- Published on 08 Aug 2017
- - Self Managed Superannuation, Investment & Financial Advice
We are pleased to announce the numbers are finally in for LifeTime Financial Group’s model portfolio performance for the last 12 months through to 10 years. As we manage both Superannuation and Directly Held Investment Portfolios for our clients, these performance figures are gross of tax. We have not illustrated net returns and will be dependant on a range of factors including your own marginal tax rates.
Our reporting has been broken up into three distinct groupings and are based on using the traditional growth risk profile approach.
By way of recap, our portfolios are grouped as follows:
|
Growth risk profiles |
Cash |
Fixed interests including preference shares |
Australian Equities |
International Equities |
Property |
Total |
|
(%) |
(%) |
(%) |
(%) |
(%) |
(%) |
|
|
0% Growth |
100 |
0 |
0 |
0 |
0 |
100 |
|
30% Growth |
25 |
45 |
15 |
15 |
0 |
100 |
|
50% Growth |
15 |
35 |
25 |
20 |
5 |
100 |
|
70% Growth |
10 |
20 |
30 |
30 |
10 |
100 |
|
85% Growth |
5 |
10 |
40 |
35 |
10 |
100 |
|
100% Growth |
0 |
0 |
45 |
45 |
10 |
100 |
When creating a portfolio for a client we take in to account a range of factors. Risk/Return is the obvious one we consider carefully but we also take into account our clients own preferences and expectations in relation to investing. As an example, a 50% growth risk profile investor should technically hold 50% of their assets in conservative income style investments including cash, term deposit arrangements and fixed interest including bonds and preference shares.
Cash accounts are paying low to mid 2% and Term deposit arrangements, under 3%. Assuming we are investing $1,000,000 of client’s cash, would it make sense to hold 50% of the total assets in low yielding investments such as cash and term deposit arrangements? It could do if our client is planning on utilising these funds for another purpose in the shorter term. However, if our client has a 4-5+ year time frame, it would make sense to consider investing in assets other than cash and term deposit arrangements for the higher yield. We may also have a need to simply hold minimum levels in cash to meet expenses etc. and to have the entire balance invested.
With the above in mind, our historical performance changes depending on the overall allocations within the cash and Fixed interest components.
LifeTime Financial Group uses a wide range of assets including direct equities, exchange traded funds, preference shares (Also known as Hybrid Fixed Interest Investment or Convertible Notes) and various cash and term deposit arrangements when creating portfolios for our clients.
Dependant on the allocations of the income components, our overall performances for our model portfolios are as follows:
Standard Allocation with full income holdings in term deposit arrangements
|
|
Growth risk profile performance |
||||
|
Time |
30% |
50% |
70% |
85% |
100% |
|
1 Year |
6.97% |
9.42% |
11.58% |
13.41% |
15.25% |
|
3 Year |
4.25% |
5.23% |
6.33% |
6.99% |
7.65% |
|
5 Year |
5.46% |
7.01% |
8.63% |
9.73% |
10.83% |
|
10 Year |
3.87% |
3.51% |
3.08% |
2.80% |
2.52% |
Variation 1
Favouring preference shares with holdings split 80/20 between preference shares and Fixed interests with 20% held in cash and term deposit arrangements.
|
|
Growth risk profile performance (80/20 preference shares split) |
||||
|
Time |
30% |
50% |
70% |
85% |
100% |
|
1 Year |
7.41% |
9.77% |
11.78% |
13.51% |
15.25% |
|
3 Year |
4.65% |
5.54% |
6.51% |
7.08% |
7.65% |
|
5 Year |
5.81% |
7.23% |
8.78% |
9.81% |
10.83% |
|
10 Year |
3.87% |
3.65% |
3.15% |
2.84% |
2.52% |
Variation 2
Where we hold 5% cash in the cash management account and invest the balance of the “Cash” component to a 50/50 Mix of preference shares and Cash/term deposit arrangements, our performance is as follows:
|
|
Growth risk profile performance (80/20 preference shares split) |
||||
|
Time |
30% |
50% |
70% |
85% |
100% |
|
1 Year |
7.76% |
10.30% |
11.86% |
13.51% |
15.25% |
|
3 Year |
5.41% |
6.30% |
6.70% |
7.08% |
7.65% |
|
5 Year |
6.60% |
8.08% |
8.98% |
9.81% |
10.83% |
|
10 Year |
4.97% |
4.57% |
3.39% |
2.84% |
2.52% |
The Management Expense Ratio’s for our asset allocations are as follows;
|
Management Expense Ratio’s |
||||
|
30% |
50% |
70% |
85% |
100% |
|
0.11% |
0.17% |
0.24% |
0.29% |
0.34% |
The Management Expense Ratio is a cost applied by the managers of exchange traded funds. This cost is not visible but is applied via the unit price of the investment. The purpose of this table is to illustrate the extremely low cost of investing using our approach to favouring Exchange traded funds over Managed Funds and taking a passive approach.
Please note the following in relation to the above tables.
Variations to overall performance will occur through issues including (but not limited to);
Cycle dates: These figures are based on closing figures at 30/06/2017. Using other dates will alter the performance figures.
Guarantees: Past performance is not a guarantee of future results. The information we have prepared is to be considered as a guide only.
Timing: Contributions received to the cash account will be invested on a 6 monthly basis unless that additional contribution is sizable.
Tax reporting: When the tax reporting has completed and rebates (Where applicable) are credited back to the account. The timing around this process will affect the overall returns of the fund.
Advice costs: Our ongoing costs of advice are a deductible expense to the owner/trustee of the fund. Depending on the tax position of the owner of the fund, this will affect the overall costs of advice and guidance.
Brokerage: All buys and sells trigger a brokerage cost. We do not actively trade but brokerage costs will negatively affect the overall performance of the funds.
Suitability: LifeTime Financial Group requires clients to be engaged on an ongoing basis if you are to invest in our Directly Held Investment Portfolio and Self-Managed Superannuation arrangements. This means you will be involved in decisions around investing and the rebalancing of your investments. If you are not interested in being engaged on an ongoing basis, this investment approach may not be suitable or appropriate for you.
Preference shares: We note the following in relation to your exposures to preference shares
Advice Evolution (Our Dealer Group) believes that clients should generally not hold more than 50% of the amounts theoretically allocated to income or fixed interest assets in preference shares.
As part of our investment analysis at Lifetime Financial Group, we are mindful of the fact that most conservative investments are not returning much income. Government bonds and term deposits are yielding less than 3%, and in a rising interest rate environment, we remained concerned about the potential for government bond devaluation. To compensate you with higher returns in this low-interest rate environment, we feel it’s appropriate to have exposure to corporate debt, otherwise known as hybrids or preference shares. Weighing up their risk/return attributes and characteristics, achieving a gross return of 5+% is worth the additional risk you take with these investments.
Where you do hold more than 50% exposure to preference shares, we include a specific warning on this matter and require your acknowledgement in relation to same.
For more information on the risks of investing in preference shares (also known as Hybrid Fixed Interests), please refer to http://www.asx.com.au/documents/products/Understanding_Hybrid_Securities.pdf
LifeTime Financial Group is a boutique financial advisory firm whose specialist advisors (holding appropriate accreditations) are ideally positioned to assist you with a wide range of investment advice and guidance needs.
Would you like to discuss your personal position further with one of our highly qualified financial planners? Why not call us today on 03 9596-7733. There is no cost or obligation for our initial conversation/meeting.
Written by Anthony Stedman of LifeTime Financial Group. LifeTime Financial Group is an award winning and privately owned Melbourne based Financial Planning practice specialising in managing the financial affairs of busy wealthier Australians.