Grow your super this year

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There are a number of ways you can contribute more to your super, to take advantage of time and the magic of compound interest.

These include salary sacrificing, and a range of tax-deductible, spouse and downsizer contributions, as well as government co-contributions.

What you do right now affects how well you can live in future. So, before you decide to gift your future self, think carefully about the right course for you.

If you’re thinking about making extra contributions towards your retirement, make sure you’re across the super contribution rules.

For instance, if you go over the super contribution limits, additional tax and penalties may apply.

Remember that the value of your investment in super can go up and down. Before making extra contributions, make sure you understand and are comfortable with any potential risks.

The government sets general rules about when you can access your super, which means you typically won’t be able to access your super until you retire. If you’re over 65 and making contributions, you generally need to satisfy work test requirements and be under age 75.

Extra contributions may also affect any rainy day savings you set aside for emergencies, so do your homework before you commit to your future self.

If you’re in a position to engage professional help, you might also talk to a financial adviser about what’s right for you.

The not-so-silly season

Many of the presents we buy for ourselves and loved ones date quickly – that new smartphone isn’t new for long. Increasing retirement contributions may delay gratification but pay dividends down the line.

If you have some years to go before you retire, you may even be able to retire sooner if you increase your contributions now.

That gift of time might be the biggest reward of all.

Source: AMP

Wealth protection

Estate Planning – not just for the wealthy

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Contrary to popular belief, estate planning isn’t just for the wealthy. Estate planning can help your family during a particularly difficult and emotional time. Most people don’t like to think about estate planning. In fact according to studies, almost half of all Australians don’t have a legal will. Yet if you have some assets; such as your home or some nice furniture or collectibles you still need an estate plan, especially if any minor children are involved.

A well-structured estate plan will make things easier for your loved ones by making provisions for supporting your significant other and any other dependent, preserving assets for later generations, and protecting your family’s security and privacy. On the other hand, a poorly constructed estate plan—or no estate plan at all —may lead to a greater taxation obligation and increased costs. Without an estate plan you also run the risk of your assets being disposed of in ways you wouldn’t have necessarily chosen.

The truth is that estate planning is an important consideration for everyone. In short, estate planning encompasses the accumulation, preservation and distribution of an individual’s assets. Its main aim is to enhance and maintain the financial wellbeing of an individual and their respective family – whatever form the family unit may take – during the course of their lifetime and at the time of their passing. For this reason, estate planning ought to be addressed sooner rather than later. Life events, such as the birth of a child, engagement, wedding, or other form of commitment ceremony, are often ideal occasions to begin the process.

Regardless of where you are along life’s journey, or your particular financial circumstances, starting a conversation around estate planning today can help you prepare for unexpected events in the future. For example, estate planning can help you to:

  • Identify and nominate who will take care of any minor
  • Nominate who will manage your assets and financial affairs during your lifetime should you become unable to manage them yourself through illness, injury or physical/mental
  • Ensure that your estate is distributed according to your wishes; to the right people, at the right time, and in the right
  • Minimise the time, taxes and expense associated with settling your estate at the time of your
  • Provide details of the life-sustaining medical care you wish to receive (or not receive).
  • Identify who will make medical decisions on your behalf should you become incapable of making those decisions

The last thing any of us want is to have conflicts within the family. However the reality is that many of us simply fail to have adequate estate planning documents and structures in place. Should an unexpected illness or death of a family member occur, it can have serious ramifications at an already stressful time and lead to conflict and relationship breakdown.

A legal will is just one part of an effective estate plan. Other documents and legal structures that may be relevant (depending on your circumstances) include Powers of Attorney, Trusts, Superannuation Death Benefit Nomination, Appointment of Enduring Guardian, and an Advance Care Directive (also known as a living will).

A further consideration is your retirement savings held within the superannuation environment. The introduction of compulsory superannuation means that every Australian worker now has a significant asset in the form of their superannuation savings that sits outside the confines of their legal will (if they have one).

In almost all situations, these superannuation benefits are held in a trust that is controlled by a third party trustee. This means that these superannuation benefits do not form part of an individual’s estate and as such cannot be determined by the instructions in their will. Many superannuation funds also offer life insurance as a benefit to members, so it’s not just the accumulated retirement savings that are at stake, but possibly a substantial amount of money in life insurance if the member were to die prematurely or unexpectedly. This is where a Superannuation Death Benefit Nomination is essential.

Estate planning is a complex area that requires careful planning and the right advice from qualified professionals. As such, you should always consult with financial advisory and legal professionals who have expertise in estate planning. Effective estate planning can provide you with a great deal of comfort and peace of mind that comes from knowing that your affairs are in order and that the needs of your loved ones will be met long after you’re gone.

To find out more about estate planning and how it can form an effective part of your strategic financial plan, make an appointment to speak to us at Revolution Financial Advisers.

political risks one year on from Brexit

Global political risks one year on from Brexit

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It’s now 12 months since the British voted to leave the European Union, an event that some saw as setting off a domino effect of other European countries looking to do the same. This was also followed by a messy election result in Australia, Donald Trump’s surprise victory in the US presidential election, increasing concern around North Korea, and a steady flow of terrorist attacks. The combination of which seemed to highlight that geopolitics is now more important, and perhaps more threatening, for investors than had previously been the case. But while political developments have figured highly over the last year, the impact on markets has been benign. Since the Brexit vote, global shares are up 22% and Australian shares are up 13%.

Why so little impact?

There are a number of reasons why the impact on investment markets from geopolitical events starting with Brexit – has been short lived or non-existent over the last year or so:

  • Europeans have refused to play along. Brexit was only going to have a significant impact globally if it   triggered a domino effect of countries seeking to exit the Euro, threatening its demise. But there has been no evidence of this with post-Brexit elections in Spain, Austria, the Netherlands and France all seeing dominant support for centrist pro-Europe parties. So Brexit has turned out to be a storm in an English teacup from a global perspective. There are several reasons why European countries have gone in a different direction to the UK: continental Europeans identify far more with “Europe” than the British do; it’s much harder to leave the Euro than just the European Union; people in Eurozone countries like the Euro; Europe generally does not have the same issues with inequality that have driven an anti-establishment backlash in the UK and US; and staying together makes Europeans feel stronger at a time of increased global uncertainty.
  • “Trump the pragmatist” is dominating “Trump the populist”. He has not withdrawn the US into isolationism, there is no trade war with China, he has appeared more focussed on pro-business policies such as deregulation and tax reform than populist policies, and he appears supportive of the Federal Reserve under Janet Yellen.
  • Global growth has improved. This and rising profits has swamped geopolitical worries.
  • Uncertainty over geopolitics has led to easier for longer monetary policy, notably in the US and Europe.
  • And finally, in Australia the Government was returned and the difficulties in the Senate really just mean a continuation of the past, ie; not great, but no disaster.

Where are we now with geopolitical risks?

While the events of the last year highlight the importance of not getting too excited about geopolitical events, they are likely to remain important for investors to keep an eye on. There are several drivers of increasing geopolitical  tensions:

  • First,  a  backlash  against  economic  rationalist  policies  (deregulation,  privatisation  and  globalisation) because of the slow post global financial crisis (GFC) recovery, rising inequality in some countries, and stress around immigration. The danger is that this results in re-regulation, nationalisation, increased taxes and protectionism and other populist responses, which could slow growth and share markets. However, it is  worth noting that this backlash against free market policies is a messy theme. It’s most acute in the US and  UK as this is where inequality is greatest.
  • Politics in the UK has clearly swung to the left. But in the US while Donald Trump has tapped into popular discontent it’s doubtful that his policies (eg, cutting healthcare and corporate tax cuts) will deal with rising inequality and could just set the scene for a more left wing (Bernie Sanders-like) candidate winning the     2020 presidential election. And of course in Europe inequality has been less of an issue as it has always been more to the left anyway. In fact, France appears to be heading in a more rationalist direction.
  • Second, the relative decline of the US is shifting us away from the unipolar world that dominated after    the end of the Cold War  when the US was the global cop and most countries were moving to become    free market democracies. Now we are seeing the rise of China, Russia’s attempt to revisit its Soviet past and efforts by other countries to fill the gap left by the US in various parts of the world create geopolitical tensions – what some have called a multi-polar world. This is evident in increasing tension between Saudi Arabia and Iran, Russia’s intervention in Ukraine, and tensions in the South China Sea.
  • Finally, rogue states seeking to, or getting access to, nuclear weapons and terrorism remain an ongoing threat, notably North Korea in relation to the former and IS in relation to terrorism.

Global geopolitical issues to keep an eye on

German election (September 24) – Chancellor Merkel looks on track to win but if she doesn’t the centre-left Social Democrat Party under new leader Martin Schulz will, and its more pro-Europe than Merkel. Either way the result is likely to be stepped up German support (with France) for Eurozone integration.

Italian election (due by May 2018, but possibly later this year) – Italy remains a risk as support for the

Euro there is weaker and it could cause a new round of break-up fears once its election date is fixed. But the waning of populist support across Europe may have a spill over in Italy. The supposedly Eurosceptic Five Star Movement seems to be wavering a bit in its Euroscepticism. Even if it does win the most seats in parliament, it won’t get a majority and is unlikely to be able to form a coalition government. And even if it did and managed  to move Italy towards an ‘Itexit,’ a market panic would drive Italian bond yields sharply higher forcing a back down. In any case, the risk of a domino-like flow on from an ‘Itexit’ to the rest of the Eurozone looks to be weak given recent European  elections.

Greece – Greece seems to be creeping towards some form of debt forgiveness but this may have to wait until after the German election. In any case, there is no longer a populist Eurosceptic party for the Greeks to turn to.

More broadly, at some point investment markets will presumably tire of fearing each time an election comes up in Europe that there is the risk of some form of Euro exit. This issue has been going on since 2010 and all we have really seen is a progressive move to more Europe, not less.

The US – impeachment risk – The main risk for investors in relation to the US is that the noise around the Trump/FBI/Russia issue distracts the political process to such a degree that Trump’s pro-business agenda  stalls. While the Democrats may find something to impeach Trump on when they get control of the House of Representatives (as seems likely after the November 2018 mid-terms), in the meantime the Republicans are unlikely to impeach Trump. Rather, anticipation of the likely loss of control of Congress after November next year will see Republicans pull together to pass their pro-business agenda. In this regard, note that the Senate is progressing on a health care reform, which is a precursor to tax reform.

The US – shutdown/debt ceiling risk – In September, funding will have to be renewed for the US Government to avoid a shutdown and by early October the debt ceiling will need to be raised again. Both are likely to happen – and as 2013 showed, no side wants to be blamed for a shutdown or debt default.

Terrorism – The impact of terrorism on investment markets has been declining since the 9/11 attacks to the point where recent attacks in Europe have had little impact. While terrorist attacks are horrible from a human perspective most don’t really have much economic impact and, after a while, economies and markets become desensitised to them to a degree.

Iran v Saudi Arabia – Tensions between Shia Iran and Sunni Saudi Arabia are likely to remain but are very unlikely to break out into warfare between the  two.

North Korea – The risk here has risen as its missile tests have increased and within a few years it may have the capability to lob a missile with a nuclear warhead into the US (or Australia). A US missile strike is possible but would risk significant loss of life in Seoul and beyond. So a diplomatic solution aimed at containment is the most likely.

China/US relations – Trade and the South China Sea tensions are the main issues here. So far so good with Trump looking to work through the trade issue with China and cool heads prevailing regarding the South China Sea. How the renegotiation of the North American Free Trade Agreement goes will provide some guide as how Trump is proceeding on trade. But so far it’s been more rational than feared.

Implications  for investors

Based on the experience of the last year around geopolitical risks, there are several implications for investors:

First, turn down the noise. Geopolitical issues create much interest and are great for dinner party conversations, but as we saw over the last year this does not mean they will necessarily have a huge negative impact on investment markets.

Second, it’s hard to quantitatively build geopolitical risks into an investment process. You really have to understand each issue separately.

Finally, the ultra short-term impact of the Brexit and Trump election shocks – with both seeing an initial fall in share markets followed by market strength – highlights the benefit in looking for the opportunities geopolitical shocks throw up.