superannuation

Asset allocation and Self-Managed Super Funds

Asset allocation is something that most investors seem to avoid or even ignore. It is really important to periodically review portfolio diversification and asset allocation. How often should it be done? It probably depends on how much change there has been in the investing environment but it is worth looking at every six months.

The factors which makes reassessment of asset allocation particularly important include changing interest rates, significant change in the value of the Australian dollar (AUD) and a changing investment environment. During 2014 the Australian dollar was near its long term high against the USD. A fall in the value of the AUD was a high probability so allocation of investments to overseas securities was an obvious move. Investors who took that approach have had more than a 20% capital gain in addition to exposure to a strong United States stock market. From the table below it is… Continue reading

Retirement planning – it’s really all about time

Investment planning is at first glance a simple process but one that most Australians ignore. Why do most people fail to plan their long term investments, particularly for retirement? I reflected on these issues recently when discussing planning for retirement with my children.

There are a number of key questions to ask at the planning stage. They all relate to how much time you have to accumulate investment funds for retirement and how long those assets will last in retirement.

The key questions to ask are: how long will I live, how much do I have to invest, what return on assets can I expect and what are my estimated annual draw downs?

How long will I live? This is the great unknown but is the key question in retirement planning. A good estimate of individual longevity can be obtained from the internet. An internet search with “how long will… Continue reading

Extended life expectancy and financial literacy.

We are all aware that life expectancy has increased dramatically over past decades due to medical advances etc.  The data below from the US Social Security Administration show the life expectancy for males at age 65 in the US and compares the data for 1986 and 2006.  Life expectancy in the US has been extended by 5 years in just two decades. 

The interesting but perhaps not surprising fact is that there the higher earning individuals have had a very significant increase in life expectancy compared to those of lower earning status. 

It is reasonable to assume that there has been a similar trend in longevity in Australia, with the average male living to age 86 and that will continue to increase. There is an important consequence of these data.  Those with a higher earning capacity are the persons whom the government expects to be… Continue reading

Australian superannuation funds need to be regulated

Thanks to the planning and foresight of an unloved former treasurer Paul Keating, the Australian superannuation system through the super guarantee is potentially one of the best in the world. While the pension systems of most countries are badly underfunded, Australia’s is in reasonable shape. But these advantages are rapidly being lost because of the way in which superannuation contributions have been invested.

Most super funds over the past 5 years have posted significant losses for their clients.   (see http://aust-investor.com/the-myth-of-australias-superannuation/).    This represents not simply a loss to that increasing number of Australians who will need to have a government pension. It also means that there has been a destruction of capital that could well have been available to Australian business to further develop the nation.

Future Australian governments will have limited capacity to provide pensions to any but the very needy. There is a… Continue reading

The myth of Australia’s superannuation

With Australia’s superannuation system most Australians should be able to live well in self funded retirement but the chances are that few do at present and this is not likely to change in the future. Why? There are at least three reasons.

1. Australians generally assume that the professional fund managers are competent and will invest assets profitably. Nothing could be future from the truth. For example the following table shows that over a five year period the top five large equity funds in Australia on average when taking inflation into account, destroyed 6% of clients funds every year over a five year period.

2. Australians take no responsibility for their super assets. Merely taking a little time at the end of each month to monitor their investments would very quickly let them know if their fund manager was competent. But alas very few Australians make any effort to… Continue reading

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