MLC Market Watch

The 2009 Federal Budget was one of the more significant in recent history, with the Government tasked with steering the country out of the global financial crisis.

In an effort to regain lost revenues caused by the global downturn, the Government has decided to pull back some of the superannuation tax concessions.

In particular, there are two key changes to the treatment of super that are scheduled to take effect on 1 July 2009.

And while not yet legislated, there may be benefits for you if you act before 30 June.

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Self-funded retirees who are invested in the sharemarket have arguably been the hardest hit by the global financial crisis.

Many may now be wondering if they should move their account-based pension into a more conservative investment portfolio, which contains less growth assets such as shares and property.

So we went back through history to see the impact that switching to a more conservative portfolio would have had, if done after a major market fall.

We also outline some strategies you could discuss with your financial adviser to help you weather the storm.

What is an account-based pension?

Before we reveal the lessons we can learn from history, we thought it was worthwhile going back to basics to explain how account-based pensions work.

An account-based pension enables you to invest your superannuation savings and receive a tax-effective income to help meet your living expenses.

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It’s often the case in dealing with the demands of every day life, we forget the financial year will soon be drawing to a close.

There are, however, great benefits to getting in early with your financial year-end planning.

We’ve identified four strategies to consider as the tax year draws to a close. Three of them may boost your retirement savings while paying less tax, and the fourth is a tax-effective way to purchase insurance.

And this is just the tip of the iceberg! Your financial adviser has many other strategies which may be suitable for you, all designed to improve your financial position.

So why not make this year-end a clever one?

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As part of our monthly Market Watch video series, MLC Senior Investment Specialist Natalie Comino presented six golden rules of investing.

Here’s the transcript from her video:

Golden rule number one is never lose sight of the fact that risk and return are related. This is easy to do when we’re in a bull market and double-digit returns are taken as the norm. However if you are looking for higher returns, you have to be willing to take on more risk. This means the value of your investment could change dramatically over a short period of time. The higher this volatility, the riskier these types of assets are.

Over the long term, growth assets like shares and property are expected to earn higher returns. But these investments will be more volatile so you will need a long time horizon and a strong stomach to ride the ups and downs you’ll experience. If you’re not prepared for this, then you might want to consider a more conservative strategy or assets that are expected to earn lower returns but are usually more stable performers, like cash and debt securities.

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In this editorial, MLC CEO Steve Tucker talks about the dangers of moving investments out of the sharemarket and into cash products:

Late last year it was hard to avoid the media frenzy around the Federal Government’s guarantee on cash products and I observed the commentary with disbelief. The public debate was fixated on which companies would offer government-guaranteed products, which ones would pass on the cost of the guarantee to customers and whether or not customers could get access to the guarantee for free if they split their money among several different accounts.

However, no-one seemed to ask the most important question, which is: beyond bringing Australia into line with actions taken by governments around the world, what value was there for a customer with more than $1 million who would pay an additional 70 basis points for the guarantee on a low-risk, low-return cash product? The Government did not introduce the guarantee because it was worried about the stability or security of Australia’s banking system, which is strong and performing well. Cash products have operated effectively in Australia for decades and there is no reason why this would not continue. Unfortunately, these vital facts were missing from much of the public discussion around this issue, which seemed to be stuck at a product level rather than being focused on whether or not chasing the guarantee made sense.

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