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Active Retirees : Active Retirees Oct-Nov
40 | www.probussouthpacific.org FINANCE 40 | www.probussouthpacific.org CHECK YOUR TAX REBATE Australians over the age of 65 who are eligible to receive a 35 per cent or 40 per cent rebate for premiums paid for a complying private health insurance policy may have been inadvertently short changed by eTax’s pre-filling service, which assumes the 30 per cent rebate available for those under 65. The rebate is 35 per cent when the oldest person covered by the policy is between 65 and 70 years, and 40 per cent when the oldest person is over 70. If you are over 65 and have paid for a complying health insurance policy it might pay to check that you have not been inadvertently short-changed by relying on pre- filling to provide the right rebate in your tax return. superior gains, they also have strong income- producing qualities, according to Morien. “Stocks produce quite attractive income yield, especially if you go with an Australian portfolio, blue chips especially,” he says. This is because, Morien explains, that while bonds have higher yields in the short term, they don’t grow like dividends do. If you buy a $100,000 bond and get $4000, it’s going to stay the same each year. With stocks, you might get a $4000 dividend, and that dividend is going to increase each year. “Bonds don’t have a growth component,” Morien said, and the growth component helps stock investors stay ahead of inflation. Diversity Many investors have invested in term deposits recently due to their high returns. But Michael Kloeckner, Director of Private Clients at Clime Asset Management, says that capital growth in stocks also makes it superior to cash. “Cash is not going to cut it,” he said. “Cash is going to be paying less in terms of deposit rates. Term deposit rates that are on offer now are reducing.” So if stocks are good to hold for the long term, the question then becomes: how much should a retiree have in their portfolio? There are some rules that base the percentage of your portfolio to be held in stocks on your age. The older you are then, the more you should have invested in conservative assets such as bonds. Morien says he doesn’t subscribe specific age-based asset allocation rules. “Asset allocation should be a budgeting exercise,” he said. “Short-term money should be invested conservatively. Money that’s needed for the longer term should be allocated to a more aggressive growth portfolio.” For retirees, Morien allocates the next five years of estimated spending very conservatively into low-risk cash and bond index investments. The estimated spending of the five to ten years after that are allocated to cash and bonds as well, plus some property trust index funds, Australian and international shares, and some emerging market shares. “For the money that won't be in the spending budget for over 10 years, Morien recommends higher-risk investment. “That's generally enough to weather most cyclical storms, and for that money I'm more comfortable recommending something growth oriented. That is, a portfolio containing the same types of assets as the medium term pot, but with less cash and bonds and more shares and property. The actual percentages vary in accordance with the client's risk profile,” he said. Morien recommends index funds, which are usually low cost and track share market indices. He says they’re an inexpensive, low maintenance way to instant diversification. “They’re the optimal investment for nearly everybody,” he said. “Index funds also tend to be overweight in blue chips which gives them a pretty good franked dividend yield.” Buy low and stay in For those looking to pick stocks, value investors like Clime Asset Management seek to buy stocks below what they’re worth and have tended to outperform over the longer term. Kloeckner says share market falls like the ones experienced recently allow value investors to pick up bargains in stocks with high-dividend yields, strong profitability and management. He said an example was Telstra, which was trading at $2.70 versus Clime’s $3.10 valuation, and had a dividend yield of 15 per cent. “It’s very compelling,” Michael said. Ultimately, the key to riding out sharemarket volatility is to focus on the long-term potential of stocks. “Given recent market performance, retirees will be well aware of how violently the share market can swing over a short-term period, but if they are investing for 20 years or more, it’s not the short-term they need to focus on,” said Andex Charts’ David Reid. •• Index funds tend to be overweight in blue chips which gives them a pretty good franked dividend yield.
Active Retirees Aug-Sept
Active Retirees Dec-Jan 2012