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Wednesday, 04 July 2012 16:20

Euro Crisis cartoon explanation

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For anybody who doesnt fully understand the Euro situation,
it is explained very simply in the picture below.........




Friday, 22 June 2012 15:59

What is your most Important Asset?

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Most people readily accept the value of insuring their car and their house but do not insure their most valuable asset which is their ability to earn an income.


Below is a table about insurance and claims history designed to provide food for thought about what really is your most important asset.  This table highlights that the take-up rate for car insurance is 71% but only a 6% take-up rate of income protection.  The grey bars show the average claim size.  (you will need to increase the size of the table below)


Did you know that a car is stolen every 10 minutes in Australia and that someone is burgled every 2 minutes.  Also 1 in 6 men and 1 in 4 women are expected to suffer a disability from the age of 35 to 65 that causes a loss of six months or more from work.


When you think about it - how would you pay for your car insurance if you didn't have an income?








The ban on off-market transfers for self-managed superannuation funds (SMSFs) will not go ahead as planned from 1 July 2012, and is likely to be delayed for one year, according to Self-Managed Super Fund Professionals' Association (SPAA) technical directorPeter Burgess.

SPAA understands that the Minister for Financial Services and Superannuation, Bill Shorten, will announce the delay of the measure to 1 July 2013 before the end of the month.

Treasury is currently experiencing some "drafting issues" with the proposed ban on off-market transfers, which is "causing it a few headaches", Burgess said.

"In addition to the brokerage costs that SMSF trustees are going to have to incur because they have to go on market, they also run the risk of the market moving against them," he said.

"Since they can't be the other side to the trade, they have to wait until there's been a market price that determines the asset value. Then they can get into the market and buy it back," Burgess said.

"We continue to advocate for the removal of this proposal and for the introduction of an operating standard," he added.

SPAA director of education Graeme Colley said the ban on off-market transfers would have implications for employee share issue arrangements.

"If a public company wants to issue shares under employee share issue arrangements they can be transferred directly to the superannuation fund," he said.

But things would get complicated if the employee has an SMSF, Colley said.

"The question then becomes: does that company have to put the shares on the market before they can be transferred to the superannuation fund?" he said.

Monday, 25 June 2012 11:17

Understanding the ownership of your assets

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'Many people, particularly the wealthy, have structures in place but little idea how they are set up, and therefore little idea how to protect themselves against issues that can, and do, come up over a lifetime.'

Estate Law

A woman once came to see me about purchasing an annuity and, to make sure I could offer her the best advice, I began asking a few questions about her financial circumstances.  She told me her income largely came from commercial properties owned by a family trust and, when I questioned her further, it turned out that she had split with her husband 15 years earlier and even though she was a director of the trustee company, her ex-husband was the sole appointor of the trust which she didn't realise.  This meant that her ex-husband was in total control of the trust.

I decided to dig a little deeper and when I saw copies of all the documents it confirmed two things that were a problem. Firstly, as he was the sole appointor of the trust, he could hire and fire the trustee, get rid of the trustee company and even install his new partner - with whom my client shared a mutual loathing.  On top of that there was no reference at all to what happens if her ex-husband died - would his new partner take control of the trust - who arguably wouldn't continue paying income to my client?  This type of example is incredibly common.

Those who own assets in a Family Trust must ensure their adviser has recently read the trust deed to make sure that the deed continues to be appropriate for the present time.

Everyone needs to ensure that they understand the nature of ownership of all of their assets and how differing forms of ownership can impact the ability to control those assets both while you are alive and upon death.

'If you own assets through a legal structure (such as superannuation or a family trust), make sure you understand exactly what it is and - just as importantly - what happens to that legal structure in the event of the death of any one of the parties.'


Thursday, 14 June 2012 10:56

Global Investment Update May/June 2012

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Please click on the link below to view an informative video presentation from Hamish Douglass (Magellan Financial Group CEO) that discusses the uncertainties facing the global economy including Greece, Spain, Portugal, United States and China.

Spain Bailout

 Click here for Global Investment Update with Hamish Douglass

The key points from this update are as follows:

  • A spectacular Greek exit from the Euro is very unlikely irrespective of which party wins the June 17th 2012 election.  Greece deciding to leave the Euro now is best described as “suicide”.  If polls can be believed, 80% of Greeks wish to remain in the Euro.
  • Financial issues within Europe are well understood by the authorities including the European Central Bank (ECB) which has made substantial moves already to deal with liquidity in the European Banking system.  This sends a signal that the ECB will not idly sit and let the European financial system fail.
  • Spanish Banks require additional capital to restore their balance sheets following a property market bubble, possibly as high as EUR 100 billion.  The European Stability Mechanism (ESM) is to commence operating in July 2012 and has EUR 500 billion at its disposal and in Hamish’s view, if required could be used to recapitalise Spanish Banks.  The French are suggesting methods to increase the ESM financial firepower.
  • Low probability that the Spanish Banking system will cause a financial meltdown.
  • ECB is in a position to provide assistance to keep borrowing rates affordable for Spain to ensure that Spain does not become insolvent.
  • A gradual United States recovery is underway, and on a 3 year view, US housing will lead a sharp recovery in the US economy.
  • Chinese economy on track for a “soft landing” (meaning that Chinese economy unlikely to fall off a cliff) and is likely to slowdown gradually.
  • Volatility in financial markets is likely to be a feature of the landscape for months to come.
Wednesday, 13 June 2012 13:09

"What I Wish I Knew About Wealth Creation When I Was 18"

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If you could go back and give your younger self some advice about money, what would it be?

This is a superb new edition of the What I Wish I Knew series by best selling author, Marty Wilson, produced in collaboration with GEM Capital, that gets a broad range of financial experts and an inspirational collection of successful people to pass on the wisdom of their financial experience.

The book has a healthy attitude towards money and more particularly the role it can play in achieving one’s life goals.  You will find the book pleasurable, informative reading that you don’t have to read from cover to cover if you don’t want to.

For your copy of this extraordinary new book that shares tips, strategies and stories to help fast track your financial independence, please contact us at:

GEM Capital

154 Goodwood Road, Goodwood, SA 5034

Ph (08) 8273 3222

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

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Friday, 22 June 2012 16:43

Investing for Income Yield in Difficult Times

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Key points

  • With yields on shares up and yields on bonds down, shares likely offer a decent return premium for long-term investors notwithstanding ongoing short-term uncertainty.
  • However, for those who can’t take a long-term approach, outcome-based approaches or focussing on investment yield are worth considering.
  • While term deposit yields are falling, attractive alternative sources of yield can be found in Australian shares, corporate debt, non-residential property and infrastructure.


The investment environment remains tough. On a long-term basis, shares and other related growth assets look attractive after several years of poor performance. Against this, Europe and the US are continuing to suffer aftershocks from the global financial crisis, resulting in periodic falls in investment markets as investors run for safety only to be reversed again as government policy-makers swing into action. Meanwhile popular safe havens such as government bonds and bank term deposits are becoming less attractive as yields fall.

So what should investors do? There are essentially three options: sit tight and ride it out; consider outcome-based strategies; or focus on yield-based investments.

Sit tight

History shows that over long periods of time, shares provide higher returns than cash or bonds. This can be seen in the following chart, which shows that since 1900 Australian shares have returned nearly 12% per annum (pa) compared to 6% for bonds and 4.8% for cash.

In a longer-term context what we are going through right now is not particularly unusual. From late 1969 through much of the 1970s, shares churned roughly sideways (albeit with a 60% slump in share prices along the way). Also, from a high in 1987, accumulated share market returns didn’t reach a new high until 1993. But after each of these episodes, shares resumed generating solid returns.

It is also worth noting that over the last thirty years or so government bonds have been in a massive bull market as ten-year bond yields have fallen from around 15% in the early 1980s to record lows in the US now and near record lows in Australia. The Australian ten-year bond yield is now 3.14%, a level which was last seen in May 1941 at the height of World War II. The record low for ten-year bond yields was in September 1897 at 2.9%.

This massive decline in yields from the early 1980s was driven by the adjustment from high inflation to low inflation and more recently by worries about global deflation following the global financial crisis. It has generated huge capital growth and hence returns for bond investors. However, with bond yields so low, the days of high returns from government bonds are behind us. Sure, bond yields could fall below 1% if Japanese-style deflation sets in. But it is hard to see the US Federal Reserve Chairman Bernanke or Reserve Bank of Australia (RBA) Governor Stevens allowing this. In the meantime an investor who buys a ten-year bond today and holds it to maturity will get the spectacular return of 1.74% pa in the case of US bonds or 3.14% pa from Australian bonds.

The dividend yield on Australian shares today is around 5% (or 6.5% if franking credits are allowed for). Only modest capital growth of 5% pa will generate a total return of 10%, which is well above the prospective return on bonds.

So while the secular bear market in shares may have further to go, reflecting public and private debt deleveraging in key advanced countries, extreme monetary policy settings and less business friendly governments, at least a lot is already factored in and given current starting point valuations (higher yields on shares and low yields on bonds) shares should provide a decent return premium over bonds. So on this basis it may be best to stay put with previously agreed strategies focussed on the long term.

However, that may be fine for someone who can take a long-term investment horizon, but it may not be so good for those near to retirement or in retirement (like my Mum) and with modest investment balances. Of course it also ignores the opportunities for taking advantage of extreme market moves along the way. So it is worth considering alternatives.

Outcome-based investing

Outcome-based investing involves investing in funds that target a particular outcome in terms of return (say inflation plus 5% pa) or income. The key elements of a multi-asset fund managed along these lines would be a focus on overall risk, highly flexible asset allocation capabilities (often referred to as dynamic asset allocation) and wide sources of market returns. This is in contrast with the traditional approach which involves constructing a benchmark mix based on simplistic growth/defensive categorisations and assuming it will deliver to client risk and return expectations.

Yield-based investing

Another approach, which can be seen as a subset of outcome- based investing, is to focus on assets that provide a decent investment yield. This is attractive because assets with a decent and sustainable yield provide a greater certainty of return in an environment of high market volatility and constrained capital growth. However, many of the traditional options here are becoming less attractive.

The traditional safe asset – government bonds – has seen yields collapse to record or near record lows. Australian ten-year bond yields have fallen to 3.14% and five-year bond yields (indicative of the yield on an Australian government bond portfolio) are just 2.5%. The average yield on global government bonds is around 1.5%, which is all the more amazing given that Japan and the US, which have the highest weight in global sovereign bond indices, have worse public debt levels than Europe.

Bank term deposit rates are now falling with the RBA cutting official interest rates. The collapse in bond yields points to further falls ahead, reflecting a combination of increasing global uncertainty, a moderation in growth in China taking the edge off the mining boom, struggling conditions in non-mining sectors and benign inflation. We expect the cash rate to fall to around 3%, which will likely see bank term deposit rates fall to around 4%.

Housing used to be seen as an attractive source of investment yield, but after the house price boom of the past twenty years this is no longer the case, with the rental yield on houses around 3.6% and that on apartments around 4.7%. After costs net yields are around 1% for houses and 2.2% for apartments and after a long bull market, Australian house prices are vulnerable to an extended period of poor capital growth.

However, there are several alternatives to term deposits, government bonds and residential property in terms of assets that provide decent income. See the next chart.

The grossed up dividend yield on Australian shares at around 6.5% is now above term deposit rates meaning that shares are actually providing a higher income flow than bank deposits. Of course, shares come with the risk of capital loss. One way to minimise this is to focus on stocks that provide sustainable above average dividend yields as the higher yield provides greater certainty of return during tough times. Excluding resources, the grossed up dividend yield on Australian shares rises to over 7%, for telecommunication companies and utilities it is around 8% and for bank shares it is above 9%. Furthermore there is evidence that stocks paying high dividends are associated with higher returns over time as retained earnings are often wasted and dividends reflect confidence regarding actual and future earnings. Of course there is no such thing as a free lunch – so the key is to focus on companies that have a track record of delivering reliable earnings and distribution growth over time, where dividends are not reliant on significant leverage and the yield is not high only because there is something wrong with the company.

Corporate debt is a good option for those who want higher yields than government bonds and term deposits but don’t want the volatility that goes with the sharemarket. For Australian corporates, investment grade (i.e. top quality companies) yields are now around 6% and lower quality corporate yields are higher.

Australian real estate investment trusts (A-REITs) used to be a popular alternative to bank deposits but fell out of favour in the global financial crisis as their yields proved unsustainable partly due to excessive debt. However, A-REITs have now refocussed on their core businesses of managing buildings, collecting rents and passing it on to their investors – all with lower gearing. A-REIT yields, at around 6%, are currently the second highest in the world amongst REITs (after France) and the sector seems to be more stable (falling only slightly during the recent correction).

Unlisted commercial property also offers attractive yields, around 7% for a high quality, well diversified mix of buildings, but into the low double digits for smaller lower quality property. Not bad when inflation is around 2%.

Finally, listed and unlisted infrastructure offers yields of around 6%, underpinned by investments such as toll roads and utilities where demand is relatively stable.

Concluding comments

With yields on shares up and yields on bonds down, shares offer a decent return premium for long-term investors despite short-term uncertainty. However, for those who can’t take a long-term approach and/or want to take advantage of short- term opportunities, outcome-based approaches or focussing on income yield beyond bank deposits are worth considering.


This information is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. We strongly suggest that no person should act specifically on the basis of the information contained herein, but should obtain appropriate professional advice based upon their own personal circumstances including personal financial advice from a licensed financial adviser and legal advice. RI Advice Group Pty Limited ABN 23 001 774 125  AFSL 238 429.

Wednesday, 30 May 2012 13:10

Update on Debt Crisis in Europe

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There has been increasing sharemarket volatility in recent weeks following the inconclusive election results in Greece.

What will happen next?
We believe that policymakers in Europe will be keenly aware of the lessons learnt from the financial crisis of 2008. Because of this, we do not necessarily believe that a disorderly Greek exit is a foregone conclusion.

Elections in Europe demonstrate that budget cuts or austerity will only ever be plausible so long as they have the support of the public. Voters in France, Italy and Greece have all unequivocally rejected the austerity at all costs approach so far in managing the crisis.

The French election has shifted the pendulum towards the possibility of a more lasting solution to the crisis - one that balances long-term structural reform, pro-growth policies and balanced budgets.

Greek exit not a foregone conclusion
While the last election in Greece saw voters resoundingly reject austerity, they equally rejected an exit from the Euro. A disorderly exit may be prevented by political will and the need to contain adverse outcomes for Europe and the rest of the world.

And, make no mistake, policymakers in the US and Asia will be tapping the shoulders of their European counterparts for an immediate and lasting solution. This may see Europe agreeing to fund Greece or a preplanned, orderly exit from the Euro.

What is the impact of the European crisis to the rest of the world?
The relative importance of Europe to Australia is small and declining – less than 10% of our exports go to the region. Asia is much more important and this dominance will only grow on record amounts of investment in the energy and resource sector.

The impact on China is also expected to be manageable. While Europe is China’s biggest customer for its exports, the recent slowdown in China has been driven primarily by higher interest rates to curb uncomfortably high inflation.

The US recovery is also continuing, and for Europe, Greece represents less than 3% of the European economy, implying that the crisis can be managed.

Given the potential escalation to Italy and Spain there is a common interest amongst all to put brinksmanship aside and implement a workable and lasting solution.

Interest rates and the AUD - twin support measures for Australia
If the European situation were to deteriorate Australian policymakers can rely on lower interest rates and a depreciating currency.

The RBA recently cut rates by 50 basis points, which is expected to support the non-resource economy, including retail sales and housing.

The Australian dollar will also track European concerns but the pace of depreciation has so far been much less than during the financial crisis in 2008.

The Federal Government also has scope to provide stimulus to the economy should there be a need to do so.

Things to consider
In periods of uncertainty many turn to cash or other strategies perceived to be safe. It is during these periods that investors all too often make decisions that are contrary to their long-term objectives.

While equity markets may well fall if Greece were to exit the Euro, it is important to also recognise that the global economy is still growing and global companies are making profits, paying back their debt and providing dividends to investors.

At the same time, the return on cash investments will decline on interest rate cuts. Bond markets look fully valued with yields near, or at, record lows for many developed economies.

During uncertain times long-term opportunities are most likely to emerge while equity markets remain below long-term valuations and policymakers may surprise markets, which could lead to a sharp turnaround in the price of equities.

Remember that frequent and undisciplined changes to your portfolio may lead to poor results. History has shown that missing just a few of the best months in equity markets may substantially reduce your overall return.

Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser.  While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding.  The information provided is current as at May 2012.

18 April 2012 – Off-market transfers of certain assets, such as shares, between related parties and self managed superannuation funds (SMSFs) will cease to be allowed under Tax Office rules.

Frequently referred to as in-specie contributions, the government announced in 2011 that from July 1, 2012, non-market transactions that result in a contribution being made to an SMSF in the form of an asset will no longer be permitted.

The government's move came as a response to the growing trend of SMSF members making in-specie contributions of property into their SMSF, as on a practical level many people may not have had spare cash but may have had valuable assets they could contribute.

However there are restrictions imposed on the assets that can be acquired by funds from related parties (such as fund members or family members). The asset must be:

  • business real property (property used exclusively in one or more businesses)
  • listed securities (shares)
  • certain in-house assets acquired at market value (where the value of those in-house assets do not exceed 5% of the value of the fund's total assets).

Off-market transfers that make in-specie contributions to an SMSF are, however, generally made without actually selling and re-purchasing the securities on the open market. Hence the government believed that such non-market transactions were not transparent, and were open to abuse — through transaction date and/or asset value manipulation to achieve more favourable results with regard to both contribution caps and capital gains tax outcomes.

Keeping such asset transfers at arm's length was also seen to more closely meet the sole-purpose test for SMSF activities.

Part of the Stronger Super package, the legislation was formed to ensure that related party transactions be conducted through a market, or accompanied by a valuation if no market exists. In the latter case, transactions must be supported by a valuation from a suitably qualified independent valuer.

For equities, for example, the underlying formal market is the Australian Securities Exchange. So if SMSF trustees want to contribute listed shares to their fund, these will be required to be sold onto the market and then subsequently repurchased.

For business real property, there is no underlying formal market, so transferring these assets will therefore require validation by a valuation from a qualified valuer. Under the existing rules, a real estate appraisal of the value is sufficient.

Speaking at the SMSF Professionals Association of Australia's 2012 conference in February, Tax Office assistant commissioner Stuart Forsyth said the Tax Office will provide guidelines, probably before the end of the financial year, to help trustees and their advisers with the valuation problems they may encounter.

'They'll promote a consistent approach to valuations across the sector and support the proposed new requirement for SMSFs to value their assets at net market value,' Forsyth said. 'We'll also talk directly to auditors and other stakeholders as we develop this product which will build on existing guidelines focused on taxation compliance.'

Source: Taxpayers Australia INC latest news


Monday, 28 May 2012 11:25

Age Care Reforms Announced

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On 20 April 2012, the Prime Minister and the Minister for Social Inclusion and Minister for Mental Health and Ageing, announced the ‘Living Longer Living Better’ plan, a 10-year plan beginning on 1 July 2012.

To make it easier for older Australians to stay in their home while they receive care, the Government will:

  • Increase the number of Home Care Packages- from 59,876 to almost 100,000     (99,669).
  • Provide tailored care packages to people receiving home care, and new funding for dementia care.
  • Cap costs, so that full pensioners pay no more than the basic fee.

To make sure more people get to keep their family home, and to prevent anyone being forced to sell their home in an emergency fire sale, the Government will:

  • Provide more choice about how to pay for care. Instead of a bond which can cost up to $2.6 million and bears no resemblance to the actual cost of accommodation, people will be able to pay through a lump sum or a periodic payment, or a combination of both.
  • Give families time to make a decision about how to pay, by introducing a cooling-off period.
  • Cap care costs, with nobody paying more than $25,000 a year and no more than $60,000 over a lifetime. This measure will not affect people already in the system.

To ensure immeditate improvements, the Government will also:

  • Increase residential aged care places from 191,522 to 221,103
  • Fund $1.2 billion to improve the aged care workforce through a Workforce Compact.
  • Provide more funding for dementia care in aged care, and more support for services.
  • Establish a single gateway to all aged care services, to make them easier to access and navigate.
  • Set stricter standards, with greater oversight of aged care.

Implementation of the reforms will be overseen by a new Aged Care Reform Implementation Council. The new reform package will be implemented in stages to enable providers and consumers to gain early benefits of key changes and have time to adapt and plan for further reform over the 10 years.

Home care

  • Home Care packages will increase from 59,876 to 99,669 over the next 5 years
  • Under new means-testing arrangements for Home Care packages, which will start from 1 July 2014, a consistent income test will be introduced. This will ensure that people of similar means pay similar fees – regardless of where they live – with safeguards for those who can least afford to pay.
  • The means test will not include the family home, which remains exempt.
  • People currently receiving a Home Care package will not be subject to the new arrangements while their current care continues.
  • In addition, to protect care recipients with higher than average care needs, an indexed annual cap of $5,000 for single people on income less than $43,000, and on a sliding scale of up to $10,000 for self-funded retirees, will apply to care fees. A lifetime care fee cap of $60,000 will be introduced.

Residential care

  • From 1 July 2014, the maximum accommodation supplement that the Government pays to aged care providers when people are unable to meet the cost of their accommodation will be increased from $32.58 to around $52.84 per day. As a result, the Government expect aged care places to increase from 191,522 to 221,103.
  • There will be more choice about how to pay for their care. Residents can pay for their accommodation in a lump sum, periodically, or a combination of both. A new cooling off period will mean that residents will not need to decide how they are going to pay until they have actually entered care.
  • From 1 July 2014, residential care means testing will be strengthened and improved. The treatment of the family home will not change from current arrangements.
  • An annual cap of $25,000 and a lifetime cap of $60,000 will apply to care fees.

Source: Hon Julia Gillard, Prime Minister & Hon Mark Butler, Minister for Social Inclusion & Minister for Mental Health & Ageing, Media Release.