war time lovers

Case Study: Assistance for a Widow in trying times

A case study is an account of an activity, event or problem that illustrates a real life scenario or situation and includes the complexities one may encounter. These case studies written by the consultants at Integrity Wealth and illustrate how their practical and expert advice has resulted in a positive outcome for all.
(Names have been changed.)


war time coupleAssistance for a Widow in trying times

Martin (Executive) and Alice (Lawyer) had been married for 30 years when Alice was diagnosed with terminal cancer. Prior to Alice’s death, both Martin and Alice were Trustees and Members of a Self-Managed Superannuation Fund (SMSF). Upon Alice’s death, Martin was faced with having to make quick decisions on the operation of the Self-Managed Superannuation Fund. As the Trustees were individual trustees (*) and under law you can’t have a single individual trustee of an SMSF there were tight deadlines to be met in terms of paying out death benefits and winding up the SMSF.

 

After Alice’s death, we met with Martin on a number of occasions to discuss the future of the SMSF and what to do going forward. Initially, Martin was adamant that he still wanted to run a SMSF (despite our advice to rollover superannuation funds to a managed fund). We set up a new SMSF (with a corporate trustee this time of course!) and proceededwar time lovers to use the new SMSF for Martin’s superannuation needs. A couple of months later, Martin approached us and informed us that running a SMSF by himself was too time consuming and that he now wished to roll over all funds in to a managed fund.

Martin is now able to do what is most important to him. He is able to spend the time coming to terms with Alice’s death and spend valuable time with his family. Martin receives regular updates on how his superannuation in the managed fund is going and knows that he can call us at any time to ask any questions and seek further advice.

(*) Despite our advice in previous years to change the trustee of the SMSF to a Corporate Trustee, Martin and Alice never proceeded with our advice. As Alice was a lawyer, both Martin and Alice thought that they could handle the situation of a partner’s death when the time came.

by Tara Grimsey, Senior Accountant

For advise about your own financial future, call Integrity Wealth today.

How to gain wealth… Get started today with 6 easy steps.

Reaching a long-term financial goal requires clear thinking, discipline and good advice.

Check out this great article.  6 simple steps to getting started.

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A new budget can be an opportunity to start improving your financial decisions. You may have just started working or established your business and there may be some cash inflow, which you wish to invest but don’t know how to go about it. Here are some simple guidelines to get you started.

List your goals clearly: The first step for any new investor is to understand the financial objectives she wants to realise. It could be buying a car or a motorcycle, purchasing a life insurance policy, taking a house on rent, going on a vacation, or anything else.

Take informed decisions: Knowledge is power. Before you decide to invest in any financial tool, be it fixed deposits, mutual funds, or direct equity, make sure you have all the necessary information about the vehicle.

Start early: It’s not just the early bird that gets the worm; an ‘early’ investor also gets a bigger corpus at the end of investing period, compared with someone who started late.

Have a diversified investment portfolio: If you invest all your hard-earned money in equity and the market collapses, you will lose everything.

Seek an expert’s assistance: Investment decisions taken due to ignorance can turn out to be wrong and lead to losses.

Be patient, money doesn’t grow overnight: Many people who have started investing only recently want immediate earnings.

For more information, please check the complete article from livemint

http://www.livemint.com/Money/cwtcfavcbMBmoisbGkompJ/Six-ways-to-get-started-on-investing.html

 For a consultation with an authorized friendly financial adviser, please call us 1300 780 818, Integrity Wealth.

Integrity Financial Planning Pty Ltd is an Authorised Representative of Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934

Integrity Financial Planning Pty Ltd and Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934 are not responsible for the services completed such as accounting and taxation and business advising. These services are provided by Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. We do not warrant the accuracy, completeness or adequacy of this service. You should make your own enquiries before entering into any agreements with Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide.

General Disclaimer:- This information is of general nature only and is not intended as personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you.

Separation and Divorce: getting your finances back on track.

When you’re hurting it can be difficult to pick yourself up and think about your finances. The key is to take action early and there are several crucial steps to getting your financial future back on track.

This is a very helpful and insightful article from Coutts Solicitors.

separation-bis-540x272In Australia today around 1 in 3 marriages can be expected to end in divorce. With 77% of Australian couples also living together before getting married (and let’s face it – some don’t go the distance) the real impact of relationship breakdowns is likely to be much higher than the statistics lead us to believe.

Finances are often left on the backburner as you focus on the emotional health of yourself and your family. Perhaps it is the first time you have had sole responsibility for your finances? Or maybe you feel overwhelmed and don’t know where to start?

The key is to take action early. Here are some steps to get back on track financially after a separation or divorce…

1. Check your credit rating
A vital first step is taking control of your financial future! Check to see if your credit report contains any errors or if any of your partner’s information is listed. If so, have it rectified. There are two main credit reporting agencies – Veda and Dun & Bradstreet.

2. Identify your creditors
Make a list of all your creditors, both secured and unsecured. Your secured creditors are those where assets are used as security for the loan, eg house or car. Negotiation of both the assets and the outstanding loans will be required by both parties.

3. Separate all joint accounts
A time consuming but crucial step is to unravel all your joint accounts, including credit cards. Even if the separation is amicable it is best to separate all accounts to avoid future issues.

4. Create a budget
An unavoidable result of separation is a change in lifestyle. An important step in making this adjustment is creating a comprehensive budget separating discretionary and mandatory expenses. To stick to your new budget you may need to make tough decisions on discretionary spending.

5. Decide on your housing options
In most cases the family home is either sold or refinanced. At least one partner will need to find somewhere new to live. While renting may be a viable short term option, in the long term most people wish to buy a home. You will need expert advice on how to best refinance your home or secure a loan for a new home. If refinancing or applying for a new loan it is important that all required identity documentation reflects your new marital status and/or any change of name.

It is essential you contact your mortgage broker to discuss the process BEFORE lodging any loan application documents.

6. Prepare a financial plan for the future

  • Start an emergency fund – open a separate savings account for unexpected emergencies.
  • Update your Will – ensure it reflects the changes that have occurred in your life.
  • Manage your debt – contact us for a chat about how to reduce your ‘bad’ debt like credit cards and personal loans as quickly as possible.
  • Plan for your retirement – review superannuation and update beneficiary details if required.
  • Review your insurance needs – you will need to update policies from married to single status.

 

For a consultation with an authorized friendly financial adviser, please call us 1300 780 818, Integrity Wealth.

 

Integrity Financial Planning Pty Ltd is an Authorised Representative of Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934

Integrity Financial Planning Pty Ltd and Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934 are not responsible for the services completed such as accounting and taxation and business advising. These services are provided by Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. We do not warrant the accuracy, completeness or adequacy of this service. You should make your own enquiries before entering into any agreements with Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide.

General Disclaimer:- This information is of general nature only and is not intended as personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you.

 

Four stages of life; help with financial decisions

A great Financial Adviser will be imperative at 4 stages of life.

 

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Ian Kutner is an adviser with San Diego Wealth Management.  He has put together an article focusing on the stages of life that will really matter financially. 

When people receive an inheritance, bonus, buyout, big raise or other large sum of money, they should consider hiring a financial adviser.

A good financial planner isn’t going to sell you a specific product in order to make a commission. Instead, a quality adviser will listen to your goals, look at your current finances and recommend how best to move forward with your money.

While you don’t always need to work with a planner on an ongoing basis, there are times when it makes sense to stop in for a consultation and a financial check-up.

1. When you get your first job.

It doesn’t matter whether it pays $20,000 a year or $200,000 a year, your first job is a good reason to check in with a financial planner. Not only can they advise on how best to begin saving for retirement, they may also provide insight on how to maximize your employer’s benefits package.

“You may not engage with a financial planner for years after that,” says Keith Klein, a certified financial planner and owner of Turning Pointe Wealth Management in Phoenix. “But go in for an initial consultation to learn about how all [your financial options] work.”

2. When you get married or divorced.

Another good time to get input from a financial planner is whenever you enter or leave a marriage. Bringing in an unbiased third party can help minimize financial losses in a divorce and may make it easier for engaged couples to have conversations about combining assets and income in marriage.

“One of the biggest reasons people should work with a financial planner is so that they don’t make emotional mistakes,” says Richard Wald, managing director of Merrill Lynch Global Wealth Management. For example, a spouse might feel attached to a family home and insist on keeping it as part of a divorce settlement. In exchange, he or she may lose out on retirement savings that could prove to be much more valuable in the long run.

3. When you receive a large sum of cash.

Receiving a large sum of money, such as from an inheritance, bonus, buyout or big raise, should be a boon to your financial health. Unfortunately, many people to squander the opportunity it presents.

A 2012 study from Ohio State University’s Center for Human Resource Research found most people save only half the inheritance money they receive. In the study, 826 people received an inheritance, with the median amount being $11,340. Of those, one-third saw their overall wealth remain the same or even decline after receiving an inheritance, apparently as a result of poor financial decisions.

Regardless of the amount of your windfall, meeting with a financial adviser can ensure you put the money to good use. “People think they need $1 million to work with a planner,” says Cecilia Beach Brown, a certified financial planner at Lincoln Financial Securities in Annapolis, Maryland. “Nothing could be further from the truth.”

4. When you need to take care of aging parents.

Kutner says people should think outside the box when considering how a financial planner can be useful. “Aging parents want to stay in their homes, and how do you pay for that?” he says. “It’s amazing how much a financial planner can help.

For a consultation with an authorized friendly financial adviser, please call us 1300 780 818, Integrity Wealth.

 

Integrity Financial Planning Pty Ltd is an Authorised Representative of Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934

Integrity Financial Planning Pty Ltd and Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934 are not responsible for the services completed such as accounting and taxation and business advising. These services are provided by Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. We do not warrant the accuracy, completeness or adequacy of this service. You should make your own enquiries before entering into any agreements with Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide.

General Disclaimer:- This information is of general nature only and is not intended as personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you.

FBT 2016: The top 5 things every business needs to know!

If your business is in the hospital/non-profit sector and uses salary packaging for team members, you’re a small business, or provide team members with a gym or space to do yoga, then there are a few things you need to know beyond the basic FBT changes when the new FBT year starts on 1 April 2016.travel

  1. You will pay more FBT

The Fringe Benefits Tax (FBT) rate is currently 49%.  The rate increased from 47% on 1 April 2015 in conjunction with the introduction of the 2% debt tax on high-income earners (Temporary Budget Repair Levy).  The FBT year that is just ending is the first year at the higher tax rate – which means if you have an FBT liability, you will pay more tax.

The FBT rate will stay at 49% until 31 March 2017 when the impact of the debt tax is scheduled to be removed.

  1. Meal entertainment crackdown – medical professionals beware

If your business is an FBT exempt entity (public and not-for-profit hospitals, public benevolent institutions, health promotion charities, public ambulance service) or qualifies for the FBT rebate, then there are significant changes that come into play on 1 April you need to be across.

In the past, employees of FBT exempt and rebatable entities have been able to salary sacrifice an unlimited amount of meal entertainment expenses (e.g., restaurant meals) with no impact on their existing annual caps.  But, this will all change on 1 April 2016.  From this date, a separate single grossed-up cap of $5,000 for salary sacrificed meal entertainment benefits for employees of exempt and rebatable employers will apply.

To give you some idea of the impact let’s look at the example of a doctor employed by a public hospital who salary sacrifices $32,000 of meal entertainment benefits.  If the doctor salary sacrificed these benefits in the 2015-16 FBT year, the full $32,000 would be exempt from FBT and he has nothing to report in his tax return.  If the doctor salary sacrifices these benefits in the 2016-17 FBT year, then the first $5,000 will not count towards their annual exemption cap. However, the balance will be taken into account in determining whether the employee exceeds their exemption cap for the year.  If this excess amount causes the employee to exceed their annual exemption cap then an FBT liability will arise.  The entire amount (including the first $5,000) will also be included in their reportable fringe benefits amount for the year, which could impact on their ability to satisfy other income based tests within the tax system.

As an employer, it will be essential to review the existing salary packages of team members affected by the changes as someone will be paying the extra FBT that arises as a result of the new cap being introduced.

  1. Salary sacrificing may not be worth it

By now you should have reviewed any salary sacrifice agreements to ensure that they are still viable at the higher 49% FBT rate.  In some cases, salary sacrifice agreements may no longer achieve the intended goals and simply create an administrative burden for little to no benefit.

For high income earners (above $180k) however, the difference in timing between the FBT year and the income year means that there will be a planning opportunity between 1 April 2017 when the FBT rate reduces back to 47% and 30 June 2017 when the 2% debt tax is removed.

With any salary sacrifice agreement just be aware that certain rules must be followed. For example, the appropriate documentation needs to be in place to ensure that the arrangement is ‘effective’.  This means that the employee should agree in writing to forgo an amount of salary and wages before that entitlement has been earned.  If it’s after, it’s not valid and the employee will simply be taxed on that amount.  The business would also be liable for obligations such as PAYG withholding and superannuation guarantee amounts.

  1. Two laptops are better than one for small business

If your business is a small business (turnover under $2m), from 1 April 2016 the FBT exemption on portable electronic devices will be extended.  From this date, you can offer employees more than one work-related portable electronic device, such as a mobile phone, laptop and tablet and not have to pay FBT on it even if the device is the same or similar to other devices already provided in that same FBT year.  All other businesses are limited to one device that is identical or similar to another.

  1. Yoga or gym classes at the office?

Wondering what to do with that extra office space?  Put in gym facilities for the team?  Use a room for a yoga class or personal trainer perhaps?  A recent ATO decision confirmed that the FBT implications of these two options are quite different.  The reason is the definition of a “recreational facility.”  A recreational facility is exactly that, a facility for recreation.  Recreational facilities can be exempt from FBT if certain conditions can be met.   However, a fitness class or a personal trainer is not a recreational facility and therefore, FBT would generally apply.

For a consultation with an authorized friendly financial adviser, please call us 1300 780 818, Integrity Wealth.

ntegrity Financial Planning Pty Ltd is an Authorised Representative of Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934

Integrity Financial Planning Pty Ltd and Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934 are not responsible for the services completed such as accounting and taxation and business advising. These services are provided by Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. We do not warrant the accuracy, completeness or adequacy of this service. You should make your own enquiries before entering into any agreements with Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide.

General Disclaimer:- This information is of general nature only and is not intended as personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you.

Deadline looms for SMSFs and collectibles.

Does your self-managed superannuation fund (SMSF) own a motor vehicle, artwork, wine, coins, jewellery or other collectibles?

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More stringent rules for how these collectible and personal use assets are managed come into effect for all funds from 30 June 2016.  While it’s important for all SMSFs to ensure that they are compliant with the rules, funds with collectibles purchased before 1 July 2011 have had a grace period to get their house in order.  This grace period ends on 30 June 2016.

 

There is around $407 million worth of these collectible and personal use assets sitting in SMSFs in Australia.   The Tax Office’s main concern is that it’s really easy for fund members to forget that these assets – like artwork and cars – are owned by the fund and must be held for retirement purposes.  That means members of the fund (or anyone related to them) can’t use or enjoy that asset.

If you have these assets in your fund (or are looking to acquire them), here’s what you need to ensure:

  1. The asset must not be leased to a related party – a related party includes a member of the fund, their relatives, business partners, the spouse or child of these business partners), or any company or trust that the fund members control or influence.
  2. The asset must not be stored in the private residence of the related party – this includes sheds and garages etc.
  3. The trustees must keep a written record of where, how, and why the asset is to be stored.
  4. The asset must be insured in the fund (trustees) name.  If your SMSF is buying a collectible, insurance needs to be in place within the first seven days. If the fund already owns the asset it must be insured in the trustees name before 1 July 2016!
  5. The asset must not be used by a related party. For example, if your fund owns a vintage car, you cannot drive it for any reason, not even to go to the mechanic.
  6. If the asset is sold to a related party, the asset must be sold at a market price determined by a qualified and independent valuer.

A few issues come out of these requirements.  Sometimes insurance is difficult or impossible to get for collectible assets.  If you can’t secure insurance, the asset may need to be sold.  If a collectible asset needs to be sold because the rules can’t be met, the sale process can sometimes be protracted – this could be an issue if you need to sell the asset pre 30 June.

Before your fund acquires a collectible asset, it’s also important to ensure that the fund Trust Deed allows for collectibles to be acquired, the Investment Strategy of the fund allows for the collectible to be acquired, and that the sole purpose of acquiring the collectible is to provide retirement benefits for members.

 What is a collectible and personal use asset?

The definition of a collectible is quite broad and will often capture assets that many fund members don’t realise qualify as collectibles.

A common example is motor vehicles.  The definition of a collectible includes motor vehicles such as utes, not just classic cars that are generally considered collectors items.

When the Tax Office talks about collectibles, they mean: artwork – including paintings, sculptures, drawings, engravings and photographs; jewellery; antiques; artefacts; coins, medallions or bank notes (coins and banknotes are collectables if their value exceeds their face value, and bullion coins are collectables if their value exceeds their face value and they are traded at a price above the spot price of their metal content); postage stamps or first-day covers; rare folios, manuscripts or books; memorabilia; wine or spirits; motor vehicles and motorcycles; recreational boats; and, memberships of sporting or social clubs.

For a consultation with an authorized friendly financial adviser, please call us 1300 780 818, Integrity Wealth.

 

Integrity Financial Planning Pty Ltd is an Authorised Representative of Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934

Integrity Financial Planning Pty Ltd and Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934 are not responsible for the services completed such as accounting and taxation and business advising. These services are provided by Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. We do not warrant the accuracy, completeness or adequacy of this service. You should make your own enquiries before entering into any agreements with Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide.

General Disclaimer:- This information is of general nature only and is not intended as personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you.

In a low-growth world, less can be more.

The Envestnet Edge: February 2016

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Step away from the intense bouts of volatility that recently have characterized financial markets, and an important trend emerges that is unsettling investors large and small. With few exceptions, investments simply are not generating the average annual returns that they’ve come to expect.

That reality has led to no dearth of handwringing, brow-furling, and expletive-laced protests. Last year, nearly every combination of investments (save for the Nasdaq domestically or Japanese equities internationally) either lost money or returned next to nothing. In spite of that fact, most investors continue to expect not just more than zero (a reasonable goal) but something approximating the returns they experienced for much of the latter decades of the 20th century.

And that is not reasonable at all.

The world we are entering is messy and mysterious, but a few facts seem in order: it is a world of lower growth, lower inflation, lower returns, and lower costs. Some of these aspects may appear, at first glance, to be negative, e.g. lower growth. But those negatives are powerfully offset by the positives of lower inflation and lower costs. Net net, therefore, this near future allows for decent real returns, even if the headline numbers are less gaudy.

What is imperative, however, is that investors of all stripes reset their expectations. Unless that happens, they are likely to be disappointed, disillusioned, and dismayed, and seek higher returns via investments that will carry more risk and may deliver less performance. It’s neither a good combination, nor a necessary one.

The past is not prologue

For the 100 years between 1915 and 2015, the S&P 500 averaged nearly 10% annual returns. And it is fair to say that a vast number of investors, ranging from day traders to sober institutional managers, continue to use that number as a fair target. Since the early 1980s, bonds have returned more than 8% annually to investors. That alone explains why similar assumptions about the next decades persist, and why return expectations were set at those levels.

Those expectations matter, especially for large pension plans. Although there are fewer corporate defined benefit plans today than existed in the late 20th century, there are still trillions of dollars in public plans and endowments.

But today’s world has shifted into a decidedly different growth trajectory. Growth remains relatively strong in the developing world, but is distinctly slower than it was from 2000-2013, dipping under 5% this year. Growth in the United States, the Eurozone, and Japan, which at about $40 trillion still make up more than half of global output, has slowed to less than 2.5%. Global interest rates are almost everywhere in decline, with sovereign yields in the developed world (which make up the bulk of issuance) well under 2%, and in many cases, under 1%. In addition, inflation is almost non existent everywhere in the developed world, well below 2%, and fading in the developing world as well, including China.

Companies have, it is true, continued to generate profits well in excess of global growth, though that too may be shifting. For now, overall profit growth of the S&P 500 is flat to down because of the implosion of energy and commodity corporate earnings, and it is too soon to tell whether that collapse will spread chronically to other sectors. Regardless, the overall rate of annual corporate earnings growth could well be declining from double digits to high single digits.

That is the world now. The problem is that return expectations are not grounded in the world of today—they are lodged in yesterday.

Over the past decade, the return assumptions of state and local pension plans have indeed come down—by a whopping 37 basis points, from just over 8% in 2001 to 7.68% at last report. Plans are resetting their expectations downwards, but at the glacial pace that one would expect from large institutions. And that pace is far too slow in a world that is changing far too fast. A move of less than half a percent is, at the very least, not much, given how much the growth profile of the world has shifted.

And yes, some select endowments, especially university funds such as the famed Yale endowment, have continued to generate gaudy double-digit returns based on a heavy exposure to alternative and direct investments in hedge funds, private equity, and real assets. Even here, however, the trend line has been down: returns are still well above market returns, but the gap is closing.

It is, of course, quite possible that the world will shift back into a higher-return profile at some point. It also is possible that the many critics of the current environment are correct: that it is a product of overly loose central banks that are artificially distorting price signals and keeping rates and returns low. Both are possible, but may not be probable.

In the face of what we know—that growth is slowing and prices are dropping—juxtaposed against the uncertainty about that which we do not, it would be prudent to lower our expectations. The advantage of doing so is that rather than reaching for returns that can only be achieved by assuming more risk or more margin and more exposure, we accept a lower threshold. If that threshold is met, great, and if it is surpassed, even better, but it then will be surpassed not because of assuming excessive risk but because of stronger markets and their underlying fundamentals.

The silver lining, and a very shiny one it is

If this were a call just to deal with it and accept lower returns, that would be cold gruel. But there is a silver lining here, and not an insubstantial one: this lower returns world is unfolding in a time in which costs are plunging, inflation is tepid, and interest rates (hence the cost of capital) are incredibly low.

Those years when the average returns were 8%, 9%, 10% were by and large years when inflation was 4%, 5%, or in the 1970s, 10% or more. They were years when interest rates averaged 5% or 6% or again even more, on average, and that made the cost of capital, and thus doing business or buying a home, much dearer. In short, for much of that time the positive effects of high returns were offset by the negative effects of rising inflation and high interest rates. High rates did generate more yield for investors, but that higher yield then was offset by higher real world costs.

In that sense, lower returns today can have the same net effect as higher returns did for thirty years. It is the same principle as “real income,” which adjusts for costs. Today’s 5%, therefore, may seem paltry compared to yesteryear’s 10%, but that is only because we so often fail to integrate the larger context, which must include inflation, costs, and interest rates. This “new normal” of lower returns may feel like a comedown, but that is because returns are being analyzed in an abstract vacuum, when instead they should be evaluated within the context of those other variables.

Less may not feel as good as more does in a culture that has been primed to expect more. But in the world we are entering, lower returns may be just as tenable and add as much value as higher returns did in an earlier time. At a minimum, it is a conversation we need to have, and a debate that demands more attention.

Karabell is head of global strategy at Envestnet, a leading provider of wealth management technology and services to investment advisors. This piece was initially published as the Envestnet Edge.

For a consultation with an authorized friendly financial adviser, please call us 1300 780 818, Integrity Wealth.

Integrity Financial Planning Pty Ltd is an Authorised Representative of Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934

Integrity Financial Planning Pty Ltd and Lonsdale Financial Group Limited ABN 76 006 637 225, AFSL 246934 are not responsible for the services completed such as accounting and taxation and business advising. These services are provided by Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. We do not warrant the accuracy, completeness or adequacy of this service. You should make your own enquiries before entering into any agreements with Integrity Financial Solutions Pty Ltd trading as Integrity Chartered Accountants and Business Advisors. Although the same Adviser may offer you services under the above businesses, each business is solely and separately responsible for the advice they each provide.

General Disclaimer:- This information is of general nature only and is not intended as personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you.

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