Diversify to capture tomorrow's top wealth-creating stocks
Most investors could probably name off the top of their heads some of the stocks which have created much of the shareholder wealth on the US market over past 90 years.
Yet to name at least a handful of these top wealth-creators in mid-2017, investors have, of course, the great advantage of hindsight.
And it’s an investment fundamental that past performance is not an indication of future performance.
Recent research confirms that relatively few stocks account for much of the shareholder wealth created by the US market between July 1926 and December 2015.
Just 30 individual stocks collectively account for almost a third of the net wealth. And 86 stocks, or less than a third of 1 per cent, account for more than half of the wealth created.
The draft research paper – Do stocks outperform Treasury bills? by Arizona State University Professor of Finance, Hendrick Bessembinder, includes a fascinating list of the top wealth creators in their time on broad market during the almost 90-year research period.
This research attempts to capture the experience of a hypothetical investor who reinvests the dividends yet does not invest any additional capital. And the wealth created is defined as the excess amount shareholders would have earned by investing in shares rather than short-term government bonds.
Professor Bessembinder calculates that the broad US market earned a total of almost $US32 trillion in net wealth.
The top six wealth-creating stocks were:
- Exxon Mobil. Wealth created: $US939.8 billion. Time on market during research period: 1073 months, or almost 90 years.
- Apple Inc. Wealth created: $US677.4 billion. Time on market during research period: 420 months, or 35 years
- General Electrics. Wealth created: $US597.5 billion. Time on market during research period: 1073 months, or almost 90 years.
- Microsoft. Wealth created: $567.7 billion. Time on market during research period: 357 months, or almost 30 years.
- IBM. Wealth created: $487.3 billion. Time on market during research period: Almost 30 years.
- Altria Group. Wealth created: $448.1 billion. Time on market during research period: 1073 months, or almost 90 years.
In addition to Apple and Microsoft, other stocks that have created huge amounts of shareholder wealth in the shortest time to rank near the top of the shareholder wealth-creators over the past 90 years include Amazon (14th in shareholder wealth creation with less than 19 years on the market during the research period) and Alphabet (parent of Google, 16th in shareholder wealth creation, 11 years on the market).
“Simply put, very large positive returns to a few stocks offset the negative returns to more typical stocks,” Professor Bessembinder writes.
Although this might encourage some investors to attempt to pick a select group of wealth-creating stocks, the reality is that this study demonstrates how identifying such companies with absolute certainty can only be done in hindsight.
For investors wanting to capture wealth-creation in future, the best answer lies in broad diversification. A share portfolio that holds a broad basket of companies, big and small, is in the best position to capture future growth from tomorrow’s wealth-creating stocks.
If you would like to discuss anything in this article, please call us on 03 9836 8399.
Source:
Written by Robin Bowerman, Head of Market Strategy and Communications 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.
© 2017 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 their action or any service they provide.
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.
Meet the non-conspicuous saver and investor
The Millionaire Next Door, a long-time personal finance bestseller that has found a place in the bookshelves of generation after generation of investors, has turned 21.
In 1994, late US academics Thomas Stanley and William Danko first published their telling blueprint for the quiet accumulation of wealth in an understated, non-showy fashion. This is the opposite of the get-rich-quick approach.
Based on comprehensive surveys over some years plus face-to-face interviews of hundreds of wealthy individuals, Stanley and Danko wrote that “prodigious accumulators of wealth” (PAWs) are typically modest in their spending habits; they don’t tend to look like rich.
By contrast, conspicuous spenders are prominent among a group that Stanley and Danko tagged as “under accumulators of wealth” (UAWs). In other words, they only looked rich.
Under-accumulators of wealth had a low net worth given their incomes. And they tended to spend more time looking for a new car than considering a new investment.
The size of person’s house or make of car is not an accurate reflection of wealth – far from it. That’s the bottom-line that should serve as a reminder to anyone who is tempted to try to keep up with high-spending neighbours.
Of course, the label “millionaire” used to be described as someone who was truly wealthy. (The research was based on households with a net worth of $US1 million.) But much has changed over the past 21 years including how far a million dollars will stretch.
Just think that Sydney and Melbourne’ median house prices in 1996 were about $210,000 and $130,000 respectively. Now Sydney’s median house price is over $1.1 million and Melbourne’s is over $800,000.
Certainly, millionaires aren’t what they used to be in dollar terms. The central point in Stanley and Danko’s work is that they were researching what makes a highly-successful wealth accumulator as against the not-so-successful. The actual dollars involved are incidental to their case.
Careful budgeting and spending habits – trying to spend well under what you earn – are critical foundations for creating and keeping wealth. This is even more important when investment returns are subdued and Australian wages growth remains at a record low.
Are you a non-conspicuous saver and investor or a conspicuous spender? It’s hard to be both.
If you would like to discuss anything in this article, please call us on 03 9836 8399.
Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.
Source:
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.
© 2017 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 their action or any service they provide.
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.
Salary sacrificing is not just about super
When most people think of salary sacrifice they think of superannuation. It’s pretty easy to see why. If someone earning $100,000 a year takes the last $10,000 of that amount as cash salary, they will pay $3,900 in tax and the Medicare levy. Salary sacrifice that same amount as a concessional contribution to super and only $1,500 will be lost to tax.
The reduction in the annual concessional contribution cap to $25,000 limits the amount that can be salary sacrificed to super, so it’s worth remembering that there are other expenses that can be paid with pre-tax income under a salary packaging arrangement. This is subject to your employer’s agreement, of course.
The FBT effect
While pretty much any expense can be included in a salary package, including mortgage repayments, school/childcare fees and holidays on the French Riviera, your employer will be required to pay fringe benefits tax (FBT) on most of these. Usually both the value of the benefit and the amount of tax will be deducted from your gross salary. The problem is that the FBT rate is equivalent to the top personal marginal tax rate. So if you are not in that top tax bracket you will usually be worse off packaging most personal expenses; and if you are in the top bracket there’s little to be gained.
That said, there are some items that receive special treatment for FBT which can be worth packaging. And this can work really well for employees of some not-for-profit organisations.
Exceptions to the rule
Particular items that relate to your work are exempt from FBT so there can be a clear benefit in including them in a salary package, such as:
- portable electronic devices,
- items of computer software,
- protective clothing,
- a briefcase,
- a tool of trade.
While there’s a limit of only one of each type of device per year, you can always hand down this year’s model to the kids when you upgrade next year.
Special tax treatment
Another popular item for salary packaging is a car; either one owned or leased directly by your employer, or one leased by you under a novated lease arrangement. While FBT usually applies, it is calculated on the ‘taxable value’ of the vehicle. Depending on a number of factors this may be less than the actual value of the benefit received, providing you with an overall financial advantage.
Otherwise deductible
Your employer can pay expenses on your behalf that you would be entitled to claim as a tax deduction. In the long run this won’t put more money in your pocket, but you will receive the benefit sooner than if you have to submit your tax return and wait for your refund.
One thing to be aware of: your employer’s compulsory super guarantee (SG) payments only need to be paid on your salary component. Unless you negotiate otherwise, salary packaging can lower SG contributions.
Charitable opportunities
Not-for-profit organisations, including hospitals and charities, enjoy a range of FBT exemptions or rebates. These open up some real opportunities for salary packaging by employees. Different caps apply depending on the type of organisation, but in some cases employees can effectively package benefits with a pre-tax value of over $15,000.
Advice required
This article is a basic introduction to salary packaging. Whether you are an employer or employee, this area can be complex and the potential benefits depend greatly on individual circumstances. Before you do anything, talk to your licensed adviser to see if packaging is right for you.
For more information about salary packaging please contact us on 03 9836 8399.
Sources:
ASIC’s MoneySmart website – Salary packaging: https://www.moneysmart.gov.au/managing-your-money/income-tax/salary-packaging
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. Neither our business, nor our Licensee takes any responsibility for their action or any service they provide.
4 simple ways to conquer stress AND increase productivity
Our busy lifestyles often mean high levels of stress impacting productivity and health. Research shows practising mindfulness can reverse these effects for improved efficiency and well-being.
How many times a week do you feel stressed or overwhelmed? Be honest!
If you’re a busy professional, or a struggling solopreneur like me, I imagine not long goes by before you realise things have crept up on you. When you actually stop for a moment you realise you’re feeling … a tad swamped.
Growing demands of everyday life mean we are increasingly feeling overloaded. Without sufficient self-care strategies such overload causes harmful stress levels, negatively affecting our physical and mental health.
Research is now telling us one of the most effective ways to keep stress under control is daily mindfulness practice. Not only does mindfulness reduce stress, it has a myriad of other benefits too. Improved focus, awareness, productivity, effectiveness, better health, and it’s even anti-aging (who doesn’t want this!).
“When we withhold our full attention, we decrease efficiency and increase likelihood of mistakes and misunderstandings.”
Mindfulness originates from Buddhist traditions, but exists in various forms within many cultures. Put simply, mindfulness is ‘training our attention’: the practice of awareness, focus, and presence.
When we withhold our full attention, we decrease efficiency and increase likelihood of mistakes and misunderstandings. The most challenging part is our mind is wired for distraction. We ruminate over past events, worry about the future, and daydream about other times and places. If we allow our minds to get away from us, it can be bad for our health – literally!
Ruminating leads to depression. Worrying causes anxiety. Imagining a “better” reality only provides a superficial and temporary state of mind, detracting from achieving a stable and healthy existence right now.
Allowing our mind to run riot can leave us overthinking and catastrophising, often making ourselves sick over things beyond our control. These ‘unmindful’ states cause us stress. Our bodies react to ‘perceived’ threats with a stress response causing unnecessary damage.
Over time this contributes to mental and physical health issues, like:
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depression and anxiety,
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high blood pressure,
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accelerated aging,
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immune dysfunction, and
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heart disease.
But there is good news! You can reverse these effects and prevent further strain on your body by living ‘mindfully’. Research shows many health benefits from regular mindfulness practice, including:
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reduced stress and anxiety
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better sleep
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improved pain management
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decreased negative mood
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enhanced emotional regulation
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decelerated aging.
Your undivided attention = better everything!
Mindfulness facilitates improved learning, mindset, communication, parenting, partnering, performance, leadership, health, and resilience. What’s not to love here?!
You can be mindful in a number of ways, so it’s easy to find something that works for you. Whether it’s formal meditation practices, observing mindful moments, implementing mindful work practices, or other mindful activities.
4 ways to live mindfully
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One thing at a time: break the habit of multi-tasking. Research says the brain is a ‘serial processor’ = one thing before another, making multi-tasking ineffective as each task receives diminished attention. Yes, even hands-free and driving!
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Daily mindfulness practice: start with a 1 minute breathing meditation, a 5-minute body scan, and work up to longer meditations. Take a tai chi or yoga class.
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Become aware of mindful moments throughout your day: notice a flower (scent, colour, shape), the sun (its warmth on your skin, brightness, energy), water (sound it makes as it flows, light glistening on the surface), walking (your breathing, the feeling/movement of your body), birds (watch and listen), fresh bread (smell, texture, taste – a personal favourite). It can be anything! Just be observant and fully present for that brief moment.
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Implement mindful work practices: turn off alerts on your phone / PC so you can work undistracted. Where possible, finish one task before starting another.
Like any new habit, time and practice improves all. Go easy on yourself while you find your groove. Part of mindful living is practicing self-compassion and acceptance. Observe your thoughts and feelings without judgement, practice acceptance and letting go. Persevere. The benefits will come.
The ultimate aim = less stress + more life.
What are you giving mindful attention to next? Choose wisely – live mindfully!
Source:
This article by Bree Somer 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. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.
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.
Is virtual reality the future of aged care?
In a major research collaboration between the Queensland University of Technology and the ageing and aged care industry, experts are working to reconceptualise ageing and how we view it.
Emerging technologies such as robotics, automation, and visually interactive design, often associated only with youth, might be the best way to address Australia’s ageing community into the future
“Virtual reality, new services, multi-generational communal living and other innovative accommodation models – this is the future of senior living and the revolution has already begun,” says Professor Laurie Buys, a QUT researcher from the Institute of Future Environments at the recent launch of Senior Living Innovation.
The World Health Organisation advocates active ageing, identifying health, participation and security as three key factors that enhance quality of life, and researchers from Senior Living Innovation have taken that on board.
“Ultimately, we want to facilitate and maintain community engagement and create great living environments for older Australians,” says Professor Buys.
Senior Living Innovation will access world-leading researchers in a range of disciplines, exploring what roles technology and innovation will play in the care of the next generation of seniors, using three individual research projects to gather information.
The results of the projects in community engagement, social media data analysis, and online community forums, will form the base for new ways of providing quality, personalised services in the future.
This kind of research is becoming increasingly important as Australia’s population ages, as the number of people requiring access to aged care will more than double by 2031, and by 2050, one in four Australians will be over 65.
Facing an uncertain future and increasing demand, innovation may be the only way forward for the aged care industry.
Professor Buys says while society views ageing as ‘a problem to be managed,’ the Baby Boomer generation will expect to lead an active life and maintain their contribution and value within their community into retirement.
“Baby Boomers are ageing, but they aren’t getting ‘old,’” she says.
“The industry has an opportunity to challenge traditional stereotypes and assumptions of ageing and develop new business models that reinvent the ageing experience and support health and wellbeing through all life stages.”If you would like to discuss anything in this article, please call us on 03 9836 8399.
Source:
By Aislinn Rossi
This article was originally published on TalkingAgedCare.com.au. Reproduced with permission of DPS Publishing.
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 take any responsibility for their action or any service they provide.
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.
Getting ready for retirement
As you approach your fifties and sixties, you will probably start to think about retiring. For many women, this can herald a significant change in lifestyle.
Some early planning for this new stage of life can help you enjoy a successful transition from work to your retirement.
When can you retire?
In Australia there is no fixed age at which women have to retire. Currently, you can access superannuation from age 55 to 60 depending on when you were born.You may be entitled to the age pension from age 65 to 67, depending on when you were born. Use the super and age pension calculator to find out.
Work out when you would be entitled to the Age Pension and superannuation.
Super and pension age calculator
Making a gradual transition to retirement
Many women choose a gradual transition to retirement, often winding back their working days over a few years. This lets you become accustomed to a reduced workload and gives you time to develop hobbies or interests for later in your retirement. By delaying full-time retirement you can also accumulate a larger nest egg.
There are many options available to help you make the transition to retirement. For example, a transition to retirement income stream, or pension, lets you draw down your super to supplement your employment income when you cut back your working week.
Case study: Jill gets a taste for retirement
Jill, a 60-year-old divorcee, wanted to retire but was concerned about the loss of social contact and mental stimulation that work provided.
‘This year I’ve moved from a full-time role to a part-time position. Initially I felt I had a lot of time on my hands, so I joined the volunteer group at my local hospital, and now I feel busier than ever!
‘I’m still keen to stay on at work for a few more years but getting a taste of retirement has been really reassuring. I’m not so worried about being bored or lonely after I finish up with work. And by putting off my full retirement and not drawing on my retirement savings, my nest egg should last longer.’
Will you have enough money?
The amount of money you will need to retire depends on your age and your intended lifestyle. Most retirees need more income in their first years of retirement when they might take the opportunity to travel or pursue hobbies. As they get older, their lifestyle winds down and they will need less income.
Work out what income you are likely to have at retirement. Retirement planner
Give your super a last minute boost
If you earn substantial take-home pay but still worry that your super won’t be enough to fund a comfortable retirement, it may be possible to give your nest egg a last minute boost.
Speak to your employer about salary sacrificing, or contributing to super from your pre-tax income. While it means taking home less pay now, it is a simple way to add to your super. It may also be tax effective.
If you’re on a lower income you may be eligible for a government co-contribution. Find out more from the Australian Tax Office: Super co-contributions.
Good advice can be a good investment
Our tax and super systems are complex. Getting good advice to help you navigate through your finances can make a big difference.
Managing the lifestyle change
For many women, retirement involves a significant change in lifestyle. Not only do you have more leisure time, you are likely to see a lot more of your family and friends.
Talk to your partner about how you are both coping with retirement. Healthy communication will smooth the transition from worker to retiree, and let you make the most of this new stage of life.
Like any of life’s milestones, retirement requires careful planning to make it fulfilling. Looking ahead at how much money you will need and what you like to do will help you ease into retirement and enjoy your accomplishments.
For more information about retirement planning contact us on 03 9836 8399
Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at www.moneysmart.gov.au
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 take any responsibility for their action or any service they provide.
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.
Beyond super: Our other personal investment market
Many investors may not realise that Australia’s super and non-super personal investment markets are almost equal in value.
Yet super tends to dominate the personal investment headlines – particularly in the lead-up to the biggest changes to the super system in at least a decade from July. The Personal Investments Market Projections 2016 report, just published by actuaries and consultants Rice Warner, calculates that the total value of super and non-super personal investments was $4.75 trillion at June 2016. And non-super investments made up 49 per cent of this total.
It is critical for investors to co-ordinate their super and non-super investment portfolios. This includes for their retirement and investment strategies, strategic asset allocations for portfolios, periodic rebalancing of portfolios, tax planning and estate planning.
One of the challenges when trying to assess the adequacy (or inadequacy) of your retirement savings is to fully take into account all of your investments, inside and outside of super.
Rice Warner defines the personal non-super investments market in its “broadest sense” including all investment assets held by individuals in their own names or through trusts and companies. It does not include family homes and personal effects.
Direct property and directly-held cash and term deposits make up the vast majority in value of non-super personal investment. While direct property (net of mortgages) accounts for 40 per cent of the assets, directly-held cash and term deposits account for 43 per cent. By contrast, direct shares make up just 9 per cent of personal non-super investments.
Individuals hold 93 per cent of personal non-super personal investments directly rather than through investment products and investment platforms.
Numerous investors, of course, hold geared and non-geared direct property in their own names – often dominating their personal non-super portfolios – while having more widely-diversified super portfolios.
Rice Warner expects that the lowering of the super contribution caps from July 1 to lead to a small fall in the total value of non-super personal investments in 2016-17 followed by “modest but sustained” growth in subsequent years.
“This reflects many wealthier individuals making one-off contributions to superannuation in the current financial year; potentially funding the contributions from existing assets rather than income,” its report explains.
However, Rice Warner anticipates that the lower contribution caps will mean that more money is directed into non-super personal investments after July this year.
It is worth considering whether to take professional advice about your overall super and non-super investment portfolios. It can be a trap to look at each in isolation.
Soon in Smart Investing: How Australia’s non-super personal investment market may develop over the next 15 years and what it may mean for you.For more information about superannuation and other investments please contact us on 03 9836 8399.
Source:
Written by Robin Bowerman, Head of Market Strategy and Communications 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.
© 2017 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 their action or any service they provide.
‘Rentvesting’ - enter the property market without sacrificing your current lifestyle
As property prices continue to rise, purchasing in a centrally-located or sought-after area is out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beachside lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.
‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.
“Millennials aren’t interested in purchasing a property in the outer suburbs and then having to commute into the CBD,” says an MFAA accredited finance broker. “Rentvesting allows your rental income to cover the mortgage expenses, so you can maintain a lifestyle with less cost.”
For this strategy to work, you’ve got to be a good saver and there needs to be a focus on delayed gratification, advises the broker. “It’s all about living within your means. Don’t spend big at the start while you’re building it up. Step away from the mentality of negative gearing and tax minimisation and buy neutrally, or ideally, a positively geared property as this provides higher rental yields.”
“It’s still a foreign way of thinking,” says the finance broker. “In the past, the great Australian dream was to buy a home on a quarter acre block and then do everything you can to pay that down as fast as possible in the hope of living debt-free. ‘Rentvesting’ is quite the opposite. It says we’re okay with good debt as long as we stick to our budget and keep using the money to invest further. You’ve got to have an open mind and be comfortable with debt.”
To ensure you have the means to make ‘rentvesting’ work for you, us on 9836 8399 for advice on good debt and other strategies that will allow you to maintain your current lifestyle.
Source:
Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)
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 take any responsibility for their action or any service they provide.
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 super difference for women
Recent decades have seen huge gains made in the financial empowerment of women. However complete financial equality won’t happen soon and in some cases may be unattainable. So what are the areas where women lag financially, and when it comes to super, what can be done?
4 key issues
- Gender pay gap. Across all industries, including those in which female workers outnumber males, men are, on average, paid more than women. For non-managerial clerical workers the gap is relatively small at 8.8%, but in key management positions women receive 26.6% less than their male peers. Large gaps also occur in the legal and medical professions.
- Lower superannuation balances. While the pay gap is one reason why women have less in superannuation savings than men, another big contributor is time out of the workforce to raise children. Of 20 OECD countries, surprisingly Australia has the third lowest employment rate for mothers, particularly sole parents.
- More expensive disability insurance. While pure life insurance is cheaper for women, income protection and disability insurance is more expensive. This is because women have longer life expectancies than men, but they make more claims, and for longer periods, on both temporary and permanent disability policies. For trauma insurance younger women pay more than men of the same age, and older women pay less than their male counterparts. Future advances in medicine may help to even out these differences.
- Being single. Single women (and men) lose out on the financial economies of scale enjoyed by cohabiting couples. About 24% of Australians live in one-person households, and across all age groups, 55% of those living alone are women.
Focusing on super
While it will take significant social and political change to redress some of the financial imbalances between the sexes, there are things that women can do to improve their long-term financial position:
- Understand the situation. If you are planning on taking time out of the workforce, what are the implications? As an example, 35-year-old professional Simone earns $120,000 per annum and has a super balance of $60,000. She plans on having three children and expects to be a full-time mum for seven years before returning to full-time work. As a result she may likely have around $77,450 (17%) less in super at retirement at age 67[1] than if she didn’t take time off.
- Consider the options. Simone’s partner could plug some of this gap and potentially receive a tax benefit each year by making spouse contributions to her super fund while she is out of the workforce. This isn’t an option if Simone is (or becomes) single.
Another possibility is to increase contributions upon her return to work. If Simone salary sacrifices 2.9% of her pre-tax income to super, she could wipe out the estimated shortfall by the time she retires.
She could also consider changing her investment strategy or, less appealingly, delaying retirement.
Planning is the key
It certainly isn’t fair, but the reality is that more women, particularly single women, face greater financial hurdles than men. Planning for the range of scenarios is essential. To make sure you’re on the right track with insurance, superannuation and saving, talk to your licensed financial adviser.
Sources:
Career Break Super Calculator available at www.moneysmart.gov.au
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. Neither our business, nor our Licensee takes any responsibility for their action or any service they provide.
[1] Calculated using the Career Break Super Calculator available at www.moneysmart.gov.au using default settings.
In your interest: a mortgage buffer
Homebuyers who make higher repayments than the minimum required are developing a valuable buffer to help cope with future rate rises or unexpected financial setbacks. A mortgage buffer makes much sense.
More than three years ago, the Reserve Bank reported that “anecdotal evidence suggests” that about half of households had not reduced their regular monthly repayments as interest rates had fallen. And it is likely that this buffer-building pattern has continued through the subsequent years of rate cutting.
The central bank’s latest half-yearly Financial Stability Review, published in October, records that mortgage buffers held in lenders’ offset accounts and redraw facilities remain high at about 17 per cent of outstanding loan balances. This equates to about two and a half years of scheduled repayments at current interest rates.
“However,” the bank cautions, “these aggregate figures mask significant differences across individual borrowers. Many borrowers have little or no buffer, especially the newest borrowers and those considered more at risk of experiencing financial stress, such as borrowers with lower wealth and income or higher leverage.”
A loan with a redraw facility enables borrowers making extra repayments to withdraw the money if needed. And a mortgage offset account is a saving or transaction account attached to your mortgage with the current credit balance offset against your mortgage, reducing interest payments.
Some financial planners liken the making of additional mortgage repayments to making a higher-yield, tax-free investment that involves no risk.
Take the example of a homebuyer with a 39 per cent marginal tax rate (including Medicare) and home loan with a 4.5 per cent variable rate.
For such a homebuyer, the making of extra repayments is the equivalent of earning a pre-tax return of 7.38 per cent on a fully-taxable investment. There is no risk involved because the repayments had to be made anyway.
The mortgage calculator on ASIC’s consumer website MoneySmart shows how much a homebuyer might save in interest by making even relatively modest additional repayments every month. Take a homebuyer with a $300,000 capital-and-interest loan with a current variable rate of 4.5 per cent. The loan term is 30 years.
Based on certain assumptions, MoneySmart calculates that by repaying $100 extra a month, this homebuyer will cut the term of loan from 30 years to 26 years and five months while saving more than $34,000 in interest.
One of the calculator’s assumptions is that the interest rate will remain at the extremely low rate through the life of the loan, which, of course, is highly unlikely in the real world. In practical terms, this means that making higher monthly repayments than required while rates are so low is likely to produce significantly larger savings that suggested by the calculator.
Keep in mind that the Reserve Bank has cut the official cash rate 12 times since the beginning of November 2011 when the official rate was a much higher 4.75 per cent (against 1.5 per cent today). This opportunity to build-up a solid mortgage buffer is hard to ignore – if you can afford it.
If you would like to discuss, please call us on 0.3 9836 8399
Source:
Written by Robin Bowerman, Head of Market Strategy and Communications 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.
© 2017 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 their action or any service they provide.