Are your savings going backwards?

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Have you ever thought you were doing something good for yourself only to find out it was having the reverse effect? Like having a caffeine-hit only to end up in an even bigger slump, or dry-cleaning that expensive jacket and having it returned ruined. Unfortunately the same can be said for many Australians who keep their savings in a high-interest bank account.

If the prices of the things you want are rising faster than the interest you’re receiving, you’re actually going backwards. This situation is now common for many Australians because interest rates have fallen to a historic low and are now below the rate of inflation.

This means that each year you’ll be able to buy less stuff with the same money than you could the year before.
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Australian ETFs add $10 billion in 2 years

ETF Update - Quarter 3, 2016
 
Our quarterly update on the Australian ETF market as at October 2016.

Highlights

  • ASX-listed ETFs have added $10 billion in new funds under management since October 2014, representing 31% p.a. growth.
  • Quarterly growth of ETF funds under management was 7%, from $22,404M in June 2016 to $23,971M by the end of September 2016.
  • After some volatility in the first half of September, the Australian share-market stabilised near a 12 month high.
  • Gold and small Australian shares have performed best over the last year with oil, ‘Bear’ and some currency ETFs performing worst.
  • Fixed income ETFs continued to attract new funds at the fastest rate of all sectors as more investors and Self Managed Super Funds (SMSFs) add fixed interest to their portfolios to balance equity risk.

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What is an ETF?

What is an ETF?
 
At Stockspot we believe Exchange Traded Funds (ETFs) are the building blocks for the best investment portfolios.

ETFs have been around for roughly 20 years and are fast becoming the most popular investment option. Each year more money leaves managed funds and goes into ETFs. This is because they can easily be traded on the stock exchange, they’re low cost and offer instant diversification.
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$59 billion trapped in Fat Cat Funds

2016 Fat Cat Funds Report
 
Our latest Fat Cat Funds Report, the largest analysis of superannuation and managed funds in Australia, has found that the money managed by Fat Cat Funds increased to $59 billion, up from $53.5 billion in 2015.

We believe Australians deserve greater visibility around where their money is invested and how it is performing so we have been producing this report to highlight the issues of high fees, poor transparency and conflicts of interest within the investment industry.

This is the 4th year we’ve run the report and this year we compared a record 3,800 funds to assess how they have performed after fees.

Unfortunately for consumers, almost nothing has changed since our first report in 2013 as the big 4 banks and AMP continue to dominate the distribution of Fat Cat Funds.
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Why you shouldn’t rush into tech stocks

Chasing tech stocks
 
It’s easy to get swept up in the hype of a hot sector, but there are big dangers when the music stops.

Investing in the hot stock or sector de jour is a always strong temptation, especially in markets where there are very clear winners and losers. These days global technology is that hot sector – particularly the big US tech giants. They’ve all doubled, tripled or quadrupled since 2012 so have easily beaten the broad market. Their returns have trounced Telstra, BHP and Woolworths.
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Active vs Index investing – what’s the difference?

Active vs Index investing
 
Active investing and index (or passive) investing are 2 different ways to grow your wealth.

Actively managed funds aim to beat the returns of a given investment market. Passively managed funds, on the other hand, are designed to mimic the returns of a specific market as measured by a particular index like, for instance, the S&P/ASX 300. This is why they are also known as ‘index’ funds.

Most of the money in Australia is managed by active funds but passive investing has been growing fast, particularly since 2008. We look at some of the key differences and why index investing has been growing in popularity.
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SMSFs in the fintech age

SMSFs in the fintech age
 
We recently became the first robo-advice business to announce a partnership with Class Super. For those who haven’t heard of Class, the business was founded in 2009 and in just 8 years has grown to be the largest independent administration software provider to Self Managed Super Funds (SMSFs).

What does that mean? In a nutshell, Class has built software to help SMSFs get their data and compliance in order – saving accountants and advisers many hours each year.
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How are ETFs taxed?

How are ETFs taxed?
 
ETFs: Everything you need to know about tax on ETF investments in Australia.

One of the reasons exchange-traded funds (ETFs) have gained popularity with Australian investors is because they are tax efficient. If you’ve invested in ETFs on your own, through a broker, or with the help of an automated investment service like Stockspot, here are some tax issues to consider.

Keep in mind that this article is general information only and doesn’t consider any individual’s personal circumstances.
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Should you rentvest instead of buying a home?

Rentvest or buying a home?
 
Buy or rent? Rent to own? Or avoid investing in property at all? If you’re planning to be a first homeowner it’s likely you’ve heard the term ‘rentvest’ as an alternative to buying a home.

Rentvest is the latest portmanteau (also known as a word blend, ie ‘hangry’ or ‘brangelina’) given to a recent millennial buying trend.

Rent-vesting lets you buy an investment property without living in it

Millennials living in metropolitan Australian cities can no longer afford to buy a home in their chosen suburb. Many now opt to buy an investment property in a more affordable location which they rent out while also renting in their chosen location.

It’s a foot onto the property ladder and because the deposit and mortgage payments are lower, the millennials penchant for a flexible lifestyle still allows them to travel, eat out and the freedom to move around.
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The need for a royal commission into banking misconduct

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The 2 major parties in Australian politics have been left scratching their heads over what it is the people want. If the result shows anything it’s that the people want their government to listen and stop putting the interests of big corporates before the benefit of the general population.

If our new MPs and senators do an effective job, a Royal Commission into the banking industry’s financial advice and remuneration practices should be one positive to emerge from the political disarray the country finds itself in. As the crossbenchers jot down their negotiation wish list, ‘royal commission into banking misconduct’ should be at the top.
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Investment update: UK Exit (Brexit)

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The UK voted to leave the European Union after 43 years of membership. This surprised markets which had assumed only a small chance of the UK leaving.

What does it mean?

Nobody actually knows what the medium to long term implications are for the UK or global economy, due to uncertainty around how the exit will play out.

Not surprisingly share markets reacted negatively with all global markets initially falling. The good news is defensive assets like bonds and gold rose. Both assets are key parts of Stockspot’s portfolios and have helped minimise the impact of share market falls.
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How to build an awesome investment portfolio

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Clients sometimes ask us how we built the Stockspot portfolios, and why we selected 5 assets to invest in rather than 2, 3 or 10!

It comes down to the purpose of the Stockspot portfolios which is to maximise returns for each level of risk. Five assets allows us to give clients the best possible combination of returns, risk and costs.

To do this we leverage the benefits of diversification. Diversification simply means that by combining investments with different characteristics you can improve the quality of returns in your portfolio.

Quality of returns is measured by how much risk you need to take to earn a certain return. Since all investing involves taking some risk, the aim is to minimise the risk you need to take to earn the return you want. Diversification across assets enables you to take less risk to earn better returns.
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When is a good time to invest?

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Markets can go up and down over the short-term and it’s almost impossible to pick the market top or bottom (even for professionals).

So when is a good time to invest in shares?

Instead of trying to time your entry point, dollar-cost averaging is a strategy to invest gradually over a few days, weeks or months. This helps reduce the impact of short term moves in the market because you invest at an ‘average’ price over a period of time.

Dollar cost averaging can help smooth your initial investment returns by reducing the risk that you’ve invested everything just before a dip in the market. By buying over a period of time you get to take advantage of any market dips and buy at the lower prices if markets fall.
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ETFs surge 6% in May

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Our update on the Australian ETF market as at June 2016.

Highlights

  • ASX listed ETFs grew by $1.35 billion for the month as confidence returned to share markets after a surprise interest rate cut and expectations of low interest rates remaining.
  • Monthly FUM growth was 6%, from $21,905M in April to $23,162M by the end of May 2016.
  • Broad market and sector ETFs were the best performers both locally and internationally.
  • Australian property ETFs continue to lead on 12 month performance due to falling interest rates.
  • The BetaShares Cash ETF (AAA) saw a rare month of outflows due to a surprise cut in interest rates.
  • MarketVectors rebranded to its parent company name – VanEck to become VanEck Vectors.
  • BetaShares launched 2 ETFs in a partnership with major USA-based issuer WisdomTree.

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How does anchoring bias affect your investing?

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In many walks of life we have a tendency to use anchors or reference points to make decisions, and sometimes these lead us astray. Nowhere is this more dangerous than when investing.

What is anchoring?

Anchoring is our tendency to grab hold of irrelevant and often subliminal information in the face of uncertainty to make decisions.

Since anchoring occurs in so many situations, no single theory has conclusively explained why we do it. However the modern favourite theory for explaining the effect of anchoring comes from several groundbreaking studies that were conducted in the fields of decision science and performed by Kahneman and Tversky in the 1970s.

Kahneman and Tversky were interested in how people formed judgements when they were unsure of the facts. They found that when people are uncertain about the correct answer, we take a guess using the most recent number we’ve heard as a starting point.
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What is your risk profile & how does it help your investment strategy?

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Having an up-to-date investment profile is important when making any investment decision because it helps match you to the best investment strategy to meet your goals.

Your investment profile defines what type of investor you are and is made up of 2 parts:

  1. Your investment timeframe

  2. Your risk profile

Asking questions about these 2 areas helps to ensure that your investment strategy is suitable and that you don’t take on too much risk.
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The ETF boom continues in 2016

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The ETF boom has continued in Australia with the market growing 20% over the year to $21.3 billion in funds under management (FUM).

ETF trends for 2015/16

Global share ETFs maintained their position as the largest ETF sector, with $7.9 billion, up 18% for the year and there were 13 global ETFs launched.

Fixed income and cash ETFs continued to grow in popularity as investors looked to diversify and access higher yields than the low interest rates available in savings accounts. The sectors’ FUM grew 40% to $2.2 billion.
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Stockspot portfolios: 2 years on…

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Thanks to the thousands of clients who have been on the journey with us since Stockspot launched to the public in May 2014, exactly 2 years ago. Back in 2014, automated investing, robo advice and fintech weren’t as well understood as they are today so we appreciate the support of our clients who have trusted us to help manage their savings.

Despite the recent share market volatility, the Stockspot model portfolios generated 4% to 4.5% p.a. in total returns over the 2 years to 30th April 2016.

The performance was more than double the 1.5% p.a. return from indexed Australian shares over the same period. Distributions and dividends made up most of the performance since it was a subdued period for capital returns.

Stockspot model portfolios: 2 year performance after fees

  Total return p.a. Distributions p.a.
Topaz 4.13% 3.36%
Emerald 3.99% 3.33%
Turquoise 4.20% 3.07%
Sapphire 4.34% 2.78%
Amethyst 4.56% 2.52%

Total return after ETF and management fees (1st May 2014 – 30th April 2016)

2-year-portfolio-performance
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Property or shares? What is the best investment?

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What is the best investment? Property and shares are the 2 most common ways of building wealth in Australia outside of superannuation.

The topic of whether to invest in property, shares (or both) often leads to heated debate. The 67% of Australians who own the house they live in are usually passionate about they believe is their best investment decision.

Shares and real estate have both generated reliable income and capital returns for Australians over the long-term.

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Source: Corelogic, Housing Market and Economic Update March 2016
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Bond ETFs grow in popularity

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Our update on the Australian ETF market as at April 2016.

Highlights

  • Growth in funds under management (FUM) across all ASX listed ETFs was 3% for the month, from $20,585M in February 2016 to $21,299M by the end of March 2016.
  • Australian shares regained some popularity relative to international share ETFs after the Australian dollar rose strongly – reducing some of the short term appeal of global stocks.
  • After two strong months, flows into Gold ETFs slowed as the metal took a breather. Bond and cash ETFs attracted the majority of defensive flows over the month.
  • Perceived defensive sectors including property and consumer staples continue to outperform resources and attract the majority of sector-specific interest.

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The Paradox of Skill: Why active funds underperform

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The latest data for active funds returns does not bode well for traditional active fund managers. Standard & Poor’s (S&P) SPIVA report for 2015 is the clearest indictment yet for traditional active management, revealing that close to 90% of fund managers have underperformed over 10 years after fees.

More recently, 2015 proved to be one of the worst years on record for active managers, who failed to cushion the effects of the stock market’s dip over the second half of the year.

Those who mention top-performing managers as evidence that indexing isn’t sensible are doing retail investors a terrible disservice. Although each year some active fund managers beat the indices, very few have consistently done so over the long term. Those who do well over 1 and 3 years usually do poorly over longer periods as their styles and the market factors that have served them well (value, growth etc) mean-revert.
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Share market ETFs begin to bounce back

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Our update on the Australian ETF market as at March 2016.

Highlights

  • Monthly FUM growth was 1%, from $20.4 billion in January to $20.6 billion by the end of February 2016.
  • Fixed income and cash is now the third largest ETF sector by FUM, inching ahead of Australian Shares (strategies) as ‘smart beta’ strategies continue to underperform and see outflows. We wrote in January that just 3 smart beta ETFs outperformed the market over 12 months compared to 10 which generated inferior performance.
  • The recent market weakness has started to reverse with fund inflows and positive returns across most sectors for the month.
  • Investors are starting to rotate out of some defensive ETFs including high yield and US Dollar ETFs.

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Introducing Stockspot Themes

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The most important decision when investing is choosing how much to invest in each asset class. For that reason it’s of utmost importance that investors don’t take on too much (or too little) risk in any one asset. Closely monitoring each asset relative to the size of your portfolio, and rebalancing when necessary, helps to optimise long-term performance and reduce risk.

Building on this philosophy, we’re excited to now offer the ability for qualifying clients to further personalise their strategy with investment themes.

Stockspot Themes gives you more control over your choice of investments, while still ensuring that your investment strategy is continually optimised by Stockspot based on your investment goals and risk profile.
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Choosing the best investment app or robo adviser

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In 2013 we started Stockspot to help more Australians access expert investment advice. Since launching, our investment strategies have outperformed the broad Australian share market with relatively lower risk – proving that technology can help ordinary people invest smarter.

We’ve now had over 400,000 Australians visit our website which means that more and more people are discovering how they can invest without high-costs, complexity or conflicts of interest.

In parallel, automated investing businesses continue to gain traction around the world. Not only are these services demystifying investing for the younger generations, but they are also helping those in their 50’s, 60’s and 70’s invest with less stress. Recent research suggests that the amount of money managed by robo-advisers will grow 100x from less than US$20 billion at the start of 2015 to US$2.2 trillion by 2020 as more people of all ages embrace technology to simplify managing their investments.
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