The path to success... watch A Current Affair

Taking in my daily dose of comedy last night (A Current Affair), I came across a story about a woman who '5 years ago was recently divorced and debt ridden, but today is the owner of 71 properties worth $6.5 million'.

The story went on to show how over the last 5 years this woman has bought up properties all over Australia (and New Zealand if I remember correctly). She spruiked about how this property 2 years ago cost her $100,000, now it's worth $250,000. She claimed she was getting that much rental income that she didn't have to work, etc, etc.

A few problems with the story:

1. How did she find all these properties with such high rental yield? From what I have seen, average rental yields are around the 4-5% mark. Interest rates for borrowing are around 7.5%.

2. How did she find a lender that would keep lending to her? This woman's debts would be growing and growing, with income not growing. How did she find a lender that would lend her $6.5 million?

3. How did she find 71 good tenants? I hear plenty of horror stories about renters. If she owns 71 properties, at a total value of $6.5m dollars, this means the average price of the properties is under $100,000 (I think it must include a lot of units!). These would be low rent properties. Not to be stereotypical, but you would assume that when you get down to this level, you're more likely to have problems with tenants.

Thats just a few of the holes to be picked in the story. Unfortunately stories like this and books like Rich Dad Poor Dad make people believe this can be done risk free. The old rule applies. If it looks too good to be true it probably is!

Super or the home?

With the changes to super coming in, allowing you to withdraw all of your super tax free at age 60, a strategy has come into play which involves paying interest only on your home mortgage, whilst using the difference between the capital repayments on your mortgage to increase your superannuation contributions.

The theory is that you gain immediate taxation benefits, with the super contributions being salary sacrificed, and when you turn 60, you withdraw what you borrowed on your mortgage and simply pay it back. The way I see this strategy, is it lets you have the lifestyle benefits of home ownership, but allows you to invest your money in assets that you may prefer to property (eg shares).

So I've run the two scenarios through my modelling software. I have taken a 30 year mortgage, with an interest rate of 8%. The super fund I have used is invested "aggressively". with projected return of around 9% pa (after tax). The loan is for $300,000.

The net benefit of the interest only loan strategy comes out to be $34,000. That is $34,000 in 30 years time. In today's dollars it's more like $15,000. Obviously, if the rate of return on the super fund is higher than 9% pa, the benefit would be greater, but I really wanted to be conservative on my projections.

There's also the added risk that interest rates will rise (or more favourable, decrease) and the legislative risk that super may be preserved beyond 60 for 30 year olds (lets hope not!).

In short, unless you can get a guaranteed return of over 10% pa over 30 years, this strategy really won't provide a huge benefit. The risks are far greater than the rewards.

The best strategy in my opinion would be to repay your mortgage asap, then once it's paid off increase your super contributions. That way you get the best of both worlds!

Metals going off!

Base metal prices are up massively. We might see record highs on the Australian sharemarket tomorrow (although if interest rates rise then who knows). So much for the bear market! See Kitco metals for current prices.

We can't afford to support the boomers... so why give more now?

I picked up a copy of The Financial Review today to be greeted with the headline "Grim future for tax cuts", with Peter Costello predicting that future generations will not be able to afford tax cuts, with forecasts that the ageing population will fuel a rise in heath spending and age pensions. This was all part of the Federal Government's Intergenerational Report.

This news shouldn't surprise. However, wasn't it Peter Costello who came out last May promising tax free retirements for Baby Boomers and almost doubling the Assets test for Centrelink entlements, effectively allowing a couple to have $800,000 in assets and still access Age Pension?

"The key point is to keep expenses controlled. We have got to be disciplined with our financial management to keep our budget in surplus. That's very important," Mr Costello told the Nine Network.

Mr Costello has provided a lifetime burden on the younger generations. These tax savings & increased Social Security benefits have to be funded some how. As much as we hate to think it, the mining boom isn't going to last forever!

Will the shine go off the gold?

I once had a theory, and when I told it to my colleagues they laughed at me. But I have found someone who shares this theory with me!

Lazy Man, guest poster at Consumerism Commentary has this theory that Gold isn't all it's cracked up to be. I tend to agree.

Here's my (some call stupid) theory.

Gold is seen as somewhere safe to park your money when things aren't looking too crash hot. For example, in times of war and high inflation, gold prices usually increase. This is due to the ancient tradition of gold being traded as a currency.

However, you need to think of what gold really is. Gold, like copper, zinc, lead, tin & silver is a metal. It is a good conductor and most females believe it looks pretty on their hands. That's it really. It's practical uses are relatively limited, and whilst its not the most abundant metal, it's certainly not the rarest. You can't build a house out if it, you can't build a road out of it.

So, I think you see where I'm getting to. Gold, at around $650US an ounce is very expensive for what you can do with it. 70% of gold is used for cosmetic use only, so it's practical demand is really not very high. In fact Wikipedia (and we know Wikipedia is ALWAYS right) says that approximately 20% of gold above ground (ie, gold that has been mined) is held in reserve within central banks. The reason for such huge reserves is firstly because back in the day most currencies were pegged to the price of gold, and secondly because I think Governments hold onto it just in case of a doomsday event, where paper currencies become worthless, they have something to exchange for goods and services.

The Indians have a fond affection of gold, so I can only imagine that as their economy grows and more people join the middle class that their demand of gold will increase, but somehow I don't think this demand is going to greatly increase price. Lazy Man has predicted that demand for gold will decrease as a jewellery item because his wife/girlfriend doesn't like it. However, with the gold I see on women in the world (and a lot of men!) I can't say I agree. The price of gold, unlike other metals does not follow trends on supply and demand, but more on the state of the world/economy.

However, this day and age, where you can click a button to buy another currency, does gold need to be used as this security blanket? If I believe that my currency is going to depreciate due to inflation I can buy another currency that I do not believe this will happen to. If i think our economy's going down the shute, I'll buy consumer staple shares. If I think we're going to war I'll buy shares in metal producers (who knows, we might see gold plated guns and grenades?). At the end of the day my gold bullion (or someone elses) isn't going to provide me with income.

In short, I believe it's time for the world to move away from its fixation on gold as a commodity and look at its real practical value. However, call me a conspiracy theorist, but with 20% of the gold in the world sitting in Government vaults, something makes me doubt the central bankers of the world aren't going to let gold fall to $10 an ounce.

For the record, this graph shows the rise in price of gold in the last few years. I wouldn't mind a few nuggets sitting under my bed. I first unveiled my theory to my colleagues in January 2006. Gold prices have since risen about 30%. Shares in Lihir Gold (who they were trying to talk me into investing in) have risen around 50% over the same period. I'd love to come back to this post in a few years and gold prices are down the bottom of this chart. I doubt it though!

*Edit - I just came across this article by David Potts. He doesn't seem to agree with my theory!

Tax free pensions... until you die

The most well documented aspect of the super changes. From next Financial Year, Pensions paid from super and lump sum super withdrawals will be tax free if you're aged over 60. However, this isn't where tax in super ends. There is another tax, the "death tax" when the 'taxable' components of pensions/super are paid to non-dependants when someone dies, they are taxed at 15%.

Now, the definition of a dependant in this case is basically spouse or dependant child, under age 18, which generally means that those of us who have Boomer parents transferring their assets into super, are not going to see everything when our parents unfortunately, but inevitably depart this fine planet.

However, given that super benefits can be withdrawn tax free over 60, those who unfortunately die slowly, are able to withdraw their entire super benefits before they die. However, those who probably more fortunately die quickly do not get this opportunity.

This needs to be changed. Time for the Government to remove this 15% death tax. On one hand they are trying to make people put as much as they can into super, but aren't providing the estate planning benefits. Assets held outside of super can be transferred to non-dependants with no tax liability (however the recipient inherits the original purchase date & price).

John Howard and Peter Costello, time to provide something for us younger generation. The generation who's vote doesn't seem to be important to you. You can't buy our vote on the low interest rate lie this election.

Until then, the benefit of a slow and painful death will only be the tax savings one can provide to their children.

Aussie Finance sites yet to embrace Web 2.0

In case you don't already know, Web 2.0 is starting to provide what we all thought the internet was going to provide back in the dot com boom of the late 90's. From Wikipedia "the phrase "Web 2.0" hints at an improved form of the World Wide Web; and advocates suggest that technologies such as weblogs, social bookmarking, wikis, podcasts, RSS feeds (and other forms of many-to-many publishing), social software, Web APIs, Web standards and online Web services imply a significant change in web usage."

Ben Barren brought to my attention the lack of Web 2.0 within Aussie Finance sites. The major broker's could really gain an advantage over the rest of the market if one of them embraces Web 2.0. I use Commsec as my share broker and the site really is, like Ben Barren has said "stuck in its 1999 user model".

The US sites Ben has listed are quite interesting. I'm yet to come across anything in Australia that provides this portal type aspect. Even the two major internet forums that I have come across, HotCopper and Sharescene really lack the "social" aspect that I have come to expect from these types of sites.

Why are Australian Finance sites yet to embrace the new type of web? We no longer want sites to tell us what to see, we want to be able to customise and tell the site how and what we see. I fear that the sometimes lack of common sense legal system would mean a financial planning site like Wesabe would soon be shut down by ASIC due to the the laws around non-licensed people providing advice, and the paper trail that follows a licensed person providing advice, even if its only general. Or perhaps the nerds are too busy making money investing to worry about designing websites that most likely won't provide huge amounts of revenue!

So much for that "downward pressure"

A couple of weeks ago I posted on how the long term trends indicated we were going to see more Red days than Green days on the stock market. Well, the market has all but recovered all of these losses!

The US Dow Jones Index is still around 300 points off the high set in February, but the Aussie All Ordinaries is less than 100 points off the pace, partly pushed up by stronger metals and oil... after all, we are the world's quarry.

The rush to get money into super over the coming months may mean more green than red. Concerning, given that prices might not be reflecting fundamentals, but more simply, supply and demand. A short supply of Blue Chip stocks and a lot of money to be invested, means that prices are being pushed up not because greater profits are expected by the companies, but because there is simply nowhere else for the money to go!

The good news for investors is that there will be plenty more money going into the sharemarket than will be going out, so this climb may continue, however, I am still cautious and think there might be more volatility to come.

When tax free share income isn't really tax free... and how to make it tax free!

I was having a bit of a heated discussion with a fella the other day about tax effectiveness of share investing. I offered him advice on how to make his shares even more tax effective, but I'm not sure he understood.

His argument was that he could earn $75,000 a year from his portfolio of shares and not pay a cent tax. This of course is because he holds a portfolio of shares that pay fully franked dividends. Meaning, he is entitled to a 30% tax rebate on this income in the form of imputation credits, and as he is on the 30% marginal tax rate, he pays no tax. He then said to me, "Why should I bother with these tax free pensions when I'm receiving tax free income anyway. I agreed, YOU are not paying tax, however SOMEONE IS. By restructuring your affairs, you can get the tax back!

You see, the reason most share income from blue chip stocks contains this 30% credit, is because companies have already paid tax on this income, at the company tax rate, which not suprisinly, is 30%. So, whilst the investor isn't paying tax out of their own pocket, they effectively are, as tax is being withheld before they actually see the income (dividend).

My proposal to this investor (he was over 60), was to get his direct share portfolio into a Self Managed Super Fund (I didn't address Capital Gains Tax, but this would definitely have to be looked at), and then he had two options, leave the funds in the growth phase of super, in which case income is taxed at 15%, or convert it to an allocated pensions, from 1 July, draw the minimum income which is 4%, and whilst within pension the fund pays NO TAX on earnings.

These imputation credits will then be credited back to the fund, which means the tax is basically being paid back and the investment will truly become tax free. If it stays in the growth phase of super, you're looking at half the credit coming back (super pays tax on income at 15%), or if its in pension, the whole credit basically gets added onto returns.

Put simply, if your shares are within the pension phase and you are receiving a dividend yield of 5% fully franked, you're dividend all of a sudden becomes about 7.15%. Pretty good huh!

Kitco - graph metals price and reserves

As most share investors would know, many Australian share prices are heavily linked to prices of base metals. After all, Australia is really the world's quarry.

There are many sites and sources out there that show the prices of metals on a day by day basis. I have always referred to my broker, Commsec's site. However, all this shows is price, not reserves, and it can be difficult to find price graphs for the period you want.

Bring on Kitco Base Metals. This site shows you everything you need to know about base metal prices and current reserves. Simply click on the "charts" section on the left hand side, choose the historical chart you want (eg, Zinc), and there you go. A range of price charts, as well as the all important current warehouse reserves.

A handy site if you have an interest in resource stocks.

The Future Fund - Part 2

I previously posted about Federal Labor's plans to use part of the "Future Fund" to improve telecommunications infrastructure, and provide faster Broadband to more Australian's.

I may not have been clear in my post about what the Future Fund has been set up for. It has been established to pay Public Service Pensions from 2020. You see, in the past, if you worked for a Government organisation, part of the deal was a promise of a lifetime index pension once you reach age 55, or 60. However, back when these deals were promised, average life expectancy was around 65. Today, life expectancy is around 80, and only likely to increase with advances in health care technology. Therefore, funds for these lifetime pensions must come from somewhere.

That's why the Future Fund was established. Now, critics of Kevin Rudd's announcement will say that the downside of dipping into the future fund is increased taxes in the future to pay for the public servant's pensions, however, Rudd's proposal will have the new infrastructure project pay for itself, and possibly even pay an income stream to the Future Fund.

Using Government assets to offset taxes? Makes sense to me, not the Libs though.

I'll give Rudd a chance with this one. Like I've said, recent policy changes have all been about buying the Boomer's vote. It's refreshing to have someone out there trying to buy my vote. At the end of the day a politician will always be a politician though. Peter Boyle talks about the ripoffs that these "Public Private Partnerships" that Rudd is proposing can often become. Time will tell.

Future Fund to actually provide for the future

Kevin Rudd yesterday announced the plan to use $4.7 billion from the "Future Fund" to bring our Broadband network into line with the rest of the developed world if the Labor Party wins the next Federal election.

The irony of this is that the Future Fund is funded mostly from the proceeds of the sale of Telstra. Arguably, our broadband network is in such bad shape due to the botched privatisation of Telstra. A case of robbing Peter to pay Paul, of in the case of the Federal Government's plans, robbing the public to pay a few lucky public servants their lifetime pensions.

You see, The Government has conned the public into believing that the "Future Fund" is in fact investing for our future. By simply reading the name, one could be forgiven for thinking that this is the case. However, the Future Fund has been established purely to pay the defined benefit pensions that old time Public Servants are entitled to receive. Great if you are in the minority,who will benefit from lifetime guaranteed income, bad if you're the rest of us who have to save for our retirements ourselves (with the help of our employers since SCG was introduced).

I think this is a great move. Finally, the X & Y Generation will see some benefit from all of these policy changes. Benefit that will help us through our lifetimes. This also is a small step towards rectifying the huge stuff up that has been the privatisation of Telstra without first separating the retail and infrastructure arms.

Bring on faster internet… downloading of movies, games and music quicker for me. Productivity gains? Maybe not!

Financial Planners - Independents vs Banks

So you've decided to see a Financial Planner. Good for you.

Next decision, who do you see? Do you see a Financial Planner associated with the Bank that you transact with? Do you go with the Financial Planning arm of one of the large Fund Managers/Insurers? Or do you go with the completely impartial totally 'independent' Financial Planner?

Each has their advantages and disadvantages which I plan to discuss.

1. Bank Financial Planner

The Bank Financial Planner most probably sits in a bank branch. Most of his customers are clients that walk in the door of the bank branch, asking investment questions to the front of house 'tellers' and being referred on to the Financial Planner in that branch. The approved list of products is generally limited to the products administered by the Fund Manager arm of the Bank. Advisers are remunerated with a salary, with the potential for bonuses based on the revenue that they generate if they meet targets. This can often be the training ground for new advisers, therefore, advisers might not have large amounts of experience.

2. Fund Manager / Insurer Financial Planner

These breed of planners generally market themselves as an 'independent' practice. However, independent they usually are not. They sit under the umbrella of a large fund manager or insurance agent. The simplest way to describe them would be a 'Franchise' type approach. They use the large organisation they work with to provide all the administration, research, etc support, however, all the costs of running their business are with them, similarly, all revenue they receive from you ends up in their pockets. The products available to them generally are more widespread than the 'Bank Planner', however, there are often incentives to recommend those products administered by their 'dealer group'. Typically, these Financial Planners have been in the industry for a long time, starting out years ago as a Life Insurance agent and their client base is from these clients and referrals from existing clients. Alternatively, they may have purchased a client base from someone else.

3. Truly Independent Financial Planner

These practices really are independent, with no allegiance to any Banks, Fund Managers or Insurers. Quite often they are attached to an accounting practice, with most of their clients coming from the accountant. They might do their own research and admin, or outsource this to someone else. Generally their range of available products is large and the Financial Planners may be Accountants who have realised there's plenty of money to be made in Financial Planning!

So, there you have it. As a rule, the Financial Planner you see will fit into one of these categories. But, who should you see? It depends on what you're after really.

Fees & Costs

The costs of advice can vary remarkably. Even within the same practice, you could see two different advisers and they will charge a totally different set of fees. Different businesses will have different ways they charge their fees. Most charge based on a percentage of the total dollars invested. Some (but not many) charge on an hourly basis like an accountant or solicitor would. Most receive ongoing commissions for the funds that are invested through them, some (but not many) rebate these commissions to the client.

Generally, bank planners fees will be lower than number 2 & 3 advisers (from above list). This is because the bank planner is not paying the bills themselves and because they are only receiving a portion of their fees in bonus/commission. However, bank planners generally have less scope in reducing fees and rebating ongoing commissions. They are likely to have strict limits on minimum fees payable, and as the ongoing commissions are helping line of the pockets of shareholders, it is unlikely they will be allowed to rebate them.

Product Lists

The question that has to be asked here is, who cares how big the product list is? Does it matter if I have the option of investing in 50 funds or 5,000 funds? Not really. A managed fund is a managed fund. Generally most planners, whether they're from 1, 2 or 3, will use "model portfolios" anyway, which involves using a predetermined list of funds, allocated according to the investor's "Risk Profile". Therefore, from the list of 50 or 5,000, only 10 funds are being used.

The advantage that the banks have here, is their research is likely to be very conservative. Therefore, a fund or product has to be top notch to be on the approved list. They don't want their name dragged in mud because they had another Westpoint in their approved list of products. However, your independant practice might have all sorts of wacky, generally high commission products in their approved list. Macadamia farms come to mind.

Conclusion

There's only one question to this debate. Shop around. Spend the money to have plans presented by different companies. Examine the advice. Is one remarkably cheaper? Why? Are there products in there you don't really understand? Stay away! Don't tell the planners you are shopping around. The independents will rubbish the banks, and vice versa. Each type of planner has their advantages and disadvantages. The most important thing is to find an adviser who knows what they are saying and are truly meeting your needs.

More downward pressure to come?

The US stock market closed remarkably lower last night, due to weak retail data and what has been referred to as a "lending crisis". Have we seen the dead cat bounce, with more downward movement to come on world markets?

During the first market sell off a couple of weeks ago, I saw an interesting chart presented by Alan Kohler. He plotted the Dow Jones Index over the last 3 years. What he showed was a tight trading range, which has been broken in the last 3 months of the current bull run.


I have attempted to replicate the diagram, using the Australian All Ordinaries Index. As it can be seen, this trading range has rarely been broken within the last 3 years, and when it has been broken, it hasn't taken long to correct itself.

What this indicates, is that we may see more downward movement, possibly down as low as 5,400 points. If the uptrend for the last week continues, it may spell the end of the current trading range. I think not however.

Expect to see more red today, an possible more red in the coming weeks!

The lesser known super changes from 1 July

The big changes to super are extremely well documented. Tax free benefits from 60, undeducted contribution limits abolition of RBL's, etc, etc. We've heard these 1000 times already! However, there are some changes to super which aren't as well known. I will attempt to uncover a few of these (although like everyone else, I'm still wading through all the info out there).

1. One off contributions for 65 year olds.

The contribution rules to super mean that you must satisfy the 'activity test' (gainful employment of 40 hours over a 30 day period during that financial year) to contribute to super if you are aged 65 or over, with no contributions allowed at all if you're 75 or over. However, because there was some initial confusion from Budget night about what the limits were going to be, the Government has decided that if you were aged 64 or younger on 10 May, 2006, you are able to contribute up to the $1 million limit. Good news for all those 65 year old readers out there (yeah, I know there's a heap of you!).

2. One deductible contribution limit.

The new rules mean everyone will have a limit of deductible super contributions of $50,000 per annum (or $100,000 for the next few years if you're aged over 50). In the past there was a loophole in the system, where you could salary sacrifice into super up to your aged based limit, reduce your salary to less than 10% of your total income (ie you also have significant investment income and/or capital gains), and then make deductible contributions up to your aged based limit. Meaning you're claiming two lots of concessionally taxed contributions. Unfortunately, this rule is now gone. $50,000 is it!

3. Cashing out of super comes from all components.

A common pre-retirement strategy is to cash out part of the taxable components of your super (currently called pre/post 1983 components) and re-contribute these funds as an undeducted contribution. This makes your retirement income stream more tax effective, as more of it is returned to you tax free. Come 1 July, the effectiveness of this strategy is diminished. As pensions for those aged over 60 will be tax free anyway, there will be no immediate tax saving. However, death benefits paid from the taxable components to non-dependants will be taxed at 15%, so for estate planning purposes, the strategy is still relevant. The problem is, unlike currently, where you can nominate where your withdrawals will come from, as at 1 July, you will have to withdraw from equal proportions. Therefore, if your superannuation is made up of 50% taxable, and 50% tax exempt components and you want to withdraw $100,000 worth of taxable benefits, you will have to make a total withdrawal of $200,000.

This is fine if you have a small super balance. You simply withdraw it and then recontribute it. But the $150,000 contribution limits (or $450,000 over 3 years) must not be forgotten. The last thing you want is to withdraw the funds, then not be able to put them back in, just to save your non-dependant children a few bucks (this is a sore point of mine that I will approach in another post).

There you go. A few of the lesser known (and possibly not quite as exciting) changes to super from 1 July 2o07.

Never too early to start saving for retirement

I often see financial advice columns strongly advising against young people putting additional money into super, due to the fact that they can't access it until they're 60.

Fair enough, as there's likely to be significant expenditure requirements between 25 and 60 (I'm thinking exorbitant mortgages), where these funds could be better used. However, retirement saving should not be forgotten. Compulsory superannuation contributions of 9% are unlikely to provide enough to retire comfortably on, even for those of us who have been benefiting from these contributions for our whole working lives. You have to start savings for your retirement sometimes, the earlier you get the money in, the more time you will benefit from compounding growth in this tax effective environment.

I ran a little experiment to see for myself what the difference would be.

We are talking about a 25 year old here, retiring at age 60, with $20,000 currently in super and an annual income of $60,000. The following graph estimates in today's dollars the estimated end benefit, assuming the funds are invested 'aggressively' (ie, entirely in shares and property) and they receive the standard 9% employer contributions.


As it can be seen, an end benefit of around $480,000. Not that much, considering 9% on top of your income every year has been contributed to super. I think I'll be wanting more than that to retire on!

So, lets say the 25 year old decides to salary sacrifice around $100 a week (I'll use $5,000 pa). These contributions willbe taxed at 15% upon contribution. This is what we're looking at in today's dollars:


An end benefit of around $820,000. Looking like a much more healthy balance!

You really can't beat starting early. In reality, few 25 year olds are likely to forgo this sort of money for 35 years, but the key to benefiting from compounding returns is to start early. Thanks to the great Paul Keating, we will save significantly for our retirements without having to do too much of the hard work ourselves, but with a little help will end up with a much more comfortable retirement!

Timing the Markets

I previously posted about timing the market versus time in the market.

Robyn Bowerman has an interesting post on opportunity cost of mis-timing the market. Basically, if you miss the best 20 days of trading in a decade you will halve your return. Robyn doesn't get into the details on if you miss the worst 20 days of trading, what your returns would be, but I'd guess your return would be close to doubled.

The moral of the story is however, you really don't know when the best and worst days are, so invest for the long term!

The Good, The Bad, and the Bull Run

It was only yesterday that I posted on how we have had an incredible Bull Run over the last 4 months, and it was only a matter of time until there was a slip up along the way.

Quite often, it only takes one small trigger for the domino effect that is falling share markets across the world. Today we saw after whispers that the Chinese Government, in an attempt to slow down growth, will begin taxing capital gains on shares bought and sold on the Chinese share market. This triggered the largest sell off on the Chinese market in 10 years, followed by the largest in the US and Australian markets since September 11.

So, investors that have panicked to sell off their investments and place them in super (of which possibly close to 50% is invested in Australian equities), today saw thousands wiped off the values of their super. I am now kicking myself that I didn't practice what I preach and Short Sell the S&P ASX 200 Index yesterday.

What is Ironic is that those cautious investors who have been sitting on the fence, waiting for the legislation to be passed through Parliament finally got the news they have been waiting for this morning. The super changes that have been proposed have been signed off by the Senate and are now Law. Good news coming to those who wait, or just a fortunate coincidence of events?

Is the Bull Run finally over? Most think not. The market is likely simply correct to more sustainable levels, consolidate for a while, and run again when we've all forgotten about the issues of today. Such is the nature of the beast.

Financial Planner minimum education not substantial

John Collett has uncovered a sad truth about the Financial Planning industry in his article "Minimum training for planners is not enough".

The Diploma of Financial Planning, which you are required to complete to be a licensed Financial Planner, is quite frankly a joke. It requires the completion of 4 modules. Each of these modules require completion of an assignment and an exam. The assignments are rarely updated, and therefore plagiarism is rife. The assignment requires completion of an open book multiple choice test. Yes that's right, open book AND multiple choice! This is often likened to a game of hide and seek, the answers are there, you just have to find them.

After completion of a University Degree, I was amazed the requirements to be a Financial Planner were so minimal, and after doing this course (which can be fast tracked in about a week), you are legally able to tell people how to invest their life savings! I can honestly comment that the Diploma of Financial Planning did teach me very little and most of my skills came from other avenues, including a 3 year University degree (whilst it wasn't in the financial planning field, it was heavily biased towards Economics and Finance which made it easy to apply Financial Planning knowledge), as well as learning as I went. The diploma also fails to attack real life scenarios, with its examples all based around the all too perfect 'client'.

The Financial Planning Association is working hard to promote the Certified Financial Planner (CFP) qualification. From now on to enrol to the CFP program you must hold a relevant University Degree, however grandfathering means that anyone who was advising in the 90' and early 00's was automatically granted CFP status after 3 years advising. Whats more, a CFP has exactly the same rights as a regular Financial Planner, so there isn't huge motivation to become a CFP.

I'm not saying you should avoid advice. Financial Advice is important, however, suss out your adviser. I'm not saying they require a uni degree or CFP, some of the best advisers I know have neither. Talk generally about the economy, financial markets and current affairs in finance. If you're a good judge of character you will soon work out if your adviser is the real deal!

The industry to be taken seriously, must get serious about making it tougher for Financial Planners to get qualified. It is an industry that is already tainted, and does not need any more bad publicity. Until then we will remain the laughing stock of our professional peers.

A mad rush out of the bricks and mortar

When the Federal Government announced the transitional arrangements to super, with up to $1,000,000 per person being able to be contributed between 9 May 2006 and 30 June 2007, we all expected a mad rush on the Boomers selling up their assets and dumping the proceeds into super.

Well it looks like it's started. Carrie LaFranz reports on how Real Estate listings are well and truly on the rise, with a large number of listing reportedly being made purely to take advantage of the new rules. The proceeds, when thrown into super, are helping contribute to the Bull Run that our market is currently having.

All of a sudden the Baby Boomer's love affair with bricks and mortar has shifted, thanks to Mr Costello offering them tax free retirements. It goes to show, the "property is the best form investment" mentality that many Boomers exhibit is soon forgotten when they are presented with the opportunity to save a few dollars in tax.

However, before you get rid of your investment property, which is apparently about to increase its yield by up to 20%, at a possible discount due to a glut of For Sale signs in front yards, there may be alternative strategies available to you.

1. Sell your properties later. If you're part of a couple, you can contribute $150,000 each to super every year until you turn 65. This can be averaged out over a 3 year period, effectively allowing a one off $450,000 contribution each. Now lets assume you sell a property just prior to July one year, you can put in $150,000 each before July, and then $450,000 each after July. This is a total of $1.2 million.

2. Borrow to contribute. This one should be treated with caution. However, if you think your property would fetch more after July, when the glut of sales declines, you could borrow against your property now, and contribute this to super, paying the loan off when you sell the property. However, you will be liable to pay interest on this loan which is not deductible.

3. Transfer your property to a self managed super fund. If you own commercial property, this can possibly be transferred to Self Managed Fund. Capital gains tax will be payable, as you are effectively transferring ownership to another entity. Unfortunately domestic property cannot be transferred to a SMSF.

Before you rush to sell your investments, have a think about the other options available. Tax should be at the front of your mind. If the capital gains tax you will be paying is going to be a lot, the tax free status of super in pension phase may not be worth it. There are ways to lower this tax payable, but that's for another time.