John Cameron's personal blog

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.

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.

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.

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.

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.