Monthly Newsletter - May 2010

Editors Note

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

Confirmation that the global financial crisis hasn't run its full course shook world sharemarkets over April.  

Inspirational Quote

The best inheritance you can leave your kids is an example of how to live a full and meaningful life.

Dan Zadra

Funny Picture

Can you explain this picture?

Market Commentary

Confirmation that the global financial crisis had not run its full course shook world sharemarkets over April. Sovereign debt concerns in Europe took a turn for the worse, while in the United States the Securities and Exchange Commission accused global investment house Goldman Sachs of fraud.  

Performance scorecard to 30 April 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.

Standard and Poor's downgraded Greece's credit rating to ‘junk' while Portugal was also lowered. The US sharemarket fared better than most with signs emerging of an abatement in the unemployment rate. With inflation mounting in Asia concerns arose that China would start to lift interest rates.

A strong economy with optimistic consumer sentiment and a steady labour market is providing a supportive environment for the Australian sharemarket. The sharemarket's expectation of an interest rate rise was realised at the Reserve Bank of Australia's (RBA) meeting on April 6. A buoyant commodities sector and housing market contributed to a Consumer Price Index rise of 0.9% over the March quarter.

The materials and energy sectors suffered over April as metal prices fell and uncertainty mounted over the impact of the proposed resources super tax ahead of the Henry Review reforms. In the banking sector the National Australia Bank's takeover bid for AXA was blocked by the Australian Competition and Consumer Commission.

The Australian dollar rose by 1.4% against the US dollar to finish the month at 91.8 US cents.  

The two consecutive rises in cash rates have caused shorter term bond yields to rise, resulting in a flattening in the yield curve. Government 10 year bond yields also rose, but by a smaller amount, to finish the month at 5.79%. 

In its April meeting the RBA suggested that lending rates were a little below average and would "probably need to rise further in the period ahead." RBA Governor Glenn Stevens said: "with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average."

It will be interesting to see how the Government's response to the Henry Review released in May impacts the sharemarket, particularly the resources sector. 

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

My employer allows me to salary sacrifice 30% of my wage into an industry super fund. I will turn age 60 in a few months time and I plan to retire at age 62. My employer only pays the 9% superannuation guarantee contribution on the amount remaining after I salary sacrifice 30%. Therefore, would I be better off if I cancel my salary sacrifice in order to reclaim the 9% superannuation guarantee contribution on the 30% of my wage that I have been salary sacrificing?

Answer

Maintaining your salary sacrifice will leave you $1,928 better off each year compared to cancelling your salary sacrifice, as the calculations below show. 

Maintaining Salary Sacrificing 

Cancelling Salary Sacrifice

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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.