Super Matters – January 2016 Edition
“If it doesn’t challenge you, it won’t change you.”
Participate in a small questionnaire and let’s kick some goals together in 2016!
January is a time for planning! Whilst most Australians have already broken some of their New Year Resolutions, there are a few areas you should not (and cannot) afford to ignore.
One of these areas is your Superannuation. Most Australians fail to reach their retirement goals simply because they do not plan adequately for the future. They stick their head in the sand and have an “ít’ll be right mate” attitude about their retirement.
The latest statistics released by the Australian Bureau of Statistics states that 86% of Australian’s have inadequate retirement savings which suggests that this mantra does not work.
You need to plan for your retirement and the best time to start planning for retirement is now. Irrespective of your age, your income, or your financial situation, you need to
take time to consider how you are going to support yourself when you need it most. In 2015 the Australian Government sent us a very strong message that you will need to be self-funded in retirement. Do not expect the government to support you in retirement like they have in the past. As a country we cannot afford to.
Insurance and Investments are two areas that are within your control as a SMSF trustee. You have elected a Self-Managed Super Fund as your preferred superannuation vehicle and you need to be a responsible compliant trustee so make sure you spend time to ensure you have considered both. We at The SMSF Club are here to help you. We make it easy, but you do need to take action. We are not here to do it for you!
To start planning for your retirement please complete the below goal setting and activity plan. This will also help The SMSF Club and your SMSF adviser provide you with support to help you and your family reach your goals throughout 2016 and beyond.
Click Here for Your 2016 Goal Setting Questionnaire!
Estate Planning – What it is and why it is so important to you and your family
The first thing to understand is that Estate Planning is more than just about signing a simple Will. An effective estate planning strategy must take into account the following:
- Your personal family situation, such as do you have children from a prior marriage or relationship,
- Your financial affairs which includes not just the investments you own in your name but other investments held through tax structures such as a self managed superannuation fund or a family trust, and
- Any special needs of your intended beneficiaries including children with disabilities or who are serial bankrupts.
Estate Planning covers four key arrears:
- Asset protection during your life to ensure that you will have assets to pass onto your spouse and children,
- Putting in place measures to ensure that if you lose mental capacity, your financial affairs are not disrupted and remain in control by people you trust and not a Government official
- Dealing with medical issues if you are unable to provide instructions to medical professionals and
- Passing on your wealth securely and tax effectively to your surviving family.
It is generally understood that Australia does not have death duties but there are “de facto death duties” such as capital gains tax (even on family home in some circumstances), superannuation death benefit tax, stamp duty and land tax in some cases.
Ineffective Estate Planning can result in the following catastrophes:
- in an intended beneficiary losing their inheritance if they are bankrupt at the time of your death,
- children from a prior marriage or relationship missing out on their inheritance,
- a child with a disability or poor money management skills squandering their inheritance,
- your wealth passing to a family your never knew during your life and
- large capital gains tax liabilities on the sale of estate assets ( even the family home) which may have been avoided.
Estate & Non Estate Assets
Your Will can only deal with assets that you own in your name as an individual or as a tenant in common. This means the following assets or investments cannot pass to another person through your Will.
- Any real estate owned as joint tenants in most States,
- Life insurance policies unless your estate is the nominated beneficiary,
- Superannuation benefits unless you have completed a valid binding death benefit nomination to your estate or personal legal representative and
- Assets owned in a company or family trust structure.
Self Managed Superannuation Funds (SMSFs) present their own special issues.
The main difference between a SMSF and a Retail or Industry superannuation fund from an estate planning perspective is that you are the trustee, or control the corporate trustee, who makes the decision about payment of death benefits. In a retail fund or industry fund there is an independent trustee who makes those decisions and ensures that any valid nomination that you made during your life is followed.
In a SMSF your wishes or instructions regarding payment of your death benefits may not be followed especially if you are in a subsequent marriage or relationship and you have nominated as beneficiaries your children from a prior relationship.
In addition, the Superannuation Complaints Tribunal does not have jurisdiction to hear complaints about how your superannuation benefits are paid on your death. This means that any disputes about your superannuation can only be dealt with by the Supreme Court which is very expensive.
These SMSF issues will be dealt with in depth in a future newsletter article.
Estate Planning Solution for The SMSF Club clients
Through The SMSF Club’s association with the legal firm Topdocs Legal we with are able to assist clients Australia wide with their estate planning needs which includes the following:
- Review of any current Will that you have and provide a short explanation of any shortcomings in the Will based upon your advice of what your intentions are for your estate and your current personal and family circumstances,
- Update your current Will where required, or assist with the preparation of a Will,
- Preparation of Enduring Powers of Attorney (for financial matters) and Appointment of Enduring Guardianship documents (for medical matters),
- Advice regarding death benefit nominations for their SMSF whether a binding or non -binding nomination is more suitable to their circumstances, and
- For business owner clients business succession planning advice.
The SMSF Club can help clients Australia wide with their Estate Planning measures. As a member of The SMSF Club you are entitled to a free Estate Planning consultation with Michael Roberts, an experienced licensed Estate Planning lawyer.
Please contact your SMSF Adviser if you would like to discuss your Estate Planning measures in more detail.
The Stock Market in 2016
The Australian Stock Exchange had no time for New Year Resolutions this year, posting 8 successive days of losses to kick-off the year. That took the ASX200 index down to 4865, a staggering 18.8% below its 2015 high of 5996, which was achieved exactly 9 months earlier. Talk about a bloodbath. The ASX has been cruel to investors, delivering some massive blows to the portfolios of Australians. Take BHP for example, “The Great Australian Bluechip” – since reaching a post-GFC high of $46.54 in 2011, it has plunged some 68% to now sit below $15. Not quite The Great Australian Bluechip we thought it was. Let’s look at another Australian Icon – Dick Smith! The retailer and one-time market darling, which once carried a market value of $525 million, was last week placed into Administration, with its ability to fulfil its financial obligations under severe doubt. These companies are not dodgy micro-cap stocks, they are (or at least they’re meant to be) the stalwarts of our national stock exchange, held by hundreds of thousands of Mums and Dads and SMSFs.
Not many stocks have been immune to the turmoil witnessed over the last few months, with everything from Banks to Miners to Healthcare stocks copping a beating. The SMSF Club’s core stocks have suffered as well, but fortunately members of The SMSF Club that have implemented the recommended The JB Way investment strategy have been able to sleep easy at night. Investing The JB Way (buying a stock, and then buying a put option to act as an insurance policy on your shareholding) is simple, and means that even if your shares do a BHP or a Dick Smith, the majority of your invested capital is safe, and can be recouped at any time. Keep in mind that your Superannuation is your money – the money you’ve spent years earning. It pains me to see people throwing money at a supposedly “safe” stock like BHP, just to watch their investment nosedive 70%.
Amongst all this do
om and gloom, there exists some incredible opportunities. NAB, under $27, is expected to deliver a full 10% dividend yield. By implementing The JB Way and buying NAB, (after receiving your dividend income) you’ll have at risk less than 1% of your investment outlay! Meanwhile, you will reap the benefits should the share price recover from its current multi-year lows. What about the opportunity to be a better investor than the world’s best, Warren Buffett? Buffett earlier this year (through his investment company Berkshire Hathaway) bought $500 million worth of IAG shares, at a price of $5.57. Right now, you can buy IAG shares at $4.99, a 10% discount to Buffett’s purchase price! Buying shares in a company that Warren Buffett owns? Great. Buying them at a price cheaper than Buffett did? Unheard of!
It is during these times that smart investors can make a ton of money. When others are fearful, good investors are greedy. But, even though some incredible companies are trading at incredibly low prices, buying shares in a volatile market like this involves an enormous amount of risk.
However, it doesn’t have to. Right now, you can buy stocks that are trading at multi-year lows, stocks that encompass high dividend yields, stocks that the world’s best investors paid more for than you will, and if you’d like to, you can buy them yet risk only a small portion of your invested capital. It’s simple – buy a stock, buy a put option, and sleep easy! If the share price appreciates; great, we make a profit – if the share price falls, we can exercise your put option and sell the shares at (or very close to) the price that we paid for them! It’s called investing smartly! The JB Way allows you to buy insurance for your investment – you reap the benefits when the market rises from these levels, but if the market continues to fall, your investment is protected!
Oil
Undoubtedly the biggest market-related story of 2015 was the total (and illogical) collapse of the oil price. Trading at $107.72 in June 2014, Oil nosedived into what will most likely go down in history as one of the great collapses – breaking the $30 barrier just last week. All in all, a fall of 72%.
What makes this story more incredible is the dynamics that underly the oil sector. The International Monetary Fund last year conducted a review of the production processes of the major oil producing nations. They found that Saudi Arabia, the world’s largest producer, needs to sell oil at a price of $106 a barrel to balance its national budget. Moreover, no major oil-producing nation has a breakeven per barrel price below the current market price, and most, including majors like The UAE, Iraq and Bahrain require a price of $70 to make extraction worthwhile.
So why the collapse?
The oil market (like any market) is a system of supply and demand. It’s also a highly lucrative market, and as such, market share is hugely valuable. Large producers like Saudi Arabia sought to acquire greater market shares by flooding the market with cheap oil. But no one stood down. Instead, they all upped production. This has led to a flooded market, and daily price falls are simply the outcome of the market coming to terms with just how much oil needs to be flushed out before the market can work towards a more natural equilibrium.
When exactly the market will return to functioning logically, and when exactly the oil price will reverse its slide, is unknown. Sure, analysts will make predictions, but these predictions are based on some pretty hefty assumptions. What we can be sure of though, is that the oil price will recover.
Based on this, and being smart enough to ignore the short-term day to day price movements, the world’s best investors are positioning themselves to benefit when the price reverses its slide. The best of the best, Warren Buffett, started 2016 off by increasing his oil exposure. As reported by the Australian Financial Review, in response to the oil price hitting a 12 year low just a few days ago, Buffett outlaid more than $500 million to increase his ownership of Phillips 66, a multinational American-based Oil company. His holding in the company is now worth around $5 billion.
One of the common characteristics amongst the world’s best investors is patience. They don’t worry about the few dollars they would have saved if they had have pressed buy a couple of minutes later. They don’t try to “pick the low”. Rather, they recognise when a good company is undervalued due to factors external to their control, and they invest at that point, reaping the benefits years later.
If you would like any more information about The JB Way, please email lachlan@thesmsfclub.com.au, who will be able to provide you with a guide to The JB Way, along with our current stock recommendations.
Happy investing,
Justin Beeton & The SMSF Club Team
E: admin@thesmsfclub.com.au
P: 1300 760 397
W: www.thesmsfclub.com.au