Hot stock: Rio Tinto

What’s new Rio Tinto recently unveiled another solid quarterly production update, with its flagship iron ore business producing a record 199 million tonnes in 2012. Production records were also set in bauxite and alumina. Thermal coal production was up 5 per cent (albeit off a low base), while the copper division was disappointing, recording its third straight year of production decline.
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But Rio Tinto’s strong production numbers were overshadowed by the abrupt departure of it chief executive, Tom Albanese, and fresh write-downs worth $US14 billion ($13.3 billion).

These write-downs related mostly to Rio’s aluminium business, where production fell about 10 per cent in 2012.

The aluminium business has been a thorn in Rio’s side since its $US38 billion purchase of Canadian aluminium producer Alcan in 2007 – a purchase that was fuelled by debt and has been largely written off.

But we view the elevation of the iron ore division chief, Sam Walsh, to the chief executive role favourably.

During his stewardship since 2004, Rio Tinto’s iron ore production has exploded from 104 million tonnes to 199 million tonnes in 2012, with impeccable capital planning and execution. China’s insatiable demand for the commodity has, of course, helped in driving the growth.

Outlook The iron ore division is the growth engine of Rio Tinto, accounting for about three-quarters of group earnings. Encouragingly, the outlook for this business is positive.

We are confident the stimulatory monetary and fiscal actions by Chinese authorities will continue to ensure solid economic growth in the country, underpinning demand for iron ore.

Equally important is Rio Tinto’s capacity to meet this demand. The company is on track to deliver 360 million tonnes of iron ore in 2015 from the Pilbara, which is a phenomenal expansion from the already impressive 199 million tonnes dug up in 2012.

While the underperforming aluminium division continues to cast a pall over the company, we believe a sale of the business might occur under Walsh.

Price While Rio Tinto’s stock price has been flat during the past year, it has risen about 30 per cent in the past six months as concerns ease over China’s economy and risk appetite returns to the market.

Worth buying? The outlook for Rio Tinto’s key iron ore business is positive, with a strong production outlook and a solid longer-term

macro-economic picture helping underpin demand. The company boasts a strong balance sheet, even with the non-cash write-down of its aluminium assets.

Trading about 12 times consensus forward estimates, we remain positive on Rio Tinto and believe its shares at present levels are worth buying.

Greg Smith is head of research at Fat Prophets sharemarket research.

The original release of this article first appeared on the website of Hangzhou Night Net.


Insight: super investment

The average balanced super fund delivered an 11.7 per cent return in the 2012 calendar year.
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This was the first double-digit return in a calendar year since 2009 and was largely driven by a resurgence in global equity markets, particularly in the second half of last year.

This is because the typical balanced fund, in which most Australians have retirement savings, has half its money invested in local and overseas-listed shares.

As SuperRatings founder Jeff Bresnahan points out, it goes to show how reliant the average super fund is on the sharemarket.

“When one considers that funds were sitting on a return of only 3.7 per cent at the end of May, the 8 per cent return over the following seven months shows the benefits to members of rallying equity markets,” Bresnahan says.

According to figures from rating company SuperRatings, the global rally last year helped increase the average amount of money held in local balanced funds to $183,527.

The pre-financial crisis peak for funds was $177,529.

This means the typical fund now has close to $6000 more than the average amount held before the GFC, an increase of 3.4 per cent.

Looking at it from a different angle, funds have rebounded by 37.9 per cent since the bottom of the market cycle in February 2009.

According to Bresnahan, the standout performers over five and seven years have been conservative options such as capital stable, fixed interest and cash, driven by a global surge for fixed-interest investments.

The fixed-interest boom has pushed yields to record lows, and Bresnahan wonders how long conservative options will remain attractive.

“Members should be wary … that at such low interest rates, it is becoming increasingly difficult for retirees and other conservative investors to generate a reasonable rate of income,” he says.

It will be interesting to see how investors respond to last week’s announcement of the Bank of Japan’s huge open-ended monetary easing policy, designed to end two decades of deflation.

Will they remain conservative over the next 12 months, or will they choose to go for a little more growth?

The original release of this article first appeared on the website of Hangzhou Night Net.


Wealthy solutions

Do the sums … Jess Hill runs an online maths-tuition business.Life has a lot of trial and error to it so it’s good to know that building wealth comes with instructions.
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The rules are fixed, except those that have anything to do with super.

More frustrating is that the earlier you invest or protect yourself financially, the better – but that’s when cash is at its tightest.

The good news is that debt isn’t always bad, a mortgage can be your best friend if treated the right way, and super isn’t the be-all and end-all for a comfortable retirement.

So what should you be doing when?

TWENTIES

Turns out not that much.

There’s no rush even to pay off that HECS debt, you’ll be pleased to hear.

Advisers say it’s a cheap form of credit from the government – you won’t get that again – so it’s better to use any spare cash on other things, preferably an investment or savings.

Besides, the discount for paying off amounts of $500 or more has been halved to 10 per cent.

”Paying HECS off faster only means you’re going to have to wait longer to build up a deposit for a home,” says the managing director of BFG Financial Services, Suzanne Haddan.

Still, you’re not going to get off that lightly.

This is the age to get life, income protection and health insurance because you’ll pay a lot more later when you might really need it.

”You’re at your healthiest now and they can’t take the umbrella away when it’s raining once [insurance] is in place,” Haddan says.

She says a neat trick is to do your insurance through your super fund, so your employer’s contribution is paying for it, leaving more cash for you. But salary sacrificing into super is for the oldies, although there is a generous scheme if you earn less than $31,920 a year, whereby the government pays up to $500 into your fund if you contribute $1000 in a year.

But if you do have spare cash, remember the golden rule of compound interest: the earlier you invest, the longer your money is working for you and the better it’ll do.

And you should aim to buy a property – if not to live in, then at least as an investment.

The best way to save for a home is a first-home saver account, whereby the government puts in 17 per cent (capped at $1020 a year) and earnings are taxed at a flat 15 per cent.

Both partners can have their own accounts, doubling the amount the government is handing over. The only catch is they come with strict rules, such as not being able to touch the money for a few years, and aren’t offered by all the big banks.

You can find a list of the relevant providers at apra.gov.au.

THIRTIES

These are the start of what will become the ”debt years”.

Again, there’s no need to put more into super but you need to find out which investment option of your fund you’re in.

This is no time to be too conservative. If you haven’t ticked an option you’ll be bundled into the balanced fund, which is designed for 60-year-olds.

Go for growth – that is, mostly shares – rather than cash or bonds. The market rises over time so there are plenty of years to recover from any mishaps. Every five years it tends to do it tough.

You’ll probably have a mortgage and have started a family.

”The biggest issue is budgeting. That’s absolutely critical,” Haddan says.

”You can’t make money out of thin air, so sit down and do a budget.”

Then see if you can pay off the mortgage faster.

Using the offset account of your mortgage is a tax-free way of saving for the kids’ school fees, too.

Make fortnightly repayments (which add up to one extra payment a year) and lump sums to get it down and when the school fees are due, draw down the mortgage again.

Education funds are another option, although they tend to be inflexible and come with fees.

FORTIES

The 40s are when you need to give thought to your retirement nest egg.

By all means build up your super by salary sacrificing – you’re only allowed $25,000 a year, including your employer’s 9 per cent compulsory contribution – ”but it shouldn’t be your only strategy because the rules change,” Haddan says. The compulsory contribution will increase to 9.25 per cent after July 1.

Negative gearing – into property, shares or both – is an alternative worth considering.

Debt that’s tax deductible and invested in a growing, income-earning asset can help build a nest egg.

FIFTIES AND OVER

The 50s are when you’re at the peak of your earnings and need to start planning your retirement.

Salary sacrifice to the max and pay off any non-deductible debts.

Also review your insurance – apart from health cover, you might not need it any more.

”To hit retirement with no debt is a badge of honour,” says Mike Ingham of Obelisk Advisors.

”And it gives psychological relief. But depending on your circumstances, some tax-deductible debt can be fine.”

Prepare for retirement by winding down growth investments such as shares and your super option. This should not be held off until your last working year or, worse, the day after you retire.

”Make adjustments to your super and investments at least five years before retirement,” Haddan says.

”That way if there’s a major market crash it doesn’t matter because you’re going to hold more cash anyway.”

Calculated approach

Jess Hill enjoyed maths in high school, started a liberal-arts degree, and now owns an online maths-tutoring business.

”Stuffing around is quite typical of my generation,” Jess says. ”Somebody said to me ‘do what you’re good at’, but I had no idea maths would be useful.”

In fact, she had been tutoring maths to pay her way through university.

“I was getting good feedback from parents, and people were saying, why not do teaching? It’s terrible to say, but I thought the pay’s so bad and you quickly burn out.”

But as she kept going over past exam papers, she noticed students “were getting stuck on the same parts of the question”.

It made more sense to record the answers and put them online, so she started hsctutorials杭州夜网m.au. A year on, it is breaking even.

The 26-year-old says she ”kind of enjoyed the idea of working for myself”, another characteristic of many people about her age.

Although the business has no debt because her father, a software engineer, was able to program her website, Jess has a $25,000 HECS debt.

Renting with a flatmate, she’d like to buy a property and rent some or all of it out.

But even with low rates, Jess says she won’t be buying a property soon.

”I’d want to pay the HECS off first. And property is so expensive and you only need a couple of months where things don’t go according to plan and you’re in trouble.”

She has started saving, and at the beginning of each month calculates her food and transport bills, and moves that amount over to her transaction account.

“Two weeks later, after those bills have come out and it’s getting close, I’ll just pull back and stay at home at the weekend or not buy that extra thing,” she says. ”You have to be good at a budget when you run your own company.”

But forget super.

“I know it’s important and I’m putting it off, but that stuff is for the 30s.”

Building solid foundations for the future

Your 30s are when many of the big financial decisions loom: mortgage, family and even first thoughts about retirement planning.

At 38, Matt Richardson has chosen to invest in himself – along with three investment properties.

“I’m interested in creating my own wealth. Working nine to five for somebody isn’t a way to get rich quick,” Matt says.

He runs his own IT project-management business, Partnered Business Solutions, and since he began investing in his late 20s, has three investment properties, all of which he’s renovated.

He’s also just bought a home in Melbourne’s Blackburn that he’s renting out. In the future, he plans to knock it down and rebuild. That gives him several income-producing mortgages on the go, with another one planned next year.

Matt uses an adviser from mortgage broker Smartline. ”That way I don’t have to deal with the banks, which isn’t pleasant – you can drown in their paperwork,” he says.

A trust has been set up for his eight-year-old son, which has already grown to $35,000.

Matt is also savvy about super.

“I think about retirement every day I drive into work. But my definition of retirement is to be working three days a week at 60.”

In the meantime, he contributes to an industry super fund. This is tax deductible because he’s self-employed, although he can’t put in more than $25,000 a year to get the concession.

He expects his super to reach $100,000 this year and will look at setting up his own fund.

Mature investments for comfortable retirement

Long before super was made compulsory or, in some cases, women were even offered membership in a super fund, Karen Volpato was making contributions.

Call it an occupational hazard because, at 53, she’s just retired after working for super funds for the past 30 years.

That probably also explains why the constant rule changes haven’t fazed her.

Unlike most women her age, Volpato was making extra voluntary contributions, and built Australia’s first website devoted to women and super, womenandsuper杭州夜网m.au.

At just 23, she was the corporate lawyer of a small bank when the chief executive asked her to set up the house fund. The chief executive gave her a form to sign, pointing out she needed to join the fund to run it.

Today Volpato says: “I’m very glad that I did join, even though I’m not old enough yet to access my super. It’s fab to know it’s there.”

But having officially retired, “a more hedonistic life doesn’t seem to be happening yet”. ”Even one hedonistic week would be good, but I’ve been approached to do projects,” says Volpato, who also won one of 10 government scholarships granted to women to undertake training for super fund directorships.

“Leaving full-time work also really highlights how important your friendships and networks are – to bounce ideas around, to have fun, and to feel an even more integrated part of your local community.”

The original release of this article first appeared on the website of Hangzhou Night Net.


Secrets of the high net worth

Spread of investments … to Bob Waldie, asset protection is most important.Clearing the mortgage, paying school fees and amassing enough super to retire are common aims for the average Aussie. Some plug away under their own steam, while others look to financial advisers to chart the course and provide occasional health checks.
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But what of those at the top of the tree – self-made millionaires who have surpassed these goals many times over? How do they organise their money, and whose help do they enlist to ensure their stash works its hardest?

Michael Sherlock likes to keep things simple. The corporate consultant made his dough from Brumby’s, the hot-bread chain he founded in 1975 and sold to Retail Food Group (RFG) for $46 million in 2007.

These days he’s kept busy managing eight residential properties and four Brumby’s franchises. The rest of his wealth is invested via a self-managed super fund in Sentinel Property Group, an unlisted commercial property trust.

Established in 2009, Sentinel has 166 investors and owns 11 properties via syndicates. Investors kick in a minimum $100,000 for a share in a site and receive rental returns of 11.5 per cent, paid monthly.

The vehicle provides higher returns, lower entry and exit fees, and less hassle than the residential market, Sherlock says. As a long-time commercial tenant it’s a milieu in which he feels comfortable, unlike the sharemarket or the technology sector.

”Whatever you invest in, you need to understand … I don’t want to be subject to the unforeseen events that seem to be happening more frequently [in the sharemarket],” Sherlock says.

He has little time for financial ”jockeys under management” – investment advisers and private bankers.

”They want to charge a big clip for making the decisions for you.”

Sherlock describes himself as rich – but not rich enough to hand over his stash and hope it’s husbanded wisely.

He does take advice from entrepreneurs he rubs shoulders with socially, and his accountant. The accountant helps him deal with the complexities of self-managed super fund (SMSF) regulations, capital gains and the governance requirements of multiple investment structures.

Australian adults have a median wealth of about $190,000, according to last year’s Credit Suisse Global Wealth Report.

People with more than $1 million in assets, in addition to their homes, are deemed high net worth, while those the next rung up – the ultra-high net worths – have $20 million or more to play with.

The founder of asset manager Blue Sky, Mark Sowerby, says Sherlock’s attitude is typical of this bracket.

”These people perceive they can do a better job of things themselves than handing the money over,” Sowerby says.

”[They] make their own decisions about what to invest in, [and] then they get their accountant or financial planner to execute it.”

The principal of Mercer financial advice, George Mileski, agrees. ”They want a long-term partnership with someone with a good understanding of their situation, who they can bounce ideas off, and who can give them relevant options to make their own decisions,” he says.

”They’re high net worth for a reason – typically they’re driven, engaged with their finances, confident.”

”Family offices” can provide a fee-for-service clearing house to wealthy individuals seeking to delegate some of the activities – investment advice, governance, philanthropy and ensuring the racehorses are fed – associated with managing a fortune.

Once the remit of the uber-wealthy – those with $300 million and up – the sector has expanded downwards, with the rise of multi-family offices servicing several clans, each with $10 million or more.

Family office clients value independent advice, control and confidentiality, and have long-term relationships with professionals who deliver this mix, says the founder and managing director of Entrepreneurial Wealth Management (now EWM Group), Brad Scott.

The chairman of Opengear and serial IT entrepreneur, Bob Waldie, has his own family office – his wife, Mary, who devotes a day a week to managing their affairs.

”I’m great at making money and love spending … she’s great at governance and does all the administration,” Waldie says.

The Waldies spread their funds across property, the sharemarket, managed funds, and term deposits in Australia and the US.

They use advisers for a diminishing piece of the pie, Waldie says. He describes himself as a fat and happy investor; one who’s less interested in big returns than asset protection, steady revenue streams and having fun.

The latter includes putting 15 per cent of his funds into technology firms and start-ups. These are investments of $20,000 to $50,000 at a time, via venture-capital funds, trusts with other investors and direct personal investment.

”It’s a hobby, and also the high-risk part of the portfolio,” Waldie says.

The original release of this article first appeared on the website of Hangzhou Night Net.


Watson adds sweep shot in bid to clean up

Clean sweep … Australia’s Shane Watson plans to add to his repertoire.SHANE WATSON has gone back to the classroom and added the sweep shot to his arsenal as he prepares for his first Test series as a specialist batsman next month in spin-friendly India.
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The Test vice-captain, who returns to the state scene in a one-dayer for NSW against Western Australia at the SCG on Wednesday, has made the most of his latest injury-enforced layoff by working with his batting mentor Mark O’Neill.

The two men have worked closely in the past fortnight to help the batsman adjust for the conditions he is likely to face on the subcontinent during the four-Test series.

Chief among their priorities was to find methods to combat the turn on the spinners’ wickets and the likelihood of a reverse-swinging old ball.

”There’s no doubt that is one of the key factors to have success over there,” Watson said. He made one of his two Test centuries in India, where he averages 40 as opposed to a career mark of 37, but that was in the role of opener.

This time he will face the Indians batting at No.4 and therefore more likely to face the spinners than his preferred quicks.

Watson is not a noted sweeper but, like Ed Cowan and Phillip Hughes, has worked hard to add the shot to his repertoire in order to succeed on the subcontinent.

The stroke was a valuable part of Matthew Hayden’s armoury when he turned his career around during the fabled 2001 series against India.

O’Neill has told Watson to improve his footwork by shortening his front stride, which will allow better weight transfer and reduce the likelihood of being dismissed lbw.

”If you step to the ball and your weight stays back that’s when you have to push with your hands and your pad gets in the way,” O’Neill said.

”If you take a measured step you end up with better access to the ball. If you’re doing it properly you’re letting the ball come to you.

”He’s modified his game with little tweaks here and there which will hold him in really good stead to play.

”Most of the technical work has been done and now it’s just maintenance sessions. He’s got into a position where all he has to worry about is watching the ball and hitting the ball,” he said.

Watson said the changes were not dramatic but rather a means to simplify his game which would enable him to play long innings.

O’Neill and Watson joined forces about 12 months ago after being introduced by Australia’s fielding coach and former Test wicketkeeper Steve Rixon. O’Neill, who has coached Michael Slater and Adam Gilchrist and mentors the rejuvenated Brad Haddin, said Watson had a great work ethic. ”If anybody could see how hard Shane Watson works on his game and fitness they would be absolutely surprised,” O’Neill said. ”He’s one of the hardest workers I’ve come across from a batting perspective, he loves playing cricket and deserves every success that he has.”

Watson returned to competitive cricket last weekend for grade club Sutherland. However, the intensity will rise when he wears state colours on Wednesday.

”It was good to be able to get through the grade game with no issues,” said Watson, who could be headed back to Sutherland this weekend.

”It would have been nice to get a few more runs but in the end to get out there and spend some time in the middle was a lot of fun. I’m really looking froward to tomorrow’s match if the rain goes away.”

The original release of this article first appeared on the website of Hangzhou Night Net.