Correspondence: Investment strategies and unemployment

Investment strategy

I am on the verge of retirement and have most of our investments cuddled up in cash for the time being but I do have time on my hands and would like to dabble in a small way at first in buying and selling shares. I would like to know what strategy you would suggest for an old gum digger like myself? I have looked at a number of portfolios and find that I am attracted to one or two shares from each, even though I know that the end game of each is different.

I guess I am willing to take a bit of a chance on this but not throw caution to the wind. I am looking at starting with about $20,000. Over to you and out.

Name withheld

Editor’s response: Thanks for your letter. Generally speaking, someone moving into retirement would have a more conservative strategy, with a portion invested in shares and property and the majority in fixed interest and cash. The aim is to reduce risk but the trade-off is a lower return over the long term. A financial adviser would be able to give you more in-depth advice tailored to your specific situation.

Also, our Monday edition focuses on wealth management and portfolio construction, so I think this would be very helpful for someone in your position. We are also running a Monday Mentors live video series each Monday at 12pm. You can submit questions each week by clicking on the “Mentors” icon on the homepage.

ABS or Roy Morgan – who to believe? 

The ABS’s latest unemployment data (for July) again beat analyst expectations. I have not seen very many financial professionals or journalists question how the ABS arrives at its results and if this data is a true reflection of the reality on the ground.

Everyone, from the Reserve Bank Governor, through to both major parties, financial analysts and professionals as well as the media take these figures (5.7%) as gospel because that is what is always quoted. 

Are you able to explain why the Roy Morgan Research shows unemployment at 10.1%?  See the results up to July here and note also the under employment figures as well.

If either side of politics uses the ABS figures for their budgetary revenue projections and these are not an accurate representation of employment, do they have any credibility? Moreover, does it not go some way to explain the revenue shortfall?

If even half the nearly 2.4 million workers who are either unemployed or under employed had sustainable incomes then government tax revenue would be much better and the spending multiplier effect would flow through to increase business activity and subsequent revenue growth for all. 

PM

Editor’s response: Thanks for your letter. This is a case of two different methodologies being used in calculating the unemployment rate.

As per the ABS’s website, it surveys “almost 30,000 homes as well as a selection of hotels, hospitals, boarding schools, colleges, prisons and Indigenous communities”, collecting data from about 60,000 people. Households surveyed are interviewed each month for eight months, with one-eighth of the sample being replaced each month, the ABS says.

In contrast, Roy Morgan’s latest survey is based on “on weekly face-to-face interviews of 344,309 Australians aged 14 and over between January 2007 – August 2013 and includes 3,988 face-to-face interviews in August 2013.”

Moreover, their definitions of “employment” also differ. According to the ABS, “a person who has worked for one hour or more for payment or someone who has worked without pay in a family business, is considered employed regardless of whether they consider themselves employed or not.”

Roy Morgan defines any respondent unemployed if they are not employed full or part-time and are looking for paid employment.

The ABS says its statistics use established international standards to ensure they can be easily compared with the rest of the world.

Because both surveys are samples of the population, they are both subject to possible error.

Alan’s Coal v Iron Ore graph

In most discussions of coal pricing and volumes exported, the differentiation between coking and steaming coal is not clearly made. Coking coal used for steel making commands a premium price which is not always related to the steaming coal price (used for power generation). Incidentally the other point lost in discussions on global warming is while there are many more environmentally friendly alternatives to coal that can be used for power generation, steel making is still totally dependent on coking coal. Australia has some of the best coking coal deposits in the world and while developing nations are dependent on steel, coking coal will be needed.

Bruce Boell

Fixed Interest v Cash

Could Eureka Report please explain what 'fixed interest' investments are as opposed to cash i.e. term deposits?

Name withheld

Editor’s response: Thanks for your letter. Fixed interest investments offer investors a regular income for a specified term. Examples include corporate bonds, government bonds and capital notes.

Generational dilemma

In Robert Gottliebsen’s article, The big wealth squeeze, he discusses the generational dilemma of whether older people should help out their children financially. It's important to keep in mind that there may be Centrelink implications when assets are disposed to help children and grandchildren. Anyone considering  such action should seek appropriate financial advice.

FT

Coalition's Parental Leave Scheme

I notice in Robert Gottliebsen's article, The big wealth squeeze, he mentioned that Australia's 3,200 largest companies will be paying the bulk of the Coalition's Paid Parental Leave scheme through a 1.5% levy on their profits. Do you know what exactly this 1.5% levy is on - total revenue, EBIT, or profit after tax and costs?

It is important to know this correctly. Infrastructure companies like Macquarie Airports largely don't pay tax, hugely successful companies in the Australian economy such as Google, Microsoft, Ikea and so on pay little or no tax in Australia.

So which figure is the scheme being based on, and who will pay? Foreign companies that trade in Australia; infrastructure companies; real estate trusts?

Name withheld

Robert’s response: the levy of 1.5% will apply to companies with taxable income above $5 million per year. The 1.5% will be taken from that taxable income. Google etc will pay the levy only to the extent that they earn profits in Australia. That applies to Sydney airport although the airport corporate structure its highly leveraged so its interest bill curbs its profits. Best wishes Robert 

Interest Rate settings

I've written many letters to Eureka Report in recent times about the repeated interest rate cuts. At last it seems you can now see this for the fraud that it is. What I think you should focus on now is the massive saving to government on its debt obligations.

I would also like to say I agree with your reporting of the growing despair faced by young, metropolitan house-owning hopefuls and the bubbles forming in the stockmarket and real estate.

DK

Ex-dividend dates

Can Eureka Report please advise how I can most easily find a list of yields and ex-dividend dates for the top 200 stocks?

Name withheld

Editor’s response: The ASX website has a dividend specific section here with up to date information on dividends and ex-dividend dates for all listed companies. You can search 10 companies at a time. To calculate the current dividend yield, divide the annual dividend per share by the current share price.

Art in Super Funds

Please advise if the Coalition has released a policy on art in superannuation funds yet as per Cliona O’Dowd’s article, Art market hopes for a DIY breakthrough.

JM

Editor’s response: Thanks for your letter. Despite the rumours circulating a few weeks ago, the Coalition for the time being has indicated it will not be making any changes to the rules around art in super.