Author: Andrew O'Neil

Australian Shares “The Chase for Yield”

During this company reporting period there has been a lot written about shareholders buying companies in the “chase for yield” . The discussion is that interest rates are low and investors some of them first time investors are buying shares in companies to increase their income for retirement.

The thing that I have noticed in looking at some of the company results is that some companies have increased their profits and the dividend has risen accordingly. Other companies have reduced profits however they have maintained or increased their dividend to keep investors on side.

Ask yourself this question,

Do you think the dividends from a company are more sustainable in the future from a company that is increasing its profits or from a company that is struggling this year and are maintaining the dividends to keep the market on side ?

One industrial company this week increased profits by close to 20% and increased the dividend by the same amount which is a nice pay increase for the shareholders.

Then there was another mining company that recently had a “statutory loss” of more than $100m however increased their dividend and the share price had a sharp increase.

There is a lot more questions to be asked before you purchase shares in a company and we normally use a combination of managed funds and direct shares to ensure good diversification for your portfolio’s capital protection.

The interesting fact about the industrial company that increased the dividend is that it is now trading on 1.5% dividend yield however it will not be purchased by shareholders chasing yield. However a client I was meeting with this week purchased that company a few years ago when it was on a 2% dividend yield. Their dividend yield is now over 5% on their purchase price which was $17.60 and the share price is now well over $60 per share so not only have they had a good increase in dividend yield they have also had an increasing share price as well.

An increase in share price is only sustainable in the long term by an increase in profit. Anything else is market hot air or short term talk by the company to retain shareholder support until things improve.

We still have clients, one of them only just turned 50 and others now in their 70’s and 80’s who bought 2,500 CBA shares on the float at approx $5.30 each. Their dividend yield is now over 60% as the CBA now pay over $3 pa in dividends and they still hold the shares.

They could have sold the shares at $10 when they would have made approx 100% profit however the good thing is they didn’t get scared out by good performance and they have made an extra $80 per share and do not have a days worry about their investment.

Simple message, Don’t buy shares based on their Dividend Yield alone. A company needs to have sustainable profits which means there needs to be a good prospect of increasing profits. That is the way that you will preserve your capital value and then spend the dividends.

You need to determine what cashflow you require from your investments and then your share portfolio needs to perhaps have some “chase for Yield” type stocks however more importantly it needs to have companies with sustainable and growing profits as that is what will give you the growing income yield as described in a couple of real life examples above.

When interest rates rise in the future which they will at some point the “Chase for Yield” stocks will be less attractive based on something that has nothing to do with the company and that is where the share price will fall and you will lose capital value which is not what you want if you can avoid it.

Share prices rise and fall all the time however you want some substance supporting your companies share price and that substance can only be growing profitability and not that the historic dividend yield is high compared to the cash rate in the bank which can change at any time.

It is critical to have a clear vision of exactly what you are looking for and why and that way you have a strong probability of getting what it is that you are after.

Expenses Key to Secure Retirement Income with Certainty

The key to a happy retirement is to understand your expenses. Most people don’t like to have a ‘Budget” which is fine however understanding your expenses has nothing to do with a budget. Understanding your expenses is to understand what it costs each year when you wake up on the 1st January to go about living a basic no frills lifestyle that you enjoy. On top of that you then add the cost of the things that you like to do and importantly your ” Bucket List” items.

What this does is gives you an understanding of your basic cost of living and then you add your discretionary cost of living. The base cost of living will increase each year as you get older. The discretionary cost of living will reduce as you get older as you wont be bothered doing things as you get older irrespective of whether you can afford it or not. Your health could also have a say in what you do in this regard so it is important to get the “Bucket List” things done whilst you can as you never know what is waiting for you around the corner.

The outcome of knowing what YOUR perfect lifestyle costs is that only then can you determine what level of income producing assets you need to live this glorious retirement lifestyle.

Don’t delay, contact us now to work out what you need to do to live YOUR PERFECT LIFESTYLE.  It is never to early to start planning. You wont regret it.



Investing for your risk tolerance

How do you know if your assets are invested in too aggressive a manner for your risk tolerance ? This is a question investors have been asking themselves for decades without coming up with a sensible answer.

Ask yourself these questions,

A. When you read the newspaper, watch the news on TV or go online to check your investment values, do you do it more than once per week ?

B. When you are looking at the value of your investments do you feel disappointed when the asset values have fallen?

If you answered yes to both of these questions your portfolio is probably too aggressive for your risk tolerance. If you are not convinced with my assessment how often do you check the value of your home?

If your answer is never it is because you are comfortable with the value of your home and you dont feel that a change up or down is relevant or worth worrying about. Some people check the value of their properties regularly and they are likely to have a lot of debt associated with the properties and are therefore again too risky for their risk profiles.

If the value of an asset is worrying you then it is too risky for your risk tolerance or it means you have too much invested. Life is too short to have these worries so realign your investments to some thing that you are comfortable with.

Financial System Inquiry Superannuation

The Murray Financial System Inquiry suggested that the Global Financial Crisis highlighted the strong role that the large pool of superannuation capital had in its “unleveraged capacity” in providing assistance and stability to the capital markets and broader economy at a time of high stress. The Inquiry goes on to say that the sharp increase in leverage in the superannuation system, although still low in the overall value of superannuation, if continued at this accelerating rate will reduce  the superannuation systems capacity to be that stabalising influence in the next financial crisis. As a result the Murray inquiry into the Financial System recommends that future borrowings should not be allowed in superannuation.

It also goes on to say that the risk of borrowings in superannuation and particularly in Self Managed Superannuation funds passes the risk of the strategies back onto the community as if the leveraged investments do not perform as they should in superannuation funds then the obligations falls to the taxpayer to fund the investor by way of age pension benefits and that is not fair to the community at large.

Following the GFC you dont have to go to far to find someone that borrowed money to invest in an asset that has lost 50 or 60% of its value or more and the problem they have is the debt is still there needing to be repaid. The recommendations from the Financial Services Inquiry will not stop people investing in assets that lose some or all of their money however in the future after an investment has performed poorly you wont have to repay a loan as well.

It is important to note that there has not been large leveraged losses in the superannuation system to date and this is a recommendation designed to take away that risk before it becomes an issue. Eg prevention is better than cure.

Financial System Inquiry Unclaimed Money

In a win for common sense the Financial system inquiry recommendation 41 said that the rules for unclaimed moneys should be changed back to 7 years inactive rather than the three years that it was changed to in 2012. Three years was always too short allowing that you may be wanting to save for school fees or other longer term ventures and then the government takes your money in 3 years. This was always totally unreasonable and it is a good outcome if adopted by the Government. This inquiry is partially designed to improve long term savings and this is a step in the right direction.

Financial System Inquiry Legacy Products

Recommendation 43 in Appendix 1 of the Financial System Inquiry discusses the 25% of invested funds in Legacy products are old products that are closed for new investment or obsolete as they presumably have uncompetitive charges or terms.
These products incur great costs for fund managers and are generally not that great for the investors that are still invested however there has always been the issue of capital gains taxes and other exit fees that may apply in these cases.
The financial services inquiry has suggested a no disadvantage test for the consumer however then discusses the consumer paying a fee to cover the administration cost of moving to another fund.
Two issues here.
Considering there should be cost savings to the fund managers you would think the fund manager would be happy to wind up the old fund by rolling benefits into a new fund. They perhaps dont want to wind up the funds because the new fund is going to have much lower management fees.
No doubt the Financial System Inquiry thinks the consumer should be happy to pay a small fee to get out of an old uncompetitive fund. The reality is they are still in the fund because they are not prepared to pay to move or are completely disinterested and will not want to send good money after bad.
The consumer has already paid a big price being in the old funds and that price has been paid to the fund manager so the fund manager should pay for the rationalisation which will be to their long term benefit.
A by product will be that they will potentially be able to re engage with consumers who should be happier in the current market priced products.

Superannuation and Retirement Incomes Murray FSI

Appendix One Recommendation 37 is to have superannuation funds provide retirement income projections for their members with their annual statements.
It is felt that this level of information will give more tangible interest to the member and they will have more “Buy in” to their own superannuation benefits and what it will mean to them in retirement.
This is a laudable goal from the Financial System Inquiry and will provide more and better information for consumers about their superannuation and retirement incomes however the inquiry acknowledges that it is an issue where people have more than one fund and it also highlights that calculators are required so that people can build on this information which would include useful information such as Centrelink age pension and other things.
It suggests that the ATO could be a place for these calculators to reside and it will be interesting to see if the ATO is prepared to divert some of its budget to these objectives.
This increase in information will be helpful to consumers however it still cannot touch the basic information that the average person needs to know which is how much will “My Retirement cost ”
Everybody is different in what their retirement will cost and true comfort and security in retirement will not be achieved until you know what your retirement lifestyle will cost you and how much income or cashflow you will get from your assets and any Centrelink age pension benefits.
These initiatives if activated will provoke more interest amongst members about what the ultimate objective of superannuation is and that should be applauded however more research will be required by consumers to ensure they achieve the lifestyle that they desire in retirement

Super Conversations Anne-Marie Corboy HESTA CEO

A great article in Financial Standard 17 November 2014 with retiring CEO from HESTA Anne-Marie Corboy who had been at the helm for 16 years of stunning growth in the fund.

She feels that the media has a “Lopsided Fixation ” with 10% of the members who earn a lot of money or have large balances and not on the 90% where superannuation is making a huge difference and who the SG system was designed for. I couldnt agree more and would include the politicians in that as well.

We see the benefits every day of the great work that superannuation is doing for the rank and file person that it was designed to assist. I have just had a teacher and gardener leave the office and super is a huge and growing part of their retirement plans and the teacher being in the SG system most of her working life is seeing a really strong balance as a result. They have a strong platform to build on and now that the home loan has been paid off life will really become much more secure for them. The combined super balance is 50% of the value of their home and set to explode over the next 10 years to retirement with greater contributions.

Anne-Marie also makes a number of other good points about superannuation benefits for the low income earner and how it really is benefiting their lives for the future.

Superannuation is producing great benefits for individual members and a by product is the economy as a whole benefits from the great pool of savings that can be used within the economy which was never better demonstrated in the early part of the GFC where the banks needed further capital quickly to ensure their financial security and viability and they were able to source it quickly and relatively easily in Australia from the superannuation savings pool.

This is a great article about a quality superannuation executive and lets hope we see more of AnneMarie Corboy in business and/or public life in the future. Volume 12 Number 22 17 November 2014

Orango Tango

Do you have superannuation? Life insurance policies or other investments and don’t see your adviser or know who they are? Contact us and we will help you take control of these important financial assets whilst supporting the Organutan Project.

Contact us regarding your super and we will review it. If we can improve it we will provide detailed recommendations for you. If it is already good then you can leave it as it is and have that comfort whilst having a productive relationship with us.

Super Video

We can do the same for your insurance policies and provided detailed information for you. If you have an adviser that you never see why not give us an opportunity as you cannot be worse off and the Orangutans will benefit.

You might not have a plan as to how you’re your hopes and dreams for a wonderful life works together with your finances. We can prepare a detailed plan for you that will prioritise exactly what it is that you would like to achieve with a time line as to when those things will happen. Wouldn’t you feel better as you cross things of your Bucket list?

Intro Video

If you feel that things are overwhelmed with home loans, school fees, cost of living issues then contact us and put a plan in place for you. It will be the best thing that you did as you take control of your situation. We will help you do that and monitor your progress along the way. . .

Please look at some of the video’s on the website and see what our clients say about our services. We value our long term relationships and would like to work with you for the next 10-15 years to set you up for your ideal lifestyle.

These are all different ways that we can assist you and your family and whilst we are doing that you are also contributing for Orango Tango.

A Woman’s Worth

Our new article relates to a woman’s worth and the practical actions required to improve a woman’s financial security to ensure financial independence.

It is easy to ensure that your superannuation is working hard. Discuss with you planner once a year how it is going. If you don’t have a planner then get one, and OFP are very happy to assist you in that regard. Commit the time and you will be very well served. It is easy to say that the adviser should call you and they should however a good advice relationship has an interactive dynamic. Given a lot of your input the results will reflect what you want not what someone else dictates for you. The current Government is bringing in My Super so that Your Super can be Their super.

Use your time to retirement to grow your assets as time is the most valuable asset you have. Don’t wait until close to retirement to start thinking about it as your greatest asset will be gone. The longer your money is invested the less you need to contribute or the greater the balance you will have.

Allowing for the point above why contribute less ? Contribute more in the early years to build your balance and allow time and compounding interest work their magic for you.

Everything in the future is dependent on your good health and income earning capacity so consider protecting that as part of your plan and you will have all your bases covered.

It is your super, your lifestyle and your retirement. Take some time to set yourself up for life and you will never look back. The sooner you start the better your outcome. It is never too early to start planning. I hope you enjoy the article. Regards Andrew

An article prepared by Infocus Money Management for our the Spring Edition of our magazine Newsfocus.

A Woman’s Worth
Australian women are still markedly financially worse off than men, despite increasing earning capacity, spending power and financial responsibility. It’s a long road to true equality but there are steps you can take now to generate more wealth and protect your future.

On average, women earn less than men. In 2010, it was reported that there was an estimated 17% pay gap between men and women, a difference that equals $224 a week1. Women are also more vulnerable to poverty when it comes to retirement. The average superannuation balance held by women at $92,000 is 40% below the average held by men ($154,000)2. Life insurance is another area where women are more exposed to risk, with research suggesting that significantly fewer women than men take out cover3.

Why is this occurring? How is it that women, who now represent 45% of the Australian workforce4, are under-paid, under-resourced for retirement and under-insured?

The reasons are numerous and complex, and are a cumulative product of decisions, events and experiences over a woman’s life.

Grouping of women and men in occupations and industries is further entrenching the wage gap. Many jobs are considered “women’s jobs” and are not as highly paid. Ingrained attitudes to women in the workforce still exist, creating barriers to senior roles and equal pay. This, coupled with the perception and often reality of women as carers, places restrictions on women’s ability to earn and save over their lifetime.

Although remarkable change has occurred and continues to occur, society still has a long way to go before we fully address the inequality experienced by women. This means that women need to be proactive about growing, managing and protecting their wealth.

The three pillars of a wealth accumulation and protection strategy:

Make your money work hard

If you haven’t already, consider pursuing a long-term investment strategy that makes your money work hard for you. You may choose to invest in capital growth options such as shares, property or anything that may increase in value, or you may want to generate income through rental or investment properties or other income producing investments.

Think about your retirement

Although women have an almost equal presence in the workforce, they typically move in and out of the workplace or take part-time positions due to carer responsibilities. Less time in the workforce means less opportunity to accrue savings and superannuation. With women living longer and earning less than men on average, they are often more financially vulnerable when they retire. Think about the real cost of your lifestyle and consider how much money you will need to retire and how to achieve this figure. Salary sacrifice, personal contributions and a range of other strategies can help you maximise your retirement contributions. These strategies may not suit all women which is why you should discuss your personal situation with a financial adviser.

Protect your wealth

It’s fair to say that women are equally as likely to suffer from injury, illness or death as men – yet nowhere near as many women are choosing to protect what’s important to them with life insurance cover. Life Insurer TAL’s 2011 claims statistics highlight this inadequacy, showing that women only account for 21% of all claims across their insurance products. A 2008 study of the life insurance industry by the Financial Services Council indicates that this figure is consistent across the industry3.

Many women underestimate their contribution to their household and what would happen if they were injured, ill or passed away. If you are a dual income family, your family is partly dependent on your income. If you are the breadwinner, your loss of income could be devastating. If you are a stay-at-home mum, how much would your family need to pay in medical costs, childcare and to maintain your household? If you are working and single, how much would you need to maintain your investments and lifestyle, as well as meet the daily costs of living?

Using a combination of four basic types of cover, you can effectively protect your financial future against these risks:

  1. Income protection insurance to provide a replacement monthly income if you are temporarily sick or injured.
  2. Critical illness insurance to provide a lump sum of cash if you are diagnosed with one of many specified medical conditions, such as cancer, multiple sclerosis and heart attack.
  3. Total and permanent disability insurance to provide a lump sum of cash if you become totally disabled and are unable to work ever again.
  4. Life insurance to provide a lump sum of cash upon death or terminal illness.

Speak to your financial planner

To discuss a tailored wealth accumulation and protection strategy that positions you for the future, speak with Andrew O’Neil from O’Neil Financial Planning. Call our office today on 08 9240 5370

Source: TAL Limited 1. The Impact of a Sustained Gender Pay Gap on the Economy – NATSEM 2. Roy Morgan ‘Superannuation and Wealth Management in Australia’ Report 3. Investment and Financial Services Association (IFSA) survey of Australian life insurance companies, 2008 4. ABS, Cat. 6202.0, Labour Force, Australia, January 2011 Source: Table 02, Labour Force Status by Sex – Seasonally Adjusted This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Infocus Securities Australia Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances. Although we consider the sources for this material reliable, no warranty is given and no liability is accepted for any statement or opinion or for any error or omission. Andrew O’Neil is an Authorised Representative and Adon Nominees Pty Ltd ABN 15 063 402 513 ATF O’Neil Financial Services Trust t/as O’Neil Financial Planning is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523