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Oil’s Rising

As memories of the last surge in the oil price—back in 2008, begin to fade, apparently this time around the price rise reflects three key developments. Firstly, there’s a long-term rise in oil demand from rapidly industrializing countries including China.

Secondly, we are now seeing improvements in the global growth outlook, which is reflected in most growth assets – shares, commodi-ties, the A$ – which have all re-bounded over the

last few months; and oil has been caught up in this. This has been accentu-ated more recently by a renewed fall in the US$, since oil is priced in US dollars.

Finally, a rise in the geopolitical risks associated with tension in the Middle East. Iran is at the centre of this with western countries moving to impose an embargo on their oil and Iran, in turn, threatening to close the Strait of Hormuz. For Australian consumers, a rise in the oil price means more pain at the petrol pumps, which of course eats into house-hold spending power … effectively taking money away from other forms of spend-ing.

The rise in petrol prices this year has already pushed the typical Australian family’s weekly petrol bill up to around $51, which is its highest level since July 2008 Coming at a time of rising prices for necessities such as rent, utilities, health, insurance and education, this will fur-ther limit the ability of households to buy discretionary items. So tough times may continue for discretionary retail-ers for a while yet.

Source: Dr Shane Oliver, Chief Economist, AMP Capital

March 2012

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the markets when rebalancing. It is tempting to think that right now, because there is enormous market uncertainty, you will be rewarded by increasing your cash allocation. The problem here is that you become ultra-defensive – in moving into cash and term deposits you are, consciously or otherwise, taking a pessimistic outlook on the future growth of the Australian economy and the earnings prospects of major Australian

companies.

Increasing your weightings of cash and fixed interest means that if the market does rally over the medium term, you will be more of a spectator than a participant. That’s why it is best to stick to broad stra-tegic asset allocation

– in which shares, based on their long-term track record, will be the major com-ponent – and rebalance back to these weightings. Right now, such a strategy would suggest rebalancing into shares – not cash.

Becoming too defensive means that the long term effects of inflation, eating away at the purchasing power of your money, could really begin to bite; particularly so in retirement as life expectancy increases.

Source: Based on the article “The Case for Rebalancing 30 Jan 12, James Dunn

With a new year well under way, it might be time to consider whether a “portfolio re-balance” is in order.

Rebalancing is necessary because over time, some assets rise and some fall and because of this, the weightings change. This can alter your asset allocation – and with it, potentially, your risk levels. To keep this risk level minimised, or at least under control, you rebalance by reallocating portions of your portfolio so as to bring the weighting of each asset class back to its original mix; or a new allocation based on changed circumstances.

There’s a saying … “cash is king” and according to Market research consultancy CoreData's Investor Sentiment Report for the December 2011 quarter, cash was the asset class most investors, (ie 27% of the survey respondents) intended to rebalance towards in the current quarter. This, despite the percentage of people who believed cash would perform worse than in the previous quarter; the fear of loss obviously over-riding the desire for gain.

Whilst concern at market turbulence is completely understandable, this does highlight the problem of trying to time

A Case For Rebalancing

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Not the nicest way to view a cruise liner...

2

Super Contribution Caps There are quite a few tax benefits associated with superannuation and because of this the Government places caps on both how much can be contributed and by whom. Unfortunately a large number of people exceed these limits each year and apparently this shows no sign of slowing.

According to ATO data, over the past 5 years more than 65,000 people have breached contribu-tion caps and the total excess contributions paid to date is approximately $400 million.

These figures look like increas-ing in future years, particularly if the government proceeds with its proposal to provide restricted access to the $50,000 concessional contribution (ie tax deductible) for those over age 50 after June 2012.

The contribution Rules are extremely complex and the ATO only has discretion to disregard or allocate contri-butions to another financial year in very limited circum-stances. For these reasons it's important to ensure that we do not exceed the contribution caps.

One of the big traps in this current tax year is where salary sacrifice contributions are being made and total contributions for the financial year end up exceeding $50,000 for those over 50, and $25,000 for those un-der. And this includes all other employer super contri-butions eg the 9% Super G’tee charge.

If you think this might affect you and with three months till the end of the tax year there might still be time to review your situation.

Source: Based on MLC Tech News, 2/2012

QUOTES

Super Co-Contribution

Remember, for those who qualify, you have until the end of June to make your contribution in order to qualify for up to $1,000 from the Government.

Update

Easing into Retirement

Of the 2.6 million people who are over the age of 45 years and work-ing full-time, 41% intend to transi-tion to part-time work before they retire, according to the Australian Bureau of Statistics.

However, some Australians intend to keep working indefinitely, with 13% of older workers in the labour force saying that they never intend to retire. For the other 3.9 million who plan to retire at some time in the future, 36% said the main influence on when to retire was financial security. Personal health or physical ability also influenced retirement decisions for older workers, 25%, followed by be-coming eligible for a pension, 10%.

Just over half of the older workers currently in the labour force, who intend to retire, expect their super-annuation to be their main source of income at retirement. A further 26% expect a government pension or allowance to be their main source of income.

Although, in comparison, only 17% of retirees currently reported superannuation as their main source of current personal income with the majority (66%) reporting a government pension as their main source of income.

The average age at retirement for recent retirees (those who have retired in the last five years) was 61 years. On average, older workers who intend to retire, plan to do so at almost 63 years of age.

Source: www.abs.gov.au

What is indexing? Indexing is a way of gaining exposure to an investment market. Most investment markets have indexes that measure their value over time. Indexes cover almost every industry sector and asset class, including Australian and international shares, property, bonds and cash.

How is indexing different to active management?

Active fund managers try to outper-form the index by picking sectors and securities they believe will outperform in the future.

Rather than trying to pick which investments will outperform in the future, index managers replicate a particular market or sector. This means they invest in all or most of the securities in the index.

Source: www.vanguard.com.au

This Update newsletter is designed to provide information of a general nature only and should not be taken as advice or a recommendation to invest. Whilst every care has been taken to ensure the accuracy of the enclosed information, no warranty of reliability or accuracy is given. Before making investment decisions we suggest you consult your financial planner or adviser.

Donate old spectacles...

… to the Vanuatu Prevention of Blindness Project

Simply drop them into the office next time you are passing

A good scapegoat is nearly as welcome as a solution to the problem. A good scare is worth more to a man than good advice.

Edgar Watson Howe

A government big enough to give you everything you want, is strong enough to take everything you have. Thomas Jefferson

A government which robs Peter to pay Paul can always depend on the support of Paul. George Bernard Shaw

A great athlete does not come from muscle, speed, and skill, but from the mind first. Dan E. Welker

A great many people seem to end up over the hill without ever hav-ing actually climbed it. A great many people think that polysylla-bles are a sign of intelligence. Barbara Walters

A true friend never gets in your way unless you happen to be going down. Arnold H. Glasgow

A wise man gets more use from his enemies than a fool from his friends. Baltasar Gracian

Accept the challenges, so that you may feel the exhilaration of victory. General George S. Patton

Being miserable is a habit; being happy is a habit; and the choice is yours. Tom Hopkins

Believe it can be done. When you believe something can be done, really believe, your mind will find the ways to do it. Believing a so-lution paves the way to solution. David J. Schwartz

Better to light one candle than to curse the darkness. The Christopher Motto

Beware the fury of a patient man. John Dryden

For every action, there is an equal and opposite government program. Bob Wells Just think how much space we’d

save if everyone parked like this...

Death Benefit Nominations

Where does your superannuation go when you die ... are you sure ...?

Why not check the Death Benefit Nomination details with your fund. Maybe it was first completed when the kids were little, or when you were married, or maybe before you were married. It might be a Discretion-ary Nomination to an

individual, or to your estate, or maybe it’s a Binding Death Nomi-nation that expires after three years. It might even be a Non-lapsing Binding Death Nomination. In any case, it might be time to have a closer look in order to make sure your wishes are fulfilled when you die.