Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 326

Welcome to Firstlinks Edition 326

  •   3 October 2019
  •      
  •   

Last week, the Government announced the first Retirement Income Review since the 1993 Fitzgerald inquiry into national savings, which followed the introduction of compulsory super by Paul Keating in 1992. As background for this new Review, we have selected six Classic Articles, including one from Keating himself, which many readers would otherwise miss. These special pieces were highly popular when first published and all had something different about them.

The Government's Terms of Reference for the coming nine-month review say:

"The review will look at the three pillars of the existing retirement income system, being the age pension, compulsory superannuation and voluntary savings. (It) will cover the current state of the system and how it will perform in the future as Australians live longer and the population ages." 

Notably, while the Government has already ruled out including the family home in the age pension assets test, there are references to both 'fiscal sustainability' and 'appropriate incentives for self-provision in retirement".

It's therefore a good time to dip into the archives for some classic insights, and there's nowhere better to start than with Paul Keating, father of our superannuation system. He admitted in this 2013 article that SMSFs were a late afterthought, and now they're the largest super segment. Keating gave some valuable guidelines for asset allocation:

"So, Australia is 2.5 times more heavily weighted into equities and relatively underweight other asset classes. We are disproportionately weighted into the most volatile and unstable asset class."

In the same year, Justin Wood's spending guidelines for retirees took up a similar theme. He used Yale University's endowment fund as an example of an investor with long-term obligations subject to short-term markets. It's fascinating, therefore, to check how Yale has changed in the subsequent six years. Here is their latest asset allocation taken from their website.




Yale's Chief Investment Officer, David Swensen, is a legend in the US, delivering an extra $4.5 billion in value over the last decade versus the average of other endowments, while delivering 11.8% pa for 20 years. He is a great believer in the value of active management, here in 2017 disagreeing with Warren Buffett:

"While Buffett appropriately recognizes the challenges investors face in manager selection—perhaps most notably that the vast majority of managers who attempt to outperform fail after taking into account fees and expenses—his conclusion goes too far. The superior results of Yale and a number of peers strongly suggest that active management can be a powerful tool for institutions that commit the resources to achieve superior, risk-adjusted investment results.

He has changed his asset allocation such that US equities are now only 3.5% of assets and most of his holdings are in unlisted assets, venture capital or absolute return funds which are difficult for retail investors to access. He invests differently because he is not seeking to beat a benchmark but achieve long-term stability for the future security of Yale's funding. Swensen's main lesson is: invest according to your own goals and don't be paranoid about the market.   

Here is how he differed from other educational endowments in the US in 2018:

Which is a good link to Chris Cuffe's Classic Article on the mistakes most people make in thinking about investment risk, and he draws on Howard Marks to give his own definition of risk.

Noel Whittaker is Australia's best-known personal adviser and best-selling author, and in 2018, he provided his quick-fire 20 Commandments of Wealth for retirees. Timeless wisdom!

And finally, in a change of pace, two unconventional articles that were big hits in 2016 and 2017.

Jo Heighway draws on her many years as an SMSF specialist with a unique perspective on how many of her clients are so passionate about their SMSF that it becomes a biography of their life.

Then Alex Denham tells a personal and precautionary story about her father's experience with aged care, which all her years as a financial adviser did not fully prepare her for.

(Note that some of these authors are no longer in the role described at the bottom of the articles, and some of the rules and numbers may have changed but we have not reedited the words).

Back to new and 'first link' articles next week, and remember there are thousands of articles in our archive covering almost every financial topic.

 

Graham Hand, Managing Editor

For a PDF version of this week’s newsletter articles, click here. For a PDF version of the article on the Retirement Income Review, click the 'Print' button at the top of the article.

 

banner

Most viewed in recent weeks

How much super is enough?

We cannot see into the future, but here are some general guidelines on how much to save in super, and then how much you can spend to enjoy a good retirement. Start as soon as possible.

How to include homes in the age pension assets test

A reader speaks out about the inequity of ignoring own homes in the assets test for the age pension, plus a proposal on how it could work politically. Take our survey on the merit of the policy. 

OK Boomer: fessing up that we’ve had it good

The pre-Boomer generations faced global wars and depressions, but Australians born after 1946 have enjoyed prosperity. Superannuation, education, strong markets and surging property prices locked in gains.  

Four reasons to engage a financial adviser

The value of financial advice is increasingly questioned after the Royal Commission and changes to advice business models, but the case for financial advice for many people remains strong.

Should you buy CBA PERLS XII Capital Notes?

CBA's latest PERLS offer is directly offered to hundreds of thousands of investors who already hold CBA shares or other PERLS securities. How does it compare with the rest of the hybrid market? 

Latest Updates

Retirement

OK Boomer: fessing up that we’ve had it good

The pre-Boomer generations faced global wars and depressions, but Australians born after 1946 have enjoyed prosperity. Superannuation, education, strong markets and surging property prices locked in gains.  

Investment strategies

Young women are investing more in shares

Young woment are showing increasing confidence in the sharemarket, promising a better future than the Boomers and Gen X women who hold significantly less assets than males of their generation.  

Investment strategies

Shorting deserves more respect

A fund manager that can short sell stocks with weak investment characteristics while reinvesting the proceeds in long positions in preferred stocks has a high degree of flexibility.

Economy

Policymakers fear cutting stimulus can lead to recession

Prolonging a recovery with stimulus could lead to a worse slump later. Even today, policymakers are haunted by actions taken in 1937 which led to a loss of production and jobs and a falling GDP.

Shares

Bank reporting season scorecard for FY19

Our annual scorecard for Australian banks shows earnings were hit by remediation costs and slow credit growth, but they are in good health and look attractive versus other listed companies. 

Sponsors

Alliances

Special eBooks

Specially-selected collections of the best articles 

Read more

Earn CPD Hours

Accredited CPD hours reading Firstlinks

Read more

Pandora Archive

Firstlinks articles are collected in Pandora, Australia's national archive.

Read more