All Ords Report 18 May 2016

Why is so much focus centered on the proposal in this year’s budget to tax earnings on superannuation savings above $1.6m?

Recent announcements indicate that around 4 per cent of the population will be affected.

Whilst every Australian matters, here we are, many decades after compulsory super was implemented in Australia, and still the majority of Australians will fall short of having sufficient savings for a comfortable retirement. And, the statistics at the bottom end are shocking. So, to be fair, how much super should be tax free at the top end?

It is important to remember why superannuation was created. It’s there so that more Australians will be self-funding in retirement, and not be a burden on the tax system/future generations.

Currently, the average Australian male at retirement age would be doing well relative to his peers to be retiring on around $300,000 in super, and the average female around half of that figure.

However, the government website Money Smart says that a lump sum in savings of $640,000 is required for a comfortable retirement, and to fund a comfortable retirement you need an income of around $59,000 per annum.

How many people do you know who will be retiring with at least $640,000 in superannuation savings? And, given the required return to achieve a comfortable retirement, stop and think about how many investments you know of that are paying around 10 per cent per annum?

History shows how, over the long term (10 years +) an investment in shares has the potential to generate from 7 to 10 per cent per annum. Of course, some periods on the market will see share prices fall.

If you are concerned about whether or not you’ll have sufficient savings in retirement, take your future into your own hands and act now to boost your super savings, while you learn how to actively invest outside of super.

What do we expect in the market?

Last week, the Australian share market closed at 5396 points, up by around 0.7 per cent on the prior week. This was the fifth straight week of rises seen on our share market following the pull back by the All Ordinaries Index (XAO) into a short term low in early April, when the market dipped back below 5000 points temporarily. As at the time of writing, the market was trading above 5450 points, and well above support below at around 5300 points, which is a positive sign.

The rise has strengthened our market’s potential for further gains this year, however, it’s important to always consider the alternate view. I am comfortable with our market while it continues to trade above 5150 points, as this indicates that it is more likely to continue to rise.

Politics and big money

Most people have probably been weighing up budget announcements and pre-election promises by both parties. Unfortunately, what we hear heading towards an election is often a lot of grubby politics rather than good debate. And, while politics can have an impact on the market, currently I’m not expecting that either side will disrupt the market’s momentum much. However, it is important to remember that regardless of what occurs in politics the market must rise and fall if it is to continue higher overall.

Looking globally, Warren Buffett has once again been mentioned in financial circles and this time it’s about his company Berkshire Hathaway’s recent Billion dollar stake in Apple. Investors can learn a lot from Buffett, however, remember that as an individual investor you have an advantage. Big funds can only move money slowly, whereas you can move in and out of the market with small amounts that are unlikely to make much of a difference to prices. You also have a lot more choice as to which stocks you buy. The really big funds will struggle to invest in companies outside of the biggest stocks on the market.

One further point, while we are on the subject of what investors need to do, as you learn more about the share market, you will come to understand the drivers behind the market, being fear and greed, and generally, how the uneducated open the market and those in-the-know close it. For this reason it’s important you observe where the All Ordinaries Index opens each week and where it closes, rather than getting caught up in the daily moves.

Further to this, think about when you will be trading. Depending on your trading strategy it may not matter whether you enter in the morning or the afternoon, however, for short term traders, looking to be in and out of the market in a few days or weeks, this could be critical.

Dale Gillham is Chief Analyst at Wealth Within