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 Financial Happenings Blog 
Friday, February 29 2008

My parents are visiting with my wife and I and received a letter in the mail from Centrelink outlining an increase to the Seniors Concession Allowance.  In the same week a prospective client met with Scott and I and asked for more information about this allowance.  I imagine it is a topic that is being discussed around Australia at dining room tables, lounge rooms and BBQs (for those who are fortunate / unfortunate enough to be experiencing some dry weather!)


So what is the Seniors Concession Allowance?


The Seniors Concession Allowance acknowledges the contribution by self-funded retirees in providing for their own retirement.  It is an ongoing payment paid automatically every quarter to Australian residents who hold a Commonwealth Seniors Health Card.


The letter that has just been received by recipients of the allowance sets out that the payment will be increased to $125 per quarter for each eligible self-funded retiree.  The letter also outlines that recipients will also receive an increase of Telephone Allowance if they have an account with a home Internet Service Provider.  This allowance will rise to $33 per quarter for singles or $16.50 for each eligible member of a couple.


To qualify for a Commonwealth Seniors Health card you:

         must be an Australian resident in Australia,

         not be receiving a social security pension or benefit, or a Department of Veterans' Affairs service pension,

         be of age pension age, and

         meet an annual adjusted taxable income test:

o        less than $50 000 (singles)

o        $80 000 (couples combined), or

o        $100 000 (couples combined who are separated due to ill health).

o        The limit is increased by $639.60 for each dependent child you care for.


'Adjusted taxable income' is your taxable income plus net rental property loss, target foreign income (foreign income not normally taxed in Australia including fringe benefits) and employer provided fringe benefits in Australia.  (The Telephone Allowance is not subject to an income or assets test.)


If you would like any further information about this topic for yourself or other family members or friends please do not hesitate to give our office a call or send an email to




Scott Keefer

Posted by: Scott Keefer AT 07:02 am   |  Permalink   |  Email
Thursday, February 28 2008

During my scan of the financial press on Thursday I came across a piece written by Ross Gittins, a well respected financial journalist for the Sydney Morning Herald and The Age.  The article that sets out some simple but absolute essential pearls of wisdom.


The passage of the article that spoke most clearly was this .


"nobody, but nobody, knows what the future holds for the economy and markets.  That's true no matter how expert they are or how confident they sound.  It's true of everyone from Warren Buffett to the governor of the Reserve Bank to the lowliest bar room pundit.  To put it politely, the forecasting records of those people - yours truly included - leave them with much to be modest about."


In fact the whole article is well worth a read - No crystal ball for investors.


The remainder of the article points out some truths of investing:

  • the future is unknowable,
  • the nature of markets to move through boom and bust cycles,
  • the trap of buying high and selling low,
  • the impossibility  of picking turning points so don't bother,
  • downturns will be followed by upturns and the longer-term trend is steadily upward,
  • avoid transaction costs - commissions, entry and exit fees
  • focus on the long-term
  • be a holder not a trader

I highly recommend that you read the article.  It's exactly what we are telling our clients both in upward and downward moving markets.




Scott Keefer

Posted by: Scott Keefer AT 06:09 am   |  Permalink   |  Email
Wednesday, February 27 2008

In what has been a relatively strong week on Australian markets, the sudden demise of ABC Learning Centres (ASX Code: ABS) has provided another wake-up call for two groups of investors -

  1. those taking an active approach to investments and
  2. those not being rewarded for taking on extra risk.

The philosophy of the active approach, in a nutshell, is that analysts can consistently find above market returns through extensive research into, and knowledge of, the markets in which they are investing.  For some, it is about investing in riskier companies with the expectation that the returns will be higher compared to those received for a less risky company.


ABC has provided a clear example of where this approach just has not worked.  We found the latest broker analysis of ABC using the Aspect Huntley data feed through ETrade.  The recommendations summary had 4 strong buy, 1 moderate buy and 1 hold recommendations.  To be fair, the last analyst update was provided on the 30th November 2007 with a hold recommendation.  Out of interest, the share price at the close of trading on this day was $5.26.  ABC shares were priced at $2.14 before a trading halt was placed on the company, a 59% fall from the 30th November.  Over the same period the S&P ASX 200 has fallen 14%


For us, ABC provides more anecdotal evidence that, firstly, the active approach to investing does not work and secondly that investors that take on extra risk need to be fully aware of the potential consequences and where possible protect against these consequences.


At A Clear Direction we do acknowledge the nature of risk in investment markets and the long term greater expected returns for riskier companies.  We expose a small proportion of our clients to riskier areas of the Australian and global sharemarkets through the use of Dimensional funds that have small exposures to value companies and small companies.  The difference with our approach compared to someone who has sunk large amounts of money / proportions of their portfolio into ABC, is that the funds we use are very well diversified.  For example as at 31st December 2007:


Australian Core Equity Trust - 471 holdings

Global Small Company Trust - 3,355 holdings

Emerging Markets Trust - 753 holdings


If you want to get a better sense of our investment approach please take a look at our - Investment Philosophy webpage.




Scott Keefer

Posted by: Scott Keefer AT 08:04 pm   |  Permalink   |  Email
Monday, February 25 2008

The Australian Financial Review is the bastion of an active approach towards investing.  They fill their newspapers, magazines and online content with information attempting to predict the mood and future movement of the market.  Those of you who are aware of our philosophy to investing will know that we are streets apart from this approach.


This being said, I was very please to read Nicole Pedersen-McKinnon's editorial comments for the latest edition of the Financial Review's Smart Investor magazine.  In her comments she has included a very succinct approach to investing:


  • Don't try timing the market
    • Nicole points out the Morningstar research showing that if an investor had missed the 10 best trading days since 1983 by getting in and out, their returns would be 36% lower compared to simply being invested the whole time.
  • Stick to your strategy
  • Have a diversified holding


I believe Nicole's comments are right on the money, especially at a time when there could be a lot of pressure to be trying to "time" the market.



Scott Keefer

Posted by: Scott Keefer AT 04:44 pm   |  Permalink   |  Email
Monday, February 25 2008

This time of year is a nice reminder of one of the key benefits of owning Australian shares: the income and franking credits that start to roll in. In a time of significant volatility in sharemarket values, it is nice to remember this key benefit of owning shares: potential exposure to a growing and tax advantaged income stream.

Many companies offer a "dividend reinvestment plan", where rather than take dividends as income, the investor can choose to take the dividend as more shares. This article compares the two ways of receiving income; should you take income as dividends or as extra shares?

Scott Francis has contributed an article to the latest edition Alan Kohler's Eureka Report which looks at the arguments for and against dividend reinvestment.  Click on the following link to read Scott's article - The money or the stocks?

Posted by: AT 05:20 am   |  Permalink   |  Email
Sunday, February 24 2008

In January, theAustralian Bureau of Statistics published its latest Retirement and Retirement Intentions publication which relates to the period July 2006 to June 2007.  The document has provided a few new insights while also continuing to remind that the majority of retirees (aged 45 or older) continue to rely on the Aged Pension as their major source of income.


The key findings were:


  • For men the most commonly reported main source of income at retirement was a 'Government pension or allowance' (52%).  The 2nd next major source was 'superannuation or annuities' (22%)
  • For women the major source was from a partner's income (47%).  The 2nd major source was from a 'Government pension or allowance' (33%)
  • The main source of income during retirement changed with most people becoming reliant on a 'Government pension or allowance'
  • However, more than half of those whose main source of income at retirement was from 'superannuation or annuities', 'dividends or interest' or 'rental income' continued to rely on them as their main source of income.
  • 281,100 people previously retired had either re-joined the labour force or were planning to look for work.  The most important reason was financial need (43%)
  • The average intended retirement age for those aged 45 and over and still working was 63 years (64 for men, 62 for women) (Up slightly from 62 years in the 2004-05 report)
  • 49% of those aged 45 and over who intended to retire in the future named 'superannuation or annuities' as their expected main source of income.
  • The 2nd most commonly reported expected source of retirement income was from a 'Government pension or allowance' (22%)

My general conclusion from all of this is that people will expect / intend to rely less heavily on government pensions in the future.  The question that has to be asked is whether people are properly planning for this?


My colleague, Scott Francis, has published an interesting article in Alan Kohler's Eureka report which looks at the rate at which superannuation assets can be drawn down in retirement - Tap your super, but how much?



Scott Keefer

Posted by: Scott Keefer AT 09:35 pm   |  Permalink   |  Email
Sunday, February 24 2008

Every fortnight Scott Francis joins Warren Boland during his Saturday morning program on ABC local radio - Brisbane.  During his last visit Scott discussed with Warren Cash as an Investment Option. 

In the discussion of investment options we often focus on shares and residential property - the higher risk, higher return investment options.  We often don't talk about cash and term deposit style investments, although they have a crucial role in any investment portfolio.

This article looks in more detail at the use of cash in investment portfolios and concludes that with increasing interest rates and financial institutions competing harder for your money, than for some time returns from this asset class will also be strong in at least the short term.

Scott also provided the ABC with a supporting article that they have placed on their website.  A copy of this material is also available on our website.  Please click the following link to be taken to this material - Cash as an Investment Option.

Posted by: AT 09:31 pm   |  Permalink   |  Email
Monday, February 18 2008

One of the most profound questions we face in planning our financial future relates to how we turn a lump sum (such as our superannuation balance) into an income stream. For people at, or close to, retirement this is significant because it is how much of their future life will be funded. For people thinking ahead to retirement this is also crucial because it builds a picture of how much is needed for retirement - or for stopping work early and living off their assets.

Scott Francis has contributed an article to the latest edition Alan Kohler's Eureka Report which looks at how two US studies offer a guide to the rate super can be tapped, to maintain an income during retirement.  Click on the following link to read Scott's article - Tap your super, but how much?

Posted by: AT 04:53 pm   |  Permalink   |  Email
Wednesday, February 13 2008

Sharemarkets are down around 9% for the year to date - having been as far down as 18% and then recovering by 9%.  Today has been a particularly strong day, with markets up 2%.

However the start to the year has been a shock to many investors after more than 4 years of stellar returns.  Now is the time that people need to know that their financial adviser is on their side.  This got me thinking back to a 2005 report from ASIC.  It looked specifically at the switching of superannuation accounts, and found that of 4,900 recommendations that they reviewed, 90% recommended a fund related to the financial institution that they were licensed through.  The report can be found here.

The best way to have an financial adviser on your side is to look for an independent financial adviser - one who does not accept any commissions and is not licensed through any financial institution.


Scott Francis


Posted by: Scott Francis AT 10:54 pm   |  Permalink   |  Email
Wednesday, February 13 2008

The latest edition of the BRW magazine has a cover story focusing on the big losses suffered by some of what the author calls the "sharpest financial minds" in Australia.  The names include Michael King and Philip Adams of MFS; David Coe of Allco Finance Group; Michael Maxwell and Peter Hofbauer of Babcock and Brown; Philip Sullivan of City Pacific; and Jeremy Reid of Everest Babcock and Brown.  They have lost a combined total of more than $1 billion over the past 9 months reducing their combined net wealth from $1.7 billion to $650 million.  (A fall of roughly 62%)  The article goes on to report that over the past 6 months they have lost a combined 2/3 of their wealth compared to a fall of 9% on the All Ordinaries index.


The message that jumped out at me when reading this article was what hope do mum and dad investors have in predicting market sentiments and movements if the "sharpest financial minds" in the country can't?  It highlights the principal that we continue to point out to our clients.  It is extremely difficult, if not impossible, to time market movements.  Rather, it is much better to keep a well diversified portfolio across all the major investable assets - cash, fixed interest securities, Australian shares, listed property and international shares.




Scott Keefer

Posted by: Scott Keefer AT 05:38 pm   |  Permalink   |  Email
Thursday, February 07 2008

As you would be well aware, January was one of the more 'difficult' investment months in recent history with strong falls in markets across the world.  Some interesting data has been provided to us from the United States about this month that provides an insight into whether an often touted message that active managers perform better in down markets is actually true.


Before getting to the data, I think it is important that I inform new readers and remind previous visitors that we favour a more passive approach to investing using index style funds with a particular focus on capturing small and value premiums in investment returns over the long term.  The fund manager that enables us to do this is in Australia is Dimensional Funds Advisors Australia (DFA).


DFA originally started in the USA back in the 1980s.  The following data from the US compares funds managed by the USA parent company against category averages for all investment managers (Mutual funds) and the relevant benchmark index:


Dimensional Strategy Return
vs. Lipper Category Average Return

January 2008


Dimensional Portfolio


Lipper Category


DFA minus Lipper



US Large Co.


Large Cap Core



S&P 500


US Core Equity 1


Multi-Cap Core



Russell 3000


US Large Cap Value


Large Cap Value



Russell 1000 Value


US Large Cap Value


Multi-Cap Value



Russell 1000 Value


US Small Cap


Small Cap Core



Russell 2000


US Small Cap Value


Small Cap Value



Russell 2000 Value


US Targeted Value


Small Cap Value



Russell 2000 Value


Real Estate Sec.


Real Estate



DJ Wilshire REIT


Large Cap Intl.







Intl. Core Equity





MSCI World ex US


Emerging Markets


Emerging Markets



MSCI Emg. Mkts.


Emg. Mkts. Core Eq.


Emerging Markets



MSCI Emg. Mkts.


In US dollars. MSCI indices are net of foreign withholding taxes on dividends.


The conclusion that can be drawn from this data is that the active managers, who are the major players in the Lipper category results, have not been able to 'protect' investors against the share market falls and in fact have again been unable to beat the benchmark index in many cases nor Dimensional's buy and hold strategy towards investing.  This again provides evidence that active managers do not find extra value for investors, rather they lose value through trading costs and tax implications while at the same time charging higher fees!!



Scott Keefer

Posted by: Scott Keefer AT 06:45 pm   |  Permalink   |  Email
Wednesday, February 06 2008

CPA Australia released their third Superannuation - The Right Balance report on Tuesday.  The report provides some pleasing news in that it suggests that the superannuation system in Australia has improved significantly since their first report was commissioned in 2001.


However the report provides reminders for the general public that:

  • the recent changes apply mostly to people on average or higher incomes,
  • adequate retirement savings will only be a reality where individuals have 40 years of compulsory super contributions and can make voluntary savings, and
  • the majority of Australians will have less income in retirement than they are used to during working life.  (Media Release, 5th February 2008)

These conclusions drawn by the authors of the report provide a reality check.  Our viewpoint is that there are three key lessons hidden in these findings for everyone:


  • Every extra dollar that can be saved, through investing with lower fees and smaller tax consequences (i.e. reduced levels of trading), will provide a more comfortable retirement.
  • Every extra dollar that can be earned through increased investment returns will provide a more comfortable retirement.
  • The earlier people prepare for retirement by putting away extra savings the better off they will be in retirement.


I know this is not rocket science but it is a message that needs to reiterated.


Of course these lessons do not solely refer to the superannuation environment.  If you want/need access to surplus funds before retirement than use an investment portfolio, with the proviso the funds do need to be put away rather than eaten up by general expenditure!!  Of course, for many, superannuation is the most tax effective place for these investments.


Basically what we are saying is don't just leave your superannuation / investments sit ideally especially if it is in a high fee environment.  Get it into an environment that will further benefit your situation through lower fees and strategic investing to reduce tax consequences.  Similarly, keep a careful eye on your asset allocation.  The longer away you are from retirement (or more appropriately from your life expectancy as your superannuation / investment assets will need to last until then), the more comfortable you should be in exposing your investments to growth assets such as Australian shares, international shares and listed property.  Historical analysis shows that over the long term these assets will provide greater returns than cash and fixed interest.


If you would like more information on these issues or want a "Superannuation Stress Test" please get in contact.



Scott Keefer

Posted by: Scott Keefer AT 08:21 pm   |  Permalink   |  Email
Tuesday, February 05 2008

My learned colleague put me on to an interesting article in today's 'wealth' section of the Australian newspaper.  It was written by Peter Switzer.


The article looks at two things.


The first is the failure, by some margin, of the 'Criterion' column in the Australian newspaper.  The column makes daily recommendations related to shares - buys, sells and so on.


Over the course of the last year the 'Criterion' column's buy recommendations had delivered an average return of 1.3%, while the average market return was 13% for the year.


The article finishes by looking at index investing as a strategy.  It also looks at combining 'dollar cost averaging' - investing regularly over time - with the use of index funds, which it describes as a simple and powerful strategy.


This very approach is the core of how we advise our clients to approach the investment world.


In particular we would say that the Dimensional index funds that we use, which allow access to specific small and value indices, are more sophisticated than just using simple index funds.


This is the first time that we have noticed Peter Switzer write about index funds.  It is interesting that he has chosen this time to write about them while markets are so volatile - particularly the quote at the end about it being a 'relaxed' way to invest.


Click the following link to be taken to the article on the website for The Australian - Here's a tip: slow and sure wins


Please be in contact if you would like more information.



Scott Keefer

Posted by: Scott Keefer AT 10:13 pm   |  Permalink   |  Email
Monday, February 04 2008

Today Scott has published an article in Alan Kohler's Eureka Report which looks at the performance of Listed Investment Comapnies (LICs).  Scott reports that many LICs trailed the market average in 2007, and did not reward investors for increased volatility.  Click the following link to be taken to the article - LICS slower, rougher ride.

Posted by: AT 06:28 am   |  Permalink   |  Email
Monday, February 04 2008

Every fortnight Scott Francis joins Warren Boland during his Saturday morning program on ABC local radio - Brisbane.  During his last visit Scott discussed with Warren the recent share market volatility.  Scott also provided the ABC with a supporting article that they have placed on their website.  A copy of this material is also available on our website.  Please click the following link to be taken to this material - Share Market Volatility.

Posted by: AT 06:25 am   |  Permalink   |  Email
Scott Francis' articles in the Eureka Report 
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