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Welcome to the August 2008 edition of Your Financial Future.
In this issue, we update you on what's happening in global investment markets and warn you about the dangers of trying to time the market. We introduce you to the different investment strategies available to you as a member of the Fund and explain why superannuation is one of the most attractive savings vehicles available.
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In addition, we report on recent research which reveals just how much you will need to afford a comfortable lifestyle in retirement and discuss how you can boost your super through salary sacrificing. We also profile Andrew Wells, one of our financial planners on hand to help you grow your wealth.
As usual, we also include an offer from the Fair Go Member Benefits program, and update you on how the different asset classes and investment markets have performed in the past quarter.
The markets and your super investment
You are not alone if you've been worried about the recent volatility in investment markets and how this could affect your retirement nest egg.
To summarise some of the recent events, global markets were affected by the fallout from the sub-prime market which led to a credit crunch as lenders became nervous about parting with their money. This made it harder and more costly for companies to borrow. Also leaving its mark were concerns about the possibility of a recession in the US economy. The Australian market was also affected by interest rate hikes and many investors feared that this could lead to a slower local economy and a downturn in company earnings.
These conditions provided investors in Australian shares with their biggest annual fall in 26 years for the financial year to end June 2008 and the news from many of the world's major sharemarkets was similar.
Markets opened the new financial year with further falls and the near term forecasts from the experts are far from positive, even though markets have taken some comfort from moves by central banks around the world to ease the crisis.
Concerns remain about how the US and other economies will perform and how this will affect company earnings. In Australia, there have been worries about rising inflation which could lead to more interest rate hikes. Nonetheless, Australia is expected to benefit from being on the doorstep of booming economies like China and India which are expected to continue to buy our resources which will support our economic growth.
In the meantime, it is important to remember that markets move up and down, but over the long term they've generally moved upwards. It is said that sharemarket investors can expect a negative return once every five years. So some experts say the Australian sharemarket was due for a fall after delivering over 20% per annum in returns in the previous four financial years.
History though has shown that patient investors are the ones who reap the rewards and that taking a long-term view helps avoid hasty reactions.
The dangers of timing markets
History has shown that investors who try to time the market - by moving into the strongest performing asset classes at the time - usually end up worse off.
Timing the market right requires as much good luck as it does good judgement. In fact, market timing is more a gamble of opinion than a legitimate investment strategy. Asset prices don't always move in logical or easily predicable ways and an unexpected event can come along to turn the best prediction on its head.
What usually happens is that market timers end up selling when asset prices are low - so they crystallise their losses - and are out of the market when prices begin to climb again. This means they have missed out on part of the market's recovery and it becomes more expensive to get back in. At the same time, transaction costs may have been incurred from buying and selling the assets.
A bit of patience can really pay off instead. We all know that investment markets are cyclical, that is, they go up and down. Market slumps don't last forever. Markets recover eventually and often very strongly. Indeed, experience has shown that more often than not, the safest way to build your wealth is to draw up a solid investment plan that's tailored to your needs - and then to sit tight and allow it to work for you.
For help with drawing up this plan, talk to one of our qualified financial planners. Just phone 1800 800 002 to speak to a planner.
Your investment choices
As a member of this Fund, you have a choice of investment strategies and asset classes that can be used to create your own investment portfolio that will best meet your needs. You can choose to invest within the five investment strategies offered or to invest directly in the individual investment pools under the Member Choice program. Alternatively, you could choose the Lifecycle Objective Management Program where we automatically switch you into a mix of investments appropriate to your age and the number of years to go before you plan to retire.
1. Investment strategies
Under this option, you have a choice of five investment strategies and you can redesign your initial investment portfolio at any time by switching between the investment strategies.
The five options under this option are:
- High Growth (Growth assets 90%/Income producing assets 10%)
- Diversified (Growth assets 70%/Income producing assets 30%)
- Balanced (Growth assets 50%/Income producing assets 50%)
- Capital Guarded (Growth assets 30%/Income producing assets 70%)
- Cash (Growth assets 0%/Income producing assets 100%)
2. Member Choice program
Within the Member Choice program, you can design your own portfolio by using a combination of the underlying asset classes which are:
- Australian equities
- International equities
- Listed property securities
- Australian fixed income
- International fixed income and
- Cash.
3. The Lifecycle Objective Management Program
By choosing this option, your investment mix will be automatically adjusted as the years go by, so that at any time during your working life, you have the comfort of knowing that your investment program is automatically keeping pace with your changing needs. When you are younger, you will have a larger allocation to growth investments such as equities. As you move towards retirement, your money will be progressively switched into cash and fixed interest investments which usually offer steadier, less variable returns and higher income. All you have to do is tell us your date of birth and the age at which you expect to retire.
When making a decision about which investment strategy to choose, consider that in general, investments which potentially earn higher long-term returns (they have a higher investment in growth assets such as equities and property) also carry higher short-term risk. Not only may the rate of return of the investment vary, but also the value of the investment can rise and fall over the short term.
Those strategies which offer potentially lower long-term returns (they are invested in defensive and income producing assets such as cash, fixed interest and bonds) are likely to fluctuate less in value over the short term.
The experts agree that most carefully selected strategies work well for investors over the long term. Determining which strategy best suits you will depend on a number of factors such as your financial goals (eg what sort of lifestyle you want in retirement), and your financial risk tolerance (whether you can tolerate losing some of your money in the short term).
This means that the strategy you choose should be focused on your long-term requirements and shouldn't change just because investment markets have changed. Markets are cyclical. They go up and down, but have generally risen in the long term. But those who have tried to second guess the markets have usually lost out.
That said, the level of risk you are comfortable with will vary from time to time as you develop different goals throughout your life and as your financial circumstances change. If your circumstances have changed, or if you are uncertain as to whether your chosen strategy suits your requirements, now could be a good time to review your strategy. Phone 1800 800 002 to speak with a financial planner.
Will your super be enough?
It's estimated that less than 10% of Australians will be able to afford the lifestyle they are expecting in retirement. In fact, very few people have a realistic idea of how much money they would need to fund this lifestyle.
The level of the Age Pension provides an indication of what people can survive on, but most Australians want to do more than survive. And, they will have to do more than survive for a much longer period, given that life expectancies keep rising on the back of continual medical advances. On average, Australian males can expect to spend 12-15 years in retirement while females will live even longer.
Recent research, ASFA (the Association of Superannuation Funds of Australia) shows just how much you will need to live on each year depending on the lifestyle you require (see table below).
The research shows that to have a comfortable lifestyle, retired singles need to spend $36,607 a year and couples around $48,962 and this assumes the retiree owns their home.
This modest budget allows for the basics but very little else. For example, both eating out and entertaining at home is very restricted and no overseas travel is possible. The extra expenditure associated with a shift from a modest lifestyle to a comfortable lifestyle in retirement adds a lot to enjoyment, comfort, style, holiday travel, health insurance cover, and the ability to more fully participate in modern Australian society. At the modest budget level, many retirees would not be able to participate in a range of sport and social activities that involves out of pocket expenses of various sorts.
So, will you have saved enough to fund the lifestyle you expect in retirement? If your answer is 'no', the sooner you start doing something about it, the better off you will be. And, we can help you.
As a member of this Fund you are welcome to attend a free seminar. For more information on these, just click here.
Your first home is in reach
Dreaming of buying your first home? Well, help is at hand.
Firstly, the Government has announced a first home saver account scheme to help you save. From 1 October 2008, you will be able to contribute up to $75,000 (indexed annually) into special accounts and the interest will only be taxed at 15%, rather than your marginal rate which could be as high as 46.5%.
You will also receive a government contribution of 17% on the first $5,000 contributed annually. And, you will be able to withdraw from the account without tax consequences provided that you contribute at least $1,000 in four separate financial years and are using the funds to buy or build your first home.
Secondly, as a member of this Fund, you are able to secure one of the most competitive home loans in the market from Chifley Home Loans.
Chifley Home Loans offers you low interest rates, a choice of loans to suit your circumstances and a simple process that takes all the hard work out of getting and maintaining your home loan.
Some of our Home Loan features include:
- Application fee - $0
- Monthly account keeping fee - $0
- Split loan fee - $0
- Electronic redraw fee - $0
- Redraw facility - yes
For more information on Chifley Home Loans, call 1800 800 002.
Boost your super through salary sacrificing
One of the best ways of growing your retirement savings is through salary sacrifice. This involves forgoing a portion of your gross salary and having your employer contribute it to your super account.
In addition to being an effective way of forcing you to save, salary sacrificing has significant tax benefits. The amount you sacrifice is taxed at 15% and not at your usual tax rate which can be anywhere up to 45%*.
Please note, however, that if you have been using salary sacrifice to boost your eligibility for the Government's Co-Contributions Scheme, this is the last year you will be able to do this. From 1 July 2009, salary sacrificed super contributions will be assessed as income when calculating certain income-tested benefits like the Co-Contributions Scheme.
For more information on salary sacrificing, phone Member Services on 1800 067 059.
*A $50,000 cap applies to how much you can salary sacrifice in the current financial year. If you are aged 50 or over, the cap is $100,000.
Financial Planner profile: meet Andrew Wells
"People generally spend more time planning where they will go for a holiday than how they get their finances into shape," observes Andrew Wells, one of our qualified financial planners on hand to help you with your financial affairs.
"I can understand why. We all tend to put decisions off that we perceive to have possible negative outcomes: investing money means I will have less cash to spend today; talking about life insurance means I will have to get a medical; revising a Will means I need to make some emotional choices; and so on."
"But using a professional adviser helps you put these decisions into perspective and gives you the reassurance that the effort you went to today to seek advice pays off in the future."
Andrew provides financial advice to members who plan to retire in more than three years time. "We call it wealth creation," he says. "Good planning takes time to get your finances into the best shape. The cliché "it won't happen overnight" holds true for money."
Andrew has worked in the financial services sector for over 17 years. Of his move to Chifley Financial Services in 2004, Andrew says: "Importantly, this organisation is client-focused and has a more ethical focus on meeting the full financial service needs of individuals. There is no plan writing fee for members and our costs are lower because we benefit from the scale of being part of a $10 billion superannuation grouping."
Investment and market commentary
Click here for commentary on how investment markets performed over the June 2008 quarter.
Fair Go
Investment returns
Click here for the latest returns (post-tax)
Come along to a seminar
Are you looking to set aside some money for a house, a holiday or perhaps for your children's education? Would you like to know more about investment options, risk and return and managed funds? Are you wondering whether you will have enough money to retire on?
You could get the answers to these questions, and more, by attending one of the free wealth creation or pre-retirement planning seminars we are running at a venue close to you. To find out more, click here, or contact Member Services on 1800 067 059.
Contact us
Chifley Financial Services Limited
Ground Floor
28 Margaret Street
Sydney, NSW 2000
Member Services
T: 1800 067 059
F: (02) 9273 0033
Financial Planning
T: 1800 800 002
Please note that the information contained in this document is of a general nature only and is not for personal advice and has not taken into account your personal objectives, financial situation or needs. Any advice in this document is provided by Chifley Financial Services Limited (ABN 75 053 704 706), as an Australian Financial Services Licensee (AFSL 231148). Chifley Financial Services Limited is an APRA Registrable Superannuation Entity Licensee (RSEL: L0001120) and the trustee of FuturePlus Super (ABN 76 829 356 693). FuturePlus Super is a Registered Superannuation Entity (RSE: R1004366). Chifley Financial Services Limited is co-owned by the Local Government Superannuation Scheme, the Energy Industries Superannuation Scheme and Unions NSW. Members should not rely solely on this information and should consider their own personal objectives, financial situation and needs before acting on this information. Prior to making any decision you should obtain and consider the relevant Product Disclosure Statement (PDS) pertaining to your membership.
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