Abandon gift in Will to keep pension?

The Financial Planner carefully structures Mary’s affairs.

Mary receives a $1 pension and Concession Card. But then, Mary’s mother dies.

Mum’s Will leaves everything to Mary. The inheritance costs Mary her $1 pension and Concession Card. Mary has money from her superannuation. She doesn’t want the inheritance. Mary desperately renounces the gifts under the Will. Mary’s children get the inheritance instead.

Does Mary keep her Centrelink Benefits?

Sadly, no. Centrelink deems monies abandoned or given away still yours for the next five years.

The two exceptions:

1. $10,000 rule – gifts under $10,000 per year are not means tested
2. $30,000 rule – gifts under $30,000 over a five-year period are within the gifting free area. However, a gift cannot exceed $10,000 in any year.

Gifts above $10,000 are ‘deprived assets’. ‘Deprived assets’ are given away but still deemed yours for the next five years. Sure, Mary can abandon the gifts under her Mum’s Will. However, Centrelink deems the gifts still hers for the next five years.

So what can you do?

Let’s pretend Mary’s mother is still alive. There are many strategies available to them. For example, an Accountant or Financial Planner can go on a legal website (we recommend Legal Consolidated - www.legalconsolidated.com.au) and easily build a 3-Generation Testamentary Trust Will.

The 3-Generation Testamentary Trust Will names Mary and her children as beneficiaries. The 3-Generation Testamentary Trust is flexible. Each beneficiary can receive a portion or none of the estate.

Mary then successfully retains her $1 pension and all-important Concession Card.

Companies and Family Trusts would require a slightly different approach.

Rick Maggi

Capital Cities Rise (Except Perth)

The CoreLogic November Hedonic Home Value Index results out today show a rise in dwelling values across every capital city excluding Melbourne over the month.

On an annual basis, every capital city except for Perth is now showing a positive annual trend in dwelling value growth.  The highest annual growth rate is evident in Sydney and Melbourne where dwelling values are now 13.1% and 11.3% higher respectively, reflecting a steeper upwards trajectory in growth over the second half of the year.  The Hobart and Canberra markets have also seen some acceleration in growth rate trends with dwelling values up 8.5%, and 8.4% respectively over the past twelve months.

Lest We Forget

MARKETS REBOUND

Good afternoon,

Yesterday $34b was wiped off the Australian share market (down 1.9%) and today $58b was put back on (up 3.3%) as investors took heart with President-elect Donald Trump’s conciliatory victory speech. The major winners today were resources, with BHP and Rio jumping by 8.2% and Fortescue 10.2%, buoyed by Trump’s plans to invest in large ‘rebuild America' infrastructure projects (roads, bridges etc.). 

But just as yesterday’s slump should have been taken with a grain of salt, the same logic needs to apply to today’s encouraging rebound, and until a clearer picture of Trump’s policies emerge, you should expect continued short-term volatility. However, there is little doubt that Trump’s policies (from what we know so far) will have an inflationary, higher earnings growth bent. And how bonds, property, shares and our currency might react to this new paradigm is hard to gauge at this point. 

However at the end of the day markets will work through those uncertainties as they do with all news - all opinions will be accommodated in prices and there is little that any one person can do to change that. 

Ultimately, when the news environment is at its hottest, successful long-investors must be at their coolest.

I’ll keep you posted.

Rick Maggi

IT HAPPENED

Today’s US election results were a surprise to most and are likely to have a short-term impact on global share markets. Locally, our markets fell by just under 2% today, erasing gains made over the last two days - yes, after all of the media hysteria today (ie $34 billion ‘wiped off’ the sharemarket etc) markets are merely back to Monday’s levels.

Looking ahead, US markets look as if they might fall by roughly the same percentage this evening as investors weigh the potential pros and cons of a Trump presidency.

As we’ve seen before, these kinds of knee jerk reactions are typically short term in nature, so I would strongly suggest just ignoring the ‘noise’ over the coming weeks, and even consider taking advantage of market weakness, as long as you’re prepared to accept some short-term volatility.

We’ll continue to monitor the situation closely.

Interesting reading...

Shane Oliver

Bloomberg                                                                                                                                    Rick Maggi

SOCIALLY RESPONSIBLE Investing

Responsible investing is increasing in importance and popularity for investors, driving the next generation of CEO's towards a cleaner, fairer world.

But don't make the mistake of dismissing 'ethical' or 'sustainable' funds as just a feel-good exercise in political correctness. This segment deserves your full attention as investors are using responsible investing to minimise investment risk and improve long-term investment performance.

Changing the world for the better doesn't require you to compromise on investment returns. If you'd like to know more, contact Rick Maggi personally on 9382 8885 or rickm@westmount.com.au.

US elections: implications for investors

Hillary's 11-point lead from just a few short weeks ago has since evaporated, with the two candidates now running neck and neck.

So what are the implications for Australian and global investors? Read more here

Interest rates remain on hold

Happy Melbourne Cup Day!

The Reserve Bank Board met today and decided to keep official interest rates on hold at 1.5%.

The recently released September quarter inflation data confirmed that underlying inflation at 1.7% year on year was broadly in line with expectations, with fruit and vegetable price rises being offset by lower petrol prices on average. This release is probably the key determinant of the RBA's decision.

Macquarie Bank forecasts the most likely timing of further interest rate cuts to be February and May next year, as inflationary forces remain subdued.

The last RBA board meeting for 2016 will be held on Tuesday 6 December.

Next stop, US elections.

Rick Maggi

54.2 million worries

We are going through one of those periods where it seems there is a long list of things for investors to worry about: the US election; the Fed; ever present fears about a break of the Eurozone; and China. This article, from Dr Shane Oliver (AMP Capital) discusses some of the very real risks out there and how to manage the noise and worry. Definitely worth reading.

Read more here                                                                                                                                  Rick Maggi

The Australian Housing Market

Housing matters a lot in Australia. Having a house on a quarter acre block is part of the "Aussie dream". Housing is a popular investment destination. And the housing cycle is a key component of the economic cycle and closely connected to interest rate movements.

But in the last 15 years or so it has taken on a darker side as a surge in house prices that started in the late 1990s has led to poor affordability and gone hand in hand with surging household debt. Reflecting this, predictions of an imminent property crash bringing down the Australian economy have been repeated ad nauseam since 2003.

This note looks at the risks of a property crash, particularly given the rising supply of units, implications from the property cycle for economic growth and how investors should view it. 

Read article here

Do You Have an Estate Directory?

Ok, so you've planned for retirement, you have insurances in place, your Wills are up to date, and you've appointed Enduring Powers of Attorney. You couldn't be more organised - well done!

But do your loved ones know where your Will is located? How about your insurance and superannuation documents? Do they know who your Lawyer, Financial Advisor and Accountant's are? How about that key to the safe or special filing cabinet?

You can see where I'm going with this.

An 'Estate Directory' is a simple but extremely useful document to have in times of crisis. Basically, it's a list of important contacts and the location of documents that you can give to your next of kin, leave in an obvious place, or lodge with us, your Financial Advisor.

Don't let your well considered plans unravel at the worst possible time. If you're a client of Westmount, ask for an Estate Directory today (it's free).

Rick Maggi

Interest Rates On Hold

Now that the weekend's grand final sporting festivities have come to a close, I'd like to draw your attention to today's rate announcement and the thoughts on why the Reserve Bank of Australia has made this decision. 

In making this call, the RBA has resisted temptation to further lower rates, opting instead to wait until the September quarter CPI data is released to allow it more time to measure the impact of the August rate cut.

Are Bonds still worth the effort?

After 10 years stewarding the Reserve Bank of Australia through a tumultuous market and economic environment, marked by the GFC and Australia's economic rebalancing, Glenn Stevens has officially stepped down as Governor. 

All eyes will be focused on his successor, Philip Lowe, who inherits a record-low 1.5% cash rate, down from 2% one year ago and more than 5% prior to the GFC. 

How we got here is pretty well understood - weaker demand from Australia's major trading partners has contributed to lower commodity prices, slower domestic growth and inflation below the RBA's 2-3% target. On the bright side, a weakening of the currency, combined with low interest rates (which help drive house prices higher), has helped the economy remain resilient and rebalance. 

As cash rates have fallen, so too have bond yields, punishing income-oriented bond investors, and also leading some to question the role of bonds in their portfolios. And in Australia, we are lucky (again the lucky country!) by comparison given negative yields in Japan and much of Europe. 

I will leave it to Dr Lowe to prescribe monetary policy (hint: the market is pricing in some stability, with no anticipated moves over the next 6-12 months), but I would like to offer some perspective around how even at record low yields, bonds deserve your attention. And in some respects, low is a good thing! 

Let me explain. 

First, low yields on bonds need to be considered within the context of a low inflation environment. With inflation expected to hover at or below 2%, yields of a globally diversified portfolio of government and corporate bonds of between 2.5-3% should produce a positive, albeit small, inflation-adjusted return. Cash may struggle to do the same, and while dividend-paying equities may produce more income, they are also subject to much larger swings in price, particularly if the dividend comes under pressure. 

Second, and as important when constructing portfolios, what gets us excited are asset classes that diversify one another. This chart measures the rolling 5-year correlation between equity markets and changes in bond yields for both Australian and US markets. What it shows, is that even in an environment of low yields and low cash rates, bonds have continued to exhibit negativecorrelation with equities, meaning that they have continued to provide a dampening effect for investors' portfolios. 

Bonds remain an effective diversifier...

The US Presidential Election

The attached note looks at the US Presidential and congressional elections that are looming large, especially now that the polls between Donald Trump and Hillary clinton are neck and neck.

Read more here.

Super: Further Clarification

The Federal Government has provided further clarity on how the proposed 'bring forward' and $1.6 million eligibility threshold will work with regard to superannuation. The details can be found here - all very interesting, but if you would prefer a plain-english explanation, please call me personally.

Rick Maggi

ASX: Delayed Start, Early Finish

The Australian Share Market lost some ground during a day plagued by technical glitches that delayed the market open and eventually forced a premature end to equities trading.

The All Ordinaries was down three points when the halt came, the result of repeated technical problems that forced the cancellation of some transactions and narrowed trade of the full market to a window of less than an hour.

The share market didn't kick off until 1130AEST, and hour and a half after it was due to open. Then, at 1537 AEST was closed prematurely.

The interrupted trade throughout the day kept values and volume pretty quiet overall today.

$500k Lifetime Limit Scrapped

The Government today announced major changes to the superannuation package contained in the 2016 budget, including scrapping the backdated, lifetime cap of $500,000 on non-concessional contributions (NCCs). However, anyone with over $1.6 million in super will not be allowed to make further NCCs. Today’s announcement includes several other changes.

The full announcement by the Government is attached here.

The announcement does not change the lowering of the concessional contribution to $25,000, and with the reduction in NCCs from $180,000 a year to $100,000, weaker flows into superannuation than in the past can be expected. It’s likely to hit SMSF inflows harder, since these are generally used by wealthier investors who can afford the extra contributions.

Read a full summary of the superannuation package here.

Home values rise 1.1%

The CoreLogic Home Value Index recorded a 1.1% rise in dwelling values in August, with six of the eight capital cities recording a lift in dwelling values over the month. Performance of the combined regional areas remained comparatively soft, with dwelling values virtually flat at -0.1%.

The strong combined capital cities headline result masks the underlying movements associated with dwelling values which are trending differently from region to region and across the broad property types.

In Sydney and Melbourne, dwelling values continued to increase at more than 1% month-on-month, with the cumulative growth (June 2012 to date) now reaching 64% in Sydney and 44% in Melbourne. Outside of Sydney and Melbourne, the third highest rate of capital gain over the same period was Brisbane at 18%, and was as low as 4% for Darwin.

The most recent twelve month period has seen dwelling values rise by a lower 7% per annum, with Perth and Darwin the only capital cities to record a fall in dwelling values over the same period, dealing by 4.2% in both cities. Softer economic conditions and a significant fall in overseas migration rates, together with an increasing net outflow of residents to other states and territories, has made a substantial dent in housing demand, reducing values and rental returns.

Read the full report here.