Is it me or is this year passing more quickly than usual? It’s been smooth sailing for financial markets and things are still the same on the political front (despairingly!). Yet for SMSF trustees, 2017 is shaping up as one of the most important – here is a list of 7 things you should watch out for as they will come around the corner quickly!
- Interest rates have bottomed
Although markets have come around to the idea that the next move in interest rates will be up, economist are still divided (no surprises there!). The US Federal Reserve is raising rates, while the Reserve Bank of Australia will probably stay on hold for the foreseeable future. The banks are already edging up their rates in line with rising bond yields. So as an investor, you need to understand the sensitivities that certain assets have to interest rates, particularly when there is high underlying debt.
- The peak of the property market
Rising interest rates are a real headwind to the property market and this is yet to be understood by many clambering to get into the property market. This will be coupled with limits on lending to certain sectors such as investment loans, as well as talk about changes to negative gearing and capital gains tax. Putting it together means 2017 could well be the peak. However, don’t expect any bargains or a crash as economic and employment conditions remain robust. This is particularly the case in Sydney where long term property investors in sought after suburbs will still be rewarded.
- Australia riding on the coat tails of the US and China
The US economy is strong as it continues to create jobs and is technically at full employment. The China stimulus program in 2016 has filtered through its economy and has driven a resurgence in commodity prices. The pro-growth policies of the Trump administration and the resolve of the Chinese leadership to ensure stability ahead of their 19th National Congress, will continue to underpin Australia as a place to invest.
- Where next for the Aussie dollar
The resurgence in commodity prices has seen the AUD punching above its weight for the first part of this year. However, the US Federal Reserve is telegraphing numerous rate rises are ahead, which will close the gap with interest rates in Australia. This should see the AUD weaker by the end of the year and assets that are linked to the US dollar should perform well. However, don’t believe the doomsayers that predict the Aussie dollar will crash – we are exporting more than ever and a naturally stronger currency should be expected.
- Plan for the 1 July super changes
The biggest changes to superannuation in a decade are coming into force on 1 July 2017. The most significant are around the contribution limits as they become more restrictive, as well as planning for the $1.6m pension cap on tax free pensions. The changes will impact everyone in one way or another and must be understood by every SMSF trustee.
- Review you estate plan
This has been made even more complicated with introduction of the $1.6m pension cap. Issues will arise if a dependent is in receipt of a death benefit pension from a spouse or a large pay out from an insurance policy that takes them over the pension cap. This is likely to trigger the payment of the excess as a lump sum and moving it out of the superannuation system altogether.
- Surprises
Last year it was Brexit and Trump. This year all eyes will be on Europe with elections in the Netherlands, France, Germany and Italy, which all (except Germany) have the potential to sweep in anti-EU parties. Britain might only be the first in the queue to head towards the exit. Expect this to cause volatility in markets and your investments. However, like every other European crisis it will pass with no fundamental impact on Australia and can present a buying opportunity.
There are always many things for SMSF trustees to consider, but 2017 promises to be one of the busiest and most important for your financial and investment strategy.