RUSSELL DEW FINANCIAL SERVICES

LIVING IN RETIREMENT WITH LOW INVESTMENT RETURNS

Living in Retirement with Low Investment Returns Living in Retirement with Low Investment Returns The Impact of Low Inflation Inflation has a major impact on the actual returns you can expect across various investment sectors

The Impact of Low Inflation - Currently we are experiencing low and sometimes negative inflation across the Western World including in Australia

The Impact of Low Inflation WORLD OVERVIEW

The Impact of Low Inflation

The Impact of Low Inflation Normally over the medium to longer term the returns in each sector should have the following relationship to inflation

The Impact of Low Inflation Expected Future Returns: Term Deposits = Inflation plus 2-3% Property = Inflation plus 3-4% Shares = Inflation plus 4-5%

The Impact of Low Inflation Currently the Australian Inflation rates are around 1-2% which is below the Reserve Bank target range of 2-3%

The Impact of Low Inflation In the December 2015 quarter inflation recorded negative growth of 0.2%

The Impact of Low Inflation - That means on the average basket of consumer goods inflation actually fell by 0.2%

The Impact of Low Inflation

The Impact of Low Inflation

The Impact of Low Inflation

The Impact of Low Inflation

The Impact of Low Inflation

New Expected Investment Returns Term deposits in Australia are currently falling in the range of 2-3% per annum which reflects lower inflation expectations

New Expected Investment Returns Real world interest rates after inflation are about 0% which is close to no real return from bank deposits

New Expected Investment Returns - In Australia, the real return on term deposits is only around 1% and if you are taxed on this income then the real return could be less than zero

New Expected Investment Returns

New Expected Investment Returns

New Expected Investment Returns

New Expected Investment Returns

New Expected Investment Returns - Commercial property returns should also trend down to around 4-6% per annum

New Expected Investment Returns - Share investment returns could also decline to around 6-8% per annum

New Expected Investment Returns In the future many of these returns could come from the dividends Income payments from shares are currently around 4.6% in Australia

New Expected Investment Returns This means that even without any capital growth in share values we could double the income you receive from term deposits

New Expected Investment Returns Australian Dividends are the highest in the developed world and we are paying out 70% of all profits being generated per year to you, the shareholder

New Expected Investment Returns

New Expected Investment Returns

New Expected Investment Returns

New Expected Investment Returns The result of these lower return expectations is that a Balanced Fund could now only achieve a less than 7% return if low inflation persists

New Expected Investment Returns

New Expected Investment Returns Therefore these lower returns could start to negatively impact on your accumulation of earnings and your ability to build up assets for retirement

New Expected Investment Returns or on how much income a retirement portfolio could generate over the longer term

New Expected Investment Returns In retirement this could mean your funds could decline at a quicker rate if your income drawings rate exceeds earnings

New Expected Investment Returns - This lack of returns on your investments could completely expire before the end of your retirement

New Expected Investment Returns Rising Australian Life Expectancy

New Expected Investment Returns Male Life Expectancy and The Age Pension Eligibility

New Expected Investment Returns However, investors will benefit from a slower decline in the real value of their investments

New Expected Investment Returns Over ten years even with a 2-3% inflation rate, your investments will buy 20-30% less assets

New Expected Investment Returns The Westpac living standard survey for a single person in retirement states that $42,893pa is needed to live comfortably in retirement

New Expected Investment Returns - and a couple needs $58,922pa to live comfortably in retirement

The Issue of Long Life Expectancy An average person spends 20-25 years in retirement, therefore low inflation can help the real buying power of your investments

Rebalancing Your Portfolio of Investments to Improve Returns So, how can we enhance the returns for living in retirement from the available investments without taking on more risk?

Rebalancing Your Portfolio of Investments to Improve Returns One option is to make money by selling out of sectors that are going up in value and buying into sectors that are falling in value

Rebalancing Your Portfolio of Investments to Improve Returns - This is what your multisector funds are doing every year by rebalancing back to the benchmark weightings

Rebalancing Your Portfolio of Investments to Improve Returns This method can add up to 1.0% per year in additional returns by selling and realising a capital gain

Rebalancing Your Portfolio of Investments to Improve Returns which then could be paid out as an income in each half yearly distribution.

Income Generated from your Investments - The twelve months income on the following funds are: Balanced = 5.25% Growth = 5.75% High Growth = 6.25%

Income Generated from your Investments This extra income can then add to the total income received from the following:

Income Generated from your Investments Interest from Government bonds (Coupons) Rent from properties Dividends from shares

Average Income for Balanced and Growth Portfolios Over Ten Years RETURNS Per Annum Balanced Fund Income = 6.2% Growth Fund Income = 6.75%

Rebalancing Your Investment Portfolios This strategy of rebalancing to sector benchmark has been particularly effective in world share markets

Rebalancing Your Investment Portfolios because they have greater value movements to enhance the capital gains potential.

Rebalancing Your Investment Portfolios

Rebalancing Your Investment Portfolios This strategy has worked for many world share markets even when there have been long periods of no capital growth e.g.

Share Market Values Going Sideways When there have been times where share markets have not grown in value over long periods

Share Market Values Going Sideways Australia 2006-2016 USA 1997-2013 Britain 2000-2016 France 1999-2016 Germany 2000-2013 Japan 1991-2016 New Zealand 2007-2013 Hong Kong 2011-2016

The USA Share Market Values Since 1992 USA Standard & Poors Share Index

The USA Share Market from 1920

The Longer Term Value from Share Markets The other benefit of investing in the world share markets is that their profits and dividends rise over time at a greater rate than inflation

Generating a Rising Income Throughout Retirement This benefit is particularly important for retirees who need to generate a rising income over 20-25 years of retirement

Generating a Rising Income Throughout Retirement

Interest Rates in Australia Even though Australia has been seeing the lowest interest rates for 150 years

Interest Rates in Australia - We still have some of the highest interest rates in the Western World

Overseas Interest Rates Many countries have negative interest rates – for example Denmark, Switzerland, Germany and Japan

Graph Bonds go negative

Australian Inflation and Interest Rates Hopefully Australia will not see this happen even though we had a negative 0.2% inflation rate in the December 2015 quarter.

Australian Inflation and Interest Rates A continuing negative inflation rate means that you will get less capital back on maturity of your bonds.

Australian Inflation and Interest Rates - However, you will still get interest payments from the bonds through to the date of maturity

Australian Inflation and Interest Rates This occurs in situations where inflation is negative

Australian Inflation and Interest Rates So if inflation is -2% and your earnings rate is -1% then you are earning a real interest rate of 1%

Conclusion So the old rules of diversification to reduce risk are true Plus diversification adds a growing income over time

Conclusion - and in these times of low interest rates your diversified funds are producing around double the income of Term Deposits

Conclusion In addition you also receive some tax credits from Australian companies (franking credits)

Conclusion Low Inflation does not preclude a real return that covers the cost of living in retirement

Conclusion In the past, high inflation depreciated the real value of your investments

Conclusion Today we have to consider that even though the real returns are lower; your investments will last longer

Conclusion because their value to buy your living needs is not being depreciated as in the past

Specific Advice Warning The examples in this presentation are illustrative only and are not an estimate of the investment returns you will receive or fees and costs you will incur.

General Advice Warning This seminar contains information that is general in nature. It does not take into account the objectives, financial situation and needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Russell Dew ph. (02) 6332 4252 and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information

This seminar is presented by Russell Dew Director of Trading As The Dew Family Trust, which is a Corporate Authorised Representative and Credit Representative of Charter Financial Planning Limited, Australian Financial Services Licensee 428555