Steward Wealth’s Co-Founders named as ifa Excellence Award finalists 2021

Steward Wealth’s Co-Founders named as ifa Excellence Award finalists 2021

Anthony Picone and James Weir – Directors & Co-Founders of Steward Wealth have been named as finalists in the ifa Excellence Awards for SMSF Adviser of the Year & Industry Thought Leader of the Year.

The finalist list, which was announced on 24 August 2021, features over 210 high-achieving financial services professionals across 27 submission-based categories. 

The ifa Excellence Awards is the pinnacle event for recognising the outstanding achievements and excellence of exceptional professionals across Australia’s independent advice sector.  

The awards were created to acknowledge and reward the contributions of professionals leading the charge within the financial advice industry, noting their dedication to their profession. 

After the past year of uncertainty and challenges brought on by the pandemic, now more than ever, it’s important to stop and take a moment to celebrate both your accomplishments and those of your peers. 

 “At a time of change and upheaval for the industry, and after another year of business and family disruption as a result of COVID, it’s so important to take some time and recognise the achievements of the industry and the fantastic innovations that are going on inside advice businesses,” says ifa editor Sarah Kendell. 

“A huge congratulations to all of this year’s finalists for their outstanding dedication to client service through such a challenging time and the excellent examples they are setting for their peers around adaptation and success through adversity.”  

James Weir, Director and Co-Founder at Steward Wealth, said that he was extremely proud to be recognised and endorsed as a finalist in the ifa Excellence Awards 2021.  

“This recognition for our contribution to the financial planning industry reinforces the strength of our services and capabilities as we continue to grow. Highlighting our dedication to connecting with the community and engaging with clients,” Anthony Picone, Director and Co-Founder at Steward Wealth added. 

Looking for an industry endorsed SMSF advisor?

Find out more about our SMSF services below or call Steward Wealth today on (03) 9975 7070.

Investors are wildly more optimistic than financial professionals

Investors are wildly more optimistic than financial professionals

The average investor across the world has wildly more optimistic return expectations than the average financial adviser.

Boston-based Natixis Investment Managers conducted its eighth annual survey of investors, spread across 24 countries over March and April, and found the average expected long term return among the 8,550 respondents was 14.5 per cent per year. In a striking contrast, the global average amongst the financial professionals they surveyed was only 5.3 per cent per year. For the record, Australian investors expected a return of 14.4 per cent, compared to 6 per cent for the financial professionals.

The difference between investor expectations and those of financial professionals is something Natixis calls the ‘expectation gap’. For 2021 it is 174 per cent, but tellingly, it has jumped by almost half from the 2020 gap, after investors’ return expectations leaped by 25 per cent but financial professionals’ were unchanged.

Conspicuously, as financial markets have continued to rise since the surveys started in 2014, investors’ expectations have gone up hand in hand. In 2014, real returns, that is, after inflation, were expected to be 8.9 per cent, and for 2021 it’s 13 per cent.

The branch of economics that studies human behaviour refers to ‘recency bias’, which is where peoples’ expectations, and not just about financial returns, are heavily influenced by their most recent experiences, whether they be good or bad.

It’s easy to theorise that after seeing share markets rebound spectacularly from the fastest ever 30 per cent sell off, to the second fastest ever 100 per cent gain in the US, that it’s recency bias more than common sense that’s leading investors to expect the good times to keep on rolling.

By contrast, financial advisers keep getting told by highly rated, and highly paid, investment consultants, that successive years of strong, above average market returns will almost inevitably be followed by years of below average returns due to the inexorable force of mean reversion. Trees don’t grow to the sky, after all.

According to Vanguard, over the past 50 years Australian shares have averaged a return of 9.7 per cent per year and for international shares it was 9.9 per cent. However, if we change the horizon to 20 years, the return for Australian shares was 8.4 per cent, and for international it was a far less impressive 4.7 per cent. In other words, the point at which you invest makes an enormous difference.

It’s an argument that makes sense and is backed up by compelling data: the likelihood of strong future share market returns declines the higher are valuation multiples. With global share markets hitting new all-time highs, the noise around valuations grows by the day. The challenge for a smart investor is, of course, which valuation multiple do you use and why?

One of the most commonly used multiples is the Cyclically Adjusted Price to Earnings (CAPE) ratio, which is the brainchild of Nobel economics laureate Bob Shiller. For the US it’s currently above 38, and the only time it’s been higher was in the period leading up to the dotcom bust. Australia’s is a far more modest 24.

Advocates of the CAPE ratio point to its ability to predict future share market returns over the next 10 years, based entirely on what’s happened in the past. For the US, at current levels, it’s about 1 per cent per year, and for Australia, it’s about 9 per cent.

However, critics of the CAPE ratio point out it’s all but useless as a timing tool, given the US has been above its long-term average now for almost the whole of this century. Also, critically, trying to compare today’s macro environment, characterised by record low interest rates and bond yields, super accommodative monetary policy and record fiscal stimulus, to past periods that were almost the opposite, is like comparing the proverbial apples and oranges.

The same argument applies to comparing a normal PE ratio to historical averages: how do you account for vastly different inflation, bond yields and policy settings?

Unfortunately, there is no crystal ball that will tell you accurately and consistently what future returns will be. Investors may end up being right for the wrong reasons, or the conservatism of the average financial professional could prove prescient.

Forgot to make that super contribution? Don’t despair, you may ‘catch-up’

Forgot to make that super contribution? Don’t despair, you may ‘catch-up’

It’s not uncommon to meet prospective clients who either forgot to make a concessional super contribution the previous year, or didn’t feel it was necessary.

However, all is not lost, with a little understood strategy which, in some circumstances, allows you to make ‘catch-up’ contributions.

So what are ‘catch-up’ contributions?

The rules around catch-up, or more accurately known as ‘Carry-forward’ contributions, simply allow super fund members to use any of their unused concessional contributions cap (or limit) on a rolling basis for five years.

So, if you didn’t make the maximum concessional contributions ($25,000 in 2019/2020), you can carry forward the unused amount for up to 5 years. After 5 years, any unused concessional contributions will expire.

The first year these rules came into force and concessional contributions could be accrued from was the 2018/2019 financial year.

Why were they introduced?

The Federal Government introduced carried-forward contributions to help those who have had interrupted working lives to get more money into superannuation. Those who had time off work to have children, care for children or loved ones, or even those who previously didn’t have the financial capacity to contribute to superannuation all benefit from these rules.

Who is eligible to make carry-forward contributions?

Anyone who has a total superannuation balance under $500,000 as at 30th June in the previous financial year is eligible to make catch up contributions.

What are concessional contributions again?

Concessional contributions are those made from pre-tax dollars. It includes:

  • employer contributions of 9.5% pa of your salary
  • Salary sacrifice contributions.
  • Lump sum contributions to superannuation which you notify your superfund provided that you intend to claim a personal tax deduction.

There is an annual $25,000 limit for concessional contributions.

How does it work?

This can best be illustrated with an example.

Tina has a total superannuation balance of $300,000. After taking a couple of years leave, she returned to work in July 2019.

During the 2019/2020 financial year, Tina was eligible to carry forward her concessional contributions she didn’t make in 2018/2019, however, she chose to not make an additional contribution above her employer contributions of $10,000.

So, for the 2020/2021 year, Tina has a total of $65,000 of eligible concessional contributions. She has done particularly well from her holding in Afterpay shares and decides to sell them giving rise to a significant capital gains tax liability. Tina has a meeting with her adviser at Steward Wealth about how she may reduce this tax liability. Her adviser recommends making full use of the carry-forward provisions and advises her to make concessional contributions totaling $65,000 (including her employer contributions). Not only will she receive a tax deduction for the contribution, but she will also grow her superannuation balance.

Forgot to make that super contribution Dont despair you may catch-up

In summary

Carry-forward provisions are a real opportunity for those who haven’t been in a position to make contributions to superannuation, or who have simply forgotten to do so.

While it can assist in building up your retirement benefit, as you can see from our case study above, careful planning can also make it a very effective tax planning tool.

Superannuation can be very complex and advice really needs to be tailored to each individual. If you would like to discuss further, the Steward Wealth team are more than happy to assist you.

Want an assessment as to how this strategy could work to maximise your financial well-being?

Call Steward Wealth today on (03) 9975 7070.

Beware of experts on yesterday

Beware of experts on yesterday

This article appeared in the Australian Financial Review.

The amazing events of 2020 have been a great reminder that no two share market cycles are the same. The word ‘unprecedented’ has come to be all but worn out, whether it’s to describe the worldwide sell off in February and March, or the rebound in April and May, or the level of government and central bank support doled out along the way.

One thing that doesn”t change, however, is there is no shortage of experts competing to use history as a guide to explain why things just don’t make sense right now or will all end badly. Whether it be warnigns that valuations are too high, share markets are too reliant on a handful of companies, or market signals are being confused by central banks and governments, smart investors need to be wary of what have been called “experts on an earlier version of the world.”

Of course, there are some rules of investing that will always apply, but you also need to allow that markets are a constantly shifting mix of factors. Like ingredients in a recipe, if they are mixed in different proportions, you’ve got a whole new dish on your hands. Some new factor can seem to come out of nowhere and exert such profound influence that it all but squashes the last big trend into insignificance.

Take, for example, the common warning that share markets are expensive based on current price to earnings (PE) ratios compared to long-term historical averages. The price you pay for a share divided by how much that share will earn next year gives you a basic measure of how expensive it is: the higher the number the higher the valuation.

Based on earnings forecasts for the next 12 months, global shares are trading on a PE of 21, versus a 32-year average of 16. Likewise, Australian shares are on 18 versus 14, and the US is 23 vs 16. Nobody likes paying too much for something, and it can take years to recover from overpaying for investments.

However, it’s long been accepted that low inflation is supportive of higher PE ratios, and right now, inflation is much, much lower than it has been over the last 38 years. In fact, inflation and interest rates peaked around 1980 and have been in decline ever since. So it makes perfect sense that PE ratios would be higher now than they were over that long-term average.

 One of the most commonly used techniques to value a company’s share is to do a discounted cash flow, or DCF, valuation. To do that you apply a ‘discount rate’, which is usually based on bond yields, against forecast earnings to see what they’re worth in today’s dollars. The lower your discount rate, the higher will be the present value of those future earnings and thus the higher the share’s valuation.

Right now, 10-year bond yields across the world are about the lowest they’ve ever been. So, again, it makes sense that valuations are higher today than they would have been at any time over the past 40 years.

What about those over-stretched US tech companies we keep hearing about? Again, the comparison needs to be kept in context. Once upon a time the market was dominated by companies whose costs went up in proportion with their sales. Industrial companies required bigger factories, supply chains and distribution networks to sell more widgets.

But now some technology-based businesses can expand their sales enormously without their costs increasing at all. That means the return on equity, which is a basic measure of profitability, for those businesses can be exponentially higher than their industrial counterparts, so it makes sense they will trade on vastly different metrics.

The problem here is an investor with a forty year career of investing in stocks with low PEs, because that’s what worked best for the previous 40 years, will understandably struggle to accept those high PEs are anything but an aberration from sensible valuations. Such an investor is almost undoubtedly an expert in an earlier version of the world.

They would never have bought Amazon shares five years ago when they were on a PE of 741, yet over that period the shares have risen more than six-fold and are still on a PE of 119. Evidently, when it comes to a company like this, a PE ratio is not the right valuation measure to use, and it’s ridiculous to argue the market has got it wrong for five years.

That doesn’t mean those investors won’t make money, it’s just that they’re unlikely to make as much money in today’s version of the world. With bond yields so low, an investment that offers apparently huge scope for growth with high profits becomes extremely attractive.

2020 will be remembered as an extraordinary year, with lessons for both the short and long term. The short-term lesson is just how difficult it is to second guess the market. No matter how certain we might be that something doesn’t make sense, Mr Market really doesn’t care what you think. The long-term lesson is that structural shifts in markets, like inflation and interest rates grinding lower and lower, can be hard to see while they’re happening, but the effects on markets can be profound.

While it’s smart to take on board the lessons from each cycle, we’ve seen time and time again it’s not so smart to presume history will simply repeat itself.