The awards were hosted by Accountants Daily, Australia’s top publication for the accounting industry and were judged by a panel of 21 business leaders across Australia. There were a record number of finalists and submissions for this year’s awards, and all judges commented on the “standout” quality of the entrants.

“We broadened the awards program this year to better recognise the breadth and depth of the talent in this industry. For those who have made it to the finalist stage, congratulations, you have secured your place amongst Australia’s leading accounting professionals,” said Terry Braithwaite, head of partnerships at Accountants Daily.

Dean, a Partner at MMT Accountants + Advisers said he was humbled by the award. “Our recognition for the excellent contribution to the Sydney small business scene reinforces the strength of our brand in connecting with the community and engaging with our customers,” He added.

Featured in a publication in Accountants Daily, Dean believes it’s the MMT team’s ability to explain complex accounting areas to clients as a key success for the firm. “Where we differentiate ourselves from our competitors, is the ability to provide value in explaining their numbers to allow them to make smart decisions”.

Dean has further called on Universities to help train students to develop these important soft skills. “Definitely at university is where it needs to start. I actually don’t think the current courses have really adapted to the changes that are happening in accounting, and it’s happening pretty quickly,” he said. You can read further about the article in Accountants Daily here

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In prior years, there were many changes to superannuation and small business taxation. This year’s Budget only had a few changes in these areas.

Here’s a brief summary of what the MMT team believes are the key changes that may affect many of our clients.

Taxation

Small business depreciation
The Government will extend by 12 months (to 30 June 2018) the ability for businesses with aggregated annual turnover less than $10 million to immediately deduct purchases of eligible assets costing less than $20,000, first used or installed ready for use by 30 June 2018. Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed into the small business simplified depreciation pool (the pool) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the closing balance of the pool at 30 June 2018 is less than $20,000 (including existing pools). From 1 July 2018, the immediate deductibility threshold will reduce back to $1,000.

Increase in Medicare levy
From July 2019, the Medicare levy will increase by half a percentage point from 2.0 to 2.5 % of taxable income. Other tax rates that are linked to the top personal tax rate, such as the fringe benefits tax rate, will also be increased.

Lower threshold for HELP debt repayments
From 1 July 2018, a new minimum threshold of $42,000 will be established with a 1% repayment rate and a maximum threshold of $119,882 with a 10% repayment rate.

Disallow certain deductions for residential rental property
From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting maintaining or collecting rent for residential rental property. Also, plant and equipment depreciation deductions will be limited to outlays actually incurred by the investors in residential real estate properties. These changes will apply on the prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either investor no longer owns the asset, or the asset reaches the end of its effective life. Subsequent owners will no longer be able to claim deductions for plant and equipment purchased by its previous owner.

Capital gains tax changes for foreign investors
From 7:30PM (AEST) on 9 May 2017, Australia’s foreign resident capital gains tax (CGT) regime will be extended to deny foreign and temporary tax residents access to the CGT main residence exemption. However, existing properties held prior to this date will be grandfathered until 30 June 2019.
From 1 July 2017, there will be an increase in the CGT withholding rate foreign tax residents from 10% to 12.5%, and a reduction of the CGT withholding threshold from $2 million to $750,000.

Taxable payments reporting
From 1 July 2018, the courier and cleaning industries will join the building and construction industry in needing to complete taxable payments reporting each year. More red tape!

Cash economy crack-down
The ATO now have an additional $32 million to target the cash economy. Expect more ATO audits with the data matching capabilities. Cafés, restaurants and other businesses that accept cash should ensure their point of sale systems have proper audit trails that match their cash deposits.

GST on new residential property and sub-divisions
In an approach designed to crack down on some property developers failing to make GST payments to the ATO, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.

Superannuation

Contribute the proceeds of downsizing to superannuation for older Australians
From 1 July 2018, a person aged 65 or over will be able to make a non-concessional contribution of up to $300,000 from the proceeds of selling their home. These contributions will be in addition to those currently allowed under the existing rules and caps and will be exempt from the existing age test, work test and the $1.6 million balance test for making non-concessional contributions.

* This measure will apply to sales of a principal residence owned for the past 10 or more years and both members of a couple will be able to take advantage for the qualifying home. *

First Home Super Save Scheme
To encourage home ownership, voluntary contributions to superannuation made by first home buyers from 1 July 2017 can be withdrawn for a first home deposit, along with associated deemed earnings. Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Under the measure, up to $15,000 per year and $30,000 in total can be contributed (within existing contribution caps). Contributions can be made from 1 July 2017. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

Foreign Workers

There has been lots of news recently about the removal of the 457 visa program. Businesses that employ foreign workers on certain skilled visas will pay a levy that will be channelled into the Skilling Australians Fund. From 1 March 2018, Businesses with turnover of less than $10 million per year will make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one-off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme.

Book in your End of Financial Year Meeting with us Today!

This is just a general summary of how the Budget may affect you. If you haven’t met with us yet, now is the time to contact us to arrange an End of Financial Year meeting, so we can help you limit your tax payments,
discuss your goals and plans for the next year, and grow your wealth. Remember, we both need time to implement any appropriate tax savings strategies for you well before 30 June 2017.

General advice disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

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Dean is in the running to take out one of Australia’s top industry awards and has been shortlisted as a finalist to win the Rising Star of the Year at the 2017 Australian Accounting Awards, hosted by Accountants Daily, Australia’s top publication for the accounting industry.

Now in its fourth consecutive year, the Australian Accounting Awards, which covers 26 categories, recognises individual excellence in accounting, from the profession’s most senior ranks to its rising stars.
Winners in the individual categories will automatically be shortlisted for the coveted Accountants Daily Excellence Award. In addition, Dean will be in the running for the Editor’s Choice Award, which recognises an individual’s outstanding contribution to the Accounting Industry.

“We broadened the awards program this year to better recognise the breadth and depth of the talent in this industry. For those who have made it to the finalist stage, congratulations, you have secured your place amongst Australia’s leading accounting professionals,” said Terry Braithwaite, head of partnerships at Accountants Daily.

“We are set for a superb evening when the awards are presented. The judges have a tough job on their hands this year and there no doubt will be huge excitement to hear their verdicts.”

Dean, a Partner at MMT Accountants + Advisers said he was humbled by the nomination. “Our recognition for the excellent contribution to the Sydney small business scene reinforces the strength of our brand in connecting with the community and engaging with our customers,” He added.

The winners will be announced at a black tie awards dinner on Friday, 26 May at the Sofitel Sydney Wentworth.

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Glenn Simpson Landscapes won the “COMMERCIAL & CIVIL CONSTRUCTION UP TO $3 MILLION” Silver Award at the LNA 2016 LANDSCAPE EXCELLENCE AWARDS for the Alice Lane, Newtown Bioretention Basin.

The Alice Lane, Newtown Bioretention Basin is an initiative undertaken by Inner West Council as part of its Waterevolution Living Lanes program. The program includes stormwater biofiltration systems, planting and revegetation, and cultural elements reflecting the nearby community, consequently applying sustainable urban water management principles to catchments.

Completed on behalf of Inner West Council, the Alice Lane, Newtown Bioretention Basin was an extremely rewarding and technically complex project, with the added satisfaction of enriching our environment!

“We are honoured and privileged to receive this esteemed Award as it was voted and awarded by a highly qualified and experienced LNA judging panel, among an outstanding number of quality entries.” said Glenn Simpson.

It has been dubbed, without a doubt, the most successful awards season yet with a greater variation of winners than ever before!

To read more about this project and their other fantastic work visit: http://glennsimpsonlandscapes.com.au/projects/ecosystem-protection-triumph

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You could be driving away in your brand new 5-door Hatch Mercedes-Benz A180, or wearing your beautiful new Diamond Tennis Bracelet, and most importantly supporting beyondblue.

Three million Australians are currently experiencing anxiety or depression. Every day, nearly eight people take their own lives – and beyondblue want to change that.

beyondblue provides information and support to help everyone in
Australia achieve their best possible mental health, whatever their age and wherever they live.

That’s why HABA are proud to donate all profits from this campaign to beyondblue, to help all Australians.

For tickets visit askhaba.com.au/beyond-blue-draw/

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The fortunes of Australians this year will have much to do with how you or your business is positioned and how you respond to challenges.

Here are our top predictions:

Trumponomics will impact on our region

Business is business – either an opportunity makes sense or it doesn’t. The biggest pressure from the new US President is unlikely to be the much discussed Trans-Pacific Partnership (Australia’s current Free Trade Agreement with the US (AUSFTA) has been in place since 2005), or President Trump’s controversial immigration policies, but the plan to cut the US Federal company tax rate from 35% to boost competitiveness. If the US drops its company tax rate below 30%, Australia will be the one of the most expensive countries in its region to do business and globally uncompetitive. The 2016-17 Federal Budget announcement to reduce Australia’s company tax rate progressively to 25% for all businesses has stalled in the Parliament with voter perception that it is a gift to ‘big business’ at the expense of more deserving elements of the community.

The US is Australia’s second largest two-way trading partner at around $69 billion and our third largest export market at $22 billion* (we import around $47 billion in US goods and services). Australia’s trade relationship with China however swamps this volume with $150 billion in two-way trade of which almost $86 billion is in exports. These trade statistics are important to remember when we look at the geopolitical landscape of the Asia-Pacific region and in particular the increasingly antagonistic relationship between the United States and China.

Australia is too small an economy to successfully survive on its domestic market alone. Strong regional alliances and competitiveness are critical.

For business: Innovate or Perish

Economists widely predict that residential construction and exports – the mainstay of Australia’s domestic economic growth – will slow in 2017. Part of this is the Chinese Government’s concern about investment outflows (Australia has been a significant beneficiary with Chinese Direct Foreign Investment growing by 72.5% over 2010-15). So, where is growth going to come from?

One of the most alarming statistics comes from the Boston Consulting Group Global Manufacturing Cost-Competitiveness Index.

Advances in technology in particular will make some operators unsustainable and give others the capacity to change the very nature of their sector either through production efficiencies or disruption. After all, tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. Real Estate Agents may be next with companies like Purplebricks.

The bottom line is that you cannot rely on the stability of your business model to sustain over time.

For you: Superannuation knee-jerk reactions will disadvantage some

2017 will be a watershed year for superannuation in Australia. With many of the reforms coming into effect on 1 July 2017, there will be a temptation for many to ‘do something’ before the deadline.

The biggest impact of the reforms is likely to be on those with large super balances close to or exceeding $1.6 million. And, it’s not just the wealthy with large super balances. Many SME business operators utilise the business real property exception to hold their business premises inside their SMSF, which can significantly increase the asset value of the fund. For anyone close to or exceeding the $1.6m cap, it’s essential that you have current valuations for your assets to know exactly where you stand.

One of the key decision points for those with large balances is how Capital Gains Tax applies where assets supporting pension payments exceed the new $1.6m pension transfer limits and need to be moved back into accumulation phase.

Knee-jerk reactions to the management of your fund’s assets – like quickly selling assets pre 1 July – may result in your fund being in a much worse position. With the risk of sounding conflicted, good advice is essential.

International is still a dirty word

If you are an individual or a business that transfers money internationally, you will continue to be a target. For individuals, if you work overseas be careful of residency issues. The residency tests don’t necessarily work on ‘common sense’. Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes. And, for those with international investments, it’s important to understand the tax status of earnings from those assets. Just because the asset and the earnings from those assets are overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia.

Innovation

The BCG analysis demonstrates that Australia was the least competitive of the top 25 global manufacturers between 2004-14 – Australia’s direct manufacturing costs, for example, were just under 30% higher than the US. Manufacturing wages grew 48% in Australia over this period while labour productivity fell 1%. While this was a period of abnormal events with the mining boom, the Australian dollar at parity with the US, and a GFC, it still creates a stark picture of why a focus on productivity is important.

Over the last two decades we have seen a global trend towards offshoring to reduce labour costs to achieve productivity gains. Now, gains are being achieved through innovation to reduce costs. This is an area where Government policy is there to support business. These incentives include:-

– Small business rollover relief that removes the tax impediments associated with changing your business structure.
– Tax incentives for investors in early stage innovation companies.
– Broadened tax incentives for early stage venture capital limited partnerships and venture capital limited partnerships.
– More generous employee share scheme arrangements particularly for high growth start-ups.
– Immediate deductions for start-up businesses.
– Reduced company tax rates for small businesses.
– Plus there is also the R&D incentives for innovative companies.

For survival, all business operators need to look at the trends in their industry.

For business, Government regulation is increasingly cynical about those using low taxing jurisdictions, paying large management fees between international entities, and parking large debts in Australian entities.

Like every other tax authority, the Australian Tax Office wants its share of profits earned from Australian consumers. You can see this trend in the new GST rules (dubbed the ‘Netflix tax’) which come into effect on 1 July 2017 – although for many the requirement for foreign entities to charge GST on services and digital products provided to Australian consumers has already come into effect. On the other hand, changes to the GST treatment of international transactions that apply from 1 October 2016 are intended to make life easier for both Australian and overseas businesses, but these rules can become quite complex to apply in real life.

No one likes uncertainty and 2017 is shaping up to be a year where people feel unsettled. Take a breath, think strategically, look beyond your personal experience, and take advantage of the opportunities that are available to you.

*2015-16 figures Austrade Why Australia Benchmark Report 2017.

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Are your assets at risk?

Legal action by employees, customers and suppliers as well as divorce are the two primary risk issues for many business operators. If you have been operating as a sole trade or as a partner in a partnership or have simply been holding all business assets in a single entity, your structure may not provide sufficient asset protection. If any personal assets or valuable assets of the business are held in the same entity which carries on the trading operations of the business, those assets may be at risk. To protect your assets it is generally preferable to separate as many valuable assets as possible from the trading operations.

Can you introduce new business partners or investors?

If you want to provide key employees or investors with an equity interest in your business, your current business structure may not allow for this. For example, it is not generally possible to provide fixed entitlements to the profits of a business operated by a discretionary trust.

Entities such as companies and unit trusts are a much more effective vehicle to facilitate the introduction of new equity partners as they can provide a fixed interest in the income and capital gains generated by the business. New investors can also potentially claim interest deductions on funds borrowed to invest in the company or unit trust.

Reinvesting in growth

Reinvesting profits in your business is important if you have or expect a strong growth path. Some business structures however don’t readily facilitate profits being retained by the business. For example, it is generally more difficult for a trust to retain profits, as the trustee of a trust is taxed on these profits at penalty tax rates if they are not distributed to the beneficiaries of the trust each year. This is compared to private companies where profits are taxed at a maximum rate of 30% or 28.5% and can be retained in the company without the need to distribute these profits annually.

Can you take money out of the business?

When you first established your business, it’s hard to know what your profits are going to be and for many, there are a few lean years of losses to get things up and running. Your personal circumstances might have changed as well – marriage, children, a spouse, etc. These changes can drive the need for change. The structure of your business has a direct impact on how money flows through it to the investors. For example, one of the benefits of a discretionary trust is that the income of the trust can be distributed to any of the beneficiaries of the trust in any proportion, and that proportion can change annually.

Impeding international expansion

If you are contemplating expanding overseas this can significantly increase the complexity of your operations. All of a sudden you will be exposed to a new set of Australian tax rules in addition to the legal and regulatory requirements that will need to be considered in the foreign jurisdiction. On top of the complexity, control may also become an issue. The right business structure can limit your exposure to risk.

Access to tax incentives and concessions

Research & Development (R&D) concessions are only available to companies. If you have a significant level of R&D activity that could potentially qualify for the tax incentives, it’s worth exploring your options if you are not already in a company structure.

Can you exit your business?

The business lifecycle has shortened considerably with less business owners seeking to create empires but more opportunistic business models. The wrong structure will limit your ability to sell your business interests and may have a dramatic and detrimental impact on the amount of tax you pay on the sale proceeds. It’s important that you explore this issue well before you actually plan to sell or reduce your stake in the business.

Is your business structure working for you? Contact MMT Accountants + Advisers to discuss whether your structure is right for long term goals.

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There will be much debate on the reasons in the weeks and months ahead but importantly we consider the economic and investment implications of the decision, and importantly how much of the policy rhetoric announced during the campaign as a sales pitch will be, compared with the pragmatic approach to governing. Donald Trump made much of the fact that he is not a politician but a businessman, in office a lot will be considered following the announcements of the politicians he will appoint to administer his term of office.

Generally speaking the Trump policies of fiscal stimulus with spending on defence and infrastructure and a reduction to non-defence discretionary spending; tax cuts in the top marginal tax rates from 39% to 33% and the company tax rate from as high as 39% to 15%; and reduced regulation, are beneficial in the short term but there is concern that they will lead to increased budget deficits, higher inflation, higher interest rates and a stronger $US in the long term. Foreign policy is the one area where the economic world will be watching to determine whether political pragmatism will out-weigh the rhetoric. What is obvious is that Donald trump wants to reposition alliances and review trade agreements to put America first, the degree to which this will be enacted and the resultant geopolitical and social tensions of his protectionist policies are yet to be determined.

From the markets perspective, much like Brexit, we saw an immediate and significant selloff on the first signs of a Trump victory however the markets recovered quickly finishing significantly positive during the following trading session. As with many significant geopolitical events we do expect continued short-term volatility. From an investment perspective we believe the first priority is to rationally evaluate your chosen investment strategy, consider it in light of the primary economic and market indicators, then stick to it and don’t get caught up with the crowd during the short term roller coaster of rising and falling markets; it is important to realise that in the short term markets are often moved by irrational and erratic investor behaviour.

As always clients are encouraged to call the office on 02 9930-6100 and speak to me if you have concerns or simply want to chat.

As with any investment decision one should seek advice from your professional adviser before investing!

Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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Most people are not surprised when a start up business fails. But it’s not just start ups that grow to death; it’s also a common cause of business failure for mature businesses.

Start-up businesses often fail because they are undercapitalised. They grow until the money runs out and then they can’t afford to fund further growth. The banks refuse to lend to them as they have no history and no assets to leverage, and then they die. It’s an easy trap to fall into. The entrepreneurial spirit that drives people to start up a business is often the same spirit that keeps them focussed on a growth path. The mentality is that the faster you drive sales and bring in the cash, the more successful the business (and the entrepreneur) will be. However, this cycle of sales and profit is missing two key components; financial, and cash flow management. A successful and sustaining business has all of these elements.

For the more mature business, growing to death is often the result of unplanned growth opportunities. It’s ironic that seizing a major sales contract or a big new client can be your business’s ruin but it’s more common than you think. More often than not it’s an issue that business operators don’t identify until it is too late.

Many business operators are very good at what they do. Most have an excellent knowledge of the business they conduct and understand their products and services. Most also have an in-depth knowledge of sales performance and revenue. Few however have a high level of financial management expertise, so when a big new opportunity presents, critical financial questions are not asked. As a result, there can be a sudden and unintended impact on their financial position. A rush of sales might be a great thing but it is not always counterbalanced by a rush of income and profit. Free cash and liquidity are the victims.

Big one-off opportunities can also be dangerous because they are rare. For businesses without strong financial management and control, there is simply no way of understanding what impact the opportunity will have until they have experienced it. With no background history to rely on, the warning signs of impending financial crisis don’t appear.

Sudden growth comes at a cost. That cost can be at a profit or at a cash flow level. Profit and cash flow are not the same and where operators don’t have a lot of financial expertise they generally rely on profit analysis without considering the cash flow implications. You need to understand the cash cycle and its timing within your business.

The first step is to understand that sudden change creates a different dynamic and brings cost and cash flow implications with it. It’s essential not to embark on sudden change without identifying what these implications are.

Let’s look at an example: Jonathon runs a typical small business. Since taking over the established business a year ago growth has accelerated. The primary product of the business is brought in from overseas. The business is predicated on a budgeted turnover of $70,000 – $100,000 per month. The working capital in place accommodates the business operating at this level which is already a step up from where it was when he bought it.

Jonathon knows the business has a lot of potential and he’s been working hard to fulfil its promise. He’s ecstatic because he’s brought in five major sales all within the $50,000 – $200,000 range and all expect delivery within the coming 3 months. While the big sales required a dip in the gross profit margin, it’s still doable.

If all of the orders come through, the impact of the new sales will take his turnover from its current level of $100,000 per month to an average of $250,000 per month for the next 3 or 4 months. If you imagine yourself in Jonathon’s place, it would be hard not to be impressed with your efforts wouldn’t it? What a boost to the company.

Now add in another factor. The primary product is purchased from the supplier without trading terms so the outlay for any major sale is in advance. As a result, the cash flow implications of the time between each sale, the purchase of the product from the supplier, fulfilment and payment by the customer is critical to understand. For Jonathon, the highest risk is the major outlay of cash required to fulfil the sale. He cannot buy time.

When Jonathon had a cash flow analysis put in place to determine the impact of the new sales it revealed that he needed $200,000 to $300,000 more cash than he had. He knew it might be tight but didn’t realise the situation was that stark. As a result of the analysis, Jonathon was able to work with the customers to stage the orders and manage the cash flow requirements.

Had he fulfilled the sales without the analysis, he would have had a funding gap of approximately 60 days where he was exposed by $250,000 without the capital base to support him.

While the details might be different, situations like Jonathon’s are not uncommon. The problem is that unless you have strong security, the chance of any bank giving you an increase in funding is unlikely. Banks want to lend to businesses that have good financial management. If you approach them once a problem such as Jonathon’s has occurred, you have already proven the case in the negative and set yourself up for rejection.

In the example above, cash flow was the major issue. In others it is profit. Large customers with large orders may expect you to cut your margin. Or, they might ask you to discount if they ‘up the order’. The danger is that you, or your sales people, get carried away with the headline number and don’t look at the profit contribution. Some sales, even big sales are simply not worth it as you can’t trade below a certain profit level. For businesses with higher fixed costs your ability to negotiate your margin is less flexible than those with higher variable costs. The key is to know your break-even point before entering into any deals.

And, discounting can be its own trap. For example, if your margin is 40 per cent and you reduce your price by 10 per cent, you need a 33 per cent increase in sales volume to maintain your profit level!

The good news is we’re here to help and taking steps before these problems arise can help your business proposer.

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Historically investors who deem themselves as conservative or those wishing to shield themselves from market volatility sort the ‘safe haven’ of bank deposits or treasury bonds, and prior to the GFC anyone could access a virtually risk free yield of 5% plus. In the wake of the GFC, in an effort to stimulate economic growth, central banks around the world have adopted a Zero or in some cases Negative Interest Rate Policy. How has this impacted investors…………………

If you were a retiree in the 90’s requiring $50,000 per annum, and you had accumulated retirement funds of a million dollars, bank or treasury deposits plus a small exposure to growth investments could achieve your income with a little growth to combat inflation, virtually risk free. If you were approaching retirement and Capital Preservation was a high priority you could wind back exposure to ‘riskier’ growth assets i.e. shares and property in favour of the safe haven of banks, and still grow your wealth even allowing for inflation. If you were concerned about the volatility in shares or property you could shift all or part of your portfolio to bank deposits to ride out the perceived storm.

What has changed? Central banks around the world have adopted a Zero or in some cases Negative Interest Rate Policy in order to stimulate economic growth, this on the surface has worked to halt economic decline and instigate economic growth. It has also allowed consumers and business’ to repair their balance sheets by paying down debt, and facilitated increased stock prices; the conundrum for the conservative investor is that it has set the foundation for persistently low and potentially below inflation, investment interest rates for the foreseeable future.

Traditionally a conservative portfolio consisted of 60% growth assets (shares & property) and 40% defensive assets (term deposits & bonds), this 60/40 portfolio was forecast to provide an overall return of 8% net of fees and charges with growth assets contributing 10% and defensive 5%; given our scenario above this return is capable of providing a retiree income to live and sufficient growth to combat inflation and maintain capital. If we now assume that the traditional portfolio returns will not be achieved in today’s environment and that returns might be closer to growth assets contributing 5% and defensive 2%; it is obvious for a retiree that the portfolio will not provide the required income and it will have to be supported with a drawdown of capital, which can have negative or disastrous consequences over the long term particularly as people are retiring earlier and living longer. For potential retirees it is important to review the level of income required, the estimated time in retirement, and a realistic portfolio return to determine the amount of capital which will be needed to retire.

For those who consider themselves as conservative investors it might be prudent to reflect on the components of your portfolio, for traditionally ‘safe haven’ investments may not be so safe if the returns struggle to beat inflation. A considered approach to portfolio construction taking into account your financial needs and objectives, available capital, surplus cash flow, and investment time frame is most likely to meet both your investment and risk-tolerance objectives.

As with any investment decision one should seek advice from your professional adviser before investing!

Important note: While every care has been taken in the preparation of this article, MMT Financial Solutions (ABN 40 147 903 526, AFSL 458115) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

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