New years resolutions

Published in the Weekend Australian Financial Review, December 2010 by David Potts

These financial experts have many and varied plans for 2011, but some reveal that they are refreshingly normal, even a bit disorganised, when it comes to managing their own finances.

Judging by their new year’s resolutions, even the best financial minds can finish up juggling their money.

They’re not likely to be giving up their day jobs while they have to fund soaring education expenses, and the challenge for next year will be how to make the most of the stronger dollar.

Offshore property is on their radar – rather than international equities or commodities.

They’re generally cashed up, preferring to save in online accounts or through an offset account if they have a mortgage.

They see the sharemarket’s recovery in terms of years rather than months and, despite high prices, there’s a surprising preference for residential property investments, including offshore to take advantage of lower prices and the stronger dollar.

They’re happy to run down some of their cash and are even planning to gear.

None of those surveyed by The Australian Financial Review will rely exclusively on super for their retirement.

Craig James, Chief equities economist , CommSec

Leading economic and markets commentator Craig James’s new year’s resolution is to heed the lesson of 2010, when economists misread the Reserve Bank on interest rates and the sharemarket was all over the place.

“Trust your own instincts and don’t go with the crowd,” is as much a resolution as good advice.

“If all the crowd are going one way, I have to worry about whether it’s right, and not just on interest rates but also shares,” he says. “The herd can be wrong.”

But “getting on top of our true financial situation”, is next year’s resolution.

He is thinking of investing more in property even though, he says, “my wife and I tend to have a perception we can’t do all the things we want to because of our education expenses but once you account for the bills you can be surprised.”

But then they’ve already paid off the mortgage. He won’t top up his super until the school fees are out of the way, and he puts his savings in an online account.

“My other resolution is to be a little harder and faster with my share portfolio,” he says.

“One or two stocks I keep believing will come good but I need to be harder on them. I’ve been carrying them for some time. Everyone has dog stocks. I’m going to weed them out (in the new) year.”

He also has some property investments but isn’t highly geared. “I need to give that a bit more consideration,” he says. “A little bit of debt is always good. Gearing can produce a substantial gain so it’s something to look at.”

Paul Saliba, Chief investment officer, Lachlan Partners

“My resolution is to look for growth outside the box, such as emerging markets and opportunities,” Paul Saliba says.

“You need to shift your asset allocation with the cycle. I’m already moving in the right direction, from defensive to growth shares and into emerging markets because we’re at the lower end of the economic cycle. Share prices are well below the very long-term trend. I’m hoping they pop back up to trend and then I’ll look to reducing.”

With a growing family and a recent renovation, he won’t be salary sacrificing into super.

Now aged 37 and with a young family, he says he is concerned about accessibility. Although he’s paying more tax he’s happy, he says, “because I can invest more in (better) tax-effective ways”. As a result he runs a geared share portfolio outside super, and is paying his mortgage off faster because the interest is non-deductible.

Andrew Pease, Investment strategist, Russell Investment Group

“My new year’s resolution is to replace all my non-deductible with deductible debt,” says Russell’s investment strategist Andrew Pease, who has just upgraded from a terrace to a four-bedroom house, mortgage and all.

It’s a standard variable mortgage because “the history of the last 20 years shows you’re better off with a variable than a fixed rate,” he says.

To switch from bad to good debt he’ll be selling shares, paying off the mortgage then drawing down on it again to buy them back.

Because the drawdown is used to buy and income-earning asset, the interest is then tax deductible.

“There’s no point having assets that have no debt against them when you have a mortgage,” he says.

But he prefers managed funds to choosing his own shares.

“I suffer from the same thing most investors do,” he says.”I’m very good at deciding what to buy and terrible at deciding when to sell. It’s a bias we all suffer from.”

On the same grounds, he’s not interested in running his own super fund.

“For 80 or 90 basis points you can get a fantastic super fund which gives lots of options and different asset classes and all the administration, rebalancing and manager selection is done for you,” he says. “Why would you want to do all that yourself?”

But he’ll be reviewing his asset allocation, as he does each year, “with a bias toward growth assets and being well-diversified”.

George Boubouras, Investment strategy head, UBS Wealth Management

To be kept awake at night is an unlikely new year’s resolution, but fund manager George Boubouras thrives on volatility.

“I’m hoping to be kept up at night,” he says. “Volatility is part of a normal market but it won’t be as excessive next year. I was disturbed between 2004 and 2007 because everybody was so comfortable and content. I didn’t like that.”

He joined the most aggressive fund in his super in late 2008 and has stayed there ever since “though in hindsight I went too early”, he says.

He has little debt and next year wants to take advantage of the strong dollar by buying an apartment in Holland Park or Notting Hill in London, or the Latin quarter in Paris. It won’t be an investment, though these are apartments “with compelling valuations” at a time of the stronger dollar. “It’s a family lifestyle thing,” he says. “They’d be places we could stay when we travel.”

His suggested new year’s resolution for his clients is to be overweight equities, underweight cash, overweight corporate bonds and underweight government bonds.

Dale Gillham, Chief analyst, Wealth Within

“Reducing debt” is financial author and adviser Dale Gillham’s new year’s resolution, but there’s a twist: apart from his credit card, paid off each month, he has no debt in his name.

His house, car and investment properties are in a family trust.

“No asset is in my own name except my clothes,” he says.

But he wants to be cashed up for a savage sharemarket correction he’s expecting within 18 months.

“I’m happy to stay in shares in my super fund for the next six months but then I want to hold much more cash. My goal is preparing for the profitability of the market coming back in 2012 to its 2003 level,” he says.

He is saving more cash through the offset account on the mortgage for his investment properties in the family trust.

“If I run down some debt, there’ll be an opportunity if the market pulls back,” he says. “If it doesn’t, that’s OK. I’ll still be able to get into property or shares.”

Gillham is also looking at buying another property in Melbourne next year, as well as somewhere around his home town of Geelong for his retirement.

Louise Biti, Head of technical services, Strategy Steps

Financial planner Louise Biti started Strategy Steps, a financial consultancy for advisers with Assyat David, 2 ½ years ago to advise advisers and it has been growing so rapidly her new year’s resolution is to be more organised.

“In a new business there’s always something to do,” she says. “I now need to look at the personal side.

“I’m looking at super, which I’ve neglected because you pay yourself less as you set up your own business.”

She’s salary sacrificing the employer minimum of 9 per cent into her super but will lift that next year.

“There’s a limit of only $25,000 a year so I need to start boosting it now,” she says. “I feel like a builder who never finishes their own house.

“I’ll be sitting down and doing a plan. I’m reasonably cashed up so debt is under control and so is my insurance. I also want to do some gearing outside super, probably into shares because I’ve already got a property (my home which is paid off).”

She has a will but “one thing I’ll do in the new year is appoint a power of attorney because I don’t know when somebody will need to sign for me”.

Elio D’Amato, Chief executive, Lincoln Indicators

As the head of a sharemarket research house and fund manager, Elio D’Amato’s new year’s resolution is to never fall in love with a stock again.

He makes the same resolution every year and has kept to it.

“With shares you have to be objective, not subjective,” he says. “You can’t show any paternal love to them – don’t think of them as your first-born but as companies,” a lesson he only has to learn once when he clung to the old Queensland Metals Corporation which became Australian Magnesium before it went under.

As a recent first home buyer, grants and all (“they just add to the price”), his new resolution for next year is to refinance his mortgage on which he’s paying “a little bit more” than the minimum repayment.

Getting the mortgage down is preventing him from investing more in the sharemarket despite “this being a stock picker’s market”.

But at least he’s able to rev up the returns of his super fund. He is with Australian Super, which lets members choose their own stocks from the S&P/ASX 200 for half their fund.

The banks are conspicuously missing from his selection because “there are issues about future government policy and their growth trajectory isn’t exciting”.

For the other half he’s in the 100 per cent Australian shares growth option.

“I’ll be keeping a close eye on mining engineering stocks,” he says. “Their margins are being squeezed, and there’s a shortage of skilled labour and a lot of competition.”

Michael Dwyer, Chief executive, First State Super

Even the chief executive of one of the biggest industry funds, First State Super, can’t put off the paperwork of retirement planning indefinitely.

“I have a pile of papers on my dining room table at home which I promise myself I will get to,” Michael Dwyer says. “They relate to things such as my insurance cover, aspects of a financial plan I haven’t got around to, my record keeping and those sorts of things.

“The immediacy or urgency is not tomorrow but I need to get to it. Sometimes it’s those small incremental decisions you make now that can have a big impact. I have to get to that pile of reading because there are important decisions I have to make.”

He has no mortgage. “My savings pattern is largely to improve the home and save for retirement through super,” he says. “I put in a voluntary amount which I am always revising.”

He also has a transition to retirement pension to maximise the super tax breaks.

“I have two weddings coming up, which has caused me to look at my bank balance, but I’m not touching my super,” he says.

For those daunted by the task of building up a super balance, he has this advice: “How do you eat an elephant? One bit at a time. How do you save for a retirement? One step at a time. It’s the same approach.”

Stephen Hiscock, Managing director, SG Hiscock & Co

Drawing of his experience as a 13-year-old, when his father bought him some Woodside shares, fund manager Stephen Hiscock has decided that next year he’ll bring his three children, aged from 12 to 17, up to speed financially.

“I’d like to encourage our kids and their friends to learn about investing,” he says. “One thing I haven’t done enough is encourage them to invest, diversify and not gamble.”

While being a fund manager didn’t leave him immune from the global financial crisis, he says he has enough super.

He didn’t step up his contributions to take advantage of a cheap market and build up his super balance again “because I couldn’t”, he says, having piled money in on June 30, 2007, before contribution limits were slashed.

“I need to balance super against paying the school fees,” he says. “The greatest investment I could ever give to our kids is the best possible education.”

He’s drawing down debt from the equity in his home to pay the school fees.

If he’s not going to lift his super contributions, he isn’t changing the investments in his fund either, having re-allocated extra to real estate investment trusts this year.

“I recently increased the equity holdings in our super fund,” he says. “It had been one-third cash and now it’s 10 per cent. I’m quite positive about the market and cash won’t deliver what you need in the long term.”

He’s also considering buying another residential investment property next year, this time overseas to take advantage of the strong dollar and very low interest rates in Europe.

Kristian Dibble, Chief executive, Rivkin Report

His day job is tipping the sharemarket and he has his own super fund, but Kristian Dibble prefers to be cashed up.

At 36 and a long way from retirement, his new year’s resolution is to ramp up his super but hold it in cash.

“2011 is going to be about concentrating on and building up my portfolio outside the business (he owns 20 per cent of Rivkin),” he says. “One of the best ways is super. DIY super is not just for retirees. If you’re in the high tax bracket it’s the perfect environment to do more trading. A 15 per cent tax rate verses a top marginal tax rate of 46.5 per cent is pretty attractive.

“You take the trade-off: is the government going to continually change super? Probably yes, in some form. However, the tax benefits are big enough to take that risk.

“Most of the money is just sitting in cash through no real planning. It’s just that I’ve been so busy at work. But cash is risk free and I have term deposits in my super earning 5.5 to 6 per cent. I think cash should be your benchmark. If you’re going to buy property or shares you need to be really comfortable that you’re going to receive a return in excess of that.

“You’re taking on a risk as well as a lot of time out of your day. Cash will always be king. When the right opportunities come along, then I’ll start trading it.

“However, I might even buy an investment property at some point next year in south-east Queensland.”

He doesn’t have a mortgage but has bought investment properties in the past.

“I have no real plans to buy a lot, the way Australian house prices are,” he says. “If we start to see a bit of stress selling next year, sure I’ll be looking at that.” Nor is he keen on negative gearing.

“It’s all about negative cash flow, which means less money for living expenses here and now, which is therefore exactly the same as super contributions,” he says. “Negative gearing works well for a lot of people but only when prices are rising very strongly. In a flat market it doesn’t work.”

Back to Articles