Aged Care

Market Update JUNE

by DFS Ipswich on July 2, 2018 No comments
Summary
  • Last week’s US dollar strength subsided somewhat this week, but the USD has been quite strong over the last quarter. This has translated to poor performance across the board in Emerging markets over the same period – but in particular the non-Asian based emerging markets of the Americas and Europe. This is because much of Emerging Asia’s debt is no longer denominated in USD, so USD strength doesn’t really hurt them as much (in fact it makes their exports cheaper to Americans) – but regions such as Turkey and Egypt have large USD denominated debt burdens – so a strengthening dollar is disastrous for them
  • In the last week most equity markets performed poorly, with Australia being a notable exception. In fact, over the last quarter both Europe and Australia have done very well compared to the rest of the world
  • Friday of last week, was the official meeting of OPEC, prior to which both Saudi Arabia and Russia had indicated production increases were ‘inevitable’. The results of the meeting were that production increases will indeed occur. This is somewhat surprising since Iran is a member of OPEC, and any change in policy requires unanimous decisions – and Iran don’t want production increases. Increased production leads to lower prices, and due to sanctions enforced on them by the US they have limited partners to whom they can sell their oil, so they have less to sell at a potentially lower price
 Portfolio Construction 101 – correlation

Anyone who has spent time learning the fundamentals of portfolio construction would be familiar with the concept of correlation, and the idea that less than perfectly correlated assets provide diversification and either a better return for the same risk, or less risk for the same return. For those lucky enough to have not spent much time thinking about it, correlation is simply a measure of how one or more assets move compared to each other. If you can find assets that both provide a positive return over time, but have a negative correlation when one performs particularly badly and a largely zero correlation at other times – that’s an ideal asset combination.

The foundation of multi-asset investing over the past few decades has been the idea that bonds act as negatively correlated assets to equities when equities sell off – in other words they go up in price when equities go down in price. If we look at the rolling 3 year correlation of the S&P 500 with the US 10 year Treasury index we can see this negative correlation:

Source: Bloomberg

This is the asset-allocation basis behind the majority of large Superannuation funds in Australia, endowments overseas and has worked really well for the last 20 years.

However, are bonds always negatively correlated with equities? Students of history would know that this isn’t the case. Unfortunately Bonds and equities can be positively correlated, and worse still, when they’re both going DOWN. We tested the correlation of Australian Bonds and equities back to 1885 (with the help of Milliman) to see how sound the theory was, with more than just 20 years’ worth of data – you can see the results below:

Future Potential Inflation

We are mentioning this now because global Central Banks have begun the process of either raising rates (the US and Canada) or easing/ceasing their Bond purchasing programs (ECB). This is because wage price inflation appears to be finally feeding through to the real economy and could feed through to prices. Central Bankers don’t want a repeat of the late 60’s leading to the inflation of the 70’s and the reaction required in the early 80’s. We are confident they have learned their lessons, but believe it is worth noting that in a rising rate environment, the building blocks of portfolio construction which have been broadly assumed by market participants for the last 20 years are unlikely to be best ones for the next 20. This is why DFS take a contrarian and evidence based approach to investing. We don’t just take assumed dependencies and rely on them ‘simply because’. We are constantly testing our thesis and looking for new ways to increase the robustness in our portfolio construction.

General Advice Warning
Past performance is not an indicator of future performance. The information provided in this article is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.  Dobbrick Financial Services and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. Dobbrick Financial Services are a Corporate Authorised Representative of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357 306.

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DFS IpswichMarket Update JUNE

Federal Budget 2018-19

by Paul Dobbrick on May 8, 2018 No comments

 

The focus of this year’s budget was on reining in spending, cutting taxes for middle Australia and small to medium sized enterprises, and giving older Australians a bit of love.

The Government revealed a seven-year personal income tax plan for “lower, fairer and simpler taxes” with relief for low and middle income earners, starting 1 July 2018. The measures will also tackle bracket creep.

From 1 July 2018, the Government will provide a tax offset of up to $530 for tax payers in the 2018-19, through 2021-22 financial years.

Those earning up to $37,000 who currently face a 19 per cent tax rate will have their tax bill reduced by up to $200. These savings will increase incrementally between $37,000 and $48,000 to a maximum saving of $530 for those earning between $48,000 and $90,000. The benefit will then gradually reduce to zero at an income of just over $125,000.

Bracket creep measures will see the upper threshold of the 32.5% tax bracket increase from $87,000 to $90,000 from 1 July 2018 and to $120,000 from 1 July 2022. The Low Income Tax offset will also increase from $445 to $645 from 1 July 2022. This will be followed by a flatter personal tax system by 2024-25 where the 37 per cent tax bracket will be abolished completely. Australians earning more than $41,000 will then pay only 32.5 cents in the dollar all the way to the top marginal tax rate threshold that will be adjusted to $200,000.

The top marginal tax rate of 45 per cent will apply to incomes above $200,000.

Small to medium sized enterprises

Attention to small to medium sized enterprises was targeted at keeping them competitive globally. The Government extended the $20,000 instant asset write off for a further 12 months to 30 June 2019 for businesses with a turnover of up to $10 million.

Tax cuts for small business began in 2016-17 when companies with a turnover of less than $10 million had their tax rate cut to 27.5%. This rate was extended to companies with annual turnover less than $25 million in this financial year and from 1 July 2018 will be expanded to include companies with annual turnover less than $50 million.

The Government also announced tough new anti-phoenixing measures to stop businesses who deliberately go bust to avoid paying their bills and potentially affecting other businesses through their demise.

Superannuation

The focus on superannuation was on lost super and allowing Australians to build their super balances by saving unnecessary fees and unwanted insurance.

The ATO will be given powers to send lost super to people’s active super accounts. Fees on accounts with balances of less than $6,000 will be capped at 3 per cent and superannuation fund exit fees will be abolished for those wanting to switch funds.

For superannuation fund members aged under 25, they will need to opt in should they wish to have insurance within their super policies.

For SMSFs, the maximum number of members will increase from 4 to 6 people from 1 July 2019. This will allow for greater flexibility for larger families. In addition, the audit requirements for SMSFs will move from annually to three year periods for funds with a history of good record keeping and compliance.

For older Australians

The Pension Loans Scheme will be open to all Australians, including full rate pensioners and self-funded retirees to enable them to boost their retirement income by up to $17,800 pa for a couple, without affecting their eligibility for the pension or other benefits. An expanded Pension Work Bonus will allow pensioners to
earn an extra $1,300 a year without reducing their pension payments. This will also be extended to self-employed individuals who can now earn up to $7,800. People aged 65-74 with a total superannuation balance below $300,000 will now be exempted from the work test for voluntary contributions for the first year they would otherwise fail to meet the work test.

Aged care, skills training, Medicare and the PBS

For older Australians who would like the choice to remain in their homes and avoid residential aged care facilities, there will be a total of 74,000 high level home care places funded by 2021-22. A new Skills Training Incentive will provide mature aged workers with the opportunity to update their skills. And, employers will be incentivised with $10,000 wage subsidies for employing mature workers. Extra funding into Medicare and the PBS will see new medications being funded including those to treat spinal muscular atrophy, breast cancer, refractory multiple myeloma and relapsing-remitting multiple sclerosis and an HIV preventive drug.

For more information, please feel free to call our office.

 

General Advice Warning
The information provided in this article is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.

Dobbrick Financial Services (Gympie) Pty Ltd ABN 48 931 205 109 & DFS Oakland ABN 64 340 527 395 and their advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.

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Paul DobbrickFederal Budget 2018-19

AGED CARE PENSION – PLAN FOR CHANGE

by Dobbrick Financial Services on November 30, 2016 No comments

The proposed changes to the Centrelink Age Pension announced in last years’ federal budget are now law, and will take effect from 1 January 2017.  Two significant changes will be imposed, these may be good and bad news for Age Pensioners. It’s important to review these changes and understand how they may impact your entitlement.

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Dobbrick Financial ServicesAGED CARE PENSION – PLAN FOR CHANGE

AGED CARE PLANNING

by Dobbrick Financial Services on October 21, 2015 No comments

The costs associated with aged care planning should be factored in to your overall financial plan, regardless of your age today. Your financial adviser is well positioned to consider your entire financial life now and in the future.

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Dobbrick Financial ServicesAGED CARE PLANNING