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Provision Newsletter

RBA cuts rates to a new record low – why?

Posted On:Jun 05th, 2019     Posted In:Rss-feed-oliver    Posted By:Provision Wealth

As had become widely expected in the past two weeks the Reserve Bank of Australia has cut the official cash rate by 0.25% which takes it to 1.25%.

This is the first move in official interest rates since August 2016 but is the 13th rate cut in this rate cutting cycle that started back in November 2011 when rates were 4.75%.

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As had become widely expected in the past two weeks the Reserve Bank of Australia has cut the official cash rate by 0.25% which takes it to 1.25%.

This is the first move in official interest rates since August 2016 but is the 13th rate cut in this rate cutting cycle that started back in November 2011 when rates were 4.75%. (It’s not a new rate cutting cycle as rates have not been raised since they started to fall in 2011.) This takes the cash rate to a record low 1.25% in the longest easing cycle on record. Assuming banks cut their rates by 0.25% it will take deposit rates to their lowest since the mid-1950s and headline mortgage rates to their lowest since the early 1950s, although some mortgage rates are already at record lows. 


The cash rate line shows authorised dealers’ rates & 90-day bill rates up until the early 1980s. The chart assumes all rates fall 0.25% in May. Source: RBA

So what’s driven this? Will it help the economy? How low might rates go? And what does it mean for investors?

What drove the rate cut?

Put simply economic growth has slowed sharply below its long-term potential reflecting the housing downturn, but other factors from drought to the threat to global growth from the US trade wars cloud the outlook. This in turn has seen the outlook for unemployment deteriorate – at a time when there is still a high combined level of unemployed and underemployed (at 13.7% of the workforce). Which in turn threatens to keep wages growth low and inflation below the RBA’s 2-3% inflation target for even longer. Reflecting this the RBA has revised down sharply its growth and inflation forecasts over the past six months and now doesn’t see inflation rising above 2% out to 2021 even with the technical assumption of two rate cuts. The RBA has concluded that it needs much lower unemployment than the 5% or so recently seen to get inflation back to target. But recent indicators point to rising unemployment. Hence the RBA has returned to cutting the cash rate to help boost growth.

What’s driving low inflation?

Inflation was just 1.3% over the year to the March quarter. Abstracting from volatile items, underlying inflation is just 1.4%. This reflects a combination of weak demand, high levels of spare capacity & underutilised workers, intense competition, technological innovation & softish commodity prices. The problem is that inflation has been undershooting RBA forecasts and the inflation target for some time, threatening its credibility.


Source: RBA, Bloomberg, AMP Capital

What’s wrong with low inflation anyway?

Surely low price rises or falling prices are good. So, many have suggested the RBA should just lower its inflation target. Such arguments are nonsense. First, the whole point of having an inflation target is to anchor inflation expectations. If the target is just moved each time it’s breached then those expectations will blow around. There would be no point having an inflation target.

Second, there are problems with allowing too-low inflation. Statistical measures of inflation tend to overstate actual inflation by 1-2% because statisticians have trouble adjusting for quality improvements. And targeting too low an inflation rate could mean we are knocked into deflation in an economic downturn.

Third, deflation is not good if its associated with falling wages, rising unemployment, falling asset prices and rising real debt burdens – particularly when debt levels are high. It risks a debt deflation spiral of falling asset prices & incomes leading to rising debt burdens and defaults, and more falls in asset prices, etc.

Finally, targeting very low inflation gives central bankers less flexibility to achieve easy monetary policy in downturns as they have limited ability to achieve negative real interest rates.

More simply, low inflation is synonymous with low wages growth and this is contributing to a sense of dissatisfaction in the community. Getting both up to more normal levels is desirable.

It’s global not just local

While its natural to assess the RBA in isolation it’s clear that it is being caught up in global forces. The weakness in inflation is evident globally and reflects the same drivers as in Australia. Combine this ongoing softness in inflation with the latest threat to global growth – from Trump’s trade wars – and bond yields have pushed to new record lows globally. Reflecting this Australia bond yields have also been pushed to a new record low. So, the RBA is really just ratifying global market forces!


Source: Global Financial Data, AMP Capital

How far will the RBA cut rates?

Rate cuts are a bit like cockroaches. If you see one there is normally another nearby. We expect another 0.25% rate cut in July or August and two more rate cuts by mid next year taking the cash rate to 0.5%. We had thought 1% would mark the low and positive signs regarding residential property prices are helpful in this regard. But the flow of weak economic data and increasing risks to the global outlook with Trump’s trade wars and the slowing jobs market pointing to unemployment rising to 5.5% by year end make it hard to see just two rates cuts being enough, given that the RBA really needs to see unemployment fall to 4% or below to get inflation back to target.

But will the banks pass on RBA rate cuts?

With the recent reduction in bank funding costs meaning that last year’s 0.1-0.15% mortgage rate hikes should now be reversed and nearly 90% of bank deposits on interest rates above 0.5% (and hence able to be cut) we expect most banks to pass on all or the bulk of the RBA’s cut to customers. Short of a funding cost blow out, the interest rate structure on deposits should allow the bulk of subsequent cuts to be passed through but this may diminish as the cash rate reaches 0.5%.

But will more rate cuts help anyway?

Various arguments have been put up against RBA rate cuts: it should “preserve its fire power till it’s really needed”; “rate cuts haven’t helped so far so why should more cuts help”; “low rates won’t help as they cut the spending power of retirees and many of those with a mortgage just maintain their payments when rates fall”. However, looking at these in turn:

First, waiting till rate cuts are “really needed” risks leaving it too late as by then the economy will be in recession – monetary policy needs to be forward looking.

Second, rate cuts have helped the economy rebalance after the end of the mining investment boom by supporting non-mining spending. If the cash rate was still 4.75% and mortgage rates 7.5% the economy would have long ago gone into recession.

Finally, the level of household debt is more than double that of household deposits, so the household sector is a net beneficiary of lower interest rates. The responsiveness to changes in spending power for a family with a mortgage is far greater than for retirees. And, even if many with a mortgage just let their debt get paid off faster in response to falling rates this provides an offset to the negative wealth effect of the fall in house prices, reducing pressure to cut spending. And RBA rate cuts help keep the $A lower. So, while rate cuts may not be as potent with higher household debt levels and tighter lending standards, they should provide some help for households with a mortgage and for businesses that compete internationally.

Should the RBA do quantitative easing?

As the cash rate falls, we are likely to see an increasing debate around whether the RBA will use quantitative easing – ie using printed money to buy bonds to inject cash into the economy. QE is not our base – as we don’t think things are that bad – but as has been the case at other major central banks the RBA is likely to prefer exhausting cash rate cuts before considering QE and this is unlikely until it gets the cash rate down to 0.5% (beyond which lower rates will be a negative for the banks). QE is an option but to the extent that it lowers 10-year bond yields it may not help much in Australia as most household borrowing is on short term rates. It’s also debatable as to whether QE was the best approach globally. A more efficient and fairer option may be for the RBA to work with the Federal Government to provide direct financing of government spending or “cheques in the mail” to households with use by dates. This is often referred to as “helicopter money”. Such stimulus would be guaranteed to boost inflation! Hopefully, it won’t come that, and we don’t think it will but it’s an option. In the meantime, more fiscal stimulus could take some pressure off the RBA.

Implications for investors?

There are a number of implications for investors from the continuing fall in interest rates. First, low interest rates will remain in place for some time keeping bank deposit rates unattractive so it’s important for investors in bank deposits to assess alternative options. Second, the low interest rate environment means the chase for yield is likely to continue supporting commercial property, infrastructure and shares offering sustainable high dividends. Eg, the grossed-up yield on shares remains far superior to the yield on bank deposits. Investors need to consider what is most important – getting a decent income flow from their investment or absolute stability in the capital value of that investment. Of course, the equation will turn less favourable if economic growth weakens too much.


Source: RBA, Bloomberg, AMP Capital

Third, the earlier than expected rate cut will likely contribute along with the election result and other recent moves to an earlier bottom in Australian house prices. However, with still high debt levels, tight lending conditions and rising unemployment it’s unlikely to set off another property boom.

Finally, RBA rate cuts will help keep the $A down in the face of already high short $A positions, strong iron ore prices and rising risks that the Fed will cut rates this year.

If you would like to discuss any of the issues raised by Dr Oliver, please call on |PHONE| or email |STAFFEMAIL|.

 

Source: AMP Capital 4 June 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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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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Taxes matter. Just don’t let them drive investment decisions

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

Now that the election is over, we know that refundable dividend franking credits will continue to be available to investors.

No matter where you stand on that issue, the debate was a healthy reminder that shifting government policy is a risk that can upend a financial plan. Nearly every election, the parties propose changes to the tax code, super, health care,

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Now that the election is over, we know that refundable dividend franking credits will continue to be available to investors.

No matter where you stand on that issue, the debate was a healthy reminder that shifting government policy is a risk that can upend a financial plan. Nearly every election, the parties propose changes to the tax code, super, health care, or the age pension to attract certain voters. And that means that nearly every election, investment decisions based on the desire for a tax deduction or any other policy may become more or less appealing.

The potential for these changes is known as tax, policy or regulatory risk.

You can never predict what the government may choose to do, so minimising regulation risk requires not letting the bright lights of tax deductions or other lures dazzle you into making a financial decision you would not otherwise make.

Which is not to say how you structure your portfolio is not important, as long as you bear in mind the core principles of investment success; identify your financial goals, select a diversified, low-cost portfolio to achieve them and stay the course, no matter what financial markets do.

With those principles guiding you, if an investment has the added benefit of a tax incentive, then it makes sense. Tax incentives, however, can’t save a bad investment. If an investment is sold primarily as a way to avoid or minimise taxes, keep your money in your wallet.

History provides all too many examples of tax-driven investments gone bad. A change to tax rules in 2007, revealed the weaknesses of certain agricultural investments (avocado and olive farms, to name two) propelled by tax breaks and hefty commissions for those who sold them.

Tax or policy-driven investments also can increase the risk of your portfolio in ways that may not be obvious. If you put money in certain shares based primarily on the desire for franked dividends, for example, you may inadvertently overexpose your portfolio to certain companies or industries.

The franking policy was designed to prevent dividends from being taxed twice — once at the company level and again when they are paid out to investors. It’s important to understand that managed funds, including exchange-traded funds, pass through franking credits to investors via end of year tax statements, something that, as the franking credit debate was raging in the run up to the election, was not well understood by investors in public seminars.

Tax and policy considerations are not irrelevant, it is important to take them into account, however it’s more important not to put them in charge. Tax deductions provide healthy additional return only if an investment helps you achieve your goals in a diversified portfolio. If not, step away from the bright lights, and enjoy the warm, enduring glow of a financial plan chosen for the right reasons.

 Please contact us on |PHONE| if you seek further discussion on this topic.

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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What it will take to close the super gap between men and women

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

There’s a lot of talk about in how to close the super gap between men and women, with women often retiring with far less than men.

The main drivers of this are due to women both earning less and  taking time out of the workforce to care for children and other family members.

In a previous column, I discussed steps women and their

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There’s a lot of talk about in how to close the super gap between men and women, with women often retiring with far less than men.

The main drivers of this are due to women both earning less and  taking time out of the workforce to care for children and other family members.

In a previous column, I discussed steps women and their partners can take to close this gap.

A new report from Women in Super and research firm Rice Warner reinforces the risks that the gender gap poses for women and offers data on the roots of the problem.

Previous research showed that because women have less in super and rely more heavily on the age pension, they are more likely than men to face financial insecurity and poverty in retirement.

As you can see from the Rice Warner data in the chart below, the super gap starts to widen when women are in their 30s, suggesting that taking time out of the workforce to rear children diminishes income and super contributions.

The research also demonstrates that women start out their careers with pay that is close to their male counterparts, only to see a gap emerge as women enter their 20s and 30s. The source of this divergence is not clear, but one likely cause is that women are more likely to leave work to take care of children or family members, missing out on years in the workforce when promotions and pay raises are most likely.

 

Investment research shows that men tend to invest more aggressively than women, but Rice Warner said this difference did not contribute significantly to the super gap.

The positive news is that women are taking action to close the gap. They contribute more to super, especially as they approach retirement, which boosts their balances at a crucial stage.

Many women don’t earn enough to make extra contributions, however, and those who do likely can’t compensate enough for years of reduced earnings and super guarantee payments. The roots of the super pay gap are many — gender inequality, the challenges and costs of child care and super policy. Fixing the problem will require changes on all those fronts.

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.

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