1. I have done my research and feel comfortable investing in bank hybrids through my SMSF. They are still paying a fully-franked dividend with varying terms and margins of up to 5.2 % paid every three months. A lot of commentators say they are only for sophisticated investors. What am I missing here?
If you have done your research and understand the risks, great…go for it. They are complex but that doesn’t mean that you need to be a ‘sophisticated investor’.
I note your comment about “up to 5.2% pa, fully franked”. Of course, you only get 70% of this amount in cash, and if you pay $103 for an asset that will be redeemed for only $100, the effective yield is considerably lower. The current trading margin is around 3.9% pa.
2. I am along-suffering Telstra (TLS) share holder. The shares crashed under the Labor government and the GFC, then they then climbed back into the $5.50 range and as the NBN has come online, the shares have sunk back to the $3 to $4 range with a corresponding drop in the dividend. Should I take my $15,000 loss and move on, or hang on?
I would probably hang on to Telstra. I think it is relatively defensive, and around $3, reasonable value. It is probably not going to be a performer, so if you need the money or are looking for outperformance, you may want to rethink.
In the short term, Telstra is wearing a little bit of pain as it provides rebates/fee relief to customers impacted by Covid-19. In the medium term, it has probably cemented its position as the leading Telco.
Overall, the brokers are positive, with a consensus target price of $3.81 (5 buys and 1 sell recommendation). Range is a low of $3.30 from Morgan Stanley to a high of $4.10 from Credit Suisse. The dividend of 16 cents per share is reasonably secure, although Macquarie forecasts a cut to 14 cents.
3. Is there a ‘rule of thumb’ as to how much (%) of your portfolio you should have in any one stock?
There is no hard and fast rule. Statistically, you start to get reasonable diversification benefits when you hold around 8 stocks, and after about 30 stocks, the benefit of adding an additional stock is extremely low. So, portfolios around 20 to 25 stocks are quite typical.
For a major “ASX top 10” company, I would say no more than 10% in the stock. For the next 90 companies, no more than 5%. Outside the top 100, no more than 3%.
4. For someone in a segregated SMSF with both a pension account and an accumulation account, is it better to do a pension re-set every 30 June (old pension ceased and new pension started) to transfer contributions into the new pension account, or to just pay a lump sum out of the accumulation account to clear the SGC contributions every 12 months?
Answer (by Graeme Colley, Executive Manager Technical & SMSF, Super Concepts): It depends on what you are trying to do. Assuming you have no limits on drawing amounts out of the fund as lump sums, here are some ideas:
- If you wish to withdraw the minimum account-based pension from the fund but need more to live on during the year, then you could draw the amount over the minimum pension from your accumulation account as a lump sum.
- If you wish to keep as much as possible in superannuation then you would ensure that all you draw from the fund is what you need to live on. This could be paid from the pension account and possibly the accumulation account as appropriate.
- If you wish to ensure the best tax position, you would maximise the amount in the pension, subject to your Transfer Balance Cap. At the end of each financial year you would commute the pension and add the contributions to commence a new pension. If there was a charge by the fund administrator to commute the pension and restart another, you would need to take into account the cost before adding amounts to commence the new pension.
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