Question: Given the recent market correction, could I please have your opinion on the likely Australian share market index level at the 1 year, 2 year and 5 year intervals?
Could you also please offer an opinion on other relatively secure investments other than cash and term deposits?
Answer (By Peter Switzer): I am not in the habit of making predictions years’ out because there are too many exogenous factors. That said, my expectation is that in the absence of some external shock, the market will re-test its previous high of around 6,800. There is an argument that the high in 2007, adjusted for all the equity raisings in 2009, is more like 6,200 – even so, it is still more than 1,000 points from where we are today.
In relation to the question about relatively secure investments (other than cash and term deposits), you could also consider hybrid securities and some of the bond funds. With hybrid securities, you probably want to diversify across several of the issuers (to minimise that risk). There are a number of bond funds – unlisted funds from the major fund managers, and also fixed income ETFs. One fund that we reviewed at the Switzer Super Report and feel is pretty strong is AMP Capital’s Corporate Bond Fund. [1]
Question 2: Could you please advise on the tax treatment of dividends and capital gains if an SMSF (in pension phase) invests in either direct purchase of overseas shares or managed funds investing in overseas shares.
Answer 2 (By Paul Rickard): If the fund is in pension phase, them no tax is payable.
Accordingly, there is no Australian tax to pay on any income or capital gains on the offshore investments you have described.
One small caveat – if withholding tax is levied by a foreign government on the investment’s income (for example, by the US Department of Inland Revenue – typically at 15%), you won’t receive any refund/rebate back from the ATO as your fund won’t have paid any Australian tax.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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Also in the Switzer Super Report:
- Charlie Aitken: Volatility is the new normal [3]
- Tony Featherstone: Takeover Targets – Vision Eye Institute [4]
- Staff Reporter: Buy, Sell, Hold – what the brokers say [5]
- Penny Pryor: Short n’ sweet – cheaper fees and ”not ready” [6]
- Tony Negline: Timing is everything with contributions [7]