OUR TAKE ON RECENT MARKET VOLATILITY

October 2018 has seen the ASX 200 fall sharply declining by -5%, with over half of that fall occurring yesterday Thursday 11th October.  The biggest factor causing this fall has been a major sell off in US stocks overnight particularly in the US tech companies such as Facebook, driven by the prospects of US interest rate rises and fears over a trade war with China.

Globally Australia and by extension the ASX is seen as a riskier economy, so when investors in New York, Tokyo and London are feeling scared they will sell or short-sell Australian assets due to the perception that they will fall further than their home markets.  In light of these declines and hysterical headlines, we thought that it might be useful to see how we approach market falls such, as the one that we have seen so far in October.

 

CALMLY LOOK AT WHAT YOU HAVE IN YOUR PORTFOLIO


The worst thing that investors can do is listen to the breathless market commentary in the financial press which is designed to sell newspapers.

When a major market correction occurs, what we do is step back and think what this particular change will do to the earnings and dividends from the companies held in our portfolio.  If the answer is not much and the dividend stream will be largely unaffected, then the falling market has given you the opportunity to add to positions at a discounted price. Conversely companies that we don’t own such as Afterpay Touch (down -23% in October) and WiseTech (down -26% in October) may see their earnings impacted by the October market correction.

 

FOLLOW THE DIVIDENDS


When thinking about the noise and price movements that we face as investors, a great quote from Ben Graham one of the titans of investing comes to mind “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Short-term prices are dominated by human emotion and short-term holders, but in the long-term, share price growth is delivered by those companies that can constantly grow dividends flowing into their shareholders bank accounts.

As the Maxim Atlas Portfolio is one constructed for long-term investors interested in consistent and high income, after the recent half year reporting season we “weighed” the dividends that our investors received in September and October. On average, the dividends that our investors received were +11% greater than for the previous period in 2017 and every stock paid a dividend. Furthermore, the outlook for 2019 is a further increase, due to both higher earnings and a falling Australian dollar (which raises the AUD value of the profits that our companies make outside Australia). Whilst October’s fall has generated some headlines in the press, looking through the Maxim Atlas Portfolio we have few concerns about the moves in the US impacting our ability to deliver growing dividends.

 

HOW WE ARE POSITIONED


The Maxim Atlas portfolio is currently yielding a grossed-up dividend of 5.9% (or 7.4% including franking credits). During times of market volatility, we prefer to own companies with solid dividends and proven business models, as dividends provide a backstop and give investors a stream of income even whilst the market may be marking down a company’s share price. In the medium term, if a company is growing its dividends, its share price will naturally recover. 

 

Looking through the Maxim Atlas portfolio today, it was hard to see how the falls in the US market this week was going to impact trips on Transurban and Atlas Arteria’s toll roads, patients buying CSL’s immune therapy drugs, homeowners paying their monthly mortgage payment to Westpac, doctors requesting Sonic Healthcare to conduct pathology tests for their patients or Amcor’s sales of soft drink bottles and food packaging.  Indeed, in this day of gloom which saw every company on the ASX falling, one of the companies we own Amcor was up 2% after they upgraded their earnings at their AGM!

 

Written by Matt Haggarty of Maxim Private Clients

 

Disclaimer: This material has been prepared without considering any potential investor or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns

 

Maxim Private Clients is a Corporate Authorised Representative No 1241929 of Futuro Financial Services Pty Ltd ABN 30 065 870 015 ASFL No 238478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL & PERMANENT DISABILITY INSURANCE

 

 

WHAT IS TPD INSURANCE?
Total & permanent disability insurance provides cover if you (as the name suggests) become permanently disabled from a serious accident or illness. Like life insurance, TPD cover pays out as a lump sum & can be held either personally or through your superannuation. Life & TPD insurance are generally provided together within superannuation funds by default, however like these covers may be smaller than required amounts that decrease with age.

 

HOW MUCH COVER IS NEEDED?
TPD generally should be enough to payout large debts (like a mortgage) & also cover disability related expenses such as rehabilitation, medication & house fit out changes. It is especially important not to be under-covered for TPD if you don't have income protection as you will be reliant on a partners income or a disability pension.

 

HOW IS PERMANENT DISABLEMENT DETERMINED?
Each insurer has different requirements that need to be met to be considered permanently disabled. When purchasing TPD insurance you have two core options for which disablement is assessed:

• "Any" occupation TPD policies are cheaper & paid via superannuation funds. They assess disability on the basis of being able to return to ANY occupation you are suited to by education, training or experience. This definition is more difficult to meet as a wider array of potential occupational areas are assessed. For example, a surgeon may lose an arm, but still be able to perform duties of a general practitioner, thus not meeting the permanent disability requirement.

• "Own" occupation polices provide claimers with the highest probability of making a successful claim. This is due to permanence of disablement being assessed in the context of the persons specific OWN role. Individual duties are taken into consideration, which means our surgeon who lost their arm could make a successful claim (unless he is very skilled with his feet). While own occupation TPD's additional expense may be a deterrent for some, it can be argued the inability to claim despite debilitating injuries is a much more costly situation.

 

NOT ALL POLICIES ARE CREATED EQUAL
In recent years more information has come to light about many default superannuation based TPD policies being purposely designed or changed to be especially difficult to claim upon. Some providers have changed wording around the assessment of ability to return to work from "unlikely" to "unable ever". While this might not seem like much, the degree of certainty surrounding the newer definitions means many Australian's are paying for cover that would be difficult to claim.

Furthermore, some providers within Australia's biggest superannuation funds will not payout if they believe the person claiming may be able to retrain for a new occupation, despite the disability. Other providers no longer provide lump sums, and instead require yearly re-assessments in order to keep paying out.

 

 

Written by Matt Haggarty of Maxim Private Clients

 

Disclaimer: This material has been prepared without considering any potential investor or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns

 

Maxim Private Clients is a Corporate Authorised Representative No 1241929 of Futuro Financial Services Pty Ltd ABN 30 065 870 015 ASFL No 238478

 

 

 

LIFE INSURANCE

 

As the old saying goes, there are two certainties in life: death & taxes. If these things are certainties of life it makes sense that every person should have two things: a good accountant & life insurance. If you are reading this currently, odds are you already have a great accountant but what is less certain is you having the correct amount of life insurance.

 

WHAT IS LIFE INSURANCE?
Life insurance is relatively self-explanatory. Your designated beneficiary receives a lump sum payout if you pass away. Majority of policies also offer a terminal illness payout, where if you are diagnosed with 12 or 24 months to live, your policy is paid out early.

 

INSURANCE IN SUPER
Many Australian’s already have some life insurance through their superannuation funds. While this “default” insurance provides some cover, the amount is typically not enough for the average person with a mortgage. You also must be aware that this standard cover reduces overtime whilst increasing in cost. Holding insurance through super is a great way to ensure your family is covered while not impacting your day-to-day cashflow.

 

HOW MUCH COVER DO I NEED?
Insurance should be tailored to your specific situation, which is why standard cover often falls short for many Australians. Generally, you want your life insurance to payout major debts (such as a mortgage). This helps reduce financial stress on the family after losing one of (or potentially the only) source of household income.  Some other areas to cover may include:
• Payout of additional debts
• Cover funeral expenses
• Provide a nest egg for the kids
• Establish a lump sum that can create an income for a non-working spouse or child

 

Written by Matt Haggarty of Maxim Private Clients

 

Disclaimer: This material has been prepared without considering any potential investor or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns

 

Maxim Private Clients is a Corporate Authorised Representative No 1241929 of Futuro Financial Services Pty Ltd ABN 30 065 870 015 ASFL No 238478

 

 

 

 

 

LIFE INSURANCE
DON'T RISK LOSING YOUR MONEY MACHINE


Imagine a scenario where you went to the store and came across a machine that was able to produce income worth tens of thousands of dollars for 50+ years, how much do you think something like that would cost? Well in this hypothetical scenario you get one for free! However, the salesman warns that this product is quite fragile and prone to a variety of issues that without warning, could limit its ability to generate money, either temporarily or forever. As you are only allowed one money-printing machine don’t you think it would be smart to have insurance for something so valuable?

 

Insurance is boring. No normal person gets excited when their car insurance policy comes due & they must fork over another 12 months’ worth of payments. We all go through the same thought process: “this seems expensive”, “I could use this money for bills/holidays/fun” & of course “I’m a safe driver and won’t have an accident”.

 

Despite the apprehension to paying for something we may never need, the majority of us do have car insurance. We have it because we recognise the risk & cost of losing our car. There is an easily visible direct link from our wallets to our vehicle that triggers a warning in our brain: “I don’t want to pay for that again!”. So, despite our assured (over)confidence in driving ability, we opt not to gamble thousands of dollars on the likelihood of having no accidents ever. This feeling of concern or unease about replacing our car would certainly extend to something as valuable as a money-making machine.

 

The spoiler for the tale of the money printing machine is that you are this machine (not exactly a twist on-par with The Sixth Sense). We take for granted our ability to generate income & provide for our families because our own intrinsic dollar value is not overtly floating above our heads like a human price tag. If your family is dependent on income you create, you are an asset that needs covering. It’s not fun or sexy but personal insurance may be the difference for your family between scraping by & living the life you always planned on. Over the next few weeks I will delve into the details of 4 crucial personal insurances you should have & why:

 

• Life Insurance
• Total & Permanent Disability Insurance
• Income Protection Insurance
• Trauma Insurance.

 

If these don’t sound familiar you should talk to your financial advisor immediately to ensure you & your family are not at risk. 

 

 

Written by Matt Haggarty of Maxim Private Clients

 

 

Disclaimer: This material has been prepared without considering any potential investor's or clients objectives, financial situation or needs. This article is of a general nature and does not consider the individual circumstances of its recipients. Any information contained within this publication should not be misinterpreted as advice in any way. Please consult your financial advisor should you have any questions or concerns

 

 

Maxim Private Clients is a Corporate Authorised Representative No 1241929 of Futuro Financial Services Pty Ltd ABN 30 065 870 015 ASFL No 238478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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