Provision Newsletter

By Flying Solo contributor Andrew Griffiths

One of the most common challenges facing many of us in business is getting stuff done. It feels like there are more tasks continually being added to our day, resulting in working more hours. And when it comes to those bigger projects that are really important to us, the time lines seem to keep getting moved, leading to a sense of frustration and a lack of progress. What to do?

This year I’ve adopted a new approach that is working really well for me. Rather than doing a 12 month plan (or for that matter a two or three year plan – something that was common a few years back but now seems crazy), I work to a 100 day plan. This simple shift is surprisingly powerful and easy to do.

At the beginning of the year I set up my first 100 day plan – with the key projects I had to get done in that time. This covered projects I’m doing for clients as well as projects I’m doing for myself. There is something about the 100 day time frame that is both long enough and short enough to make it work.

I use my plan for my bigger projects (writing that next book, developing that new programme) as well as implementing smaller but important changes into my day to day routine (things like eating better, exercising more etc).

“If you’re getting frustrated by not getting enough done, you need to read this.“

Our 100 day plan can have three simple parts:

1. Your specific goals and objectives for the next 100 days.

2. A list of the key projects to be undertaken in that period (allowing some room for the unexpected projects that will always turn up).

3. A day-by-day planner for the 100 days.

One of the nicest and most practical things about the 100 day plan is the fact that it can start tomorrow. It doesn’t have to be tied into the start of the year, or some other auspicious date. And when the 100 days is close to being done, you simply map out your next 100 day plan.

I have to say, I’m surprised at how effective this simple planning tool actually is. It’s not a new idea, I’ve certainly come across it over the years in various places, but I never tried it – preferring to do a 12 month plan. But it works, and it works really well.

If you are feeling frustrated because you’re not getting enough done, try doing a 100 day plan and see how it works for you. I think you’re going to be as surprised as I was at the results you achieve. It’s exciting to think of what you will get done in this period. It’s achievable, it feels more immediate and measuring progress by ticking of the days is kinda cool.

For me, the 100 day plan is the tool I was missing. I love them and I’m telling everyone about them. Give it I a go and see how it works for you. The simplest of ideas in business tend to be the ones that provide the best results.

Source : FlyingSolo

This article by Andrew Griffiths is reproduced with the permission of Flying Solo – Australia’s micro business community. Find out more and join over 100k others. 
 

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. Any information provided by the author detailed above is separate and external to our business and our Licensee. 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.

In retirement, an Australian couple needs from $4,700 to $9,400 a year to pay for health care , according to the Association of Superannuation Funds of Australia, and the average cost of private health insurance rose 4.8 per cent in 2017, far outpacing inflation.

This high and ever-increasing cost of health care, combined with longer life spans, has elevated the need to plan for paying for doctor visits, prescriptions and other medical costs in retirement.

Vanguard’s Roadmap to Financial Security identifies health risk as one of five risks that you need to understand and evaluate when you plan for retirement. The others are:

• Market risk

• Longevity and mortality risk

• Event risk, the risk that large and unexpected expenses, such as property damage, will punch a hole in retirement funds

• Tax and policy risk, the risk that a change in a government rule or policy will affect your financial plans

Vanguard defines health risk as both the risk of needing care because of deteriorating health and the risk of not being able to afford it because of a lack of insurance coverage, government benefits, or financial resources.

Accounting for health risk is complicated because it encompasses so many uncertainties. Retirement may be many years in the future, outlays vary wildly depending on the length and type of care, and few people can predict how aging will affect their health.

In addition, health risk is intertwined with other risks. Women, for example, face greater longevity risk, but that makes them more likely to require more expensive care in later years. Australia’s aging population may put pressure on government budgets, potentially changing health-care and other funding.

If you are approaching or in retirement, start by calculating your risk in three areas:

• Overall health. Assessing your current health is a good starting point. If you have good health, you may not need to worry as much about higher costs in retirement. But if you have a chronic illness or know you will have to take a certain medication for the rest of your life, tally up your out-of-pocket expenditures to estimate potential retirement costs. You should also take lifestyle and genetics into account.

• Available coverage Establishing the level of coverage provided by Medicare and other sources can help clarify which types and what portion of expenses will have to be paid from other assets or private insurance.

• Level of desired care. Consider what kind of care you want and determine how to pay for it. You may choose private insurance, for example, if it offers access to preferred doctors. The level of care you desire can increase or decrease total health-care costs and the amount of assets needed to pay for them. After you take these the factors into account, you can better estimate overall health risk and decide how to cover it. You can then match resources such as personal assets in a contingency reserve, public coverage, insurance, or any combination of the three to your needs. 

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

Source : Vanguard

Written 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.

When share market volatility rises, more investors would make the mistake of concentrating too much on short-term movements in share prices.

Yet investors should never overlook that share-market returns are from both capital growth and dividends. Historically, dividends have made up a large proportion of the total returns from Australian shares.

Post-GFC dividend rewards

An illustration of how much dividends can contribute to total share returns is the performance of the Australian share market since the global financial crisis (GFC).

Once reinvested dividends are taken into account, the performance of the Australian share market following the GFC looks much stronger – even before allowing for franking credits on dividends:

• The S&P/ASX 200 index (prices only) closed on March 13 this year almost 10 per cent below its pre-GFC closing high (reached in November 2007) yet 96 per cent above its GFC closing low.

• By contrast, the S&P/ASX 200 total-return index (share prices plus reinvested dividends) closed on March 13 this year 50 per cent higher than its pre-GFC high.Critically, this total-return index is 205 per cent above its GFC low.

Grossed-up dividends

Franking credits – tax credits for corporate tax already paid by companies – make a valuable contribution to returns from Australian shares that investors may sometimes overlook. A fully-franked dividend of, say, 4 per cent grosses up for franking credits to 5.71 per cent.

Compounding dividends

The disciplined reinvestment of dividends – if possible, given an investor’s financial circumstances – magnifies their rewards. As Smart Investor regularly discusses, compounding occurs as returns are earned on past returns as well as your original investment.

Dividends as a volatility cushion

Your dividends can act as a volatility cushion. This is because dividends keep flowing from a diversified share portfolio as share prices fluctuate.

Dividends and your long-term focus

A way to help block out the distraction of daily movements in share prices is to remind yourself about the two sides to share-market returns, dividends and capital gains. This should assist you to remain focused on your long-term goals.

Dividend-chasing trap

While recognising the contribution that dividends make to an investor’s share-market returns, don’t fall into the trap of abandoning a carefully-constructed, well-diversified share portfolio in the pursuit of higher dividends. Being a dividend-chaser often involves investing in higher-risk, more-concentrated share portfolios.

Total-return investing

Finally, think about taking a total-return approach to investing for your overall investment portfolio. Total-return investing focuses on both the income and capital growth generated by an overall portfolio.

This approach should help maintain a portfolio’s diversification, allow more control over the size and timing of eventual portfolio withdrawals upon retirement, and increase a portfolio’s longevity.

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

Source : Vanguard 

Written 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.

Investors should be realistic. This means being realistic in setting their long-term goals, being realistic in their expectations for investment returns and being realistic in their spending habits.

Critically, the reasons for being realistic with your goals, return expectations and spending are indelibly linked. Being unrealistic in any of three may throw the others off course.

The case for investors to take a realistic approach is particularly worth highlighting given widespread expectations for subdued returns over the medium-to-long term from diversified portfolios together with the likelihood of higher volatility.

A Vanguard research paper* published several years ago – Required or desired returns? That is the question – closely examines the need for investor realism.

Realistic goal-setting

As this research paper discusses, financial planning should result in an estimate of the return needed to achieve investors’ realistic objectives given such factors as their investment time horizon, current assets, savings pattern, tax position and risk tolerance.

Realistic return expectations

This thorough financial planning process should provide an estimate of an investor’s required return from their portfolios as opposed to a desired return.

“The required return is the return necessary to accomplish the goals that the investor has determined to be most important while bearing the level of risk that the investor feels is most palatable, “the researchers explain.

Key points to help understand the often-overlooked difference between required and desired returns include:

• A desired return usually originates from factors that are unrelated to an investor’s objectives and constraints. These may include an investor’s past experiences, recent market returns, historic market returns, media reports, fund advertising, best-performing fund lists and tips from friends.

• Many investors would already have a target investment return in mind – their desired return – before fully examining their particular circumstances.

• Desired returns are typically, but not always, higher than an investor’s required return. “Higher returns are associated with higher risk in the long run,” the paper stresses. “Other investors may insist they don’t want no risk at all, ignoring the potential threat to their future wealth.

Realistic spending

Investors who keep their personal spending within their means are less likely to chase unrealistic investment returns. This is particularly relevant for retirees relying on their investment returns to pay their living costs. In other words, your spending habits should realistically reflect your income.

Understanding the difference between desired and required returns should help investors set appropriate asset allocations for their portfolios. And by being properly diversified, investors are well placed to reduce the level of short-term volatility in their portfolios.

*Required or desired returns? That is the question by Vanguard investment analysts Donald Bennyhoff and Colleen Jaconetti.

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

Source : Vanguard 

Written 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.

Whenever market volatility rises, the benefits of treating a good financial adviser as an investor’s behavioural coach are truly highlighted.

Higher share-market volatility – whether prices are rising or falling – can tempt an investor to make emotionally-driven investment decisions that are often damaging to their portfolios.

Fortunately, a good financial adviser acting as an investor’s behavioural coach or guide can help keep potentially wealth-destructive traits in check.

A recently-published research paper, The Vanguard adviser’s alpha guide to proactive behavioural coaching, revisits the contributions that a good adviser can make as an investor’s behavioural coach – a long-favoured topic of Smart Investing.

As the paper’s author, senior investment analyst Donald Bennyhoff, writes: “Investing is an emotionally-charged effort that challenges people to contend with uncertainty and doubt”.

Behavioural coaching from an investment perspective has been defined as encouraging investors to change elements of their behaviour that would otherwise prevent them from achieving their goals.

As behavioural coaches, good advisers may warn investors about such damaging behavioural traits as over-confidence, inertia (getting in the way of saving), panicking when markets are falling, becoming greedy when markets are rising, and dwelling excessively on past losses.

A good adviser acting as a behavioural coach can:

• Reinforce how a financial plan modifies an investor’s behaviour: Bennyhoff describes a written financial plan as “the foundation of behavioural coaching” for investors. It should take into account investors’ short and long-term goals, their tolerance to risk, and such other factors as their tax positions. More generally, Bennyhoff emphasises that a written plan helps ensure that investors “understand that investing requires them to intentionally bear risk while seeking rewards”. It provides a backbone for investment decisions and, in turn, discourages emotional decisions.

• Remind investors to keep up their wealth-creating habits: This includes reminding investors to regularly rebalance their portfolios back to their strategic or target allocations. And advisers can keep reminding investors about the rewards of such investment fundamentals as long-term compounding (as returns are earned on past returns as well as invested capital), trying to save more, minimising investment costs and personal budgeting. These reminders are particularly valuable during times of higher market volatility and uncertainty.

Think about whether you can take more advantage of an adviser’s skills in ways that have nothing to do with trying to beat the markets – including acting as a behavioural coach and a personal wealth manager.

Please contact us pn |PHONE| if we can be of assistance .

Source : Vanguard 

Written 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.

When I was in my early 20s I thought socialism might be the way to go. Two things happened. One I studied economics which led me to the conclusion that socialism/heavy state intervention doesn’t lead to the best outcome in terms of living standards for most. Second, I had the benefit of a trip to the USSR before it and the eastern bloc disintegrated. It must have been Paul McCartney’s faux Beach Boys’, “Back in the USSR” that got me interested! Sure the history and scenery were fantastic and I like the fact that I saw it before the wall came down – but economically it was a mess. And trying to spend excess roubles before we left the USSR was a struggle (nothing but off chocolate to spend them on). “Socialism” seemed to work a bit better in the Deutsche Democratic Republic – but not really and it was a relief to come through Checkpoint Charlie knowing decent food (McDonald’s) was waiting.

So I ended up gravitating to the centre with the view that the best approach is to allow a market economy with the government providing a good safety net, education and intervening where there are market failures. But a wise man told me when I was young that it’s best to start off on the left when you are young otherwise you will end being like Attila the Hun, as you move to the right as you age. Given the tendency for the young to start off on the left its no surprise to see younger generations favour a bigger role for government in what The Economist magazine has dubbed “millennial socialism”. 

Source: Pew Research Center

If the millennials and Gen Z follow the normal pattern they will shift to the right as they age like their forebears. So nothing new! Well maybe but there is a big difference now compared to the 1980s. Back in the 1980s the political pendulum (or technically the median voter) was moving to the right. So my ageing was in tune with a big picture political cycle. Now the pendulum is swinging left. We first looked at this three years ago (see “The political pendulum swings to the left”, Oliver’s Insights, June 2016). Since then it’s become more evident. This note looks at what’s driving it and what it means for investors.

Political cycles beyond elections

Just as the weather, economies and financial markets go in cycles so it is with politics, even beyond standard electoral cycles. This has been clearly evident over the last century:

1930s-1970s – the Great Depression gave rise to a fear of deflation and high unemployment and a scepticism of free markets. The political pendulum swung to the left and culminated in the economic disaster of the high tax, protectionism, growing state intervention and the welfare state of the late 1960s and 1970s that gave rise to stagflation.

1980s-2000s – stagflation and the failure of heavy government intervention gave rise to popular support for the economic rationalist/right of centre policies of the 1980s. Thatcher, Reagan and Hawke and Keating ushered in a period of deregulation, freer trade, privatisation, lower marginal tax rates, tougher restrictions on access to welfare, measures to reign in budget deficits and other supply side economic reforms designed to boost productivity. The middle class didn’t support higher taxes on the rich because they aspired to be rich. This was all helped along by the collapse of communism and the integration of the old USSR and China into global trade. The political pendulum swung to the right and there was talk of “The End of History” with general agreement that free market democracies were the way to go.

2010 – ? – but post the global financial crisis (GFC) it seems the pendulum is swinging to the left again and support for economic rationalist policies seems to be fading if not reversing.

What’s pushing the political pendulum to the left?

This reflects a range of factors, in particular: 

• the feeling that the GFC indicated financial de-regulation had gone too far; 

• constrained and fragile economic growth in recent years; 

• stagnant real wages and incomes for median households;

• high household debt levels preventing individuals from taking on more debt as a way to boost living standards; 

• rising levels of inequality and perceptions that “it’s unfair”;

• the perceived failure of the baby boomer generation of political leaders to do much about climate change;

• examples of big business doing the wrong thing;

• a backlash against immigration in some countries; and 

• a backlash against globalisation.

Of course, it’s being aided by a dimming of memories of stagflation of the 1970s and its causes and the failures of socialism as highlighted by the USSR (although Venezuela provides a current example). So government related solutions or socialism seem more attractive. Allied to this are economic theories like Modern Monetary Theory (or rather, Magic Mushroom Theory) that contends governments can borrow and spend freely in the current environment of spare capacity globally spurred along by the crazy argument that quantitative easing did not cause hyper inflation and higher interest rates so why should bigger budget deficits.

Of these rising inequality and perceptions of stagnant living standards are the big ones. The next chart shows the Gini coefficient, which is about the best measure of income inequality, calculated on incomes after taxes and transfers. It ranges from zero or perfect equality to one indicating perfect inequality with one household/individual, receiving all income.

Source: OECD, Standardised World Income Inequality Database, AMP Capital

The key point is that there has been a general trend higher in inequality during the past 30 years. This is particularly evident in the emerging world but also the US, UK and Australia. Rising levels of income inequality also appears to have come with increase in wealth inequality. Rising inequality may have been more bearable or “masked” in the 1990s and 2000s as nominal income was rising faster and households took on debt to boost their living standards. But in recent times this has become harder and so rising inequality is leading to a backlash.

The political response

In this environment (often populist) politicians have been able to easily tap into voter anger and argue the case for greater public sector involvement in the economy.

• This was evident in support for self-declared socialist Bernie Sanders and Donald Trump in the US in 2016 (although Trump’s focus on deregulation and tax cuts look like a temporary deviation right). It’s now even more evident in the Democrats with the Green New Deal (that plans to rid the US of carbon emissions – and planes & cows – in a decade) and 2020 Democrat presidential aspirants adopting variations of Bernie Sanders’ policies, with proposals for wealth taxes and a 70% tax rate for income above $10 million (which is supported by 59% of Americans). It’s also evident in less US public concern about rising public debt.

• It’s been evident in the Brexit vote in the UK which represented a backlash against globalisation and the left wing turn in the British Labour Party under Jeremy Corbin. 

• In Australia, we are seeing an intensification of the left right divide not seen since 1970s. The ALP is far from the economic rationalist policies of Hawke and Keating. Policies of higher taxes for the “big end of town” (bringing back the Budget Repair Levy and winding back various tax concessions), significantly increased spending on health and education, some reregulation of the labour market and talk of raising the minimum wage to become a “living wage” all suggest a populist focus reflecting a change in voter preferences. The same pressures are also evident in some ways in proposed intervention in the energy sector. 

Qualifications

Of course, there are various qualifications to this leftward shift. First, it’s most evident in Anglo countries because it’s here that the swing to the right and economic rationalism was most pronounced in the 1980s and 90s and where inequality is more of an issue. Europe never fully bought into the supply side revolution of Thatcher and Reagan and inequality has not risen much. In fact, France under Macron looks to be embarking on its own version of Thatcherism (with the yellow jacket protests proving nothing more than that Macron is actually doing something) which should augur well for its long-term prospects if Macron stays the course. Second, it’s arguable that if the Democrats are to win the US presidential election next year they have to win the mid-west and a socialist presidential candidate may not cut it there. Third, even many on the left are sceptical of ever larger budget deficits – eg in Australia the ALP has been talking of a stronger budgetary position. Finally, there is an argument that a modest move left is necessary to curb the rise in inequality and so save capitalism – much as Keynesian economics “saved” it after the Great Depression.

But what does it all mean for investors?

The risk over time is that a more left leaning electorate will mean a tendency towards bigger government, bigger budget deficits, more regulation, higher effective top marginal tax rates, less globalisation and tougher rules on immigration in some countries. Or it may just mean a stalling in economic reforms. The risk is that it will act as another constraint on productivity and economic growth and eventually see higher inflation if the supply side of the economy suffers.

It’s worth putting this in context. The swing in the political pendulum to the right and the economic rationalist/supply side policies – of deregulation, privatisation, smaller government, tax cuts, low inflation, globalisation – that followed along with the peace dividend from the collapse of communism and attractively high starting point dividend yields and bond yields created a powerful tail wind that drove strong returns in shares and bonds starting in the early 1980s.

Now the environment is very different. Starting point investment yields are ultra-low for most assets and a reversal of economic rationalist policies in favour re-regulation, higher taxes and more government risk slowing productivity growth and eventually resulting in higher inflation.

The key point is that the powerful tailwind from the economic rationalist policies (deregulation, smaller government and globalisation) is now behind us and is contributing along with a range of other factors to a much more constrained return environment for investors. Our medium-term projection for the investment return from a balanced mix of assets have been steadily declining in recent years and is now running around 6.4% pa, which is down from over 10% a decade ago.

In this environment, there is a strong case to focus on investment strategies targeting the achievement over time of goals defined in terms of returns, investment income or whatever is required and using a flexible approach to do so as opposed to relying solely on set and forget strategies that depend heavily on market-based returns. There is also a case to look out for assets that may buck the trend of constrained returns as support for economic rationalist policies recede. French shares may be worth looking at!

Source: AMP Capital 14 March 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.