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End of Year Planning Strategies It’s now that time of year again! Within the next four weeks you’ll have to pick your strategies for the start of the new financial year. Don’t hesitate to call us regarding any questions or enquiries. Below are a few tips to get you started:

Superannuation 1. Concessional limits reached. This involves reaching the annual limits of $25 000 for those of you under 50 and $50 000 for those over 50. 2. Purposefully Exceeding the Concessional Limit. Using this plan, you will have the same tax rate but use the benefit of timing for ECT and contributions tax, putting more into the concessional tax environment sooner. The excess concessional contribution will move across into the non-concessional component, reducing the limit of that $150k/$450k. 3. Transition to Retirement Strategy. For those looking to move into a prosperous retirement, this strategy can help you make a safe and smooth transition. 4. >65 Allocated Pension. This works in order for you to save tax running two streams – both Accumulated and Pension. 5. Mortgage Slasher Strategy. This may be a suitable option if you are aiming towards debt reduction. 6. For retirees, a 28 day reserving within a SMSF strategy. The purpose of this is so as to have concessional tax twice in the one year but allocated into the next financial year for the SMSF. 7. Spouse Low Income Earner Contribution. By making contributions on behalf of your spouse, it may qualify you for a tax rebate of up to $540 a year when a $3,000 contribution is made to a spouse who earns less than $10,800. Spouse contributions are highly beneficial for your retirement savings, regardless. 8. Government Co-contribution. If you earn less than $61,920 a year, and make contributions to your super account after tax, the government will provide contributions of up to $1,000. The contribution is determined by your total income and operates on a sliding scale.

Tax Preparation Checklist € € € € €

Medicare Tax Statement for family Travel Allowance from business (if applicable) Investment property rental statement Investment dividend or income statement Bank statement


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Loan statement for investments Income protection tax statement Superannuation statement EOY Concessional contribution limits Keyperson business tax statement (if applicable) Life insurance statement Private medical health insurance statement Medicare statement (obtained either via mail or online) Childcare statements EOY PAYG Statement (if applicable) Motor vehicle lease or finance statement Motor vehicle running details General work related expenses


Be a Super Star Superannuation is money for your future. If you’re smart and take care to look after your super now, you’ll have less to worry about and more money and time to do the things you want when you retire. We are happy to discuss any questions you may have in regards to your super fund and possible alternatives, so don’t hesitate to give us a call. It is important to plan ahead and start asking the key questions now: •

Are you being paid enough super? In most cases, your employer is required to contribute 9% of your normal pay to your super fund. This money is separate to your pay packet, and should be paid separately by your employer. This amount is likely to increase to 12% in the upcoming years.

Want an extra top up? Making personal contributions to your super account may mean you qualify for the super cocontribution, a government funded plan to increase super. This involves the government providing extra money to boost your super by adding to any personal contributions you make.

Do you have a multiple super accounts? If you have different super accounts from all the different jobs you’ve had, this could mean that you are being charged for more than just one set of fees. This extra charge could be easily avoided by rolling all the money into one super account and closing any unnecessary accounts.

Do you want a say in your super? If you are starting a new job, you usually have the opportunity to ask your new employer to use a super account you already have if you are happy with this. Remember that it is your money, and you should have a say in its whereabouts.

Does your fund have your tax file number (TFN)? Keep in mind that if your super fund has not been provided with your tax file number (TFN), you’ll be paying extra tax on your super, as well as being deprived the opportunity to make personal contributions. This could mean you are also missing out on the government super co-contribution. This is an easy problem to fix, and you can check with your super fund today.

Are you paying for insurance? In some circumstances, your super fund might be deducting money from your account to cover death and disability insurance. It is important to check out how much extra you might be paying, and whether this is the right option for your own personal situation, in order to maximise the money left for you in retirement.

Are you making the effort to check your super fund on a regular basis? It doesn’t take long to check your super once a year when you receive your super statement check,


and this is an good habit to get into. It is important to ensure that your details are correct, the fund has your tax file number (TFN) and that your money is being invested in a way that suits you.


Market Volatility based on Recent Observations from Europe In a time of widespread market volatility, there is a lot of uncertainty amongst investors as to the outlook of the global financial system. The following information will give you an insight into the current state of the global market. The information was acquired by Jonathan Armitage, Head of Equities at MLC Investment Management, who spent time gathering information about the market from fund managers in Europe. Political background in Europe Markets hate volatility, and there are currently several issues creating uncertainty and leaving markets looking for clarity. With a particular focus on Europe, elections in both Greece and France mean antiausterity rhetoric will rise. Markets are likely to take fright from the anti-austerity comments in these particular countries. Nevertheless, it does appear that the head of the leftist party in Greece has begun to tone down this language recently, potentially suggesting a compromise on some of the most extreme positions. Fears of runs on banks Market uncertainty has also been increased as a result of reports regarding deposit flight in some European banks. Although it is hard to determine to accuracy of these reports and there has been much rebuttal, this is still likely to lead to market volatility and uncertainty.

A Greek exit? There are very widespread views in regards to whether Greece will leave the Euro; there are risks of contagion and wide reaching impact on the global financial system. It is thought by many that a Greek exit from the Euro would lead to the European Central Bank issuing Eurobonds, which may help in shoring up the market.

European shares are undervalued Trends show that European fund managers are looking to European companies and adding to holdings or buying into new positions. The foundation behind this is that valuations are very low, making shares cheap. The current valuations suggest that some of the large European companies won’t grow for the next ten years, which is much too pessimistic for a number of managers.

Green shoots in the US Market uncertainty increased due to the US’s “fiscal cliff” year end, involving federal spending cuts and tax increases that could be detrimental for their economic recovery. However, it appears that the US housing market is currently stabilizing, which will reduce the drag on US GDP and benefit growth. Slowing growth in China


Further market uncertainty has arisen from doubt regarding the strength of China’s economy, with a declining rate of growth occurring in sync with a time of domestic political turmoil for China. It is difficult to verify the effects that this will have, as the rapid growth phase recently has been so extreme that historic analysis may be misleading. The main focus in markets is likely to centre on economic growth. Healthy corporate balance sheets Despite many governments being debt-ridden, there are many companies across the globe remaining in good shape. This is indicated in falling debt levels, cash levels, attractive valuations and growing sales and expanding profit margins for many companies that aren’t exposed to Europe.

The Overall Outlook It is difficult to accurately determine how long this period of market volatility and uncertainty is likely to last. Regardless, managers at MLC suggest that share valuations have already factored in the current uncertainty, and this environment will allow good businesses to thrive if they take advantage of the opportunities provided. It is suggested that good “stock selection by skilled active managers is the key.”


The Cost of Caviar Jim Parker, Vice President, DFA Australia Limited

MAY 2012

Australia’s champion racehorse Black Caviar is unbeaten over 21 races. Think of her as a growth stock with four legs. With a brilliant bloodline and a huge fan base in Australia– she even has her own Facebook page – Black Caviar is turning into the most popular racehorse since the legendary Phar Lap. Owners of the five-year-old mare have now set their sights on Britain’s premier racing event at Royal Ascot in June. But unless you own part of Black Caviar, you’re unlikely to make much money from placing a bet on her fortunes. ‘The Wonder from Downunder’, as she is known, pays close to even odds with bookmakers. That’s the problem with (perceived) no-risk bets. The high probability of a win means your expected return is very low. It’s reminiscent of the equity market. You can choose to buy highly priced growth stocks, the sort of companies which are in the newspaper every day. In the US, that might be internet retailer Amazon; in Australia, the miner Fortescue Metals. In the five years from the end of April, 2007 to the end of April 2012, Amazon has delivered a total return of nearly 280% or more than 30% annualised. In the same period, the S&P-500 has had a total return of 5% or 1% annualised. According to Bloomberg, Amazon as of mid-May 2012 was trading on an actual price-toearnings ratio of 185. In other words, it was offering an earnings yield of about 0.5%, which is even less than a 5-year US Treasury bond. Now, this is not to say that Amazon is incorrectly priced. It just means that with the information to hand, investors are prepared to put a high price on its expected cash flows. In other words, they are prepared to accept a lower expected return for the perceived lower risk of owning a stock that is growing faster than the wider market. This is similar to how gamblers in aggregate are prepared to accept a much lower return than the wider field for the perceived lower risk of putting their money on Black Caviar. So why not back the favourite all day? Well, that could be a legitimate decision for some investors, if they are prepared to accept lower expected returns for lower risk.


On the other hand, there is strong academic evidence that there is a long-term premium for tilting your portfolio to lower-priced ‘value’ stocks. You could think of these as the unknown or unfancied horses – the ones with the wider odds. This is not to equate long-term investment with gambling. With the latter, the ‘house’ always wins in the end. It is a zero sum game. With the former, just because one investor wins, does not mean another has to lose. The other distinction is that unlike the racetrack, there is more than one winner on the share market. It is just a question of how much risk you wish to take. Backing past winners means you forgo the chance of earning a bigger dividend on the outsiders. And keep in mind that even if you put it all on the share market equivalent of Black Caviar, there is still no guarantee you will be rewarded. Even champion race horses eventually lose. And by concentrating your bet, you leave yourself more exposed to specific risks related to that one entity. With long-term investment, you are better to spread your risk through diversification. Backing the entire field– or sections of the field – leaves you less prone to the risk associated with individual runners. Even better, you might want to buy shares in the company operating the racetrack. At least that way, you are assured of a share of the winnings. Ultimately, a great company or champion racehorse is one thing. A great investment is another. Black Caviar comes at a cost.


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