Focus on Women

International Women’s Day, which this year was on Saturday 8th of March, celebrated achievements in women’s equality and emancipation worldwide.

The day also was used to bring attention to various other important issues impacting women including, in Australia, the fact that their salaries on average still significantly lag those of men and that their superannuation and other savings for retirement are often inadequate.

I take a particular interest in this topic, in part because I have a working wife and 3 daughters, two of whom have recently entered the workforce.

I have sent out a separate note to my valued female clients and I encourage all women to be proactive in educating themselves in regard to financial issues and to take an active interest in growing their investments. Even younger women should be taking an interest in their superannuation – it represents nearly 10% of your salary and has significant tax advantages that make it important for ensuring that later in life you will have a degree of financial independence and the funds for a comfortable retirement.

Have Australian Shares delivered investors good returns over the last 5, 10, 20 or 30 Years?

Most people are aware that share prices move up and down all the time but the important questions for investors is whether or not the returns are good over reasonable time frames, such as 5, 10, 20 or even 30 years. The good news is that the answer for Australians is definitely YES! Research house Morningstar numbers show that Australian Equities (Shares) have provided investors with significantly higher returns than Cash, for example, as this shows:

No of yearsReturn for SharesReturn for Cash
5 years15.1%3.9%
10 years9.6%5.0%
20 years9.0%5.3%
30 years11.4%7.6%


History shows that, for investors willing to stick with shares and ride out the periodic downturns, the returns have significantly exceeded the returns from Cash (Bank Bills) and also Term Deposits. Future results can never be guaranteed but there is no reason to believe that the future will be markedly different.


When can we expect Cash & Term Deposits to rise back to more “normal” Levels?

The US market  is forecasting very low interest rates to continue for the next few years and for the cash rate not to get back to 3.0% or more, which is close to “normal” for the US,  until 2019 i.e. 5 years from now!

Janet Yellen, the new head of the US Federal Reserve, recently said that the US central bank would keep its key interest rate near zero as long as unemployment stays above 6.5 per cent and the outlook for inflation is no higher than 2.5 per cent.

If rates were to increase quickly the fear is that there would be mayhem in the stock market and the weak US economic recovery would falter. The fundamentals in Europe and Japan seem no better and in my opinion are probably worse so no significant rate rises are likely there in the next few years. With Chinese growth expected to moderate somewhat in the next few years, the global backdrop suggests to me that any significant increase in Australian interest rates is likely to be some years off.

Some economists argue that our interest rates are largely determined by local factors and that improving growth and a concern that inflation may rise too strongly will see moderate rate rises from late 2014. With the AUD stubbornly strong and unemployment trending upwards I doubt the RBA will raise rates anytime soon and expect the path back to “normal” levels to be protracted.

So my expectation is that Australian Cash & Term Deposit rates will not get back to anywhere near what might still be considered “normal” (5.0% was the average Cash rate over the last 10 years, Term Deposits a bit higher) for at least the next 3 years and possibly even longer.

If you believe that low interest rates globally have been a significant factor in driving the share market higher in recent years, as I do, then there is a strong chance that low interest rates will see investors continue to chase higher returns than offered by Cash by putting more money into shares.

Higher Superannuation Contribution Caps expected from July 2014

The Australian Tax Office recently announced the key superannuation rates and thresholds for 2014-15, which have been adjusted in line with Average Weekly Ordinary Time Earnings (AWOTE). These increased thresholds are potentially very helpful to those looking to boost their retirement savings. In summary the changes are:


  • The general concessional contributions cap is $30,000 for 2014-15      (up from $25,000). For 2014-15, the higher temporary      concessional cap of $35,000 (not indexed) applies for those aged 49 years      or over on 30 June 2014.
  • The non-concessional contributions cap is $180,000 for 2014-15 (up      from $150,000). As a result, the non-concessional cap under      the bring-forward rule over three years is effectively $540,000 from      2014-15 (up from $450,000).
  • The CGT cap amount is $1.355m for 2014-15 (up      from $1.315m).

Super guarantee

  • The maximum contribution base is $49,430 per      quarter for 2014-15 (up from $48,040).

Government co-contribution

  • The ‘lower income threshold’ is $34,488 for      2014-15 (up from $33,516). The ‘higher income threshold’ is $49,488 (up      from $48,516).



Super benefits

  • The ETP cap amount and the superannuation lump      sum low rate cap is $185,000 for 2014-15 (up from $180,000).
  • The genuine redundancy and early retirement      payments – tax-free amounts for 2014-15 are: base amount – $9,514 (up from      $9,246); service amount – $4,758 (up from $4,624) for each whole year of      service.

It is important to note that these rates and thresholds are subject to change prior to 30 June 2014 so we won’t be sure until after the May Federal Budget as to whether the increases will apply. Should the increased concessional cap be confirmed it will offer the scope to change salary sacrifice arrangements, for example.

Ukraine – what’s happening and do events there matter to Australian investors?

Putting aside the humanitarian aspects of the political turmoil in Ukraine, even investors in far away Australia may be concerned that this will develop into a bigger global issue with potentially negative consequences for their investments.

Geopolitical events like the effective annexation of Crimea by Russia can have significant and unforeseen consequences, but my assessment is that there will be much “noise” but probably only limited impact on financial markets even though some argue that this is the most dangerous geopolitical event of the post Cold War era.

The Ukrainian crisis ignited in November after the then government suspended the signing of a free-trade agreement with the European Union. Instead of forging ties with Europe, Ukrainian President Viktor Yanukovych opted to seek closer economic integration with Russia. After months of protests, Yanukovych was chased out of Ukraine and a pro-European government established in Kiev. A few weeks later Russia responded by effectively invading Crimea under the guise of protecting ethnic Russians.

Crimea was gifted to Ukraine in 1991 when the Soviet Union broke up. Even though the Soviets agreed to part with Crimea, the country’s population is nearly 60% ethnic Russians with the remaining 40% a combination of Ukrainians and Crimean Tatars.

So when Putin says Russia is acting to protect its own population, he has something of a case. Crimea is an autonomous parliamentary republic within the Ukraine. So, although it’s technically part of Ukraine, it has its own government, laws, and constitution. However, the Russians are in clear violation of a treaty signed called the Budapest Memorandum on Security Assurances. In 1994 Russia, the United States, the United Kingdom, China and France all signed the treaty to ensure that no country would violate the territorial integrity or political independence of Ukraine.

Few would argue that Crimea is in Russia’s sphere of influence and that it has legitimate interests there, including an important naval base at Sevastopol on the Black Sea. These interests are much greater than those of the Europeans or Americans. Germany, which is the pre-eminent European power and has a significant economic relationship with Russia, wants peaceful engagement and economic cooperation but that doesn’t prevent conflict with a Russia pursuing authoritarian politics at home and expansionist policies abroad. However, with the memory of the horrendous cost of the conflict between Germany & Russia in WW2 not forgotten, it’s seems unlikely that Germany would be drawn into armed conflict.

Given the US was unwilling to commit military forces to a confrontation with Russia in 2008 when Russian tanks rolled into Georgia, the western response to Putin’s takeover of Crimea is likely to be confined to sanctions and boycotts.

Military force is not the answer to all political issues, as is apparent from Iraq, and while the US will want to reassure its NATO allies that it remains committed to that treaty for collective defence, Ukraine is not part of NATO so a military response isn’t required. The US will seek to influence events rather than escalate the confrontation, but ultimately Putin will win Crimea as he is a strong man with the backing of the Russian population.

The longer term consequences of what is happening in Ukraine may be greater as it is becoming evident that the US is increasingly reluctant to utilise its very considerable military might unless absolutely necessary. Vietnam, Iraq, Afghanistan, etc have understandably made the American public reluctant to get involved in disputes of limited importance to them. Unfortunately this may embolden more expansionist states and events like what’s unfolding in Crimea and the Chinese confrontation with Japan over the Senkaku Islands may become more common.

While we live in an historically peaceful age, there will always be conflicts arising somewhere. Financial markets can react quite strongly to these events, such as oil and gold prices rising sharply, but generally the impacts are short term.

Top Wine, Champagne & Beer at Great Prices

If, like me, you enjoy good wine I can highly recommend Aldi Liquor Online which offers excellent wines at extremely competitive prices. I personally know the head of the business and he’s sourcing some great products – wine, champagne and beer – at prices that represent great value. Check it out!

This newsletter is not advice and provides information only. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. 

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