Letters of the Week

Timing the death cross, pension withdrawal limits, and invisible death duties.

The 50/200 days moving average cross-over model

I have just read Percy Allan's article, Why this bull may run faster, in which he says: “The chart below provides a crude safeguard based on 50 and 200-day moving average crossovers that you can apply yourself. Next time the red medium-term of the All Ordinaries index falls below its blue long-term trend (known as a Death Cross), exit the stockmarket to avoid the possibility a correction becoming a crash.”

That sounds really good, but could Eureka Report let us know when that “crossover” occurs? Because Allan’s right when he says “there’s no better feeling than being out of the market when it’s tanking.”

Wolfgang Bose

I refer to the article, Why this bull may run faster, by Percy Allan. I am interested to keep watch on the chart to see when the moving averages next intersect. Perhaps it could be one of Kohler's graphs?

Cheers

Chris Roberts

Percy Allan's article, Why this bull may run faster, was an elegant account of how to use the 50/200 day moving averages to exercise cautious control of investments. I am sure that Eureka Report will give us warning when these lines cross, but is there a good website where one can find this chart and bookmark it to refer to at any time? I have tried to find one, but with no great success.

RM

Percy’s response: There is no website which permanently shows this chart in Australia, but an investor can construct such a chart for themselves on http://au.finance.yahoo.com/

At www.MarketTiming.com.au we use a more sophisticated conservative trend-trading model than the one used for illustrative purposes in my article. Our model uses different multiple moving averages and switches between three gears depending on whether the All Ords index is in extremely bullish, normally bullish or bearish territory. That meant our conservative model (as opposed to the simple 50/200 days moving average cross-over model used in my article) gave a sell signal in December 2007 rather than January 2008, a buy signal in May 2009 rather than August 2009, and last year generated a buy signal in July rather than September. Also our model would have exited the sharemarket before Black Monday, October 19, 1987 when the All Ords index plunged 25% over the course of the trading day, whereas a 50/200 days moving average crossover model would have been too slow to do that. While using the 50/200 days moving average crossover is better than using nothing, a professional trend-following market timing service offers better management of market risk. America has over 300 market timers, but not all are professionals and none are licensed. Market Timing is licensed because it meets ASIC’s strict compliance requirements (including RG146 financial advisory training and expensive professional indemnity insurance).

Withdrawals from pension funds

Currently there is no restriction on withdrawing any amount from a pension account. Is there any change to this rule following the budget?

Name withheld

Bruce’s response: There were no changes in the budget to the amount you can withdraw from your pension fund if you have met a condition of release. However, there are restrictions on what you can take as a pension, if you’re on a transition to retirement pension. And that is up to 10% of your pension account.

Invisible death duties

Following on from James Kirby’s succinct article on the budget, Superannuation silence, I got to the bottom of tax payable upon death when speaking to a financial adviser, who was trying to give me the usual spin.

I specifically asked the adviser what taxation if any is paid in the event that both my wife and I die, for example in an overseas mis-adventure? The answer was that 20% tax would be payable by the SMSF before any distribution! Death duties are alive and well.

IW

James’ response: Thanks for pointing that out. We’re on the lookout for any new developments regarding situations where tax is payable upon death, but so far there have been no announced changes to the current rules.