Judging a super fund’s performance

A super fund’s investment performance will change from year to year. Your super will grow over the long term, but in the meantime you might experience some years of low and even negative returns.

Being able to judge the performance of your super fund will help you make good decisions about your retirement savings.

Judging a super fund's performance

Looking at fund performance

Your super fund’s investment performance will make a big difference to how much you will retire on.

No-one can reliably predict which fund will perform the best. It’s far better to pick the right investment strategy and the fund with lower fees, and take the ups and downs of investment performance in your stride.

When judging the performance of super funds:

  • Look for a reasonable performance. It’s a waste of time trying to pick next year’s top performer based on last year’s figures.
  • Look at the fund’s performance over at least 5 years. Super is a lifetime investment, and short-term figures, such as the last 12 months or less, are not very useful.
  • Look at the fund’s performance after the impact of fees and tax.
  • Compare like with like. Look at what the fund is investing in. If a fund has 80% of its money in shares and property, only compare it with other similar funds, not funds with most of their money in cash and fixed interest.
  • Try to use the same start and finish dates for each fund. Five-year performance from June to June will differ from January to January.

Long term performance is what matters

How well did your fund invest your money? The fund’s annual report tells you the investments it made and how they performed during the year. You can also get useful information from most funds’ websites.

Smart tip

If your fund performed worse than average over a 5-year period, consider changing.

Does the return broadly match the target set out in your fund’s product disclosure statement? If not, look for an explanation and ask yourself if it makes sense.

Few super funds consistently outperform the long-term averages, and it’s really guesswork trying to pick the few that will.

Past performance is no guarantee of future returns. Today’s top-performing funds tend to fall back to the average over time. However, consistently poor performance can prove hard to turn around.

Compare super funds

Super comparison websites like these, publish ratings on super funds:

Looking at the performance of your super fund will help you stay in control of your super money. Check how your fund’s 5-year return compares to the average for that investment option (e.g. growth, balanced, etc). Super is a lifetime investment so 1 year’s returns are not a reason to change funds.

Please contact us on |PHONE| if you would like to discuss.

Sources:

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at www.moneysmart.com.au

Important:

This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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Where can I get finance for a small business?

Many people in Australia dream of running their own small business but four out of five never do it. If you’ve got a good idea, develop a business plan, then talk to us about your small business finance options.

Where can I get finance for a small business?

Your small business finance or commercial finance options include:

  • Business loans

  • Commercial loans

  • Lines of credit

  • Home equity loans

  • Franchise funding

  • Venture capital

  • How much money does your business need?

A lot of small businesses fail not because they’re offering a poor product but because they run out of cash. How much money do you need for your business? Not just to pay for set-up costs but to cover your living expenses while you get established? Don’t even think about going into business until you’ve done a detailed business plan and cash flow projection. Otherwise you’re planning to fail.

Business finance vs commercial finance?

Both business finance and commercial finance are generally secured by either commercial or residential property. However, business finance is probably more associated with small business or SMEs (Small to Medium Enterprises). Commercial finance tends to relate more to the financing of commercial property.

Business loans

Business loans are where the finance is for business purposes and the interest cost associated with the loan is tax deductible against the profits of the business. Small business operators provide security by way of residential or commercial property.

Commercial loans

A commercial loan is where the finance is for the purchasing of a commercial property, commercial property development or business purchase.

Similar lending requirements apply to both business and commercial loans. Commercial loans are secured either by commercial or residential property. With larger corporate borrowers, lenders can rely purely on the assets of the company as loan security e.g. trade debtors.

Lines of credit

With a line of credit, you’re given a borrowing limit by the lender and you draw down money – up to that limit – as you need it. The advantage of a line of credit is that you only pay interest as you draw down money. The disadvantage is that the rate of interest may be higher.

A line of credit should be “fully fluctuating”. ie It should only be used as a short term financing option rather than for the purchase of major commercial plant or equipment.

Home equity loan

Many people have limited cash reserves but have built up equity in their homes. That is, their homes are worth more than they still owe on their mortgages. You can tap into this equity to help finance your business or investment by taking out a home equity loan.

Start-ups versus existing businesses

If you’re thinking of running your own business, you should be aware that it’s generally easier to get business finance for an existing business rather than a start-up. Lenders tend to view start-up businesses as inherently risky whereas an existing business has a track record they can review. However, there are business finance options for start-ups.

Franchise finance or franchise funding

To meet an emerging need, new business finance products have come onto the market to help people buy franchises. Lenders can be more inclined to provide franchise finance because, while your business might be new, it could be based on a proven formula.

Venture capital

Venture capital (VC) describes where a lender gives you funds in return for a stake in your business. The further your idea is from fruition, the less likely the venture capital or VC firm will be to give you the money, and the more equity they’ll want in return.

To talk about your business finance options please contact us on |PHONE|.

 

Source

Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA) 

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Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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Your marathon investment portfolio

A recent cover feature in The Economist magazine asks readers to imagine a future world where you celebrated your 94th birthday by running a marathon with your school friends.

The article was using the illustration of extremely fit old-timers – well past their present life expectancies – as a means to emphasise just how much longevity has increased over the past century and is continuing to rise.

It may be a hard for us to imagine in 2016 that the point will ever be reached where 94 year-olds are running marathons with their school mates.

Nevertheless, considerable advances in medical science mean that many of us will live much longer than once expected.

The most marked demographic trend taking place is the ageing of the global population – a result of such factors as sharply rising longevity, changing birth rates and the huge waves of baby boomers in retirement or nearing retirement.

In recent weeks, the Australian Bureau of Statistics (ABS) released data showing that Australia’s aged population – defined as those aged 65 and over – has increased by almost 20 per cent over the five years to 2015. Almost 3.6 million Australians were 65 or over last year.

Among the numerous impacts of greater longevity and a rapidly ageing population is that your investment portfolio should be prepared for a marathon run. For most investors, this may mean having a portfolio that is intended to remain in place – with appropriate changes along the way as circumstances alter – from their first pay through to the rest of their presumably long lives.

A portfolio may be designed to last for 70 years or so on the basis that someone may begin working and saving at, say, 18 (perhaps on a part-time basis) and live until 90 years old or so.

Consider speaking to your adviser about how to create a marathon investment portfolio – no matter if you are a long way from retirement, approaching retirement or already in retirement.

A marathon portfolio is likely to have enough exposure to growth assets (before and after retirement) to eventually be in the position to generate sufficient cash flow to meet needs no matter how long you live. An aim is to provide inflation and longevity protection over the really long haul.

One of the challenges is to have a portfolio with an appropriate asset allocation is designed to deal with short to medium-term volatility yet retaining its long-term sustainability and growth.

Its design will depend on investor’s personal circumstances including any professional advice received.

The bottom-line benefit of a marathon portfolio is to minimise the risk of outliving your money.

 

Source

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2016 Vanguard Investments Australia Ltd. All rights reserved.

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Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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February 2017 Statement by Philip Lowe, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy have improved over recent months. Business and consumer confidence have both picked up. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth was stronger over the second half of 2016, supported by higher spending on infrastructure and property construction. This composition of growth and the rapid increase in borrowing mean that the medium-term risks to Chinese growth remain. The improvement in the global economy has contributed to higher commodity prices, which are providing a boost to Australia’s national income.

Headline inflation rates have moved higher in most countries, partly reflecting the higher commodity prices. Long-term bond yields have also moved higher, although in a historical context they remain low. Interest rates have increased in the United States and there is no longer an expectation of further monetary easing in other major economies. Financial markets have been functioning effectively and stock markets have mostly risen.

In Australia, the economy is continuing its transition following the end of the mining investment boom. GDP was weaker than expected in the September quarter, largely reflecting temporary factors. A return to reasonable growth is expected in the December quarter.

The Bank’s central scenario remains for economic growth to be around 3 per cent over the next couple of years. Growth will be boosted by further increases in resource exports and by the period of declining mining investment coming to an end. Consumption growth is expected to pick up from recent outcomes, but to remain moderate. Some further pick-up in non-mining business investment is also expected.

The outlook continues to be supported by the low level of interest rates. Financial institutions remain in a position to lend. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Labour market indicators continue to be mixed and there is considerable variation in employment outcomes across the country. The unemployment rate has moved a little higher recently, but growth in full-time employment turned positive late in 2016. The forward-looking indicators point to continued expansion in employment over the period ahead.

Inflation remains quite low. The December quarter outcome was as expected, with both headline and underlying inflation of around 1½ per cent. The Bank’s inflation forecasts are largely unchanged. The continuing subdued growth in labour costs means that inflation is expected to remain low for some time. Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent, with the rise in underlying inflation expected to be a bit more gradual.

Conditions in the housing market vary considerably around the country. In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Growth in rents is the slowest for a couple of decades. Borrowing for housing has picked up a little, with stronger demand by investors. With leverage increasing, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments.

Taking account of the available information, and having eased monetary policy in 2016, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Enquiries

Media and Communications
Secretary’s Department
Reserve Bank of Australia
SYDNEY

Phone: +61 2 9551 9720
Fax: +61 2 9551 8033
Email: rbainfo@rba.gov.au

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Super – even more important for women

Women tend to live longer than men, making it even more essential that they accumulate enough superannuation to last through retirement.

But women face unique challenges when it comes to retirement savings. Lower pay, time out of the workforce to raise children, and running a single-parent household, can make it challenging to build a reasonable amount of super. However, some simple strategies make it possible for women to overcome these hurdles.

Super is good for you

Superannuation is a very tax-effective way to save for retirement. Your super fund pays a low rate of tax on contributions and investment earnings while you grow your nest egg. From age 60, you can withdraw your super tax-free.

Without super, many women are forced to rely on the age pension in their senior years. But the pension is designed as a safety net and won’t provide for a comfortable old age. So it’s essential to focus on growing your super.

Video: Women and super

Pauline Vamos from the Association of Superannuation Funds of Australia (ASFA) talks about the financial challenges that women face and gives her top tips on boosting your super.

https://www.youtube.com/watch?v=F3KHlkJ3Ugc

 

Get to know your fund  

Your employer should be making super contributions on your behalf. These contributions will be worth around 9.5% of your annual wage or salary.

If you haven’t given your employer instructions about the super fund of your choice, it’s likely the contributions are paid into a fund your employer has chosen. This may not be the sort of fund you would prefer.

By law, you can normally select your own fund and have your employer’s contributions paid into that. If you have several super funds, it’s a good idea to roll over or consolidate your super into your preferred fund. This will save you the administration fees charged by any extra funds.

To choose a super fund, look at the fees it charges and the sort of investments the fund chooses. It’s important that you are comfortable with your super investment options. Don’t base your choice on past investment returns, as past performance is not a reliable indicator of future performance.

When choosing a fund also consider the insurance it provides and the level of cover you require. For more information see insurance through super.

Options to grow your nest egg

There are a number of ways to build your super. You cannot normally access your super before you retire, so only contribute money you can afford to set aside.

  • Ask your employer to pay part of your pre-tax wage or salary into your super fund. Before-tax salary sacrificing can be a tax-friendly way to grow your super.

  • Make super contributions out of your own pocket. These after-tax super contributions, known as ‘non-concessional’ contributions, are not subject to the 15% contributions tax that can apply to other types of contribution. Depending on your annual income, you may also be eligible for a government co-contribution to your fund. It’s an easy way to give your super a valuable boost. Find out more from the Australian Tax Office: Super co-contributions.

  • Ask your partner or spouse to make contributions on your behalf. He or she may be able to claim a tax offset on the contributions made to your fund.

Even small contributions can make a big difference over time. 

 

Case study: Ajinder boosts her super savings

Ajinder was concerned that she didn’t have much superannuation, and wasn’t keen on the idea of relying solely on the age pension. She decided to take action to get her super under control.

‘It struck me that I have 15 or so years until I retire. My super isn’t great at present, so I’ve started adding a bit extra to my super each month by making payments out of my own pocket. It means I get the government co-contribution each year.

‘I’m also going to ask my boss if I can salary sacrifice a small amount direct from my pay – and that means I pay less income tax. It’s not a lot but my super balance should grow over time thanks to investment returns. Every extra bit I add now will make a difference to my retirement.’

Track down lost super

If you have ever held a part-time or casual job, or moved house, you could have superannuation invested in a fund that you’ve lost track of.

Use myGov to keep track of all your super and combine multiple super accounts into one, which will make it even easier to manage your super. More more information, visit the ATO’s page on checking your super.

Superannuation is very important to the quality of your retirement. By adding even small amounts to your super now, you will make a big difference later in life.

 

<pSources:

Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://www.moneysmart.gov.au

Important:

This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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Your New Year reading: beyond John Grisham

Behavioural economist and psychologist Daniel Kahneman has begun 2017 by retaining his place near the top of The New York Times best-seller list, wedged among the latest John Grisham legal thriller, The Whistler, and the psychological thriller The girl on the train by Paula Hawkins.

Kahneman’s book Thinking, fast and slow is a consistent long-term performer – high on the list of best-selling non-fiction paperbacks for 116 weeks, currently ranking fifth.

Further, The undoing project by Michael Lewis – number five of the combined print and e-book bestsellers – tells the story behind the pioneering studies of Kahneman and fellow psychologist Amos Tversky into the psychology of economic or financial decision-making. Lewis’ book is a newcomer to the bestseller list, having featured for three weeks.

The fact that the subject of behavioural economics can become a near chart-topping best seller underlines the increasingly widespread recognition that our behavioural traits can play a crucial role in our investment success – or failure. Expect to read much more about behavioural economics in 2017.

A new year provides, of course, a prompt to read and think about how to improve our personal finances including our investment portfolios.

The best publications in this genre tend to provide pointers about how to accumulate wealth slowly and progressively through an understanding of the fundamental principles of sound saving and investment practices. These are the opposite of the relentless and potentially wealth-destroying, get-rich-quick offerings.

Here are a few books to consider adding to your 2017 reading list:

  • Thinking, fast and slow by Daniel Kahneman: A winner of the Nobel Prize for economics, Kahneman points to the many flaws in financial decision-making – including overconfidence and excessive loss aversion (inhibiting appropriate risk-taking and encouraging a short-term focus) – that can have costly consequences for an investor. His views underline the benefits of having an appropriately-diversified portfolio while avoiding the potential traps of market-timing, stock-picking and making emotionally-charged investment decisions. “Much of the discussion in this book is about the biases of intuition,” he writes.

  • The only investment guide you’ll ever need by Andrew Tobias: While his fellow personal finance authors are unlikely to agree with his book’s title, Tobias’s veteran work – it has been in publication for 40 years – has plenty to offer investors. His over-arching message is to take a common-sense approach to looking after your investments and other personal finances. For instance, only buy investments you can understand, stay away from investments that seem too good to be true, and don’t carry credit card debt. It’s good basic stuff worth repeating again and again.

  • The behaviour gap – Simple ways to stop doing dumb things with money by Carl Richards: This is an entertaining, easy-to-read guide by a financial planner turned personal finance columnist to keeping our negative behavioural traits under control when saving, investing and spending. His tips include: adopt strategies to avoid buying shares at high prices and selling low, don’t spend money on things that don’t really matter, identify your real financial goals and simplify your financial life.

  • The millionaire next door by Thomas Stanley and William Danko: Long-term research by late academics Stanley and Danko suggests that “prodigious accumulators of wealth” are typically content to progressively build their wealth while being inconspicuous in their spending. In other words, these wealth accumulators are not in a hurry to make their money by taking excessive risks or in a hurry to spend their money.

  • A random walk down Wall Street: The time-tested strategy for successful investing by Burton Malkiel: The basic theme behind this classic is Malkiel’s argument that investors – individuals and professionals – cannot not expect to consistently outperform the market. Given that belief, Malkiel, a Princeton University economics professor, is a firm believer in investing in market-tracking index funds (including ETFs), dollar-cost averaging (regularly investing set amounts), appropriate portfolio diversification, periodic portfolio rebalancing, low-cost investing and how investors should understand the risks of irrational behaviour.

  • The little book of commonsense investing by Jack Bogle: As Bogle writes, “successful investing is all about common-sense”. Don’t try to pick the best time to buy and sell stocks – consistent success with market-timing is rarely achieved; diversify to minimise risks (and spread opportunities); recognise the value of compounding, long-term returns; and keep investment costs as low as possible. “The more the managers and brokers take, the less investors make,” Vanguard’s founder emphasises.

These books reinforce critical messages for investors. These include: get your investment basics right (including your goals and portfolio asset allocation), periodically rebalance your portfolio, don’t try to time the market, minimise investment costs, and beware of the risks of trying to pick winning stocks and fund managers.

And a foremost consideration of most of these authors is that investors should be aware of the dangers of trusting their gut feelings by allowing their emotions to dictate investment decisions.

Finally, save regularly – enjoying the rewards of long-time compounding – and keep your spending under control. Conspicuous consumption should not be taken as a sign of wealth – quite often it means the opposite.

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved. 

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

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