The BFG Report

Welcome to the 2017 Spring Edition of the BFG Report

End of Financial Year (EOFY) – Not Just About Tax

The start of the new financial year isn’t just about getting your tax return in. It’s the perfect time to think about your circumstances and get your estate plan in order — especially if your situation has changed.

Estate planning is the process of planning ahead to make sure your affairs are in place when you pass away or become sick and can no longer manage them yourself. This checklist can help you work out if you need to review your estate plan.

Family

  • Have you had children or grandchildren?
  • If you have had children — do you need to nominate a guardian if something should happen to you?
  • Have you married, remarried, entered into a relationship or divorced?

Beneficiaries

  • Do you have any beneficiaries in your Will that you no longer wish to provide for or who have passed away?
  • Do any of the beneficiaries in your Will have special needs?

Estate Administration

  • Is the executor nominated in your Will still appropriate? If you have a complex family structure such as a blended family, a self-managed super fund or a family trust it is important that they are independent and impartial.

Trusts and Funds

  • Do you want to make a gift to a charitable organisation?
  • Do you want to provide an education fund for your children or grandchildren?
  • Are you worried that anything you leave to your children may end up going to their spouse in the event of a relationship breakdown? There are ways you can protect your assets by establishing a testamentary trust in your Will.

Legal Documents

  • Do you have the correct legal documents in place to nominate someone you trust to look after your financial affairs, make lifestyle and medical decisions on your behalf if you’re unable to?

If you are concerned about any of the points above, it’s time to review your estate plan.

Investment Market Review – Quarter Ended 30 June 2017

Asset Class – Australian Shares
1 year is 13.8% p.a.
5 year is 11.6% p.a.
10 year is 3.4% p.a.

Comments 

The S&P/ASX 300 Accumulation Index was down -1.6% in the June quarter as concerns over the property market, the Australian consumer and the big banks weighed on investors.  On a sector level, the best performers were industrials up +7.8%, health care up +7.0% and information  technology up +5.7%. The worst performing sectors were telecommunications down -8.1%, energy down -6.0%, financials down -5.9% and consumer staples down -5.3%. Cyclical sectors fared worse on geopolitical concerns and a pause in the reflation trade. The big banks dragged the financials sector lower following the announcement of the bank levy and on general concerns regarding the property market.

Asset Class – Listed Property Trusts
1 year is – 5.5% p.a.
5 year is 14.2% p.a.
10 year is 0.0% p.a.

Comments

The A-REIT sector generated a negative return of -2.99% for the June quarter.  The sector continued to be pressured by the expectation of higher bond yields going forward as well as the impact of Amazon and the challenging consumer outlook on the retail sector and the retail REIT’s. The driver of retail spending is disposable income and the outlook for spending looks challenging given lower real wages, increased debt to income levels and rising interest rates.

Asset Class – International Shares
1 year is 15.3% p.a.
5 year is 18.6% p.a.
10 year is 5.7% p.a.

Comments

Global markets provided a mixed bag of returns for the second quarter of the year.  The MSCI World Index in Australian dollar terms was up +3.8% in the June quarter and markets in Asia and the US recorded solid gains despite volatile commodity prices and concerns over Donald Trump’s agenda and calls for impeachment. Major European markets on the other hand finished the quarter flat despite investor relief as Emmanuel Macron defeated right wing candidate Marine Le Pen in the French presidential election. British Prime Minister Theresa May wasn’t so fortunate with her snap election backfiring and her Conservative Party losing its majority in the House of Commons. The S&P 500 gained +2.6%, the FTSE 100 lost -0.1%, the German DAX 30 was up +0.1% and the Nikkei 225 was up +6.0%.

Markets bought the idea that we are in the midst of a global push by central bankers to coordinate a more hawkish message on monetary policy. This was the result of a shift in tone from banks including the European Central Bank, Bank of England and the Bank of Japan. The European Central Bank left monetary policy unchanged and the US Federal Reserve increased the federal funds rate by 25 basis  points to a target range of 1.00-1.25% in its June meeting as widely expected. The Fed reiterated its expectation of implementing balance sheet normalisation this year.

Asset Class – Fixed Interest
1 year is 0.3% p.a.
5 year is 4.3% p.a.
10 year is 6.2% p.a.

Comments

The US and Australian yield curves were flatter over the quarter.
The Australian 3 year bond yield was unchanged at 1.91% and the 10-year fell -10bps. The US 3 year bond yield rose +6bps and the 10 year fell -8bps. Long term bond yields fell modestly due to geopolitical  concerns including increased tensions between the US and North Korea, as well as concerns over Donald Trump’s ability to enact tax reform. Trump created more political uncertainty following reports that he asked former director of the FBI, James Comey, to stop his investigation into former National Security Adviser Michael Flynn. The possibility of impeachment, even though it is unlikely, is a dampener for long term bond yields.

Asset Class – Cash
1 year is 1.8% p.a.
5 year is 2.5% p.a.
10 year is 3.9% p.a.

Comments

The RBA left the cash rate unchanged at a historical low of 1.50% in the June quarter but there was chatter in the market about the possibility of a rate cut this year due to the March quarter GDP result of 0.3%QoQ and 1.6%YoY.  Although the risk of a rate cut was indicated, the slowdown in GDP growth wasn’t unexpected, and unlike markets, central banks do not react to single data readings.

High Yielding Internet Savings Accounts

Financial Institution and Interest Rate

RaboDirect Bank – Rate 3.05% p.a.

ME Bank Online Saver- Rate 2.95% p.a.

St George – Maxi Saver – Rate 3.00% p.a.

Rams Saver – Rate 3.00% p.a.

Citi Online Saver – Rate 2.85% p.a.

ING Savings Maximiser – Rate 2.80% p.a.

Rates are subject to conditions and change.

Rates are correct as at 29/08/2017.