John Cameron's personal blog

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

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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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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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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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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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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3 Things To Look Out For In 2017

1. Changing Times

For several years, we have been in an environment of ever falling interest rates, as Governments have relied on monetary policy to fix the damage wreaked by the GFC.

However, while this has arguably prevented some really horrible things from happening (such as a world-wide depression), it has not succeeded in making good things happen. Now many are looking to more Government spending to boost economic growth. In this context president-elect Donald Trump spoke on election night of modernising America’s often old and creaking infrastructure and making it the world’s best. Depending on the scale, this would indeed be a game changer. If successful, it could also draw other countries down this path, as well as lead to rising (instead of falling) interest rates.

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Amended Super Amendments Pass

Miracle of Miracles, Wonder of Wonders -  the much debated, and heavily criticised (by some) changes to the superannuation system have passed Parliament and are set to become law. The original changes (amendments) were announced in the May budget. As a result of heavy criticism, the original amendments have been amended sufficiently to pass through the Parliament.

Passage through Parliament at this time indicates a degree of cooperation between the various political parties. It was starting to look like they may not pass until the March sitting of Parliament, and this would have put their implementation date under pressure, as the changes are due to start on 1st July, 2017.

Now the work begins of looking closely at the details. On first glance, it looks like the effects of the changes will vary greatly between different individuals. Some people will see no change at all. For others, the changes will be substantial. More to come.

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More On The Culture Wars

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.

Before continuing, let me wind back a few months.

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What’s In A Name?

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.

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Back in the Top 10

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).

"Different decades, different investment returns" 

You can watch it here: Securing your Future

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It’s The Plan, Stupid.

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 …….

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Securing Your Future - the most viewed item on The West Australian website

'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. 

Click on this link to view my article and video about different investment returns in various decades: https://au.news.yahoo.com/thewest/a/32389394/sequencing-and-retirement-income/#page1 

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How Big Is Your Buffer?

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.

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Is Your Financial Planner Putting You In A Box??

Unfortunately, much of what passes for financial advice today, amounts to little more than a box-ticking exercise.

For many of the bigger institutional advisor groups, the process goes something like this:

• Fill out a risk profiling questionnaire, and go into a risk profile box. Tick

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What Is A Financial Planner’s Role??

Just what does a Financial Planner do?

Coming up with a suitable strategy and recommending suitable investments is an obvious job, and is the one that attracts the most public attention.

However, another job that can be just as important, is helping clients make better financial decisions. Your financial planner should be able to engage with you on a range of issues, help you clarify the different options that are available to you in a given situation, and choose between the alternatives.

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Later this year Britain will vote on whether to stay in the EU, or leave. This is an excellent account of the pros and cons.

Should they stay or should they go?

Oliver Hartwich | The New Zealand Initiative | 17 March 2016

I wrote recently about the political implications of the UK's forthcoming referendum on EU membership. Let's take a closer look at what the British are voting on, and why your columnist is not sure what to wish for.

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