Sent: 26-07-2011 09:52:43
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Fees and Long Term Investing
Several weeks ago the ASX and Russell Investments released their annual Long term Investment Report.
The conclusion of that report makes some very good observations which are worth repeating:
"...investors should be cognisant of their tax situation and the methods that returns are delivered (e.g. capital gains or income) as this can further affect their return.
"Investors should also be aware that over sufficiently long periods of time (represented by twenty and twenty-five year returns in this report) riskier assets will generally outperform those less risky asset classes.
"The after-tax return is the return investors actually receive; tax can also be classified as a form of 'fee' when calculating the cost of investing. Tax affects different investors and asset classes in different ways. With the Australian tax system providing discounts to returns distributed as capital gains ... whereas those paid out as income ... are generally taxed at an investor's marginal rate. Moreover, we can observe this difference in asset classes when analysing the effective taxation rate of those investor (sic) in the top marginal tax bracket over the past twenty years:
- Australian shares: 18%
- Australian REITs: 24%
- Residential investment property: 25%
- Overseas shares: 28%
- Global REITs: 34%
- Australian bonds and cash: 49%
The report's observation is 100% correct to see tax as a form of fee. In fact it's clearly one of the biggest fee.
But it is a smaller fee than percentage of assets under management. My last DIY Super article in The Australian dealt with these insidious charges. I should that between March 1982 and March 2010 $100,000 would have grown to $1.1m but with a 2% per annum fee the end result would have been 45% less. This is a significantly higher fee than the 18% tax on Aussie shares calculated by Russell and the ASX.
It is for this reason that all fees and taxes and their long-term impacts need to be disclosed in dollar terms not over one year but over many years. Back in the early 1990s the then Insurance and Superannuation Commission wanted this type of disclosure but after intense financial industry lobbying it was forced to drop this proposal.
Finally please consider purchasing a copy of this book "A How To Book Of Self Managed Super Funds". You can look at the contents page at the following link: http://www.atcbiz.com.au/r.php?r=0mjd6ne
For details of the changes made from version 4 to version 5 visit: http://www.atcbiz.com.au/r.php?r=d5xcpch
As you'll see from the list there have been many changes.
Two purchase options are available - once only subscription - $55 inc GST - or an annual subscription will gives you access to all the updates made throughout the year ($120 inc GST). The book can be purchased at the following link: http://www.atcbiz.com.au/r.php?r=5a4agqb
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