John Cameron's personal blog

Serious discussion about your financial position now - and in the future.

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Beware The Weird Phone Call

At last, I’ve made it. Here I am battling away for years and then, all of a sudden I get the phone call out of the blue. It reminds me of that old show business saying: “After 20 years of slugging away, all of a sudden I am an overnight success.”

I’m sure the callers must have picked me out for special attention, based on some achievement that I can’t quite identify. Surely they wouldn’t call just anybody. Would they?

Enough of the levity.

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5 Superannuation Myths Debunked!

Anybody following the Hayne Royal Commission could be excused for thinking our superannuation system is broken. It is not – although parts of it need serious repair.

An excellent article in the Australian Financial Review of 18-19 August, addressed and dispelled a number of myths surrounding the superannuation system.

The author of the Chanticleer column identified the following myths:

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I’m Retiring, I Have My Super, What Can A Financial Planner Do For Me?

Good question. When you look beneath the surface of the Account Based Pensions offered by major superannuation funds, the answer is “quite a lot”.

How well an Account Based Pension serves you depends on its returns, and the risks taken to get those returns. Any financial planner worth his or her fee can help you structure a portfolio that provides a risk/return trade-off that meets your needs, both initially and, most importantly, over the years

The major tool to manage risk is “asset allocation”. This is a simple idea, and it relates to how much you have in safe, low risk investments, such as term deposits, cash and short term Government bonds, compared with how much you have in more volatile (but potentially higher yielding) investments such as shares, and property.

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But What About The Risk?

It’s that time of year again, where super funds are strutting their stuff, and the best performers are crowing about their place in the league tables of fund returns.

But, there is a dirty little secret to this exercise – it only tells half the story. The funds boast about their performance, but mention nothing of the risks they took to get that performance.

Mostly, they focus on the performance of their “balanced” option, which is usually understood to be a middle of the road mix of defensive and growth investments.

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Five Things To Do Before You Retire

Retirement is one of the major lifetime events. Like lots of important events, proper planning is an important key to success. Finance is not the only area, but no doubt it is an important one.

So what should you do to prepare your finances for life after retirement? Here are 5 things to get you started.

1. PAY OFF DEBTS BEFORE YOU RETIRE.

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Two Problems With Retirement Planning – Smooth Curves And Straight Lines

Often when you go to a financial planner to plan your retirement, they will give you a graph to show how your capital might fare over a period.

The process is fairly simple. You start with an amount of capital, it earns interest, dividends and growth over time, and this grows the amount of capital. Deduct the amount you draw to live on, and you are left with a balance. Then, draw a graph of the balance each year, and there is your future capital mapped out.

However, this comes with at least 2 serious drawbacks.

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Are You Growing Or Harvesting Your Investments?

Just as crops are first grown, then harvested, so is wealth.

Think of all the years of putting money away into superannuation. Money is regularly added, and this can be thought of as fertiliser. It helps the crop grow. Then there is the performance of the investments, which grows over time, with the occasional setback (much like a crop can experience setbacks due to weather, disease etc.).

All of a sudden it is time to harvest. Just as a well tended crop of fruit trees can go on producing fruit year after year, so to with a well structured investment portfolio. 

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How Much Has It Earned? – Beware The Pitfalls When Comparing Investment Returns.

We have all been taught to look at the percentage rate of return when comparing investments.

However, in many situations it is important to look deeper than just the annual percentage return.

This is especially so in the case of retirement.

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Who Spotted The Recent Black Swan Event?

Black Swan Events are things that happen, but nobody sees them coming. Mostly the term relates to events in the financial world, where markets change suddenly, without apparent warning. Examples include the GFC, and the 1987 sharemarket crash.

Black Swan events can also occur in our personal lives, such as when a close family member is struck down by a sudden illness, out of the blue and with no warning. A current example is diver Taneka Kovchenko, who had to withdraw from the Commonwealth Games because of a medical diagnosis that “one dive gone wrong could turn her into a paraplegic”.

Then there is the example of Tim Paine. Who, 12 months ago would have tipped him to be Australia’s captain? He had a record as an outstanding wicketkeeper, but his career was hampered by serious injury (a broken finger that took several surgeries to heal), and at the start of the season he was playing for Tasmania as a batsman, and seemed to be on the way out of first class cricket.

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A New Approach to Retirement Income

Most of the principles, ideas and guidelines around how to structure retirement income, have been developed by theoreticians, and are often impractical and out of touch.

Now, a financial planner with decades of practical experience, has produced a booklet that looks at the performance of different asset classes over almost 50 years. The main conclusion   –   there is no “best” answer across all times. It depends.

To download a copy, go to: http://www.blackswanevent.com.au/landing-page-lump-sum 

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A New Approach to Retirement Planning

I’m going to stick my neck out just a bit and say that: “Retirees have got a raw deal over the last couple of decades”.

Nothing new there you might say. But, what I am referring to is the advice that has been available to retirees when it comes to investing their superannuation to produce an income stream.

And, no, this is not another diatribe against financial advisers, as the problem lies much deeper.

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Black Swan Events and Portfolios

The term “Black Swan Events” has a particular meaning in investment circles.

The term refers to events that are unexpected and unforeseen. They can be either negative or positive, but such is human nature that the main focus is on negative events and their consequences. One recent Black Swan Event was the GFC in 2007 – 08. The GFC damaged a lot of people, and the overhang is still with us.

Generally, the term is used in financial markets, but then again, it can just as much be personal, and close to home – a sudden family illness, a major accident, or finding your home is riddled with white-ants and in need of major repairs. All of these could be very costly.

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Retirement Income - Where is it?

Recent reports in The West Australian have shown people nearing retirement are confused, with many planning to keep working beyond the “normal” retirement age of 65.

The state of confusion is hardly surprising, given the unique financial times we are in, and the mixed and often contradictory signals that emanate from various sources (who often are pushing their own barrow.)

Talking about mixed signals, let’s start with the stockmarket. Every night, commentators fill our television screens, with graphic accounts of how much the market has gone up, or down during that day. Even if nothing has happened, they still go to great lengths to make it graphic. But, then I guess that is the nature of television. A factual statement such as “nothing much happened on the market today”, - next story please -  would hardly have viewers glued to their sets. After all, there are ratings to think about, aren’t there!

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Redundancy – Beware An Unwanted 65th Birthday Present – More Tax!

Redundancy payments are in the air again, with the WA Government announcing plans to cut the number of public servants.

However, there is a nasty little surprise lurking in the tax laws for people over age 65. The tax treatment is very different either side of 65.

Just to be clear, what we are talking about are specific REDUNDANCY PAYMENTS. These are separate from superannuation and a range of other exit payments. Broadly speaking, a redundancy payment is a specific extra payment that is made when an employees’ job has been abolished, and the person is no longer required. Redundancies can be either voluntary, or not.

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Securing Your Future - Where To Look For Income In Times Of Low Interest

The following article "Where To Look For Income In Times Of Low Interest" was written by John Cameron and appeared on pg 2 of The West Australian - Financial Planning Supplement - 21st August 2017.

The figures quoted are taken from special research into retirement incomes, undertaken by Delta Research and Advisory at John Cameron's behest.

More will follow over coming weeks.

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The Culture Wars Continue

Once again, the Commonwealth Bank is in the firing line. This time it is under a cloud for, allegedly, not meeting its obligations to report suspicious financial transactions – and the press is having a field day.

Foremost among their comments/analysis/hysterics (pick your own descriptor) is the conclusion that the CBA has a poor culture, and they need a better one. Well, call me pedantic, but I think that qualifies as nothing more than a giant SBO (Statement of the Bleeding Obvious), and a solution needs more than endless SBO’s, but some deeper analysis.

Firstly, what is culture? In this context it should refer to the values that drive expected norms of behaviour – that is, how are people expected to behave, as dictated by beliefs and values of the workforce. If somebody does the wrong thing, they will be pulled up by their peers, not just by the managers. It cannot be captured in policy procedures, memoranda, protocols etc.

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Four Points to Note About Recent Rants, Furphies and Beat-Ups Around Tax and Franking Credits.

There has recently been serious concerns expressed in major media, about investors in account based pensions (it applies to other vehicles as well, but most of the rant has been about pensions).

The “concern” goes like this: “because a lower company tax rate will mean companies are paying lower tax, the will have fewer franking credits to pass on, and investors will get smaller tax refunds.”

Oh, save me. There is a serious misunderstanding here.

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Wanted – A Better Way To Measure Risk

The twin elements of investment are risk, and return. We are constantly told that you cannot get a better return, without taking on more risk (but the reverse doesn’t apparently apply. If you invest in higher risk investments, it doesn’t follow that higher returns will necessarily eventuate. And, here the argument becomes fairly circular – more risk means more risk, which may mean no return, or total loss - if you get my drift).

The current way of measuring risk, is to look at the average volatility of returns over an extended period (in practice it is a bit more technical, but this is the essence of it). The more volatile the returns, the riskier the investment, and vice versa.

This way of measuring risk has been around since the 1950’s, and it was certainly a big improvement on what went before.

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4 Things To Think About When Deciding Whether Or Not To Do It - The Age Pension and Downsizing

The recent Federal budget contained some incentives for older Australians to sell their homes and downsize. Specifically, people over 65, who were selling their home that they had owned for 10 years or longer, will be able to put $300,000 each into their superannuation. Previous restrictions that would prevent this, will not apply.

However, it remains to be seen how attractive this is, especially to people who may lose all or part of the age pension in the process. By freeing up capital in this way, it moves from the non-means testable area (your home), into the area where it becomes means testable. In the process, all or part of your age pension may be affected.

In our experience, people often decide not to downsize when faced with this loss of pension. However, this action is not logical and puts too much emphasis on the age pension. After all, the age pension is nothing but a source of income, and it is not inherently better than an alternative source of income.

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Food for Thought: 3 Classes Battle for the Upper Hand, Where There Used to be Just 2.

Look at the literature over the last hundred years or so, and you will see 2 classes battling for the economic upper hand. They are Labour and Capital. 

Karl Marx based his whole theory around this battle. While classical and neoclassical economists portrayed it in less confrontational terms, much of their theories were still based around competition between these two classes.

Enter the third class – Consumers.

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