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Provision Newsletter

Can I go back to work if I’ve already accessed my super?

Posted On:Jun 19th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

When you access your super at retirement your super fund may ask you to sign a declaration stating that you intend to never be employed again. But there may be compelling reasons why someone would subsequently return to work.

According to the Australian Bureau of Statistics (ABS) the most common reasons retirees return to full or part-time employment are financial necessity

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When you access your super at retirement your super fund may ask you to sign a declaration stating that you intend to never be employed again. But there may be compelling reasons why someone would subsequently return to work.

According to the Australian Bureau of Statistics (ABS) the most common reasons retirees return to full or part-time employment are financial necessity and boredom1. Regardless of your reason for returning to work, there are certain rules you should be aware of.

What are the superannuation retirement rules?

You generally will only be able to access your super if you’ve reached your preservation age and retired, ceased an employment arrangement after age 60, or turned 65. If you’re thinking about returning to work after retirement there are rules about super you may need to be aware of depending on your circumstances.

We look at some of the common situations below.

I have reached my preservation age but am less than age 60

If you’ve reached your preservation age and wish to access your super, you would usually be required to declare that you’re no longer in paid employment and have permanently retired.

If your personal circumstances have since changed, it is possible for you to return to the workforce, however your intention to retire must have been genuine at the time, which is why your super fund may have asked you to sign a declaration previously stating your intent.

I ceased an employment arrangement after age 60

From age 60, you can cease an employment arrangement and don’t have to make any declaration about your future employment intentions.

If you happen to be working more than one job, ceasing just one will meet the requirement and you can continue working in the other.  You can choose to access your super as a lump sum or in periodic payments (which you may receive via an account-based pension).

If you’re in this situation, you can return to work whenever you like as you wouldn’t have needed to declare permanent retirement before accessing your super.

I’m 65 or older

When you turn 65, you don’t have to be retired or satisfy any special conditions to get full access to your super savings. This means you can continue working or return to work if you have previously retired.

What happens to your super if you return to work?

Regardless of which of the groups above you fall into, if you have begun drawing a regular income stream from your super savings, you can continue to access your income stream payments whether you return to full or part-time employment.

If you haven’t actually accessed your super but have met one of the retirement conditions of release (and advised your fund of this) then your super will generally remain accessible if you return to work.

Meanwhile, it’s important to note that any subsequent super contributions made after you return to work will generally be ‘preserved’ until you meet another condition of release (unless you are aged 65 or over).

Can I access my super at 55 and still work?

In the past, Australians could access their super from as young as 55, but the preservation age is gradually increasing to age 60 and only people born before 1 July 1960 reached their preservation age at 55.

Regardless of your preservation age, you must meet certain criteria before you can access your super, as outlined above. However, if you’re age 60 or over, these criteria simply mean you need to end an arrangement under which you’re gainfully employed.

Rules around future super contributions

Your employer is broadly required to make super contributions to a fund on your behalf at the rate of 9.5% of your earnings, once you earn more than $450 in a calendar month.

This means you can continue to build your retirement savings via compulsory contributions paid by your employer and/or voluntary contributions you make yourself.

However, if you’re aged 65 or over, and intend on making voluntary contributions, you must first satisfy a work test requirement showing that you have worked for at least 40 hours within a 30-day period before you are eligible to make voluntary contributions in a financial year. Voluntary contributions can’t be made once you turn 75 and the last opportunity is 28 days after the end of the month where you turn age 75.

Effects of withdrawing super on your age pension

If you’re receiving a full or part age pension, you’d know that Centrelink applies an income test and an assets test to determine what you get paid. Your super or pension account will be included as part of your age pension eligibility assessment.

Any employment income will also be taken into account as part of this assessment, so make sure you’re aware of whether your earnings could impact your age pension entitlements.

For those eligible for the Work Bonus scheme, Centrelink will apply a discount to the amount of employment income otherwise assessed.

Where to go for assistance

For information and tips around re-entering the workforce, check out the Department of Employment website. It includes details about the government’s jobactive service and the New Enterprise Incentive Scheme for those looking to become self-employed.

There are also websites like Older Workers and BeNext, which focus specifically on mature-age candidates, if you’re looking for job opportunities.

If you have further questions about how a return to work could impact your ability to access your super, speak to us on |PHONE| .


1https://www.abs.gov.au/ausstats/abs@.nsf/mf/6238.0

Source : AMP June 2019 

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

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Rent vs lifestyle—can you have it all?

Posted On:Jun 19th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Rental payments can make a real dent in your bottom line so it’s a good idea to find a balance between location and lifestyle

So you’ve found the apartment of your dreams.

It’s a stone’s throw from the CBD’s trendiest shopping street, boasts fabulous views of the sea and comes with a fully-equipped kitchen boasting European appliances plus luxury spa bathroom. OK,

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Rental payments can make a real dent in your bottom line so it’s a good idea to find a balance between location and lifestyle

So you’ve found the apartment of your dreams.

It’s a stone’s throw from the CBD’s trendiest shopping street, boasts fabulous views of the sea and comes with a fully-equipped kitchen boasting European appliances plus luxury spa bathroom. OK, it’s a bit pricey but it ticks all the boxes, and you can worry about the rental payments later. Meanwhile you need to make a decision as there are plenty of willing buyers in line behind you.

Now where do you sign…

STOP! You might end up living in a palace but if you can’t afford to buy a bagel in the local artisan bakery then maybe it’s time to rethink your priorities. If you’re spending a high percentage of your salary on rent then you might be leaving yourself short and unable to enjoy any kind of social life, let alone save up for goals like holidays, a new car or buying a place. Equally, if you’re living in a cockroach-infested dive miles from anywhere then you’re unlikely to be happy even if you’re saving loads of money.

So how much rent is right for you?

If you’re looking to other Australians for a guide, the cost of renting varies enormously around the country – the percentage of our income going on rent ranges from 37.9% of average weekly earnings in Sydney to 25.2% in Hobart1.

Anyone looking for a central one-bedroom apartment in one of our state capitals could pay from $1,035 a month in Hobart to $2,681 in Sydney, as in the table below.

City

Monthly cost of renting one-bedroom apartment (city centre) $

Monthly cost of renting one-bedroom apartment (outside city centre) $

Potential saving of moving to ‘burbs $

Sydney

2,680.93

1,956.54

724.39

Melbourne

1,817.34

1,399.96

417.38

Brisbane

1,772.04

1,285.84

486.20

Perth

1,513.61

1,028.86

484.75

Adelaide

1,411.16

1,043.36

367.80

Hobart

1,035.20

1,041.75

-5.55

Source: https://www.budgetdirect.com.au/interactives/costofliving/

If you’re happy to live in the ‘burbs you’ll save money, with a one-bedroom apartment ranging from $1,029 a month in suburban Perth to $1,957 in…yes…greater Sydney.

Of course, in Tassie they do things a bit differently and you’ll actually save the price of a latte by moving into the city centre from the burbs.

But everywhere else you could potentially save on rent by living in a slightly less trendy area—anywhere from $368 in Adelaide to $725 in…no prizes for guessing…Sydney again.

Finding ways to spend less and save more

The reality is you may not be able to up sticks and relocate so easily. If you’re like most Australians, you probably have family and work commitments that tie you to your local area.

So there may be other ways you could find a better balance between rent and lifestyle and save money—whether you’re just off Bourke Street or ensconced in the ‘burbs.

  • There could be some ways you could save on nights out by taking advantage of deals or making more clear-headed late-night choices.

  • There could be some ways you could save on essentials by being a bit more disciplined with your budgeting.

  • There could be some ways you could save on weekend family activities – a great lifestyle doesn’t need to be expensive, and if you’re within a stroll or ride of a fantastic beach or bushland then you’ve got regular afternoon entertainment on your doorstep, free of charge.

Making sense of your finances

Meanwhile, finding the sweet spot with your rental costs all depends on your personal circumstances and financial goals. We can help you make sense of your outgoings and draw up a long-term plan to build your wealth. Please contact us on |PHONE| for assistance .

https://www.finder.com.au/how-much-of-our-wages-do-we-spend-on-rent-in-australia

Source : AMP June 2019  

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

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Boost savings with compound interest

Posted On:Jun 19th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

If your goal is to save for the future, or perhaps start putting away for your children’s education – then unless you plan on putting your savings under your mattress, the sooner you start the better.

That’s because you could be missing out on earning compound interest along the way that could make a stark difference to the overall amount you

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If your goal is to save for the future, or perhaps start putting away for your children’s education – then unless you plan on putting your savings under your mattress, the sooner you start the better.

That’s because you could be missing out on earning compound interest along the way that could make a stark difference to the overall amount you save.

The difference between simple interest and compound interest

There are two main types of interest:

Simple interest is where a one-off interest payment is made at the end of an agreed, set period of time.

For example: if you invest $10,000 in a term deposit at 5% interest per annum, and don’t withdraw any money, then you’ll have $12,500 at the end of 5 years. That’s because the 5% annual interest rate is worked out based on the value of the initial investment and paid in full at the end.

Simple interest earnings over five year

Compound interest is where interest is paid in regular intervals, building on top of earlier interest paid. The result is a snowball effect of interest earning interest.

For example, (using the same figures as the simple interest example above), an initial investment of $10,000, earning 5% interest per annum with compound interest paid monthly, will give you $12,834 after five years. That’s because every month the interest earned was earning more interest.

Compound interest earnings over five years

Compound interest will continue to build on itself in this way, assuming nothing changes. How quickly it grows will depend on when you start your savings plan, what the interest rate is, and whether you make contributions (or withdrawals).

How to work out compound interest on your savings

The easiest way to work out how much compound interest you could earn on your savings, is to use an online compound interest calculator, that can do it for you.

Saving for the future

If you’re interested in using compound interest to help your savings grow, then the sooner you start, the better. That’s because, like any good snowball, the earlier it starts rolling, the more snow it will collect along the way.

For example, if you were keen to put aside money for your child’s education, and from the day your child was born, you put $10 per week into a bank account paying 6.25% pa, then by the time they turned 25, their savings would be $31,259. Of that, the interest earned would be $18,372 – outweighing the overall deposits made along the way.

If you started saving later, when your child turned 10, with a first deposit of $5,000, then by the time your child turned 25, they would have savings of $25,611. Of that, the interst earned would be about equal to the overal deposits made, and your savings would be about $6,000 less than if you’d started earlier, without an initial deposit.

This example uses the ASIC Money Smart Calculator1 featuring an effective interest rate of 6.43%. It’s important to remember that a model is not a prediction and uses assumptions. Results are only estimates, the actual amounts may be higher or lower.

Tax on compound interest

It’s worth remembering that like any income, compound interest earnings must be declared to the tax office, even if it’s savings for a child.

Who declares the interest earned, depends on who owns or uses the funds of that account. You can find out more about the tax requirements from the Australian Tax Office.

If you seek further discussion on this topic please contact us on |PHONE|.

1ASIC Money Smart Compound Interest Calculator –  https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator

Source : AMP June 2019

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

 

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Wait! A word before you sign…

Posted On:Jun 05th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

By Luke Mitchell, Dooley & Associates Solicitors

The opportunity to purchase an established business promises a future of freedom and financial gain, however the ultimate decision is not one to be taken lightly.

You’ll need to decide whether the move is the right one in the first place – then have the confidence and know-how to undertake due diligence, negotiate the deal

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By Luke Mitchell, Dooley & Associates Solicitors

The opportunity to purchase an established business promises a future of freedom and financial gain, however the ultimate decision is not one to be taken lightly.

You’ll need to decide whether the move is the right one in the first place – then have the confidence and know-how to undertake due diligence, negotiate the deal and follow through with the transaction. The same goes for those looking to sell their business and move onto their next challenge.

Manage these factors poorly and you can risk what you’ve worked so hard to achieve.

Get them right and you’ll enjoy immense personal reward and satisfaction for your hard work.

Before you sign on the dotted line, it’s critically important that you really understand the sale and purchase process and ensure that you avoid the most common potential pitfalls.

Snapshot Of A Typical Sale/Purchase Process

  1. Information Memorandum issued;

  2. Confidentiality Agreement/NDA executed;

  3. Due diligence and disclosure documents;

  4. Negotiation of sale and purchase documentation;

  5. Execute sale/purchase documentation;

  6. Satisfaction of conditions precedent, preparation for settlement, including items such as

  7. offers of employment and settlement adjustments;

  8. Attend to ASIC and other regulatory filings;
  9. Calculate any relevant post completion price adjustments;

  10. Integration into the business.

We suggest that you start considering and addressing these issues as early on as possible, so that you are aware of all issues from the outset. This will help to ensure that you’re making a fully informed decision and allow the process to flow as smoothly as possible, should you proceed with the transaction.

Dooley & Associates Solicitors ebook Buying & Selling Businesses covers all of the most important issues that should be considered before your sign on the dotted line, from understanding the sale and purchase process to avoiding the most common potential pitfalls.

For further clarification on any of the information we provide, simply contact the team at Dooley & Associates at any time.

Source: Dooley & Associates Solicitors

Reproduced with the permission of Dooley & Associates Solicitors. This article by Luke Mitchell was originally published at www.dooley.com.au/blog

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 takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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A guide to working with independent contractors for small business owners

Posted On:Jun 05th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Hiring independent contractors may be an effective way to get more work done without onboarding new, full-time resources, but there are a few things small business owners should be aware of before taking the plunge.

If you need to start delegating tasks in your business or don’t have the necessary expertise in-house to complete certain jobs, you may want to hire

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Hiring independent contractors may be an effective way to get more work done without onboarding new, full-time resources, but there are a few things small business owners should be aware of before taking the plunge.

If you need to start delegating tasks in your business or don’t have the necessary expertise in-house to complete certain jobs, you may want to hire a contractor.

Here is the rundown on everything small business owners need to know about working with independent contractors.

What is the difference between an employee and a contractor?

Employees, whether part-time, full-time, or casual, are hired to work within someone else’s business.

They’re paid a wage and receive entitlements during the year, such as annual and sick leave.

Their work is performed on site, in most cases, and there are other controls about how, where, and when they do their job.

Independent contractors, on the other hand, differ in a variety of ways.

READ: Employee or contractor? Know your obligations

Although there is no one factor or combination of factors that determine a worker’s status, usually contractors:

  • Are their own boss, working for themselves but selling their services to others

  • Control their working times and work as many hours as are needed to complete a job

  • Work from home or other premises of their choice, or complete work on business premises for a short amount of time

  • Provide their own equipment and tools

  • Create their own processes to complete tasks

  • Accept or refuse work as they see fit

  • Work for many clients at once

Also called ‘sub-contractors’ or ‘subbies’, independent contractors are hired to complete a set task or project based on terms set within a contract.

They’re paid per hour, per day, per task completed, or via another agreed calculation.

Contractors can choose to delegate or subcontract some of their work if they want to, too, unless this has been specifically forbidden in their contract.

Businesses often hire contractors for their specialised skills, when such skills are required for a short, or pre-determined, amount of time.

The rights and responsibilities of businesses hiring contractors

If you decide to hire a contractor for a project, be aware that your rights and responsibilities are different from those when dealing with employees.

Unlike with in-house staff, when you use contractors, you don’t have to pay them sick leave, annual leave, superannuation, or other related benefits.

You don’t have to take tax out of your payments to contractors, either (although contractors may request this in rare cases). Tax matters are up to independent contractors to sort out.

READ: Changes to Taxable Payments Reporting in 2019

Businesses negotiate a set price for the work contractors are to perform and pay them accordingly.

Independent contractors supply an invoice for the work. Businesses must make payment within the agreed-upon timeframe noted in the contract and/or on the invoice.

If unhappy with the work done by a contractor, entrepreneurs should read the contract to understand payment terms and conditions.

Contractors usually bear the responsibility and liability for poor work, but not always.

Try to resolve payment issues amicably, or make use of a mediator. You may need to get legal advice, too.

Don’t just withhold payment if you’re not pleased with a contractor’s work. Doing this can give them the right to terminate the contract because you failed to meet payment obligations. Contractors might then claim damages from you for that breach.

Contractors are not entitled to a minimum wage, but they’re after an acceptable rate for their work. They typically always bear the financial risk for making a profit or loss for each job.

Under the Fair Work Act, contractors are protected from various adverse situations, though.

For example, as a business owner or manager, you can’t terminate a contract because a contractor made a complaint to a regulator about their workplace rights.

Businesses must not threaten to take action against contractors as a means of coercing them not to exercise their workplace rights, either. Nor can they force contractors to join (or exclude themselves from) a trade group or other relevant association.

The Independent Contractors Actalso protects self-employed workers in the matter of contracts.

Contractors can ask a court to review contracts they see as harsh or unfair.

If a case goes to court, factors considered include contract terms, bargaining strengths of each party, unfair tactics used against any party, and the comparison of the total remuneration against standard industry rates.

Be aware that if courts deem a contract to be harsh or unfair, they have the power to order contract terms to be changed (e.g. added, removed, or edited), to nullify certain terms of the contract, or to set aside the entire contract so it no longer has any effect.

Since contractors typically work off-site, businesses aren’t usually responsible for keeping contractors safe.

Contractors need to take out their own insurance and legal covers to protect themselves and others, as applicable.

But, if a contractor does have to work at your business site or use your equipment, your firm could be liable if harm comes to the contractor as a result of your dangerous workspace or equipment.

Contractors are usually liable for any defects or other problems with their work, too, although again, this can vary from contract to contract.

The pros and cons of hiring contractors

There are numerous reasons to hire a contractor. Benefits include:

  • Quick access to the additional skills, experience, or technology your business needs, particularly during growth stages or periods of uncertainty

  • Organisational flexibility, since you hire contractors only when you need them

  • Ease of termination, as you can end most contracts with just a few weeks’

    notice

  • Lower overheads due to the fact you don’t need to pay superannuation, holiday pay, sick leave, and other benefits

  • Reduced legal liability as contractors provide their own insurance

There are also some potential downsides to be considered when hiring contractors rather than employing people in-house. For example:

  • Lack of stability in your business, because contractors come and go

  • Time wasted training contractors how to do tasks to your liking; contractors take knowledge with them once a contract finishes

  • Less team cohesion, since contractors work independently and usually don’t get involved in team discussions or events

  • When you use contractors, you don’t end up adding value to your core business. Over the long term, investing in employees often pays better dividends than spending money on contractors year after year

  • While you will likely get a contractor to sign a non-disclosure agreement, there are risks in giving them access to sensitive information

Utilising contractors in your small or medium business can be a smart tactic in many circumstances. But, always do your research, be careful about which contractors you hire, and get advice from accountants and lawyers to ensure adequate protection before going ahead.

The information provided here is of a general nature for Australia and should not be your only source of information. Please consult an experienced and registered business advisor, as well as professional legal advisor, as each individual’s circumstances will vary.

Source: MYOB

Reproduced with the permission of MYOB. This article by Kellie Byrnes was originally published at www.myob.com/au/blog/.

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 takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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Investment advice hidden in the fine print

Posted On:Jun 04th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Two years ago, 22,000 festival goers in England unknowingly agreed to clean public toilets and scrape chewing gum off the streets by ignoring the terms and conditions when signing up to two weeks of free Wi-Fi.

These individuals are hardly the exception to the rule, chances are you’ve also skipped right past the terms and conditions when entering a new phone

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Two years ago, 22,000 festival goers in England unknowingly agreed to clean public toilets and scrape chewing gum off the streets by ignoring the terms and conditions when signing up to two weeks of free Wi-Fi.

These individuals are hardly the exception to the rule, chances are you’ve also skipped right past the terms and conditions when entering a new phone contract, upgrading phone or computer software, setting up a bank account or in countless other situations, keen to complete the deal and sign your name on the dotted line.

You wouldn’t be the first to ignore all the warranties, disclaimers and special clauses that accompany so many products and services these days, and you certainly won’t be the last.

The world of investment and personal finance is no different. There are more pages than ever that hold important, and often legal, information about the specifics of financial products and services.

While we should all take care to understand the implications of our investment and personal finance decisions, how many of us can honestly say that we read through each page and took the time to decipher and understand the fine print?

Now, while skimming the Ts&Cs of an investment product disclosure statement is unlikely to wind up with you cleaning toilets, amongst the important information that can help inform your decisions, there is also one of the most valuable lines of financial wisdom:

‘Past performance is not an indication of future performance.’

If you’ve read the disclosure statement at the bottom of any Smart Investing article, or any financial document for that matter, you may have already spotted it.

At Vanguard, we often talk about how a sound investment strategy starts with an asset allocation suitable for the portfolio’s objective, and just as important as the combination of assets that are used to construct a portfolio, are the assumptions that are used to arrive at the asset allocation decision. By this we mean using realistic expectations for both returns and volatility of returns.

While this is sound portfolio construction advice, it doesn’t remove the temptation to be led by the recent performance of any given asset class. The challenge that comes with that is it is almost impossible to select the asset class that is going to be next year’s winner.

Annual asset class return for the year ended December 2018

 

Source: Vanguard Investment Strategy Group analysis using index data from Bloomberg, Barclays, FTSE, MSCI, S&P & UBS.
Notes: Australian equities is the S&P/ASX 300 Index; Australian Property is the S&P/ASX 300 A-REIT Index; International Property Hedged = FTSE EPRA/NAREIT Dev x Au Hedged into $A from 2013 and UBS Global Investors ex Australia AUD hedged Index proir to this; International Shares Hedged is the MSCI World ex-Australia Index Hedged into $A; Emerging Markets Shares is the MSCI Emerging Markets Index; Australian Bonds is the Bloomberg Ausbond Composite Bond Index; Global Aggregate Bonds = Bloomberg Barclays Global Aggregate Index Hedged into $A; Cash = Bloomberg AusBond Bank Bill Index.

If you had looked at the performance of International Equities in 2017 and on that basis switched your portfolio to overweight that asset class, you may have been sorely disappointed – at least in the short term – at the end of 2018 to see it finish second last.

The same way as if you had of avoided Australian Fixed Interest because of its low performance in 2016 and 2017, you would have missed out on it being a strong performer – and more importantly a diversifier of risk – in 2018.

The chart above may look like a patchwork quilt of colours but the randomness of the best and worst performance results illustrates the point that short-term past performance is both hard to get right and not a reliable predictor of future performance.

Indeed if you use it to drive your portfolio construction decisions you are likely to find yourself buying in at the top of a particular cycle only to ride it down as markets move.

The only real certainty is that performance leadership among market segments changes constantly over time, so it is important for investors to understand the role of diversification to both mitigate losses and to participate in gains. If you feel the need to alter your asset allocation when markets experience inevitable turbulence, it is worth taking heed of the wisdom found within the fine print.

Source : Vanguard

By Robin Bowerman, Head of Corporate Affairs 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.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
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 any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

 

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AMP Market Watch

The latest investment strategies and economics from AMP Capital.

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Client Stories

Hear from some of our customers who have broken out of debt and secured their future financially.

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Provision Insights

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