One of the most hotly debated areas in investment is whether you should invest in actively managed funds, or index funds. As is often the case, these debates often generate much more heat than light.
The difference is that actively managed funds seek to select assets (let’s focus on shares, but the same principle applies to other asset classes such as bonds), whereas index funds simply look to track a given index and buy shares to mirror the index, without worrying about the merits of any particular company.
The assets test affecting age pensioners will change on 1st January, 2017.
The effect will vary from person to person (or couple to couple), depending on circumstances. Broadly speaking, those who have smaller amounts of assets may see their pensions rise, whereas those with bigger amounts, could see their pensions reduce, or cease altogether.
In order to avoid nasty surprises, people receiving an age pension, should undertake the following three steps:
It seems that the “culture wars” continue spreading, and have now reached the corporate regulator, ASIC, itself.
Remember, we are dealing with culture as being the values and norms that an organisation holds and which drives much behaviour, not culture as in music, statues and paintings.
We call our business “Black Swan Event Financial Planning” for a very specific reason – to keep reminding ourselves that, despite the best efforts of the legions of financial analysts in the world, there is an awful lot that nobody knows when it comes to giving financial advice.
Too often the exercise of doing projections provides a false sense of certainty about how somebody’s position may evolve over time. It’s almost as if the exercise of coming up with numbers enhances the certainty of a future outcome – without looking into the assumptions behind the calculations. Then, hey presto, some unanticipated change happens, and the projections go out the window.
Changes of this kind are known as “Black Swan Events”, and the crunch is that they happen far more often than theory dictates. This point (the fact that things changed in big ways much more often than they were meant to) was noticed by Nazim Taleb, and formed the basis of his book, “The Black Swan, The Impact of the Highly Improbable”. It also enabled him to pursue a very successful career as a New York fund manager.
The video Securing your Future: featuring John Cameron was in the top 10 of the most viewed videos on The West Australian website Monday (12th Sept 2016).
George Bush lost the 1992 election to Bill Clinton by focussing on the wrong thing. Bush focussed on his record, and success in Gulf War one. Clinton focussed on the economy and jobs, and won the election, thus giving rise to the saying “It’s the economy, stupid”. In other words, focus on the right thing. Often it is right in front of you, and afterwards you can seem stupid for not spotting it.
It’s much the same when it comes to planning your financial future.
Too often we see people focussing on particular financial products as a cure to their financial ills. Often the discussion goes along the lines of, “Should we have an allocated pension?” or, “Is an annuity the answer?” or “Is superannuation worth it?” or …….
'Securing Your Future' was the most viewed material on The West Australian’s website yesterday. It’s the online version of The West’s financial planning supplement.
The West Australian newspaper published a financial planning supplement yesterday 'Securing Your Future'(Monday 22 August 2016). I contributed an article to the supplement and participated in a video for The West's website. You might like to read the articles online - there is some useful material.
What you need to know on Sequencing and Retirement Income - John Cameron - The West Australian on August 21, 2016, 6:00 am. Video Presentation & Article: Different decades, different investment returns.
Security is something keenly sought by investors, and is particularly important to people at or near retirement.
However, our whole approach to security is being challenged by the current climate of low interest rates, where there are trillions of dollars invested in bonds world-wide, that are earning negative returns.
Closer to home, term deposits attract around 3%pa, while a diversified portfolio of shares can show around 6% to 8% after allowing for tax credits. Investments can be made directly, or via managed funds deliberately managed to harvest a stream of dividends.
One of the most powerful tools in financial planning is the boring old household budget – especially on the expenses side.
While there are many reasons why people get into financial difficulty, one of the most common is overspending. And, before you can control your spending, you need to know what you are spending, and where it is going.
Also, your spending is the one thing over which you have the greatest control. You can’t control interest rates, or the stockmarket, or your future job security (and hence income). In this age of uncertainty, it makes sense to have a good handle on the things that you can control – such as spending.
Remember the Brexit crash? Probably not, as it was all over in a flash, and markets are now well above their pre Brexit level.
All of this happened despite predictions of woe by high profile “experts” who looked and sounded good in short grabs on the television and in the press. They had the ability (or more accurately “seemed” to have the ability) to cut through all the complexities and bundle everything into a few well turned phrases.
However, these forecasts of doom have joined the long list of failed forecasts.
Remember Brexit? That was the event a couple of weeks back, when the Brits voted to leave the European Union (or at least those living outside London, Scotland and Northern Island so voted).
I found the most remarkable part of the whole event to be some of the exaggerated claims of doom, scaremongering and outright rants of some forecasters and commentators. The stockmarket took a quick fall, but has since recovered to levels above where it was before.
One of the issues that repeatedly crops up when dealing with clients is, “How well placed are you to deal with unforeseen expenses?”
The expenses can range from relatively minor things such as an appliance suddenly failing, a minor car accident or a leaky roof, through to things far more catastrophic – a major illness, death of your partner, loss of job, marriage breakdown or any of a whole host of other things.
I started thinking along these lines, on reading a story in the Financial Review on 1st July. The story reported a survey carried out by the US Federal Reserve, to assess the resilience of American households if some financial shock occurred.
In Australia today, we must all make important investment decisions for our future wellbeing.
We have an age pension system that acts as an important safety net, but our superannuation system is lump sum, with individuals being ultimately responsible for how their money is invested.
When making those decisions, it is essential (but often difficult) to try to separate the “noise” from the “information”. So, what exactly is the difference.
Black swan events are unexpected happenings in financial markets that have a big impact.
During my working life I have been “fortunate” to witness two of the biggest black swan events of the past 50 years – the decision of President Nixon in 1971 to cancel the convertibility of US dollars into gold at a fixed price, and the GFC.
Both had a profound effect on investment markets, with big implications on the best way to invest your savings.
In the financial world, “Black Swan Events” are unforeseen changes that have a profound impact.
The term ‘black swan event” has come into regular play in the world of finance since Nazim Taleb’s 2007 book, “The Black Swan; the impact of the highly improbable.”
Recognising the existence of “Black Swan Events” is profoundly important, and has significant implications on how we all should manage financial matters. In some ways, the lessons of Black Swan Events challenges much of the conventional wisdom of financial planning.
There are many reasons to criticise the superannuation changes announced in the budget (more on that next time), but retrospectivity is not one of them. Why? Because they are not retrospective.
Much of the considerable amount of criticism has been around the changes being “retrospective”. However, there is confusion between “retrospectivity” and “grandfathering”.
