Superannuation Discussion + market volatility

[Deleted member 29185]

This is a post that is a bit untoward, but I have to ask it.

There is a lot of advice in this thread, much (most, even) claiming "not advice" for which I understand the reasons, however this has me thinking about where one goes for "real" and "unbiased" and "knowledgeable" advice? Trust me, I have tried any times over the years to garner genuine advice and I've been more impressed with the "not advice" on this forum, than the so-called "fair dinkum" advice I've paid many dollars for via the so-called gurus.

To be honest, I've lost all faith in paid advice, so in the collective wisdom of the forum, where should I turn? As stated previously, I have AU super (not great), PNG Super (larger, but not wonderful), property investments, an AU company (winding back) and a PNG company (winding up), mid '50's with a huge amount of distrust in the investment industry as a whole. Where should I turn? Most of the conversations on here make less sense to me than Tok Pisin (and I'm far from fluent in Tok Pisin). Am I beyond redemption?

 

[JohnK]

Whilst they were correlated (time wise) this cycle is bucking that trend. You planning on going somewhere (dying?) before the next correction, or are you referring to changing investment options to more conservative approach. The closer one gets to retirement, the more conservative some people get - but don't forget you should be aiming to invest for your lifetime, not cessation of work (which only generally means cessation of contributions).

Agreed but I think I need to be conservative in case there is another major correction. It's great to hope to earn 10%-12% a year in retirement but in reality a 25%-40% hit is quite possible if not careful and that throws all plans out the window.

I'd like to retire at 60 but will keep the option open for contract work but cannot rely on that happening as the market is very competitive and rates are low.

 

[cove]

Running your own SMSF is really not suitable for the majority of Australians. We have invested on the stock exchange for about 50 years and still buy shares that don’t perform or don’t go too well right now.
Paying attention to your superannuation is important so please don’t file your annual statement in the rubbish bin without reading it. Having more than one account is wasteful.
Each year employees have 9.5% of their ordinary time earnings put into their chosen fund unless you are working for an unethical employer. Check the figures at least once a year or more often.
As you approach retirement age you should consider your investment mix so that a stock market slump /correction is not hurtful.

 

[QF WP]

This is a post that is a bit untoward, but I have to ask it.

There is a lot of advice in this thread, much (most, even) claiming "not advice" for which I understand the reasons, however this has me thinking about where one goes for "real" and "unbiased" and "knowledgeable" advice? Trust me, I have tried any times over the years to garner genuine advice and I've been more impressed with the "not advice" on this forum, than the so-called "fair dinkum" advice I've paid many dollars for via the so-called gurus.

To be honest, I've lost all faith in paid advice, so in the collective wisdom of the forum, where should I turn? As stated previously, I have AU super (not great), PNG Super (larger, but not wonderful), property investments, an AU company (winding back) and a PNG company (winding up), mid '50's with a huge amount of distrust in the investment industry as a whole. Where should I turn? Most of the conversations on here make less sense to me than Tok Pisin (and I'm far from fluent in Tok Pisin). Am I beyond redemption?

Most advice on this thread is given as general or factual advice. Where advice is given relying on at least one of your personal circumstances then it can be construed as personal advice. Trying to waive advice rights is something any reasonable lawyer loves.

You need somebody with proven cross jurisdiction knowledge (PNG and Aust). I presume that you are an Australian resident for tax purposes.

I would probably consider referring you to a financial planner who deals (only) with expatriates. He's also a member of AFF (but doesn't post a lot).

 

[Deleted member 29185]

Yes. I am an Australian resident for tax purposes. I'm also a PNG resident for tax purposes.

 

[QF WP]

Paying attention to your superannuation is important so please don’t file your annual statement in the rubbish bin without reading it. Having more than one account is wasteful.

I'd suggest that this blanket opinion doesn't take into account a number of reasonable situations where having multiple funds is justified:

1. Person has had a subsequent medical condition that precludes cover being obtained in new employer fund (particularly if a small employer whose Choice of Fund doesn't have an Automatic Acceptance Limit)
2. Person has cover in initial fund not offered by new fund (for example, Income Protection - where transferability is not allowed)
3. New fund has significantly better fees, insurance premium, investment option choices etc
4. Older style fund which has TPD cover with better definitions than new fund, or cover was in place prior to changes in TPD definitions and scrapping old cover could be detrimental to client.
5. I have had a number of clients whom have stipulated they didn't want their new employer (in particular HR) to know too much of their personal wealth (very private people in senior roles) and also wanted to take up the additional insurance offered in the new employer fund at wholesale premium rates with guaranteed acceptance without evidence of health (particularly Death and TPD) to meet their demonstrated insurance needs

Each year employees have 9.5% of their ordinary time earnings put into their chosen fund unless you are working for an unethical employer

Unless (as one example) you work for a State or Federal Government or in an industry whereby the Award stipulates the fund(s) that are applicable. Some of these employers put in significantly more than the mandatory 9.5%

 

[cove]

Yes QF WP there are special circumstances for sure. Thanks for pointing that out.
My sons both get more than the statutory 9.5% employer contribution and they are salary sacrificing on top of that while they can afford it.

 

[dec540]

This is a post that is a bit untoward, but I have to ask it.

There is a lot of advice in this thread, much (most, even) claiming "not advice" for which I understand the reasons, however this has me thinking about where one goes for "real" and "unbiased" and "knowledgeable" advice? Trust me, I have tried any times over the years to garner genuine advice and I've been more impressed with the "not advice" on this forum, than the so-called "fair dinkum" advice I've paid many dollars for via the so-called gurus.

To be honest, I've lost all faith in paid advice, so in the collective wisdom of the forum, where should I turn? As stated previously, I have AU super (not great), PNG Super (larger, but not wonderful), property investments, an AU company (winding back) and a PNG company (winding up), mid '50's with a huge amount of distrust in the investment industry as a whole. Where should I turn? Most of the conversations on here make less sense to me than Tok Pisin (and I'm far from fluent in Tok Pisin). Am I beyond redemption?

It sounds like you're in a rather unique situation, especially with your offshore assets/income and dual tax residencies. If you truly want to get the best outcome and advice, you're unlikely to find it on a forum. Even though there's a wealth of knowledge on here, anybody with the specific intellectual property that will give you and your family the best financial outcome has spent years and years acquiring this knowledge and knows the value of it / dangers of a DIY approach, so their unlikely to share the same way a surgeon won't tell you how to operate on yourself.

In regards to advice, there are a few things that I'm sure most readers will agree are important to seek in an adviser (some or all may be mentioned earlier, but I'm new to this thread, so please excuse me if I'm repeating what others have said).

- Typically you'll get the best advice from an adviser who's practice has their own Australian Financial Services Licence - i.e. not using the licence of a bank / investment / insurance company.
- Who has completed the Certified Financial Planner (CFP) education program. Part of this covers specific details in relation to those living / working abroad, either partially or permanently, so an adviser with this designation is likely more versed than those you may have seen in the past. The Financial Planning Association (FPA) has a register you can search for CFP advisers in your local area.
- You may also wish to ask that other adviser how well versed he is with those residing and working across 2 countries and specifically if he/she has dealt with those who have businesses and investment assets in PNG

At the moment there are a lot of 'advisers' in this industry who have done a diploma of financial advice in a couple of weeks and started 'advising' straight away. This gives the industry a bad rep, because how can anyone with such little education in specifics really provide the right advice. Thankfully this is changing with increased education standards over the coming years.

I'm pretty confident if you search around for someone that ticks those boxes and meet with them (to ensure they understand your situation, values, goals etc.) you'll likely come back in a few months with a polar opposite view of advice and the impact it can have.

 

[lovetravellingoz]

. Having more than one account is wasteful.
.

I disagree with this statement. It can be wasteful, but equally there may no real financial difference in terms of total fees paid depending what Super Funds you are in.

1/ There are super funds such as the three I am in where two only charge a tiny annual lump sum fee, and one quite a small amount (but with access to more diverse investments). The vast bulk of the fees paid is a % of invested funds and so from this perspective it is irrelevant whether I am in one fund or three.

In addition I only have life insurance with one of them. Thought at my age and with the assets and super that my wife and I now have life insurance is no longer really that important to me anyway.

2/ The three funds increase my available investment options within them (though of course there is overap).

3/ and lastly, but by no means the least important is my risk management and ability to sleep at night

• I have always believed in not having all my eggs in the one basket. Any company can crash, be embezzled, make bad decisions, hire the wrong CEO etc
  • Do I want to take such a risk with ALL my Super being in just one Fund. 100% no!
• Being with multiple funds also spreads my risk in terms of funds management and performance.

 

[dec540]

3/ and lastly, but by no means the least important is my risk management and ability to sleep at night

• I have always believed in not having all my eggs in the one basket. Any company can crash, be embezzled, make bad decisions, hire the wrong CEO etc
  • Do I want to take such a risk with ALL my Super being in just one Fund. 100% no!
• Being with multiple funds also spreads my risk in terms of funds management and performance.

I definitely agree with this sentiment, however depending on the funds selected, there may be more of an overlap than you initially thought. With the focus on reducing fees, many of the low cost super funds set an 'asset allocation' per investment option that allocates a fixed % of funds to Aussie shares, International shares etc. the underlying share exposure is often to an entire index, relative to market cap. I.e. you may have 40% invested in Australian Shares with 1 super fund and 35% invested within another, but the actual shares held and the proportion of those shares could be identical across both funds. From an investment risk perspective, it doesn't provide that much more diversification than just having it all within 1 fund.

If you're invested in funds that are actively invested, you'll still often find they have a similar exposure as ultimately the general population is interested in who performed best within a given short period of time, not over the long run. So if you're in an investment manager's shoes, you'd be best keeping a similar exposure to your peers, but taking small tilts towards specific investments to try eek the fraction of a percent gain that will put you in front.

True diversification typically comes from investing in managers that have differing mandates of the types of assets / companies / sectors / regions they invest in and those that are 'benchmark unaware'.

 

[Deleted member 29185]

It sounds like you're in a rather unique situation ...
I'm pretty confident if you search around for someone that ticks those boxes and meet with them

Many thanks for the info. I must admit to not thinking I'm "unique". Surely many people have investments in two or more countries?

Searching for someone who "knows" is the problem. I agree that if I find someone who ticks the boxes, that would be just dandy. My problem is I'm not sure how (apart from phoning every Tom, Dick and Harry in the telephone book, and being armed with a bright light and thumb screws), I actually find these specialists without running the gauntlet of the "I know everything, about everything" brigade that peddle their wares from every street corner but in reality struggle with the concept of wiping their own bum without their Mum?? Is there a secret to identifying specialists in cross border investment advice?

 

[Pushka]

I have two super funds. The main one is our SMSF that carries no insurance. And another one that receives only just enough money for a disability/ life payout.

 

[dec540]

Many thanks for the info. I must admit to not thinking I'm "unique". Surely many people have investments in two or more countries?

Searching for someone who "knows" is the problem. I agree that if I find someone who ticks the boxes, that would be just dandy. My problem is I'm not sure how (apart from phoning every Tom, Dick and Harry in the telephone book, and being armed with a bright light and thumb screws), I actually find these specialists without running the gauntlet of the "I know everything, about everything" brigade that peddle their wares from every street corner but in reality struggle with the concept of wiping their own bum without their Mum?? Is there a secret to identifying specialists in cross border investment advice?

You're unique in that you hold investments and cross reside in Australia and PNG. Whilst holding investments in multiple countries isn't unique, it's more common to be a tax resident of one and for the country where investments are held to be either the UK or US, primarily just due to statistics of expats.

I'd suggest the easiest first step is finding a CFP, as you know at least they will have come across this in their studies. If they haven't provided specific advice in this area, they've at least passed a rather stringent course on the subject (albeit mixed with some other content, most of which would likely be relevant anyway). The high level strategies typically won't change depending on the location of your investments, but more so the tax treatment and thus the available strategies to deploy.

Here's the link - Find a financial planner - The Financial Planning Association of Australia

I see there's about 60 within a 10km radius of Broadbeach.

From there you can quickly spot the ones with obvious alignment to a potential source of a conflict i.e. a bank. If you have a look around and find a few you like the look of from website, bios etc. you can then e-mail or call to confirm if they are self licensed or not and ask if they've dealt with situations similar to yours / would be comfortable dealing with that scope of advice. Meet with a couple and see who you gel with and instils the most confidence in you.

Full disclosure, I am a financial adviser at a self licensed firm, who is nearing the completion of my own CFP studies and my practice has a satellite office on the Gold Coast. I did however check and neither myself or my colleagues show up in the search referenced.

I'm obviously bias towards advice from self licensed advisers with post-graduate qualifications based on my own beliefs of what financial advice is. I'm sure some disagree with me (though imagine a majority would agree), so please take what I say with a pinch of salt, given my standing in the industry.

 

[cove]

Ok I can see how more than one fund can work. I never considered doing superannuation that way as all we wanted was to get to the end target.
Getting life cover and different investment mixes can make good sense.
Many delete the life cover in their superannuation when they have a young family and high commitments. That is a concern.

 

[Jacques Vert]

Someone said that they doubt that people are earning 7% on super, I'm with GESB in WA and the figures i have for the plan I am in are:
Actual returns last month (%) (Aug 2017) 0.44%
Actual returns FYTD (%) 0.73%
Actual returns 1 year (%) 6.77%
Actual returns 3 year (% pa) 6.39%
Actual returns 5 year (% pa) 9.34%
Actual returns 10 year (% pa) 5.51%

Which seem ok (getting close to 7%), the ones for the Growth plan are even higher except for the 10 year return.

You may be referring to a post of mine a few pages back.

If so, the point I was trying to make is that you need to allow for inflation. Over the ten years to 2016, inflation in Aust has averaged around 2.2%. If you are spending 4% of you assets/income per year then your fund would needed to have returned an average of 6.2% over those ten years. Sending 5% per year would have required an average return of 7.2% per year. The fund you quote has achieved that for the 5 year average but not 3 or 10 year average.

If inflation were to increase to 6% then hopefully returns would increase to 8% or more (all other things being equal). Of course, this is a simplified example.

At the end of the day, it is the member's money and if they want to spend it all within a few years of retirement and then go on the age pension then they are entitled to do so. What worries me, is that there are many out there who believe they can spend 8% or more each year and that their money will last until they drop off the planet (which may be 30+ years).

Far better IMHO to take a conservative view of your investment returns and if you do a little better some years, then that's a bonus.

 

[burmans]

You may be referring to a post of mine a few pages back.

If so, the point I was trying to make is that you need to allow for inflation. Over the ten years to 2016, inflation in Aust has averaged around 2.2%. If you are spending 4% of you assets/income per year then your fund would needed to have returned an average of 6.2% over those ten years. Sending 5% per year would have required an average return of 7.2% per year. The fund you quote has achieved that for the 5 year average but not 3 or 10 year average.

If inflation were to increase to 6% then hopefully returns would increase to 8% or more (all other things being equal). Of course, this is a simplified example.

At the end of the day, it is the member's money and if they want to spend it all within a few years of retirement and then go on the age pension then they are entitled to do so. What worries me, is that there are many out there who believe they can spend 8% or more each year and that their money will last until they drop off the planet (which may be 30+ years).

Far better IMHO to take a conservative view of your investment returns and if you do a little better some years, then that's a bonus.

While I agree with your point about spending too fast in general your analysis seems to have an aim of maintaining your capital value which means you will have a substantial amount of money to pass on to your dependants. While I appreciate there might be other reasons for this (i.e.its hard to estimate how long you will live) that's not the intent of superannuation. The intent is you live those 30+ years and when you die you have spent it all. Agree that's hard to do in practice but that is still what is intended from superannuation.

 

[PDog]

You may be referring to a post of mine a few pages back.

If so, the point I was trying to make is that you need to allow for inflation. Over the ten years to 2016, inflation in Aust has averaged around 2.2%. If you are spending 4% of you assets/income per year then your fund would needed to have returned an average of 6.2% over those ten years. Sending 5% per year would have required an average return of 7.2% per year. The fund you quote has achieved that for the 5 year average but not 3 or 10 year average.

If inflation were to increase to 6% then hopefully returns would increase to 8% or more (all other things being equal). Of course, this is a simplified example.

At the end of the day, it is the member's money and if they want to spend it all within a few years of retirement and then go on the age pension then they are entitled to do so. What worries me, is that there are many out there who believe they can spend 8% or more each year and that their money will last until they drop off the planet (which may be 30+ years).

Far better IMHO to take a conservative view of your investment returns and if you do a little better some years, then that's a bonus.

This is my simple plan / philosophy, the 4% rule: (assuming 7% returns of which 4% is spend & 3% allowance for inflation). I ignore the age pension as I don't know what that will look like in 25+ years.

What I find really helpful (again in simple terms) is that it lets me look at what I want to spend per year in retirement, multiply it by 25 and that's the figure I need to save. Sure I've over complicated it by adding a number of safety nets to mitigate an immediate downturn (and extra for extravagant celebrating early retirement travel!) but it gives a good starting point. Before doing this maths I had no idea whether I needed $1m or $10m: now I can name they year I should be ready to retire!!

 

[dec540]

While I agree with your point about spending too fast in general your analysis seems to have an aim of maintaining your capital value which means you will have a substantial amount of money to pass on to your dependants. While I appreciate there might be other reasons for this (i.e.its hard to estimate how long you will live) that's not the intent of superannuation. The intent is you live those 30+ years and when you die you have spent it all. Agree that's hard to do in practice but that is still what is intended from superannuation.

Keep in mind that your health in retirement is unpredictable and often results in requiring a degree of care at some point. Depending on your own personal spending habits, whether you can sell a home to move into care etc. etc. etc., the cost of living may increase with care, or you may be required to fund an accommodation bond to move into a care facility.

Nobody has a crystal ball, so typically a conservative approach allows for these unknowns to be funded for, if and when they arise. It's never an exact science and often it's preferable to live a little more frugally and risk providing too much of an inheritance, than trying to spend every last penny and running out before the end of our life.

Ultimately everyone has their personal preference and there's no right or wrong way of going, so long as you make an informed decision.

 

[get me outta here]

I remember asking my FP what is the hardest thing he has to get through to people who are retiring and he answered that the retirees who have scrimped and saved all their life can't relax and spend a little bit of money to enrich their lives now and enjoy the fruits of their savings.

This is a great thread, thanks to everyone for the contributions.

 

[cove]

I saw one fund manager remarked that a 10 year investment in BHP had produced a net return of less than 6%. 2007 to 2017 has not been stellar.