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The 12 ways of Christmas for smart investors

The 12 ways of Christmas for smart investors

It’s time to take stock of how you invest and what you might do next.

It’s the end of one year and the beginning of ­another. And we are all a year older, in which might lie an opportunity.

Remember the traditional Christmas pudding? The person who was served the randomly placed sixpence in the pudding was believed to enjoy great wealth in the year to come.

My observations this year focus on 12 ways every investor can win the sixpence in relation to their investments. These are ways everyone can utilise what are often free gifts to increase their wealth, either little by little or in more significant ways. All too often investors don’t utilise these gifts and miss the opportunity to grow their wealth.

So what’s the nature of these opportunities?

The first group are the attractive opportunities in corporate capital raising that regularly arise and can include:

  • Participating in attractively priced share purchase plans and entitlement offers.
  • Subscribing in initial or subsequent public ­offers when securities are in high demand or where there are new investor benefits. Registering interest early in forthcoming ­offers can improve chances of allocation. And even if investors don’t wish to hold their allocations, they can be the source of quick and easy trading gains.

The second group are the opportunities that arise due to the inevitable moves in markets. Prices are volatile, influenced by macro and micro events, and value varies — reflecting the intrinsic future value of every investable asset.

So as price and value diverge, investors can build wealth by:

  • Trimming or topping up individual investments when prices vary materially from intrinsic value. Investment is not unlike gardening; both ­require regularly pruning and replanting.
  • Rebalancing the portfolio as a whole when it varies materially from the determined appropriate asset allocation. Selling high and buying low is a time-tested means of building wealth.

The third group of opportunities lies in being tax aware in investment actions taken, including:

  • Be tax aware in buying and selling decisions, particularly around timing which has major tax consequences.
  • Exit failed or delisted investments as soon as possible to accelerate realised losses.
  • Defer income as allowable in real estate and infrastructure investments.
  • Claim the early venture capital rebate where applicable for private equity investments.
  • Estimate the high level aggregate tax (income and capital gains) outcomes of your annual investment portfolio accounts so that you can query the outcomes if they are not as expected.

The fourth group of opportunities is unique to superannuation investors, including self-managed super fund investors and those in pooled funds. Some pooled funds are better than others in communicating with members and acting in their best interests and it really pays to understand member entitlements.

  • Defined benefit fund members can sometimes claim their lifetime pensions as early as 55 (even while still employed). If left unclaimed, there is no back payment and, ultimately if not claimed, the defined benefit can be lost completely and converted to an accumulation pension.
  • Accumulation members can improve the tax status of their retirement savings account at 60 if they end one of their employment arrangements — an opportunity often well worth pursuing.

The last opportunity is for active investors wishing to lessen their involvement in decision-making and make their portfolios easier to manage. Investors may be losing their passion for markets or they may even be losing some capacity. The end of year is a great time to take stock and consider what you wish for in the year ahead.

  • So many new products are emerging that ­enable investors to readily and affordably gain ­exposure to countries (eg, emerging markets), ­sectors (eg technology) and themes (eg, responsible investment).

Investors may wish to consider simplifying portfolio management by rationalising their ­investments, including taking advantage of the many new products on the market.

A 1960 Australian sixpence can trade today for over $45 — quite a fine multiple.

Post originally appeared in The Australian 12 December 2020.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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