EOFY: A time to review, rebalance and recommit

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EOFY: A time to review, rebalance and recommit

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard Australia/Board Director of the SMSF Association

Memories of June growing up in Tasmania are of bleak days, frost-covered windscreens, icy football fields and the strong desire to hibernate.

But perspectives change – slowly in this case – over time. June in Tasmania is now a hotspot on the national arts calendar with the Dark Mofo festival, spawned by the Mona museum, stretching over three weeks and attracting record numbers of visitors to experience a wide range of cultural pursuits staged in the island state in the depths of winter.

Cold, it seems, has become cool.

Apart from the wintry chill in the southern states, the other burden the month of June has to shoulder is its immovable place on the tax calendar.

If you invest via your own self-managed super fund, the end of the tax year is when there is no escaping those trustee responsibilities your adviser/accountant talked to you about when you were setting the fund up.

Just like a Tassie winter, perhaps tax time needs a change of perspective, a reframing if you will.

For SMSF trustees (and investors generally) the end of the tax year is better seen as a gift.

Admittedly it’s a gift that’s harder to appreciate among those who end up owing the tax office money. They may prefer to spend the money walking through the Tasmanian wilderness in the cold and the dark.

For SMSF trustees, the end of the tax year naturally comes with the burden of ensuring the paperwork is in order to finalise the fund’s tax return and is compliant with the myriad of rules and responsibilities. It is when specialist accredited SMSF advisers earn their keep.

But it is end of the tax year discipline on the investing and portfolio management side that provides what is at times an overlooked but valuable reference and planning role.

Investing is like most other long-term pursuits – be they artistic, sporting or business – where a key ingredient for success is to know where you are on the journey and whether you are heading in the right direction.

In June you are halfway through the calendar year but on your retirement journey, you may well be closer to the start, or have the finish line firmly in sight.

Yes, the short term results are important- and certainly topical- as you will see in the next few weeks when all the end of financial year performance results for super funds, investment funds and individual shares, along with overseas markets, are put up in lights.

The gift that the end of a tax year gives you is a firm reference point to measure your SMSF portfolio’s progress against, not just for, the past financial year but the years preceding it. Over time this provides valuable context as you chart your way towards and through retirement.

The end of the 2018-19 financial year is a good case in point. Market returns as measured by indexes so far this financial year are varied – as always there are standouts, which this year includes domestic and international listed property with 14.7% and 14.3% return to end of May respectively.

While Australian and international shares were in line with market forecasts at 7.5% and 6.6% respectively, defensive fixed income investments delivered healthy returns with a diversified Australian bond portfolio returning 6.9%, while an Australian Government bond index had returned 9%.

Those sort of return numbers ought to have investors generally smiling, although the return on cash for retirees of around 1.9% will be a concern particularly given the outlook for interest rates.

But if you rewind to the first half of the financial year – June to December last year – the results would have been a lot more sobering, underlining how things can change over even relatively short periods of time, much less the longer time frames that befit a retirement savings strategy.

Any annual portfolio review is just one data point on what is often a 30 to 40 year journey of saving and spending in retirement. Looking at the 10-year return figures for the asset classes listed above tells a different story again and that long-term comparison will certainly help reframe expectations.

After a financial year of volatile but positive growth figures, rebalancing is a topic that should be on the agenda for any portfolio review discussion. The discipline required to sell down high performing assets and increase investment in the underperformers seems counter intuitive. The rational, unemotional action to take is to rebalance back to your asset allocation target to maintain the portfolio’s risk within the parameters.

That is the gift of June- the trigger it provides to review, rebalance and recommit to the asset allocation strategy you set when constructing your financial plan.


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