All Ords Report 31 March 2015
These days we want more control over our super, not less, however it appears that the time for Australians to have full control over where our money is invested may be coming to an end. And when governments start messing with super, you are right to be concerned.
For a long time, I have said that it was just a matter of time before governments would tinker further with our super, and there is talk at the moment that with the release of the next Federal budget, we will see more changes to superannuation legislation. We all know how in the past superannuation has been a very politically sensitive issue for governments to tackle, and I believe that future elections will be fought over this very issue.
The problem I see is not just that every time we have a new government they change the rules, itís that rules seem to change to suit the political and economic agenda of the time, and we have to ask, is doing this really in the best long term interests of our country? So perhaps itís time for the system to be changed to prevent our super from being tied to the current political agenda?
All of the reasons for governments to justify change, such as, Australia has an aging population, and many Australians are unlikely to have sufficient funds to support themselves in retirement, we have known about for decades, and they still havenít, in my opinion, properly addressed the issues. There are, and will be, a lot of people dependent on a government pension for a long time to come. This is not surprising as many were told by governments past, when they were working, not to worry about saving hard for their retirement, as they would be looked after with a pension.
So what is being done to correct this? Not enough in my view. Many Australians need assistance to learn how to plan for their own retirement, which means investing inside and outside of super. Even small amounts invested over time can make a significant difference to a personís retirement savings.
Further to this, you will be aware that the Federal government has pledged to continue to cut spending so as to reduce Australiaís daily interest bill. However, they have acknowledged the call by big business for a plan that requires governments to spend on infrastructure to create jobs growth. So, with the budget shrinking, where will the money come from?
Australian superannuation is like low hanging fruit, and therefore itís only a matter of time before the government tries to set a mandate over our super, Self-Managed Super Funds (SMSFs) may be included. This would give the government access to vast amounts of cash. A mandate is likely to stipulate that a certain percentage of your superannuation funds must be invested in government infrastructure bonds to fund Australian infrastructure projects.
If you have been thinking about setting up a Self-Managed Super Fund for yourself, or for the whole family, find out how here.
Now, I for one do not want to be told by the government where my super money is to be invested, and chances are, you wouldnít be happy about it either, particularly if you have a SMSF, which you entered into so that you could decide exactly where your money goes. A lot of people invest in shares directly through their SMSF.
Remember that typically government bonds will pay a low rate of return, so you may be lucky to get around 4 per cent. While this is currently better than bank interest, over the long term the return is likely to be as little as half of what you might expect in growth assets, like shares.
Based on conversations I have had with many Australians, I believe that a lot of people would object to the government setting a mandate over their super. This may be lessened if we were given a choice to Ďopt-outí. Remember that once a mandate is set governments can always decide to increase our level of investment in the bonds.
So what do we expect in the market?
At the start of last week it was business as usual on the Australian market, however, overseas markets took a dive on Wednesday night and the Australian market followed suit, losing around 87 points on Thursday to close at around 5850 points. Given the strength of the fall, it was likely that the decline would continue on Friday. Looking back, although some stocks did continue to fall, the market as a whole regained some of the lost ground to close at around 5889 points.
When you look at the rise so far this year, the fall into the close last week doesnít look much on the chart. This is why it is important as an investor or trader to consider the bigger picture when you hear about the day to day moves on the market.
Also, remember that around this time of year, after the excitement of reporting season in Australia has started to fade, the attention of the market players turns back overseas, and of course, to potential political and economic headwinds locally. The Federal budget will be released in May and therefore, volatility on the market may increase during that time.
The US marketís decline came to an end last week as the market digested news that the US economy grew at a slower pace than expected. Last night, European and US markets were up on reports that China may be about to apply an economic stimulus to the Chinese economy.
As you will be aware, after having read my prior reports, whilst I maintain my bullish stance on the market based on the bigger picture analysis, I would still like to see the market settle a little lower, sooner rather than later, before a rise towards the target zone for the year, between 6200 and 6400 points.
Remember too, that my analysis indicated that the market would settle down and pull back for a couple of weeks in March, instead it has traded down and then sideways over the past four weeks. As an investor, you are probably happy to see it hold. If the fall is over, the decline has been shorter and sharper than my analysis originally indicated.
The market will do what itís going to do, and whether you are a trader, or an investor, you simply ought to be ready for the best case, and also plan for the worst, which is what you will learn when you are ready to study our Short Course, or the Diploma of Share Trading and Investment.
If there is something stopping you from trading, you may enjoy listening to my Podcast ďWhatís one thing stopping you from trading?Ē
Dale Gillham is Chief Analyst at Wealth Within