Superannuation, sometimes known as your “nest egg,” is a key part of your lifestyle flexibility and retirement puzzle.
Read our insights to keep up to date with the latest news, trends and changes related to superannuation advice.
February saw global markets deliver much stronger returns in risk assets than domestically, thanks to positive economic data and stronger-than-expected earnings reports, particularly select mega tech names linked to the generative AI revolution. A prime example was Nvidia, which delivered another strong profit result, beating consensus expectations for earnings and sales, which resulted in another round of upgrades.
In Australian dollar terms, the MSCI All Country World Index returned 6%, including dividends, in February, while the MSCI Emerging Markets index performed slightly better, gaining 6.4%, including dividends, helped by a late rebound in China. In developed markets, Japan continued to outperform, with the Nikkei 225 Index forging a new all-time high for the first time in over three decades. Meanwhile, European stock markets underperformed on disappointing economic data releases.
On the domestic front, despite a solid interim reporting season, the ASX had a weaker month, underperforming global peers. While the Tech sector followed its global peers upwards, weaker commodity prices weighed on the Resources sector. The ASX Metals and Mining sub-index declined by almost 6%. The Energy sector was also weaker.
Key themes during the ASX February reporting season included a greater focus on cost control helping drive more earnings beats than misses (Health Care and Resource firms the main exceptions where cost increases were more problematic). ASX 200 companies spent 55% of their free cash flow on capital expenditure (capex), up from 40% a year ago. Meanwhile, the domestic market’s cash conversion cycle continues to improve, thanks to lower inventory and receivables. Finally, older and wealthier cohorts benefiting from higher rates are spending and saving more, while younger and more indebted cohorts have pulled back on spending, having exhausted most of their savings.
On the interest rate front, traders pared back interest rate bets for a sharp reduction in the US Fed Funds Rate, as inflation and labour market data continued to surprise to the upside. At the beginning of the month, as many as six 0.25% cuts were being positioned for by Christmas 2024, but this was halved by month end. As yields rose, fixed interest returns again came under pressure, with most key benchmarks finishing February in the red. Meanwhile, the average rate on a US 30-year fixed mortgage rose to 6.94% at month end, its highest level in over two months. Elsewhere, oil prices continued to creep higher, while gold was virtually unchanged. The rally in crypto accelerated as Bitcoin spiked by 44% during the month, with speculation in numerous ‘coins’ reaching a fever pitch.
On the economic front, the Reserve Bank of Australia (RBA) maintained a hawkish tone in its February board meeting. The RBA held the official cash rate steady at 4.35%, in line with expectations. While inflation continues to show signs of slowing due to weaker goods and energy prices, it remains well above the target 2-3% range. January labour market data was again relatively weak, with employment growth and hours worked trending downward. Elsewhere, preliminary retail sales data for January increased by 1.1% versus December, missing the market consensus of a 1.5% rise. Manufacturing data was also below expectations, as the industry contracted at the beginning of the year.
In the US, the economy added 353k jobs in January, well ahead of expectations. Wage growth was also unexpectedly firmer. Average hourly earnings growth has now picked up steadily since October, reaching 4.5% over the prior year. The GDP figures for the December quarter were also strong, growing by 3.2% annualised, while productivity growth was up 2.7% over the twelve-month period. However, January inflation data came in hotter than market consensus. Core CPI (which excludes food and energy) rose by 1% over the quarter, and producer prices were also stronger than investors were hoping for. Services inflation has remained sticky, and so-called ‘super core services’ inflation, which strips out rental costs, jumped 0.9% in January, the largest monthly increase since April 2022.
Euro Area inflation inched lower to 2.8% in the year to January, and annual core inflation continued to ease to 3.3%. The result was above consensus but still reached its lowest level since March 2022. Finally, official UK data revealed its economy entered a shallow technical recession at the end of 2023 amid a broad-based decline in output. Despite consecutive quarters of negative growth, UK mortgage approvals and house prices are now rising strongly, while the unemployment rate fell to 3.8% at the end of 2023, led by progress in full-time employment.
Thanks for reading. If you have any questions or want to discuss your investment strategy, please book a chat here.
The Labor tax package passed through the upper house on Tuesday night with bipartisan support. The quick passage of the bill means the cuts will start applying to people’s incomes from July 1.
The stage 3 tax cuts will make the following changes to tax rates and thresholds in 2024/25 compared to the current financial year (2023/24):
The table below compares the resident tax rates in 2023/24 to the proposed tax rates from 2024/25 onwards:
As a guide, the below table shows the tax savings a resident taxpayer will receive from 2024/25 under the stage 3 tax cuts, based on different levels of taxable income in comparison to the current tax rates.
The reduction in the lowest marginal tax rate will also impact the effective tax-free threshold, which is the level of taxable income you can receive before income tax becomes payable. The good news is that these thresholds will increase.
The below table compares the effective tax-free income thresholds between the current year and from 1 July 2024.
Link to the Government fact sheet here.
If you want to discuss what this means for your personal strategy or any of the details above, please book a chat with one of our financial planners.
Risk-on investor sentiment continued into December as markets rallied across the major asset classes. Investors gained more confidence that the Fed was done with its rate hiking cycle and that the first of many rate reductions in 2024 could be just months away. The ‘higher for longer’ narrative that had prevailed as recently as October had given way to a more dovish outlook. Inflation data has continued to improve, and central banks are showing increasing signs that price pressures would likely continue to abate in 2024. This resulted in equities moving sharply higher into year-end, with most sectors participating in the gains.
Domestic shares were especially strong, having lagged global markets for much of 2023. Listed property and healthcare stocks staged a thumping recovery during the month, closely followed by materials (including resources) as iron ore climbed above USD 140/t. Small caps also had a strong month, with some investors adding to positions based on attractive relative valuations. Energy was the weakest performing sector, but still finished well in the black. Developed market shares rallied strongly, but the rise of the Australian dollar took the polish off returns for domestic investors. Emerging market equities underperformed their developed market peers as China continued to pose vexing questions around the structural headwinds facing its economy.
Bond markets rallied as risk-free rates moved back to levels last seen in July 2023 on hopes that global central banks would begin to cut rates in the first half of 2024. Credit markets were also strong, but different regions experienced widely varying spread outcomes due to idiosyncratic factors. The US 10-year Treasury reached 3.8% late in the month, while the yield for the domestic 10-year bond moved to as low as 3.9%. As recently as October, these instruments were yielding as much as 5%. By month’s end, money markets were positioning for six interest rate cuts in the US over the next twelve months.
Of note was the resurgence of crypto returns, with Bitcoin adding more than 13% in December in anticipation of the approval of an exchange-traded fund investing directly in the biggest token.
On the economic front, the disinflation narrative gained further momentum during the month. The US headline CPI for November slowed to 3.1% from a year ago. Falling energy prices were the main driver. Excluding volatile food and energy prices, the core CPI was up 4% from a year ago. Both numbers were in line with estimates and had little change from October. Shelter prices, which comprise about one-third of the CPI weighting, were up 6.5% on a 12-month basis, having peaked in early 2023. The December Fed meeting again kept rates on hold, but committee members now expected three rate cuts in 2024. That’s less than what the market had been pricing, but more aggressive than what officials had previously indicated. The committee’s “dot plot” of individual members’ expectations indicates another four cuts in 2025.
In Australia, the September quarter GDP numbers confirmed that a per capita recession was persisting and that the high cost of living was eating into household savings. The Australian economy expanded by 0.2% during the quarter, below market forecasts, as household consumption stalled and net trade detracted from growth. The household savings ratio dropped to 1.1%, the lowest since 2007. Meanwhile, government spending rose more quickly, preventing an overall weaker result. The unemployment rate increased to 3.9% in November 2023, while monthly inflation data pointed to slower price increases late in the year.
Elsewhere, the UK growth rate came in below consensus for October, while the German economy contracted by 0.4% year-on-year in the third quarter of 2023. Finally, in China, retail sales expanded by 10.1% year-on-year in November 2023, but below the market consensus estimate of 12.5%. Meanwhile, property prices in China posted a fifth consecutive month of decline in November, despite Beijing having issued a series of measures to boost demand.
We hope you find the information useful, and if you want to discuss any details further or discuss your personal investment strategy, please book a chat here.
I recently turned 30. It’s a strange age. Some of your friends have settled down and have children, whilst others are backpacking around southeast Asia. Some are looking to purchase an investment property, whilst others are hosting big parties in their shared house of ten. Regardless of which stage you are at, the thirties are an excellent chance to take some of that ‘grown-up medicine’ and to look to start to get our finances in order; here are some places to start.
1. Set some goals:
Money is just the vehicle towards helping you live your best life. Everyone will have different goals, so your financial plan should be different. If you’re the type of person who wants to live overseas, then buying a house because you feel like you should and others are telling you to may not be the best option. Once we have goals, it’s easier to know what we must do to achieve them. Otherwise, we can continue on a road to nowhere.
2. Review what you currently have:
Personal finances are usually left or pushed into the too-hard basket. You may not be as passionate about it as I am and, therefore, lack the motivation to think about it (completely normal). Simple things like reviewing what you currently have can pay big dividends.
Review your superannuation and make sure that your fund is appropriate. Check about how your fund has been performing compared to others. Please have a look at your investment options within your super and make sure that it’s appropriate for you. Think about whether or not you would like to be invested in an ethical and environmentally friendly manner and see if your current investments align with that.
You should also review what insurance you have. If you have young children or some debt with a partner, such as a home loan, then life cover could be critical. If you’re working and rely on your income to live, then you need income protection. Insurances aren’t sexy, and not many people like paying for them, but if something goes wrong and you don’t have them, it can create financial pain that can be hard to recover from.
3. Build an emergency fund:
Life is unpredictable, and unexpected expenses can arise at any time. Aim to build an emergency fund with three to six months’ living expenses. This financial cushion will provide peace of mind and help you avoid dipping into your savings or investments during tough times.
4. Look towards the future:
Investing is a powerful tool for building wealth over time. It can be slow to start with, but compound interest is the eighth wonder of the world; the earlier you start, the more rewards you reap. Putting some surplus cash towards investments that have growth potential can help you fund some future goals you may have as well. There are options for all different starting balances, so you don’t need to wait and put it off any longer.
5. Stop paying the lazy tax:
Only some people love to have a strict budget in place, and if that’s you, there are things we can do to get our cash flow under control. Reviewing your expenses is essential; a lot of little savings can add up, especially when everything is getting more expensive.
Have a particular look at your subscriptions, whether they be streaming services or gym memberships and make sure you’re using them and getting value out of them. If not, look at ending them or looking at alternatives.
The lazy tax can also apply to your banking. We often choose a bank early on in life and stick to it. Review your interest rate and ensure that what you are getting stacks up. This can also apply to your home loan if you have one. It can pay to do some research, as there are often no rewards for loyalty in this area.
7. Estate Planning:
It’s never too early to think about estate planning, especially if you have dependents. Setting up a will now can last until your situation changes and doesn’t need to be too difficult or costly. It will mean that your wishes will be carried out if something happens to you.
8. Reach out if you’re unsure:
For some people, discussing personal finances is like speaking another language, but seeking guidance from a good adviser can help simplify the situation. A good adviser should also be able to educate you along the way. Using your money in the best way possible is important, so don’t let it fall by the wayside just because you’re unsure where to start.
As always, we are here to help. If you have any questions, feel free to email me at zac@pekada.com.au
Investor tensions were further heightened in October as war broke out between Hamas and Israel. Despite the conflict, oil prices declined by around 10% during the month, with most of the damage coming in the final trading week. Meanwhile, European gas prices rose on fears of global supply chain disruptions. Commodity prices were a relatively bright spot in October, particularly where safe-haven gold was concerned.
Impaired sentiment continued to impact major indices, including the infrastructure and REIT sectors. Higher real yields have continued to detract from property and infrastructure returns, with small-cap returns experiencing a similar fate. The weaker Australian dollar (AUD) was again welcomed by domestic investors with foreign asset exposures. Indeed, the depreciation of the AUD over the last decade has strongly benefited unhedged domestic investors, particularly in developed market equities, where the depreciation has been more pronounced. For example, the annualised return for the MSCI ACWI-ex Australia has been boosted by more than three percentage points compared to its performance in local currency terms (11.9% vs 8.8%).
In fixed interest, government bond returns were negative in most developed markets as yields rose to multi-year highs in October. In Australia, heightened concerns around the path of inflation and interest rates saw 10-year government bonds briefly touch 5% later in the month. Japanese government bonds were not spared from the sell-off, as investors questioned the sustainability of the Bank of Japan’s (BoJ) yield curve control policy. During its October meeting, the BoJ redefined the 1% upper limit on yields from a strict boundary to a more flexible “reference” point.
On the economic front, US data regularly printed stronger than expected. The September nonfarm payrolls report stunned economists with the creation of more than 300,000 jobs (double the consensus estimate). Wage growth remained resilient, and inflation data, while trending lower, remained too sticky in the minds of market analysts. The advance estimate for Q3 US economic growth also shot the lights out, with activity surging at an annualised rate of 4.9%. Consumer spending drove the increase, while residential investment rose for the first time in nearly two years.
In Australia, the September unemployment rate fell to a three-month low of 3.6%, driven by a decline in workforce participation. Meanwhile, the RBA paused official interest rates for the fourth consecutive month in October while retaining a hawkish stance in its commentary. Finally, the CPI inflation data for the September quarter delivered an upside surprise that left economists scrambling to raise estimates. A much stronger-than-expected retail sales print (triple the consensus estimate) added further impetus to the view that the cash rate would be hiked at the November meeting.
Elsewhere, European activity was mixed, with soft German data prints pointing to further weakness. In contrast, the UK economy showed signs of moderate improvement. Turning to China, industrial production, GDP, and retail sales were positive surprises. However, continued weakness in the real estate sector and reports of further US restrictions on AI chip exports dampened investor sentiment.
We hope you find the information useful, and if you want to discuss any details further or discuss your personal investment strategy, then please book a chat here.
Most of us don’t like being asked how much money we make.
We’ve gotten really good, however, at building a material world around us that implies great wealth, even if the reality is something else entirely.
With our cars, our houses, and the clothes we wear, we are constantly signaling what we want the world to think about the very question we hate to answer.
And while we often treat these material things as a sign of our success, in reality, they’re usually just a front. In fact, most of us would be better off (financially speaking) buying a less expensive car and putting the leftover money into mutual funds.
Ironically, if we all just walked around with a big sign around our necks saying how much we make, we wouldn’t have to do all this posturing and pretending. Our relationship with money would change considerably if our financial decisions were transparent to the world.
For instance, what if the home in which we live could no longer hide that we’ve saved nothing for retirement?
Maybe then we would find it easier to focus on the financial choices that help us instead of hurt us.
To maximise the non-concessional contribution (NCC) opportunity, you may consider using the bring-forward NCC cap of up to $330,000, provided your Total Superannuation Balance (TSB) allows you to do so. If you are eligible, the bring-forward is triggered automatically when your total annual NCCs exceed the annual cap (currently $110,000).
From 2022-23 onwards, you are required to be under the age 75 on 1 July of the financial year to be able to access the bring-forward NCC cap. While age may determine whether or not a person is eligible to make NCCs above the annual cap, additional eligibility rules apply.
The maximum amount available under the bring-forward, as well as whether you have a 3 or a 2 year bring-forward period, depends upon your TSB on 30 June prior to the financial year in which the bring-forward is triggered. See table below.
If you make an NCC that exceeds the allowable amount based on your TSB on the prior 30 June, the contribution is assessed as an excess NCC.
If you’re considering putting more money into your super, let’s chat. Our experienced advisers can help you figure out which superannuation strategies make sense for you.
Successfully claiming a tax deduction for personal super contributions can reduce your taxable income and the income tax payable. The basic concessional contributions cap for the 2023–24 financial year is $27,500. However, it is important to understand that you may be able to claim more than the annual concessional contribution cap in some cases by accessing the carry-forward concessional contribution cap.
You will have a higher available concessional contributions cap (than the basic cap) in the current financial year if you can carry forward and apply available unused concessional cap amounts from previous financial years.
From July 2023, individuals can look back and carry-forward their unused concessional contributions for the previous five financial years. As the measure started on 1 July 2018, individuals could only look back to the ‘start’ and carry forward one previous year from FY2020, then two years from FY2021 and so on.
You are eligible to carry forward unused concessional cap amounts from previous years, and effectively increase your contribution caps in later years, if you have a total superannuation balance of less than $500,000 at 30 June of the previous financial year, and have unused concessional contributions cap amounts from up to five previous years.
Any unused cap amounts are available for five years and expire after this time. If an individual has an unused cap amount from the financial year ending 2019 and does not use that amount by the end of June 2024 it will expire.
If you’re considering putting more money into your super, let’s chat. Our experienced advisers can help you figure out which superannuation strategies make sense for you.
Financial markets took another leg down in September as investors came to grips with the narrative that the US Federal Reserve (the Fed) would need to keep interest rates higher for longer. Excluding dividends and share buybacks, the benchmark S&P 500 was down 4.9% in September, the Dow Jones Industrial Average decreased 3.5%, while the tech-heavy Nasdaq slumped 5.8%. This weakness was not limited to the US, as global indices across developed and emerging markets fell. However, a silver lining for unhedged Australian investors was the Australian dollar trading lower throughout September, partly insulating them from the losses.
In local shares, the ASX could not maintain its momentum from a rally in late August, with the S&P/ASX 200 index falling 2.8% after accounting for dividends. Small caps fared comparatively worse, posting a 4% decline. However, these moves paled compared to the 8.6% drop in listed property stocks, where rising risk-free rates revived valuation concerns and detracted from the impressive rally in A-REITs at the beginning of the financial year.
Fixed interest returns disappointed defensive investors, where exposures to safe-haven cash and high-grade credit continue outperforming government bonds. The ongoing large quantum of debt issuance by the US Treasury is proving to be an overhang. Finally, an extension of cuts in oil production by Saudi Arabia and Russia reignited inflation concerns and drove the price of crude above US$90/bbl.
Global shares accelerated their downward trend in September as the Fed’s ‘higher for longer’ theme rang more loudly in the aftermath of the September FOMC meeting. Upwardly revised economic projections by Fed officials were a case of ‘good news is bad news’, with investors disappointed a further rate hike could occur in 2023 before making way for potentially just two rate cuts in 2024. The Fed’s ongoing resolve to tame inflation was not well received by investors, with matters exacerbated by another lift in oil prices as Russia and Saudi Arabia coordinated their efforts to extend restrictions on output. As a result, transport-related costs were higher during the month.
The malaise in sentiment saw broad declines across major indices, often characterised by poor market breadth as decliners easily outnumbered gainers, culminating in most sectors finishing in the red. Trading volumes decreased significantly, while increased volatility and short positioning became prominent features across financial markets.
Our domestic sharemarket was not spared, as a jump in real yields put listed property to the sword, completely wiping the momentum seen in the sector since mid-July. Global REITs and infrastructure stocks similarly underperformed, with minimal respite to be found outside of energy and value plays.
In fixed-interest markets, the sell-off in US Treasurys continued in earnest, dragging other sovereigns along for the ride, including Australian bonds. Yields at the longer end of the maturity spectrum were particularly hard hit, imposing losses on composite bond indices and stoking anxiety that the bond bear market, which commenced in late 2021 had further to play out. Furthermore, the increase in yields and accompanying strength in the US dollar ensured that the gold sector underperformed.
On the economic front, data releases provided support that the US economy was experiencing a period of robust growth in the September quarter. In contrast, Europe was struggling with higher oil prices and an unexpected lift in official interest rates.
In the US, jobs market data remained strong despite a rise in the unemployment rate from 3.8%. Nonfarm payrolls exceeded expectations, and wage growth remained firm while job openings continued to outpace the available workers. Underlying inflation showed further signs of stickiness, and there was a reversal in the favourable base effects seen earlier this year. Notably, the US national debt reached US$33 trillion for the first time in September, while “excess” savings by households from the pandemic had now been depleted. This resulted in growing credit card balances, especially among poorer cohorts.
On the domestic front, the RBA again paused the official cash rate at 4.10% at its September meeting, with the minutes revealing that the central bank was concerned with the impact strong population growth was having on rents and house prices. The monthly CPI indicator for August jumped to 5.2%, as rising fuel and utility prices led to a rebound in inflation from a 4.9% gain in July. It was the first increase in annual inflation since April.
In China, the manufacturing sector finally stopped contracting in September, with key indicators pointing to a slight expansion. Another positive sign was that August retail sales exceeded expectations and accelerated from the previous month, posting the largest increase since May.
We hope you find the information useful, and if you want to discuss any details further or discuss your personal investment strategy, then please book a chat here.
If you’re making less than $58,445 in the 2023/24 financial year, and at least 10% of that comes from your job or a business, consider putting extra money into your super after taxes.
If you do and meet specific criteria, the Government might chip in with up to $500 into your super account—which is a fantastic percentage return on investment!
You get the full co-contribution if you make a voluntary non-concessional (after-tax) super contribution of $1,000 and earn $43,445 a year or less. If you put in less than $1,000 or earn between $43,445 and $58,445 a year, you might still get something, but only part of the amount.
Just remember that what you earn, including regular income, certain benefits, and employer super contributions, counts here.
If you’re considering putting more money into your super, let’s chat. Our experienced advisers can help you figure out which superannuation strategies make sense for you.