Financial Security Practitioners

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We aim to keep our clients up-to-date with news and relevant opinions which concern your finances. Our regular email bulletin is designed to inform and share views with our members.

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By Jack Wellings

After 22 years in our Lindfield office, we have relocated to Hornsby on Sydney's upper north shore.

You will now find us at:

Suite 604, Avanti Building
90 George Street
Hornsby 2077

Our new land-line is (02) 9476 2200

We look forward to welcoming you at your earliest opportunity.

From the Paris Desk

By Jack Wellings

I happen to be on holiday in Paris at this moment. Zero degrees, but nothing can detract from the wonder of this beautiful city.

And, of course, the financial news here is the same here as everywhere else in the developed World;  "Markets spooked as oil leads commodity crash". Always 'the markets'. Oh dear!

In other words, the price of oil on World markets has fallen. Of course, for oil-producing countries, including the US, but particularly Nigeria, Saudi Arabia, Norway, Canada, Indonesia and Russia, this is not welcome news.

But cheaper oil means good economic news for the rest of the World, and will be a spur to economic growth. And, of course, you will be paying less for your petrol.

So, yes, there's a very positive spin on this.  But, then, share prices are down, and - as an investor - and as always - you're supposed to panic.

And if you're 'in the market'; that is, as a trader (ie, a gambler), maybe you would panic.

But as a serious, security-minded investor, who holds shares (particularly Australian 'blue chip' shares) in your SuperFund, and does so because they produce a consistent, reliable (and increasing) income-stream from company dividends, which continue unabated, why should you care about lower share-prices? Certainly, your fund value may be lower, but your Income is safe. And, in any case, prices can't stay down forever - not in a growing economy, now benefiting from lower oil prices!

So, in summary, what should we think about what is happening?

Here Are The Facts

  • There is no sign of a recession on the horizon for the US, Australia or China and there are no signs of negative global growth
  • Growth in Europe isn’t shooting the lights out but it is accelerating
  • Japan is doing what Japan does with growth trending at about 0.5% per annum thanks to population issues.
  • There is no collapse in the banking/payment system or credit squeeze like there was in 2008.

Holding (not trading) shares, as a conservative, security-conscious investor, doesn't mean you are 'in the market'. You bought your shares (at least your SuperFund did), and - unless you're selling them, prices simply don't matter.

It's an excellent time to be buying though!

Three Lessons on Investing

By Jack Wellings

Lesson One

Your investment is only as good as the economic environment

In a sound and healthy economy, conditions are conducive to economic enterprise operating profitably. By definition, inflation will be well under control; that is, money will hold its purchasing power and investment returns will not be eroded by rising prices.

Also in a low-inflationary environment, increasing productivity can take place, leading to increasing profitability and capital values. Companies have more funds to invest in increased productivity; they make even more profit and pay bigger and bigger dividends. And so the cycle of wealth creation continues.

Lesson Two

It’s not about the All Ords

It’s not about share prices, nor about buying and selling (ie trading). It’s about creating a secure, continuing income stream.

For example, let’s say you owned 2,000 Woolworths shares, purchased in 1997. What if the selling price of your shares had increased over the past year by (say) 10%? What would you do? Cash in and go on a spending spree? No, of course not. 

But if your shares had returned you a dividend – an actual payout (‘hot cash’ so to speak) - of say $1500, would you feel free to spend it? Of course you would. Because this is the real return on your investment. And you wouldn’t be jeopardising the security of your investment; you’d be conserving it for next year’s bounty!

(By the way, your 2,000 Woollies shares would actually have paid you a dividend of $2,780 over the past year (2015). In your PensionFund this would actually be $3,971 due to tax credits. Not a bad year’s Income return on a $10,000 investment wouldn’t you say?)

(And, incidentally, your $10,000 investment – essentially because of current dividend earnings - would today to be worth $48,980!)

Lesson Three

Don’t bother trying to do it yourself

Our position at Wellings & Associates is not to recommend direct share ownership, but to use managed funds.

Why? Well, why bother, when you can have a well-diversified portfolio (even if you invest in only one fund), well-diversified investment management, all the book-keeping looked after, plus regular uptodate reports and tax statements.

And the cost? A mere 1 or 2 percent of your portfolio, per year.

And with the ongoing guidance of qualified, experienced financial advice, what more could you ask?

So please don’t go it alone.

What makes an investment safe?

By Jack Wellings

This includes your Super account, Pension account, or any investment account you may have. 

The normal answer to this question is ‘I can’t lose my money’; that is, safety of capital. But is it only safety of capital? And what makes an investment safe?

It really depends on what the purpose of the investment is. For example, is it capital held in reserve for a ‘rainy day,’ or to meet some future capital payment (a future debt, or tax liability for example)? Or is it to cover present or future regular expenditure, such as retirement living expenses? ie: Is it for a Capital purpose, or an Income purpose?  

Capital or Income? 

Clearly, if you need to meet a future Capital obligation, the capital has to be there. And if you need a regular Income- stream, you need to know the Income will be there.

In regard to the latter, clearly Capital is of less importance than if you had to meet a capital liability. In other words, the safety you need for your Income-stream is the assurance that your Income-stream will be there come what may. 

Of course, you need the capital to fund the income stream, but that’s a relatively simple matter of knowing how much Income you require, and how much capital you initially need to fund that Income. 

Sounds obvious? Yes, it is. But it also depends on how the investment generates the Income-stream. Is the income Interest-income (earned on money ‘lent’ to a financial institution), or is it Investment-income (ie profit) earned on some asset you own, such as company shares, or a rental property? (We call this equity investment.) 

There is a big, big difference! The difference is that the capital value in the Interest-income investment remains constant (excluding re-invested interest), whereas the capital value of the Investment-income asset will tend to change, even day by day, despite the constancy of the income-stream. 

But in a normal, healthy economic environment, the Investment income- stream will tend to increase year-by-year. And as the Investment income increases, so too will the capital value of the investment asset. It must. 

What deceives many investors, however, is that the Income-stream and the asset value don’t automatically increase at the same time. The asset value may increase ahead of, or lag behind, the increase in the Income- stream. Sometimes, in fact, the Capital value will decrease, although the Income-stream is increasing. 

But if the Income–stream is increasing, and expected to continue increasing, then clearly, falling asset values don’t matter. The assurance of the Income-stream is what matters! And if the Income-stream does increase, and capital values ultimately follow, then we can regard the investment as safe. 

 This simple concept is the ‘trick’ to understanding share investment (or, as we at Wellinvest prefer to call it – ‘Investment in economic enterprise’). 

It is also the secret to having Peace of Mind in regard to your investment capital, and thereby in regard to your whole financial security. 

Share prices around the World have declined over the past twelve months (though have recovered somewhat over the past few weeks). However, here in Australia particularly, our economy continues to prosper and grow. Income from most of Australia’s major companies in 2008 is expected to exceed its 2007 levels. Does this suggest that shareholders in these companies have a safe investment? Even though their share prices are currently lower than they were a year ago? 

 Let us, however, recognise that this is not the lesson taught by much of the media, nor even by the investment industry itself. As we have said many times previously “It’s not about the All Ords.” 

Footnote: Many investors do invest essentially for Capital Profits, and pay scant attention to Income generation. This however is gambling – it’s speculation – no matter how calculated, or how ‘systematic’. And gamblers don’t usually win. There is no need to gamble with your Capital; it can be safely (and very profitably) invested by understanding the above guidelines. 

What is being 'rich'?

By Jack Wellings

Everyone aspires to being rich. Of course we do. But what is being rich?  

What does it take to be rich? 

In response to these questions, answers include ‘Having a secure, well-paid job’; ‘Owning your own home’; ‘Having no debts’; and of course ‘Winning the Lottery.’ 

And whilst all of these answers contain a large degree of truth, they don’t really tell us why, or how, they would make us rich. 

So, what IS being rich? 

If you have a secure, well-paid job, are you rich? Well, not if you don’t own a home. Not if you owe an arm and a leg to a finance company. Lots of people have highly-paid jobs, but with mortgages, credit-cards and car loans, are they rich? 

If you own you own home – with no mortgage, and no debts – are you rich? Not if you can’t afford to buy decent food, pay your electricity bill, or run your car! Australia has a vast number of retired people who live in high-value, un-mortgaged homes, but who are trying to eke out a living on the Age Pension. Are they rich? 

And if you’ve just won the Lottery? Well you’ve certainly got the money. But what will you need to do with it to live a great life-style, to enjoy absolute financial security? 

Of course, you’ll spend some of it; maybe have a spending spree; cars, clothes, holidays. And you’ll buy a house (or pay off your mortgage), and get rid of all your debts. Fantastic! Then what will you do? 

Yes, you’ll invest it – never mind how at this stage – even just to keep it ready for the next spending spree. But why else? Well, you wouldn’t want to lose it would you, or even find you’ve spent it all. Perish the thought! 

Assume you were sensible. You would want your investment to earn income. To earn enough income to maintain your standard of living and life-style, and to continue doing so for the rest of your life, and without having to ask for your job back! 

So. In a nutshell, you would be rich, because you own all your assets. And, more importantly, you have a secure, lifetime income-stream. 


Assets alone are not the key to being rich. Having an adequate and assured investment income is the key to having a lifetime of comfort, financial security and Peace of Mind. 

And Financial planning is about attaining this goal. 


Do You Have A Term Deposit?

By Jack Wellings

Are You Looking For A More Meaningful Return?

If today you hold any funds in a Term Deposit – in your Superfund, Pensionfund, or in your own name – you would be aware of the continuing downward pressure on interest rates, and your attendant lower income.

An Attractive Alternative

Given that one of the major attractions of a Term Deposit is the certainty and continuity of interest earnings, is there a more competitive alternative?

Yes, there is.

Really, the key consideration is CERTAINTY AND RELIABILITY OF INCOME.

And equally importantly, the LEVEL OF INCOME.

A product that certainly satisfies both of these requirements is MLC’s Income Builder Fund.

This fund generated a handsome SEVEN PERCENT return to investors over the past 12 months. (In fact, even higher in a superfund or pensionfund, due to tax concessions.)

Income Builder is an exclusively Australian Industrial share-fund. Its investments are selected for their long-established track-record of high and consistent dividend payments. Such investments may typically include ANZ, CBA, NAB, Westpac, Woolworths, Telstra, etc.

How Reliable Is This Income?

For example, had you invested $100,000 across these six companies in January 2001, you would have received $5,570 (5.57%) over the year.

Over the 2012 year, you would have received $11,281 (11.28%) income.

Today, a typical* Term Deposit would pay you $3,550.

If you are seeking solid, consistent and rising income,
Income Builder may be your answer.

*NAB 12 Month rate as at 28/5/2014

More information?

Call us on (02) 9416 7544, or contact us here.

See the latest Income Builder Report (31/3/2014).

Asset Allocation - the Golden Key to Financial Security

By Jack Wellings

Asset Allocation is the key to securing your future retirement income.

What is Asset Allocation?

We use this term to describe the amounts of money allocated to the different types of investment available in an investment portfolio. Broadly, these fall into three categories; these being company shares, real-estate, and interest-bearing deposits.

As you would expect, returns on these different investments vary over time. For example, over the past few years, Australian industrial shares have paid higher investment income than bank deposits and property rental income.

Many economic factors determine which investments perform better over different time periods. It is vital hold your funds in the right assets at the right time; that is, to have the right Asset Allocation.

The vast majority of SuperFunds have a 'default' asset allocation; this being how your fund is  invested unless you give your fund manager explicit instructions to the contrary. (This default allocation is now known as the 'MySuper' option.)

Generally, the asset allocation of a default/MySuper option does not vary over time. Clearly, therefore, it stands to reason that there will always be some proportion of such a fund which is performing less than optimally. This weakness will ultimately be reflected in a less-than-satisfactory pension-income when you retire.

The Solution?

A competent Financial Adviser will inform and guide you as to how your funds should be allocated, and periodically adjusted, according to economic conditions, as they change over time.

Appropriate Asset Allocation - and its ongoing management - is the key to ensuring you get the very best performance out of your SuperFunds.

And that means securing the best pension-income by the time you retire. 

Far better than leaving it to MySuper - and chance.

Thank God for the GFC

By Jack Wellings

Five years down the track after the greatest credit crisis in living memory, and from which the world has yet to fully recover, thank God for the fabulously valuable lessons we've learned - or yet to realise they are fabulously great.

(I'm addressing investors here. That includes (emphatically) every person, working or retired, with money in their super or pension account.)

What's the biggest, most relevant lesson?


Yes, it's quite true that most people - including superfund managers - regard changes in share price as investment return, but in our view this is both a cop out, and a deception.

The only true investment return is the INCOME generated by that investment. Income is real money (ie, not 'on paper') . Share-price changes are purely 'on paper'. Unless, that is, you sell your shares. But why would you sell your source of investment income?

When you hear (or read on a report) that 'your investment has increased in value', it may look good, and it may feel good, but it really is only 'on paper'. It is valueless unless you cash it in. And unless you cash it in, it is there to earn income.

Do not make the fundamental error of thinking that increased share-prices means increased income. (Or decreased share prices means reduced income, for that matter). No, no, no!

Share-income (dividends) are paid 'per share', not per dollar value. So increases or decreases in share-prices do not affect the amount of your dividend income. That's the great beauty of holding shares for investment income.

Unless you are a gambler (what? - with your life savings??), that is.

The ONLY, REAL, investment return - in ANY investment (unless you're a gambler) is the INCOME earned by your investment.

To be continued...

The DIY Syndrome

By Jack Wellings

I never cease to be amazed by how the whole financial services industry manages to generate an aura of mystery and complexity for itself.

Maybe it's a built-in self-preservation mechanism.

This applies to stock brokers, the Stock Exchange, superfund managers, real estate sellers, accountants and many (if not most) financial advisers. And of course the media.

I recently attended a seminar at the ASX on Tax effective Income Investing. (This was about investing for income, not about investing income; again ambiguous terminology - and this is the ASX!!)

This was a lunch-time presentation (free to the public). Commendable. There was a good attendance - close to 300.

At the conclusion, I couldn't escape the impression that most attendees were in 'information overload', and would have left with no appreciable benefit.

But they would have gone back to running their own portfolios and self-managed super funds. And - with few exceptions - continued to experience the same mediocre investment returns. And still under the delusion that they could 'beat the experts'. And at minimal cost.

Then again, they may have held a few company shares, and which - through no expertise or good management on their part, may have experienced price-increases, due - as always, and only due - to increased buying demand. And yet, unless they are thinking of selling, produces no real benefit, other than 'warm fuzzy' feelings.

The point is, that if the dividend earnings hadn't improved, then the only benefit would be if they sold out at a profit. But if they are good, dividend-producing shares, why would anyone want to sell them? And unless they did have good dividend earnings (or expected future good dividends), why else would the shares have been in demand and risen in price?

To summarise, unless you're a speculator and aim to make a capital profit, you hold an investment for its income-earning potential. You can assess an investment on its income earning potential. If you can trust the income, you can trust the investment.

This is not rocket science. You don't need a degree in economics. You don't need to do courses at the ASX.

The simple facts are

  • You can't go past Australian 'blue chip' industrial shares for a consistent, reliable, growing income-stream.
  • Dividends are paid 'per share'. They are not determined by whatever the share price happens to be. If you are investing for income, share prices don't matter; its dividends that count.
  • It isn't worth 'doing it yourself'; It's too much bother. It can become a book-keeping nightmare. And need costly tax returns. And complicate your estate in the bargain.
  • A managed fund shouldn't cost you more than 1% of your funds, per year.
  • Managed funds come 'packaged'; that is, they do all the record-keeping, book-keeping and tax-accounting for you. They also have constantly available, up to the minute reporting. And liquidity is never a problem.

An adviser comes at another 1%. And assists you with everything from selecting funds, monitoring, conferring, explaining, reporting and keeping you on track. And more than covers the cost of his/ her services in economies and better investment results.

Why DIY?

Investment Income

By Jack Wellings

Whether you’re retired, and living on your savings, or still working and saving for retirement, read on.

The key to your financial security and well-being is investment INCOME. Investment INCOME, not capital gains.

So, it follows that you need to ensure your funds are invested to generate the optimal level of reliable, continuing investment INCOME.

In regard to capital gains, unless these are MASSIVE - say 10 to 15% per year, and can be relied upon to remain so,  year in year out - you can’t realise on them without jeopardising (selling off) the very source of your income.

In other words, to benefit from capital gains, you have to part with your capital!

Superannuation funds report their investment returns in terms of ‘growth’; that is, how much the amount of your funds has increased (or decreased) over the reporting period - normally the financial year, July to June.

This means the “returns” may include capital growth (or contraction) and investment Income.

Bear in mind they don’t tell you how much capital growth, nor how much investment income, but give you a consolidated figure.

This used to seem OK - even irrelevant - when we had high inflation, and share-prices and property were rising in value year after year. But today inflation is only 2%pa, share-prices are still 35% below their 2007 levels, and property prices remain equally subdued.

Also, lets bear in mind that even the ‘massive’ gains were illusory - they were eroded by inflation! What mattered then (though we didn’t appreciate it), and what matters now, is Investment Income! Not capital gains. Investment Income.

So, if we are to rely on investment Income for our present and future security, where do we find the highest levels, the most consistent source, the greatest likelihood of increasing income?

Here’s what the banks are paying – December 2012

Bank Savings account0.5 - 3% pa (variable)
Term Deposits (eg. NAB, 12 months)4.45% pa
ING Direct3.5% pa (variable)
Ubank4.21% pa (variable)
BankWest CMT3.25% pa (variable)

Residential rental property is yielding between 3 and 5%pa (gross)

Australian Industrial shares (previous 12 months’ gross dividend –: 26/11/12 prices), typically present in Superannuation share-funds

NAB ($2.57/$23.70)10.84%
Telstra ($0.40/$4.22)9.47%
Wesfarmers ($2.35/$35.02)6.71%
Woollies ($1.80/$28.55)6.3%

So choose wisely; the consequences of an unwise choice can be disastrous. To illustrate:

  • $300,000 in a 4.45%pa term deposit will give you $256.73 per week pension (but never increasing, unless interest rates change).
  • $300,000 earning 6% dividend income will give you $346 per week (with every prospect of increasing year by year).
  • $100 per week, invested at 3.5%per year for 40 years will give $507 per week pension.
  • $100 per week invested at 6% per year for 40 years will give $928 per week pension.

The Reality  Dividends of typical Australian ‘blue chip’ companies have increased 2.8 fold over the past 15 years.

Has your income?


­Strategies and Advice? We’re here to help. Call our office on 02 9476 2200