Hewison Quarterly Jan 14

HEWISON Financial news, our views AND other issues Issue 46 ~ January 2014

Understanding the terms we use Philanthropy The desire to promote the welfare of others, expressed especially by the generous donation of money to good causes.

Global Macro Global macro, a hedge fund strategy that aims to profit from large economic and political changes in various countries by specialising in bets on interest rates, sovereign bonds and currencies.

Q

uarterly • Economic update

• HPW charity night

• From the MD’s Desk

• Hewison private wealth investor insight series 2014

• The best blogs of 2013

Economic Update:

What’s in Store for 2014?

Portfolio Rebalance The process of realigning the weightings of one’s portfolio of assets. Rebalancing involves periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.

Euro Zone The economic region formed by those member countries of the European Union that have adopted the euro.

Long-Term Growth An investing strategy or concept where a security will appreciate in value for a relatively long period of time, whether or not the growth is initiated immediately or later on. Long-term growth is a relative term, as the investing horizon differs between investing styles, but the perceived appreciation in the security remains the same.

Compounding The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings. Also known as “compound interest”.

Story by Nathan Lear, DIRECTOR/PRIVATE CLIENT ADVISER Image by Vjeran Lisjak

Its time to have a think about what’s in store for 2014.

2013 was a positive year for the Australian sharemarket: Year-to-date it is up around 12%, however, Gross Domestic Product (GDP) which measures the output and performance of the economy, while still positive, is not as pleasing. Year-on-year Australian GDP is currently running at 2.3% which is below trend.

There are, however, grounds for optimism in the year ahead: • Interest rates are currently at historical lows: Eventually, the savings – which mortgage holders are currently enjoying - will be put back into the economy in the form of spending.

• The Australian dollar has fallen to around 90 cents, a 15% decline from earlier in 2013: A lower dollar helps many Australian companies become more competitive.

• Household wealth is on the increase: For the past few years, Australians have been focused on debt reduction. Combine this with rising asset values from shares and property, and net wealth is growing.

• Confidence has risen: Business and consumer data shows confidence levels are well up from the past few years.

• Property values have stabilised.

The property market crash some predicted has not eventuated. With signs of recovery in housing construction and new home approvals, things are looking up.

Mining investment in Australia has peaked and it is now up to non-mining sectors to pick up the slack. For the sharemarket to continue strengthening its rise in 2014, company profits must continue to increase. Providing the above optimism remains, this could well be the case.

For sharemarkets, the main danger is the reaction to a tapering of the US quantitative easing program: markets are almost certain to react negatively when a tapering program is announced. While an end to tapering would result in less cash in the system to find its way to equities, it should not affect the profitability of quality companies with reliable earnings: if anything it would present a good buying opportunity to investors.

From the MD’s Desk

The Best Blogs of 2013 Philanthropy and Private

Ancillar y Funds

Private Client Adviser -

Chris Morcom, Director/

John Hewison

So much has happened in 2013 it is difficult to focus. From January through to December, we saw some interesting market trends, including: • The RBA official cash rate started the year at 3%, falling to a low of 2.5% in August • The ASX200 was at 4885 points in the new year climbing to a high of 5441 points in November: an 11.4% increase.

• The Dow Jones Industrial average began at 13,170 points, moving to a high of 16,100 points in November: a rise of 22.25%.

Then there were the significant political events, including: • On January 20, Prime Minister Julia Gillard announced the Federal election date as September 14, the longest election campaign in history. The election was finally held on September 7th with Kevin Rudd as incumbent PM and a new Government elected.

• In July and October the US Government talks over raising their debt ceiling stalled, bringing the country to the brink of default and failing to pay its public servants. (Well not really – just pollies behaving badly) Other news events that grabbed our attention throughout the year ranged from the conflicts in the Middle East, asylumseeker policies and the Essendon drug scandal (sorry Bomber supporters).

Bringing some perspective to all this, are era-defining events like the death of Nelson Mandela, whose gift to the rest of the world will live on indefinitely. His patience, forgiveness and tenacity will continue to provide an example to all of us.

I want to say a big thank you to all our wonderful clients for your patience and support throughout the ups and downs of the markets over the past few years.

We are truly delighted that your patience has been rewarded with some excellent returns this year.

I also want to recognise the commitment of the HPW team, whose dedication and belief in the journey we travel is truly remarkable, and who are so dedicated to caring for the well-being of our clients.

I wish you all and your family’s peace, good health and an even more prosperous and successful New Year.

14th October 2013

s of a PAF is that One of the great advantage t of cep con the h wit iliar fam h a formal gift giving Many Australians are it can provide a family wit whether it , nity mu com ir the in perpetuity. to k giving a bit bac strategy that will have a life expertise, or and ur labo e, tim ir the g be donatin y large taxable For those faced with a ver ns. atio don l ncia fina blishing a PAF and via income in a single year, esta three main are re the , ney mo way to formalise a gift to a es When it com contributing funds can be donate to charity: can ily fam term, while at the or ger ual lon ivid ind the ways an giving program for tial tax advantage. chosen charity same time deriving a substan 1. Donate directly to the ere the sale of a ry Fund Consider the instance wh 2. Donate to a Public Ancilla receiving proceeds ner ow ry Fund business, with the 3. Establish a Private Ancilla ults in a taxable of $15 million, of which res many of us are used way the is ctly dire ing nat . Doing nothing, and Do capital gain of say $7 million ritable sector. tax rate, the tax bill al to interacting with the cha rgin presuming the top ma F) is an PuA (or . d ion Fun ry mill 25 cilla $3.

An A Public would be around which you can direct to tion nda fou hed blis ine bus ss owner wanted esta Alternatively, if that same or, you receive a proceeds towards your donation. As the don sale ir to use $5 million of the to the n utio trib con r you for program, they could tax deduction a long term philanthropic ndation directs fou the n the and , tion the $5 million in the founda establish a PAF and donate organisations. Most ble rita cha to n atio don r capital gain. Such a you same year they make the choose the areas and vide a minimum gift PuAF’s offer the option to pro ld financial resource cou option can be s Thi . efit ben to h wis leaving the capital charities you of $200,000 per annum, still to exert much ting wan not se tho for ve in larger future gifts. attracti intact to growth resulting ng arrangements. givi gift ir the r ove l tro con n provides the now The tax deductible donatio private a is F) (PA d Fun ry cilla h a lower taxable A Private An former business owner wit ual or family ivid ind an ich wh to tion this example being founda income - the tax saving in to then use for ition, they and their contributes a significant sum add around $2.32 million. In must give the greater ir philanthropic the donations. The foundation of l tro family remain in con capital its of 4% or um ann per t generations in the of $11,000 activity. Involving the nex financial year, the of t star the at red be an effective way measu foundation operations can a tax deduction for the control of the family annually. Donors receive to pass on knowledge and PAF, and the PAF amount contributed to the philanthropic ethos. the wider public. cannot solicit donations from minimum starting e Generally we suggest the ent and governanc be around $500,000.

A PAF has similar investm balance for a PAF should erannuation eat away too much rules to a Self-Managed Sup not do This ensures costs trustee who one t leas at e hav st mu Fund, and d. However, individual of the earnings of the fun ional position in fess pro ised ogn rec a ds you should seek hol circumstances can vary and the community. appropriate advice.

Should I fix my home loan rate?

Simon Curtain, Director/Private Clie

nt Adviser - 5th August 2013

The Reserve Bank of Australia kept inter est rates on hold this month at 2.5 per cent .

With interest rates at an all-time low the question is; should you fix your home loan rate now or keep it variable? This is an age old argument, mostly because there are pros and cons at both ends.

While fixing your rate brings peace of mind (as interest repayments will not vary over time), it can also hurt you financially if interest rates decrease as you aren’t able to take adva ntage of these savings.

Take the period between 2007 and 2008 when the RBA cash rate was around 7.25% and many feared that rates could hit double digits . If you were to lock in a fixed rate during this period

you would have missed out on considera ble interest savings generated by rates fallin g to 2.5 per cent over the next 5 years.

Trying to pick the best time to fix your home loan rate can be fraught with danger as you are essentially betting against the Banks’ econ omists, who forecast interest rates into the futur e and use this data to arrive at a fixed rate.

In my opinion, keeping your loan varia ble is the best option as this way you are not locke d in and have the added benefit of making additional repayments to your home loan (ofte n with a fixed rate you are prevented from making additional repayments). While a fixed rate will provide certainty, if rates move again st you, it can be very costly.

5,000 points passed. Where to from

Nathan Lear, Director/Private Client

here?

Adviser - 18th February 2013

The two major Australian sharemarket indices, the majority of its losses and is trading a whisker the S&P/ASX 200 and the All Ordinarie s, passed away from the heights it reached in 2007 .

5,000 points late last week. The last time our Where to from here? market traded above 5,000 points was nearly three years ago.

The Australian market is still trading arou nd 25% below its all-time high reached in 2007 The recent rise of the market has been . Over the on past 5 years our market has priced in the back of strong earnings results from the worst major case scenario, however as positive com companies such as Commonwealth Bank pany , results keep coming through, the mark Wesfarmers, CSL to name a few. et continues to recover value.

It’s good to see the market rewarding companies Global macro risks however don’t seem reporting solid results. Especially for the to patient go away and continue to be a threat to long term investors who held onto their the quality market, including the slowing of the Chin blue chip companies throughout the Glob ese al jugge rnaut, and low growth in the Euro Zone Financial Crisis (GFC), when the mark . et was However, to turn the negatives into posit pricing them at bargain basement price ives, s. yes Chinese investment and the demand for our Falling interest rates in Australia are also driving raw commodities has slowed; however the rise our market higher. Investors are on the hunt for of the Chinese consumer and middle class is income as interest rates continue falling , so more changing the landscape and many wellpositioned money is finding its way into high-yield ing shares. global companies should benefit from this.

The Another influence on the rise in our mark Euro Zone hasn’t broken up as initially et has feared been the strong performance of the US and the ECB is managing the situation Dow with many Jones Industrial Average, which has reco initiatives. Throw into the mix the cont vered inued

naire?

Do you want to be a millio

r - 16th August 2013

recovery of the US housing market and the global situation isn’t looking anywhere near as bad as it was a couple of years ago.

Portfolio Management is Key As always, disciplined portfolio manageme nt is as important as ever. A well balanced and diversified portfolio is important to manage risk.

Regular portfolio rebalancing is paramount to re-weight your portfolio back to its required alloc ations.

The Australian market has recovered around 60% of its value from its low point in 2009 , therefore investors who continued inves ting throughout the GFC should have reco vered a good portion of their losses by buying low, and making healthy gains on many of their individual stock positions. It’s still as important as ever to be diligent, lock in profits and take some exposure off the table in positions that are exce ssive relative to the rest of your portfolio.

contributing $1,000 Consider saving more: By tus Sta e” air on illi “M to ent, assuming all else The Path per month to your investm be the dream of g win follo but e, me reduces from em efra sch tim ck To be a “millionaire” would r remains constant, you This is not a get rich qui kko (reference: even the , plan a 40 year old ent re, stm refo inve every aspiring Gordon Ge The rs. and yea 32 years to 24 a long term savings To many, rld. wo the und . aro aire 7) ion 198 mill aire at 64. ome a Wall Street, could still become a million average Australian can bec . Or is it? am dre e pip a but g hin it’s not money saved, you help you get there:: If you already have some Here are some points to for you? do n . llio l. Using our original um mi goa ann r $1 per you uld of 200 rs co What can shave yea Save $100 per week, or $5, um ann savings of $25,000 $75,000 per example, star ting off with · It could replace around savings into an investment the e but ntri Co ked fran to reach their goal at fully old quality, . could allow our 20 year of income (a por tfolio of of quality Australian shares io tfol por ht Likewise, a 40 year mig e 52. som age to to age 48, as opposed shares should do it), which the of rn retu e rag 0, could reach their goal to work - The long term ave old with savings of $50,00 mean they no longer have me a assu let’s but , p.a 12% ASX is around growth of around in 19 years, aged 60. · Average long-term capital ive return of 9% p.a. vat ser con by w gro ent 9% would see your investm The Take Outs years’ time, you will if left to grow All things being equal, in 32 $90,000 in year one, but spective, 1. From an investment per ent will reap the be a millionaire! best friend year on year, your investm new r you is “compounding” star t saving and Of course, the earlier you rewards of compounding e. Start now: it’s tim can become a 2. There is no substitute for investing, the sooner you World: the of ionaire! r mill de a ld e on om cou W a 20 year old The Eighth never too late to bec millionaire. For example, 57 at ing old there. Make r nd yea get will a 25 Compou 3. Don’t be in a hurry: you become a millionaire at 52, ond sec e “Th ent s em risk stat silly the You may have heard calculated investments, not and so on.

This is t”. firs the n tha ke ma no to is the sooner you will time. There million is easier 4. The more you can save, The key to this strategy is A 9% return on ng. ndi r ate pou gre com of ugh er thro pow few coffees now and returns due to reach your goal (give up a substitute. Chasing higher 0. A 9% return on ,00 090 say $1, to als not equ is s Thi $1m r y. you buy a beaner y later) risk may thwart the strateg 188,100. Following s. your $1,090,000 equals $1, er, but beware of the risk wis st inve not in can $2m you rth will be wo this trend, your investment rs. eight yea r first million?

But how do you get to you

or/Private Client Advise Andrew Hewison, Direct

HPW charity night Hewison It gave us great pleasure to host the annual Hewison Charity Trivia Evening in October.

For the second year running The Espy Hotel, located on the picturesque St Kilda esplanade, graciously donated their grand The Gershwin Room for the evening.

As per usual, the night provided many laughs, uncovered some hidden karaoke talent and of course crowned the trivia masters for 2013.

a not for profit organisation assisting the homeless and underprivileged. All of the supporters of the night came together to raise $5,150 for Sacred Heart.

Huge thanks must go out to the tireless organisers Rosanna Centofanti and Bridget Blackmore.

We look forward to equally successful event in 2014.

For the third year now, Hewison Private Wealth were honoured to direct all money raised to The St Kilda Sacred Heart Mission,

Private Wealth investor insight series 2014 We kick off the year on the 11th of February 2014, with our first forum featuring Managing Director John Hewison “Top 10 Investment Do’s and Don’ts”. Over 30 years of successful investment management, John Hewison has pretty much seen it all and has learnt plenty of lessons along the way. At this session, John shares his top 10 Do’s and Don’ts in being a successful investor.

It’s a boy!

Denise Poole and her husband Ben welcomed their third child, a boy, on Sunday night 6th October 2013. William Blake Poole, weighing

8lbs 11oz. Both mum and bub are doing well.

Congratulations!

Level 4, 102 Albert Road, South Melbourne VIC 3205 P (03) 9682 1900 | F (03) 9682 5999 info@hewison.com.au | www.hewison.com.au

The information contained in this publication is general in nature and not intended as personal advice. Please obtain advice from your financial planner before acting upon this information.