Six resolutions for a new financial year

Stick with superannuation, long-term thinking and be ready for opportunities in property.

Summary: At the start of the financial year, it can be a good exercise to make some New Year resolutions. Superannuation, long-term investments and property should all be on the list. 
Key take-out: Looking at the year ahead, some resolutions to consider include: making appropriate contributions to super, investing in equities for the long term, looking at corporate debt and taking advantage of property opportunities.
Key beneficiaries: General investors. Category: Economics and strategy.

Just before June 30, Eureka Report managing editor James Kirby asked me for my New Year’s resolutions for the 2013-14 financial year. So I prepared six. I am not sure how many will be kept but preparing New Year resolutions in July is always a good exercise. I suggest Eureka Report readers consider it. Here we go:

1.       Thank God for the blessings myself and my wife have enjoyed. I read recently that there are three elements to happiness – enough money to live at the standard of living you are comfortable living; a good friend and partner and an ‘interest’ – not just golf. In my case I am in a comfortable position in my finances, I have a wonderful wife and I have several ‘interests’ but the main one is commenting on investment and business matters in Eureka Report and Business Spectator. I enjoy it and get paid for it!

2.       My investment resolution for 2013-14 starts with the conservatism that comes with age. That means I keep my equity exposure to a level at which I (and my wife) are personally comfortable. The sort of risk exposure resolutions you make when you are 72 are totally different to those you make (and I did make) 20 years ago let alone 30 and 40 years earlier.

In those years, my investment philosophy was to go for equities and the strategy served me well. Now I am more conservative but during 2013-14 I will have a number of longer-term bank deposits coming due at what were high rates of interest. I will not be reinvesting them in bank deposits because, for my superannuation fund, the bank deposit rates are already too low and may go lower. I am going to be looking for yield in shares and perhaps in corporate debt. In the corporate debt market securities are available between 3% and 4% above inflation and I think they are a worthwhile part of a balanced portfolio. I think yield on shares is again going to be the major force setting values in 2013-14.

3.       While I will be commenting on big rises and falls in the 2013-14 markets, for my own portfolio I’m resolving in 2013-14 to continue to be a long-term player. I can’t pick these big rises and falls so I make long-term selections and stay with them. Unless something fundamental changes, I will not be losing sleep or rushing for the selling door after a bad day in the market. And in buying, calling the bottom is also almost impossible.

4.       There are new fines for investment plans that aren’t correctly set out so I will be checking with my accountant that my investment plan is up to date. I know this is heresy but your written investment plan should be as flexible as possible. This is about complying with the law. In terms of your actual investment plan naturally it must comply with the legal one so make sure in the legal aims you have given yourself plenty of room to move.

In terms of your actual investment practice and your equity content, as I have written so many times, it should be at the level you are comfortable with. Everyone is different and it must be your decision. At my age I am at the lower end and certainly much lower than former years. I have done very well with equity investments and my resolve is that even if the market rises I will not feel badly about not maximising my gains. However, my equity percentage will rise in 2013-14 because of maturing bank deposits.

5.       Throughout my life I have been a supporter of superannuation. I determined 35 years ago that superannuation was the best way I could save in a tax effective manner. My self-managed super fund was a very early one and started in 1978. And what a wonderful decision that was because its success has ensured a comfortable ‘retirement’ for myself and my wife (actually, as my wife Barbara keeps telling me, I am not really retired).

Because I continue to work I am able to help with the family and others so I have set up a second superannuation fund. Currently that fund is also in ‘pension mode’ so is tax free but next financial year (2014-15) it will pay 15% tax on its income, as will a portion of the money in the main fund. That situation is no different to the position I was in before the wonderful Costello measures some seven or eight years ago and will not stop my enthusiasm for superannuation. I am allowed to put $185,000 into superannuation – $35,000 of which is tax deductable and $150,000 that is not tax deductable. Just how much I will put in will depend on my total financial situation but I will be looking to put in a goodly proportion of that $185,000 if not all of the $185,000. I regard the contribution level as an entitlement to invest on a 15% tax rate. If they raise the rate substantially I will take it out, but I regard that as unlikely.

So my key resolution will be to put as much money into superannuation as I can manage and for most people that is a good resolution to have. I am not expecting enormous future superannuation changes but, since 1978, while there has been a multitude of changes none have destroyed the basic superannuation attraction.

Of course if you have other commitments such as mortgages then a high superannuation contribution strategy is not for you.

6.       I will not be tempted to buy more residential real estate.

Nevertheless I think that there is a chance that the housing market will firm this year (To read more on prospects for the housing market see Alvin Pontoh's piece on a housing pick-up, Housing recovery around the corner). In my case, we are blessed with two residences and I feel I am well invested in that market. But if you see an investment residence going for a good price and it is one that can be either rented or later sold or value added to and you have the spare money don’t hesitate to take the opportunity. But it must be good. To put it another way, if you do not own a property you are putting yourself at risk. 

So what do I worry about?

At my age you of course worry about your health and that of your partner. You are living amongst friends who are often less fortunate but it is totally out of your control so there is no point in your becoming anxious.

On a business front I worry about what is happening in Europe. I think there is a crisis there still to come. For more on Europe, read Scott Dixon's article, Europe: Four charts you need to see. I am less concerned about China because I think they will probably manage it but I think there is a good chance that China face a bumpy year or two.

On the other hand I am much more optimistic about the US, which I think is going to drive the world forward. If we do not change the government in Australia there will be a very big fall in the market and, although I do expect a change in government, Kevin Rudd is the best campaigner. These are factors that none of us have control over but they should be part of your concerns.

Finally, 2013-14 has started with huge variations on the stock market. You just have to ride it through and get on with enjoying life. That is what I am doing.