A vital SMSF questionA self-managed super statistic that doesn’t seem to change much over the years is the strong preference of new SMSFs for individual trustees rather than a corporate trustee.

The latest-available tax office statistics on SMSF trustee arrangements show that 93 per cent of SMSFs established in 2015-16 had individual trustees – a percentage that has remained more or less static in recent years. Yet 77 per cent of all SMSFs in existence at June 2016 had individual trustees – again a percentage that has remained rather static.

Looking at this from another way, a third of all SMSFs have corporate trustees against just 7 per cent for new SMSFs.

There are perhaps some straightforward explanations for these trustee differences between fledgling and established self-managed funds.

Individual trustee arrangements – with all members individually being trustees – are typically less-costly and simpler to put in place when a fund is being setup.

Yet the statistics suggest that as time goes on, many SMSF members either recognise the potential greater flexibility of having a corporate trustee or a change in their circumstances necessitates a switch to a corporate trustee.

Depending upon their circumstances, some informed would-be SMSF members may decide to bite the cost-and-convenience bullet early and go with a corporate trustee from the beginning. It could be worthwhile gaining advice about the issue from an SMSF specialist.

Let’s run through some of the basic rules regarding trustees for self-managed, which should be understood by all intending and existing SMSF members.

Under superannuation law, all members of an SMSF must be either individual trustees or directors of a corporate trustee of the fund. An SMSF with individual trustees must have at least two individual trustees yet a corporate trustee can have only one director.

An SMSF with individual trustees are held in the names of individual members as trustees. If the membership of an SMSF with individual trustees changes – perhaps following death, marriage breakdown or the addition of a new member such as an adult child – the names on the funds’ ownership documents must also change. This can be costly and time-consuming.

By contrast with a corporate trustee, assets are held in the name of a company as trustee. If trustee directors change, the assets remain in the name of the same company.

If a fund has, say, two individual trustees and one dies, the fund must appoint another trustee in order to continue as an SMSF. (This is because of the requirement that a fund must have at least two individual trustees.) Yet if an SMSF has a corporate trustee, a deceased trustee director may not have to be replaced because a corporate trustee can have a single director.

In short, a corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member. This is a key estate-planning consideration.

The decision about whether to have a corporate trustee or individual trustees could have financial and personal implications for as long as an SMSF remains in existence, including when a member leaves the fund and/or a new member joins.

Unfortunately, some SMSF members may not understand the differences between having individual trustees or a corporate trustee until it is too late.

For more information about SMSFs please contact us on ph 07 4659 9881.

 

Source:

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:

Any information provided by the author detailed above is separate and external to our business and our Licensee, AMP Financial Planning Pty Limited. Neither our business, nor AMP Financial Planning Pty Limited take any responsibility for their action or any service they provide.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Why grey mortgage debt is rising A mix of low interest rates, high housing prices and waves of baby boomers nearing or already in retirement is increasing Australia’s levels of grey mortgage debt.

Greater longevity would also have made some of us more comfortable about carrying debt into older ages than in the past.

Ideally, we would enter retirement with our home mortgages paid off and completely free of any other kind of debt. In theory at least, this may enable us to use our retirement savings to fully or partly finance our retirement.

Yet many retirees reach common retirement ages with outstanding mortgages and other debts. This leads to the inevitable question: How is the debt to be repaid?

A wide-reaching research paper*, Inquiry into housing policies, labour force participation and economic growth, published in June by the Australian Housing and Urban Research Institute at Curtin and RMIT universities, reinforces past findings that Australia’s grey mortgage debt is growing.

The project’s findings regarding the mortgage debt of older Australians include:

  • Growing numbers of householders are taking higher levels of mortgage debt, relative to their household incomes, and paying that debt down later in life.

  • Mortgage stress caused by borrowing more to pay soaring house prices is prompting more homebuyers to extend their working lives.

  • Retirement nest eggs such as super may be “raided” to pay off mortgages.

  • The take-up of more debt by highly-leveraged households exposes borrowers and the overall economy to “significant risk” if housing prices fall or if interest rates rise.

  • Home owners are increasing using flexible mortgage products to unlock housing equity “at all stages of the life cycle”.

What to do about grey debt is clearly becoming a more critical personal finance issue.

Often indebted retirees will, of course consider using at least part of their super to fully pay off or reduce their loans. And some will direct part of their super pensions to make repayments.

Other debt-reduction possibilities for grey debtors include remaining in the workforce for longer than perhaps intended, as discussed by the Australian Housing and Urban Research Institute, or “downsizing” to a less-expensive home.

However, in practice, an attempt at downsizing to repayment debt may not produce the anticipated money – particularly after taking stamp duty and real estate agents’ fees into account. And working past common retirement ages may not be achievable – an appropriate job may not be available or health considerations may act as a barrier.

It may be worthwhile seeking advice from a financial planner before taking a new mortgage or drawing down on a home equity loan if it is unlikely that the debt can be repaid by your intended retirement age.

Perhaps you need advice about how to deal with an existing longstanding mortgage as your retirement nears. Don’t overlook debt repayment in your financial planning for retirement.

If you would like to discuss anything in this article, please call us on ph 07 4659 9881.

 

*The Inquiry into housing policies, labour force participation and economic growth Inquiry into housing policies, labour force participation and economic growth Inquiry into housing policies, labour force participation and economic growth report by Rachel Ong (Curtin University), Gavin Wood (RMIT University), Stephen Whelan (University of Sydney), Melek Cigdem (RMIT), Kadir Atalay (University of Sydney) and Jago Dodson (RMIT).

 

Source:

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Arguably, the most common fear holding an investor back from achieving a great return is a misunderstanding of what happens when markets fall (as they invariably do).

In order to use fear to our advantage, we would be well served to seek to understand the following three principles around shares and their value:

  • A share is simply a small slice of company ownership;  

  • A company’s value ultimately depends on its present and future potential cash flows;

  • Value may not always equal price.

Multi-billionaire and world’s most successful investor, Warren Buffett, has defined investment as “the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.”

In other words, it requires patience. Buying a stock (or house, or managed fund) and simply hoping the price goes up soon is, most certainly, not investing. While we may naturally feel emotions based on what the price does over this shorter term, history has shown it is vital not to let these emotions steer our financial decisions.

Focus on quality and don’t speculate

A share is simply a slice of ownership in a business. For this reason, focus should be directed at the quality of the businesses and their prospects for the future, rather than a chart with a line that wiggles up and down as the price rises and falls.  

Unfortunately, in the financial media, there is a clear focus on explaining short-term fluctuations in share price. Commentators often try to attribute every little rise and fall to a particular event or issue. The risk is that an investor may start taking their cues from price movements – which is driven by short-term sentiment and emotion, rather than value – which is ultimately driven by the cash flows a business generates now and into the future.

Benjamin Graham, often known as the ‘father of value investing’, famously said that “Price is what you pay, value is what you get.” While the price of a share will certainly fluctuate, (sometimes multiple times per second, every day of the year!), the value of a company’s future cash flows is likely to be far less volatile. 

Speculation; i.e. buying and blindly hoping that a price will go up soon, might be considered the antithesis of investing, and shouldn’t ever be considered a safe strategy. Mark Twain once aptly mused that, “October is one of the most dangerous months to speculate in shares. The others are July, January, September, April, November, May, March, June, December, August and February.”

If a share price falls sharply, yet the value of the business’s future cash flow doesn’t change, this may provide a wonderful opportunity to purchase further shares at a discounted price, hence maximising the potential return and reducing the potential for loss. A skilled fund manager will take advantage of this by applying this principle to a portfolio of businesses in order to further reduce risk to the investor through diversification.

Paradoxically, as an investor, your hope should generally be that prices fall in the short term. Volatility is the friend of the long-term investor.

That is not to say asset price volatility doesn’t matter. For example, self-funded retirees being forced into selling units at a temporarily reduced price in order to fund their lifestyle isn’t an attractive proposition. For this reason, financial planners commonly emphasise the importance of maintaining an adequate cash reserve – particularly in retirement. 

Whether you are invested in a managed fund, direct shares or an investment property, price matters at precisely two times – when you buy and when you sell. The return on an investment depends on these prices and the distributions you receive over the investment period.  

For these reasons, most quality fund managers will tend to remain focused on the fundamental prospects of the underlying companies owned, and think as a business owner rather than a ‘stock picker’.

If you would like to discuss anything in this article, please call us on ph 07 4659 9881.

 

Source: AMP Capital 13 July 2017

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person without the express written consent of AMP Capital. © 2017 AMP Capital Investors Limited.

The past financial year turned out far better for investors than had been feared a year ago. This was despite a lengthy list of things to worry about: starting with the Brexit vote and a messy election outcome in Australia both just before the financial year started; concerns about global growth, profits and deflation a year ago; Donald Trump being elected President in the US with some predicting a debilitating global trade war as a result; various elections across Europe feared to see populists gain power; the US Federal Reserve resuming interest rate hikes; North Korea stepping up its missile tests; China moving to put the brakes on its economy amidst ever present concern about its debt levels; and messy growth in Australia along with perennial fears of a property crash and banking crisis. Predictions of some sort of global financial crisis in 2016 were all the rage. But the last financial year provided a classic reminder to investors to turn down the noise on all the events swirling around investment markets and associated predictions of disaster, and how, when the crowd is negative, things can surprise for the better. But will returns remain reasonable? After reviewing the returns of the last financial year, this note looks at the investment outlook for the 2017-18 financial year.

A good year for diversified investors

The 2016-17 financial year provided strong returns for diversified investors. Of course cash and bank term deposits continued to provide poor returns and a backup in bond yields, as deflation and global growth fears faded, resulted in poor returns from bonds and investments that are sensitive to rising bond yields such as real estate investment trusts. But improving global growth and profits along with still easy monetary policy buoyed share markets with global shares continuing to outperform Australian shares. And real assets like unlisted (or direct) commercial property, infrastructure and Australian residential property continued to perform well, although there was a huge range across Australia in terms of the latter with Perth depressed and Sydney and Melbourne still booming.

click to enlarge 2016-17 - major asset class returns

Source: Thomson Reuters, AMP Capital

As a result, balanced growth superannuation funds returned around 10% after fees and taxes over 2016-17, in contrast to depressed returns of around 2% in 2015-16. Interestingly, such funds returned around 10% pa over the last five years as well reflecting favourable asset class returns partly in response to a recovery from the 2010-12 Eurozone sovereign debt crisis.

Key lessons for investors from the last financial year

These include:

  • Turn down the noise – despite lots of worries and predictions of disaster shares did well.

  • Maintain a well-diversified portfolio – despite previous strongly-performing asset classes like bonds real estate investment trusts having a tougher time, a well-diversified portfolio benefitted from a rebound in share markets.

  • Be cautious of the crowd – a year ago the crowd was pretty negative and as is often the case it turned out to be wrong.

  • Cash is not king – while cash and bank deposits provided safe steady returns, they were also very low returns.

Five reasons why returns are likely to remain solid

Of course, there will be the usual corrections and bumps along the way. However, there are five reasons to be upbeat about the overall return outlook for the year ahead.

  • First, global growth is solid. Business conditions indicators – such as surveys of purchasing managers (Purchasing Managers Indexes or PMIs) – are strong and at levels consistent with good global growth. 

Global Business conditions

Source: Bloomberg, AMP Capital

  • In Australia, growth is unlikely to be fantastic as housing slows and the consumer is constrained but it should still be okay as the big drag from falling mining investment is abating and the contribution to growth from trade is set to remain solid as resources projects complete.

  • Second, solid global growth should continue to underpin a recovery in corporate profits after a weak patch into 2016.

  • Third, there are minimal signs globally of the broad-based excess – in terms of capacity utilisation, growth in debt, investment, wages growth and inflation or asset prices – that normally presage a peak in the growth cycle. Sure, there have been pockets of excess – corporate debt growth has been arguably too strong in the US and China, and the Sydney and Melbourne property markets have been too hot – but they have not been broad based, unlike the share boom and tech related investment into say 2000.

  • Fourth, because of low inflationary pressures, global monetary tightening will likely remain very gradual and monetary policy will likely remain easy for some time to come. There is a risk that the next Fed rate hike won’t occur until 2018, the ECB’s exit from ultra easy monetary policy will likely be very slow, the RBA is still some time away from tightening and Bank of Japan tightening is likely years away.

  • Finally, share valuations are not excessive. While price to earnings ratios are a bit above long-term averages, this is not unusual for a low inflationary environment. Valuation measures that allow for low interest rates and bond yields show shares to no longer be as cheap as a year ago but they are still not expensive, particularly outside of the US.

What about the return outlook?

After the strong overall investment returns seen over last year, some slowing is likely in the year ahead. Share markets are no longer universally cheap and the crowd is not as negative as a year ago. However, putting short-term worries and uncertainties aside, with reasonable economic and profit growth, continuing relatively easy monetary policy and some asset classes still benefitting from a chase for yield, returns from a well-diversified portfolio are likely to be reasonable this financial year – but more like 7% as opposed to 10%. Looking at the major asset classes:

  • Cash and term deposit returns are likely to remain poor at around 2%. Investors are still under pressure to decide what they really want: if it’s complete capital stability then stick with cash or if it’s a decent stable income flow then consider the alternatives with Australian shares and real assets such as unlisted commercial property likely to continue to offer more attractive yields than bank deposits.

Aust shares still offering better yeild than bank deposits

Source: RBA, AMP Capital

  • Still ultra-low sovereign bond yields and a likely gradual rising trend in yields, which will result in capital losses, are likely to result in another year of poor returns from bonds.

  • Corporate debt should provide okay returns. A drift higher in sovereign bond yields is a mild drag but with continued modest global growth the risk of default should remain low.

  • Unlisted commercial property and infrastructure are likely to benefit from the ongoing “search for yield” (although this may slow a bit) and solid economic growth.

  • Residential property returns are likely to be mixed with Sydney and Melbourne slowing, Perth and Darwin bottoming and other cities providing modest gains. Very low rental yields are not good, particularly in oversupplied units.

  • Expect a potential share market correction in the seasonally weak period out to October, but the rising trend in shares is likely to continue as shares are okay value, monetary conditions are likely to remain relatively easy (albeit becoming less so) and continuing reasonable economic growth should help profits. We continue to favour global shares (particularly outside the US) over Australian shares.

  • Finally, while the $A has proved far more resilient than I expected and may push up into the low $US0.80s in the short term, the downtrend in the $A is likely to resume at some point in the next 12 months enhancing the case for unhedged global shares.

Things to keep an eye on

The key things to keep an eye on over the year ahead are:

  • Global business conditions PMIs – these currently point to good, but not booming, growth.

  • Risks around President Trump – we see Congress passing tax reform but there’s a risk the noise around Trump will overwhelm.

  • The US Federal Reserve’s likely winding down of its balance sheet (reversing quantitative easing) along with a possible transition to a new Fed Chair could cause volatility.

  • The Italian election due by May 2018 could reinvigorate Eurozone break up fears.

  • The European Central Bank is likely to slow its monetary stimulus next year.

  • North Korean risks could escalate.

  • The Sydney and Melbourne property markets – where a sharp downturn (which is not our view) could threaten Australian growth.

Concluding comments

This financial year will likely see the usual worry list and bouts of volatility and returns may slow from 2016-17, but the combination of reasonable global growth, solid profit growth and still easy monetary conditions suggest solid returns for diversified investors.

Source: AMP Capital 18 July 2017

Author: Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

It’s tough for both professional and personal stock pickers to consistently beat or at least match the market.

 

But maybe many investors don’t recognise just how tough it is for stock pickers to succeed.

Recent research by a US academic underlines that pickers of individual stocks typically have a minimal chance of achieving a satisfactory return for the risks involved.

Professor of finance at Arizona State University Hendrick Bessembinder has compared how the approximately 26,000 stocks that have appeared on the broad US market between July 1926 to December 2015 have performed during their lifetimes against low-risk, low-return, one-month US Treasury bills.

Individual listed stocks tend to have a “rather short lifetime”, he notes. The median time that a stock was listed on the market was just seven years in the period covered by his research.

The findings of Professor Bessembinder’s just-released draft paper – Do stocks outperform Treasury bills? – may surprise you:

  • 58 per cent of the stocks failed during their lifetimes to beat the returns of the US Treasury bills.

  • Just four per cent of stocks, a little more than 1000 companies, were responsible for the “entire wealth creation” of the US stock market. (The other 96 per cent collectively matched the returns of the one-month Treasury bills.)

  • Only 86 companies collectively accounted for more than half of the wealth created by the market.

Perhaps the twist with this research is the overall US stock market strongly outperformed the one-month Treasury bills over the research period.

Keeping mind that just a few stocks were responsible for most of the gains, the research provides a resounding case for investors to invest much of their portfolios in low-cost index funds – rather than trying to pick winners.

If you try to pick tomorrow’s hot stocks, the likelihood is that you will pick the wrong ones.

Numerous investors, as Smart Investing has often discussed, choose to hold the core of their portfolios in low-cost index funds, tracking selected indices, together with a small selection of actively-managed funds and favoured individual stocks.

Interestingly, Professor Bessembinder has been quoted in the New York Times as saying that he personally invests in widely-diversified, low-cost index funds holding bonds and shares.

If you would like to discuss anything in this article, please call us on ph 07 4659 9881.

 

Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.

Source:
Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2017 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for their action or any service they provide.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Are you looking for a home loan to buy your first home, update your current one or as an investment in retirement? Are you confused by all the jargon and what type of home loan is right for you?

We delve into two of the most popular home loans: principal and interest and interest-only.

What is a principal & interest home loan?

As the name suggests, your loan repayments go towards paying both the principal (the amount you borrow) and the interest (which is calculated over the term of the loan).

Why take out a principal & interest loan?

As you are paying off both the principal and the interest, you’ll be paying more than you would for an interest-only loan. However, you’ll own your home sooner. Owner-occupiers (people buying a house to live in)1 often prefer this type of loan.

What is an interest-only home loan?

You only pay back the interest charged on the loan and not the principal amount (the original amount borrowed).

Why take out an interest-only loan?

The main benefit is that you will pay less day to day but you won’t pay anything off the amount you owe on your home. If you are an owner-occupier, you may be able to take advantage of an interest-only home loan over a short period to take the pressure off day-to-day expenses. While this may help you in the short term, it could affect your ability to achieve your long term financial goals, such as paying off your home loan and being debt free. 

What should you consider?

  • Interest-only loans can be risky because you are not paying off the principal amount of the loan. So, if the value of the property falls, you could end up owing more than the property is worth, if the outstanding loan amount is more than the value of the property.

  • With an interest-only loan, you will only be paying interest for the an agreed time (such as five years)2. Then your loan will revert to a principal and interest loan (for say 25 years) ─ paying off the principal over a shorter period, after the interest only period ends, means your monthly repayments will be larger, so make sure you can afford the higher repayments.

Let’s look at a case study

A couple takes out an interest-only home loan for five years which then reverts to the higher principal and interest payments for the remaining 25 years and the difference in repayments if they had an interest and principal loan over 30 years:

  • Kate is 35 years old with a gross salary of $120k (taxed at 39%)

  • Sam is 32 years old with a gross salary of $75,000 (taxed at 34.5%)

  • Their house is worth $850k, they have a $500k home loan payable over 30 years.

If they use an interest-only loan at 4.09% pa, the repayments for the first five years will be $1,705 per month ($709 per month less than the principal and interest loan payments which are $2,414).

After five years, the principal and interest repayments rise to $2,665 per month to ensure they pay the loan off over 30 years.

The total repayment over 30 years will be $901,479.

If they had used a principal and interest loan over the entire period the cost would have been $868,714, a saving of $32,765 in interest paid over the life of their loan.

This is money that could have been saved or invested elsewhere.

Assumptions:
The interest rate of 4.05% pa remains the same over the 30-year loan period. Interest rates are subject to change and may increase during the life of the loan. No fees or charges have been considered.

Want to know more?

Please contact us on ph 07 4659 9881 to find out more about the different types of home loans available.

 

Source: AMP 28 June 2017

 

https://www.finder.com.au/what-is-principal-and-interest-on-a-home-loan
2 https://www.moneysmart.gov.au/borrowing-and-credit/home-loans/interest-only-mortgages/australias-interest-only-mortgages

Important:

This article provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Infrastructure offers a range of investment characteristics that can be particularly attractive in the low interest rate and volatile market conditions we have seen in recent times. Clients tell us they like its attractive, consistent returns and yield; defensive characteristics; and diversification benefits. Infrastructure is also becoming more accessible to retail investors. In the past, high quality unlisted infrastructure assets were usually only available to large institutional investors but now mums and dads can own their own piece of Melbourne Airport or UK rolling stock company Angel Trains.

Below are five reasons why investors should consider infrastructure.

Attractive, consistent returns

Infrastructure offers the potential for attractive, consistent returns through market cycles. This is because infrastructure assets are often essential to the day-to-day operation of our society such as the provision of water or electricity and gas. Due to the nature of the essential services they provide, these types of assets are often less influenced by economic factors than many other businesses. In addition, infrastructure assets often enjoy the protection of monopolies, or operate in markets where the barriers to entry are high, meaning they are often free from the competitive pressures faced by many more traditional companies.

It can help investors meet their income goals

Infrastructure assets can provide consistent, long-term income yields because their revenues are often underpinned by regulation or by long-term contracts with highly creditworthy counterparties (which can often include governments). Consequently, infrastructure assets may offer a high level of security with regards their future revenues. Infrastructure asset revenues are also often linked to inflation, which can help investors protect against erosion of the value of their investment by inflation over time.

It’s a defensive play

Infrastructure generally, and unlisted infrastructure particularly, can play an important role for long-term investors due to the stability it can provide within a diversified investment portfolio and the visibility of the income streams it generates. In a low interest rate environment where the outlook for total return appears compressed, asset classes that exhibit defensive characteristics with an attractive and stable income profile are obvious candidates for a long-term investment strategy.

The world needs more and updated infrastructure

Infrastructure is an investment thematic that will continue to play out because the need for infrastructure is a never-ending cycle. Growing populations need to be supported by additional infrastructure while ageing infrastructure needs to be periodically upgraded or replaced. Investment in infrastructure helps stimulate sustainable, long-term economic growth, which then creates a further need for infrastructure. Ultimately, infrastructure promotes higher living standards as it fosters economic growth and creates jobs. A McKinsey report estimates that US$57 trillion of global investment in infrastructure will be required by 2030.

Active management of infrastructure assets

AMP Capital has an active asset management philosophy when it comes to the management of the unlisted infrastructure assets it invests in. AMP Capital employs asset managers who have had extensive senior level industry experience. In addition, AMP Capital seeks to ensure that the overall stake under its control is sufficient to allow for significant influence over the future direction of the business. This would typically involve representation on the boards of the businesses. AMP Capital has a high level of involvement in these businesses, with a view to driving returns and managing risk for the benefit of investors.

If you would like to discuss anything in this article, please call us on ph 07 4659 9881.

Source: AMP Capital 16 June 2017

Author:  John Julian, Portfolio Manager, Core Infrastructure Fund, AMP Capital

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

When it comes to insurance, many people adopt a ‘she’ll be right’ attitude, but looking at the statistics, there’s more chance of something going wrong than you might think.

 

Research has found that one in five families will be impacted by death, a serious accident or illness that leaves a parent unable to work, but 95% of families don’t have adequate levels of insurance to cover this situation.1

What types of cover are available?

Insuring yourself and your income can allow you to maintain your lifestyle and living arrangements, and give you comfort in knowing you can still meet your financial commitments—things like your home loan, rent, card repayments, bills, kids’ education fees, and treatment and rehabilitation costs should you need it.

You can buy different forms of personal insurance through your super fund or via an insurance company or an adviser. Here’s a rundown of the four main types of cover available:

  • Life insurance pays a lump sum on your death or the diagnosis of a terminal illness

  • Trauma insurance pays a lump sum on the diagnosis or occurrence of a specific illness

  • Income protection provides a replacement income of up to 75% of your regular income if you’re unable to work due to illness or injury

  • Total and permanent disability (TPD) pays a lump sum if you become disabled and are unable to ever work again.

How much is enough?

It’s important to choose the right type of insurance for your situation, which will be impacted by your personal circumstances, such as whether you have a partner or children, and the level of your debts.

It’s also important to understand how much insurance you need so you are not underinsured – nor paying for unnecessary cover.

We can also help determine how much cover you need. Contact us on ph 07 4659 9881.

What else do I need to consider?

Some people believe that if they are young or healthy they don’t need life insurance. However, circumstances can change quickly, and it generally costs more to buy insurance when you’re older, so securing cover when you’re young could be a good idea.

Another common belief is that if you get sick or injured the government will pick up the bill. And while it’s true that workers’ compensation and benefit payments may apply in some cases, it’s unlikely any payments will fully replace the income lost, or cover all of your ongoing financial obligations.

If you need more information, contact us on ph 07 4659 9881.
 

Source: AMPP 7 June 2017


1.http://www.lifewise.org.au/downloads/file/aboutthelifewisecampaign/2010_0203_LifewiseNATSEMSummaryA4FINAL.pdf

Important:

This article provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Did you know almost one-third of workers in Australia work part-time1 and that Australia has one of the highest rates of part-time employment in the world2?

Perhaps you’re returning to work after having a baby, reducing your work days ahead of retirement, want to free up some time to pursue a passion, return to study or you just want a more balanced life? Whatever your reason, it’s not a decision to take lightly.

Before you get excited about working a shorter week, you need to think about whether it’s the right decision for you. Here are some things to consider, as well as some potential traps to avoid.

What are the benefits of working part-time?

  1. Enjoy your new lifestyle. You’ll have more time, but don’t waste it! Don’t take on the burden of extra chores – plan how you’ll manage your free time and ensure you get help around the house.

  2. Get physical! With less time spent on travelling and working, you’ll have more time to devote to getting fit. Get those joggers on and start walking!

  3. Be your own social network. Take time out to spend with your family, catch up with friends for coffee or take the children, grandchildren or pets to the park.

  4. Invest time in yourself and others. Take up yoga, join the library, volunteer for community work or visit a sick relative.

  5. Boost your retirement funds. If you’re planning to retire soon you’ll still be earning an income, and adding to your super.

What else do I need to consider?

  1. Be realistic about your finances and whether you can afford to earn less income. Work out your budget and calculate whether your new income will stack up against your ongoing expenses, as well as those unexpected purchases, such as a new fridge.

  2. Even though you’ll be working less days, don’t fall into the trap of working longer hours. If you’re moving from five days a week to three, you need to make sure your workload fits into your new timeframe.

  3. Earning less now might have an impact on your super in the future. Use AMP’s super simulator to see whether working fewer hours will still allow you to enjoy the lifestyle you want in your retirement.

What’s next?

If you’ve worked out all your finances and you feel you’re ready to move to a shorter working week, then you’re living the dream!

But if you need help to work out whether you can afford to reduce your working hours or income contact us on ph 07 4659 9881.

 

AMP 27 March 2017

Sources: 

1 http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/1E299B252A1DCCB7CA2580C80013B4D9/$File/62020_jan%202017.pdf 

2 http://www.tradingeconomics.com/australia/part-time-employment

This article provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Key points


An age-old assumption is that carefully selected real estate will be a safe harbour in the face of market volatility. In the face of extreme weather events like flooding, cyclones, sea level rises, sustained heat waves and hail storms, this assumption may not hold. Extreme weather patterns can fundamentally change the value of real estate. In the most severe cases, volatile weather patterns can destroy real estate.

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Climate change and this new age of weather volatility presents a challenge for global real estate investors. There are the physical impacts of climate change relating to the damage that occurs when extreme weather hits, as well as the indirect impacts of climate change relating to the change in rental demand and the value of assets.

Regulatory risks from governments all over the world targeting carbon emission reductions and the availability of capital are also important considerations. Institutional investors are increasingly expected to disclose the carbon footprint of their portfolios, recognising that what gets measured gets managed.

Implications for global property investors

As investment managers, we review the environmental credentials of every real estate entity before we invest. From an earnings and valuation perspective, it makes financial sense: new buildings need to be energy and water efficient to attract and retain premium tenants and existing buildings need to be retrofitted to minimise stranded asset risk. In Australia, 81% of office buildings are over 10-years old.

Final thoughts

  • Climate change and this new age of extreme weather patterns present a challenge for global real estate investors. There are the physical impacts of climate change to consider, as well as the indirect impacts on valuation, including tenant demand for resilient buildings and the cost of retrofitting existing building stock.

  • There are the regulatory risks arising from governments all over the world targeting carbon emission reductions and the investment risks arising from the availability of capital.

  • Listed real estate managers with a track record of deeply integrating these issues in their investment process will be the best placed to construct a portfolio that will deliver an attractive, resilient, long term exposure to this asset class.


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Source: AMP Capital 16 June 2017

Author: Kristen Le Mesurier, Senior ESG Analyst, Investment Research AMP Capital