TW3 – Peace Amid Chaos

SB Investment Seminar & Quarterly Outlook

We have over 140 attendees signed up for next week’s seminar with our Chief Investment Officer, Ashley Owen. We are nearing capacity! If you wish to attend, please RSVP here or email
Yesterday we released our January 2019 Quarterly Investment Outlook. You can read it here. We have made a number of changes to our model portfolios. Please contact your adviser for further details. Ashley will be reviewing these changes at Thursday’s seminar.

Market Wrap

Global equity markets were higher this week, buoyed by remarks from US Federal Reserve Chief, Jerome Powell, that they will be “patient” in light of “global economic and financial developments and muted inflation pressures”. The recent equity market sell-off was partially caused by fears that the Fed would prompt a global recession by raising rates too quickly, however the probability of a US rate hike has since plummeted. US markets were also buoyed by strong earnings reports, as the Dow Jones followed up its worst December since 1931 with its best January since 1989.
In local news, December saw a slump in the NAB Business Conditions Index, which suffered its largest fall since the GFC. The retail industry currently has the worst conditions in Australia, as retailers struggle to cope with globalisation and the Amazon Effect. The construction industry also contributed to the slump, as falling house prices and tighter lending practices dampen demand for property.

Finance 101 – Knowing What You Control

In an often chaotic world, most of us seek to have some semblance of control over our future. When it comes to their life savings, investors choose to obsess about factors of which they have little control (for example, returns) instead of those over which they have real control (e.g. risk, how much they invest, and the duration of their investment).
The future value of an investment is the initial investment multiplied by its return compounded over time. Let’s take a 50 year old investor with $100,000 in their super, who wants $500,000 by the time they turn 70. There are three ways they can achieve this goal:

1. Invest at a higher return – the investor will need to average returns of 8.4% in order to achieve their goal

2. Invest for a longer timeframe – if the investor starts at age 45 instead of 50, they only require a 6.65% return to achieve their goal

3. Increase their investment – if the investor invests an additional $30,000, they will only require a 6.97% return to achieve their goal

It is natural for investors to focus on returns, since that’s what dominates headlines. Unfortunately, the reality is that we can’t control the returns we earn, only the risks that we expose ourselves to (asset allocation). Although it’s more exciting to fasten your seatbelts and pursue high returns, a combination of prudent asset allocation, wise saving habits and starting young are much more likely to get you there.

Super Report, Questionable Solution

The Productivity Commission has ruffled a few feathers with its report into the Superannuation Industry, suggesting employers & unions ceding control of the $600 bn default superannuation system. The report identified two fundamental flaws of multiple accounts and persistent underperformance. More than 30% of the 25 million accounts in the superannuation system are inactive, resulting in investors paying $2.6b of unnecessary fees each year.
Under the current system, unless an employee provides details of an existing super fund, their super payments go to the fund of their employer’s choice (e.g. the default super fund for a dive instructor is Maritime Super). The report proposes a “best in show” shortlist, whereby an independent expert panel would select 10 top-performing super funds for employees to choose from rather than have employers select the default fund.
Unsurprisingly, the unions aren’t particularly welcoming of the recommendations. Although industry super funds are not-for-profit, high ranking union officials are often appointed as directors, and unions receive millions of dollars each year in director fees. It’s not just the unions who questioned the findings. An excellent article by Graham Hand outlines 10 flaws in the “best in show” solution.

Exotic SMSF Assets

Have you ever walked by an ATM and thought “gee, I wish I had that in my super”? (the machine, not the cash inside it!). Well, according to a Super Concepts review of the most exotic investments held by SMSFs, you wouldn’t be the first. Their analysis of 2,500 self-managed super funds revealed investments ranging from ATMs to stallion semen to a 1950 Austin A40 Ute. Cattle were also considered as an asset, with the ATO classifying newborn calves as dividends on the initial investment.
So shall we sell our shares and buy industrial grade lasers? There are a few considerations to make before delving into alternative investments. In a previous TW3 article, we covered investing in collectibles (vintage cars, fine wine, etc), noting that investors were not allowed to receive any present-day benefits from the items. Furthermore, the risks of non-traditional assets, such as artwork, can be opaque. While we can study the history of markets to inform our investing decisions, investors often don’t find out about the risks of non-traditional assets until it’s too late.
If you have thoughts about investing in exotic assets, please contact your adviser.

Best photos of 2018

Flickr, the image sharing platform favoured by the world’s amateur and professional photographers, has announced the top 25 photos uploaded during 2018, with mountains and animals featuring heavily! Our favourite image is the one below however, titled “Peace Amid Chaos”
Source: Flickr

The Apple to my i(Phone)

In last week’s TW3, we ran an article covering the privacy concerns of big tech consumers, referencing a billboard commissioned by Apple claiming “What happens on your iPhone, stays on your iPhone”.
It turns out that what happens on your iPhone sometimes stays on someone else’s iPhone too, as a bug in Apple’s Facetime application allowed callers to hear audio from users that were yet to answer a video call. Apple is in the process of fixing the bug, however it is yet another reminder that these devices aren’t always as secure as they seem. Please be careful!

Tweet of the Week

Perusers of social media may have noticed their friends taking the “10-year challenge”, whereby users post compare-and-contrast photos of themselves in 2009 and in 2019. The trend was started by Facebook, which has led some observers to theorise that the 10-year challenge is a nefarious ploy by the social networking behemoth to improve its face recognition capabilities.
Conspiracies aside, here is our favourite #10yearchallenge.

Who Am I?

A bottle of red is en route to John and Pamela, who picked up that last week’s Who Am I isn’t a real person!
The featured photo was created by artificial intelligence technology, and as we can see below, it’s getting strikingly good!

Last week was the final TW3 Who Am I, but stay tuned for a new segment!

Video of the week

In anticipation of the Super Bowl on Monday, here’s a couple of our favourite Super Bowl ads!
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