Monthly Newsletter - June 2010

Editors Note

This edition includes an inspirational quote, a funny picture, a market commentary with the main index returns during May 2010 and Financial Planning Q&A. I encourage you to make comments.

It was a challenging month for sharemarkets around the world as sovereign risk issues in Europe took a turn for the worse.  

Inspirational Quote

If you think about disaster, you will get it. Brood about death and you hasten your demise. Think positively and masterfully, with confidence and faith, and life becomes more secure, more fraught with action, richer in achievement and experience.

Eddie Rickenbacker (American Fighter Ace, Race Car Driver and Pioneer In Air Transportation)

Funny Picture

Billboard advertisers are always looking for new and innovative ways to capture attention. Here is a controversial billboard for a funeral home! 

Market Commentary 

It was a challenging month for sharemarkets around the world as sovereign risk issues in Europe took a turn for the worse. At home, uncertainty surrounding the Government's proposed Resources Super Profits Tax took its toll on mining shares, while the Australian dollar fell by almost 10% as investors flocked to the relative safe-haven of the United States.   

Performance scorecard to 31 May 2010

Indexes used: Australian shares: S&P/ASX 300 Index, Australian listed property: S&P/ASX 300 A-REIT Index, International shares: MSCI World ex-Australia Index (net dividends reinvested), Australian fixed interest: UBS Australian Composite Bond Index, International fixed interest: Barclays Capital Global Treasury Index (hedged into Australian dollars), Cash: UBS Australian Bank Bill Index.

European credit issues overshadowed improving economic news in the United States. The extent of the sharemarket volatility was reflected in the Chicago Board of Option Exchange's volatility index, which rose to its highest level in more than a year.

As concerns over the creditworthiness of a number of European countries worsened, European policymakers announced a 750 billion euro bailout package and committed to bringing down budget deficits to try and stabilise the situation. Spain had its credit rating downgraded for the second time over the month.

Back home, investors speculated on how a possible 40% tax on mining projects would impact resource companies and the financial institutions that fund them.

The Reserve Bank of Australia (RBA) raised interest rates again in the May meeting, making it the sixth rate rise since October last year. RBA Governor Glenn Stevens said the most recent rise signaled "a significant adjustment from the very expansionary settings reached a year ago".

Long-term government bond yields declined in countries not directly implicated in the European sovereign debt issue, including Australia.

At their latest meeting held last week the RBA left interest rates on hold based on the view that interest rates had returned to "around their average levels of the past decade".

The Australian economy remains in great shape with output growth expected to be around trend despite the winding back of expansionary policy measures.  

The Market Commentary has been sourced from Vanguard Investments Australia Ltd. 

Financial Planning Q&A

Financial Planning Q&A includes the best question from the public each month and my answer, to give readers an introduction into the benefits of financial planning advice. If you would like a question about your financial situation answered, click Financial Planning Q&A. The best question will also receive a MOVIE TICKET.

Question

We are thinking of withdrawing our money from our super fund and putting it in the bank. What are the pitfalls?

Answer

Money held in a super fund is subject to "preservation" rules. This means you have to satisfy certain conditions before you can access your money. When you can access it will depend on your "preservation age" and what benefit category your super is made up of.

Under current rules once you reach age 60 you can withdraw all your money from your super fund without having to pay any tax on the amount withdrawn. However, once the monies are invested outside of the super fund, you will then have to pay tax on any income you receive. It is generally more tax effective to keep your money within superannuation and draw out money you need each year via an account based pension. You can still make tax-free lump sum withdrawals if you need to fund some additional costs. Each situation will be different. If you are unsure about whether to withdraw your money from your super fund or leave it in the fund, I recommend you seek financial advice.  

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Past Issues

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Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.