ‘we all need to contribute to be an effective, loving family’.

5. Seek the advice of experts – making the right choices will be your key to success and allows you to share your concerns with knowledgeable professionals. Additionally, experts help to give you confidence that you are making the right choices.

6. Financial issues can magnify stress unnecessarily – good financial management can have many benefits and may be an essential strategy for coping with major, and sometimes costly, transitions like moving your parents to an aged care facility or supporting your kids into their own homes.

Remember, to speak to your financial adviser if you are feeling the squeeze. Your adviser can go through your options to determine the best solutions for you, your parents and your kids. We also have aged care specialist services available to ensure you make the right choices for aged care.

How much is enough?

How much income you will need in retirement may well be THE most important queation you should ask yourself when considering your finacial future. We find that our clinets initially have a vey hard time projecting this into the future, or even working out their current expenditure.

Most people don’t have a good idea of what expenses they will incur in retirement until they actually get there, so using a standardised measurement, such as the ASFA Retirement Standard, as a guide can help clients to plan properly.

The ASFA study considers how much is needed to fund a “modest” and a “comfortable” retirement income and is updated each quarter. Figures released for the December 2010 quarter show the following income requirements.

Modest retirement for a single: $21,218
Comfortable retirement for a single: $39,393

Modest Retirement for a single: $30,708
Comfortable retirment for a couple: $53,879

Even at the comfortable level this does not represent a lavish lifestyle. For example, a “comfortable” retirement income for a couple only includes $187.14 for food and $303.28 for leisure in their weekly budget. This means careful budgeting and expenditure management is still required.

These figures also assume the person owns their own home. Higher income is needed for those renting or still paying off debt. Thesae figures also are in today's dollars, and don't take into consideration inflation. So, if you were 40 (a good age in my book), a comfortable retirement for a couple would require nearly twice as much, or close to $110,000 per annum, by the time you get to 65, assuming prices growth of only 3% per annum.

Finally, then you need to work out the lump sum required to pay this income for life.

You can see why starting as earlier as possible, even if you don't think you are 'rich enough' to plan for the future, is so important.

We welcome any comments.

Price versus Value

Whenever we price a purchase of any kind, we make a decision about its relative value. Then we buy or don’t buy at that price.

The reasons behind that decision will either be the direct value of that item e.g. a heater that will warm us in this cold weather; or the indirect value of the purchase e.g. keeping up with the neighbour's giant plasma TV (even if that purchase ends up being useful, it was driven more by ego value).

The ‘fairness’ of the price is a reflection of that value.

When considering the ‘price’ of insurance solutions that we propose to our client's, we aim to ensure that we draw their attention to a clear relative value of the purchase.

We now run a well-structured package of products that should pretty much replace the family’s current income in most circumstances. So if the total premium for that package is say, 4% of your current household income, would that not be seen as value?

Further, while we often hear people say they 'can not afford' insurance, we ask ourselves, how they would meet their living needs if they weren't receiving an income?
Did you find this post interesting or helpful?

Can you spare 2 minutes to comment, or share it with someone.

I'll even get you started.

The thing I liked/disliked about this post was

12 Tax Time Steps - Part 2

Recently we briefly discussed 8 super strategies for year end. We now offer a further 4 tax strategies. As with the super ideas, these are general in nature, and professional advice should be sought before looking to implement.

Strategy 9.Use losses to reduce capital gains.
This is suitable if you have some loss making investments that no longer meet your needs. You can save some tax, and free up more funds to invest.

Strategy 10. Defer asset sales to manage CGT.
If you are thinking of selling an asset this financial year, deferring to next financial year can delay when the tax needs to be paid. It may further provide for an opportunity to reduce the CGT as well.

Strategy 11. Pre-pay interest on a investment loan.
If you have a geared investment, you may be able to prepay the interest. This will bring forward the deduction, providing the potential for a reduced income tax liability.

Strategy 12. Pre-pay deductible risk protection premiums.
Similar to the above strategy, pre-paying these premiums will bring forward the deduction. Often people think only of income protection, but for business owners, this may cover more types of policies.

Over the next few weeks, we will look at the practicalities of some of the above strategies.

12 Tax Time Steps - Part 1

Superannuation is still one of the best ways to build wealth and save for retirement. This is primarily because the maximum tax rate during the 'accumulation phase' is 15%. In the lead up to the end of financial year, contributing to super can be even more rewarding.

In part 1 of the 12 tax time steps, we will look at 8 year-end super strategies. In part 2, we will look at a further 4 tax strategies.

Before you implement any of these, make sure you seek financial advice.

Strategy 1. Salary Sacrifice.
Ideal if you are expecting a bonus. The benefits are that you may be able to reduce your tax, and increase the level of after tax investment.

Strategy 2. Get a top up from the Government.
If you qualify, you may be eligible for up to $1,000 from the government, tax free. This also may be an ideal way to pay for insurance premiums (paid for by the government).

Strategy 3. Contribute for your spouse.
If your spouse has a lower income, you may be eligible to contribute, and recieve a tax rebate. This can assist in maximising the benefits of super as a couple.

Strategy 4. Maximise deductible contributions.
If you are eligible, you can pay less tax. This may be an ideal way for a business owner to reduce tax, and create wealth outside of their business.

Strategy 5. Offset capital gains tax.
You may be able to reduce or offset the impact of CGT if you have sold an asset for a profit. While saving tax, you may be able to make a larger after tax investment.

Strategy 6. Split contributions with your spouse.
You may be able to receive your combined super in a more tax effective manner, and even allow yourself to receive concessions on deductible contributions longer if you are eligible to utilise this strategy.

Strategy 7. Purchase Life & TPD tax effectively.
If you are eligible for any of the tax concessions above, you may be able to save on the cost of insurance premiums, or get 'more bang for your buck'.

Strategy 8. Delay withdrawing from super. If you are eligible to withdraw from super, there are some very tax effective reasons to delay, or even postpone withdrawing from super. This can save significant lump sum tax, and allow for a greater after tax investment.

As always, the strategies utlined above are neccessarily general, and my not be suitable for everyone. However, it is likely that any working Australian, and many who are not, can benefit from effective use of super.

In the next few days, we will outline the 4 tax strategies. As ever, if you have any questions, please let us know.

Is there a Chinese proverb for everything?

There is a saying that has been credited as a Chinese proverb that goes along the lines of "The best time to plant a tree was 20 years ago. The second best time is now." Put simply, what it means is that if you wanted a tree, you should have planned ahead. If you have not planned ahead, you had better get started.

Of course, the same goes for wealth creation and planning for your retirement. If you want to retire, you had better do something well before 65. For some of us, it might seem a long way off, but rather than take that for granted, you can use this to your advantage. Small steps taken over a longer period of time can achieve the same result, with less impact on your current lifestyle. And, as important as it is to plan for later in life, there has to be some balance between future goals, and current lifestyle. So then it would appear to make sense to give yourself as long as possible to get where you want, with the smallest impact while you are getting there.

Elsewhere in the blog we have highlighted why you need to plan ahead. But, is now really the second best time to plant your retirement 'tree'.

At the time of writing, many Australians remain concerned at the events unfolding in Europe, specifically the Greek financial crisis and what this might mean for the whole of Europe. The purpose of this post is to help make sense of current financial events and offer some guarded guidance for the future.

The cause of the Global Financial Crisis was fundamentally an excess of debt in the private sector of the economy caused by interest rates kept too low for too long. When you combine too much debt (much of it was lent to people and companies that had little hope of making their repayments if they ever hit a rough patch) with debt securities even the smartest people couldn't understand, well there's a recipe for a financial crisis. When the crisis did happen governments around the world did two things. Firstly, they took on the bad private debt of troubled institutions (those that were "too big to fail") and made the governments responsible for them. This was needed to make sure that the financial system continued to operate in as normal a way as possible. Secondly, they promised that the financial system would be better regulated in the future so that the financial crisis would not happen again (we are still waiting on this one).

The current situation has a direct linkage with these events. Greece spent up big when interest rates were low and the government thought economic growth would go on forever (thereby paying back the debt from a smaller proportion of future income). Now that economic growth is much weaker throughout the developed world, they won't have a bigger economy to pay back the debt. In fact, the proportion of the economy that will be needed to pay back the debt is so big that it will, in fact, slow the economy, because of the higher cost of borrowing.

So these are a number of reasons to be concerned about investing. But, currently, we are looking at data courtesy of datastream that shows why now might just be the second best time, on the assumption that you are looking to grow your wealth over the long term. The data is a graph that shows the average return of a 'growth' portfolio (85% growth assets/15% cash & fixed interest) over the last 20 years to the end of June 2010. This is then compared torolling 12 month returns, or what an investor would have received from being invested in a 'generic' growth portfolio over the same time period.

Importantly, any time that the red line is at or below the blue line, an investor should be able to expect average or above average returns over the long term. At present, the red line, is just about on the blue line. This does not mean that there will not be short term volatility, or that returns over the next 1 year will be high, but that someone investing now can reasonably expect to generate an average return over the long term. Also of note is that this average return is ahead of the cash rate, and the current mortgage rate.

Of course, as always, the comments here are general in nature, and do not take into consideration anyone's individual position. But the principle behind the post is that waiting for the 'perfect' time might mean you get to retirement and your 'tree' is bare.