FYI | Apr 24 2018
By Peter Switzer, Switzer Super Report
With Bill Shorten shrinking your wealth, you need to think globally
With the Hayne Royal Commission and Bill Shorten doing their best to undermine the profitability of investing in local dividend-paying stocks, the question is what should we be thinking about to ensure that we have a reliable stream of income in retirement.
Of course dividend paying stocks will keep on doing that, but a lower company tax rate, which lies ahead, will reduce the value of the franking credits and then many investors in retirement will lose their tax refunds if Bill Shorten becomes PM in 2019.
At our Switzer Investor Strategy days in Sydney, Melbourne and Brisbane there were many alternative investments that a dividend-only investor might want to think about.
In fact, after listening to the presentations at the events, it became a reasonable argument that while we might hold a core of great dividend-paying stocks, to get some alpha or better returns, you could easily invest some funds overseas to give you greater diversification, as well as greater potential capital gain.
As Charlie Aitken has been arguing and we’ve been on board with it too — invest in Australia for income and overseas for growth.
One person who was unbelievably persuasive about investing overseas, and in Asia in particular, was Mary Manning of Ellerston Capital.
Sure she would be, as she is portfolio manager of the listed investment company Ellerston Asian Investments Limited but her arguments are hard to ignore.
Take this slide in first:
If that doesn’t convince you then read this…
Asia has the best structural growth story and that is critical to good capital gain stories.
The next slide shows how Asia has outperformed Australian and other markets (to 6 April 18).
And importantly, it is the home of great technology companies that are dwarfing the FANG group of tech businesses in the USA. See below.
And Mary’s final slide shows how under-invested we are in Asia. The average SMSF trustee has, according to her data, 0.02% exposure to this sensationally-positioned region for money-making as the slide below shows.
I know an ‘Asian affair’ with your investments is more risky than investing in good old bank stocks but bank stocks will have their challenges going forward because of the Royal Commission. I do think they will be a buying opportunity but I want to wait for a bit at the moment before I press the button on more bank buying.
The experience of the Investor Strategy days has made me think about increasing my overseas exposure and next week, I will look at great dividend-paying stocks that actually reside OS.
Bill Shorten’s plans for tax refunds mean we have to be more diversified, more tolerant of a bit more risk, and more creative when it comes to what we invest in going forward.
Arguably you don’t have to change your investments because Bill isn’t PM yet, and he will have to get his bill through the Senate, but he is making some of us think about taking more risk. In the short-term it should pay off if we get more exposure to say Asian stocks and other OS investments – that is until a crash comes along.
That’s when your tax refunds will be sorely missed!
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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