Author archives: Alex Jamieson

Is it better to retire on a $350k super fund, or a $900k super fund balance?

When it comes to retirement most people believe more is best, but is this always the case? Have the Centrelink changes that came into effect last year distorted reality; has the $350k super fund become the new $900k – without all the extra effort of squirrelling away so much for retirement?

Let’s assume we know two couples who are about to retire. One couple has a balance of $350k; the other has $900k. Both couples want a modest living standard in retirement, with an income stream of around $50k p.a.

The first couple with a combined balance of $350k can expect to receive an income stream of around $21,000 p.a. Potentially, they might also receive the Age Pension if their combined assets – excluding their home – sits under the threshold of $380,500. The projected Age Pension is likely to pay them a combined income of $35,573. Thus, they will end up with a total combined income of $56,573. It is likely that at a 6% drawdown rate, their superannuation will not be eroded too fast, so it should be possible for them to keep pace with inflation during their remaining lifetime.

In addition to receiving the Aged Pension, this couple will also receive all the benefits and concessions that normally come with it, such as discounts on utilities, medicines, etc.

The second couple has a combined super balance of $900k. Like the first couple, they own their own home. But as their combined asset balance exceeds the maximum Centrelink threshold of $837,000, they are not eligible for the Age Pension.

This couple will commence an income stream from their superannuation balance and, assuming a similar 6% drawdown limit, they will be eligible to draw a combined retirement income of $54,000 p.a. If their super fund’s performance remains reasonable, this should also last them until life expectancy and keep pace with inflation.

However, being over the Centrelink threshold means that this couple is not eligible for any of the discounts and benefits that normally accompany the Age Pension, although they will also not be affected by any government changes that might occur in the future to Centrelink thresholds.

They could also draw down a higher income stream earlier in their retirement, to enjoy travel and entertainment, etc. Then as they age their need for cashflow might not be as great, so they can gradually ‘ease off the throttle’ and reduce their balance to the $350k mark, and be in a similar situation to the first couple.

So the next time you are feeling a little underwhelmed about your retirement picture, it’s important to give consideration to all options that might be available to you. Sometimes, bigger may not be better. Or, you might be better off sitting at the $900k balance, possibly spending the difference on home improvements, travel, a new car etc. Later you could drop to the Age Pension limit, and even if you receive just $1 from the Age Pension, it still means you qualify to enjoy the other benefits that come with this government offering.

Before delving into a retirement strategy, it’s important you take your personal situation into account and seek advice from a qualified financial planning professional. Of course, we recommend AJ Financial Planning.

AJ Radio – Episode 18 (Recorded 14th March 2018)

In this 18th Episode of AJ Radio we look at inheritances – what are the changes that have occurred in this area, what are the common mistakes people make with giving and also receiving inheritances, and also how you can best optimise a potential inheritance. 

AJ Radio – Episode 16 (Recorded 22nd November 2017)

In this 16th Episode of AJ Radio we discuss how to keep a level head when the markets go crazy. To understand this, we chat with Dr Frank Murtha, Managing Director of Marketpsych and a leading expert in investing psychology, who give us some fascinating insights to put yourself in the right investing mindset.

Could bitcoin actually get your kids interested in investing?

I often hear parents lament that their kids have no interest in investing, and they ask me how might they entice them to be more engaged. With all the distractions of social media, computer games and other interests competing for their time and attention, I can see why kids might not be jumping up and down at the thought of developing an investment portfolio.

The thought of having $100 in a bank account earning $2.50 interest over 12 months is not that inspiring. Even if they had one of the high-performing international tech shares that earns 37% on $1,000, this is still only $370 annually, which if earned evenly each month would only equate to about $30.

Little wonder those Instagram feeds seem far more interesting. How can these types of investment compete with the flashing lights and hot posts of social media and in reality, isn’t regular saving or a safe investment just snoozeville for a young person with a short attention span?

I was recently speaking with a client about one of their kids’ portfolios that we look after. It holds all the traditional types of investments: cash, high-quality blue chip shares, fixed interest etc., but at the request of the client’s kid, we placed a very tiny piece of exposure – less than 1% of the portfolio value – into crypto, with the understanding it might turn out to be worthless, or it might make something. This was the great unknown.

The interesting thing is, after about six months or so the crypto position was up around 600% – and the parents remarked how their kid had suddenly become totally engaged with her investment. She regularly received updates on what was going on with the price of the investment, so in effect the flashing lights of the crypto’s rapid moves was enough to capture her attention.

I found this profound, because regardless of your thoughts on crypto as an asset class, could this possibly be a useful learning tool? I surmised that crypto could assist by focussing the kid’s attention on the experience of investing, with the magnified movements providing a heightened investing experience in a short period of time. For example, bitcoin moved 24% in the last 24 hours – in a regular investment this would take at least 12 months. On the other side of the bitcoin, it has also dropped 50% within two days, a number of times over the past 12 months. Again, to see this type of movement you might have to wait six to 10 years’ in a normal share market cycle.

Now crypto might not give your kid an understanding of share valuations or other core principles of investing, but what it can provide is an appreciation of human emotions such as greed and fear; the concept of the volatility quotient of an investment; the notion of crashes and bubbles. The potential learnings of resilience and holding your nerve during large crashes could also be valuable. I hypothesise that the exciting fluctuations of crypto could be enough to capture the imagination and interest of a young person.

I was recently in Times Square attending a notable Wall Street conference on crypto investing. One of the key speakers at the event reported 83% of crypto investors check their investment portfolio daily and interestingly, 33% of them check it every hour. This definitely shows a level of engagement by people who participate in this sector, so it’s possibly enough to cut through and grab a young person’s attention too.

Now let’s face it, crypto might be in a bubble, but even if it is there’s nothing wrong with this; the biggest, nastiest bubbles are where the most money is made quickly – and if your kid misses the exit door, it’s the quickest way to lose a lot. But gosh, they’ll learn a hell of a lot. If you think about your kid’s education; at the end, you don’t ask for your money back if you were unhappy with what they learned. It’s the same with crypto investing: if your kid places a small amount of money into crypto, they need to be prepared to lose the lot. But the lessons that they might learn could actually be valuable ones that stand them in good stead for the rest of their life.

The other thing to remember is that while crypto might be the trigger to spark your kid’s interest, like the example I gave above, over time it might be enough to engage them in other elements of their portfolio. It’s the start of the journey, not the end. Down the track, they’ll learn about ‘sensible’ investing with diversification in solid, stable stocks. The crypto might just be the carrot that gets your young bunny through the door into the world of opportunity and investing.

When it comes to crypto, your kid must be prepared to lose every dollar they invest, and understand there are minimal regulations or consumer protections, so if it all goes up in smoke, they can’t complain that nobody told them this could happen.

Like most investment decisions, it’s always important to speak with a professional financial planner before diving in head first.

AJ Radio – Episode ​15 (Recorded 17th October 2017)

In this 15th Episode of AJ Radio we discuss retirement. Specifically, we explore what you should do if you don’t have enough money for retirement, and what are the steps you could consider taking to handle this situation. We also give a quick update on the speculative and very interesting cryptocurrency market.


AJ Radio – Episode ​14 (Recorded 20th ​September 2017)

In AJ Radio’s 14th of episode, we talk about sequencing risk. What is it and how do we manage this type of risk when it comes to investing? We also provide an update on the geopolitical situation with North Korea and what impact this may have on the global financial markets.


Should investors participate in class actions?

A flurry of class actions over the past few years raises the question: is this area of law becoming the new feeding ground for ambulance-chasing lawyers?

The marketing and PR is slick: ‘If we don’t win your case, you don’t have to pay a cent’; ‘Just register for the class action and you might receive some money; if it fails, you don’t have to pay anything’.

With any great concept the question must be asked: does it make sense for an existing shareholder of a company to participate in a class action against that company? You hear the words ‘money’ and ‘free’ – is this too good to be true?

Let’s look at an example back in 2012, when National Australia Bank (NAB) settled a class action, paying out around $115 million in a settlement to its shareholders.

However, bearing in mind about 40% of this capital – according to the Australian Financial Review (AFR) newspaper – would have paid off the litigation funding partner, and about 10% would have gone to the lawyer representing the case. So, to keep the maths simple, about 50% of the ‘winnings’ went out the door, and shareholders got to keep the other 50%. Isn’t this just free money?

In another case involving NAB (the consumer bank fee settlement), again the AFR reported the sums paid to the litigation funding partner and the solicitor were even higher – about 70% – so each case can vary, but it’s still free money, right?

Now, let’s work out if this makes sense. To keep it simple, let’s assume you owned 100% of a large bank like NAB as a single shareholder. Congratulations, you are now $82 billion richer. One day, a smart lawyer with a glittering smile approaches you and begins a discussion.

…. ‘You have been a victim of misconduct by the NAB board and management. Here’s an idea: let’s sue the company you own and get you some money – because what they did was wrong!’

‘Wow, that sounds like a great idea! Let me get this straight; I can sue the company I own, and you will get me some money… so how much do I get if I win?’

‘Well,’ replies the clever lawyer, ‘you will get to keep between 30 to 50 per cent of the settlement money, but the best part is it won’t cost you a cent to go through the process and if you don’t win, you still won’t pay anything at all.’

‘Okay, great… let me just clarify to make sure I have the concept: I can engage you to sue the company that I own. If I win – let’s say settlement is worth $6.6 million – the company pays this amount to you, of which you keep $4.62 million and hand me $1.98 million.

‘Plus, the company I own will likely have spent at least $600,000 to $1 million defending the matter in the courts, and hands this over to the lawyers it has had to engage…’

‘Yes, isn’t it great?’ says the intelligent lawyer.

‘So, in total the company has spent $7.2 million in settlements and legals and I will receive $1.98 million. Aren’t I down $5.22 million overall on my investment as the company I own is an asset?

‘I’m a bit confused; wouldn’t it be simpler to simply raise this at the annual general meeting and vote against the board of directors and save all these costs?’

You can see how the absurdity of this argument only really becomes apparent when you imagine yourself as a 100% shareholder in the company. Why would anybody agree to such a ludicrous process?

In most cases, an investor gets to have their say each year at the annual general meeting. Every shareholder gets a vote on how the company is run and yes, you are only a very small piece of the pie and with a very small point of influence. But so too is an individual in a class action. So, isn’t it time we started to use our votes, linking ‘the crowd’ with smart tech to save all the legal costs?

Keep in mind the situation can change, for example, you may not be a shareholder as in the case of the NAB bank fee settlement case, or if the company is no longer trading and is possibly placed into administration this changes things too; every person’s situation is different.

The reality is, however, that when I log onto a law firm’s website to see the final outcome from a class action, I am warmly greeted with a form that asks me to agree ‘not to disclose the loss assessment formula or its contents to any other person’.

Could it be that what this line really means is ‘Psst, we don’t want anybody to know what is really going on’?

AJ Radio – Special Edition on Insights from CFA Annual Conference Philadelphia

In this AJ Radio special edition, we bring you all insights from the CFA Annual Conference where our very own Shaun Gilbert attended to join some of the global leaders in the asset management industry from around the world to gain the latest insights.

Are industry super funds headed for an asset allocation disaster?

Superannuation funds within the retail and industry super fund market usually offer ‘balanced’ or ‘growth’-based investment options. But what does this really mean; and aren’t these funds all the same?

On 31 May 2017, Vanguard’s Balanced Index Fund reported an allocation to growth-based assets of 49.9%.

Over the years, my interpretation of a balanced profile for an investor has been fairly similar to Vanguard’s 50/50 position; that is, one’s holdings are fairly equally split between growth-based assets and defensive assets. The question is, are industry super funds applying the same principle or, more importantly, are they headed towards an asset allocation disaster?

Recently I reviewed Catholic Super’s asset allocation, and I discovered something interesting. Delving into the target’s asset allocation for a ‘balanced’ fund I noticed a 70% growth-based assets allocation. This is a massive divergence from Vanguard’s recommendation, not to mention any number of portfolio theory textbooks. It made me wonder, has Catholic Super’s marketing department ‘mislabeled’ this investment option?

When reviewing Catholic Super’s strategic asset allocation, I also noticed that growth-based exposure was sitting at around 74%, if you included the ‘defensive alternatives’. If these alternatives are removed, it pushes the exposure up to 81%, as it is unclear exactly what these might entail.

Australian Super’s ‘balanced’ option appears to be in similar territory. When I looked at the mix of assets, if credit, fixed interest and cash are included as defensive assets, then growth-based exposure sits at 73%.

Neither Catholic Super nor Australian Super provide a date reference for these asset allocations on their respective website, so these percentages may have changed since they were originally published. It’s reasonable to assume, however, that both Australian Super and Catholic Super are taking a tactical asset allocation position – but have they reasonably exceeded these boundaries?

For years now, industry super funds have been reporting strong returns above those of their peers. The question must be raised, therefore, have these funds’ marketing divisions been pushing up returns by ‘mislabeling’ investment categories in order to attract new investors? Of greater concern, though, is whether these funds are potentially exposing investors to far more risk than the labels may imply?

So, let’s go back to the Vanguard Growth Index Fund reported on 31 May 2017. The index presently sits with a maximum range of exposure for growth-based assets at 72%.

You might ask, does having a larger exposure to growth-based assets matter? Doesn’t it mean higher returns for the members of the super fund and everybody is happy?

The short answer is: volatility and market downside. These factors make it very difficult for an investor whose risk profile is balanced to ensure they are matched carefully with the right exposure for their risk tolerance.

So, who has got it right? Vanguard, or the industry super funds? Which asset allocation really is ‘balanced’?

As Warren Buffett famously said, ‘Only when the tide goes out do you discover who’s been swimming naked.’