What if you only invested at market peaks?

Have you ever noticed that as soon as you buy an investment it tends to drop in value? Whilst this doesn’t really always happen, it just tends to be the investments we remember, what if it did happen? Even worse, what if it dropped by epic proportions?

Meet Tim who is the worst market timer that has ever existed. What follows is Tim’s tale of terrible timing of his stock purchases.

Tim, fresh out of school, begins his career in 1970 at age 18. He understands the importance of investing and saving for the future and therefore decides to start allocating $2,000 per year into a savings account. It’s now the end of 1972 and he has saved up $6,000. Into the stock market it goes. Unfortunately for Tim, after watching the stock market go up and up over the last two years, over the next two years it drops 48%. Tim loses a bit of confidence in the market and while he doesn’t sell, he continues to save up his money in a bank account waiting for things to improve.

15 years later and Tim decides that now is the right time to put more money into the market. It has been going up for years and he sees no reason why it won’t continue. He invests his entire $46,000 into the market. After a small decrease the market then drops suddenly on the 19th of October dropping a whopping 27% in one day. Tim’s had enough, no more putting money into the market. He leaves what is already in there as what’s the point in selling now and goes back to saving in his bank account.

After ignoring the market for 12 more years Tim can’t avoid people talking about the internet. Everyone is making money from the internet. Unfortunately Tim knows very little about the internet but the media informs him that there are plenty of companies on the stock market that do. He takes his $68,000 that he has in the bank and jumps in but this time decides to not even look at the market for the next two years. 2 years later he checks his investment and it have once again decreased by 50%.

It’s 2007 and Tim is now 55. He’s looking to retire in 2013 and decides he’s going to have one last dig at this share market thing. He’s managed to save up $64,000 and into the market it goes. Little does Tim know that once again he’s picked a terrible time to invest, the GFC is about to commence with losses of over 50%.

That’s it, no more investing for Tim…..ever! Once again he leaves the funds in the market but saves up another $40,000 in cash before he retires. So what did he end up with at retirement?

Over his working life Tim has managed to invest $184,000 saving an additional $40,000 over the last few years in cash giving a total investment amount of $224,000. Sure he picked the absolute worst times to invest including the bear market in the early 70’s, the infamous one day crash in 87, the technology bust in 2000 and the GFC in 2007. But he never went back on his investment decisions; he never sold any investments.

Tim ended up with a total retirement balance of $1.1 million. While Tim was a terrible market timer, he was a good investor. He saved a regular amount on a regular basis no matter what. He didn’t panic when the market went down and sold his investment. Instead he maintained his investments until he needed the money. Finally, he invested for the long term and even though he pretty much picked the top of the market each time to put the money in, over time the market continued to go up in value, even if he had to wait a little while after the big falls for it to recover, it always did recover and then go on to meet a new high.

We are not recommending anyone follow Tim’s strategy. He didn’t include diversification in his investment product options and if he would have implemented a dollar cost averaging strategy where he contributed his savings amount each year no matter what, he would have ended up with over twice as much.

This is based on a study in the US, given US market investments however Australian markets felt the same crashes and still illustrates the importance of standing strong with your investment decisions. Time in the market is more important than timing the market.

So what can we take out of Tim’s fictional experience?

1.    Losses happen and are part of the deal when investing in the share market. It’s how you react to those losses that will determine your investment performance over time.
2.    Invest for the long term and let compound interest work for you.
3.    The biggest factors when determining growing your wealth are time, and savings amount. The effect of the actual returns the investments generate on your portfolio pale in comparison to how much money you contribute and how long you invest. Get these two things right, and the rest will follow.

If you are thinking about investing or want to learn more about how you can start your investment portfolio, contact one of the advisers at JBS.

I am a Member of the Ithacan Philanthropic Society. This club has played an important role in the lives of my ancestors and distant relatives from the moment The Club was established in 1916 and continues to do so today. This year The Club celebrates a milestone. The Club is turning 100 years old in October. This makes The Club the oldest Greek Club of its kind in Australia.

Ithaca is a Greek Island in the Ionian Sea. To gain membership to The Club you must either be from Ithaca or a direct descendant of someone who was born there. I fall into the latter category. Both of my paternal sets of Great Grandparents migrated to Melbourne from Ithaca in the early 1920s.

Moving out here back then would have been incredibly difficult, leaving everything and everyone you knew behind and never returning. The sacrifices that my Great Grandparents gladly made to fit into British Australian society are actions that I greatly admire. In a lot of ways to become British Australian my family ‘let go’ of our Greek roots. Both of my Great Grandfathers decided to Anglicise their surnames. My surname used to be Lekatsas, my Granny’s Maiden name is Scott, this used to Siciotis. This was a common practice with migrants who came here in the early part of last century. So it must have been a great comfort to have The Club in Melbourne, being able to speak Greek with people who were familiar.

Every year The Club holds special social events for members and their families, starting the year with a picnic (as pictured) and ending with a Christmas Party at The Club’s headquarters ‘Ithaca House’ on Elizabeth Street in the City. These social events have helped to create a tight knit sense of community amongst the members and their families.

One of the main goals of establishing The Club was to provide financial aid to loved ones back on Ithaca, as the tiny Island was hit hard during World War 1. The philanthropic aid has continued through to today, now The Club supports children’s soccer clubs on Ithaca and philanthropic causes closer to home. Every year The Club proudly gathers for an event to raise funds for The RHC Good Friday Appeal in Melbourne, you might even see them presenting a cheque on TV! The Club and its Members are very proud of this aspect of the club. Many members will donate funds to the club in honour of loved ones.

I am proud of what the Club has achieved over the last 100 years and how The Club has contributed to the Melbourne Community and the Ithacan Community. I am proud of the way The Club created a sense of community for Migrants and their Australian born descendants. Today The Club is a connection to our heritage, a legacy of hard work and Philanthropy.

In our last CPE article we talked about the recent changes the government has made to the previously proposed non-concessional contribution life-time cap of $500,000.  To re-cap, the Government has back tracked on this proposal and has instead changed it to an annual cap of $100,000, with the ability to bring-forward 3 years’ worth of contributions from 1 July 2017. Your super balance must also be below $1.6 million to be able to make the contributions.

Since then the government has provided further direction on how the proposed bring forward rule and the $1.6 million cap will work.

Under current rules you can make a total of $180,000 in one year or $540,000 if you bring-forward 3 years’ worth of contributions. If you as an individual have triggered the bring-forward rule in FY16 and FY17, but you have not used it fully by 30 June 2017, transitional rules will apply.

If you trigger the bring-forward provisions in FY17, the transitional cap will be $380,000 (which is the current $180,000 cap plus the new $100,000 annual cap for FY18 and FY19). If you triggered the bring-forward rule in FY16, the transitional cap is $460,000 (current annual cap of $180,000 for FY16 and FY17, plus the $100,000 for FY18).

The below table provides an example of how this may work in specific situations, with example one and two outlining how the $380,000 bring-forward cap may work, and example three highlighting how the $460,000 cap works with the example contributions:

In relation to the $1.6 million eligibility threshold, you are unable to make further non-concessional contributions if your super account is above $1.6 million.  Your balance will be determined as at the 30th of June in the previous financial year.  If your balance is close to $1.6 million, you can only make a contribution or use the bring-forward rule to bring your balance up to $1.6 million without going over, this is summarised below.

As always these measures are not yet legislated and therefore could change yet again.  The draft legislation is expected in the next few weeks.

If you have made any non-concessional contributions in the previous three financial years and are concerned how this may affect you and your future contributions, feel free to contact any of the team here at JBS.

Last week, the Government made further announcements in relation to proposed changes to the superannuation system. From Budget night, we had a list of changes that they sort to bring in, however, after industry and community consultation, the Government have made changes to these proposed changes….confused yet?

Ok, well some of the main changes include:

–  The $500,000 lifetime cap on Non-Concessional (NCC) (after tax) Contributions has effectively been scrapped.

–  The $100,000 annual cap replaces the existing $180,000 annual cap for Non-Concessional (after tax) Contributions from 1 July 2017

–  The bring forward rules still apply, so an individual under age 65 can contribute up to $300,000 over a 3-year period

–  The current work test rules still apply for those over 65. This means they cannot contribute, unless working at least 40 hours in a 30 consecutive day period. The removal of the work test proposal has been scrapped until future notice

–  It is expected that the current $180,000 NCC cap still applies until 30 June 2017, meaning that you can trigger a bring forward provision in the current financial year and be able to contribute a maximum of $540,000 over the three (3) financial year period

–  From 1 July 2017, those with a superannuation balance of more than $1.6 million will not be able to make non-concessional (after tax) contributions to their super

–  The 5 year catch-up concessional contribution proposal, that would see those with a balance less than $500,000 able to access their unused concessional contribution cap to make additional before tax contributions to super, has been delayed until 1 July 2018.

The ultimate aim of the Government’s changes are two fold; (1) to avoid superannuation being used as an estate planning vehicle where people are saving their wealth in a tax free environment to pass to children rather than for retirement funding, and (2) to strengthen the idea of superannuation being a mechanism to provide an income in retirement, which includes supplementing the Age Pension.

We must note again, however, these proposals are not legislation and therefore could again change before they are enshrined into our super system, however it can assist us to forward plan your contributions and superannuation options better by providing a strong indication of what the Government is wanting to achieve.

If you are considering any large contributions to super or would like to discuss your personal situation and what these changes could mean for you, please contact us here at JBS.

Whenever you start anything new there is always a little bit of anxiety that comes with it.  For me, my new beginning was joining the JBS team in early July.  I’ve been in this industry for over 12 years. I know how to do my job, what could I possibly be worried about?

I was fortunate enough to be able to choose when I left my previous position before coming to JBS which meant that I had 4 ½ weeks for some doubts to build in my mind.  Had I done the right thing? Would I be able to handle the work? Would I fit in with the team? How are their processes different to my own?  As a father of 2 and a wife on maternity leave, it was imperative that I had made the right decision not just for myself but also for them as they were and will continue to rely on me.

A few days before I was due to commence work at JBS, we celebrated my daughter’s 3rd birthday. A big Frozen fan, after her Frozen themed party on the Saturday, we took her to Disney on Ice on the Tuesday. It was her first time and to see the joy on her face as she watched her favourite life-sized Disney Princesses and other characters skate around in front of her put things in perspective. The skaters were professionals, like myself they had been doing the same thing for years honing their skills. Their ‘work’ became 2nd nature, they could do the routine with their eyes shut. What was I even worried about?

The first thing that happens when you join a new company is they introduce you to everybody else in the firm. So I’m greeted by a bunch of smiling faces who all tell me their name and within 30 seconds I’ve forgotten most of them. That’s alright, I’ve done this before, I’ll simply draw up a seating map of the office and whenever I hear anyone’s name I’ll simply write their name on the map at the place they sit. Problem solved.

The next thing that happens is they teach you the software. I’d used plenty of financial planning software programs before (including the JBS one years ago) so everything made sense and was easy to follow. Coincidently, after 2 days it just so happened to be our end of financial year drinks. So my first week in the job consisted of meeting new people, running through the software and eating a parma and chips while drinking beer and chatting about everything and anything. I was lucky in that this social environment allowed me to talk to everyone at the firm and get to know all about them, learn what their interests were, understand how they think, and after a few drinks find out what they really think of JBS. One thing that stood out to me was the fact that the staff have all been here for a long time. The firm had a low turnover of staff, a great thing to hear. The staff are all happy and it’s a great place to work.

Week 2 and the real work began. Working with the other guys in my team, Glenn & Andy, has been great. Glenn has the skill of being able to trust those around him. If he asks you to do something, he trusts you’ll be able to do it and do it well. This gives you a sense of worth, makes you feel valued and gives you a sense of responsibility. I am being trusted to complete this task. Not everyone is like this. There is nothing worse than being asked a question, providing an answer, and then the person ignores your answer and asks someone else. If you weren’t going to listen to me, why did you bother asking me in the first place?

Andy is great in that he is always ready to drop what he is doing and help you out. If I’m struggling with some abnormality in the software, or I need some client data that I can’t find, he’s always happy to help, smiling the whole time. He’s also the first to throw you under the bus if the Friday lunch order isn’t correct even though he didn’t order anything himself.

It’s now been two months, and I’ve been able to settle in nicely with the team at JBS. They are a great bunch of people always willing to help with anything. I have even been able to pick up some good Pokémon Go tips that I can use with my daughter, and with plenty of banter flying round the office, I feel very comfortable as part of the JBS team. New beginnings can be daunting, it’s the fear of the unknown that worries us all. However worry about what you can control, prepare yourself as best you can, and with the right attitude there is no need to be afraid of the dark.

Ever get yourself in a financial spot of trouble and thought about taking money out of super to help? Well, generally speaking you can’t unless you’re retired but there are some limited instances where you can. They are limited to severe situations and you can’t just access the cash because you need a new car or the kitchen appliances need to be replaced.

There are two ‘conditions of release’ (technical term for eligibility criteria to be able to access your super) for members to utilise under extenuating circumstances prior to retirement.

Severe Financial Hardship:
The first condition of release is Severe Financial Hardship. The rules around this condition of release vary depending on whether the member has reached their preservation age.

If the member has met the preservation age plus 39 weeks then they need to supply a letter from a government department showing the following:

•   At least 39 weeks of Government income support (like Newstart allowance) from the date the member met preservation age.
•   The member was not gainfully employed on any level on the date of the severe financial hardship application, and;
•   Evidence that the member cannot meet any reasonable and immediate living expenses; like you have missed your mortgage payments, can’t pay your electricity bill, however missing your repayment on your Ferrari won’t cut it.

If the client is younger than preservation age then the government department letter must show at least 26 weeks of government income support and evidence the member cannot meet their living expenses.

The amount that will be released also depends on whether the member has met their preservation age. The member can take their full balance if they meet the above criteria and are over their preservation age. If the member is under, then they can only withdraw between $1,000 and $10,000 in any 12 month period.

Compassionate Grounds:
The second condition of release is called Compassionate Grounds. Applications for this condition of release must be submitted to the Department of Health Services, as this condition applies to health related issues. SIS Reg 6.19A outlines what expenses they will release funds for:

•    Medical Treatment or transport;
•    To prevent bank foreclosure or sale of the member’s principle residence;
•    To Modify the members principle residence or vehicle to accommodate a disability; or
•    The pay for palliative care, death, funeral and burial expenses.

The member will need to supply evidence of these expenses to the Department of Health Services before a decision will be made. If the department comes back with a favourable outcome they will supply a letter for the trustee of the super fund stating how much can be withdrawn from the members account.

The member can apply for more than one of the above expenses at once. They will need to submit separate applications to the Department of Health Services with evidence of each expense.

These conditions are only available to members who are facing extreme circumstances.

So effectively, you have to almost be in dire straits (and I don’t mean the British rock band from the 80’s) to access super before retirement. Be warry of some providers that have touted that they can assist you to access your super early as these schemes are illegal and have been shut down in the past by ASIC however not until some clients have implemented the strategies and got themselves in trouble as trustees of their own super. Best way to look at super is that it is 100% a retirement savings plan and not an emergency or backup fund. If you’re concerned about your future and any road-bumps you may hit along the way, you may want to consider taking out insurances such as income protection or trauma cover so not to be disappointed when you cannot access your super for minor or short term issues.

If you have any concerns about your super or you want to look at personal insurances, why not give JBS a call to discuss your options.

Attention small business owners – What happens to your business debts if something was to happen to you??

Most businesses, in order to start or expand will have organised one or more loans. More often than not, because these loans are of substantial amounts, they require a personal guarantee.

A personal guarantee means that the loan is secured against personal assets, most commonly your home. These ‘guarantees’ are not extinguished until the loan is repaid in full or revoked by the bank or creditor. In the sudden event of death, the guarantees and loans do not die too! Repayment or renegotiation is a critical financial issue that is inherited by other guarantors or your family.

Appropriate Key Person Insurance, Business Succession Planning & Guarantor Protection Business Insurance can help remove this

Margaret’s Story:-
As Margaret and her two young children said their farewells to their husband and father on the day of his funeral, they did not realise that their pain and suffering was about to get worse.

Nathan was tragically killed in a car accident driving home one day after work. He had worked hard to build his business to the point where it provided a financially stable environment for his family.

As with many businesses, Nathan took out significant loan and gave personal guarantees without realising the full ramifications of what those guarantees meant.

Nathan’s business debts did not disappear with his death, as many people think will be the case. His estate became liable for his loan. As a consequence, Margaret was left with insufficient funds to discharge the liability and was forced to sell personal assets and the family home to meet his liability.

Had Nathan taken out personal guarantor protection insurance he could have provided the financial security for his family that he intended.

If you are a small business owner and would like to discuss in more detail, please contact the team at JBS.

Are you coming up to retirement? During the December 2015 quarter, the Association of Superannuation Funds of Australia (ASFA) issued new figures, which showed an increase in the costs of retirement. The average cost of retirement for people retiring at age 65 is approximately $59,236 per annum for couples and $43,184 for singles for a ‘comfortable standard of living’, both up 0.5% from the previous quarter.

So then the question is raised, how much money do you need when you retire? It seems to be the age old question. Based on the figures released by ASFA, an average single retiree would require approximately $545,000 in super benefits in order to fund their retirement and couples would require around $645,000. But what do all these numbers mean to you and your retirement? Well, really all these numbers are just that, ‘numbers’. It’s important to understand that a comfortable lifestyle for one person may not be the same for the next.  Some retirees may require $100,000 per annum to live comfortably and others may only require $30,000.  One thing that is certain however is thecost of living will go up in the future and more importantly you will have to prepare for it.

Instead of worrying about the large sums of money required to retire on, it’s more important to have an understanding of the level of income you require once you’ve retired and work out from there how much you require in order to retire comfortably, taking into account your assets and other entitlements such as the Age Pension. A good starting point to determining how much you’ll need is to take into account your current living expenses. A common mistake here is most people will use the “off the top of my head” figures to determine expected living expenses. The issue with that is, often we under and over estimate expenses, which leads to very misleading results.

At JBS, we use technology to assist us to determine the exact expenses of our clients. This results in both efficiency as clients’ spend less time having to deal with their budgets and at the same time we attain very accurate information on our client’s actual living expenses. Once you’ve determined your living expenses, the next step is to review whether certain expenditures you’re paying today will still be payable once you’ve retired. Often these expenditures include your mortgage repayments, which we all want repaid as soon as possible, and work related expenses, such as commuting costs. Once retired, there’ll be of course no need to pay the tax man for income generated from employment and savings you’ve been putting away each month for retirement will also cease. It’s important that we capture all these points in order to get an accurate figure of your expected retirement expenses.

Take this example for instance.  Say you’re a 45 year old male, you’ve done your sums and calculated you’ll require $40,000 per annum in retirement. How do you then determine the following?

–   How much do you require to put into super each year to meet your retirement goals?
–   Will your super benefits be enough to fund your retirement expenses until your life expectancy?

–   When is your life expectancy?

–   How often should you review your retirement benefits to ensure you’re on track to meeting your goals?

From what you’ve read so far, we’d imagine you’re beginning to understand the complexity in determining how much you require to retire on.  The main point we wish to highlight is that you need to take time and be realistic with your budgeted retirement expenses. Know what your money goes on now (before your retire) so you can determine if you will spend the same in retirement. Doing all this yourself can become very complex and seeking professional advice is the best way to get an accurate estimate.  Having a professional on your side means there’s someone there to assist you in achieving your retirement goals by implementing different strategies to suit your needs. And more than anything, you don’t have to worry about your retirement as you’ve outsourced that!

“It’s ok I have insurance cover through my super” is a popular response I get when talking to friends and family about the need for personal insurance cover. It’s true that most of us do in fact have personal insurance cover through our super funds, however have you ever taken a closer look at what you actually have?

Quite often, the default cover provided by industry super funds has absolutely no correlation with your needs and only provides minimal cover. Let’s take a look at Death / TPD and Income Protection a bit closer as these 2 types of insurance covers are the most common types of insurance policies offered by Industry super funds.

Income Protection
With income protection you’ll most likely find the automatic cover may have long waiting periods, up to 90 days (3months), which means claim benefits will not be paid until the end of the waiting period. The question you have to ask yourself is this, “can I sustain my living expenses for 3 months without an income?” If the answer is no then you really have to wonder whether the default cover through super is sufficient. Furthermore benefit periods on default covers are usually 2 years, which means in the event of a successful claim, you’ll only receive benefits for maximum 2 years. After this point the claim benefits will cease, which won’t do much good if you’re suffering from long term injury or illness.

In addition, as the money has to pass through your superannuation account, the benefits are basic in nature to ensure that it meets the strict rules on releasing money from superannuation, particularly when preservation age or retirement requirements have not been met. This may mean that you are unable to work but may not qualify for a claim.

Death and TPD
Depending on your age you may also have default Death and TPD cover. Great! This means your family is covered in the event of your death and or total disablement, right? Well, let’s take a look at the details. For example, if a 28 year old male was to open a new industry super fund, he may be entitled to approximately $150,000 – $290,000 of death and TPD cover. The amount of cover depends on his age and which industry super fund he is with. Even if we took the best case scenario and presume he receives the full $290,000 of default death and TPD cover, it still won’t do much good considering the average Australian Mortgage is now around $450,000. So if you’re the main income earner, how’s your family going to fund the outstanding loan along with the ongoing everyday living costs?

Furthermore it is very common for industry funds to have reducing cover policies. This means that as you age, the level of cover reduces, leaving you with minimal insurance cover when you need it most, which is usually in your later years.

Another important factor to point out is industry super funds do not offer full range of personal insurance cover. Trauma insurance which provides a lump sum payment in the event of serious injury or illness is not offered through your industry super fund. This is especially important to cover any out of pocket medical expenses, which are not covered through Medicare or your private health cover.

Here at JBS we often find new client’s misunderstanding what insurance covers they have through their super funds. It is then our focus to ensure our clients understand what insurance they have through their super fund, whether they are in fact the correct types of insurance they require and determine the correct levels of insurance to implement.

Personal insurance can become very complicated and needs to be looked at in depth. Aside from determining the correct types and levels of insurance cover, there are also other factors to consider such as determining the premium structure on the insurance cover. If you haven’t had a review of your insurance needs or it’s been a while since your last review, we encourage you to get in contact with us for a chat.

Voters in England have spoken and voted in favour of Brexit, which means Britain is exiting from the European Union. In the coming months, British and European leaders will begin negotiating the terms of Britain’s departure which can take up to two years to finalise.

Britain’s exit will affect their economy, trade, immigration policy, and lots more and will take years for the full consequences to become clear.

Prime Minister’s Resignation
Through pressure from within his own party, British Prime Minister David Cameron promised to hold a referendum on leaving the EU as a result of the conservative party winning the 2015 election. Cameron didn’t want to hold the vote at all however true to his word, it was held and he campaigned the “Remain” vote however let members of his own party to campaign for “Brexit”.

When the Brexit vote won, Cameron resigned as his views were in contrast to the British people. It is unsure what will occur now with the Prime Ministership; who will take the role or if the Conservative party will even remain as is or splinter due to the separation in its own party on the Brexit issue.

Immigration
Being part of the EU means that anyone living in an EU country can travel and live freely in any other EU country, and this will now change. While they could negotiate the same or similar terms, it seems that this was a contentious issue that possibly contributed to the Brexit vote winning. At present, it is estimated that around 1.2 million Brits live in other EU countries while there are around 3 million non-Brits that have legally moved to Britain as part of the EU rules.

The Economy
Brexit means uncertainty with Britain’s largest trade partner; the European Union. Shockwaves were felt in global markets, with around $2 trillion wiped off the world markets. The London stock markets finished down 3.1% and in Australian markets, the ASX200 finished 3.2% down.  The pound also saw a significant drop.

Some say the decision caught markets by surprise as it was expected that Britain would remain part of the EU. In any event, the decision has been made and the initial reactions have been felt, which was representative in the markets on Friday. We will now see more informed decisions with market movements.

Since more than half of UK trade is with the EU, they will be taking the next two years to negotiate heavily to seek favourable trade options, like their neighbours in Norway and Switzerland (not part of the EU) have successfully done themselves. This means we won’t see the full ramifications to markets for years to come.

While volatility is expected to continue for at least the week, it is the impact on investor sentiment that will determine longer market volatility. At present, Australia has relatively low trade with the UK and the European Union so we will be hit more by the fallout of the world digesting the ramifications of Brexit.

Investing in a diversified portfolio across investment types, portfolio sectors and even markets assists to limit short term volatility like we’ve seen from the fallout of Brexit.

If you’re concerned about your portfolio or other investments, please do not hesitate contact your adviser at JBS for a chat. Please also see our Monday Markets newsletter for additional detail on the affect on our Markets including a video summary.