A guide to investment markets in 2010

Reading the Signs. A guide to investment markets in 2010. By AXA Australia, February 2010.Have you been watching the investment markets recover over the past year and wondering if you should be getting back in, or just in at all?

If so you may be interested in this perspective published by AXA Australia today called “Reading the Signs. A guide to investment markets in 2010.

The guide is easy enough to read without much jargon and covers some of the key aspects that I hear are on many people’s mind.

In conjunction with reading this guide I recommend you review my video article on “How to decide when to start investing again.”

If you decide you want to participate in the recovery by investing but are nervous about picking specific stocks or even managed funds then remember to always start simple. The easiest, simplest and also lowest cost way to invest is by using a index managed fund. Your return will be the market return – so if the market goes up you should also make money. (To learn more call me.)

What do you think of the AXA guide?

Please let me know your reaction to the AXA guide in the comments section below.

Was it informative or too full of jargon? Did it take you closer to making an investment decision? What else would you want to know? Share your thoughts below.

Checklist to ensure your SMSF deed is up to date

This article is reproduced courtesy of the author LawCentral.

If you have a self managed superannuation fund (SMSF) it is essential that you as trustee regularly review the deed to ensure it is up to date. One benefit is that an up to date deed will give you access to the latest strategies as they become available.

When was your SMSF trust deed drafted? Review the list below produced by LawCentral to discover if and why you need to review your trust deed as soon as possible.

SMSF pre 2009

Since 2009, SMSF Deeds need updating because of:

  • Compliant with Auditing and Assurance Standards Board (AUASB) Guidance Statement GS 009.
  • Allowing you to borrow money on a limited recourse basis (Instalment Warrants) under section 67(4A) SIS Act. Sadly, many regimented deeds (even some new ones we have seen lately) actually go out of their way to stop borrowing and charging of SMSF assets. (See the ATO’s view here).
  • Allowing death benefit nominations to be typed into the trust deed so that they don’t expiry every 3 years.
  • Don’t restrict membership – there should be no restriction in your deed as to who can become a member – the rules change and you don’t want to miss out.
  • Don’t restrict contributions – old regimented deeds prohibit many classes of people from contributing to your Super. What a waste of time to put in such restrictions. The government, fearful of people running out of superannuation and collapse of the age care pension, are increasing the classes of contributors.

SMSF pre 1 July 2007

Since 1st July 2007, SMSF Deeds need updating because of:

  • “Plan to Simplify and Streamline Superannuation”, from 1 July 2007, once you turn 60 you can take out your Super tax-free, unless you Deed states otherwise (2007).
  • New strategies allow you to turn off and then turn on pensions. Some can be converted to accumulation mode. However, some trust deeds require rollovers be paid to other funds, even if you want to continue to hold them in your fund.
  • Account-Based Pensions and Transition to Retirement Incomer Streams were released in April 2007. Your deed must allow for their payment. Sadly, many older deeds don’t allow for them.
  • Compulsory cashing rules are mostly abolished, except for death. However, many deeds still enforce compulsory cashing.
  • Estate Planning – more people will now retain wealth in their Superannuation until their death. The Superannuation may well be lost to the wrong people or the tax man. Binding Nominations are required.
  • What if by mistake you put in too much money into your Super? Unless you can reject or return the excess funds you suffer a high tax rate. The deed must allow the power to reject and return funds.

SMSF pre 2006

Since 2006, SMSF Deeds need updating because of:

  • Thanks to the 2006 Budget SMSF deeds will become shorter and simpler over time. The pension payment sections of old SMSF Deeds are long and laborious. Such complexities are being phased out in the deeds. A lot of complex rules can be removed.
  • SMSF deeds less than 6 years old: Many SMSF deeds have a deeming provision to include all the new SIS rules. This helps. Sadly, these provisions operate only on those mandatory issues that SIS requires a SMSF to follow. What if a SIS change is not mandatory? What if the Deed applies stricter terms than required by SIS?
  • Since 12 March 2004 it has been considered courageous to operate a SMSF without a complying Product Disclosure Statement (PDS). The PDS contains everything that a trustee is expected to know. If you act for a SMSF (as an accountant, auditor, adviser or lawyer) and there is no PDS then the trustee has a higher chance in successfully suing you. This is based on negligence for your failure to bring everything the trustees needed that the trustee needed to know. The PDS protects the professional advisers as much as it protects each trustee from each other.
  • Contribution Splitting – Spouses can split super contributions between accounts or Funds. Your Deed needs to allow this to happen. (November 2005)
  • Your Deed should be able to permit minors (people under 18) as fund members.
  • What happens if a member is totally disabled? This can be permanent or temporary. You need to have a right to that payment. Power needs to be in the deed so that if a member is totally disabled, then the trustee can pay a benefit provided there are funds available from the member’s account or from the proceeds of the insurance policy.

SMSF pre 1999

Since 1999, SMSF Deeds need updating because of:

  • New market-linked pensions. (2004)
  • Interdependent relationships for beneficiaries. (2004)
  • Acceptance of government Co-contributions. (2003)
  • Changes to compulsory cashing of benefits rules.
  • Changes to contribution acceptance rules. (2004 – Changes to over 65 contribution and benefit payment rules)
  • Divorce and super splitting. (2003)
  • All members must be trustees. (1999)
  • When the Australian Taxation Office took over supervising the SMSF funds most deeds were updated – but not all. Without updates the concessional tax treatment may be lost. (October 1999)

SMSF pre 1995

For deeds last updated from 1995-1999 you need to address these additional issues (as well as the ones above):

  • Accepting your wonderful spouse as a member and for contributions. (1997)
  • Expanding the in-house asset rules to related parties. (1999)
  • Providing for complying lifetime and term pensions. (1998)
  • Binding nominations for death benefits (otherwise your son in the SMSF can direct your Super goes to him and not evenly to all your children). If you don’t have a “binding” nomination then the nomination form you sign merely expresses your wish to the trustee. The Trustee can decide who gets your super when you die. Sadly some deeds stop the member having any choice. (1999)
  • Full preservation of your Superannuation. No taking back out your undeducted contributions. (1999)
  • New regulation – ATO takes over looking after SMSFs.(1998)
  • Need to include complying term and life-time pensions. (1998)
  • Ensuring you get the CGT retirement component. Up to $500,000 can go into your superannuation CGT free from the sale of business assets. (1997)
  • The ever useful expanding of acquisition of asset rules to related parties. (1999)

SMSF pre 1994

Don’t point out the “old age” to your auditor. Just update it. You need the above plus:

  • Uses of Pensions or Corporations powers.
  • Election to become regulated.
  • Covenants by the Trustees.
  • Allowing you to adopt rules under the SIS Act for compliance.

LawCentral Online Australian Legal Doc Shop

How To Save Up To Buy Your First Home

Owning your own home is one major goal for many young Australians. But with property prices so high a first mortgage may appear out of reach. In this interview on Wake Up WA, Certified Financial Planner professional Matt Hern shares three strategies that first home buyers (especially young people) can use to save up to buy their first home.

(Recorded 3rd July 2008.)

Solving The Financial Decisions On Your Mind

On Thursday I conducted a webinar in which I addressed the top three types of financial decisions that are on your mind, as submitted in the recent survey.

Almost all respondants said that they think about these things daily or a few times a week. That is a lot of time and energy consumed on money matters instead of spent doing the things you really love. Better to resolve the issues and spend more time with family and friends, or pursuing your hobbies.

Most issues fell into these three broad categories: Planning, Saving and Investing. For example:

“How will I have enough money for…”

“How can I save more money for…”

“Where is the right place to invest my savings?”

For an insight into the process to resolve these issues watch the recording of the webinar below.

The recording is 45 minutes. A small time investment when you consider the time cost of repetitively thinking about financial issues without resolution.

For assistance to make more clear, confident financial decisions call me.

Download video as an MP4 file (126MB)

Death Throes of the Monster Chimerica

“Chimerica” describes the combination of the Chinese and America economies, which when the term was coined had become the driver of the global economy. In an article in The Weekend Australian over the weekend (21-22 November 2009) authors Niall Ferguson and Moritz Schularick discuss how the past structure of this relationship needs to die a peaceful death for sake of the global economy.

I recommend this article to you if you are interested in how the financial decisions of nations interact and impact on the global economy. (You could call this macro-economics).

Read “Death Throes of A Monster” here. (If that link to the original source has expired read the article here.)

An example of how DIY is costly

Do-it-yourself financial planning can be costly because often you don’t know what you need to know.  With a litte more knowledge you would make a more informed financial decision that can both save and make you money.

This was clearly illustrated in my conversation just now with one of the other tenants in my office building. Let’s call him John…

John’s DIY Superannuation Strategy

John mentioned that about 18 months ago he had cancelled his salary sacrifice into superannuation because, with markets falling the value of his contribution reduced soon after being made. Now that markets have recovered substantially he is going to restart his salary sacrifice.

That all sounds reasonable, right?

Well it was a costly decision and not because of the market movements.

The bit John overlooked…

One of the main benefits of salary sacrifice to superannuation is that you save tax on your gross income. By cancelling your salary sacrifice you end up paying more tax.

I asked John “did you know you could’ve directed your superannuation contributions into a cash investment rather than your former investment option?” Clearly he didn’t know that.

John could’ve kept saving tax by continuing to salary sacrifice to superannuation. In addition he could have avoided losing money on the contributions by directing them to a cash option.

Asking a smart financial adviser before changing his strategy would’ve meant John was wealthier already. The advice fee would’ve been quickly covered by avoiding a costly outcome.

If you, like John, didn’t know you could do that in your superannuation then I am pleased you have read this article. Ponder this: is it possible there are other things about superannuation you perhaps do not know that could be making you wealthier?

If you don’t know how, just ask

Perhaps the next questions that may pops into your head is “how?” How do you direct your contributions into cash but keep your existing balance invested and positioned for recovery?

Well, there are plenty of low cost, value-for-money superannuation products that have that facility. (Hint: they are generally not the industry funds who spend your money on advertising.)

Just ask your financial planner to review your superannuation account. Call me for a low-cost quick super review to see if there are better value-for-money accounts available to you.

John may also have benefited by pondering this before he acted: by what percentage does your investment in superannuation need to fall so that your “loss” equals the extra tax you would pay at your marginal tax rate (by keeping the contribution outside of superannuation)?

Do-it-yourself financial planning can be costly. Great financial planning advice will minimise your downside as much as maximising your upside. You’ll only know when you give it a proper go by hiring a true financial planner (like me, of course. 🙂 )

How to Invest in Gold

I read in The Weekend Australian on Saturday that you can now walk into Harrods in London and walk out with some gold bullion. Besides walking down to your local jeweller (or Harrods) how do you actually invest in the commodity of gold? In this article I share three ways.

Gold BarsI read in The Weekend Australian on Saturday that you can now walk into Harrods in London and walk out with some gold bullion. Of course you can also buy a matching designer vault to keep it in.

After many years (even decades) of languishing out of sight, gold is back on many people’s radar as an investment. Partly this has been driven by fear that paper currencies will collapse. Partly it is driven by fashion and the old band wagon.

Besides walking down to your local jeweller (or Harrods) how do you actually invest in the commodity of gold?

Here are three ways:

  • Buy physical metal
  • Via an exchange traded product
  • Through investing in a gold mining company

Please note I am not recommending an investment in gold. Talk to your financial planner to assess if it is appropriate for your goals and circumstances.

Buy physical gold

To buy physical gold head to the Wild West where The Perth Mint provides three methods of investing in gold.

You can buy bullion bars and coins and take them home with you. Awesome show and tell for your next party, but where do you keep it?

More conveniently you can buy legal title to a portion of the gold held by the mint, through their certificate program. If you fancy having your own “private vault” at the mint you can pay a bit extra and have your own bullion bars segregated from the others.

Investing in gold on the stock exchange

The third method offered by The Perth Mint is to buy a gold product listed on the Australian Stock Exchange (ASX) that is designed to track the actual gold price. It’s structured as a call warrant giving you the right to exchange your paper for physical gold. (ASX: ZAUWBA)

Also listed on the ASX is an exchange traded managed fund. The fund buys and stores physical gold. By purchasing a share in the fund you buy a portion of the gold in their stock, which is audited. (ASX: GOLD)

Investing in a gold mining company

This is a less direct method and your investment value will not necessarily track movement in the gold price. Further, many mining companies have investments in more than one commodity. Plus you have the management and operational risk associated with any company.

The best investment in gold…

For me, the shadow of my wife over my shoulder as I write this article reminds me that my best investment in gold may be the decorative kind. (Oh, and apparently gold’s an even better investment when combined with other precious gems.)

The Three Fatal Financial Behaviours

Have you ever thought you are not getting as far ahead financially as you think you should, but are not sure why? Then maybe one or more of these three behaviours may be the cause.

Have you ever thought you are not getting as far ahead financially as you think you should, but are not sure why? Then maybe one or more of these three behaviours may be the cause.

financialYour current financial situation is the cumulative effect of all the financial and lifestyle choices you have made to date. Over time your possible lifestyle outcomes diverge greatly and not necessarily towards the outcome you most want (represented by the star on the diagram to the right).

The purpose of comprehensively planning your financial situation is to maximise the probability that you will meet or exceed your desired lifestyle.

Implicit in this is to minimise the impact of negative outcomes from your choices and from external events.

Why we don’t meet our financial goals

I believe there are three main categories of reasons we don’t meet our financial (and therefore lifestyle) goals:

  • Knowledge – we don’t find out the right things for us to do right now
  • Behaviour – we don’t do the things we already know we should be doing
  • Time – we take action too late (delay)

In this article let’s look at three financial behaviours that can prove fatal to the achievement of your goals and what you can do to overcome them.

There are other destructive behaviours. I have chosen these three because they eat away at your foundation and are counter-productive to your other efforts. Long term readers may notice they link to the three Cs of Money Mastery.

The Three Fatal Behaviours


1. No idea what you spend

The common impact of this behaviour is that you end up spending way too much money on insignificant things and don’t have enough for really important things. The longer term impact is that you will not be diverting enough savings to longer term wealth creation meaning you may never be able to retire on your terms.

A symptom of this behaviour is thinking “wow, where did all my money go?” Another symptom is having an ad-hoc important event creep up on you, like a wedding or milestone birthday and you not being able to afford to fully participate. A variant of that symptom is that whenever that happens you whack it on your credit card and spend months trying to repay it.

What to do

You know what to do to solve this one just like I know what to do to get fitter. If you exhibit this behaviour hire a personal trainer for your money to support you in getting financially fit.

Call me about cash flow coaching and read my last article for additional suggestions.

2. Haphazard investment decisions

We make haphazard investment decisions when we don’t really know what is the best option for us but we can’t be bothered spending the time and energy on the research. So we tend to do what others are doing and take emotional comfort in being part of the crowd. (For most people this will be sub-conscious.)

The impacts of this behaviour are many and include:

  • Mediocre returns – you may make money but probably nowhere near enough for the ‘risk’ you took, and also not as much as the rest of the market. So you miss your lifestyle target (the star).
  • Stress – you are not confident about the investment so you are stressed about what could or is going wrong. You saved time doing the research but traded it for emotional stress – what’s the point?

What to do

The solution here includes:

  • starting early (like right now) so time is on your side
  • starting simple with only what you currently understand
  • Taking incremental steps forward in your knowledge so you can increment forward in complexity of investments
  • Hiring a mentor to educate you and thereby increase your confidence and capability. (A good financial planner will not only advise but also educate you.)

3. Blind optimism

This behaviour is all about the impact of negative outcomes from your choices and from external events.

buried head in the sandOptimism – you think it’ll never happen to you. You underestimate both the likelihood and the consequences of something going askew.

Blind – You don’t even bother to investigate, consider and evaluate what could go wrong and its impact.

What to do

“Sometimes maybe curiosity can kill the cat-astrophe before it actually happens. Ask questions, seek answers, find possibilities.” Wise words from one of my mentors, Glenn Capelli.

Next erect your safety nets so if you fall off the tight rope of life you bounce rather than splat.

Do It

You probably know this stuff already – I write about it all the time. But if you are not doing the positive things you are robbing yourself of riches. One day the party is going to end and you will wake up with a rude hangover (that could last decades).

Party responsibly and you can enjoy both today and tomorrow.

Just like health, if you need support and accountability to implement new financial behaviours hire a personal trainer and even buddy up.

To have enough money to live the life you’d love stop researching new trends (K), start doing the foundation actions (B) and do it now (T).

Yours in prosperity

Matt Hern CFP
Financial Educator and Adviser

Rely on newspapers for property research at your peril

I don’t usually watch ABC TV’s Media Watch show but on Monday night I was pleased to have flicked over at just the right time. Newspapers love criticising financial planners in their usual sensationalised way. One Media Watch story uncovered a dirty little secret about newspapers and how they appear to be so influenced by who pays their bills – the real estate advertisers.

So when you are investing in real estate don’t trust or rely upon property information published by newspapers. It very well could be only part of the full story – the part favourable to agents and developers. Broaden and deepen your research using other information sources.

Watch or read the full Media Watch story here on the ABC website. (5 min video)

Media Watch revealed that The Age newspaper had published an online article critical of real estate agents and their ‘dirty little secrets’. The article received lots of reader comments but was quickly removed after The Age received “a forceful complaint from the Real Estate Institute of Victoria”.

So why would The Age remove such a popular story that was driving people to their website and engaging them in the content? This is what Media Watch revealed:

“Well, perhaps because of another “dirty little secret”: property ads placed by real estate agents are worth around $60 million a year to The Age, we’ve been told. That’s more than a quarter of its total advertising revenue.

So keen is the paper to keep on the good side of the property-wallahs that it takes up to seventy of them on an annual junket – this year’s trip departs to China soon.”

And newspaper journalists and editors think the financial planning industry is corrupted by how some advisers are paid? Sounds like a case of the pot calling the kettle black!

(P.S. I am a fee based planner who rebates any commissions to you.)

Trading in Exchange Traded Funds

Exchange Traded Funds (ETFs) are like traditional managed funds (which you may be familiar with) but they are instead traded on a stock exchange like other company stocks.

For do-it-yourself investors it is handy to know about ETFs and how they work. It is also important to understand how they are different to Listed Investment Companies (LICs).  To learn a little more about how ETFs work I recommend this brief article from Vanguard Investments Australia called “ETFs: Market Making, Spreads and Liquidity“.

Find the right property mentor

One of the messages I teach is to “Do What You Love; Outsource The Rest“. When it comes to direct investment in residential property it can be tricky to implement this due to the presence of too many biased spruikers. Neil Jenman refers to them as “selling machines” in his insightful article, which I recommend you read in full here.

Following the recent drop in real estate prices I have noticed many spruikers coming out again in force promoting their services and properties. If you perceive property to be “cheap” and are tempted into buying now please read Jenman’s article.

One of the valuable insights in Jenman’s article is when he busts the myth that property prices double every seven to ten years:

“In 1890, the average Sydney home price was $1,446 (£723). If property really does double every seven years then, in 2009, the average Sydney home will be worth $189,530,112.”

Neil Jenman has been in the real estate industry for decades and is now also a consumer advocate. Here’s his view on investing through property investment clubs and the like:

“In my opinion, investing in property via a Selling Machine company, which is rapidly becoming the most common way to invest in property, is the worst way to invest in property.”

“…all [investors] have been ripped off because they have paid far too much at the start – and they often pay far too much in holding costs.”

When direct investment in real estate becomes the right strategy to achieve your life goals find the right mentor to help you and ensure they are biased and/or incentivised to achieving your best outcome rather than theirs.

More Money To Pursue Your Passions

thought_leaders-cover250.jpgDo you want to create wealth but your eyes glaze over with number talk?

Would you like ideas to manage your money in a way that doesn’t take much time and doesn’t require you to read the business news every day?

Do you like the idea of outsourcing to a professional but are not sure how?

If so, you should download and read my latest free e-book here.

This version includes a targeted introduction for information entrepreneurs, but the recommendations are equally applicable to most people. Download the e-book for free now.

I’ll huff and I’ll puff and I’ll…

…blow your house down.

For years I’ve been earbashed by people enamoured with investing in residential property. Apparently it’s THE best investment and “you can never lose money in property”.

Out of curiosity I enquire of these people what makes them hold that belief. Sadly most can only regurgitate the words of others and have never done thorough comparative research.

I am not against residential property investment. I am against blind faith in absolutes, especially in the area of investing.

If you would like to add some breadth to your views of property investing I recommend the following two resources:

  • Read Scott Pape’s article from the Herald Sun (20th June 2009) “Wealth starts at home” where he and Neil Jenman share some of the lies spread by property spruikers.
  • Watch the documentary “The Ascent of Money” by Niall Ferguson on ABC TV this Thursday night. This episode is about property. If you miss the show you can either buy the DVD or read the book of the same title.

Coupled with the recent publicised falls in property prices you should by now realise that ‘safe as houses’ is absolute rubble!

If you are going to invest in residential property be broad and deep in your research so that when the wolf comes along he can’t blow your house down.

The credit crisis explained visually

For those still a little bit baffled by how the credit crisis started and then snowballed I recommend you spend 11 minutes watching this video. The concepts are very simply explained including: leverage, collaterised debt obligation and sub-prime. The knowledge will help you become a better investor in the future so that you can better understand the true risk of your investments.

Much kudos to creator Jonathan Jarvis. You can also visit the official website for the videos.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.