LDM Insights – 2024 November Newsletter

Olivers Insights – 2024_11 – November

Below are articles by Shane Oliver, Health of Investment strategy and Chief Economist:

Why value matters in investing – and what are valuations telling us now?

• Starting point valuations – like yields and price to earnings ratios – are key drivers of medium-term investment returns.

• Valuation starting points for term deposits and bonds have improved.

• For shares they suggest constrained return potential, particularly from US shares thanks to rich tech sector valuations – but Australian, European and Chinese shares are a bit more attractive from a valuation perspective.

• It’s worth noting though that worries about the US share market’s dependence on tech stocks are not new and they have kept going for longer than many thought so trying to time their performance is very hard.

• Read Full Article

Nine bad habits of ineffective investors: common mistakes investors make

• Many of the mistakes investors make are based on common sense rules of thumb that turn out to be wrong.

• As a result, it’s often wise for investors to turn common sense logic on its head.

• The easiest way to avoid many of these mistakes is to have a long-term investment plan that aligns your financial goals with your risk tolerance.

• Read Full Article

China’s big stimulus – will it work? – And what does it mean for Australia?

• A move towards more aggressive fiscal policy stimulus and property support measures should help drive a cyclical upswing in China’s economy.

• However, it’s doubtful it will be enough to reverse longer term structural problems facing China – around excess saving, demographics and growing state control.

• The Australian economy is less sensitive to China than it used to be, but a stimulus driven cyclical boost to the Chinese economy is still positive for the Australian economy, share market and the $A.

• Read Full Article

Harris versus Trump – implications for investors and Australia

• The US election has significant potential to impact markets. A Harris victory would mean more of the same but a Trump victory could lead to uncertainty particularly around trade.

• Australia would be vulnerable to a rapid intensification of trade wars which is looking likely under a Trump presidency.

• Historically, shares have performed better under Democrat than Republican presidents with the best outcome being a Democrat president & Republican House and/or Senate.

• Read Full Article

Shares around record highs as inflation slides – but what are the risks?

• Recession risks, the escalating Israel conflict, the US election along with still stretched valuations mean a high risk of another share market correction and continued volatility.

• The expansion of the war around Israel and Iran attacking Israel with more missiles is very concerning but unless oil supplies are disrupted the impact on global growth and shares will remain limited.

• However, the combination of global rate cuts, still okay global economic growth and Chinese stimulus are very positive for shares on a six-to-12-month horizon.

• While the RBA remains relatively hawkish, the resumption of falling underlying inflation since May tells us that the start of rate cuts here is getting closer.

• Read Full Article

Market movements and review video – October 2024

Stay up to date with what’s happened in the Australian economy and markets over the past month.

Interest rate speculation is rife after the Reserve Bank of Australia (RBA) kept rates on hold at 4.35% last month.

RBA Governor Michelle Bullock believes it may be “some time” before inflation is “sustainably in the target range”, with concerns about inflation, excess demand, low productivity, and a still tight labour market.

The S&P/ASX 200 reached a new record high, up 2.2% for the month and 7.89% for the year, reflecting global optimism on the macro-economic front.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.

Save for an emergency fund

An emergency fund is money you save to cover urgent or unexpected costs. This could be car repairs, unexpected travel or an urgent medical bill.

It provides a financial safety net so you don’t have to borrow money if something happens to you or your family.

How much you need in an emergency fund

Even if you can only save a little, make a start and keep saving. The more you can regularly save, the better.

If you put $20 a week into a savings account, you’ll have over $1,000 in a years’ time. That’s the start of a good amount of savings to give you some financial breathing space.

A good target is to have enough in your emergency fund to cover three months of expenses.

Plan for the future

If you’re thinking long term, it’s worth having a bit more put aside. This can help if you’re unable to work for a while — for example, if you take some time off work to care for a family member.

Use a budget planner to work out your monthly expenses, then multiply this by the number of months you would like to cover. This can be your savings goal.

You could also think about income protection to help cover costs if you’re unable to work.

How to save for an emergency fund

Set up a separate savings account

It’s a good idea to set up a separate, high-interest savings account for your emergency fund. A separate account will mean you’re less tempted to dip into it for everyday expenses.

Automate your savings

You can set up an automatic transfer to your emergency fund from the account that your wage is paid into. Or ask your payroll department if they can pay a small part of your wage directly into the emergency fund account.

You can then set and forget, knowing your emergency fund is growing.

Maximise your offset account

If you have a home loan with an offset account, you can use the offset account as your emergency fund. This will lower your home loan interest payments, and means you can access your money quickly.

Keep adding to your emergency fund

If you get some extra money during the year, like a tax refund, you can use this to boost your emergency savings.

When to use your emergency fund

Keep your emergency fund for expenses you need to pay quickly when other money isn’t available. If it can wait, save up for a few weeks and pay it from this saved money instead.

Smart Tip: If you need to dip into your emergency fund, remember to top it up again afterwards.

Case Study

Eva taps into her emergency fund

Eva has been putting a bit of money aside in an emergency fund. Two years ago, she set up an automatic transfer so that $10 from her wage goes into a savings account every payday. Eva has saved over $1,070.

When her car suddenly broke down, she used $1,000 from her emergency fund to cover the cost.

Eva was relieved she didn’t have to pay on a credit card or ask her family for help. She has kept her automatic transfer, so her savings will start topping up again from her next payday.

Speak to us if you would like to budget for an emergency fund.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/saving/save-for-an-emergency-fund
Important note: 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.  Past performance is not a reliable guide to future returns.
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 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.

Understanding economic costs on a fixed rate loan

What are ‘economic costs’?

When a bank lends you money for a fixed period of time, they borrow it from the financial markets. This consists of funds from other banks, customer deposits, blue chip investors etc.

The interest rate on the money we borrow is known as the ‘cost of funds’. If you make additional repayments, or pay out your fixed rate loan early, the original loan term remains the same. Accordingly, an economic cost is charged to them and this is why they pass this cost on to you.

When could I be charged economic costs?

During a fixed rate period when you:

• make extra repayments

• pay out your loan early

• switch to a different interest rate

• switch from a fixed rate loan to a variable rate loan.

Can I make extra repayments?

Some loans allow you to make extra repayments without being charged economic costs. Some fixed rate home loans, allow you to make up to $20,000 in extra repayments during a fixed rate period without incurring economic costs.

How are economic costs calculated?

The things banks will look at include:

• the change in the cost of funds since you took out your fixed rate loan

• the term remaining in the fixed rate period

• the amount you’re repaying.

If the cost of funds drops and you pay off more than the scheduled repayments, you could be charged economic costs.

How much are economic costs?

The cost of funds changes each day—which obviously affects the calculation of economic costs. You’ll need to talk to us or a banker to get a quote. Talk to us before you pay it out or change your loan.

Avoiding economic cost

Economic costs can be considerable so think hard about the pros and cons of a fixed rate loan before you decide to fix it. If you’re hoping to pay your loan off early, then a fixed rate loan mightn’t be a great idea.

If you already have a fixed rate loan and you’re thinking about making extra repayments, talk to a us first.

Source: NAB
Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/buy-first-home/economic-costs
National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.
© 2024 National Australia Bank Limited (“NAB”). 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 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.

Keeping records of shares and units

Records you need to keep

When you sell your shares in companies or units in managed funds, most of the records you need will be given to you by the company, the fund manager or your stockbroker. These records generally include:

• the date of purchase

• the purchase amount

• details of any non-assessable payments made to you

• the date and amount of any calls (if shares were partly paid)

• the sale price (if you sell them)

• any commissions paid to brokers when you buy or sell

• details of events such as share splits, share consolidations, returns of capital, takeovers, mergers, demergers and bonus share issues.

You may buy parcels of shares in the same company at different times. You need to keep details for each parcel as they are separate CGT assets.

Identifying when shares or units were acquired

When you sell only some of your shares or units in a company or trust, you need to be able to identify which ones you have sold and when you acquired them.

This is important because shares or units bought at different times may have different costs. This will affect your capital gain or loss.

Share transactions through the Australian Stock Exchange are recorded in the Clearing House Electronic Subregister System (CHESS). If you have the relevant records from your CHESS holding statement or your issuer sponsored statement, you can select which shares you have sold and identify their cost.

Example: identifying when shares or units were acquired

Boris is an investor. He:

• bought 1,000 shares in a company in 2022 for $5 each

• bought 3,000 shares in the same company in 2023 for $10 each

• sold 1,500 of the shares in 2024 for $8 each.

Boris must decide which of his shares in the company he is selling and which he is retaining.

He decides to sell 1,500 of the shares he bought in 2023 in order to claim a capital loss in the 2024 income year. As a result, Boris will still have:

• 1,000 shares with an acquisition cost of $5

• 1,500 shares with an acquisition cost of $10.

If Boris later decides to sell more of his shares in the company, he can choose which of his remaining shares he is selling.

Boris should keep records of which shares he has bought and sold so he can show that he has calculated his gains or losses correctly on any sales of shares.

Source: ato.gov.au June 2024
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/shares-and-similar-investments/keeping-records-of-shares-and-units.
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.

The lost super pile keeps growing

There’s almost $18 billion of unclaimed superannuation. Here’s how to find it.

When it comes to accumulated retirement savings, many Australians have a strong fear of running out of money before they die.

Research released in June found that almost one in two Australians do not know whether their money will last them in retirement.

But equally staggering is the fact that millions of Australians have apparently lost track of their retirement savings.

According to new data released by the Australian Tax Office (ATO) in September, there’s billions of dollars of lost superannuation either being held by super funds or the ATO that’s waiting to be reclaimed by super members or account beneficiaries.

In fact, the ATO data shows there was $17.8 billion of unclaimed super at 30 June 2024 associated with over 7.1 million individual super accounts.

According to the ATO, there was $11.8 billion in “lost super” being held by super funds within approximately 333,000 individual accounts.

Of these, $6.2 billion was linked to 192,000 “lost uncontactable” accounts and a further $5.6 billion was linked to 141,000 “lost inactive” accounts.

Separately, the ATO reported that it was holding $6 billion (rounded to the nearest hundred million) in unclaimed super money that was contained within 6,776,000 individual accounts.

This included around $1.8 billion in around 3 million super accounts with what the regulator describes as “general, small and insoluble” amounts and another $1.8 billion in about 1.7 million “inactive low balance accounts”.

Furthermore, the ATO said it was holding almost $1.1 billion in super money earned by former temporary residents, $364 million in eligible rollover funds, $361 million in accounts of members aged 65 and over, $339 million in trustee voluntary payments, and $166 million in accounts of deceased individuals.

People often lose contact with their super funds when they change jobs, move house, live overseas, or forget to update their details.

Main reasons super becomes lost

People often lose contact with their super funds when they change jobs, move house, live overseas, or forget to update their details.

Lost super is money held by super funds where a member is either uncontactable and their account hasn’t received a contribution or rollover for 12 months, or the member is inactive and their account hasn’t received a contribution or rollover in five years.

Super providers are required to report and pay super to the ATO once it reaches certain requirements. Any super balances below $6,000 are transferred to the ATO if an account has been inactive for 12 months.

Other reasons super funds must report and pay lost or unclaimed super benefits are detailed on the ATO’s website.

The ATO said that in the 2023-24 financial year it has been able to match a total of just over $4.7 million related to around 4.4 million super accounts. This was roughly around the same numbers it provided for the 2021-22 and 2022-23 financial years.

Prevention is better than cure to avoid funds being transferred to the lost super basket. Consolidating your super savings into one account is one way of keeping track.

It’s also important to check that your current contact information and bank account details are correct

How to check for lost and unclaimed super

To search for lost and unclaimed super, log on to ATO online services through myGov.

From the top menu, select Super. Then select either:

• Fund details to check for lost super – if you want to keep your super with the same fund, contact them directly to update your details.

• Manage and then Transfer super to transfer lost super to an eligible super account – or ask your fund to complete the transfer for you.

• Manage and then Transfer super to transfer ATO held super to an eligible super account.

• Manage and then Withdraw ATO-held super to have your super paid directly to you if the amount is less than $200 or you are over 65.

You can also use myGov to check if you have multiple super accounts and to consolidate super accounts.

General advice warning

This article has been reprinted with the permission of Vanguard Investments Australia Ltd. Copyright Smart Investing™ GENERAL ADVICE WARNING Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) is the product issuer and operator of Vanguard Personal Investor. Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270) (the Trustee) is the trustee and product issuer of Vanguard Super (ABN 27 923 449 966). The Trustee has contracted with VIA to provide some services for Vanguard Super. Any general advice is provided by VIA. The Trustee and VIA are both wholly owned subsidiaries of The Vanguard Group, Inc (collectively, “Vanguard”). We have not taken your or your clients’ objectives, financial situation or needs into account when preparing our website content so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for the product before making any investment decision. Before you make any financial decision regarding the product, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained on our website free of charge, which includes a description of who the financial product is appropriate for. You should refer to the TMD of the product before making any investment decisions. You can access our Investor Directed Portfolio Service (IDPS) Guide, Product Disclosure Statements (PDS), Prospectus and TMD at vanguard.com.au and Vanguard Super SaveSmart and TMD at vanguard.com.au/super or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This website was prepared in good faith and we accept no liability for any errors or omissions. Important Legal Notice – Offer not to persons outside Australia The PDS, IDPS Guide or Prospectus does not constitute an offer or invitation in any jurisdiction other than in Australia. Applications from outside Australia will not be accepted. For the avoidance of doubt, these products are not intended to be sold to US Persons as defined under Regulation S of the US federal securities laws. © 2024 Vanguard Investments Australia Ltd. All rights reserved.

Weighing up the Age Pension and the assets test

Why having less super isn’t necessarily a financial sweet spot for retirees.

Millions of Australians aged 67 and over recently received an Age Pension boost as a result of the Department of Social Services lifting its fortnightly payment rates.

The full Age Pension rate for singles has increased by $28.10 per fortnight to $1,144.40 ($29,754.40 per annum), and by $42.40 per fortnight to $1,725.20 for couples ($44,855.20 per annum). These figures include pension supplements to help with energy, phone, internet and medicine costs.

Age Pension rates are typically indexed twice a year (on 20 March and 20 September) to reflect changes in the cost of living and wages.

Coinciding with the latest changes to the Age Pension payment rates were indexed changes to the assets test thresholds for qualifying for either full or part pension payments.

The amounts in table 1 below are the maximum values of assets outside of a home (which is exempted from inclusion) that singles and couples can now hold before their Age Pension payments start to reduce under the Government’s taper rate. Payments are reduced by $3 per fortnight for every $1,000 of assets above the amounts in the table.

Table 1: Assets limits for receiving the full Age Pension

Your situation	Homeowner	Non-homeowner
Single	$314,000	$566,000
A couple combined	$470,000	$722,000

Source: Department of Social Services. As at 20 September 2024.

The amounts in table 2 are the asset cut-off points for receiving reduced Age Pension payments. That is, people aged 67 and over with assets above the maximum amounts shown are not entitled to receive any Age Pension payments. Those with assets below these levels will likely be entitled to some Age Pension, subject to also passing the income test.

Table 2: Assets limits for receiving a part Age Pension

Your situation	Homeowner	Non-homeowner
Single	$695,500	$947,500
A couple, combined	$1,045,500	$1,297,500
Illness-separated couple	$1,233,000	$1,485,000

Source: Department of Social Services. As at 20 September 2024.

Does having less add up to more income when the Age Pension is included? The answer will ultimately depend on the amount of financial assets being held and how they are invested.

Combining financial assets with the Age Pension

The term “sweet spot” is sometimes used to describe the situation where singles and couples are able to receive the full Age Pension, because they fall below the assets test limits, and also generate and withdraw additional tax-free income from financial assets through an account-based pension.

The term sweet spot implies that, by combining their personal income with the Age Pension, under the right circumstances people below the asset test minimums can actually earn more than people who are above the assets test limits.

There are some tax considerations. The Age Pension is considered a taxable payment from Centrelink. However, age pensioners can benefit from the Tax Free Threshold and also the Seniors and Pensioners Tax Offset (SAPTO), meaning that they will not pay tax if their total income is below $31,888 for each member of a couple or $35,812 for a single.

Separately, amounts drawn from an account-based pension (using accumulated super and earnings) are tax free.

As shown in table 1, under the new assets test limits, a single retiree owning a home can hold up to $314,000 in assets and still receive $1,144.40 per fortnight of Age Pension.

Similarly, a retired couple owning a home can hold up to $470,000 and still receive $1,725.20 per fortnight from the Age Pension. The assets test limits are higher for non-homeowners.

But keep in mind that assessable assets, as defined under the assets test, include home contents, personal effects, cars and other vehicles, real estate (excluding one’s home) as well as financial assets such as superannuation, savings, and annuities.

Personal asset values can be substantial, which effectively translates into having a lower level of investable financial assets (for example, superannuation) than the minimum assets test thresholds.

Testing the assets test

The question is whether it’s more financially prudent to be below the assets test limits on a financial assets basis, or above them? Put another way, does having less add up to more income when the Age Pension is included?

The issue here is that the answer will ultimately depend on the amount of financial assets being held and how they are invested.

As noted, under the Government’s taper rate, every $1,000 held by singles and couples above the respective assets test limits in table 1 reduces their Age Pension payments by $3 per fortnight ($78 per annum net). So, to make up for that lost ground, individuals and couples need to generate a net 7.8% return on every $1,000 that they are above the assets test thresholds.

Singles or couples above the upper ends of the assets test thresholds in table 2 would need to generate $29,754.40 or $44,855.20 per annum net respectively from their financial assets to make up for not being entitled to receive any Age Pension.

In the 2023-24 financial year Australian listed property achieved a total return 24.6%, followed closely by U.S. shares (24.1%); International shares hedged (21.5%); International shares (19.9%); Australian shares (12.5%); Cash (4.4%); International listed property (3.9%); Australian bonds (3.7%); and International bonds hedged (1.9%).

Using the broad Australian share market as an example, a $695,501 investment at the start of the 2023-24 financial year (just above the maximum assets test limit for a single to receive some Age Pension) would have generated a gross return of 12.5% and grown by $86,937.62 by 30 June 2023.

A couple with $1,045,501 (just above the maximum assets test limit) with the same investment would have seen the value of their financial assets grow by $130,687.62.

But that’s just one year of total returns, from one asset class. This chart shows the average total annualised returns over the last 30 years from six different asset classes.

Asset class	Average total return per annum*
U.S. shares	11.1%
Australian shares	9.1%
International shares	8.2%
Australian listed property	7.8%
Australian bonds	5.6%
Cash	4.2%

Source: Vanguard. As at 30 June 2024.

*Average total returns are from 1 July 1994 to 30 June 2024. Total returns assume all investment income earned was reinvested and exclude any acquisition costs, fees, and taxes.

It’s important to keep in mind that asset class returns are not consistent and vary considerably from year to year. The best-performing asset classes in one year can become the worst-performing in the next. In some years asset classes can record negative returns.

Another consideration is that the top four asset classes above incorporate higher-risk growth securities, which can be more volatile over shorter time periods and may not suit retirees with a lower tolerance for risk.

In that context, investing amounts that are above the asset test thresholds into historically low-returning asset classes (such as cash) may not necessarily result in higher returns than people who have lower amounts of financial assets who are also entitled to receive the Age Pension.

The bottom line

The primary objective of superannuation is to build up savings that can be used to fund one’s intended lifestyle in retirement. The Age Pension is designed to support the basic living standards of retirees.

Longevity risk – the risk of outliving savings – is a key concern for retirees in deciding how to draw down their superannuation during retirement.

“Most people rely on the Government for protection against longevity risk through the Age Pension, which provides a safety net for retirees who outlive their savings,” according to the Intergenerational Report 2023.

Preparing well ahead for life in retirement is key, especially in the context of retirement spending and understanding how the Age Pension may play an important role. We can help you put a retirement strategy in place, call us today.

General advice warning

^{This article has been reprinted with the permission of Vanguard Investments Australia Ltd. Copyright Smart Investing™ GENERAL ADVICE WARNING Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) is the product issuer and operator of Vanguard Personal Investor. Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270) (the Trustee) is the trustee and product issuer of Vanguard Super (ABN 27 923 449 966). The Trustee has contracted with VIA to provide some services for Vanguard Super. Any general advice is provided by VIA. The Trustee and VIA are both wholly owned subsidiaries of The Vanguard Group, Inc (collectively, “Vanguard”). We have not taken your or your clients’ objectives, financial situation or needs into account when preparing our website content so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs, and the disclosure documents for the product before making any investment decision. Before you make any financial decision regarding the product, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained on our website free of charge, which includes a description of who the financial product is appropriate for. You should refer to the TMD of the product before making any investment decisions. You can access our Investor Directed Portfolio Service (IDPS) Guide, Product Disclosure Statements (PDS), Prospectus and TMD at vanguard.com.au and Vanguard Super SaveSmart and TMD at vanguard.com.au/super or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This website was prepared in good faith and we accept no liability for any errors or omissions. Important Legal Notice – Offer not to persons outside Australia The PDS, IDPS Guide or Prospectus does not constitute an offer or invitation in any jurisdiction other than in Australia. Applications from outside Australia will not be accepted. For the avoidance of doubt, these products are not intended to be sold to US Persons as defined under Regulation S of the US federal securities laws. © 2024 Vanguard Investments Australia Ltd. All rights reserved.}