Calibre Private Wealth

The current uncertain financial climate has understandably may have left many successful individuals and family groups feeling less confident in their current financial strategy and what the future holds. If you have someone you care about who is in this position, we are here to help.

In these challenging times, access to trustworthy, thoughtful and appropriate financial advice has never been more important – it’s just a matter of finding the right, fee-based firm that takes the time to fully understand what truly matters to their clients and always acts in their best interests.

Our firm continues to grow in a measured way by helping our longstanding clients but also being available to help the people that are important to our clients – the people that our clients care most about.

As we hope you have you have experienced as a valued client of our practice, our unique value proposition is about taking a lead adviser role to align your financial decision-making and investment behaviour with your most important goals and values so you can use the money you have to get the best possible Return on Life.

Our clients regularly tell us their relationship with us provides them with a sense of confidence and peace of mind, whilst allowing them to free up more of their limited spare time to focus on the things in their life that are actually more important than money.

In order to do this well, our plan has always been to limit our practice to a relatively small number of clients for whom we can make a significant impact well above the fees we charge. This approach allows us to enjoy deeper relationships, provide higher levels of service and be more attentive to our clients’ needs

For clients of our practice who are concerned about a friend or family member with some financial complexities, we offer our Calibre Second Opinion Service. This referral service is a great way to ensure the people our clients care most about make smart financial decisions with their money.

For more details about this complimentary service, please go back to our email and click on the Calibre Second Opinion Service link at the bottom of the page. If you think this service may be of benefit for someone you care about, please feel free to contact Gordon Thoms on PH (03) 9824 2777 or email here to arrange a confidential discussion.

The information contained in this article is of a general nature only and may not take into account your particular objectives, financial situation or needs. Accordingly, the information should not be used, relied upon or treated as a substitute for personal financial advice. While all care has been taken in the preparation of this article, no warranty is given in respect of the information provided and accordingly, neither Calibre Private Wealth Advisers, its employees or agents shall be liable for any loss (howsoever arising) with respect to decisions or actions taken as a result of you acting upon such information.

Superannuation balances between spouses can differ greatly due to many factors including wages, length of time in the workforce, illness, career breaks, or family commitments.

Fortunately, there are a number of strategies that can be implemented to even up such imbalances to maximise a couple’s combined super.

One such strategy focuses on evening up superannuation balances between spouses and maximising their combined superannuation with a withdrawal and recontribution strategy.

The benefits of this strategy include:

• Spouses with lower Total Super Balances (TSB), under $1,700,000, are able to utilise non-concessional contributions caps.
• Maximising each spouse’s benefits in a tax-free retirement phase income stream, up to current Transfer Balance Cap (TBC) of $1,700,000.
• Reducing superannuation benefits in accumulation phase attracting income tax at 15%.
• Savings of death benefits tax (by converting taxable benefits into tax free).

A withdrawal and recontribution strategy has been bolstered from 1 July 2022, with the 2021 Federal budget announcements passing both houses of Parliament in early February:

• Members over the age of 67 (and up to just prior to age 75) no longer need to meet the work test – creating greater potential to make non-concessional contributions to even up super balances.
• Members with Total Super Balances less than $1,700,000 will be entitled to bring-forward up to 3 years non-concessional contributions until the age of 75 (including just prior to their 75^thbirthday).

Its best to run through an example as it can get a little complicated:

Take Scott (68) and Kathy (63), they have the following superannuation benefits:

*TBC = Transfer Balance Cap. It is a lifetime limit (currently $1.7 Million) on the total amount of superannuation that individuals can transfer into retirement phase income streams, including most pensions and annuities.

Kathy is still working to maximise her retirement benefits. However, she has ceased an employment arrangement so has full access to her Unrestricted and Restricted Non-Preserved (URNP) benefits. Considering this, and the transfer balance cap of $1,700,000, Kathy will maximise the amount of benefits she can put into retirement phase upon her eventual retirement. A portion will remain in accumulation, paying tax on earnings at 15%.

Scott on the other hand, has already retired and has not maximised his transfer balance cap. He will have an indexed TBC of an amount between $1,600,000 and $1,700,000.

As of July 1, 2022, Scott no longer needs to satisfy the work test and now has access to the bring forward non-concessional contributions cap. Kathy and Scott should therefore consider withdrawing up to $330,000 from Kathy’s accumulation interest and re-contributing them into Scott’s superannuation account.

By implementing this strategy from July 1, 2022, Kathy is reducing her total superannuation balance by $330,000, thereby giving her the potential to also make non-concessional contributions, and Scott can commence a retirement phase income stream on the re-contributed amount within his TBC. The amount now attributed towards his TBC is $1,230,000.

Savings of future income tax will also be achieved once Kathy goes into the retirement phase as a greater amount of her benefits will be within her TBC.

Kathy is also converting a portion of her benefits ($330,000) that are currently 18% tax free into 100% tax free monies. This provides additional savings of approximately $46,000 in death benefits taxes upon the death of one spouse, when paid out through superannuation to beneficiaries (presuming Scott and Kathy have estate planning matters in place directing benefits to each other on their death).

Conclusion

Superannuation contribution rules are complex, but rest assured there are a number of different strategies that couples can use to help maximise their combined super, subject to their individual circumstances. Please contact Calibre if you would like to explore whether any of these strategies may be of benefit to you and your family.

Next steps

If you have any questions/thoughts in relation to this article or would like more information, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.

The information contained in this article is of a general nature only and may not take into account your particular objectives, financial situation or needs. Accordingly, the information should not be used, relied upon or treated as a substitute for personal financial advice. While all care has been taken in the preparation of this article, no warranty is given in respect of the information provided and accordingly, neither Calibre Private Wealth Advisers, its employees or agents shall be liable for any loss (howsoever arising) with respect to decisions or actions taken as a result of you acting upon such information.

This article is written by MCP Group. MCP help us provide tailored debt solutions for our clients and are a well-established member of the handpicked Calibre Professional Network team.

Global Debt

Recent data collated from the International Monetary Fund (“IMF”) showed that global debt has increased to $226 trillion.

So what does it all mean?

Unpacking The Numbers

Similar to how a bank will look at an individual customer’s capacity to service debt with income, a relatively blunt macro measure is to assess the level of debt as a percentage of a country’s Gross Domestic Product (“GDP”).

With the world hit by a health crisis in 2020, Governments pulled every lever to buffer economies. However, as the IMF data shows below, debt was already at very high levels prior to COVID-19. The warnings from central regulators like the IMF were already loud and clear that corrective action for both households and Governments would be needed in the future.

For some countries, Government debt is the primary concern, whilst for others (such as Australia) it is the increased level of household debt relative to income that is far more material.

For example, Government or “Public” debt alone has now touched 100% of GDP, which is unprecedented.

One challenge is that the Government and Private sectors will need to manage debt in an environment of rising interest rates.  The World Economic Report published late last year, outlined a top list of countries with the highest Debt relative to GDP.

The list is diverse, with many on the list (think Greece) already suffering economic collapse in the recent past whilst others (Singapore, Japan) trade more heavily on the goodwill of their future economic prospects.

What is the relevance of Debt for Countries?

Well, largely it depends on your perspective and believe it or not there is a divergence of views of debt. Most Governments owe the money to their own people (Japan above is a prime example of this) rather than as foreign debt. In this context, the economic impacts can be less immediate. This is especially so in an historically low interest rate environment.

However, as a general rule, when debt increases faster than GDP, that will eventually bring more pressure on an economy to increase taxes or cut spending.

When debt increases faster than GDP, there is more pressure on the economy to increase taxes or cut spending.

What is the relevance of Debt for Australia?

Our Government Debt, whilst spiking, still sits at a comparatively low 45% of GDP and just under $1 Trillion.

For households, this is where it gets more personal. For example, Australia’s debt to income ratio is the second highest worldwide and reached a high of 129.3% in 2020 which is well above developed economies. See Table below.

Australians are wealthier on paper, as asset growth has outpaced liability growth, which are principally property mortgages. Our liability-to-asset ratio has improved significantly in the last decade, now under 40% from around 50% ten years ago.

Despite this “wealth” based growth, we haven’t had the income growth to keep pace with asset growth. In an accounting sense, the balance sheet is stronger but the Profit & Loss is weak.  The risk of this is it opens up vulnerability to asset price changes or a rise in the cost of debt which we are seeing at present. After all, “it’s not what you own that might send you bust but what you owe.”

The rise in debt means that moves in interest rates are now nearly three times as potent compared to 30 years ago. Just a rise in the cash rate to 2.5% will see a near doubling in debt interest payments as a share of household income. Coming at a time of falling real incomes due to cost-of-living pressures this implies a significant hit to household spending power

While many households have built up cash buffers and are ahead on their mortgage payments and the household saving rate remains high, RBA analysis also indicates there is a significant group who would see a sharp rise in their mortgage payments if mortgage rates rose by 2% and most economists and the market expect more than this. Only time will tell how significant this becomes.

Final Thoughts

There is not a simple set of commentary that can identify clearly both what the quantum of the problem is and any corrective actions. Without sounding like “motherhood” statements, perhaps some thoughts to consider:

Economies need to balance the need for economic stimulus with an understanding of impact on long term economic growth, inflation and gearing levels.

Economies need to stress test their ability to take on and service debt, if their traditional income sources are challenged in the longer term. Think climate change and commodities as an example.

Maybe we need to consider building the financial literacy of the population; debt looks much more attractive to people without financial education – e.g., property schemes or similar that might encourage asset buying in peak markets.

Ultimately it may mean that we all need to water down our expectations of what we are entitled to, and work with what is sustainable in the long term.

Next steps

If you have any questions/thoughts in relation to this article or would like more information, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.

The information contained in this article is of a general nature only and may not take into account your particular objectives, financial situation or needs. Accordingly, the information should not be used, relied upon or treated as a substitute for personal financial advice. While all care has been taken in the preparation of this article, no warranty is given in respect of the information provided and accordingly, neither Calibre Private Wealth Advisers, its employees or agents shall be liable for any loss (howsoever arising) with respect to decisions or actions taken as a result of you acting upon such information.

While every downturn is different, history suggests that those investors who keep their nerve, stick to their agreed financial plan, and maintain focus on their chosen horizon at these times tend to do significantly better than those who sell assets that have already fallen in price. This is a time for calm reflection and there are some key lessons that can help investors reach their financial goals despite the occasional periods of volatility.

 Key takeaways

• Reacting to down markets is a good way to derail progress made toward reaching your financial goals.
• Over the past century, US shares have averaged positive returns over one year, three year, and five year periods following a steep decline.
• One of the best ways to avoid succumbing to emotion at the expense of your portfolio is to partner with an adviser and make a plan.

Investors can always expect uncertainty. While volatile periods like the one we’re experiencing now can be intense, investors who learn to embrace uncertainty may often triumph in the long run. Reacting to down markets is a good way to derail progress made toward reaching your financial goals.

Here are the three lessons to keep in mind during periods of volatility that can help you stick to your well-built plan. And if you don’t have a plan, there’s a suggestion for that too.

1. A recession is not a reason to sell

Are we headed into a recession? A century of economic cycles teaches us we may well be in one before economists make that call.

But one of the best predictors of the economy is the share market itself. Markets tend to fall in advance of recessions and start climbing earlier than the economy does. As the chart below shows, returns have often been positive while in a recession.

Source: Dimensional Fund Advisors

In US dollars. Recessions shaded in green. Share returns represented by Fama/French Total US Market Research Index, provided by Ken French and available at mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html.

All the dots in the upper left quadrant in the chart below are years where the US economy contracted but US shares still outperformed less-risky Treasury bills. It’s a great illustration of the forward-looking nature of markets. If you’re worried, other investors are too, and that uncertainty is reflected in share prices.

Source: Dimensional Fund Advisors

Whether accompanied by recessions or not, market downturns can be unsettling. But over the past century, US shares have averaged positive returns over one-year, three-year, and five-year periods following a steep decline.

A year after the S&P 500 crossed into bear market territory (a 20% fall from the market’s previous peak), it rebounded by about 20% on average. And after five years, the S&P 500 averaged returns over 70%.¹

Source: Dimensional Fund Advisors

We believe that staying invested puts you in the best position to capture the recovery. If you take risk out of your portfolio, it should be a strategic, not tactical, choice. We believe the only good reason to sell out of a share portfolio now—so long as it’s diversified and low-cost—is because you learned something about your risk tolerance or your investment goals have changed.

2. Time the market at your peril

When shares have declined, it might be tempting to sell to stem further losses. You might think, “I’ll sit out until things get a bit better.” But by the time markets are less volatile, you’ll have often missed part of the recovery. Yes, it stings to watch your portfolio shrink, but imagine how you’ll feel when it’s stuck while the market rebounds.

Big return days are hard to predict, and you really don’t want to miss them. If you invested $1,000 in the S&P 500 continuously from the beginning of 1990 through the end of 2020, you would have $20,451. If you missed the single best day, you’d only have $18,329—and only $12,917 if you missed the best five days.²

History shows the share market tends to rebound quickly. The same can’t be said for individual shares or even entire sectors. (How many railroad shares do you own?) So, while investing means taking on some risk for expected reward, investors should mitigate risks where they can. Diversification is a top risk mitigation tool, along with investing in fixed income and having a financial plan.

3.      It may be a good time to reassess your portfolio and your plan

We saw many fads crop up through the pandemic, from baking to puppy adoption. Did you experiment with any of the pandemic investment fads—FAANGs or meme shares or dogecoin? If so, it may be time to put those fads in the rearview.

Do you know the names of all the shares you own? If so, then you probably own too few. How much of your portfolio sits outside Australia? If you only invest in Australian shares, you’re missing more than 98% of the global investment market opportunity set. A market-cap-weighted global portfolio is a better starting point than chasing segments of the market that have outperformed in the past few years.

And if you want to outperform the market, allow decades of academic research to light the way. Portfolios focused on small caps, value shares, and more profitable companies have had higher returns over the long run. The portfolios we recommend to our clients are typically invested across more than 10,000 global equities in over 40 countries.

An enduring adviser relationship can also help.

Beyond a well-designed portfolio, one of the best ways to deal with volatile markets and disappointing returns is to have planned for them. A financial adviser can help you develop a plan that bakes in the chances you’ll experience some market lows. And they can help you find the confidence to weather the current storm and get to the other side.

A sound approach to investing—through a plan, a well-designed portfolio, and the guidance of a professional adviser—is the ultimate self-care during these rough markets. Your future self will thank you.

1. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct
2. Past performance, including hypothetical performance, is no guarantee of future

Growth of $1,000 is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The analysis is for illustrative purposes only and is not indicative of any investment. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment.

Next steps

If you have any questions/thoughts in relation to this article or would like more information, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.

The information contained in this article is of a general nature only and may not take into account your particular objectives, financial situation or needs. Accordingly, the information should not be used, relied upon or treated as a substitute for personal financial advice. While all care has been taken in the preparation of this article, no warranty is given in respect of the information provided and accordingly, neither Calibre Private Wealth Advisers, its employees or agents shall be liable for any loss (howsoever arising) with respect to decisions or actions taken as a result of you acting upon such information.

WE’RE HERE TO HELP THE PEOPLE YOU CARE MOST ABOUT

The current uncertain financial climate has understandably may have left many successful individuals and family groups feeling less confident in their current financial strategy and what the future holds. If you have someone you care about who is in this position, we are here to help.

In these challenging times, access to trustworthy, thoughtful and appropriate financial advice has never been more important – it’s just a matter of finding the right, fee-based firm that takes the time to fully understand what truly matters to their clients and always acts in their best interests.

Our firm continues to grow in a measured way by helping our longstanding clients but also being available to help the people that are important to our clients – the people that our clients care most about.

As we hope you have you have experienced as a valued client of our practice, our unique value proposition is about taking a lead adviser role to align your financial decision-making and investment behaviour with your most important goals and values so you can use the money you have to get the best possible Return on Life.

Our clients regularly tell us their relationship with us provides them with a sense of confidence and peace of mind, whilst allowing them to free up more of their limited spare time to focus on the things in their life that are actually more important than money.

In order to do this well, our plan has always been to limit our practice to a relatively small number of clients for whom we can make a significant impact well above the fees we charge. This approach allows us to enjoy deeper relationships, provide higher levels of service and be more attentive to our clients’ needs.

For clients of our practice who are concerned about a friend or family member with some financial complexities, we offer our Calibre Second Opinion Service. This referral service is a great way to ensure the people our clients care most about make smart financial decisions with their money.

For more details about this complimentary service, please go back to our email and click on the Calibre Second Opinion Service link at the bottom of the page. If you think this service may be of benefit for someone you care about, please feel free to contact Gordon Thoms on PH (03) 9824 2777 or email here to discuss.

Next steps

If you have any questions/thoughts in relation to this article or would like more information, please contact Gordon Thoms or David Conte at Calibre Private Wealth Advisers on ph. (03) 9824 2777 or email us here.

The information contained in this article is of a general nature only and may not take into account your particular objectives, financial situation or needs. Accordingly, the information should not be used, relied upon or treated as a substitute for personal financial advice. While all care has been taken in the preparation of this article, no warranty is given in respect of the information provided and accordingly, neither Calibre Private Wealth Advisers, its employees or agents shall be liable for any loss (howsoever arising) with respect to decisions or actions taken as a result of you acting upon such information.