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Common human biases that investors should understand when it comes to investing is extremely important. These biases are ingrained in human nature, leading to tendencies to oversimplify, rely on quick thinking or exhibit excessive confidence in judgments, which may lead to investment mistakes. By gaining insight into these biases, investors may be able to make better decisions to help reduce risk and improve their investment outcomes in the long-term. Numerous cognitive biases can affect how decisions are made. The key to mitigating these biases lies in recognising their presence, identifying when they might arise and then either making appropriate adjustments or obtaining help to moderate their impact. Seven cognitive biases that might arise at various stages of an investor’s investing journey. Herding: The tendency to follow and mimic the actions of a larger group. Confirmation bias: The preference for information that confirms one’s existing beliefs or hypotheses. Overconfidence effect: Excessive confidence in one’s own investment decisions and abilities. Loss aversion: When the fear of loss is felt more intensely than the elation of gains. Endowment effect: Overvaluing assets because they are owned. Neglect of probability: Disregarding the actual likelihood of events and often overemphasising rare occurrences at the expense of more probable outcomes. Anchoring bias: The tendency to rely too heavily on a past reference or a single piece of information when making decisions. Herding The herd mentality occurs when people find reassurance and comfort in a concept that is widely adopted or believed by many others. In recent times, we have seen the herd mentality with the events that surrounded the GameStop stock event. Where many people saw the rise in stock prices and without proper investment research followed the trend of many others and invested. This impacted a lot of investors who bought the stock due to the fear of missing out and the hype it created. We believe, to be a successful investor, you must be able to analyse and think independently. Speculative bubbles are typically the result of herd mentality. Herd mentality in investing can overshadow rational decision making and could increase the risk of financial losses. Investors need to recognise the feeling of pressure to conform to popular opinion or follow the crowd and instead consider conducting research and analysis before making decisions, as well as seeking alternative views to challenge the consensus. Confirmation bias Confirmation bias is the tendency to favour information that corroborates pre-existing beliefs or theories. In our view, confirmation bias can lead to significant errors in investing. Investors may develop an inflated sense of certainty when they encounter consistent evidence supporting their choices. This overconfidence can create an illusion of infallibility, with an expectation that nothing can go wrong. Overconfidence bias Overconfidence bias in investing is where investors overestimate their knowledge, intuition and predictive capabilities, often leading to poor financial decisions. This bias can present itself through various ways such as excessive trading, under-diversification and the general disregard for potential risks. Investors with overconfidence bias tend to believe they can time the market or have the ability to pick the winning stocks better than most, which in turn may also result in overtrading and increased transaction costs. Overconfidence can also lead to a lack of proper risk assessment and analysis, as investors might underestimate the likelihood of negative events or industry dynamics affecting their investments. An example of overconfidence bias occurred during the dot-com bubble of the late 1990s and early 2000s. Many investors were overly optimistic about the growth potential of internet related companies. This led to inflated stock prices as more and more people invested in these companies without proper evaluation of their actual worth. Loss aversion Loss aversion in where a real or potential loss is perceived as much more severe than an equivalent gain. The pain of losing is often far greater than the joy in gaining the same amount. This overwhelming fear of loss can cause investors to behave irrationally and make bad decisions, such as holding onto a stock for too long or too little time. For example, an investor whose stock begins to tumble, despite clear signs that recovery is unlikely, may be unable to bring themselves to sell due to the fear of loss in the portfolio. On the flip side, when a stock in the portfolio surges, they may quickly cash out, not wanting to see the possibility of those profits disappearing. When an investor clings onto failing stocks, departs with successful stocks too quicky and fear governs their investment decision, it’s known as the disposition effect. It’s a direct consequence of loss aversion, leading investors to make overly cautious choices that ultimately undermine their financial goals. So, understanding this bias may help investors make rational decisions to grow their portfolios while managing risk effectively. Endowment effect Closely related to the concept of loss aversion is the endowment effect. This effect arises when individuals place a greater value to items because they own them, as opposed to identical items that they do not own. It’s a cognitive bias where ownership elevates the perceived value of an item beyond its objective market value. For example, an investor may develop a strong attachment to a particular stock. It could be the very first stock they ever invested in, or they may favour the company for a particular personal reason such as aligning with their values. If this stock begins to fall and financial experts are advising to sell, because of the value bias this investor has they may be unwilling to sell. The investor perceives the stock’s value as greater than what the market dictates, purely because of ownership. It is a delicate balance that is needed to be able to determine between attachment and sound financial decision making and can be challenging for some investors. To help mitigate the endowment effect, investors should regularly review their portfolios and consider the help of a financial adviser. Establish clear, predefined criteria for selling assets, aligned with financial goals. Develop a detailed investment plan with … Read more

AI is revolutionising the world of investing in ways previously unimaginable. Technological advancements have continuously reshaped the way we invest and manage our money. One such example that has been gaining significant traction and attracting a large amount of attention in recent years is AI (Artificial Intelligence) investing. With its ability to analyse vast amounts of data, identify patterns and make informed predictions, AI is revolutionising the world of investing in ways previously unimaginable. Here, we’ll examine the implications of AI on investing, its current applications, the pros and cons and what the future holds for AI in financial services. What is AI investing? Artificial Intelligence, a branch of computer science, involves the development of computer systems that can perform tasks that typically require human intelligence. In the context of investing, AI utilises algorithms and machine learning techniques to analyse data, recognise patterns, and make investment decisions without human intervention. One of the primary implications of AI in investing is its potential to enhance decision making processes by leveraging vast datasets and complex algorithms. Traditional investment strategies typically rely on human judgement, which can be influenced by emotions and biases. AI, on the other hand, can analyse data objectively and make data driven decisions based on historical trends and real time information. Current applications of AI in investing AI has already made significant inroads into various aspects of investing, including portfolio management, risk assessment and trading strategies. Some of the key applications of AI in investing include: Algorithmic trading: AI-powered algorithms are increasingly being used to execute trades at high speeds and analyse market conditions in real time. These algorithms can identify trading opportunities and execute trades with minimal human intervention, leading to improved efficiency and reduced transaction costs. Robo-advisers: Robo-advisers, automated investment platforms that use AI algorithms to create and manage investment portfolios, have become popular among individual investors. These platforms offer personalised investment advice based on factors such as risk tolerance, investment goals and market conditions, making investing more accessible and affordable for the mass market. Sentiment analysis: AI algorithms are being employed to analyse social media, news articles, and other sources of information to gauge market sentiment and predict market movements. By analysing the tone and content of online conversations, AI can identify emerging trends and sentiment shifts that may impact investment decisions. Risk management: AI-powered risk management systems can assess the risk associated with investment portfolios and identify potential vulnerabilities. These systems use machine learning algorithms to analyse historical data and predict future risk factors, allowing investors to make more informed decisions and mitigate potential losses. The pros and cons of using AI investment platforms Pros Data analysis: AI platforms can quickly analyse vast amounts of data from various sources, including market trends, financial statements, news articles and social media sentiment, to make informed investment decisions. Speed: AI algorithms can execute trades much faster than humans, taking advantage of fleeting opportunities in the market, such as arbitrage opportunities, which involves exploiting price differences of the same asset in different markets or in different forms. Essentially, it is the process of buying an asset in one market where the price is lower and simultaneously selling it in another where the price is higher, thereby profiting from the price discrepancy. 24/7 monitoring: AI platforms can monitor markets around the clock, enabling continuous monitoring of investment positions and reacting to changes in real time, which may not be feasible for human investors. Emotionless decision making: AI-driven investment strategies are not influenced by emotions, like fear or greed, which can lead to more rational and disciplined decision making, especially during volatile market conditions. Portfolio diversification: AI platforms can help investors build diversified portfolios by analysing a wide range of asset classes, sectors and geographic regions simultaneously, potentially reducing overall portfolio risk. Accessibility: AI platforms can democratise access to sophisticated investment strategies and tools, allowing retail investors to access institutional grade investment algorithms and insights. Cons Lack of human judgement: While AI algorithms excel at processing data and identifying patterns, they may lack the intuition and qualitative judgement that human investors possess, especially in situations where non quantifiable factors play a significant role. Overreliance on historical data: AI models rely heavily on historical data to make predictions about future market movements. However, past performance is not always indicative of future results and unexpected events or structural changes in the market can render historical patterns obsolete. Black box algorithms: Some AI models operate as “black boxes,” meaning their decision making process is opaque and not easily understandable by humans. This lack of transparency can make it difficult for investors to trust the recommendations or understand the rationale behind investment decisions. Risk of technology failures: AI platforms are susceptible to technical glitches, bugs or cybersecurity breaches, which could disrupt trading operations or compromise sensitive investor data. Market saturation: As more investors adopt AI-driven strategies, the market may become saturated with similar algorithms, reducing the effectiveness of these strategies and potentially leading to crowded trades. Regulatory uncertainty: The regulatory landscape surrounding AI-driven investing is still evolving, raising questions about legal and ethical considerations, such as algorithmic bias, insider trading detection and fiduciary responsibilities. Conclusion AI investing represents a paradigm shift in the world of finance, offering the promise of improved efficiency, accuracy and accessibility when it comes to investing. From algorithmic trading to robo-advisers, AI-powered solutions are already transforming the way we invest and manage our money. As AI technology continues to evolve, its impact on investing is expected to increase, ushering in a new era of data-driven decision making and innovation in the financial services industry. By harnessing the power of AI, you could gain a competitive edge in an increasingly complex and dynamic market environment. It is, however, important to recognise that AI is not a magic bullet and comes with its own set of challenges and risks. Source: MLC

Investment funds can be broadly split into two categories – active and passive. And while both options play a part in an investment portfolio, it’s important to understand how each works before allocating money to them. Basics of passive investing Passive investing has gained momentum in Australia, and beyond, over the last decade. It could be because this style of investing aims to replicate the returns of a particular market index (for example, the S&P ASX 200 Index). This means, that when the value of the index rises, so too will the value of the fund. On the flip side, as the value of the index falls, so too does the nature of the fund. Exchange Traded Funds (ETFs) are some of the most popular passive investments. They are similar to managed funds, in that they involve a trust structure which holds a basket of securities. As described above, the investments in the fund replicate the makeup of the relevant market index. For example, if the index is made up of stocks that include banks, mining businesses, retail companies and supermarkets, the ETFs will also hold these stocks. Units in ETFs are listed on stock markets and can be traded just like shares. It’s important to note, that while there are also actively managed ETFs, passive ETFs are most common of the two. Basics of active investing In contrast, an active approach to investing involves a fund manager choosing the assets in the fund, depending on the manager’s view of markets and the type of fund it is. Like passive investments, there are many types of actively managed funds which offer exposure to different asset classes and industries. Rather than track an index, an active fund will target a return above a particular benchmark. An example of this is, every year, an actively managed fund might aim to achieve the same return as the S&P ASX 200 plus two per cent. Another common way of measuring the performance of an active fund is for it to target a premium above the rate of inflation. For example, a fund might aim to achieve inflation plus two per cent per year. Cost benefit analysis: fees Cost is one of the major differences between these two styles of funds. Typically, passive investments are lower cost, as investors are not paying for the fund manager’s expertise in choosing the investments in the fund. Active funds, on the other hand typically charge a base fee and a performance fee to incentivise the fund manager to produce the highest possible return. Market conditions It’s important to remember that markets will always go up and down, and actively managed funds still have many benefits (as well as risks) while factoring: Funds that track an index only produce the return of the index. Fund manager skills can be used to pick investments that have the potential to do well when economic growth is slow and markets are falling. Active managers can also avoid stocks and sectors that are not doing well. It’s very difficult to get a true picture of whether actively managed funds perform better over time versus passive funds. It’s probably more instructive to think about how each style of investing is used in a portfolio. Styles applied A core and satellite approach are a common strategy investors use that involves both active and passive investing. In this approach, the core of the fund tends to be made up of passive investments that follow the market, while the satellite part of the strategy is made up of more specialised investments. There are a number of ways this style can be applied, but a popular technique is to use index or passive funds as the core, such as an ETFs that tracks one or more major market indices. The satellites are made up of actively managed funds that allow an investor to express specific views by selecting their asset exposure. For instance, an investor may choose to allocate funds to an actively managed fund that comprises technology investments, in the belief this sector will perform well. Or an investor may choose to apportion funds to an actively managed gold fund, taking the view this commodity may provide a hedge against market volatility. There are almost endless ways of using actively managed funds to express views about how different asset classes and sectors will perform over time. A balanced perspective There’s really no right or wrong approach when it comes to investing in active and passive investments. Many investors choose to invest in a combination of the two styles to achieve a level of diversification in their portfolios and to get access to a broad range of asset classes across the risk spectrum. Source: BT

Tax is often the last thing on our minds when we’re planning for retirement but it’s important to understand how your retirement income will be taxed, so you can make the most of your savings. The good news is that super is a tax-effective way of building wealth for your retirement and the tax benefits become even more pronounced when you retire. The tax treatment of payments from superannuation depends on factors such as your age and circumstances at the time they are received. On or after age 60 No tax is payable on either lump sum payments or account-based pension payments received on or after age 60. By converting your super account to an account-based pension account, investment earnings – including realised net capital gains, are generally tax-free within your pension account. Before reaching 60 There are limited circumstances in which you can access your super before reaching 60 including financial hardship and compassionate grounds. The tax treatment of payments made from super before reaching your preservation age are: Income payments from your account-based pension Tax-free component Tax-free Taxable component Taxable at your marginal tax rate (plus Medicare levy)   Tax on lump sum payments Tax-free component Tax-free Taxable component Taxed at 20% (plus Medicare levy)   Tax on disability super benefit A tax offset of 15% is generally available on disability super benefits paid as a pension to members under age 60. Tax on terminal illness benefits Generally no tax is payable on benefits that are paid to you under the ‘terminal medical condition’ condition of release. Source: Perpetual

We don’t need insurance until we do. Protecting your wellbeing and your wallet “Do I really need this insurance?” It’s probably a question you’ve asked at some point when deciding whether to part with your money. But maybe the real question should be “What if I became ill, how would we cope?” Your health and wellbeing are the most important assets you have, so it pays to put in the hard yards and get your head around the tricky topic of insurance. Illness or injury can strike at any age or life stage, and it certainly doesn’t wait for the most convenient time to happen. Having peace of mind about having enough money if things take a nosedive could be your best investment yet, as well as helping you sleep at night. When insurance is a good idea Often insurance can come on your radar off the back of someone you know falling really ill, or when you read something scary in your news feed. These events can make you stop and think but you don’t need to wait for a warning signal. In fact, getting on the front foot ahead of major life changes is often the best reason to get your insurance sorted. Here are some scenarios to have a think about: Landing your dream job – no job is completely secure and if you’re about to ramp up your income your lifestyle is probably going to upgrade too. If one day you lost your income, how long would you be able to pay the bills? Switching to an income that’s up and down – while the gig economy or a well paying contract has its lifestyle benefits, there is a trade off. You don’t benefit from things like sick leave or annual leave and if your income takes a sudden downturn, you might be left struggling for cash. Starting a family – when you settle down with a partner or have kids, it’s not just about you anymore. You’re going to have someone who truly depends on you and what happens to you will have a big knock on effect on them. Starting a family might also mean taking on a bigger mortgage. Getting your head around the important lingo – insurance jargon is one thing you’ll need to make peace with as you navigate your options. If you’ve looked at the insurance section of your super statement, you may notice ‘Death’ insurance – but did you know it may also cover you for a terminal illness diagnosis? And what on earth is TPD? How do you know what constitutes Total and Permanent Disability? Don’t worry, we’ve got all the details below. Reading the fine print But first, a word about insurance policies. While having a general understanding of what type of policy covers what, it’s no substitute for reading your insurance Product Disclosure Statement (PDS) and knowing exactly what you’re getting. Just like travel, or home and contents insurance, policies and the amount they pay out can vary a lot. So it’s worth reading the fine print on something so important in your life. Protecting your income If you’re working and you or your family rely on your income to cover the bills, you should be giving serious thought to taking out insurance to protect your income. You have three options for this: Income protection – if you become ill or injured and can’t work for a short period of time, income protection will provide monthly payments up to around 70-85% of your income to help cover your expenses. This cover is available directly through an insurance company or via your super fund but it may not be automatic – you may have to opt in or apply for cover. Some generous employers may build income protection into a benefits package and pay your premiums for you. Total and Permanent Disability (TPD) insurance – as the name suggests, this cover is designed for when you experience a permanent disability that prevents you from ever working again. For example, if you were to have a serious heart attack or stroke that required six months of rehabilitation and you’re unable to return to work again for a job you’re qualified for, this cover may pay out. Again, you can get this type of cover directly through an insurance company or via your super fund. In fact, this cover may already be automatically included within your super fund. Cover is also available outside super, where you can apply for ‘own occupation’ insurance. Instead of paying out only if you are unlikely to ever work again in any reasonable job you could do, own occupation cover will pay you if you can’t return to the job you were working in immediately before you were injured or became ill. Life cover – also known as ‘Death’ cover which pays a lump sum amount of money if you die. The pay out goes to whoever you nominate as beneficiaries or your estate. As with TPD, you may receive this type of cover automatically as part of your employer’s default super fund. And some life cover will also pay out if you are terminally ill, meaning you can use the funds to help your family before you pass away. Covering yourself for critical illness One of the most important types of insurance you can get is the one you can’t get through your super fund. Trauma (also known as critical illness) cover will pay you a lump sum of money if you are diagnosed with a serious illness, such as coronary and cancer illnesses. These conditions often need years of treatment or rehabilitation, which can be very hard to manage without any financial support. Trauma cover can work hand in hand with income protection, which gives you regular payments instead. Trauma cover isn’t cheap but it certainly pays off if you need it. And in the event, you’re dealing with a serious and stressful treatment such as chemotherapy, you won’t have to … Read more

When it comes to investing, you have two options – inside or outside of super. Super, being a longer term investment designed to fund your retirement, comes with a number of advantages such as being lightly taxed (which can mean, more money to invest in your financial future) but does have some constraints including not being able to access your super, generally until you have reached retirement. While super is a popular option for many, there are also a number of investment options to consider outside of super – you just need to find a mix that fits your needs. Managed investments While you’ve probably heard of managed funds, there are other types of managed investments such as managed accounts and Exchange Traded Funds (ETFs). The main appeal of managed investments is that they take the hard work out of selecting which assets to buy and sell and when to do it – a professional investment manager can do so for you. Like all other investments however, there are risks associated with the above. In addition to the risks that apply to investing generally, for managed investments specifically, risks also include the possibility that the investment manager may not perform as expected against their respective benchmarks. Here are the types of managed investments you could consider: Managed funds – investment vehicles where the money contributed by a large number of investors is pooled and managed as one overall portfolio by a professional investment manager. Investors purchase units in the fund, which entitles them to an interest in a pool of assets with the unit holders. Managed accounts – these are similar to managed funds, except that instead of owning an interest in a pool of assets, a portfolio of assets is bought specifically for you (which makes you the beneficial owner of all the assets in your portfolio). This also means they can be more tax efficient. Exchange Traded Funds – ETFs are listed on the share market, which means they can be bought and sold like shares. They also allow you to invest in a range of asset classes or sectors. Cash investing It’s no surprise that many may be tempted to stash their cash in an account – doing so gives you the ability to access your money at short notice. Your money can also usually be accessed with low, or potentially zero fees applying to withdrawals (except in some cases, for example, early access to term deposits). Keep in mind though, in the investment world, lower risk can mean lower returns, and the key downside of cash is that your money won’t generate capital growth (so unless you earn more than the rate of inflation after tax, and reinvest those returns, inflation can lower the purchasing power of your money). Investing in shares As an investment, shares have lower and fewer upfront costs, which is why they’re quite popular among investors. There are no ongoing costs and depending on the share you choose to invest in, shareholders can earn regular income through dividends as well as enjoying the potential for long-term capital growth. Having said that, it’s important to understand that share prices rise and fall and the payment of dividends and the return of capital are not guaranteed. As mentioned above if you aren’t sure which shares to add to your portfolio, remember you can choose managed funds, managed accounts or ETFs where you pick the type of portfolio that suits your investment goals. Investing in property Over time, a well located property could generate long-term growth and income returns. Another major appeal of owning property is its perceived stability relative to the share market, where values can vary as a consequence of how easy it is to buy and sell shares. A property investment on the other hand, can give you a tangible asset that delivers a sense of investment security as well as capital growth. Keep in mind however, that the upfront costs of property can be significant, with stamp duty, legal fees and optional costs, such as pre-purchase pest and building inspections, potentially adding roughly 5% extra onto the property’s purchase price. And while the tenant too wears some of the property costs related to direct usage, it’s the landlord who generally pays the majority of costs such as repairs, maintenance and insurance, which is why property is generally regarded as a longer term investment. Source: BT

In Australia, investing in real estate isn’t the preserve of a wealthy elite. The nation’s 2.24 million property investors, owning a collective 3.25 million homes1, are everyday Australians – skilled tradies, small business owners and professionals. If you’re a property investor, being tax-smart can be just as important as buying the right place – regardless of whether you lodge your tax return yourself or with an agent. So it’s important you keep records right from the start, you’re across what you need to declare and you know what you can claim at tax time – particularly in the current climate of high interest rates, when every dollar counts. What you need to declare When you lodge your tax return, you need to let the Australian Taxation Office (ATO) know how much rental income you received over the financial year. If you own the property in your name, you’ll need to declare your income on your individual tax return. If you own the property in the name of a company or trust, then rental income forms part of the company or trust tax return. If you own the property with another person, then you must declare rental income and claim expenses according to your legal ownership. As joint tenants your legal interest will be an equal split, and as tenants in common you may have different ownership interests. You may also need to declare: Rental bond returns if your tenant defaulted on rent or caused any damage. Insurance payouts to compensate you for damage. Letting and booking fees you received. Tenant payments to cover repairs. More information about what rental income must be declared is available at the ATO website. What you may be able to claim Mortgage interest. Management costs, including property agent fees and commission. Maintenance costs, including cleaning, gardening, pest control and repairs. Insurance – landlords, mortgage, building, contents and public liability. Body corporate fees and charges. Land tax. Building costs, including extensions, alterations and structural improvements as capital works deductions. Loan establishment fees. Title search fees. Costs of preparing and filing mortgage documents. Some legal expenses. You can’t claim for conveyancing fees or stamp duty but if you sell your property, you can use these costs to help work out if you need to pay capital gains tax. You can find out more about rental expenses you can claim  at the ATO website. 1 How many Australians own an investment property Property update.com.au Source: AMP

Super and investment scams target your personal wealth by convincing you to invest in fake schemes and companies. A super scam is when someone tries to access your super and withdraw your money. An investment scam is when someone tries to convince you that an investment is real, so you invest your money in whatever it is they are offering. Common super and investment scams to look out for You receive an offer from a financial adviser or a scammer posing as one. The scammer may ask you to agree to a story to ensure the early release of your super and then, acting as your financial adviser, they’ll deceive your super fund into paying out your super benefits directly to them. Once they have your money, the scammer may take large ‘fees’ out of the released fund or leave you with nothing at all. You receive a call or email from a stockbroker offering amazing investment opportunities with high returns and a low risk. In reality, this ‘stockbroker’ is unregistered and intends to steal all the money you invest. You receive an insider tip regarding a company about to take off and are encouraged to buy shares. What appears to be a once in a lifetime opportunity, is simply a pyramid scheme designed to raise money through the investments of many people. You’re invited to an investment seminar with free advice, food and drinks. At the event, you’re persuaded to invest in high risk strategies that turn out to have hidden fees and undisclosed charges. You might also be encouraged to purchase expensive investment strategy books. Super scams Scammers are using fake vouchers, financial assistance claims or general information as bait to ‘phish’ for your personal information, including your superannuation. They may try to contact you by cold calling or may send a text message or email containing malicious links. Scammers can disguise themselves as well known businesses and government agencies such as myGov, the Department of Health and the ATO, to trick you into sharing your personal information. Once they have your details, they can pretend to be you and access your super. Keep an eye out for any of the following: Advertisements promoting early access to super. Offers to ‘take control’ of your super. Offers to move your super to a self managed super fund (SMSF) so you can access the money. Offers of quick and easy ways to access or ‘unlock’ super. Asking for your personal and financial information. Luring you into opening malicious links or attachments. Gaining remote access to your computer. Seeking payment for a fake service or something you did not purchase. Protecting yourself from scams Having trouble trying to spot a super or investment scam? How can you help protect yourself from scammers? The following is a list of key things you should be looking out for to ensure you don’t fall victim to a scammer. Never give information about your superannuation to someone who has contacted you, even when you think it is a trusted organisation. Just hang up and verify their identity by calling the relevant organisation directly. Never provide your account login details to a third party. Don’t click on hyperlinks in text/social media messages or emails, even if they appear to come from a trusted source. Always be suspicious of investment opportunities that promise a high return with little or no risk – if it sounds too good to be true, then it probably is. Check if a financial adviser is registered via the ASIC website. Any person or business offering advice about financial products must hold an Australian Financial Services licence from ASIC. If in doubt, you can check MoneySmart’s list of companies you should not deal with. If the company that called you is on the list, do not deal with them. Never let anyone pressure you into making decisions about your money or investments and never commit to any investment at a seminar. Always get independent legal or financial advice first. Source: MLC

Key points – 2023-24 provided another year of strong returns for investors as shares were boosted by falling inflation, central banks pivoting towards rate cuts (although the RBA is lagging) and economic conditions were better than feared. – More central banks moving to cut rates, including the RBA early next year, should provide support for investment returns. – However, balanced growth super fund returns over the year ahead are likely to be more constrained at around 6-7% (compared to 9% over the last year) and more volatile with a high risk of a correction in the months ahead as valuations have deteriorated, recession risks remain high and geopolitical risks – including around the French and US elections – are also high. – The key is to adopt a long term strategy and turn down the noise. Introduction There has been a wall of worry for investors over the last year but as is often the case share markets climbed it. This resulted in another financial year of strong investment returns in 2023-24. But can it continue? Key themes – lower inflation was the big one Investment markets were hit hard in 2022 by surging inflation, interest rate hikes to combat it, fears that this would cause recession with various geopolitical threats (notably the war in Ukraine) not helping. This drove poor investment returns in 2021-22. However, inflation peaked in mid to late 2022 kicking off a new bull market in global shares from October 2022 which has been in place ever since. Against this backdrop, the key themes driving investment markets over the last 12 months have been: A further fall in inflation globally. While there have been a few scares along the way, notably into last October and earlier this year, the broad trend in inflation has remained down. This reflects improved goods supply, some lower commodity prices, lower transport costs, easing demand and cooling jobs markets. Source: Bloomberg, AMP   Australian inflation has also fallen but it’s lagging. This is not necessarily a concern as it lagged global inflation on the way up, peaked later and is lagging on the way down and the situation may be a bit confused by the new and incomplete monthly inflation indicator. Central banks pivoting towards rate cuts. After slowing the pace of rate hikes, central banks have pivoted towards rate cuts albeit with expectations over the timing and extent of cuts waxing and waning and driving bouts of volatility along the way. Central banks in Switzerland, Sweden, Canada and the Eurozone have now started to cut with the US and UK expected to start around September. The RBA is a laggard due to lagging disinflation. RBA rate cut expectations have been pushed to 2025 with a risk of another hike. Better than feared global growth. While Europe and Japan have flirted with mild recession global growth generally has held up better than feared around 3%, led by the US. This in turn has supported profits. China worries. Growth in China has been faltering with the property slump weighing but it’s remained around 4.5-5%. What’s more, the copper price reached a record high and iron ore prices remained strong. Geopolitical threats remained high. The war in Ukraine continued to rage; Hamas attacked Israel with the aim of starting a war in Gaza; Iran and Israel traded missiles; Houthis have attacked shipping in the Red Sea; China/West tensions have continued to fester; and the election in France threatens another Eurozone crisis. But so far, worst case scenarios have been averted with limited market impact. AI enthusiasm. AI has continued to boost key, mainly US, tech stocks with optimism about its productivity enhancing benefits. Another financial year of strong returns The net result has been another financial year of strong return for most assets as can be seen in the next chart. Source: Bloomberg, AMP Global shares returned 21% in local currency terms over 2023-24, with a slight rise in the Australian dollar cutting this to a still strong 20% in Australian dollar terms. Japanese and US shares outperformed with the US continuing to benefit from the AI boost. Chinese shares fell again. Australian shares returned 12%, benefitting from the positive global lead but were relative underperformers again on the back of China worries, the RBA lagging in moving to cut rates and the greater sensitivity of Australian households to higher rates. Australian real estate investment trusts surged but global REITs only returned 4.6%. Unlisted commercial property returns look to have been negative again as the lagged negative impact of higher bond yields and reduced space demand for office and retail weighed on capital values. After seeing their worst loss in decades in 2022 as bond yields surged with inflation, bond returns have since stabilised with modest returns. Cash returned 4.4% helped by two years of rate hikes. Australian home prices rose 8% as a supply shortfall on the back of a surging population offset the drag from higher mortgage rates. Gains were concentrated in Perth, Brisbane and Adelaide though. Combined, this drove an estimated 9% return in balanced growth superannuation funds for the second year in a row. Source: AMP The last few years has seen a zig zag pattern in returns with average super funds seeing losses in 2019-20, very strong returns in 2020-21, a loss in 2021-22 (as inflation and bond yields surged) and have now had two years of strong returns. Given the volatility it’s best to focus on their longer-term average returns which has been 6.8% p.a. over the last decade or 4.2% p.a. after inflation, which is pretty good as it’s after fees and taxes. Some lessons from 2022-23 A big lesson of the last year is that monetary policy still works in slowing inflation (just as it was a key driver of its rise in 2021-22). Second, lower inflation is good for shares (assuming economic activity holds up). And finally, the last year was yet another reminder of just how hard it is to time markets. … Read more

They say nothing is certain in life except two things – death and taxes. Australians can probably add a third – the knowledge that come the end of financial year, the rules around superannuation and taxation will inevitably change. It can be hard keeping up with all the latest super and tax rule tweaks so here’s a quick guide to everything you need to know about what’s changing on 1 July 2024. First, some good news. Your employer will contribute more towards your super… If you’re a PAYG employee, your compulsory super guarantee (SG) payment will go up by half a percentage point to 11.5%. …and you can tip more in as well. There are annual caps or limits on how much money you can contribute towards super. These caps are going up, so if you have any spare funds, you’ll be able to move more of your money into super’s low-tax environment. The concessional cap (pre tax) is increasing from $27,500 to $30,000 a year. The non-concessional cap (after tax) is increasing from $110,000 to $120,000 a year. This means if you have less than $1.66m in your super on 30 June 2024, you might be able to bring forward three years of non-concessional contributions (NCC) up to $360,000. If you’re lucky enough to have more than $1.66m in your super, these bring-forward rules change – see the table below. Your total super balance (TSB) at 30 June 2024 NCC cap in 24/25 Bring-forward period <$1.66 million $360,000 3 years $1.66m – $1.78m $240,000 2 years $1.78m – $1.9m $120,000 Standard NCC cap >$1.9m Nil Nil   What this means for your super strategies While the higher concessional cap will allow you to sacrifice more salary into super, the increased SG rate will reduce some of your extra capacity. So, it could be a good time to review any existing salary sacrifice arrangements you have with your employer. Turning 60 in 2024/25? Here’s what you need to know Your preservation age is the age you can start to access your super. It’s between 55 and 60, depending on when you were born. So, if you’re born after 1 July 1964 and you’re turning 60 in the 2024/25 financial year, you’ll be able to access your super for the first time. It’s been a long haul, but you’ve finally made it… congratulations! You’ll be able to withdraw larger lump sums if you’re retired without worrying about the low-rate cap of $235,000. You’ll enjoy tax-free pension income payments, regardless of whether you have a transition to retirement (TTR) or retirement income stream. If you’re still working, you won’t have full access to your super until you reach 65. But you can start accessing your super with a TTR strategy which allows you to draw regular income up to 10% but doesn’t allow lump sum withdrawals. You’ll pay less income tax The Government’s long awaited ‘stage 3’ tax cuts are coming into effect on 1 July 2024. While there have been well publicised changes – lower income earners will receive a higher cut than originally proposed, while higher income earners will receive a lower cut. The bottom line is that all personal income taxpayers will pay less tax. Your tax cuts from 1 July 2024 Taxable income Tax payable 2023/24 Tax payable 2024/25 Tax cut $40,000 $4,367 $3,713 $654 $60,000 $11,067 $9,888 $1,179 $80,000 $18,067 $16,388 $1,679 $100,000 $24,967 $22,788 $2,179 $120,000 $31,867 $29,188 $2,679 $140,000 $39,667 $35,938 $3,729 $150,000 $43,567 $39,838 $3,729 $160,000 $47,467 $43,738 $3,729 $180,000 $55,267 $51,538 $3,729 $190,000 $59,967 $55,438 $4,529 $200,000 $64,667 $60,138 $4,529 Source: https://treasury.gov.au/tax-cuts/calculator What this means for your EOFY tax strategies Before 1 July 2024 you’ll still be paying a higher rate of tax. So, you might like to think about bringing forward any tax deductions by: Making personal deductible contributions to your super using any unused amounts from 2018/19. Prepaying any deductible expenses such as income protection premiums and investment loan interest where possible. After 1 July 2024 you’ll be paying a lower rate of tax. So, you might like to think about deferring any taxable income from: Selling an asset that generates a capital gain. Receiving an employment termination payment or leave entitlement. Applying for a First Home Super Saver Scheme release. Making a taxable super withdrawal, such as total and permanent disability under age 60. Source: AMP