hewison quarterly jan 14
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HEWISON uARTERLy
Its time to have a think about what’s in store for 2014.
2013 was a positive year for the Australian sharemarket: year-to-date it is up around 12%, however, Gross Domestic Product (GDP) which measures the output and performance of the economy, while still positive, is not as pleasing. year-on-year Australian GDP is currently running at 2.3% which is below trend.
There are, however, grounds for optimism in the year ahead:
• Interest rates are currently at historical lows: Eventually, the savings – which mortgage holders are currently enjoying - will be put back into the economy in the form of spending.
• The Australian dollar has fallen to around 90 cents, a 15% decline from earlier in 2013: A lower dollar helps many Australian companies become more competitive.
• Household wealth is on the increase: For the past few years, Australians have been focused on debt reduction. Combine this with rising asset values from shares and property, and net wealth is growing.
• Confidence has risen: Business and consumer data shows confidence levels are well up from the past few years.
• Property values have stabilised. The property market crash some predicted has not eventuated. With signs of recovery in housing construction and new home approvals, things are looking up.
Mining investment in Australia has peaked and it is now up to non-mining sectors to pick up the slack. For the sharemarket to continue strengthening its rise in 2014, company profits must continue to increase. Providing the above optimism remains, this could well be the case.
For sharemarkets, the main danger is the reaction to a tapering of the uS quantitative easing program: markets are almost certain to react negatively when a tapering program is announced. While an end to tapering would result in less cash in the system to find its way to equities, it should not affect the profitability of quality companies with reliable earnings: if anything it would present a good buying opportunity to investors.
understanding the terms we use
QEconomic update:
What’s in Store for 2014?
Philanthropy
The desire to promote the welfare of others, expressed especially by the generous donation of money to good causes.
Global Macro Global macro, a hedge fund strategy that aims to profit from large economic and political changes in various countries by specialising in bets on interest rates, sovereign bonds and currencies.
Portfolio RebalanceThe process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.
Euro ZoneThe economic region formed by those member countries of the European union that have adopted the euro.
Long-Term GrowthAn investing strategy or concept where a security will appreciate in value for a relatively long period of time, whether or not the growth is initiated immediately or later on. Long-term growth is a relative term, as the investing horizon differs between investing styles, but the perceived appreciation in the security remains the same.
Compounding The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings. Also known as “compound interest”.
Financial news, our views anD other issues
issue 46 ~ January 2014
story by nathan lear, Director/Private client aDviser image by vJeran lisJak
• Economic update
• From the MD’s Desk
• The best blogs of 2013
• HPW charity night
• Hewison private wealth investor insight series 2014
So much has happened in 2013 it is difficult to focus. From January through to December, we saw some interesting market trends, including:
• The RBA official cash rate started the year at 3%, falling to a low of 2.5% in August
• The ASX200 was at 4885 points in the new year climbing to a high of 5441 points in November: an 11.4% increase.
• The Dow Jones Industrial average began at 13,170 points, moving to a high of 16,100 points in November: a rise of 22.25%.
Then there were the significant political events, including:
• On January 20, Prime Minister Julia Gillard announced the Federal election date as September 14, the longest election campaign in history. The election was finally held on September 7th with Kevin Rudd as incumbent PM and a new Government elected.
• In July and October the US Government talks over raising their debt ceiling stalled, bringing the country to the brink of default and failing to pay its public servants. (Well not really – just pollies behaving badly)
Other news events that grabbed our attention throughout the year ranged from the conflicts in the Middle East, asylum-seeker policies and the Essendon drug scandal (sorry Bomber supporters).
Bringing some perspective to all this, are era-defining events like the death of Nelson Mandela, whose gift to the rest of the world will live on indefinitely. His patience, forgiveness and tenacity will continue to provide an example to all of us.
I want to say a big thank you to all our wonderful clients for your patience and support throughout the ups and downs of the markets over the past few years. We are truly delighted that your patience has been rewarded with some excellent returns this year.
I also want to recognise the commitment of the HPW team, whose dedication and belief in the journey we travel is truly remarkable, and who are so dedicated to caring for the well-being of our clients.
I wish you all and your family’s peace, good health and an even more prosperous and successful New year.
From the MD’s Desk
John hewison
Many Australians are familiar with the concept of
giving a bit back to their community, whether it
be donating their time, labour and expertise, or
via financial donations.
When it comes to money, there are three main
ways an individual or family can donate to charity:
1. Donate directly to the chosen charity
2. Donate to a Public Ancillary Fund
3. Establish a Private Ancillary Fund
Donating directly is the way many of us are used
to interacting with the charitable sector.
A Public Ancillary Fund (or PuAF) is an
established foundation to which you can direct
your donation. As the donor, you receive a
tax deduction for your contribution to the
foundation, and then the foundation directs
your donation to charitable organisations. Most
PuAF’s offer the option to choose the areas and
charities you wish to benefit. This option can be
attractive for those not wanting to exert much
control over their gift giving arrangements.
A Private Ancillary Fund (PAF) is a private
foundation to which an individual or family
contributes a significant sum to then use for
donations. The foundation must give the greater
of $11,000 per annum or 4% of its capital
measured at the start of the financial year,
annually. Donors receive a tax deduction for the
amount contributed to the PAF, and the PAF
cannot solicit donations from the wider public.
A PAF has similar investment and governance
rules to a Self-Managed Superannuation
Fund, and must have at least one trustee who
holds a recognised professional position in
the community.
One of the great advantages of a PAF is that
it can provide a family with a formal gift giving
strategy that will have a life in perpetuity.
For those faced with a very large taxable
income in a single year, establishing a PAF and
contributing funds can be a way to formalise a gift
giving program for the longer term, while at the
same time deriving a substantial tax advantage.
Consider the instance where the sale of a
business, with the owner receiving proceeds
of $15 million, of which results in a taxable
capital gain of say $7 million. Doing nothing, and
presuming the top marginal tax rate, the tax bill
would be around $3.25 million.
Alternatively, if that same business owner wanted
to use $5 million of their sale proceeds towards
a long term philanthropic program, they could
establish a PAF and donate the $5 million in the
same year they make the capital gain. Such a
financial resource could provide a minimum gift
of $200,000 per annum, still leaving the capital
intact to growth resulting in larger future gifts.
The tax deductible donation provides the now
former business owner with a lower taxable
income - the tax saving in this example being
around $2.32 million. In addition, they and their
family remain in control of their philanthropic
activity. Involving the next generations in the
foundation operations can be an effective way
to pass on knowledge and control of the family
philanthropic ethos.
Generally we suggest the minimum starting
balance for a PAF should be around $500,000.
This ensures costs do not eat away too much
of the earnings of the fund. However, individual
circumstances can vary and you should seek
appropriate advice.
The Best Blogs of 2013Philanthropy and Private Ancillary Funds
chris morcom, Director/Private client adviser - 14th october 2013
The Reserve Bank of Australia kept interest rates on hold this month at 2.5 per cent.With interest rates at an all-time low the question is; should you fix your home loan rate now or keep it variable? This is an age old argument, mostly because there are pros and cons at both ends.While fixing your rate brings peace of mind (as interest repayments will not vary over time), it can also hurt you financially if interest rates decrease as you aren’t able to take advantage of these savings.
Take the period between 2007 and 2008 when the RBA cash rate was around 7.25% and many feared that rates could hit double digits. If you were to lock in a fixed rate during this period
you would have missed out on considerable interest savings generated by rates falling to 2.5 per cent over the next 5 years.Trying to pick the best time to fix your home loan rate can be fraught with danger as you are essentially betting against the Banks’ economists, who forecast interest rates into the future and use this data to arrive at a fixed rate.In my opinion, keeping your loan variable is the best option as this way you are not locked in and have the added benefit of making additional repayments to your home loan (often with a fixed rate you are prevented from making additional repayments). While a fixed rate will provide certainty, if rates move against you, it can be very costly.
Should I fix my home loan rate?simon curtain, Director/Private client adviser - 5th august 2013
5,000 points passed. Where to from here?nathan lear, Director/Private client adviser - 18th February 2013The two major Australian sharemarket indices, the S&P/ASX 200 and the All Ordinaries, passed 5,000 points late last week. The last time our market traded above 5,000 points was nearly three years ago.
The recent rise of the market has been on the back of strong earnings results from major companies such as Commonwealth Bank, Wesfarmers, CSL to name a few.It’s good to see the market rewarding companies reporting solid results. Especially for the patient long term investors who held onto their quality blue chip companies throughout the Global Financial Crisis (GFC), when the market was pricing them at bargain basement prices. Falling interest rates in Australia are also driving our market higher. Investors are on the hunt for income as interest rates continue falling, so more money is finding its way into high-yielding shares. Another influence on the rise in our market has been the strong performance of the uS Dow Jones Industrial Average, which has recovered
the majority of its losses and is trading a whisker away from the heights it reached in 2007. Where to from here?The Australian market is still trading around 25% below its all-time high reached in 2007. Over the past 5 years our market has priced in the worst case scenario, however as positive company results keep coming through, the market continues to recover value.Global macro risks however don’t seem to go away and continue to be a threat to the market, including the slowing of the Chinese juggernaut, and low growth in the Euro Zone. However, to turn the negatives into positives, yes Chinese investment and the demand for our raw commodities has slowed; however the rise of the Chinese consumer and middle class is changing the landscape and many well-positioned global companies should benefit from this. The Euro Zone hasn’t broken up as initially feared and the ECB is managing the situation with many initiatives. Throw into the mix the continued
recovery of the uS housing market and the global situation isn’t looking anywhere near as bad as it was a couple of years ago.Portfolio Management is KeyAs always, disciplined portfolio management is as important as ever. A well balanced and diversified portfolio is important to manage risk. Regular portfolio rebalancing is paramount to re-weight your portfolio back to its required allocations. The Australian market has recovered around 60% of its value from its low point in 2009, therefore investors who continued investing throughout the GFC should have recovered a good portion of their losses by buying low, and making healthy gains on many of their individual stock positions. It’s still as important as ever to be diligent, lock in profits and take some exposure off the table in positions that are excessive relative to the rest of your portfolio.
Do you want to be a millionaire?
andrew hewison, Director/Private client adviser - 16th august 2013
To be a “millionaire” would be the dream of
every aspiring Gordon Gekko (reference:
Wall Street, 1987) around the world. To many,
it’s nothing but a pipe dream. Or is it?
What could $1 million do for you?
· It could replace around $75,000 per annum
of income (a portfolio of quality, fully franked
shares should do it), which to some might
mean they no longer have to work
· Average long-term capital growth of around
9% would see your investment grow by
$90,000 in year one, but if left to grow
year on year, your investment will reap the
rewards of compounding
The Eighth Wonder of the World:
Compounding
you may have heard the statement “The second
million is easier to make than the first”. This is
due to power of compounding. A 9% return on
your $1m equals $1,090,000. A 9% return on
your $1,090,000 equals $1,188,100. Following
this trend, your investment will be worth $2m in
eight years.
But how do you get to your first million?
The Path to “Millionaire” Status -
This is not a get rich quick scheme, but following
a long term savings and investment plan, even the
average Australian can become a millionaire.
Here are some points to help you get there::
- Save $100 per week, or $5,200 per annum.
- Contribute the savings into an investment
portfolio of quality Australian shares.
- The long term average return of the
ASX is around 12% p.a , but let’s assume a
conservative return of 9% p.a.
All things being equal, in 32 years’ time, you will
be a millionaire!
Of course, the earlier you start saving and
investing, the sooner you can become a
millionaire. For example, a 20 year old could
become a millionaire at 52, a 25 year old at 57
and so on.
The key to this strategy is time. There is no
substitute. Chasing higher returns through greater
risk may thwart the strategy. This is not to say
you cannot invest wiser, but beware of the risks.
Consider saving more: By contributing $1,000
per month to your investment, assuming all else
remains constant, your timeframe reduces from
32 years to 24 years. Therefore, a 40 year old
could still become a millionaire at 64.
If you already have some money saved, you
can shave years of your goal. using our original
example, starting off with savings of $25,000
could allow our 20 year old to reach their goal at
age 48, as opposed to age 52. Likewise, a 40 year
old with savings of $50,000, could reach their goal
in 19 years, aged 60.
The Take Outs -
1. From an investment perspective,
“compounding” is your new best friend
2. There is no substitute for time. Start now: it’s
never too late to become a millionaire!
3. Don’t be in a hurry: you will get there. Make
calculated investments, not silly risks
4. The more you can save, the sooner you will
reach your goal (give up a few coffees now and
buy a beanery later)
The information contained in this publication is general in nature and not intended as personal advice. Please obtain advice from
your financial planner before acting upon this information.
HPW charity night Hewison Private Wealth investor insight series 2014
It’s a boy!
Level 4, 102 Albert Road, South Melbourne VIC 3205P (03) 9682 1900 | F (03) 9682 5999
[email protected] | www.hewison.com.au
It gave us great pleasure to host the annual Hewison Charity Trivia Evening in October. For the second year running The Espy Hotel, located on the picturesque St Kilda esplanade, graciously donated their grand The Gershwin Room for the evening.
As per usual, the night provided many laughs, uncovered some hidden karaoke talent and of course crowned the trivia masters for 2013.
For the third year now, Hewison Private Wealth were honoured to direct all money raised to The St Kilda Sacred Heart Mission,
a not for profit organisation assisting the homeless and underprivileged. All of the supporters of the night came together to raise $5,150 for Sacred Heart.
Huge thanks must go out to the tireless organisers Rosanna Centofanti and Bridget Blackmore.
We look forward to equally successful event in 2014.
Denise Poole and her husband Ben welcomed their third child, a boy, on Sunday night 6th October 2013. William Blake Poole, weighing
8lbs 11oz. Both mum and bub are doing well. Congratulations!
We kick off the year on the 11th of February 2014, with our first forum featuring Managing Director John Hewison “Top 10 Investment Do’s and Don’ts”. Over 30 years of successful investment management, John Hewison has pretty much seen it all and has learnt plenty of lessons along the way. At this session, John shares his top 10 Do’s and Don’ts in being a successful investor.