How SMSFs are using robo-advice

SMSF and robo-advice
 
Self-managed super funds (SMSFs) are popular because they offer greater control over how your superannuation is invested.

Despite their popularity, managing an SMSF well is difficult – it requires time, effort and investment expertise. This is why more SMSFs are using robo-advice to reduce this burdon.

SMSFs + robo advice

The emergence of robo-advice in Australia over the last 4 years and the increasing popularity of ETFs has resulted in an increase in SMSF trustees allocating part of their fund to a robo-advice service to manage.

Robo-advice is now the fastest growing area of wealth management globally, expected to grow to US$2.2 trillion or 5% of all money managed by 2020.

Considering that SMSFs are the largest segment of the Australian superannuation industry, managing $653.8 billion as at December 2016, it’s inevitable that more SMSFs will turn their attention towards robo-advice over time. In Australia this trend is still in its infancy however 2017 is shaping up to be the year more SMSFs started using robo-advice.
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Do I need an accountant?

Accountant - tax return time
 
Accountants sort out your taxes and finances. Deciding if it’s time to pay and bring in an expert or do it yourself can be confusing, particularly if you have investments.

We spoke to Anna Kyriacou, CEO of AKA Group Accountants Advisors Mentors about when you should consider getting an accountant and stepping away from a DIY tax approach.

What does an accountant do for an individual?

There’s a misconception that accountants are just number crunchers and are only required if you’re in business. This couldn’t be further from the truth.

Most accountants that offer tax solutions work in small accounting firms based in the suburbs and many today do not even have physical offices as they are cloud based and tend to have clients they’ve looked after for many years.

A good accountant will not only assist with getting the most from an end of year tax refund, but will provide guidance on your future tax and structuring needs which will make a huge impact to your current and future wellbeing.
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Blame it on the ETFs

ETFs - punching bag
 
They’ve been described as worse than communism, and more dangerous than the misuse of antibiotics. Some would have you believe that they cause trading glitches, are making the market dumb and dysfunctional and are leading the world toward imminent catastrophe.

It’s no coincidence that the groups most threatened by the groundswell of money into ETFs and index investing are also their staunchest and most vocal opponents. Any time there is hostile press on ETFs, you can be sure the author behind it is an active fund manager.

The irony is that the job of active fund managers is to identify and profit from market anomalies and trends. Yet they are ostriches in the sand when it comes to the colossal shift in their own industry.

The trend out of active management into indexing started gaining pace in the early 2000s. The pace has been accelerating since 2009. Regulatory change around best interests duty and growing awareness of the benefits of low-cost investing have both contributed to the success of indexing and ETFs.

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Meet the team: Lauren

Meet the team: Lauren
 
There’s a birthday celebration in the Stockspot office and as the cake is brought out, you notice someone’s eyes suddenly light up. No, it’s not the birthday boy or girl – but the president of the Stockspot cake appreciation club (also our Head of Communications and PR) Lauren.

Like many Aussies, Lauren spent part of her years living in London and shares the reason why Australia will always be home.

Tell us a bit about yourself

I grew up in Canberra and moved to London in my early 20s to do the working holiday thing and stayed for over 10 years. Now I’m living in Sydney and appreciating the mild winters and the amazing sunshine.
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Our wealth management principles

Stockspot wealth management principles
 
Stockspot has a set of principles that guide how we advise clients and invest their savings. This is our DNA and what sets us apart from other products and investment managers.

The importance of compounding returns

Market timing or picking the right stocks is almost impossible to do consistently, even for experts. It is far more important to be invested for a sensible amount of time across a broad range of different investments.

The assets you’re invested in determines 89% of your returns. Therefore the investment strategies we recommend are designed to weather different market conditions by combining assets in the best possible combination based on your personal financial goals and situation.

We focus on helping clients achieve long term compounding returns without needing to time the market or pick individual stocks.
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The importance of Australian shares in your portfolio

Australian shares - ASX
 
Over the past 5 years US shares delivered a whopping 21% per year compared to a more modest 11% per year from Australian shares. This has led to a swarm of investors flocking into overseas shares and global ETFs.

With all of the talk about Google, Apple, Amazon and Facebook you could be excused for thinking that investing in Australia was no longer the thing to do.

In spite of the excitement around overseas markets, Australian shares still form a key part of our portfolios. We believe they should remain the dominant growth asset for Australian based investors.

There are many reasons to continue owning Australian shares but here we’ll focus on two.
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Unpopular ETFs surge ahead

2017 Australian ETF Report
 
It’s that time of year when Stockspot releases its annual Australian Exchange Traded Funds (ETF) Report which analyses and compares over 150 ASX-listed ETFs.

The report is now in its third year and each time it grows as more ETFs are launched on the ASX. We think that’s a great thing as it means more people are embracing index investing for their portfolios and superannuation.

The ETFs we’ve carefully chosen for the Stockspot portfolios and themes continue to do well. We recently celebrated our third anniversary and you can read how our portfolios have performed here.

If you’re interested in reading about the different ETFs available we recommend you download the full report. Here are some of the main findings from this year’s report.
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How much do you need for a rainy day fund

Umbrella for a rainy day
 
Sometimes the weather folk at the Bureau of Meteorology get it wrong and it rains when you least expect it. You’re caught outside in your thongs without an umbrella and frankly, it’s not fun.

What’s worse than being in the rain sans umbrella? Needing money in an emergency and not having any set aside to cover the cost of an urgent or unexpected expense.

That’s why having some money set aside for unexpected events is advice we give to all clients. This is money that should be readily available in a bank savings account rather than invested.
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Finding freedom from the Bank of Mum and Dad

Parent and child - Future Affordability Report
 
Financial freedom is the most important factor in our ability to achieve our lifestyle goals and lead our life the way we should reasonably expect to. Yet, this is no longer guaranteed for future generations.

According to the 2016 HILDA Report, future generations of young people in Australia are, for the first time, set to be worse off than their parents.

To help understand parents’ views on their children’s financial future, Stockspot has partnered with Galaxy Research to produce the Future Affordability Report. We looked into parents’ concerns about young people’s finances, the cost of housing and living, and what do they think the fallout will be in later life for their children and themselves.
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How reliable is past performance?

Rear view mirror
 
If you’ve ever read the fine print of a product disclosure statement (PDS) for a financial product, you’ve almost certainly seen ‘The past is not a reliable indicator of the future’. Admittedly, we even put it in the Stockspot documents because we’re obliged to do so.

But in fact past returns can give you a much better idea about future performance than almost anything else. Markets tend to move in cycles so when one asset does well for a while that’s almost always followed by a period of doing worse. It’s known as mean-reversion and it’s why we rebalance our client portfolios out of investments that are up, into ones that have lagged.
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Stockspot celebrates 3 years…

Stockspot celebrates 3 years
 
This month marks the third anniversary since we started investing for clients. We’re humbled to have the opportunity to help thousands of Australians grow their savings every day.

Today our clients range from 18 to 80. They come from Alice Springs in the centre to Kalgoorlie in the west, Swansea down south in Tasmania and Townsville in North Queensland.

As we promised on day one, our investment philosophy and strategy haven’t strayed. Rather than trying to time the market or pick stocks (an expensive and dangerous endeavour), we’ve generated our consistent returns with a strategy based on decades of evidence and by not changing course.
We strongly believe that the most sensible investment advice for most people is to avoid trying pick winners, invest in a broad mix of assets, keep your costs low, rebalance occasionally to reduce risk and don’t worry about what happens in the short term because it’s meaningless noise.

This is a philosophy I’ve learned from my own years of investing and it’s one echoed by industry veterans like Warren Buffett, Charles Ellis, Burt Malkiel, Daniel Kahneman and many others…
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Jargon busting the finance dictionary

finance dictionary
 
You’re watching the tele as you get ready for work. The 7.20AM finance news comes on and you dash to brush your teeth.

You know for the next 5 minutes the finance expert is going to stand in front of a ridiculous number of computer monitors and ‘blah blah blah’ their way through the ‘market update’ and use finance jargon you don’t understand. It’s enough to make you weep into your first coffee of the day.

It often seems like the finance industry is created on a house of jargon designed to keep people baffled to the point that they just give up and collectively say ‘take my money’.

Here’s a list of some financial jargon terms you’ll probably come across at some point and what they mean in plain English.
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What are the best dividend ETFs?

Dividend ETFs and Dividend Harvesting
 
A client recently asked us if Stockspot would consider adding a pure income producing ETF to our portfolios to take advantage of ‘dividend harvesting’. We thought it was a great question so decided to share the answer with everyone!

Dividend harvesting is a strategy that involves buying shares just before they pay dividends and selling them just after dividends have been paid. At face value this sounds like a very sensible way to collect dividends without having to hang onto shares for too long.

However, like any investment strategy that involves timing your entry and exit points, dividend harvesting has risks. The biggest risk with dividend harvesting is shares tend to fall in price on the day they pay their dividend. Therefore any amount you gain in the dividend is likely to be lost on capital returns.
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How portfolio rebalancing works

Rebalancing scales
 
Portfolio rebalancing is one of the most important jobs of an investment adviser. It involves selling investments that have grown faster than others in your portfolio and buying more of the investments that have fallen behind.

Portfolio rebalancing helps reduce the risk you need to take to earn a certain level of return. Portfolio rebalancing can be expensive, time consuming and emotionally exhausting to manage yourself. This is why rebalancing is hard to get right as a DIY investor.
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3 fintech ingredients to make 2017 great

Ingredients for Australian fintech
 
At the start of 2017 I was appointed to the ASIC Digital Advisory Committee which consists of members from the fintech ecosystem and government. I hold strong opinions on the topic on good financial advice so naturally I attended my first meeting eager to contribute!

The ‘Fintech in Australia’ report by Frost & Sullivan predicts revenue from the Australian fintech sector will grow at a compound annual growth rate of 76% and reach A$4.2 billion by 2020. The potential of fintech to create competition, innovation and jobs for a 21st century Australian economy is huge and worth campaigning for.

So after hearing the views of many fintechs, government and consumer advocacy groups, here’s my top 3 ingredients to drive Australian fintech forward in 2017.
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Meet the team: Matt

Meet the team: Matt
 
He’s a cricket fanatic and father of 3 up-and-coming sport stars. Meet Matt – our Head of Operations.

Like a few of us at Stockspot, Matt escaped the corporate banking world to help build a new modern investment service. He reckons not being stuck in endless meetings and getting stuff done is the way forward – we think so too!

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Why you shouldn’t feel bad about renting

Renting a property
 
The property market is rarely out of the news in Australia, with regular predictions of house prices collapsing being followed by weekends of record auctions and prices.

Property has certainly had a good run over the past few years. According to CoreLogic RP Data, the average house in Sydney has increased in value from $650,000 in 2012 to over $1,066,000 in 2017. That’s a 64% rise in 5 years!

Average house prices in major Australian cities
Sources: CoreLogic RP Data; RBA

As property has become less affordable, more people are looking at a popular alternative which is to rent and invest their savings in a portfolio of shares instead.

Over the last 30 years, both property and shares in Australia have returned between 11.0% and 11.5% per year so both are proven ways to grow your long term wealth.

But which is better today?
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Diversifying your investments – how to put eggs in different baskets

Eggs in one basket
 
You know the expression ‘don’t put all your eggs in one basket’? This should be the first lesson taught at investment school (if there were such a thing).

Placing your eggs in a variety of baskets or spreading your money across many different investments is diversification 101. If there are 2 lessons everyone should be required to learn before they invest they are:

1.  How compounding works
2. What is diversification and how does it work.

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What I’ve learned from 21 years of investing

21 years of investing
 
It’s been 21 years since I made my first investment on January 1st 1996. At the time I was 10 years old. Not your standard primary school hobby.

I was sport obsessed and starting to realise girls weren’t as annoying as I thought, but for some reason I quickly became fascinated by what made share prices go up and down.

Neither of my parents worked in finance but I was lucky that my dad had some shares in his self managed super fund and decided to teach me and my brother some of the basics. He let us choose a stock from the newspaper and gave us $1,000 (which later, to my dismay, I found out was only theoretical).

I had a few stock market wins, a few losses and I was hooked!

I kept a diary of every investment I made between 1996 and 1999 which I still have today. It looks more like a colouring-in book than a trading diary because I gave each stock a different set of colours – but in it I kept track of my running profit or loss, dividends and company news cutouts.
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The rise of socially responsible investing

Ethical investing
 
You may have heard some murmurs about socially responsible investing recently.

Given 2016 was the hottest year on record, Australia claiming the highest the gambling rate in the world and the recent scandals about labour standards, it’s fair to ask yourself:

“Are the companies I invest in helping the world?”

Enter socially responsible investing (SRI)

Known as ethical investing, sustainable investing or green investing, socially responsible investing is an investment strategy that considers both financial return and social good to bring about social change.

Its history is believed to date back to the Quaker Society in the late 18th Century when members were banned from participating in the slave trade. Seems fair enough today. Back then, it was a bold statement.

Fast forward a few hundred years we saw people question the ethics of companies during the Vietnam War. Dow Chemical, a napalm producer, was boycotted and the subject of protests across America for its war profiteering when a photo was released of a nine-year-old girl running naked and screaming with her back on fire from the napalm dropped on her village.

Recently fast fashion brands like H&M and Zara are under scrutiny for labour rights violations, some ethical funds have stopped investing in these brands.
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ETFs trump managed funds in 2016

ETF Update - Quarter 4, 2016
 
Our quarterly update on the Australian ETF market as at December 2016 and performance of the Stockspot portfolios.

ETF market highlights

  • Quarterly FUM growth was +7%, from $23,971 million at the end of September to $25,291 million at the end of December 2016.
  • Total ETF FUM has now reached the $25 billion milstone, including adding almost $4.3 billion in 2016.
  • The top 5 ETFs for the past 12 months have all been resources focused, reversing a 5 year period of underperformance since 2010.
  • After some US election volatility, Australian and global share ETFs showed steady inflows during November and December.
  • Overall we have seen another positive quarter for ETF FUM growth and returns, continuing the steady drive forward of the Australian ETF market.
  • Globally investors have put more money into ETFs than actively managed funds in 2016 for the 10th straight year.

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Best investment lessons from 2016

Best investment lessons from 2016
 
​2016 was the year of the unpredictable events. The world and financial markets were sent spinning several times over while commentators went into meltdown.

Who would have believed a year ago that​ Britain would leave the European Union, that Donald Trump will be next president of the United States​, and that both events would send global markets significantly higher!

There were many lessons to be learned from last year and we recently asked our clients to tell us the best investment lesson they’ve received in 2016. Here are some of their top learnings.
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Procrastination is your financial enemy

Procrastination is your financial enemy
 
Procrastination is one of those human foibles we all do at some point. It’s something we all knowingly shake our heads and chuckle at because it’s not quite the same as being lazy or incompetent.

Weirdly it has almost become socially acceptable. When the tools of our productivity (our laptop and smartphone) also provide our entertainment, procrastination is as easy and tempting.

Even the most motivated people on Earth can tell you about ‘that one time’ they procrastinated. For more normal people we do it regularly over major and minor things and it’s hugely frustrating. When we’re honest with ourselves, we know we could have done better by starting earlier.
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What is a MDA Service and how does it work?

Question - What is a MDA service?
 
When you invest with Stockspot, you sign-up online and answer some questions about your financial goals and personal circumstances, then you’re asked to review and sign an MDA Agreement before you can invest.

At this point, you ask yourself what is an MDA Agreement and what exactly am I tying myself into?

A good question you should ask before using any financial product is how exactly does the product work, is it the best product for me and is my money safe?

Here’s what a MDA service is, how your money is secured and why we think our MDA is the best way for many people invest.
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