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FROM THE EDITOR

Natasha Stewart

Welcome to the first newsletter under our new brand ‘Lead Partners Private Wealth’. Obviously a lot has happened since our previous edition! When we started this re-branding process, we didn’t foresee we would be rolling this out during a global pandemic, but here we are. We were extremely privileged to help the Stonehouse brand grow, but felt it was time our advisers and team carved out our own unique identity to accompany the new Australian Financial Services Licence.

Lead Partners Private Wealth focuses on working exclusively with clients to reach their goals, whilst developing unique strategies to assist in the financial advisory process. At our core we are still privately owned and not aligned to any bank or institution. We remain focused on fostering relationships with our existing clients, consultants, accounting and legal partners.

As a client what does this all mean for you?

Your relationship with your adviser will, most importantly, remain the same.

You will be receiving some new documentation with the Lead Partners branding and a new client engagement agreement that will allow your adviser to continue to provide you advice and maintain ongoing strategies applicable to your situation. All of these items will be covered by your adviser as part of your review meeting and upcoming communications.

Finally, we have been adjusting to the new way of life and embracing social distancing with all the challenges that entails. We are fortunate to have the space to be able to continue to work collaboratively from our Auchenflower office, along with Michael’s handy tape measure and floor markings to keep the appropriate distance apart.

INVESTMENT PRINCIPLES TO REMEMBER DURING NEGATIVE MARKET EVENTS

By Michael Stewart 

After an extended period of optimism, global investment markets have hit the panic button on fears due to the economic impact of the coronavirus (COVID-19). As widely reported within the media, there has been market falls as well as rallies as they react to what measures policy makers are taking to provide economic support and soften the impact of the coronavirus.

Markets move in cycles, at times like this it’s good to get some perspective and try to keep focused on your individual circumstances by not letting the media become your adviser. The thing with market corrections is that it is impossible to predict with precision what will trigger them or how long and severe they will be. However, the one thing that history tells us is, the markets always recover.

With this in mind, remembering to stick to some basic investment principles during negative market events is one of the keys to long term investment portfolio success. Elaborating on some of the principles I try to install in my clients during our financial relationship are as follows:

Avoid knee-jerk reactions

At this point, markets are responding to uncertainty. It’s hard to know what the extent of the economic fallout will be, so the temptation is to ‘bail out’ of your portfolio and put your cash in the bank. Or jump ship and switch to a ‘safer’, more conservative option in your portfolio.

While the urge to act and protect your portfolio is understandable, knee-jerk reactions can be a mistake.

It’s near impossible to time the market, particularly at the present moment with a volatile market that is responding to a situation that is changing on a daily basis. Not only do you risk selling when prices are near rock-bottom, but you also risk sitting on the sidelines as the market recovers and as mentioned it always does.

In an ever-changing world, the basics of investing stay the same. By sticking to some timeless principles it’s much easier to resist making fear-based decisions and focus on your investment horizon.

Have a plan

Investing is a lifelong journey and like all journeys you are more likely to reach your destination if you plan your route. Without a plan, it’s easy to knee-jerk into decisions that may not be the best in the longer term.

Your plan needs to take into consideration your unique situation, financial goals and your comfort with risk.

Low risk comes with lower returns

Growth assets such as equities and property do entail higher risk but they also deliver higher returns in the long run than cash in the bank.

While domestic and international equities produced stellar returns last calendar year, cash returned just 1.5 per cent which was below the level inflation. Cash returns were not much better over the past seven years, averaging 2.2 per cent a year.

Diversify your risk

Equities, property, bonds and cash all have good years and bad. While equities and property tend to provide the highest growth over time, there will be years when prices fall or go sideways. In some years, bonds and even cash produce the best returns.

A good way to reduce volatility and enjoy smoother returns over time is to diversify your investments across and within asset classes and as well as investment management styles. That way, one bad investment or difficult year won’t sink your ship.

The most appropriate mix will depend on your age, your income requirements, the timing of your goals and your tolerance to risk.

A disciplined approach

When fear is driving markets, it’s important to get back to basics and think long term. This way, you avoid crystallising short-term paper losses and benefit from the inevitable market recovery. Depending on your financial situation you may even wish to invest in quality assets following market falls which is something we strongly believe in and frequently term as ‘opportunistic investing’.

You must appreciate that to execute an opportunistic buying strategy you will have to block out all prevailing “noise” (particularly from the media) and adopt a disciplined adherence to investment fundamentals. This is something more easily said then practically done. However as famed investor Sir John Templeton once said, “to buy when others are despondently selling and to sell when others are avidly buying requires the greatest of fortitude and pays the greatest ultimate rewards”.

If you would like to discuss or review your overall investment portfolio, please don’t hesitate to get in touch.

SUPERANNUATION TECHNICAL BULLETIN

By Amy Tickle

Economic response to the coronavirus

The government has released a string of measures aimed at assisting individuals and businesses to weather the uncertainty of the next few months. A total of $189 billion is being injected into the economy by all arms of Government in order to keep Australians in work and businesses in business.

There are some important superannuation measures that you should be aware of.

Temporary reduction in pension minimum drawdowns

The Government is temporarily reducing superannuation minimum drawdown requirements for account based pensions and similar products by 50 per cent for 2019-20 and 2020-21. This measure will benefit retirees by providing them with more flexibility as to how they manage their superannuation assets.

Age at 1 July Default Minimum Drawdown Rates (%) Reduced Rates by 50% for 2019-20 and 2020-21 (%)
Under age 65 4 2
65-74 5 2.5
75-79 6 3
80-84 7 3.5
85-89 9 4.5
90-94 11 5.5
95 or more 14 7

Individuals who have already taken their minimum pension amount for the 2019/20 financial year will not however be able to put that money back into their superannuation account under these changes.

This is a significant measure which will hopefully bring some much-needed relief for retirees wanting to keep
as much money as possible within superannuation.

Rest assured, if you have already received your annual pension service information from our office we will endeavour to provide you with updated figures. This will only occur should we notice / have sufficient up to date information to confirm your pension withdrawals are below the new minimum pension standards.

Temporary early release of superannuation

While superannuation helps people save for retirement, the Government recognises that for those significantly financially affected by the Coronavirus, accessing some of their superannuation today may outweigh the benefits
of maintaining those savings until retirement.

Eligible individuals will be able to apply online through myGov to access up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 for approximately three months (exact timing will depend on the passage of the relevant legislation).

Am I eligible for temporary early release?

The exact eligibility requirements will be formed in the coming days but broadly to apply for early release you must satisfy any one or more of the following requirements:

  • you are unemployed; or
  • you are eligible to receive a job seeker payment, youth allowance for jobseekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
  • on or after 1 January 2020:
    • you were made redundant; or
    • your working hours were reduced by 20 per cent or more; or
    • if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.

People accessing their superannuation will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.

If you are eligible for this new round of early release, you can apply directly
to the ATO through the myGov website: https://my.gov.au/. Separate arrangements will apply if you are a member of an SMSF and will be released on the ATO website over the coming weeks.

You will be able to apply for early release of your superannuation from mid-April 2020.

If you need assistance understanding any of these recent announcements, please contact our office to discuss your particular circumstances.

Providing rental relief for the tenant in my SMSF property

The economic impacts of the COVID-19 crisis are causing significant financial distress for many businesses and individuals. If your SMSF has a property and a tenant in financial distress, you may be able to provide your tenant with rental relief under an agreed commercial arrangement. This may even be the case when the tenant is a related party or yourself.

Ordinarily, charging a tenant a price that is less than market value in an SMSF is usually a breach of superannuation laws. However, the ATO have provided guidance which allows SMSF landlords to provide for a reduction in, or waiver of, rent because of the financial impacts of COVID-19. For the 2019–20 and 2020–21 financial years, the ATO will not take action where an SMSF gives a tenant – who may also be a related party – a temporary rent reduction during this period.

What do you need to do?

There are some important things you should ensure are in place when you are providing a rent reduction to a tenant, especially when this is a related party.

  • Ensure the relief only applies to rent – Any relief offered to a tenant can only relate to the rent component of the lease agreement. The ATO concession does not extend to other lease incentives.
  • Ensure that the reduction in rent is only temporary – This means it should have an agreed period of time or agreed date where the rent is reviewed in light of the economic circumstances.
  • The financial difficulty faced by the tenant is linked to the financial impacts of COVID-19 – Any negotiated rent relief will need to be measured against the COVID-19 financial impact suffered by your tenant.
  • Clear arrangements which detail the amount of discount, waiver or deferral of the rent – In evidencing that the rent relief is reasonable, it would be best practice if it is consistent with an approach taken by an arm’s length landlord.
  • Ensure you have proper documentation which allows your independent auditor to be satisfied that the temporary rent relief satisfies all of the above – This may take the form of a signed minute, renewed lease agreement or anything deemed appropriate to amend the terms of the lease temporarily. Even if you are both the tenant and landlord, the above should all be documented.

These are extraordinary times and the ATO is providing this guidance to allow SMSF trustees to be flexible and agile. If trustees act in good faith in implementing a reasonable and measured reduction in rent because of the impacts of COVID-19 they should not fall foul of the law.

If you would like any further information on the above, please contact our office.

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