Superannuation Discussion + market volatility

[tgh]

All sorts of stuff is purchased by smsf's.
Collectables like an old Jag or a Bentley are popular

 

[amaroo]

I have always felt it was not right to borrow for property in your super fund. Quite happy to borrow outside it, but we have always bought property outright in the fund. I think it is fine if you know what you are doing, but there are too many people where the property sharks have dudded them. You can still buy a dud property when you don't borrow, but it is all magnified with borrowing and it is for retirement.

We wouldn't touch residential, but have for commercial. As mentioned upthread our commercial investments earn a very high return the loans are paid back very fast. By the time we're mid 50's the commercial investments will be fully paid. Not sure if we will borrow again, but it's nice to have the option.

 

[Flying mermaid]

We wouldn't touch residential, but have for commercial. As mentioned upthread our commercial investments earn a very high return the loans are paid back very fast. By the time we're mid 50's the commercial investments will be fully paid.

as I said I think it’s fine for you or even me, as we know what we are doing,but there has been a lot of people put into property investments they shouldn’t have. I guess the argument is how far you protect people from their stupidity, but it’s always seemed to me that you should for their retirement income.

 

[Pushka]

as I said I think it’s fine for you or even me, as we know what we are doing,but there has been a lot of people put into property investments they shouldn’t have. I guess the argument is how far you protect people from their stupidity, but it’s always seemed to me that you should for their retirement income.

I suspect it’s like those reverse mortgages. Man some people just don’t understand what they are getting into.

 

[amaroo]

as I said I think it’s fine for you or even me, as we know what we are doing,but there has been a lot of people put into property investments they shouldn’t have. I guess the argument is how far you protect people from their stupidity, but it’s always seemed to me that you should for their retirement income.

Given the climate for lending these days the banks will ensure super borrowing makes sense .... IIRC CBA left the Super market earlier this year, and probably won't be the last.

SMSF needs a lot of cash to borrow - probably even more now. That should knock out most people that require protecting.

 

[amaroo]

I suspect it’s like those reverse mortgages. Man some people just don’t understand what they are getting into.

All blowing the lot on fancy cars, motor homes, holidays, cruises, etc, etc ..... or investing in something like Storm Financial.

 

[Pushka]

All blowing the lot on fancy cars, motor homes, holidays, cruises, etc, etc ..... or investing in something like Storm Financial.

Well that is also a perfectly legitimate strategy to get the pension. Not the cars so much but definitely travel.

 

[cove]

We went a little over 3.2 million between the two of us last year based on their calculations so we returned home to two smallish tax bills based on a 15% tax rate on the excess earnings.

 

[JohnK]

Remember that limit must include the SG of 9.5% contribution made by your employer.

Thanks. Accountant reminded me last week that if you're over the $25000 limit there's a lot of paperwork involved.

This change should get me to around $24000 next financial year. Will be a few thousand short this year. Not sure if I make lump sum payment or not this year to make up difference.

 

[JohnK]

I think in 6 years you will be pretty safe that it will be in an upswing again

An upswing but still behind where we are right now? That's certainly a possibility. That's fine if you have more than enough or time to rebuild but in trouble if only have enough for modest to comfortable superannuation.

 

[Flying mermaid]

An upswing but still behind where we are right now? That's certainly a possibility. That's fine if you have more than enough or time to rebuild but in trouble if only have enough for modest to comfortable superannuation.

I would doubt it, but you could be right. Impossible to make a prediction. Generally it ends up higher but Australa didn’t this iteration, while overseas markets did.

If we ever have good government again, rather than the pack of clowns of one sort or another that we have had since 2007, we might see better outcomes.

 

[cove]

We just have shares and hybrid securities /bonds and some cash in our SMSF. Nothing that would take longer than a week or two to turn into cash.
We are off the payroll at our business so that cuts 5% odd payroll tax out and we have rental ,dividend and interest income personally.

 

[tgh]

hope this loads.. mirrors my thoughts , save for the pigeon factor ( the birds are easily frightened into irrational flight atm)

Marcus Padley

Marcus Today

11th December, 2018

I run a fund. The recent 13.2% fall in the ASX 200 has caused us all to do some hard thinking. You have to decide, is this the start of a long bear market, or is it an opportunity? Whilst clearly talking my own book as a fund manager, I find myself concluding that it is more of an opportunity than a disaster, because there is nothing terribly wrong. Here is a list of some of the major market concerns and my interpretation of their severity/importance:

Slowing US growth. US growth is clearly the main concern, or more accurately, the realisation that growth is not indefinite at 2018 levels - which has to be adjusted for in market pricing, but it is no catastrophe.

The yield curve in the US is inverting, a sign of slowing growth. It means the markets think long-term interest rates are going to be lower than current interest rates. That would only happen if inflation fell and growth slowed. An inverted yield curve is seen as the precursor to recession and it has just happened. Again, slowing growth is still growth and whilst the market will clearly price in lower growth expectations we are not talking about a financial crisis.

Inflation is still benign globally despite a decade of policy accommodation. The recent oil price fall is keeping it down. Low inflation means narrower margins and less headline growth. It also means interest rates are not going up anytime soon. Not good for growth stocks, but its not a reason to give up on the stock market forever.

The trajectory of US interest rates is flattening out. The lower interest rate contagion from the US is leading interest rates lower globally. Not great for bank sector margins (we don’t hold any) although considering the market fell over in February because of the fear of rising interest rates, this should and could cut the other way for the markets. It is arguably a positive, although the growth fears dominate in the short term.

The fear of trade war escalation. This issue could obviously escalate but one strategist wrote an interesting story this week about the ignominy of being a one term President in the United States (George Bush senior agonised over being a one term President – “A Presidency doesn't count unless you do it twice”). Clinton beat him in the 1992 election with the slogan “Its the economy stupid”. The economy is the fulcrum of politics as an indisputable measure of growth and success. Bush was punished for the 1992 recession. Trump cannot possibly risk damaging the economy mid-term over a trade war which is avoidable, because he will not have enough runway ahead of the 2020 election to fix it. He risks his presidency over the trade issue. Surely he is not that stupid.

Peak earnings. This is the idea that the 20 to 25% earnings growth seen in the US this year, largely driven by last December’s Trump inspired tax cuts, is going to now drop back into the 5 to 10% range. But it is more statistics than failure. The tax cut package is almost 12 months old, earnings growth has been exceptional because of it, and as the 12 month comparable date of the tax cut introduction passes the annual growth rate falls. But we should probably be impressed rather than disappointed. If the US can maintain any level of earnings growth after that sugar hit, let alone grow earnings by another 5 to 10% as forecast, it is impressive. US earnings growth is still forecast 7% on top of the 20 to 25% last year. That’s not bad.

Those tweets add volatility. Trump’s trade war tweeting is adding significant and unnecessary financial market volatility. You really have to wonder whether it is appropriate for the President of the US to express every momentary thought in the short term rather than behind closed doors. President Xi Jingping seems to manage without a Twitter account, but he is not Trump, fortunately. We just have to live with Trump and accept that investing in a Trump exaggerated world, whilst needlessly uncomfortable, is still uncomfortable.

The 10 year oversupply of cheap money is coming to an end. About time. Has been on the cards for years. Should not surprise. No-one can or should live on debt forever. Time to pay it back.

The overpricing of US technology stocks. One of the major market adjustments has been the concern that the world is approaching a technology peak just as the personal computer did. The world is more saturated than ever with mobile devices - they are becoming a commodity, are going to fall in price, and are seeing a slowing demand trajectory. Three Chinese companies already have a 25% market share of the global mobile device market, and their iPhone equivalent is half the price. A fair bit of this adjustment has surely happened already. Apple is down 23.9% in three months. Amazon is down 19.7% in one month. Alphabet is down 11% in three months. Facebook is down 15.7% in three months. Netflix is down 24% in three months. Finally the top end of the US stock market is sobering up, but it is the froth blowing off not the core blowing up.
The bottom line is that there is no sub-prime mortgage cancer eating holes in the balance sheets of the world’s biggest financial institutions. Apart from the perception of slowing growth, which is hardly a terminal issue, nothing much is wrong. My conclusion is that this is a sell-off rather than a “new” disaster. We will get through this repricing event relatively quickly, because it has happened so fast. Since the global financial crisis the average correction has been 13.72% and has taken 109 days. We have already dropped 13.2% in half the time. The bottom is close.
And for the long term investor who has done nothing in reaction to this correction, don’t worry too much, it has happened far too fast for any sensible long-term investor to react.
Footnote: What is a normal correction?
This is the stock market, there is no normal correction. But you can do some statistics. Since the GFC ten years ago (down 54.25% in 339 days) we have seen the following Australian market corrections:

Minus 16.34% in 55 days.

Minus 22.75% in 122 days.

Minus 21.51% in 239 days.

Minus 9.96% in 72 days.

Minus 5.13% in 111 days.

Minus 6.63% in 57 days (the correction in February).
If you average those then the average correction is 13.72% and takes 109 days. The current correction has been 13.2% and it has taken 59 days. On that basis we have already completed an average correction in half the usual time. It’s been pretty savage as corrections go.
The conclusion is that whilst the trend is clearly down in the short term, and you have to respect the trend, we are assuming this is a normal correction. The ingredients for a more significant long-term market sell-off don’t appear to be there and it is too late to sell. We consider this a momentary loss of poise for investors, and having sat it out this long would be foolish to do anything precipitous now.

 

[Pushka]

The only thing I’d say with a couple of those assumptions is that I don’t think Trump wants to run again so potentially he may not care what happens or more sinister he could implement change that will most benefit his own empire. He knows exactly what he is doing with his tweets because he knows by doing that he’s driving the media crazy and getting them to follow his agenda. He’s not stupid it’s just we don’t agree with his methods.

 

[amaroo]

Because this is what our media has become in the new world.

Indeed. I'm sure the last 5 PMs of this country would agree.

 

[JohnK]

I would doubt it, but you could be right. Impossible to make a prediction. Generally it ends up higher but Australa didn’t this iteration, while overseas markets did.

If we ever have good government again, rather than the pack of clowns of one sort or another that we have had since 2007, we might see better outcomes.

Firstly, I don't have much respect for politicians or their ideology. Occassionally a good one comes along but few and far between.

Granted 2008 was not a good one for superannuation fund managers and is the main reason these funds ended old funds and created new funds to try and wipe out.

Here are my thoughts. 2008 wasn't an isolated event. We've been through quite a few of these events in the last 20-30 years but was a touch worse than 1989? My very modest super balance took 5 years (2014) to getI think back to pre-levels so in essence I'd lost 7 years of savings. Unacceptable.

I feel there will be another event anytime now. I don't want to be caught short. The next one may be worse than 2008 and with a young family I'd be in trouble. I'm struggling now at 54. It's actually torture to come to work everyday but I'm doing it for my daughter. I don't want to work too far into my 60's.

So the big question then is do you hope for a 5% return in superannuation including the risk of losing a big portion of your super or do you take a lump sum payment at 60 and take the 2.87% on offer. If not working there is hardly any tax on the interest.

 

[Flying mermaid]

Firstly, I don't have much respect for politicians or their ideology. Occassionally a good one comes along but few and far between.

Granted 2008 was not a good one for superannuation fund managers and is the main reason these funds ended old funds and created new funds to try and wipe out.

Here are my thoughts. 2008 wasn't an isolated event. We've been through quite a few of these events in the last 20-30 years but was a touch worse than 1989? My very modest super balance took 5 years (2014) to getI think back to pre-levels so in essence I'd lost 7 years of savings. Unacceptable.

I feel there will be another event anytime now. I don't want to be caught short. The next one may be worse than 2008 and with a young family I'd be in trouble. I'm struggling now at 54. It's actually torture to come to work everyday but I'm doing it for my daughter. I don't want to work too far into my 60's.

So the big question then is do you hope for a 5% return in superannuation including the risk of losing a big portion of your super or do you take a lump sum payment at 60 and take the 2.87% on offer. If not working there is hardly any tax on the interest.

I think the most important thing is to be able to enjoy yourself and not constantly worrying about your super and I guess only you can make that trade off. You have to be able to sleep at night.

Secondly there are always crashes, it’s the cycle. People get over exuberant and bid shares too high and feel there will never be another crash and the same people when there is a run of bad news and falls, panic and sell, sending it all crashing down again.

How long it takes to recover depends on so many factors - if there is a recession at the same time, what fund you are in etc. I run my own super fund and I was back to pre crash levels by June 2009.

The other thing is it doesn’t have to be all or nothing - you can leave some in super and take some out in cash, so that you have enough to live on if things go bad. Even if you take all out, you can keep some in cash and maybe buy a property which might give you a better return and some capital growth. You need the cash just in case you can’t let it, or have a big expense - unlike with shares you can’t sell a bit of a property to cover an unexpected expense.

The thing to remember is you don’t lose your money in the super fund , as long as you have enough income so you don’t have to withdraw money when it’s low.

 

[JohnK]

The thing to remember is you don’t lose your money in the super fund , as long as you have enough income so you don’t have to withdraw money when it’s low.

Understand that it's all about finding the right balance. Not sitting there worrying about it all night, and there are fallback options, but if there's another 25%-30% decline as there was 10 years ago, that's a lot of savings gone that are not going to come back easily.

 

[Pushka]

Understand that it's all about finding the right balance. Not sitting there worrying about it all night, and there are fallback options, but if there's another 25%-30% decline as there was 10 years ago, that's a lot of savings gone that are not going to come back easily.

Try not look at it as savings gone but rather the growth gone. Might ease the pain.

 

[Flying mermaid]

I remain amazed at the ongoing misjudgment of Trump.
He presents as street smart , street cunning , and street dangerous .. a heady combination
I also choose to believe that he really wants to make America Great (according to his vision of that descriptor.)

Well maybe we women have a different perspective of him. . But we won’t go into it on this thread.