Category Archives: Blog

Beyond The Red:

Re-Evaluating Underperforming Investments

By Paul Nicol

It is human nature to see an underperforming investment in isolation. When everything is going well, and one (or a couple) of investments in your portfolio are not doing so well, the natural desire is to dispose of the investment.

However, before making any hasty decisions, you should ask yourself: What purpose does this investment serve in my portfolio? And how does it complement other investments in my portfolio?

Here are some factors we consider when constructing a portfolio and applying a broader lens to an investment and its role in an overall portfolio.

Diversification

Diversification involves allocating capital in a portfolio among different types of investments, such as equities, bonds, real estate, and commodities, to minimise exposure to any single asset or risk. Holding various investments that respond differently to market conditions reduces the portfolio’s overall risk. This approach aims to smooth out potential losses, as some investments’ positive performance can offset others’ negative performance.

Investment style

Investment styles refer to the strategies and approaches used to select and manage investments in a portfolio. Understanding different investment styles can help explain why investments behave differently at different market points.

Prominent investment styles include:

Growth Investing

• Approach: Focuses on companies expected to grow at an above-average rate.
• Characteristics: High earnings growth, reinvestment of profits, higher volatility.
• Examples: Technology sector
• Pros: Potential for significant capital appreciation and outperformance in a bull market.
• Cons: Higher risk; may not pay dividends or pay lower dividends

Value Investing

• Approach: Involves selecting undervalued stocks that are trading for less than their intrinsic value.
• Characteristics: Low price-to-earnings (P/E) ratios; strong fundamentals.
• Examples: Established companies with stable earnings.
• Pros: Potential for long-term gains; lower risk.
• Cons: It may take time for the market to recognise value; potential for value traps

Income Investing

• Approach: Focuses on generating regular income through dividends or interest.
• Characteristics: Stable cash flows; lower growth potential.
• Examples: Dividend-paying stocks, bonds, and real estate investment trusts (REITs).
• Pros: Steady income stream; lower volatility.
• Cons: Lower capital appreciation; interest rate sensitivity.

Typically, we like a blended approach of these styles (and others) when constructing a portfolio, which combines elements from different investment styles to achieve a balanced portfolio.

Downside Capture

The Downside Capture Ratio is valuable for assessing an investment or portfolio’s resilience during market downturns. A lower ratio suggests better downside protection, which can be particularly important for risk-averse investors or those seeking to preserve capital during volatile periods.

Particularly in a bull market, underperforming investments are usually “less sexy” investments included in the portfolio to protect against downside risks in a negative market. While they may look like laggards when markets are performing well, their real value is the possible resilience they provide in far more difficult markets.

Timing

It is almost impossible to predict when share prices will rise or fall. Of course, the goal is to profit by entering the market at low points and exiting at high points. But, as easy as this sounds in theory, it is far more difficult.

You may well have an investment in your portfolio that is in the red, which is not necessarily a reflection of the quality of the investment but rather unfortunate timing. This scenario often requires patience, which can be a market-based response rather than anything fundamentally wrong with the investment.

Summary

As you can see, looking at an investment in isolation is far too easy. However, “zooming out” to consider what purpose an investment holds in your overall portfolio usually answers why you may keep that investment, even if it is underperforming for a period against other investments in your portfolio.

If something has changed the fundamentals of the investment, causing it to be negative, the decision to dispose of it is a good one. However, understanding its function in a portfolio is important if the underperforming investment still has sound fundamentals.

Generation X:

Financial Planning Checklist

By Patrick Malcolm

Members of Generation X are in a unique financial sweet spot. You’ve likely navigated significant career growth, perhaps raised families, and are now approaching retirement. This isn’t just about saving; it’s about strategising for the next phase of life.

Below, we have created a general financial planning checklist for Gen Xers. Think of this as a guide to ensure your financial foundations are rock solid and ready for the future.

This checklist provides a robust framework, but everyone’s financial situation is unique. Navigating these areas effectively often requires tailored advice.

Budgeting & Cash Flow: The Foundation

• Regularly Review Your Budget: Understand where your money is going.
• Set Financial Goals: Define clear short-term, medium-term, and long-term financial goals (e.g. home renovations, children’s education, travel).

Retirement Readiness: Are You on Track?

• Review Your Superannuation:
  • Consolidate Accounts: If you have multiple super funds, consider consolidating them.
  • Check Contribution Levels: Are you maximising your concessional contributions? Consider salary sacrifice to boost your super and reduce your taxable income.
  • Understand Your Investment Options: Review your super fund’s investment options. Are they aligned with your risk tolerance and time horizon?
  • Consider a Transition to Retirement (TTR) Strategy: If you’re approaching retirement age and still working, a TTR strategy could help you access your super while continuing to work, po-tentially reducing your work hours or boosting your super savings.
• Estimate Your Retirement Needs: Determine how much income you’ll need to maintain your desired lifestyle.

Debt Management (if not debt free): Smart Strategies

• Optimise Your Mortgage:
  • Review Interest Rates: Shop around for competitive interest rates. Even a small reduction can save you thousands over the loan term.
  • Accelerate Payments: If possible, make extra repayments or increase your regular payments to pay your mortgage faster.
  • Consider Refinancing: Evaluate if refinancing could offer better terms or consolidate other debts.
• Create a Debt Reduction Plan: Have a clear strategy for becoming debt-free.

Investment Strategies: Growing Your Wealth

• Diversify Your Portfolio: Ensure your investments are spread across different asset classes (equities, fixed income, property) to manage risk.
• Rebalance Regularly: Review and adjust your portfolio to maintain your desired asset allocation.
• Understand Risk Tolerance: Be clear about your comfort level with investment risk and ensure your portfolio reflects this.

Insurance & Risk Management: Protecting What Matters

• Review Your Insurance Coverage:
  • Life Insurance: Do you have adequate cover to protect your dependents? Or do you have too much cover?
  • Total and Permanent Disability (TPD) Insurance: What would happen if you couldn’t work again?
  • Income Protection Insurance: Protects a portion of your income if you’re unable to work due to illness or injury.
  • Trauma/Critical Illness Insurance: Provides a lump sum payment if you suffer a specified critical illness. Do you need this, or if you have it, is it still required?
• Update Beneficiaries: Ensure your superannuation and insurance beneficiaries are current and reflect your wishes.

Estate Planning: Securing Your Legacy

• Create or Update Your Will: This is fundamental. Ensure your assets are distributed according to your wishes.
• Appoint an Enduring Power of Attorney: Designate someone to make financial and medical decisions if you cannot.
• Consider Testamentary Trusts: Explore if a testamentary trust could provide your beneficiaries with better asset protection and tax advantages.
• Review Your Superannuation Death Benefit Nomination: This is separate from your Will and dictates who receives your super balance upon passing.

Generation X Is Retiring:

Who Has Their Plans In Order?

By Paul Nicol

I remember the moment vividly. I was enjoying a break over Christmas and the New Year period, and during a quiet period scrolling online, the following news snippet popped up on my news feed.

“With the arrival of 2025, the first members of Generation X turn 60, marking the start of their collective journey towards retirement”.

Upon seeing the news feed, I recall my initial reaction. I’m Generation X and too young to think about retirement. That’s for the baby boomers! By coincidence, a few nights later, at dinner with some friends, the topic of retirement was raised. I am used to having conversations about retirement; in fact, I talk about retirement almost every day with clients. But at dinner with friends around my age, it felt odd, but I listened intently as our friends carefully detailed their plans.

Then, the inevitable question was asked. When are you planning to retire, Paul? My first reaction was to defer the question to my wife and then make a joke about the discussion around retirement. I was a little embarrassed to talk about it. Pressed a little more, I finally confessed – I don’t know. As the conversation evolved, it became clear that a precise retirement date wasn’t necessary. However, our approach to household finances had been too focused on the present and not thinking far ahead.

My wife (Lisa) summarised it well. Paul, you are a Financial Adviser and cannot explain our retirement plans. Are we going to be able to retire comfortably?

To recap, Generation X was born from 1965 to 1984, and I am in the middle of that age group. By now, you can guess my age.

The news headline in early 2025 and the discussion with our friends sparked me into action. Lisa and I sat down and started to discuss what retirement looked like. We both agreed that we would like to be in a position at 60 to retire, but we didn’t see ourselves stopping work at 60. We also chatted extensively about our retirement, with goals set about the likely income we wanted and how our lifestyles would look. What became immediately evident was my need for hobbies, so I wouldn’t always step on Lisa’s toes. It was also apparent that we had a big bucket list of things we wanted to do in retirement, so we needed to knuckle down.

We then created a financial plan. We set a goal for the level of wealth required to generate our desired retirement income. We committed to increasing our savings, additional super contributions, and updating our estate planning and personal insurances. A big item for us was also helping our children buy their first house. While not an immediate need, it was clear we needed to be more purposeful with how we could achieve this. We also love the Queensland lifestyle with its beaches and weather. In due course, we could see ourselves spending more time in Queensland, particularly during winter, so we wanted to include the possibility of a Queensland property purchase in our financial plan. And we wanted to make sure we could help our parents if required.

The good news is that we now have a clear plan for what retirement may look like. We can reach our goals with a financial plan and regular monitoring.

The bottom line is that retirement is looming quickly if you are Generation X. There is no excuse not to plan. We also have many clients with Generation X children, and reminding your children that they need to have their plans in place is the best advice you can give them.

What’s the one constant regret I hear when chatting with clients?

“I wish I had started earlier.”

Barron’s Top 150 Financial Advisers 2024

By Mai Davies

We are thrilled to announce that our Managing Partner, Paul Nicol and Senior Partner, Patrick Malcolm, have made the prestigious list of Australia’s Top 150 Financial Advisers for 2024. The list was published on Thursday, 21st November, in “The Australian” in “The Deal” magazine, produced in conjunction with respected US financial investment publication Barron’s.

Positioning in this year’s Top 150 list was again very competitive with the inclusion of larger firms, many of whom run multi-office practices. Paul ranked 32, has now been featured in each of the eight years this prestigious list has been published. Patrick ranked 117 and was also featured in 2020.

This industry endorsement of Paul and Patrick clearly acknowledges the transparent and professional approach that underpins the way GFM does business. As Paul and Patrick would attest, our business is a team effort, and this recognition is also a strong reflection on all staff. As a privately owned firm with no institutional alignment, our advice always has and will continue to be a client-centric approach, putting the best interests of our clients first.

We are incredibly proud of Paul and Patrick and thrilled they have featured in the list.

Congratulations, Paul and Patrick!

2024 Quarterly Business Lunch: Fund Manager Panel – An Update On Markets

By Mai Davies

On Monday 7th October 2024, we hosted our Quarterly Business Lunch at Leonda By The Yarra, where we had a panel of Australia’s finest Fund Managers join us in our panel discussion.

• Nick Griffin – Founding Partner & Chief Investment Officer at Munro Investment Partners
• David Grace – Portfolio Manager at Australian Foundation Investment Company
• Tim Hall – Portfolio Manager at Fairview Equity Partners

Nick, David and Tim have an abundance of experience and knowledge in investment markets. They provided an update on the current domestic and global economy and discussed what’s happening in investment markets in a Q&A Forum.

This forum was extremely popular, and the feedback was excellent. Everyone appreciated the opportunity to attend such an interesting and insightful presentation. We hope you enjoy the recording.

Making Super Contributions for Your Children or Grandchildren

By Paul Nicol

Child or grandchild superannuation contributions strategies are becoming more popular for a variety of reasons, including;

• Building your child or grandchild’s super earlier to help compound the super balance more quickly
• Accessing government payments to grow your child or grandchild’s super
• For a child or grandchild’s tax benefit
• A form of early inheritance

Children under 18

Super contribution strategies for children under 18 are often dismissed due to the long period before the funds can be accessed. Still, we see some compelling reasons parents or grandparents with excess savings willing to gift money to a child should consider them.

Superannuation regulations permit a superannuation fund to accept contributions for children under 18 without restriction, regardless of their employment status. In practice, however, many funds impose restrictions on minors opening superannuation accounts because minors lack contractual capacity unless there is an employment arrangement.

A super fund treats contributions made by anyone other than the child or their employer as non-concessional contributions. The contributor cannot claim a tax deduction or offset for the contribution.

Contributions made on behalf of a child count towards the child’s contribution limits.

A child can qualify for a government co-contribution payment of up to $500, but they must jump through a few hoops first.

To begin with, the child will need to make a personal super contribution to their super fund. It must be their contribution (and not a contribution from a third party). This means the source of the funds must come from the child’s after-tax savings. Therefore, under this scenario, a child might be gifted money from a parent or grandparent from which the child can then make the super contribution. The parent or grandparent shouldn’t bypass the child and deposit their gift directly into the child’s super fund.

The maximum co-contribution payable for the current financial year is $500. With a matching rate of 50%, a personal super contribution of $1,000 would maximise the co-contribution available, provided the individual’s “total income” does not exceed $41,112.

It goes without saying that the earlier you start with superannuation savings, the better. Boosting a child or grandchild’s super benefits with a small amount now will provide an opportunity to encourage and educate the next generation about their retirement savings and the magic of compounding investment returns.

Let’s use a hypothetical example. Isaac is 18 and about to start his first part-time job. He will earn an average of $500 per week until age 25. We have assumed a superannuation guarantee rate of 12% for simplicity and that his superannuation produces a return of 8.5% p.a.

How do the value of the contributions made between the ages of 18 & 25 change with the addition of a personal super contribution of $1,000 (and the co-contribution)?

The superannuation guarantee contributions made grow to be worth almost $590,000 by age 60. Adding the personal super contribution of $1,000 (and the co-contribution), only $8,000 in additional contributions grows the amount to $870,000, an increase of almost 50%!

Children over 18

For children or grandchildren over 18, there are many different views on whether parents with money available to help their children should do so, with concerns about the potential for the children to become spendthrifts with the funds provided.

Putting money into super for your children or grandchildren can alleviate the fears of wasted money, as it is preserved in the super environment until at least age 60.

The strategies for children under 18 stated earlier in this article also apply to children over 18—additional strategies for contributing to children or grandchildren over 18 warrant serious consideration.

Many parents or grandparents are helping their child or grandchild make a concessional (tax-deductible) contribution into super.

People over 18 can make personal concessional (tax­deductible) contributions if they earn income from employment or business.

The major benefit of making tax-deductible superannuation contributions is the compounding effect of paying a lower tax rate. A simple example can show this:

Chad is 45 years old and earns $165,000 a year. His employer contributes the minimum required superannuation guarantee (SGC) of 11.5% or $18,975. Including the SGC, Chad is entitled to make a deductible contribution of up to $30,000 but does not have the financial resources to use his total limit due to his mortgage and children’s school fees.

Chad expects to retire at age 65. His parents would like to help Chad build some wealth in a tax–effective way. Note that:

• Chad’s marginal tax rate is 37% above $135,000%
• Concessional (Tax Deductible) Contributions to super are taxed at 15%

In simple terms, if Chad’s parents help, he will save 22% on his tax, which, at $10,000, is an immediate benefit of $2,200. Chad receives this benefit as a refund on his tax return.

This concessional contribution strategy is also possible for adult children who may receive trust distributions from wealthy families to reduce tax on these distributions.

Making a non-concessional (after–tax) super contribution is also possible. We see this strategy adopted by parents with adult children not far from contemplating retirement.

For example, a parent who is 75 with children who are 50 may take the opportunity to add to their child’s super progressively, knowing that they may otherwise be left with considerable funds outside superannuation when they receive an inheritance.

Maximising the benefits of superannuation with lowered contribution caps is becoming increasingly difficult. This strategy is appealing as wealthy parents may decide, in the form of early inheritance, to make significant non-concessional contributions into super, subject to a contribution limit of $120,000 or the 3–year bring–forward limit of $360,000. If this gift comes from the parent’s superannuation, this may also save further tax on the parent’s death.

It is important to reinforce that the child must make all the contribution strategies alluded to. In other words, the parent would need to deposit the money in the child’s bank account, and the child would need to contribute.

TRANSITION TO RETIREMENT PENSIONS – STILL USEFUL!

By Sam Eley

A Transition to Retirement Income Stream (TRIS) is a way for those who have met preservation age to be able to commence receiving an income stream from their superannuation savings.

Preservation age for superannuation is listed below:

For those over age 60, you could reduce work hours and supplement your income with a tax–free income stream from superannuation. For those under age 60, you can access an income–stream via the TRIS; however, pension payments are not tax–free but assessed at your marginal tax–rate with a 15% tax offset.

Previously, TRIS pensions were taxed like Account-Based Pensions in that any earnings and capital gains within the TRIS were taxed at 0%. This meant that members could move the bulk of their superannuation to a 100% tax–free investment environment, whether they needed the income from their superannuation or not.

Governments have since closed this loophole and ensured TRIS pensions are being utilised as intended – to supplement income as you transition to retirement. TRIS pensions are now taxed like standard Accumulation balances within superannuation, 15% on earnings and 10% on capital gains (if the asset is owned over 12 months, 15% otherwise), which has reduced the effectiveness of this strategy.

However, the TRIS strategy remains useful despite these tax changes and can assist with reducing personal income tax.

Case Study

Gemma is 61 years old and continues to work full–time. She will likely continue working full–time for the next six years. She earns $120,000 per annum. Having recently renovated her home, and with the increased cost of living, she has $300,000 remaining in debt. Gemma has no spare cash flow to increase her superannuation contributions. She has a super balance of $900,000. Gemma has not yet met a condition of release to access her superannuation benefits and commence an Account–Based Pension. However, she has met her preservation age.

Gemma’s employer contributes the 11% Superannuation Guarantee to her fund this Financial Year. Based on her income of $120,000, this would see contributions of $13,200 to super on her behalf. The concessional contribution cap is currently $27,500, meaning Gemma could still contribute up to $14,300 to superannuation and claim a tax deduction on this amount if she had the cash flow to do so.

If Gemma commenced a TRIS with $880,000 of her super balance on July 1 2023, she could draw a minimum of 4% of the pension balance ($35,200) in the current Financial Year or up to a maximum of 10% ($88,000) of the balance if required.

To generate a larger tax deduction in the current Financial Year, Gemma could draw the $35,200 minimum pension tax–free as she is over age 60 and re-contribute $14,300 as a concessional contribution and $20,900 as a non–concessional contribution back into her superannuation fund, essentially recycling this money back into superannuation but saving tax while doing so.

The net result from a tax perspective is as follows:

Gemma saves $2,788 in tax in the current Financial Year by maximising her concessional contribution cap. She could continue to utilise this strategy each year until she ceases work in 6 years.

While this isn’t as large an overall tax saving as was previously available under the old TRIS rules, there is still the opportunity to save meaningful amounts of income tax through the TRIS strategy. It is worth considering, particularly if you are over age 60 and unable to maximise concessional contributions through cash flow and personal savings.

Meet The Manager: Munro Global Growth Fund & Climate Change Leaders Fund 2024

By Mai Davies

We held our third webinar for 2024 on Wednesday, 5th June, where we provided an update on the Munro Global Growth Fund & Climate Change Leaders Fund. We were delighted to see so many interested clients and guests dialling in to hear from Patrick Malcolm, our Senior Partner, and our special guest Nick Griffin, the Chief Investment Officer of Munro Partners.

Patrick and Nick discussed the current macroeconomic environment, the investment opportunities of decarbonising the planet, and provided update on the Munro Global Growth Fund & Climate Change Leaders Fund portfolios.

We hope you enjoy the webinar.

Meet The Manager: Australian Foundation Investment Company (AFI), Djerriwarrh (DJW) & Mirrabooka Investments 2024

By Mai Davies

We held our second webinar for the year on Wednesday, 1st May, where we provided an update on Australian Foundation Investment Company (ASX Code: AFI), Djerriwarrh (DJW) and Mirrabooka Investments (MIR).

We were delighted to see so many interested clients and guests dialling in to hear from Paul Nicol, Managing Partner, and special guests Mark Freeman, Kieran Kennedy, David Grace and Brett McNeill.

Paul, Mark, Kieran, David and Brett discussed recent events and provided an update on the respective portfolios.

We hope you enjoy the webinar.

Meet The Manager: Aoris International Fund 2024

By Mai Davies

We held our first webinar for the year on Wednesday, 13th March, where we provided an update on the Aoris International Fund.

We were delighted to see so many interested clients and guests dialling in to hear from Patrick Malcolm, our Senior Partner and special guests Stephen Arnold, Managing Director and CIO and Delian Entchev, Portfolio Manager, Aoris Investment Management.

Patrick, Stephen and Delian discussed the key positions in the portfolio, the investment opportunities, and discussed the macroeconomic environment.

We hope you enjoy the webinar.