Self Managed Super

[awg]

awg

Yes super fund returns include dividends. But note that returns are on a pre-tax basis usually so do not reflect CGT, franking etc. By having low turnover in a SMSF and focussing on franked dividends, you can enhance return significantly

Glad you raised this point.

This is one reason I set up my own SMSF pension, when my funds were previously "financially managed", I enquired by what, if any mechanism, a managed fund differeniated between a 0% pension, 15% super, or any other tax rate.

My "financial advisor" continued to propogate various answers to the effect that Wrap funds did do this. I did not believe him.

My belief is that tax is paid at the MIN level, and that effectively cross-susidises all individual tax levels. I could be wrong, as I could never get an comprehensible explanation from anyone I asked.

I have contended this many times, but if you are fully credited dividend imputation, then that increases your long term returns somewhat, can be as high as 1%pa!

The only way to ensure you get those credits is to select and directly own high franked issues.

Some sneeze at this, but as I am expected to live nearly 30 more years, it could be a very substantial sum for my heirs, and I would certainly prefer they or myself have it than to see it shared around.:

 

[gooner]

Glad you raised this point.

This is one reason I set up my own SMSF pension, when my funds were previously "financially managed", I enquired by what, if any mechanism, a managed fund differeniated between a 0% pension, 15% super, or any other tax rate.

My "financial advisor" continued to propogate various answers to the effect that Wrap funds did do this. I did not believe him.

My belief is that tax is paid at the MIN level, and that effectively cross-susidises all individual tax levels. I could be wrong, as I could never get an comprehensible explanation from anyone I asked.

I have contended this many times, but if you are fully credited dividend imputation, then that increases your long term returns somewhat, can be as high as 1%pa!

The only way to ensure you get those credits is to select and directly own high franked issues.

Some sneeze at this, but as I am expected to live nearly 30 more years, it could be a very substantial sum for my heirs, and I would certainly prefer they or myself have it than to see it shared around.:

awg

Completely agree. This is why I do not have any overseas shares in my portfolio. I believe the franking benefit provides a competitive edge to my portfolio compared to holding overseas shares, as effectively you receive pre-tax profits of companies rather than after tax profits. Although, I do hold CSL which pays unfranked as it's business is overseas - just gave me good health exposure so could not go past it.

 

[awg]

awg

Completely agree. This is why I do not have any overseas shares in my portfolio. I believe the franking benefit provides a competitive edge to my portfolio compared to holding overseas shares, as effectively you receive pre-tax profits of companies rather than after tax profits. Although, I do hold CSL which pays unfranked as it's business is overseas - just gave me good health exposure so could not go past it.

I do hold many non-div stocks as well.

CGT does not apply to me either, so that effects my strategy

If one wishes to get specific OS exposure in SMSF, very easy to do now with newer ETFs

 

[Julia]

Brian, I understand that you want the reassurance of feeling your own choices are resulting in a performance which stands up to measurement against some benchmark, but I really can't see why this is necessary.

If you simply work out how much income you need to live on, how much more you want to grow your capital over that to cover inflation etc, and then build your p/f accordingly, why does it need to match any public benchmark?

e.g. you may (according to your level of capital invested) easily outperform a managed fund average/index/whatever, or you may underperform it, but as long as you're producing a result which works for you, why should it matter?

 

[nulla nulla]

Glad you raised this point.

This is one reason I set up my own SMSF pension, when my funds were previously "financially managed", I enquired by what, if any mechanism, a managed fund differeniated between a 0% pension, 15% super, or any other tax rate.

My "financial advisor" continued to propogate various answers to the effect that Wrap funds did do this. I did not believe him.

My belief is that tax is paid at the MIN level, and that effectively cross-susidises all individual tax levels. I could be wrong, as I could never get an comprehensible explanation from anyone I asked.

I have contended this many times, but if you are fully credited dividend imputation, then that increases your long term returns somewhat, can be as high as 1%pa!

The only way to ensure you get those credits is to select and directly own high franked issues.

Some sneeze at this, but as I am expected to live nearly 30 more years, it could be a very substantial sum for my heirs, and I would certainly prefer they or myself have it than to see it shared around.:

If you haven't already done so, I recommend you discuss with your accountant what happens to your component of the SMSF in the event of your demise. It may pay to put it place now, contingency plans to ensure your component is distributed amongst your heirs in the manner you want.

 

[gooner]

Brian, I understand that you want the reassurance of feeling your own choices are resulting in a performance which stands up to measurement against some benchmark, but I really can't see why this is necessary.

If you simply work out how much income you need to live on, how much more you want to grow your capital over that to cover inflation etc, and then build your p/f accordingly, why does it need to match any public benchmark?

e.g. you may (according to your level of capital invested) easily outperform a managed fund average/index/whatever, or you may underperform it, but as long as you're producing a result which works for you, why should it matter?

Julia

If one consistently underperforms say the ASX 50 index and you have a portfolio of blue chips, this is telling you that you are probably better off using an index approach rather than stock picking. I use an index for this reason - to determine if my stock picking skills are better than the index

 

[awg]

If you haven't already done so, I recommend you discuss with your accountant what happens to your component of the SMSF in the event of your demise. It may pay to put it place now, contingency plans to ensure your component is distributed amongst your heirs in the manner you want.

Very valid point, thanks.

I have certainly done this via a "binding death nomination" (which has to be renewed every 3 years. Insofar as it is possible to achieve what you want)

The taxation laws re super inheritance are a straight out death/estate tax, and have anomolies that are very unfair imo.

As a for instance, in some cases, huge tax savings can be made for your dependants by turning over accrued capital gains...so if you die slow from cancer, you can do that, but if you die suddenly, there will be much higher tax to pay for the dependants.

Re Benchmarks..can be as simple as saying I need 7% pa to live, how can I get that with the least risk, or if you want 10%, what return you would need to obtain other portfolio components etc.

 

[Julia]

Julia

If one consistently underperforms say the ASX 50 index and you have a portfolio of blue chips, this is telling you that you are probably better off using an index approach rather than stock picking. I use an index for this reason - to determine if my stock picking skills are better than the index

OK, gooner, thanks for that explanation: sounds reasonable.

 

[brianwh]

But Julia, surely you would want to maximise your returns and if you find that you are consistently underperforming whatever benchmarks you choose then you need to look at ways of doing better. I doubt many retirees have "enough" - I think most of us could usefully put to work a little more!!

 

[Julia]

But Julia, surely you would want to maximise your returns and if you find that you are consistently underperforming whatever benchmarks you choose then you need to look at ways of doing better. I doubt many retirees have "enough" - I think most of us could usefully put to work a little more!!

Um, Brian, not sure how to say this, but actually (due to stringent efforts in my younger days and doing without a good deal through probably two decades) I do have enough to more than last out my days.

It does so happen that I've consistently well and truly outperformed the XJO (from which most of my stocks are chosen) over several years, but I don't particularly set out to do that.

As I said before, all that matters to me is that I make enough each year to provide enough to live on with sufficient left over to add to capital, consider inflation etc.

At present e.g. I'm happy to be about two thirds in cash because I'm not confident we are into a sustained uptrend. I may be quite wrong in this.

With the stocks I have, however, they're all in a strong uptrend when I buy them, have good fundamentals, and if the trend reverses, they're out smartly.
So, yes, I still enjoy seeing my profits increase.
But I absolutely don't feel any need to meet any benchmark other than my own.

I know you're resistant to the idea, but if you were to spend around $30 on Stan Weinstein's "How to Profit in bull and bear Markets", I strongly believe much would just fall into place for you and you'd find your choices easier.

 

[newbie trader]

...all that matters to me is that I make enough each year to provide enough to live on with sufficient left over to add to capital, consider inflation etc.

...don't feel any need to meet any benchmark other than my own.

I have very limited limited knowledge on all things super. I agree with Julia, at the end of the day you are working for your future and therefore careful planning is needed. I would say that following a general benchmark such as the xjo wouldnt be as effective as a personalised strategy as everyones goals will be unique and everyone will be looking to live a different kind of lifestyle.

N.T

 

[pixel]

Having only just come across this "Great Debate", I find the different approaches very interesting.
Gauging from other threads as well as this one, Julia is obviously very successful in what she is doing. Whether it's with or without benchmark or comparison to a managed fund - I get the impression her results are in the upper quartile, if not above. And in that case - provided you love what you're doing and don't feel it a drudgery doing it - there really isn't a need to compare your results with anyone else's.
At least that's how I feel about it.

The major Fundies have one major problem:, they have a devil of a time to offload non-performing stocks. Look at any share at a time when one of the Majors feels the need to "cease being a significant holder". Unless some other Biggie is keen to pick up a 5%+ stake at current market price, the first sign of heavy selling drives the sp into oblivion.

Not many small(ish) SMSFs will be holding 5% of a company's issued capital. In my strategy, it even says "No more than 10% (of my total funds) can be invested in any one instrument". Even if that were $5M worth of shares, another rule limits the amount I'm allowed to have in speccies - and it's typically those where you find market caps under $100M.

To summarize: Julia's rule (which is one of mine as well) that mandates the sale of under-performers will almost automatically guarantee that her p/f outpaces any of the biggies. Most definitely any index, which cannot help being dragged down by its under-performers.

Try incorporating rules like these:
• Financial instruments must be in a recognisable uptrend when buying a 1st position
• Subsequent additions may be made as long as the uptrend continues
• Investments MAY be sold at any time
• Investments MUST be sold within (pick a time) of their falling below the applicable stop loss

PS for newbie trader: Granted that everybody has their own goals and lifestyle, but I cannot conceive of either of them including "be happy with performance that's worse than the XJO's." If I couldn't better that, I'd throw it all back to a Fund Manager that is linked to Jo.

 

[gooner]

....snip...
Try incorporating rules like these:
• Financial instruments must be in a recognisable uptrend when buying a 1st position
• Subsequent additions may be made as long as the uptrend continues
• Investments MAY be sold at any time
• Investments MUST be sold within (pick a time) of their falling below the applicable stop loss

PS for newbie trader: Granted that everybody has their own goals and lifestyle, but I cannot conceive of either of them including "be happy with performance that's worse than the XJO's." If I couldn't better that, I'd throw it all back to a Fund Manager that is linked to Jo.

If I followed your first rule, I would have missed out on some huge profits over the last year. I picked MQG, ANZ, WBC, STO and some others right at or near the GFC bottom. IMO they were fundamentally undervalued at the time.

 

[pixel]

If I followed your first rule, I would have missed out on some huge profits over the last year. I picked MQG, ANZ, WBC, STO and some others right at or near the GFC bottom. IMO they were fundamentally undervalued at the time.

So did I. e.g. MQG @ $18. Others similar.

Actually, I copped a bit of flak when I was fully invested by mid-March.

 

[Julia]

If I followed your first rule, I would have missed out on some huge profits over the last year. I picked MQG, ANZ, WBC, STO and some others right at or near the GFC bottom. IMO they were fundamentally undervalued at the time.

Good for you, gooner. Maybe that rule needs to be modified to not include such companies as you nominate above?

I'm the first to admit that buying only when a uptrend is clear means I'm giving away profit at the bottom.

Similarly I've sold stocks which turned down, only to see them go on to make new highs which is a bit irritating.

I guess it comes down to how risk averse or otherwise we are and how much importance we place on capital preservation.

 

[Julia]

So did I. e.g. MQG @ $18. Others similar.

Actually, I copped a bit of flak when I was fully invested by mid-March.

I expect the flak has now evaporated given profit you've made since then!

 

[pixel]

I guess it comes down to how risk averse or otherwise we are and how much importance we place on capital preservation.

That's precisely my point, Julia;
If my strategy has been backtested to the point where I know it shows more winners than losers (about 4:1 actually) then I'm happy to forego a bit of slack at the bottom. Likewise, if I lock in a profit a little too early or too late, "So what?" A profit is a no loss, and I can only start another trade if my capital is preserved. Nothing prevents me from buying back in either ...

Show me a trader who consistently picks absolute bottoms and tops, and I show you a person who has but a tenuous grasp of truthfulness.
is a corollary to Making a fortune by selling too early.

 

[brianwh]

Having only just come across this "Great Debate", I find the different approaches very interesting.

PS for newbie trader: Granted that everybody has their own goals and lifestyle, but I cannot conceive of either of them including "be happy with performance that's worse than the XJO's." If I couldn't better that, I'd throw it all back to a Fund Manager that is linked to Jo.

I took particular note of this comment when this thread was active a month or so ago. Since then I have done the calculations for the components of my SMSF for the March Quarter and find that the Australian Share component was -1.44% while the S&P 200 Index rose a bit over 1%. This dismal result was largely due to QBE (-16.5%), TLS (-12%) and TOL (-14.5%) although there were several disappointing results such as ARG (-5.5%) and SHL(-7%).

I would be very interested in what others think would be an appropriate response to this situation:

1. Do nothing. This is the first Q that I have had full reponsibility for my SMSF - previously I was using an FP - so I probably need a longer period of data to make a judgement.

2. Sell the underperformers. The problem I have with this is that market commentary on these stocks (leaving TLS out of the discussion - what a "dog"!) is generally very positive.

3. Sell all my Australian equities and move the money into an Index fund or a managed fund.


Any thoughts would be greatly appreciated

Cheers

 

[pixel]

...I have done the calculations for the components of my SMSF for the March Quarter and find that the Australian Share component was -1.44% while the S&P 200 Index rose a bit over 1%. This dismal result was largely due to QBE (-16.5%), TLS (-12%) and TOL (-14.5%) although there were several disappointing results such as ARG (-5.5%) and SHL(-7%).

I would be very interested in what others think would be an appropriate response to this situation:

1. Do nothing. This is the first Q that I have had full reponsibility for my SMSF - previously I was using an FP - so I probably need a longer period of data to make a judgement.

2. Sell the underperformers. The problem I have with this is that market commentary on these stocks (leaving TLS out of the discussion - what a "dog"!) is generally very positive.

3. Sell all my Australian equities and move the money into an Index fund or a managed fund.
Cheers

G'Day Brian;

Methinks you wish to be "a little bit pregnant". On one hand you claim full responsibility, but then you cite general market commentary and ask what you should do. FWIW, my suggestion is First A Trading Plan.

Start with a strategy that you personally feel comfortable with. Make sure you understand the ramifications of a particular set of rules. The biggest NoNo would be the inclusion of listening to market commentary.
Rather than repeating myself for the umpteenth time, allow me to just link to this collection of brief essays on the subject.

Regardless, however, of whether you take a fundamental or technical approach: Whenever you buy a share, make notes of the reasons, your expectations, and the action (Plan B) you intend to take when the stock fails to live up to those. Needless to stress the importance of a stop loss and the discipline to follow it. If you can keep at least 95% of your capital after each trade, you can hardly go broke.

As an example: I started buying TAH because my chart suggests it has started to turn; it's still undervalued and should appreciate towards $9 or even higher; it also pays a good dividend. If it falls by more than twice the average daily volatility, I intend to sell, no matter what - because in that case, I'll get a better return elsewhere. When the chart shows a price recovery, I can still buy back - assuming dividend and other reasons remain positive.

In summary: I'm leaning towards your suggestion 2; but only you can know which stocks fall into that category. It's your call and your money.

 

[gooner]

I took particular note of this comment when this thread was active a month or so ago. Since then I have done the calculations for the components of my SMSF for the March Quarter and find that the Australian Share component was -1.44% while the S&P 200 Index rose a bit over 1%. This dismal result was largely due to QBE (-16.5%), TLS (-12%) and TOL (-14.5%) although there were several disappointing results such as ARG (-5.5%) and SHL(-7%).

I would be very interested in what others think would be an appropriate response to this situation:

1. Do nothing. This is the first Q that I have had full reponsibility for my SMSF - previously I was using an FP - so I probably need a longer period of data to make a judgement.

2. Sell the underperformers. The problem I have with this is that market commentary on these stocks (leaving TLS out of the discussion - what a "dog"!) is generally very positive.

3. Sell all my Australian equities and move the money into an Index fund or a managed fund.


Any thoughts would be greatly appreciated

Cheers

Hope you used the accumulation index and compared to your return including dividends rather than the raw ASX200 index.

Apart from ARG, I hold the shares you mentioned in my SMSF. I also held SIP a total dog (down 50%). Had some good ones - AOE, COH, CSL. I have not compared my SMSF to ASX 200 accumulation index as only intend to do this once a year, but suspect it likely performed below the index for last quarter. With the individual companies noted, there were some below par results and market overreacted IMHO. Remember short term the market is a casino, long term it is about cash flows.

My SMSF approach is to hold for the long term but to sell if I think the share is well overvalued (SIP) or alternatively to sell some of a holding if its weighting gets too high due to its price growing very strongly. Personally, I am happy with continuing to hold TOL, TLS, SHL and QBE.