Question 1. I have an SMSF and with all the concerns and negativity with the share market, I’m thinking of buying some gold bullion. What do you think and is it worthwhile at this point in time? I would appreciate your thoughts. Many thanks.
Answer (by Paul Rickard) : I have never been a gold bull and don’t see any compelling need to own gold in my portfolio around these price levels. Critically, golf investments provide no income and apart from normal supply/demand factors, really only get a boost in a market calamity situation. I don’t see a market calamity.
That said, several institutional funds maintain precious metal holdings in the order of 5% to 10%. Perhaps an investment of that amount might be in order.
Question 2. I’m heavy into the big four banks. At this stage, I’m 100% up on my original buy. Is it time to sell out? We are in retirement mode.
Answer (by Paul Rickard): Thanks for the question. I don’t agree with this being the time to sell out. That said, I have to admit that I have been wrong so far. The positives for the banks are:
- Strong capital position;
- Interest margins are relatively stable;
- No sign of a pick-up in bad debts;
- Opportunity to cut costs; and
- Dividends, with the possible exception of the NAB, are secure.
Possible negatives are:
- A surprise from the Royal Commission, which results in more punitive redress costs or seriously impacts the opportunity for future earnings; or
- A material downturn in the housing market.
I don’t see a housing collapse, nor do I think that the Royal Commission will produce that “black swan” surprise. If anything, I think the latter will be more a case of “sell the rumour, buy the fact”.
Question 3: In relation to the current franking credit dilemma faced by many SMSF members in pension phase, I note that some financial commentators have suggested a possible advantage of investing in an industry super fund, if one’s SMSF is likely to lose significant franking credit refunds. I looked at the Balanced option for HOSTPLUS members on their website. For a $50,000 investment, the total fees are quoted as $608. As the fee is based on a percentage of the funds invested, for a $5 million investment, the fee would be $60,800. This seems quite excessive to me, and I wonder whether I am missing something? I definitely would not be closing my SMSF and investing in an industry fund at these fee levels. Do you have a view on the “advantages” of switching from an SMSF to an industry super fund as a response to the possible loss of franking credit refunds?
Answer (by Paul Rickard): I can’t quite see why some commentators would recommend this strategy. Industry super funds won’t be in a position to receive cash refunds – so I guess this is more about an option to consider if you don’t want to manage your own SMSF.
I am a bit surprised at the HostPlus fee. I understood that some Industry Funds charged pension members around 0.85%, plus an admin fee of $1.50 per week. Try Australian Super or REST, and also ask about any “scale discounts” for larger sums.