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SRS Advice by Strategic Retirement Solutions - 2M ago

Market and Economic overview

Australia

  • Q1 2019 inflation data were released and came in well below consensus expectations. CPI was unchanged in the first three months of 2019 and the annual pace declined to 1.3%.
  • With inflation so far below the RBA’s 2.0% to 3.0% target range, consensus expectations suggest borrowing costs will be lowered twice before the end of 2019.
  • The pace of Australian GDP growth has slowed in FY19, but growth in national income remains robust – partly due to elevated commodity prices.

United States

  • The US economy expanded at an annual pace of 3.2% in the March quarter; well ahead of even the most optimistic expectations.
  • Sceptics suggested the result was unusually influenced by inventory build-up by producers against a background of ongoing trade tensions. An ex-inventory measure of GDP rose at a more moderate pace of 2.5%.
  • Accordingly, there were suggestions that we might see a slowdown in headline GDP in the June quarter as inventory levels normalise. Time will tell.
  • The employment picture remained undeniably favourable – nearly 200,000 new roles were created in March, taking the total number of newly employed Americans to more than half a million in 2019 to date.
  • As the Federal Reserve made clear in March, policy settings are unlikely to be amended in the remainder of this year. The PCE Deflator – the central bank’s favoured measure of inflation – continues to drift lower and remains well below target. This suggests there is a very low likelihood of unexpected interest rate hikes in the foreseeable future.

Europe

  • The Eurozone economy expanded by 0.4% in the March quarter, from 0.2% in the prior three month period. In spite of the modest improvement in early 2019, it appears accommodative policy settings are not having the desired impact of stimulating activity levels in the region.
  • Industrial production remains below levels from a year ago and inflation remains subdued. Consumer confidence also remains low, which does not augur well for retail sales and other discretionary expenditure.
  • At the country level, there was a notable recovery in Italy. Europe’s third largest economy slipped into recession in December, but grew 0.2% in the March quarter. This alleviated concerns of further political unrest for the time being.
  • European leaders extended the deadline for the UK’s exit from the EU to 31 October 2019. Efforts to agree withdrawal terms prior to the initial 29 March 2019 target proved unsuccessful.
  • Inflation in the UK remains slightly below the Bank of England’s 2.0% target, although various other economic indicators surprised positively.

New Zealand

  • Inflationary pressures have moderated. CPI for the March quarter came in at 1.5% year-on-year; below expectations. Downward pressure from lower energy prices and a stronger NZ dollar more than offset a modest uptick in food prices.
  • There was a slight improvement in the labour market, with unemployment falling to 4.2%. Wages also grew 1.1% in the March quarter.

Asia

  • Annual GDP growth in China remained at 6.4% in the March quarter, aided by the Government’s pro-growth policies. These supported consumer demand, which helped offset the impact of ongoing tariff-related trade disruptions. Retail sales were 8.7% higher than in the corresponding period a year ago.
  • In Japan, there was an uptick in inflation as food and transport costs stabilised. This is unlikely to be sufficient for the Bank of Japan to abandon its zero interest rate policy.

Australian dollar

The subdued inflation print for the March quarter brought forward expectations of an interest rate cut in Australia. At the end of April, money markets were implying a 36% chance of a rate cut in May, and a 72% probability of a cut by the end of June. A second cut has also been priced in by year-end. These evolving forecasts were reflected in currency movements relative to the US dollar. The AUD closed April at US$0.705, a depreciation of 0.7% over the month.

Commodities

Commodity prices were mostly higher during April as concerns around US-China trade wars eased. Chinese policy support, via tax cuts and infrastructure projects, was also broadly supportive.

Iron ore (+5.5%) prices rose, as lower port stockpiles in China signalled shortage concerns. Stockpiles are declining as the fallout from the dam disaster at Vale’s Feijao iron ore mine in late January is now being felt at ports in China. Oil (Brent crude +3.8%) moved higher, driven primarily by OPEC-led supply cuts and robust demand.

Industrial metals were mostly lower during the month. Zinc (+1.4%) and copper (+0.2%) edged higher, while lead (-3.2%), Aluminium (-4.3%), nickel (-7.1%) and tin (-7.3%) all lost ground. In the precious metals sector, gold (-0.7%) and silver (-1.1%) edged lower, while platinum (+4.3%) bucked the broader trend, posting relatively strong gains.

Australian equities

An improvement in sentiment enabled the S&P/ASX 100 Accumulation Index to return 2.3% in April. A positive start to the US earnings season combined with increasingly dovish commentary from global central banks supported the performance of Australian shares.

Consumer Staples was the best performing sector, adding 7.9% as all constituents registered positive returns. The Financials sector recovered from March weakness, rallying 4.3%. With the exception of Suncorp Group, all major and regional banks added value.

Bond-proxy sectors including REITs and Utilities under-performed. A modest increase in bond yields reduced the appeal of yield-generating equities. Small caps outperformed their large cap peers, with the S&P/ASX Small Ordinaries Accumulation Index rising 4.1%.

Listed property

Global listed property trailed broader equity markets, with most property markets posting negative returns for the month. The FTSE EPRA/NAREIT Developed Index returned -1.3% in USD terms and -0.4% in AUD terms. New Zealand (+3.7%) was the best performing property market, while Japan (-3.6%) was the worst performer.

In Australia, the S&P/ASX 200 A-REIT Index returned -2.6%. Office A-REITs (-1.3%) was the best performing sub-sector, followed by Industrial A-REITs (-1.4%). Retail A-REITs underperformed, returning -3.8%. Outperformers in Australia included Unibail-Rodamco-Westfield (+6.4%) and Mirvac (+4.0%). Underperformers included GPT Group (-6.1%) and Scentre Group (-5.6%); both struggled following Q1 operating updates.

Global equities

The MSCI World Index rose 4.6% in AUD terms, pushing global equity markets up to all-time highs. The weaker AUD helped to bolster returns, with the corresponding Index up ‘only’ 3.8% in local currency terms. The S&P 500 Index rallied 4.0% in USD, registering fresh record highs on the last day of the April.

The increased prospect of interest rate cuts in the US, a more positive corporate earnings season than anticipated, a stronger energy sector driven by rising oil prices and reports that “substantial progress” is being made in the US-China trade talks all helped to drive US stocks – and global markets more broadly.

Germany’s DAX recovered from a weak March result to be the strongest performer over April, rising 7.1% in euro terms. Economic sentiment and unemployment numbers both improved in Germany and investors responded particularly positively to the reduced risk of an escalation in trade tensions.

The Japanese Topix was a laggard for the second month in a row, managing only a 1.9% gain in yen terms. Investors were disappointed as industrial production and balance of payments numbers showed that the country’s manufacturing sector was struggling as export demand faltered.

Emerging markets enjoyed a sixth successive month of positive returns, with a 3.1% rise in AUD terms. Stocks in the EMEA region outperformed, supported by strong gains in South Africa. Latin America was the weakest EM region. Investors appeared to be losing faith in the new Brazilian president’s ability to drive reforms through congress.

Global and Australian Fixed Interest

Global bond yields rebounded a little in April, having fallen sharply in the March quarter. Benchmark 10-year US Treasury yields closed the month 10 bps higher, at 2.50%. Germany, yields clawed their way back into positive territory, closing 8 bps higher at 0.01%. Japanese yields remained negative, at -0.05%, despite rising 4 bps over the month.

Among the most significant moves was in the UK, where 10-year yields rose 19 bps, to 1.19%. The gilt market remained affected by Brexit-related developments. In Asia, Chinese local currency bonds were added to the Bloomberg Barclays Global Aggregate Index. Over time this is expected to result in broad-based buying, although prices dipped immediately after the addition as yields rose sharply. Chinese 10-year yields closed April 33 bps higher, at 3.40%. Australian CGS yields were almost unchanged in April, closing the month at 1.80%.

Global credit

Credit spreads tightened further, supporting corporate bond prices and enabling global credit markets to register a fourth consecutive month of positive returns.

Source: Colonial First State

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SRS Advice by Strategic Retirement Solutions - 2M ago

The end of the financial year is a good time to think about how you could grow your super and start saving for retirement. Here are some options you could consider to help your super work harder for you.

Tax-deductible super contributions

You may be eligible to claim a tax deduction for your personal super contributions. By doing this, you may be able to pay less tax while saving more for your future. Your eligibility can be affected by your age, sources of income and the level of salary sacrifice and certain other employer contributions made for you. To claim a deduction, you must give a notice to the Trustee of your super fund and have it acknowledged.

Keep in mind that personal deductible contributions count towards your annual before-tax contributions cap. The current before-tax contributions cap is $25,000 per financial year. Any contributions made above these limits will attract additional tax.

Salary sacrifice to top up your super

Salary sacrifice is an arrangement where part of your before-tax wage or salary is paid into your super account instead of being received as take-home pay. It could be an effective way to boost your super and help you with saving for retirement. There may be tax advantages for you, depending on how much you earn.

To get started, do a budget to work out how much you can afford to contribute to your super from each pay packet. You may also consider talking to your employer to find out if they can set up salary sacrifice arrangements for you.

Keep in mind that salary sacrifice contributions count towards your annual before-tax contributions cap of $25,000 per financial year. Personal deductible contributions and contributions made by your employer also count towards your annual before-tax contributions cap.

Consider a one-off contribution

After-tax super contributions are made from money you have already paid income tax on and won’t be claiming a tax deduction on. For example if you work for an employer, making a contribution to super directly from your bank account is considered an after-tax contribution.

Investment earnings within your super accumulation account are taxed at up to 15%, compared to your marginal tax rate which applies to investments you may hold outside of super. Please note that depending on your income level, your marginal tax rate may be less than 15%.

The annual limit for after-tax contributions is currently $100,000 if your total superannuation balance is below $1.6 million at the start of the financial year. In certain circumstances, you may be able to bring forward three years of after-tax contributions into one year, contributing up to $300,000, if you haven’t triggered the rule in the previous two years and your total superannuation balance is below $1.4 million at the start of the financial year. You may still be able to contribute part of the bring-forward if your total superannuation balance is between $1.4 million and $1.5 million at the start of the financial year.

Government co-contribution

In the 2018/19 financial year, if you are a middle to low income earner, adding to your super from after-tax money could see you entitled to a government co-contribution worth up to $500.

To be eligible, you need to earn less than $52,697 in the 2018/19 financial year and be aged below 71 at 30 June 2019. You must also have a total superannuation balance of less than $1.6 million at the start of the financial year to be eligible.

The maximum co-contribution of $500 is available if you earn less than $37,697 in the 2018/19 financial year and if you have made a contribution yourself of at least $1,000. The co-contribution steadily reduces as your income rises and until it reaches zero at an annual income of $52,697.

Spouse super contribution tax offset

If your spouse or partner’s assessable income is less than $40,000 in a financial year, and you decide to make super contributions on behalf of your spouse, you may be able to claim a tax offset for yourself.

The maximum tax offset available is $540 if your spouse receives $37,000 or less in assessable income in the 2018/19 financial year. The tax offset is progressively reduced until it reaches zero for spouses who earn $40,000 or more in assessable income in a year.

First home buyers

You may be able to make voluntary superannuation contributions to use towards a deposit for your first home under the First Home Super Saver Scheme (FHSSS) starting from 1 July 2017. Voluntary contributions you make, plus associated earnings, can be accessed from 1 July 2018 subject to meeting eligibility criteria. Whether using concessional or non-concessional contributions, the total amount of contributions you can withdraw is capped at $15,000 a year (or a maximum of $30,000 in total). Superannuation Guarantee contributions, as well as contributions that don’t count towards or are in excess of the contribution caps, cannot be accessed under the FHSSS as part of your deposit.

Downsizer contributions

From 1 July 2018, if you are planning on downsizing your family home of ten years or more and are aged 65 or over, you may be able to contribute up to $300,000 from the sale proceeds to superannuation as a downsizer contribution. If you have a spouse, they could also contribute up to $300,000 to their superannuation from these proceeds. Downsizer contributions do not count towards your before or after-tax contribution caps or caps on contributions for total superannuation balance.

Be aware of annual limits

As annual limits apply to the amount you can add to your super each year, it is important to consider how much you have already added to your account (or accounts) during the financial year to know which strategies can work for you.

Source: BT

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SRS Advice by Strategic Retirement Solutions - 2M ago

Diversification is the act of spreading the money you have to invest across a number of different types of investments. For example, rather than putting all your money into shares in one company, you split it across multiple shares in companies which operate in different industries or different countries. You might also spread to other types of investments like bonds or property.

Why do this? Because different investments behave in different ways. When one peaks, another may plummet, while another stays flat. Some provide investment returns in the form of income (for example, dividends or rent), others through increasing in value. Diversification ensures that an investment portfolio is not at risk of suffering too much if one or more of its parts fall in value.

Diversify, yes – but also think of your objectives

Diversified investment portfolios vary substantially, but can be grouped according to what the owner (the investor) wants from their portfolio and how much risk they are prepared to take on. Broadly speaking, we can bucket portfolios under one of three labels: conservative, balanced and growth.

Conservative portfolio:

This may have the bulk of its money (70% or more) invested in cash and fixed interest (bond) investments, with the rest in growth assets such as  shares and property which are, generally speaking, more volatile. This type of portfolio is designed to achieve lower variability in returns, albeit with lower returns than balanced and growth portfolios.

Balanced portfolio:

As the name suggest, more of a balance, with around 30% – 40% invested in cash and fixed interest and the remainder in growth assets, with slightly more varied returns through time.

Growth portfolio:

The alter-ego of the conservative portfolio, this kind of portfolio will typically have at least 70% – 85% in growth-oriented investments, aiming to provide higher returns over the long term, but with a greater likelihood of shorter term volatility. This means in some years you could see losses – even significant losses – but also higher returns in the good years.

The traps of diversification

When you manage an investment portfolio on your own, there are many risks to contend with. First is a basic lack of knowledge. ASIC research shows that 10% of people have at some point invested in something they didn’t understand, and 69% of people either had not heard of or did not understand the concept of risk and return trade-off. Furthermore, some 41% of people view real estate as a low or very low risk type of investment. A lack of knowledge and experience means many investors could be open to:

  • Buying into an investment before prices drop significantly, or selling before they increase (known as timing risk)
  • Failing to understand which investments are low risk and which are considered high risk
  • Investing too much in one investment simply because it has already performed well.

The concept of not putting all your eggs in one basket seems logical, but working out how you do this with your own money and actually doing it – yourself – takes a lot more effort. A financial planner can sit down and help you work out what you want from your money over time and define your financial goals. Furthermore, Australia has a well-developed market for investment products, including managed funds, to provide one-stop diversified investment options for individuals.

About managed funds

Investing in a managed fund allows you to access investment professionals to manage your money. In a managed fund your money is pooled with that of many others. The investment manager controls where this pool of money is invested, using their investment process and experience to the mutual benefit of the investors. The investment manager cannot just invest where they please; each managed fund has its own governance structure, rules to abide by and specific investment objectives – like providing long term growth, or regular income.

There is a wide range of managed funds available including well diversified options such as conservative, balanced and growth funds. You will pay a fee for ongoing management, but beyond the investment manager’s expertise, what you buy is freedom to ‘get on with life’, as managed funds are one of the easiest ways for time-poor or knowledge-poor people to establish and manage a diversified portfolio.

Source: BT

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It’s usually inevitable your kids are going to grow up and one day move out of home. And, while research shows that women are generally more upset at the prospect of this than men are, the good news is many people report that once they come to terms with it, there are a number of upsides.

These were the findings from The Empty Nesters report (the 14th instalment of The Australian Seniors Series), which revealed the best thing about kids leaving the nest, according to those who’d said goodbye, was parents had the place to themselves and (hooray) there was less cleaning up to do.

Of those surveyed, nearly 75% said they were also loving the extra time they had, while almost 70% said their financial position had changed for the better.

If you’re still getting your head around the situation (maybe you’re one of the four in 10 feeling a bit sad or would’ve loved if your kids stayed at home for longer), we explore the upsides more closely.

The financial benefits

According to the research, 70% of those whose kids had left home said they had more disposable income, with 68% saying they were in a better financial position and 56% saying they felt less guilty when it came to splashing out and spending a bit of money on themselves.

Almost a third also said they had turned their children’s rooms into a space for short-term accommodation (earning an average of $1,632 in the last 12 months), or a place where they could indulge in their own hobbies or interests, which was also helping a number of seniors to make extra cash on the side (specifically $2,584 on average in the last 12 months). This extra money generally came from offering services on a freelance basis or selling collectibles and creations.

The lifestyle benefits

In terms of the lifestyle benefits, about 41% of seniors whose children had left home were finding more time to exercise, with walking, going to the gym and golfing topping the list of people’s favourites, followed by swimming and yoga.

Seniors’ social lives were also peaking, with nearly half of those surveyed saying they were spending more time hanging with mates, eating out and going to the movies.

On top of that, over 90% of empty nesters were travelling more often and for longer periods of time in comparison to when their kids were living at home.

Source: AMP

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SRS Advice by Strategic Retirement Solutions - 2M ago

The Federal Treasurer, the Hon. Josh Frydenberg MP, delivered the 2019 Federal Budget on 2 April 2019.

As widely predicted, the announcement included a range of tax cuts for both individuals and businesses. The Treasurer also announced increased funding for regulators to encourage tax and superannuation compliance, a number of positive changes to superannuation, and an affirmation of previously announced aged care measures.

This summary provides coverage of the key issues of most interest to you.

Highlights

Personal income tax

  • Increases in the low and middle income tax offset to apply in 2018-19.
  • Other tax benefits (tax rates/thresholds and low income tax offset changes) to commence in 2022-23 and later income years.

Business owners

  • Extension of the provision allowing small business to instantly write-off asset purchases.
  • Further consultation on Division 7A reform.

Superannuation

  • Work Test changes.
  • Spouse contributions.
  • Bring-forward of the NCC cap.
  • Tax relief for merging superannuation funds.
  • ECPI administration simplification.

Social Security

  • Energy Assistance Payment.

Aged care

  • Improving the quality, safety and accessibility of aged care services.

Personal income tax

The Government will lower taxes for individuals by building on its legislated Personal Income Tax Plan, announced in the 2018 Federal Budget. The changes to the plan will provide immediate relief to low and middle income earners, support consumption growth and ease cost of living pressures.

Low and Middle Income Tax Offset from 1 July 2018

The Government will provide a further reduction in tax provided through the non-refundable low and middle income tax offset (LAMITO).

LAMITO for 2018-19 and 3 subsequent income years

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This measure increases the effective tax-free thresholds as follows:

Increase in tax bracket thresholds from 1 July 2022

From 1 July 2022, the Government will increase the top threshold of the 19 per cent personal income tax bracket from $41,000, as legislated under the plan, to $45,000.

Low Income Tax Offset from 1 July 2022

From 1 July 2022, the Low Income Tax Offset (LITO) will be increased to a maximum $700 for those with taxable income less than $37,500. LITO will phase out at 5% in the income range from $37,500 to $45,000, and at 1.5% thereafter.

Reduced marginal tax rate from 1 July 2024

From 1 July 2024/25, the Government will reduce the 32.5 per cent marginal tax rate to 30 per cent. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates, improving incentives for working Australians. In 2024/25 an entire tax bracket, the 37 per cent tax bracket will be abolished under the Government’s already legislated plan. With these changes, by 2024/25 around 94 per cent of Australian taxpayers are projected to face a marginal tax rate of 30 per cent or less.

Medicare levy thresholds for 2018/19

The threshold for singles will be increased from $21,980 to $22,398. The family threshold will be increased from $37,089 to $37,794. For single seniors and pensioners, the threshold will be increased from $34,758 to $35,418. The family threshold for seniors and pensioners will be increased from $48,385 to $49,304. For each dependent child or student, the family income thresholds increase by a further $3,471, instead of the previous amount of $3,406.

On-time payment of tax and superannuation liabilities

The Government will provide $42.1 million over four years to the ATO to increase activities to recover unpaid tax and superannuation liabilities. These activities will focus on larger businesses and high wealth individuals to ensure on-time payment of their tax and superannuation liabilities. The measure will not extend to small businesses.

Business owners

Increasing and expanding access to the instant asset write-off

From 7:30 PM (AEDT) on 2 April 2019 (Budget night), the Government is increasing and expanding access to the instant asset write-off.

The Government is increasing the instant asset write-off threshold from $25,000 to $30,000. The threshold applies on a per asset basis, so eligible businesses can instantly write off multiple assets.

Medium sized businesses will now also have access to the instant asset write-off.

The increased and expanded instant asset write-off will apply from Budget night until 30 June 2020.

Arrangements prior to Budget night

The Government has already legislated a $20,000 instant asset write-off for small businesses. Eligible small businesses can already immediately deduct purchases of eligible assets costing less than $20,000 that are first used or installed ready for use by 30 June 2019.

On 29 January 2019, the Government announced that it would increase the instant asset write-off threshold for small businesses from $20,000 to $25,000 and extend the instant asset write-off for an additional 12 months to 30 June 2020.

These changes interact with the changes being announced as part of Budget. This means that, when legislated, small businesses will be able to immediately deduct purchases of eligible assets costing less than $25,000 that are first used or installed ready for use over the period from 29 January 2019 until Budget night.

Further consultation on amendments to Division 7A

The Government will defer the start date of the 2018-19 Budget measure, Tax Integrity – clarifying the operation of the Division 7A integrity rule, from 1 July 2019 to 1 July 2020. Division 7a is part of the Income Tax Assessment Act 1936, and aims to prevent profits or assets being provided to shareholders or their associates tax free. The 2018/19 Budget measure was intended to address unpaid present entitlements. Delaying the start date by 12 months will allow additional time to further consult with stakeholders on these issues and to refine the Government’s implementation approach, including to ensure appropriate transitional arrangements so taxpayers are not unfairly prejudiced.

Superannuation

Work test changes

From 1 July 2020, Australians aged 65 and 66 will be able to make voluntary superannuation contributions, both concessional and non-concessional, without meeting the Work Test.

Currently the Work Test (a minimum of 40 hours worked over a 30 consecutive day period in the financial year of contribution) applies from a superannuation fund member’s 65th birthday.

This change will align the superannuation Work Test with the eligibility age for the Age Pension, which is scheduled to reach age 67 from 1 July 2023.

Spouse contribution age limit

The maximum age at which a spouse contribution can be made will be increased from age 69 to age 74. The limit applies to the age of the spouse into whose superannuation account the spouse contribution is being made.

Currently those aged 70 and over cannot receive contributions made by another person, including a spouse, on their behalf.

This measure was announced in conjunction with the Work Test changes outlined above.

NCC bring-forward arrangements

The cut-off age for the bring-forward of up to two future years of the non-concessional contribution (NCC) will be extended by two years. This means NCCs of up to $300,000 can be made in one financial year.

Currently the bring-forward arrangement applies until 30 June in the financial year the superannuation fund member turns age 65. This will be extended to allow those aged 65 and 66 to use the bring-forward arrangement.

This measure was announced in conjunction with the Work Test changes outlined above.

Permanent tax relief for merging superannuation funds

The Government will make permanent the current tax relief for merging superannuation funds that is due to expire on 1 July 2020.

Since December 2008, tax relief has been available for superannuation funds to transfer revenue and capital losses to a new merged fund, and to defer taxation consequences on gains and losses from revenue and capital assets.

The tax relief will be made permanent from 1 July 2020, ensuring superannuation fund member balances are not affected by tax when funds merge. It will remove tax as an impediment to mergers and facilitate industry consolidation. Consolidation would help address inefficiencies by reducing costs, managing risks and increasing scale, leading to improved retirement outcomes for members.

ECPI calculations

The Government will reduce costs and simplify reporting for superannuation funds by streamlining some administrative requirements for the calculation of exempt current pension income (ECPI).

The Government will allow superannuation fund trustees with interests in both the accumulation and retirement phases during an income year to choose their preferred method of calculating ECPI.

The Government will also remove a redundant requirement for superannuation funds to obtain an actuarial certificate when calculating ECPI using the proportionate method, where all members of the fund are fully in the retirement phase for all of the income year.

This measure will start on 1 July 2020.

Social security

Energy Assistance Payment

The Government will provide $284.4 million over two years from 2018-19 to make a one-off Energy Assistance Payment of $75 for singles and $62.50 for each member of a couple eligible for qualifying payments on 2 April 2019 and who are resident in Australia.

Qualifying payments are the Age Pension, Carer Payment, Disability Support Pension, Parenting Payment Single, the Veterans’ Service Pension and the Veterans’ Income Support Supplement, Veterans’ disability payments, War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.

This measure builds on the 2017-18 Budget measure titled Energy Assistance Payment.

Aged care

Improving the quality, safety and accessibility of aged care services

The Government affirmed its announcement on 10 February 2019 issued by the Prime Minister, Minister for Health and Minister for Senior Australians and Aged Care to provide $724.8 million over five years from 2018-19 to support older Australians through further improvements to the quality, safety and accessibility of residential and home care services.

Source: Macquarie April 2019

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SRS Advice by Strategic Retirement Solutions - 2M ago

When share markets experience a downturn, it’s easy to get nervous about the impact on your investments. But this kind of volatility doesn’t always necessarily spell bad news – as billionaire entrepreneur Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.”

While it may seem strange to buy when everyone else is selling up, the fact is that even a declining market can present opportunities. The key is to choose a mix of investments that allows you to take advantage of both positive and negative market movements.

Here are some strategies that every savvy investor should keep in mind.

Understand share price changes

When markets are driven lower by negative sentiment, assets can potentially fall below their fundamental value. These conditions may then provide valuable opportunities for investors to temporarily buy shares at a discount.

This is because the value of an individual stock is the sum of the returns it can potentially generate over the company’s lifetime. So while short-term shockwaves such as recessions or political events can affect the immediate share returns on an asset, they won’t necessarily impact its intrinsic worth.

But be careful as this doesn’t mean you should buy anything and everything that’s on sale. For instance, a company’s share prices may be falling because of other factors that will erode the long-term potential of those shares. And with any investment, you want to be reasonably confident that its value will rise in the future.

Investment managers and financial advisers work hard to identify undervalued assets and take advantage of market dips. That’s why it’s always important to seek professional advice before you make any major investment decision.

Take a long-term view

A down market offers the potential to earn greater returns than an up market. This is because, theoretically speaking, the lower your starting point, the higher your stocks can move. However, this is usually only true if you adopt a long-term investment strategy that will help you ride out any future market fluctuations.

Despite periods of short-term fluctuations, historically share markets tend to move upwards, and shares are an investment vehicle designed to be held for periods of five years or more. So, whether the market is up or down, you may be wise to ‘buy and hold’ so you can increase your potential for strong returns in the long run.

Diversify your portfolio

Even the most seasoned investor knows how difficult it is to time the market. Rather than trying to predict future movements, some say it helps to take a measured approach by investing regularly over months and years, regardless of how the market is performing. So if you continue investing consistently when prices fall, you’ll be able to buy a larger number of shares for the same amount you usually invest.

It can also help to diversify your portfolio by investing in defensive assets such as fixed-interest investments and cash. These tend to be less dependent on market cycles, so they can provide stable earnings through periods when markets are on the move.

Most importantly, remember that a financial adviser can help tailor your investment strategy so you can make the most of market movements. Your adviser can also ensure your portfolio is robust and diversified, so you can protect your investments and keep your financial plan on course.

Source: Colonial First State

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It’s no secret a diversified portfolio may help to protect your wealth from market ups and downs.

Including investment alternatives in your self-managed super fund, may therefore provide additional diversification.

But what exactly are alternatives and what can they do for your portfolio? We take a closer look under the hood to find out more.

How alternatives could fit within your self-managed super fund

Alternatives cover a very wide range of asset classes that could be incorporated within your self-managed super fund, should you choose to. Their performance, as well as associated risks, can differ greatly.

As the name suggests, alternative investments fall outside of the traditional asset class sectors of shares, listed property, fixed income and cash. Broadly, the different types of alternative investments include:

  • Commodities – which cover a wide range of assets such as live cattle, wheat, corn, soybeans, gold bullion, copper, aluminium, oil and coffee.
  • Infrastructure – covers services essential for communities such as airports, roads, power, hospitals and telecommunications.
  • Private equity – investments in unlisted companies that offer the prospect for increases in shareholder value. Also known as “venture capital”, which is an early stage private equity investment.
  • Hedge funds – which aim to protect investment portfolios from market uncertainty, while providing positive returns during both upward and downward trends in the market.
  • Real assets – Direct property such as retail or commercial premises or facilities.
  • Other direct investments, such as artwork and antiques.

The benefits of alternatives in a self-managed super fund

The main attraction of alternatives is that they tend to be less correlated to the major asset classes of equities, bonds, property and cash.

Correlation refers to the relationship between the returns of two different investments. For example, if two different assets move in the same direction at the same time, they are considered to be highly correlated. On the other hand, if one asset tends to move up when another moves down, the two assets are considered to be uncorrelated.

So in periods when traditional markets trend downwards, allocations to alternatives may not move in the same direction, or may even move in the opposite direction which can potentially provide an extra layer of diversification for your self-managed super fund.

Importance of diversification in a self-managed super fund

The importance of diversification for self-managed super investors was highlighted in research conducted by Investment Trends and the Self-Managed Super Fund Association, where just one in five advisers considered their self-managed super fund client portfolios to be well diversified.

In addition, 64 per cent of self-managed super fund advisers acknowledged even a portfolio of 30 individual stocks many not provide sufficient diversification – particularly when combined with a strong bias of investing domestically.

And the drawbacks

While alternatives can be an attractive diversification method, they also carry some risks. In addition, as they’re often not traded on an open market such as the ASX, it may be more difficult for investors to sell these investments and cash out. But just like any investment, the potential for a higher return or complexity of the investment strategy generally carries a higher level of risk.

Getting access to alternatives for your self-managed super fund

While alternatives have been historically used by institutional investors such as super funds, pension funds and government sovereign funds (e.g. our own government’s Future Fund) their higher initial investment served as a barrier for many self-managed super fund investors. For example, investing in an infrastructure project such as a new airport could cost hundreds of thousands, or even millions of dollars.

But gaining exposure to different markets and asset classes, including alternatives within your self-managed super fund has now become easier. Thanks to managed investments and exchange-traded funds, you can gain diversification across asset classes, locally and globally.

In summary

Alternatives may be a useful diversification tool in a broader self-managed super fund due to their lower correlation to traditional sectors. But like all investments, they’re not risk free so you may find it worthwhile to speak to your financial adviser about your current portfolio to determine if investing in alternatives is suitable for you.

Source BT

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SRS Advice by Strategic Retirement Solutions - 2M ago

While planning your retirement can mean different things to different people, more often than not, the type of retirement you can afford comes down to the plans put in place to set yourself up for the future.

How much you may need, how and when you can start accessing your super and having a plan in mind when moving into retirement are all things worth considering.

The first big question you might ask yourself at 50 is ‘how much do I need to retire’ and ‘how long will my money last?’

While a logical question, it’s often a difficult one to answer. The amount you need will differ depending on the plans you have and the financial resources at your disposal.

You can find many retirement income estimates in financial commentary today, and while not necessarily personalised to your unique circumstances, these can help show the costs you may expect in retirement.

To personalise this approach, one of the simplest ways to estimate your retirement income needs is to take your current expenses and assume you may only need to fund around 70 per cent of these in retirement.

While this method is a broad but useful starting point, it doesn’t really help in determining the savings you need to generate this level of retirement income. It also ignores any other one-off retirement expenses you might expect to incur.

Another method is to take your current annual expenses and then multiply this amount by varying factors depending on the age at which you plan to retire. Taking into account a set of assumptions, this method provides you with an estimated capital amount to aim for in order to generate the retirement income you need.

Keep in mind the investment returns your savings generate and your actual level of expenses in retirement will have a notable impact on whether the projection ends up being right for you.

Your superannuation savings

Your 50’s also present an opportunity to start planning how much you may wish to contribute to your savings, repaying debt such as the mortgage against your home, and planning any final super contributions to boost your retirement savings.

Your super provides not only a tax-effective way to save for retirement, but also a tax-effective way to assist funding your retirement income needs once you reach an age at which you can access your accumulated benefits.

While your super is likely to form a cornerstone of your retirement income planning, it doesn’t need to be the only piece of your retirement income plan. Savings and investments outside of super can also be used to provide you with alternative financial resources for your retirement, often tax effectively with the benefit of tax offsets available to eligible senior Australians.

Repaying as much of your outstanding debts as possible, can make a big difference come retirement. While building your retirement savings, also consider a plan to proactively clear your debt by redirecting free cash flow to reducing the amount you owe, thereby strengthening your financial position.

After the age of 65, it’s generally those who continue to work who make additional contributions to super, so through your 50’s, have a plan around what final super contributions may mean for you. While many of the external factors which contribute to the retirement landscape, such as the current regulatory environment or the performance of investment markets, may be outside of your control, focusing on the things you can control will go a long way to getting you the retirement you want.

Source: BT

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SRS Advice by Strategic Retirement Solutions - 2M ago

Aged care can be a tough subject for many families to broach, but as we enjoy longer lives, there’s a growing likelihood that at least part of our final years may be spent in aged care.

The decision to move into aged care can come with a raft of emotional issues, in addition to financial considerations. That could be because nursing home accommodation can involve substantial costs, especially for self-funded retirees who need their finances to last the distance.

The cost of an aged care facility

New residents entering aged care may be asked to pay an upfront refundable accommodation deposit. There is no set level for this deposit – the only proviso is that residents must be left with at least $49,500 in assets (excluding the family home) after the deposit has been paid.

The deposit works like an interest-free loan to an aged care home. Any income earned from the deposit is used by the aged care home to improve accommodation and services for residents.

As aged care facilities are generally free to set their accommodation payments up to a certain limit, it’s usually open to negotiation between families and the home’s staff. This can be a source of discomfort as it means revealing your financial worth to complete strangers, however, simply being aware of how the system works can help you plan for it.

How do I pay my accommodation costs?

You can choose to pay for accommodation by:

  • a lump-sum style ‘refundable accommodation deposit’
  • interest-type payments called a ‘daily accommodation payment’, or
  • a combination of both.

The refundable accommodation deposit is generally returned to residents or their estate, if they move out or pass away.

Unfortunately, you will not receive the original sum back if you have arranged to have fees deducted from it.

Accommodation deposits vary widely and in some of our capital cities, amounts can run into hundreds of thousands of dollars. This makes it extremely important to consider all the facilities available and consider if a particular aged care home is the right place for you or your loved one.

Unfortunately, high demand for aged care, particularly high level care, often means families who haven’t done their research accept the first place that becomes available, which can see a mad scramble for deposit money.

Basic daily fee

In addition to accommodation costs, a basic daily fee is charged for your day-to-day living costs such as meals, cleaning, laundry, heating and cooling. Everyone entering an aged care home can be asked to pay this fee.

The maximum basic daily fee for new residents is $51.21 per day. This equals 85% of the basic age pension rate and it increases on 20 March and 20 September each year in line with changes to the age pension.

Means-tested care fee

This is an additional contribution towards the cost of care that some people – self-funded retirees in particular – may be required to pay. The Department of Human Services will work out if you are required to pay this fee based on your income and assets.

There are annual and lifetime caps that apply to the means-tested care fee. Once these caps are reached, you cannot be asked to pay any more means-tested care fees.

Funding it all

Meeting the future cost of aged care is just one aspect retirees need to factor into their investment portfolio.

The way your portfolio is structured can impact your age pension entitlements as well as the costs you’ll pay for aged care.

Source: BT

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SRS Advice by Strategic Retirement Solutions - 5M ago

Market and Economic overview

Australia

  • Economic data continues to paint a mixed picture of the domestic economy. The manufacturing PMI survey – a useful gauge of activity levels in the sector – came in below the 50 level; indicating challenging conditions.
  • Job advertisements have also been weak and are running -3.7% below the corresponding period a year ago.
  • A closely-watched consumer confidence reading also deteriorated sharply in January. The confidence data does not augur well for discretionary spending, which the Reserve Bank of Australia (RBA) is relying on to help inflation return towards the midpoint of its target range.
  • For now, inflation remains below target, coming in at an annual rate of 1.8% in the December quarter.
  • Over the long-term, the RBA continues to suggest that Australian inflation will return to the target band of between 2.0% and 3.0%.

United States

  • The most important market developments occurred towards the end of the month, when the Federal Reserve signalled that US monetary policy is unlikely to be amended in the first half of 2019, at least.
  • Commentary from Federal Reserve Board members suggested they may be willing to be patient in determining whether further interest rate hikes are appropriate.
  • The focus on the Federal Reserve diverted attention from economic data that was released. More than 300,000 jobs were created in the US in December and there was further evidence that labour market tightening is resulting in wage pressure. Average earnings growth quickened to an annual pace of 3.2%.

Europe

  • Growth in the Eurozone economy moderated in the December quarter, declining to an annual rate of 1.2%. This was the slowest pace of growth for five years.
  • In spite of the challenging economic conditions, the employment picture has not deteriorated. The unemployment rate remained unchanged at 7.9%; the lowest level since the GFC.
  • In the UK, the Brexit debacle descended into further chaos as Members of Parliament rejected Theresa May’s Brexit latest withdrawal proposal. Confidence in the leadership remains fragile, however and lawmakers remain divided over key elements of the UK’s proposed withdrawal from the European Union.

New Zealand

  • At 1.9% yoy, the pace of inflation was unchanged in the December quarter. For now, there appears to be limited chance of the RBNZ amending policy settings – interest rates remain at 1.75%, where they have been since late 2016.
  • Credit and debit card spending plunged in December, adding to concerns that the economy might be cooling.
  • Business confidence remains subdued, though has rebounded somewhat from the very low levels seen in the middle of 2018.

Asia

  • Chinese authorities injected more than 1 trillion yuan (around A$230 billion) into the financial system ahead of the Chinese New Year holidays. This followed a stream of subdued economic data.
  • Chinese exporters continue to be affected trade tariffs – the value of exports in December declined 4.4% from a year earlier.
  • Imports were lower too, suggesting consumer demand is tailing off and unable to offset the impact of lower export demand.
  • In Japan, inflation eased to a 14-month low of 0.3% yoy; perilously close to moving into negative territory. This is in spite of ongoing stimulus from the Bank of Japan.

Australian dollar

In early January, the Australian dollar fell below the US$0.70 threshold for the first time since early 2016. The currency then made quite a sharp recovery, closing the month at US$0.729 – an appreciation of 3.6% in January as a whole. The ‘Aussie’ strengthened towards the end of January in particular, following comments from the Federal Reserve that took the wind out of the US dollar’s sails.

Commodities

Commodity prices finished mostly higher in January, led by iron ore (+17.4%) and oil (Brent +11.6%). Easing US/China trade tensions supported commodity prices generally, while iron ore prices rose sharply towards the end of the month following a tailings dam collapse at Vale’s Feijao mine in Brazil. Oil prices rose on improved demand prospects, as US/China trade talks appeared to progress well, and as OPEC continued to sideline supply. Gold (+2.0%) rallied after Federal Reserve policy guidance pushed back timing expectations of the next US interest rate rise. Industrial metals reversed recent losses, with zinc (+14.3%), lead (+9.3%), copper (+7.5%) and aluminium (+4.1%) all seeing gains.

Australian equities

Following the slump in the fourth quarter of 2018, the Australian equity market started the year off with renewed optimism as the S&P/ASX 100 Accumulation Index climbed +3.7% higher. Resurgent global markets, rising commodity prices, solid local employment data and a growing belief that domestic interest rates will stay lower for longer helped ‘risk assets’, such as equities, rally over January. The Energy sector (+11.2%) provided the best return, benefiting from a recovery in oil prices after the near 40% drop in the fourth quarter of 2018.

The 20% climb in oil prices through January helped all constituents to provide positive returns, with WorleyParsons (+21.5%) and Caltex Australia (+5.3%) at the extremes. The Financials sector (-0.2%) not only provided the lowest return, but was the only sector to decline over the month. Small cap stocks outperformed their large cap counterparts, evidenced by the +5.6% rally in the S&P/ASX Small Ordinaries Accumulation Index.

Listed property

The S&P/ASX 200 A-REIT Index returned 6.2% in January. Industrial A-REITs (+9.7%) was the best performing sub-sector, followed by Office A-REITs (+8.0%). Retail A-REITs was the weakest performing sector in January (+2.8%). Major offshore property markets also delivered strong returns, bouncing back from disappointing performance in December. The FTSE EPRA/NAREIT Developed Index returned 10.9% in USD terms and 10.5% in AUD terms, well ahead of broader equity markets. In local currency terms, Hong Kong (+13.3%) was the best performing market, while New Zealand (+4.0%) lagged

Global equities

Global equity markets bounced back solidly in January after a dismal end to 2018, driven by resurgent emerging markets and the US S&P 500 delivering its strongest January return since 1987. The appreciation of the Australian dollar (AUD) over the month dulled returns a little, but the MSCI World Index nonetheless finished up 4.1% in Australian dollar terms.

The S&P 500 rallied just over 8.0% in USD terms on a combination of broadly pleasing earnings results, ongoing progress towards a US/China trade resolution and increasingly dovish commentary from the Federal Reserve. The FTSE 100 in the UK struggled under the continued Brexit debacle, but still returned a respectable 3.6% in sterling terms. Emerging markets brought up their third month of positive returns in style, with the MSCI Emerging Markets Index rallying 5.0% in AUD and outperforming developed markets for the third successive month as well.

MSCI Latin America was again the strongest region, up 11.0% in AUD, whereas MSCI Asia was the weakest, but still up 3.6% even though MSCI India just fell short of a positive result, down -0.1% in Indian rupee. The Brazilian stock market powered the Latin America results, hitting a string of record highs and the MSCI Brazil Index finished the month up 10.7% in local currency terms.

Global and Australian Fixed Interest

Treasury yields drifted lower as investors digested the change in commentary from the Federal Reserve and readjusted their interest rate outlooks for the remainder of 2019 and beyond. Ten-year Treasury yields closed January 5 bps lower, at 2.63%.

The somewhat gloomy economic picture and an expectation that US interest rates are likely to be unchanged for the foreseeable future saw yields in other major bond markets follow Treasury yields lower. Yields declined 9 bps and 6 bps in Germany and the UK respectively, for example, though were almost unchanged at 0.00% in Japan.

Australian government bond yields followed the lead of other major markets and declined during January. The 10-year yield closed the month 8 bps lower, at 2.24%, dragged lower by the subdued inflation reading for the December quarter.

Global credit

Global credit markets were supported by the more optimistic outlook for equity markets, as well as expectations that US interest rates might not be increased as aggressively as previously anticipated.

The yield on the Bloomberg Barclays Global Aggregate Corporate Index fell 19 bps, to 1.36%. The improved sentiment was reflected even more clearly in the high yield sector – the Bank of America Merrill Lynch Global High Yield Index (BB-B) spread narrowed 93 bps, to 3.66% – close to its level from the end of November prior to the December blow-out.

There was a reasonable amount of new supply – less than January 2018, but nonetheless a significant increase from the closing months of last year – and pleasingly there appeared to be no signs of indigestion. New offerings were generally met with reasonable demand and tended to fare well in the secondary market.

Source: Colonial First State.

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