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Super changes: good news & opportunities before 30 June 2017

Written by multiforte on . Posted in News

Many of the Government’s proposed superannuation reform measures became law on 29 November 2016.  There’s some good news included and a number of opportunities we thought worthwhile sharing with you.

Most of the new super rules are effective from 1 July 2017, so you have until 30 June 2017 to act on the opportunities provided by the existing super rules, which we’ve outlined below.

Skill versus Luck in Investing

Written by multiforte on . Posted in News

Last Sunday afternoon. Our son’s U17s AFL team is playing the Grand Final – the first ever for the team. And they’re the underdogs – facing the team who has been top of the ladder pretty much all season.

The two teams are well-matched. It’s the fourth and final quarter and the difference in score has only once gone beyond single-digits. There’s a minute to go, and the opposition is four points in the lead – just four points.

Fifteen seconds out. A clever pass, a swift kick, and it’s a goal. Our team did it. They won the grand final. In the last 10 seconds of the game. By two points.

Was it skill or luck that delivered the team the premiership? Maybe our team will argue that it was all skill – and the opposition, that it was pure luck!

The reality is, when you look at most activities, whether it’s sports or investing, both skill and luck are contributing.

Yet, like some sports teams, there are many investment managers out there who will claim that they are sufficiently skillful to consistently beat the market, and maybe just a few with the performance numbers to prove it.

Even with the top performing investment managers, we should still ask: are they truly skillful or did they just get lucky?

19 tips for financial year end

Written by multiforte on . Posted in News

With just a few weeks to 30 June, have you prepared financial year end? What changes do you need to know about? And what opportunities can you take advantage of?  Here are 19 tips for things you could do to potentially improve your wealth before 30 June.

Paying to save

Written by multiforte on . Posted in News

Imagine that your bank decided they would pay you negative interest.

That means that, instead of earning regular interest for depositing your funds with the bank, you pay your bank interest to keep your money in your account.

It sounds crazy, doesn’t it? Yet, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. And as of January, Japan is trying out negative interest rates too.

Surviving the share market’s bumpy ride

Written by multiforte on . Posted in News

Share market turbulence has dominated media headlines in recent weeks.

Many investors are wondering: When will things return to normal?

The answer is, this is normal for share markets. This is what markets do – though sometimes with more gusto than others. While we shouldn’t be surprised by these market fluctuations, it is natural to feel uncomfortable when the market dips.

Somehow we forget that we’ve had these same bumpy rides in the past. Many of us, looking back at our healthy long-run performance averaging say 7% or 8% a year, we can be lured into believing that the past was a smoother ride.

But was it as smooth as it seems?

Want to be a great investor? Get used to being uncomfortable

Written by multiforte on . Posted in News

Recently, we set off from Kirribilli for a twilight sailing race on Sydney Harbour.

The evening was perfect – warm weather, clear skies and a good breeze.

What we (well, Kate anyway) hadn’t quite anticipated was how strong the breeze was, nor how sizeable the swell.

Within about 10 minutes of the start, Kate (at the front of the boat on the headsail) was drenched – from head to toe – and feeling very chilly.

Now while it would be nice to do a quick change into wet weather gear, when you’re racing, and there’s only two of you on the boat, there’s no time to “down tools” and change your clothes.

You learn that being cold, wet, and uncomfortable is a normal part of racing.

For the thrill of screaming along Sydney Harbour, and for the thrill of wining the race, you choose to be comfortable with being uncomfortable.

It’s a pretty good lesson for most things in life, don’t you think? And that includes investing.

If you want to be a great investor over the long run – then you need to become comfortable with being uncomfortable.

Population growth means housing prices will always go up: fact or fiction?

Written by multiforte on . Posted in News

On Saturday evening, we were enjoying lively conversation with other parents at our 18 year old’s Year 12 graduation dinner when talk turned to the inevitable topic of Sydney house prices.

“I am a very conservative investor” shared the gentleman next to me. “So I only invest in property. After all, with Sydney’s population growth, and the persistent housing shortage, house prices can only go up”.

Heads nodded around the table.

It is a popular view. But is it right? Is there a direct link between population growth, dwelling supply and housing prices?

The nature of housing markets

Let’s start by looking at the dynamics of the housing market. Many people regard property as a conservative investment, where prices are relatively stable. In contrast, most are more concerned about losing money in the share market.

In short, they regard the housing market – compared with the share market – as being far less prone to bubbles.

Yet, according to The Economist, many economists take the opposite view. They argue instead that bubbles are more – not less – likely to develop in housing markets than in share markets.

“Property markets, both residential and commercial, are inefficient. They are illiquid, trading is infrequent, assets are heterogeneous (both by location and by type), transaction costs are high, and information is imperfect because there is no central exchange”.

The Economist concludes that it is these market imperfections which make property bubbles more likely not less. Property markets, it argues, are subject to boom-bust cycles.

And the same view is found in the data from Australia’s recorded house price history.

Philip Soos of Deakin University has analysed data reaching back more than 130 years from 1880 to 2010. He has found that in that time there were nine major increases in prices – and then, in eight of the nine, there were significant declines. The only exception is a small three year window from 1961 to 1964 where prices stagnated.

  Increase Decline Downturn
1 31.7 (1887 – 1891) -31.5 (1891 – 1898) Yes
2 20.5 (1920 – 1929) -18.2 (1929 – 1931) Yes
3 111.6 (1949-1950) -25.5 (1950 – 1953) Yes
4 21.4 (1953 – 1960) -12.7 (1960 – 1961) Yes
5 22.9 (1961 – 1964) NA (1964 – 1967) No
6 39.8 (1967 – 1974) -16.0 (1974 – 1979) Yes
7 9.7 (1979 – 1981) -10.2 (1981 – 1983) Yes
8 7.4 (1983 – 1985) -5.4 (1985 – 1987) Yes
9 39.0 (1987 – 1989) -8.6 (1989 – 1992) Yes
10 127.1 (1996 – 2010) ? ?

It is hard to believe, argues Soos, as we face the largest increase in housing prices in Australian history – that we will not have a significant downturn.

But what about the impact of population growth?

Our dinner companion, like many bubble-dissenters, acknowledged the historic data. However, he argued that this time is different.

A downturn won’t happen this time around thanks to housing undersupply and increasing population growth.

The argument goes something like this. As Australia is facing a shortage of properties to meet the needs of a growing population, demand is greater than supply, and therefore housing prices must continue to rise.

If this argument is correct, argues Philip Soos, then we should be able to align historic annual population growth rates with housing price rises.

Yet in 1996, when house prices started to rise, and in 2001 when they began to skyrocket, annual population growth was a mere 1%. It was not until 2007 that it rose to around 2% – and this was also the first time since 1950 that the population increased faster than the number of dwellings.

If the housing shortage argument was correct, housing prices should have only started to rise around 2007 – not 11 years earlier. Soos concludes that “the historic data shows there is no correlation, let alone causation, between population growth, dwelling supply and housing prices”.

His view is supported by recent economic studies that found that in the long run, demographics have a relatively modest effect on house prices.

The Economist cites a widely noted study from the late 1980s that predicted that the ageing of America’s population would cause real house prices to fall by 47% over the following 20 years because older people tend to downsize to smaller, less expensive homes.

“In the end, demand for housing did not fall, and neither did prices. But even if the demand for housing were to decline, supply would eventually shrink too, because in the long run the nationwide supply of housing is almost perfectly elastic.”

The Economist concludes that this is why the popular claim that rapid population growth will result in ever-rising house prices is nonsense.

Sources:
Phillip Soos, “Debunking the myths peddled by Australia’s property bubble deniers” The Conversation, 14 December 2011
The Economist, “Design flaws: why property markets suffer from bubble trouble”, 29 May 2003

Why share markets are like teenagers

Written by multiforte on . Posted in News

As we navigate the last months of his HSC year with our 18-year old son, we’ve decided that share markets are just like teenagers. They are wonderful when you stand back and take a long run perspective – but on a day to day basis, well, they don’t always behave the way you want them to.

And if you think about it, that is perfectly normal. In fact, if our teenagers didn’t ever have an outburst, were always home on time, and kept their room perfectly tidy, we’d start thinking that something very strange was going on.

And it’s the same with share markets. They don’t always behave the way we want them to. Most of us would prefer that they rose on a steady trajectory – but they don’t. But then, they probably wouldn’t give us as much long term reward. Because it is this very uncertainty that is why we can expect shares to return more than cash or bonds over the longer run.

How to make better financial decisions

Written by multiforte on . Posted in News

We are both keen sailors and enjoy racing – particularly when the wind is up and our little boat scoots across the Harbour. Our less favourite times are those when there is little or no apparent wind and the sailing skill is different and demanding.

That’s because, even the most talented of sailors can get stuck in a patch of no wind. All you want to do is get moving. Your instinct is to work the sails, to force it. Yet forcing it is one of the worst things you can do.

We don’t need force. We could be moments away from a breath of breeze. If we’re smart, we will keep an eye on the distant signs of approaching wind, set the sails, shift our weight to leeward and wait. The wind will come.

The same approach applies to making financial decisions. There are times when decision-making is swift and clear. However, there are also times when clarity on the best decision is as absent as the breeze. It feels so frustrating, and most want to push forward with a decision just to get the issue resolved. Yet this is dangerous. When you feel like you have to force a decision it probably means that you haven’t found the best option – yet.

Just like for our boat with no breeze, you need to take a different tack.

Here are some valuable ideas to help you make better financial decisions.

The Federal Budget: 4 key focus areas

Written by multiforte on . Posted in News

The good news is that this is a more positive Budget than the “tough” budget of last year. Our four key focus areas here are: no new taxes on superannuation, generous tax cuts for small business, significant changes to the age pension assets test and childcare boosts.