Hot Issues
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How is your super going, ready for retirement?
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Our 'hardest' SMSF tasks
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Lack of literacy promotes unrealistic goals
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Young investors: Time is on your side
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Is your SMSF retirement-ready?
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Key Economic Indicators, 2017 - updated
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Investors acting their age
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ATO locks in details, addresses panic on real-time reporting
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Government ‘undermines’ tax system in new moves on property expenses
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Multiple super accounts in a 'gig' society
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Why Australian retirees aren't happy and what we can do about it
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Doing a budget is a good idea but ....
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Technical expert flags estate planning strategies for 2017-18
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Government to shut down salary sacrifice loophole
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Items that heat up your depreciation deductions
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‘Tens of thousands’ of SMSFs at risk with ECPI
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Do’s and don’ts of estate planning
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LISTO to help boost women’s super
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Smart ways to stretch retirement money
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Low economic growth likely for years
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Recorded Crime - Offenders, 2015-16
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Adequacy of savings still a concern among Australians
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‘Bank-like heists’ make way for new wave of cyber crime
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Give your children a saving and investing edge - for life
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Women still in the dark about finances
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Lessons learnt - often the hard way
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Australian population figures
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ATO poised to ramp up focus on key compliance area
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Benefit payments rise dramatically ahead of July 1 super changes
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There's no magic pudding when it comes to super
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ATO guidance provides clarity on death benefit confusion
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Beyond super: Our other personal investment market
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The three core pillars of this year's budget
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Federal Budget - 2017-18 - Overview
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Federal Budget - 2017-18 - Budget documents
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Global economy synchronised and thriving
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Life's financial turning points: good and not-so-good
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2011 Census - what was the make up of your area?
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Resources on our site to help you, your family and your friends.
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ATO set to release guidance targeted for SMSF clients
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More withdrawals from 'the bank of mum and dad'
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Tax headache relief: Here’s more help with pension assets changes
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Most Aussies shun super advice
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Australia in a nutshell
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ATO finalises guidance on transfer balance cap
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Fit for purpose? The super story so far...
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SMSFs urged to review segregation clauses in trust deed
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Big insto addresses CGT misconceptions
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Dollar-cost averaging for millennial investors
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Calls for calm over pending CGT amendments
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Almost the world's best for retirees
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ATO reports on top contravention areas for SMSFs
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What recent retirees can teach pre-retirees
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Deloitte points to ‘red flag’ SMSF patterns
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Save early, save often
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Government pushes forward with multinational tax measures
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Jump-start your retirement savings
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Government urged to rectify ‘legislative shortcoming’ with CGT relief
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Some financial terms explained
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Areas of key focus for SMSFs in 2017.
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Powerful Superannuation modelling tools available on our site.
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Your New Year reading: beyond John Grisham
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What a long-term view of the market can teach investors
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CGT confusion seeing unnecessary sell-offs
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‘Devastating’ property investments hitting SMSFs
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Asset valuation crackdown imminent for SMSFs
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New Year (investment) resolutions
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Trump stimulus to boost global markets
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Female advice customers on the rise
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Retirement costs outpace rise in CPI
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ATO set to scrutinise CGT relief claims
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Investor habits: The good, the bad and the ugly
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Keeping finances in the family
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The inter-generational financial squeeze
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Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
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ATO set to clamp down on range of super issues
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SME retirement plans in jeopardy, research finds
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SMSFs show restraint in hot residential market
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Investment's building blocks - always worth reinforcing
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Warnings issued on traps with CGT transitional rules
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Meet SMSFs' early and late arrivals
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Beware, the ATO is on the hunt for lifestyle assets
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'Brexit means Brexit' means what?
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SMSFs tipped to be hardest hit by pension changes
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SMSF assets hit record, but funds still hoarding cash
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Markets caution advised as economic bubbles loom
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Stretching retirement income
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Some financial terms explained
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Market Update – September 2016
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Checking in on our 2016 economic outlook - and looking ahead
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Making a fairer and more sustainable Superannuation System
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Going undercover
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‘Winners and Losers’ from new super proposals
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The gymnastics of keeping your portfolio balanced
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Market Update – August 2016
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Stop!! Don't do a paper Budget, use our online budgeting tools instead.
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Advisers the key to retirement stability, research shows
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The toughest tasks for self-managed super
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Lawyer warns on ‘adverse’ death taxes with insurance
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Don't get distracted by super changes
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A savings mirage?
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Market Update - July 2016
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The three biggest economic issues likely to affect markets in 2016
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SMSFs warned on looming property ‘tough times’
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Diversification counts when uncertainty beckons
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Strong economic data stablises markets
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Starting a super pension in 2016-17?
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Market Update - June 2016
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ATO extends looming SuperStream deadline
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ATO's deadline for review non-arm's length LRBAs extended
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A paradoxical relationship: The self-employed and super
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Fresh SMSF documentation warnings surface
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Making investing a family affair
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Super and divorce: a personal finance issue
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Market Update - May 2016
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ASIC flags SMSF investors in scam risk
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Older, greyer and still working
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Working and contributing to super past 65
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The pitfalls of part-year pensions
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Replenishing SMSF memberships
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Budget will hit 15% of SMSFs
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The insidious side of low interest rates
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Market Update - April 2016
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Budget 2016-17
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Do investment principles stand test of time?
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Estate Planning - early inheritance
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US economy will bend, not break
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A detailed look at the ATO’s new LRBA guidance
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Defying life's blueprint
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ATO continuing lodgement crackdown
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Another twist on the gender savings gap
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Market Update – March 2016
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Going solo
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Use our online budgeting tools to help plan your future.
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Age Pension means-test prevents rational decision-making
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Changing times for super collectables
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Preservation Age Rule
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Why investing for retirement isn't just about super
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Possible tax benefits through early inheritance
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Market Update - 29th February 2016
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Mortgages, personal debt and retirement
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Cost of retirement continues to climb
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Personal finance goes 'viral'
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ATO warns on poor asset records causing SMSF breaches
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When is an unallocated contribution account a reserve?
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Market Update – 31st January 2016
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Australians still need better retirement planning
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What to expect from investment markets in 2016 and beyond
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‘Irrational fear’ impacting SMSF longevity risk: CSIRO
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Tax scam reaps hundreds of thousands
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Morrison signals direction of super tax changes
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Market Update – 31st December 2015
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Should we expect stormy skies or sunshine in 2016?
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Merry Christmas and Happy New Year 2015
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There's no one-size-fits-all retirement income
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Market Update – 30th November 2015
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Diversifying and cutting costs with ETFs
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Why the ATO’s new powers make SMSF compliance more important than ever
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'Unretiring' retirees
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The detrimental impact of poor SMSF record-keeping
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Counting the cost of 'grey' divorce
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Combining total-return investing with realistic investment expectations
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Market Update – 31st October 2015
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Another telling reminder for SMSF trustees
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Death in paradise – or your SMSF
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Elderly exploited for assets
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Intergenerational challenges for retirement saving
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Death benefits – navigating the minefield
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Strategy over structure
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Market Update – 3oth September 2015
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SMSF and limited resource borrowing – a warning
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External partnerships and the in-house asset rules
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Take a closer look at SMSF age demographics
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Avoiding tax consequences with the related-party rules
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Focusing on after-tax returns
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Market Update – 31st August 2015
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The gender gap in retirement
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Why popularity of ETFs is surging among SMSFs
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Clearing up confusion about accessing super.
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Good (investor) behaviour
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Five reasons the RBA will likely cut rates again
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Market Update – 31st July 2015
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Customer-centred innovation underpins high satisfaction among financial advice customers
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What the ATO is keeping an eye on
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Through life and death
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Why astute investors are a little like astute kayakers.
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Your first SMSF portfolio
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Market Update - June 2015
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Money-smart ageing
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A new (financial) year’s resolution for your SMSF
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What’s ahead for US interest rates?
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Super: Looking to June 30 and beyond
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End of year tips for SMSFs
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Reminders and Tax Strategies for SMSFs pre-year end
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Market Update – May 2015
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An investor's personal trainer
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SMSF trustee penalties going up
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Contraventions rife among non-advised SMSF trustees
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Dealing with investor uncertainty
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Reserve bank gives the economy a lift
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Retirement planning: the gap between intention and reality
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Market Update – April 2015
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Budget 2015 - some professional opinions
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Australian Government - Budget 2015
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What does the ATO want from you?
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Making sense of the new excess contribution rules
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Greying, working and contributing
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Simple-yet-smart investment housekeeping
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Market Update – March 2015
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Two sides to the age profile of SMSF members
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Actuaries call for end to superannuation policy tinkering
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ATO urges caution on pensions
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Market Update - February 2015
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Aussie economy shifts gears as structural changes take hold
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The catch 22 of retirement savings
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Are there reasons to help the tax man do his job?
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Some financial terms explained
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Small business paradox
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Good financial planning finally has a value: 23% more income in retirement
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Market Update - January 2015
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‘Incredibly high’ number of trustees hold no life insurance
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SMSFs in 2015 Budget’s firing line
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Rebalancing resolutions
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Hammering away at asset allocation is only part of the retirement income solution
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Market Update – December 2014
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We wish all our clients a Merry Christmas,a Happy New Year and a restful holiday
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A great overview of investing and good Holiday reading.
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The final nail in the coffin for LRBAs?
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Market Update – November 2014
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Online financial tools your family and friends can use.
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Overcoming our behavioural barriers to saving
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‘Unintended consequences’ threaten SMSF tax reform
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Retirement income: every bit counts
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ASFA continues to sound warnings on retirement savings
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Market Update - October 2014
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The little-known rule with huge implications for self-managed super funds
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Grappling with the uncertainties of retirement
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Change to ATO decision relevant to SMSF in-house assets
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Taking a personal perspective on the global super challenge
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Some terms defined - Super & Investment
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The perils of market-timing and over-confidence
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Market Update – 30th September 2014
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Hardly a do-it-yourself job
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Super insurance: wide coverage, limited understanding
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ASIC eyes SMSF loan sign-off
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Redesigning retirement incomes policy - from the ground up
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Industry terms
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Market Update - August 2014
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Keeping to super's sole purpose
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Taxing times for self-managed super funds
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The relationship between SMSFs and their advisers
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How family financial planning opened the door to a holistic advice career
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Spotlight on your retirement income
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Market Update - July 2014
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The new 65?
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Report reveals 'alarming' super savings stats
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Anchors aweigh!
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A retiree's choice: super pension or lump sum
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Fundamentals for investing success
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Market Update - June 2014
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Messages Worth Remembering
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Workforce rides the 'silver tsunami'
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ATO outlines SuperStream concerns for SMSFs
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Help investor's to save $82 per week
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Super dollars
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Market Update - May 2014
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Market Update - April 2014
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How familiar are you with this graph?
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Federal Budget 2014-15 - Overview
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Federal Budget 2014-15 - Overview of main responsibilities
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Federal Budget Papers 2014-15
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Keeping a close watch on contribution caps
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Any changes to the Age Pension make saving through super crucial: ASAF
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New insights into women and super
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Keeping super in the family
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Afternoon Thoughts (US, Asia and Europe)
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Market Update - March 2014
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Younger SMSF members
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SMSF Specialist wanted
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Aged Care
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Crowd control
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Philanthropy upswing
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Market Update - 28th February 2014
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SMSF investment process is broken, but a good financial planner can fix it
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A behavioural barrier to successful saving
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Spending of super lump sums
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What the past can teach us about the current emerging turmoil
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Spending control in a low-interest environment
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Market Update - January 2014
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The return of a resilient US
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Putting financial literacy to the test.
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No intention to retire
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Outlook for Japan in 2014
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Understanding Profit Metrics: Gross, Operating and Net Profits
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Market Update - 31st December 2013
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Super tax changes: winners and losers
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Market Update - 30th November 2013
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Australians overweight and unhealthy, AIA
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The insurance gap
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Some more Financial Ratios
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Market Update - 30th October 2013
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Debt control in countdown to retirement
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ASIC: web here to help
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Merry Christmas to all our clients, your staff, family and friends.
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Sound SMSF advice is critical
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Insurance: too complex for the Internet?
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Some Financial Ratios
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SMSFs: the dos and don'ts
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Market Update - 30th September 2013
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Retiring SMSF baby boomers
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Your retirement-savings check-up
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C'mon Aussie, work longer!
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A heart-to-heart client conversation
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How to start saving for retirement
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Do a budget
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A selection of Liberal Party policies and discussion papers
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Retirement-savings disaster looms
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SMSFs and the cost factor
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New SMSF trustees sign-up - by the thousands
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Explainer: the role of budget deficits
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Market Update - 31st August 2013
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Some terms defined
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Retirement maze
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"Australia's most motivated profession"
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How realistic are your investment goals?
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Income generation requires tailored strategies
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Critical warning for SMSFs
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Market Update - July 31st 2013
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A matter of knowledge
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By George! Pension win for SMSF trustees
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Ahead of the curve: SMSF trustees love an expert
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The dollar's risk and reward
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Baby boomers see red
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Some Terms defined.
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Market Update - June 30 2013
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Gen Ys wary of much-needed advice.
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Relationship breakdown: a destroyer of person wealth
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Private wealth managers searching for good fit.
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Financial Literacy and Finding Relevant Information
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Market Update - 31st May 2013
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Take extra care not to exceed super contribution caps.
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The revival of the West
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The great advisory challenge for team SMSF
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Boost for tax data-matching.
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Extra Online support from your Financial Planner.
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Budget wrap: industry welcomes continuity
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Market Update - 30th April 2013
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2013-14 Federal Budget at a Glance
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Budget 2013-14 Overview
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Full version of the Federal Budget speech for 2013-14
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Market Update - 31st March 2013
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Flawed super tax = long-term problems: Mercer
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A matter of confidence
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Super tax changes: winners and losers
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The big super split
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The hot super debate
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For those clients who like to do some extra research.
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The growing return expectation gap
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"EU will survive no problem", US in recovery
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Love, money and relationship breakdowns
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Reports find risk appetite rising but still reluctant
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Market Update - 28th February 2013
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Research finds advisers key to SMSF growth
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Road-testing retirement
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China may run hot, but will investors overheat?
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2013 rays of hope
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Market Update - 31st January 2013
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Investors polarised as sentiment edges upward
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Market Update - 31st December 2012
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Drive your retirement dollar further - and forget the silver Porsche
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Is there a silver lining for asset allocation in 2013?
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Shrinking the McMansion
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Merry Christmas to all our clients, your staff, family and friends
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Budget wrap: industry welcomes continuity
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SMSF flows increase as confidence retuns
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Market Update - 30th November 2012
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A couple of super classics
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A plunge worth taking
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Asset allocation ranks number one
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Like to do some of your own tax, super, pension, tax rates, etc research?
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ASIC spruiks need for advice in "complex" future
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The long arm of tax
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Market Update - 31st October 2012
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Politicians, stop super tinkering!
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Your personal trainer
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Super members thirsty for financial advice
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SMSF flows increase as confidence returns
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What an A-grade pension system looks like
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Market Update - 30th September 2012
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Super's most disadvantaged
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Improve your financial literacy and help others with theirs.
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Spread your energy bets
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Making a comeback
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Government tinkering a 'body blow' to SMSFs
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Market Update - 31 August 2012
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Securely transfer your personal and business information
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'Speeding tickets' for SMSFs
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Cashing in risk
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Those who miss out
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Debt Consolidation and Budget review tools added to the Cash Flow / Financial tools on this website.
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Abbott clarifies super stance
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Advisers beat banks in fostering client loyalty
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SPAA sounds warning on tax backdating
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What a relationship breakdown may mean for an SMSF
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Create opportunity from market volatility
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Retirement savings challenge
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New Financial year: the outlook for markets
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Market Update - 30th June 2012
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Asian Growth Engine
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Can investors adapt to a deleveraging world?
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ATO focuses on novice investors
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Last-minute super contributions
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Market Update - 31st May 2012
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SMSF: Costs versus performance
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Australian House Prices down 10% from Peak
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Some financial jargon defined
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Investors sweat as Spaniards protest austerity
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Once again, the budget shifts the super goalposts
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Market Update - 30th April 2012
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Federal Budget 2012-13 - An Overview
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Federal Budget 2012 - 2013 - At a Glance
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The Federal Budget 2012 - 2013
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Do you like to do some of your own tax, super, pension, etc research?
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A question for Baby Boomers
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Terminology: Pension and Cash Rate
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Dressed up tax schemes
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The war at the end of the US dollar
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Market and Asset Class Reports as at 31st March
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Securely transfer your personal and business information to your Financial Planner.
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Coping with instant wealth
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Some industry terminology
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Home alone
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Market Update - 29th February 2012
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Little savings, big rewards
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Love and money ........
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Market Wrap - 21-2-12
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Lessons from a rocky road
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Quarterly Market Report to 31-12-2011
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Securely transfer your personal information over the Internet
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Retirees make a comeback
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Some Terminology
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Retirement evolution
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Identifying Market Trends
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Market and Economic Update - December 2011
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Merry Christmas 2011
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Few know exactly what their true financial position is, do you?
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The art of balancing bad news
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How economic reality influences the market.
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Market and Economic Updates - November / December 2011
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Want to do some of your own research – no problems?
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Lump sum love affair
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How much money do you need to comfortably retire?
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You can afford to contribute more to super but .....
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10 most indebted nations
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Market and Economic Updates - October / November 2011
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Timeless lessons meet new challenges
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Securely transferring Your information to your Planner.
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Gender Gap
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The 5 types of earnings per share
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No more Star Trek conventions for Spock
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An introduction to behavioural finance.
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Market Updates - September / October 2011
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The Budgeting Tools /Calculators on our website have been upgraded.
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Stosur plan an antidote for volatility
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The best performing market over the past 10 years.
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Why it takes courage to stand still
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China buys US for a bargain
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Market Updates - August / September 2011
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Buckle up for a bumpy US recovery ride
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SMSF Management
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How the US debt downgrade impacts Australia
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Mixing business and super
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The tangled web of the Australian housing bubble
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Market Updates - July / August 2011
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Under your control
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Improving your financial literacy is vital to your future ......
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5 reasons you should care about Greece
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The more things change ...... (the Carbon Tax)
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Is the US already in a double dip recession?
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Market Updates - June / July 2011
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Wanted: a proper understanding of personal finance
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Will your retirement income be enough?
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Facing up to the wall of sound
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A look at Corporate profit margins
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Market Updates - May / June 2011
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A budget deficit worth watching
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Securely transferring your personal data over the Internet
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Hints on how to interpret a company's Prospectus
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The birth of a new class of Investor
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Demographic trends and the implications for investment
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Market and Economic Updates - April / May 2011
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Federal Budget 2011-12.At a Glance
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Federal Budget 2011-12. Overview
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Reality versus perception
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Improving the financial literacy of your children.
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The Economic Reasons behind Nuclear Power
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Room for improvement (Pensions)
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Some more terminology explained
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Market Updates - March / April 2011
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Uninformed and impatient
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Perspective on the tragedy in Japan.
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The essentials of Corporate cash flow.
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Out in the cold (the self employed)
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Some terminology explained.
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Market Updates - February / March 2011
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Improving financial literacy is an objective we should all have.
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Why baby boomers face a super sprint
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Don't buy yet - first calculate the stock's P/E and PEG ratio
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SMSFs: Age matters
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Some more terminology explained
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Market Updates - January / February 2011
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Secure File Transfer
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CPI won't stop rate rises, says Economist
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Super contender
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Super birthday ahead
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Some terminology explained
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Market Updates - December / January 2011
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Merry Christmas and Happy New Year
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A very good Budgeting Tool is available on our site.
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Flexibility the key to spending
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8 Financial Tips For Young Adults
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Retirement boomers
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Market Updates – November / December 2010
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Finding your Super comfort zone
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What’s your debt really costing you?
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Out in the cold – and forgotten
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Tips For Buying The Perfect Investment Property
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Market Updates – October / November 2010
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Professional help
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On-line Sales Under Scrutiny
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An often overlooked side of SMSFs
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6 basic financial ratios
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9 signs you can’t afford your mortgage.
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Market Updates – September / October 2010
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Jobs for Life
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Scams
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Breakdown shocker
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Market Updates – August / September 2010
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Three Stages of Retirement
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Deemed Dividends
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When PEG beats the P/E Ratio
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Super Debt
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5 Billionaire habits…
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Market Updates – July / August 2010
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Five things to do before interest rates go up.
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Save for retirement – 'I am not kidding'
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Commodities Boom Hinges on China
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Debt, Debt and more Debt
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Market Updates – June / July 2010
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Help your young adult children better understand their financial position.
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Reality challenges many super perceptions
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Comparing the Japanese and U.S. Bubbles
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Watch out for overseas investment cons
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What is a cash Flow Statement
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Market Updates – May / June 2010
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Who are Australia’s best and worst savers?
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Greece: The worst-case scenario
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Is your investing style Hot or Not?
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A need for simple guidance
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Market Updates – April / May 2010
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2010-11 Commonwealth Budget
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What does GDP measure?
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Super falls short for women
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World's worst countries for jobs.
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High controversy
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Market Updates – March / April 2010
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Personal Credit Ratings
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Evaluating a Company’s Management
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Super trouble for women
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Tips for the prospective Landlord.
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Forget those great expectations
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Market Updates – 28th February 2010
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A matter of age.
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Berkshire’s stock splits: Good buy or Goodbye?
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Why no extra contributions? It's no mystery
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Stronger growth tipped for Australia
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Market Updates – 31st January 2010
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6 Reasons Why You NEED A Budget
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6 Months to a better budget.
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Amnesty – Overseas Undeclared Income
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The outsiders
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Inside self-managed super
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Market Update - 31st December 2009
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Merry Christmas and a Happy New Year to all our clients.
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When taking an average approach pays off
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The war at the end of the US dollar

The history of the U.S. dollar is closely linked to U.S. involvement in a series of wars. The Bretton Woods Accord and the resulting world reserve currency status of the U.S. dollar were both byproducts of World War II (1939-1945) ......

The Korean War (1950-1953) was followed six years later by the Vietnam War (1959-1975) which led to the end of the Bretton Woods system. Unfettered by the constraint of gold backing after 1971, the U.S. dollar became a weapon in the Cold War (1945-1991) between the U.S. and the former Union of Soviet Socialist Republics (U.S.S.R.). Each war corresponded with an increase in the U.S. money supply. The Gulf War (1990-1991) was followed by wars in Afghanistan, beginning in 2001, and in Iraq, beginning in 2003, and, simultaneously, by the U.S.-led War on Terror that began in 2001. Like the wars that came before them, the recent staccato of U.S. wars is correlated with increases in the U.S. money supply. The Iraq war, for example, is estimated to have cost as much as $4 trillion.

The loss of value in the U.S. dollar caused by excessive expansion of the money supply, together with rising demand for raw materials from emerging economies, has led to permanently higher global commodity prices. Higher crude oil prices, in particular, have put pressure on the U.S. economy, which is putatively in a gradual recovery from the recession that began in 2007. At the same time, international trade has begun to move away from the U.S. dollar, threatening its world reserve currency status. Given the history of the U.S. dollar, it seems likely that an eventual end of the U.S. dollar's reign as the world reserve currency will be marked by war.

U.S. politicians are clamoring for war with Iran, the third largest oil exporter in the world. Iran refuses to sell its oil for U.S. dollars. If Iranian oil were traded in U.S. dollars, it would moderate the U.S. dollar price of crude oil and ease pressure on the U.S. economy, as well as extend the world reserve currency status of the U.S. dollar and give the U.S. economic leverage over consumers of Iranian oil, which include China and India.

The U.S. news media is preparing the American public for a war with Iran with reports about the dangers of Iran becoming a nuclear power. Television news reports have speculated that Iran would immediately wipe out Israel if it obtained a nuclear weapon, despite the fact that a thermonuclear exchange would wipe out Iran. It has also been reported that Iran might carry out nuclear strikes on U.S. soil using intercontinental ballistic missiles (ICBMs), although Iran possesses neither nuclear warheads nor ICBMs. In fact, there is no evidence that Iran is currently building a nuclear weapon. One concern that is valid, however, is that no nuclear power has ever been invaded in a conventional war.

Forged in the Fire of War

The approaching end of World War II led to the creation of the Bretton Woods system in July 1944, although fighting in Europe and in the Pacific continued into 1945. The U.S. dollar, which was convertible into gold, became the dominant mechanism for international trade settlement. The price of gold was set to the pre-war price of $35 per troy ounce, which was deflationary at the time. There was nothing in the Bretton Woods Accord, however, that prevented the U.S. from issuing more currency than was backed by gold other than the threat of a run on U.S. gold reserves.

The Bretton Woods system worked as intended for roughly 17 years. The London gold market, which had been closed during World War II, reopened in 1954. By 1961, upward pressure on the price of gold prompted the establishment of the London Gold Pool by the U.S. Federal Reserve and major European central banks (including the central banks of the United Kingdom, Belgium, France, Italy, the Netherlands, Switzerland and West Germany). The London Gold Pool defended the $35 per troy ounce price through interventions in the London gold market, but upward pressure on the price of gold grew. In July of 1962, Americans were forbidden by then president Kennedy to own gold abroad by Executive Order 11037. In a 1965 press conference, then president of France, Charles de Gaulle publicly denounced the U.S. for abusing the world reserve currency status of the U.S. dollar. The London Gold Pool collapsed in March of 1968 after France withdrew from the group setting off a surge in gold demand that caused the London gold market to shut down for a two week period.

By 1971, substantially due to the cost of the Vietnam War, the U.S. had leveraged its gold reserves to the breaking point. The expansion of the U.S. money supply caused the U.S. Consumer Price Index (CPI) to increase by more than 6% in 1970 and it remained above 4% in 1971. When U.S. President Nixon "closed the gold window" in August 1971 and instituted price controls, the Bretton Woods system ended and an ad hoc floating exchange system resulted. From their peak during World War II to 1971, U.S. gold holdings fell from approximately 20,205 tonnes to approximately 8,134 tonnes. In February 1973, the U.S. devalued the dollar and raised the official dollar price of gold to $42.22 per troy ounce. By June of the same year, the market price in London had skyrocketed to more than $120 per ounce.

Although CPI inflation was below 4% at the start of 1973, it rapidly accelerated, reaching 9% at the start of 1974. With the last vestiges of gold backing having been removed from the U.S. dollar, Americans were once again allowed to own gold as a hedge against inflation. Against a backdrop of runaway U.S. dollar inflation, Arab members of the Organisation of the Petroleum Exporting Countries (OPEC), along with Egypt, Syria and Tunisia proclaimed an oil embargo in October of 1974. Officially, U.S. support of Israel in the Yom Kippur War was the reason for the embargo, but it was also a challenge to the un-backed U.S. dollar's position as the world reserve currency, i.e., as an exclusive medium for crude oil sales.

After the end of the Yom Kippur War in 1974, OPEC members, including Iran before the Iranian Revolution in 1979, began to accumulate hundreds of billions of devalued U.S. dollars due to current account surpluses linked to rising oil prices. Arab "petrodollars" were recycled into US Treasuries, invested in financial markets around the world and loaned to commercial banks.

By 1979, oil prices had roughly quadrupled and the price of gold was increasing rapidly. Then Federal Reserve Chairman, Paul Volcker raised the Federal Reserve's funds rate to an average of 11.2% in 1979. Nonetheless, in 1980 CPI inflation soared to 13.5% and the stagnant U.S. economy also slipped into recession. The price of gold hit $850 per troy ounce and the price oil averaged $37.42 per barrel, more than ten times the average price of $3.60 per barrel less than a decade before in 1971.

In a desperate bid to save the U.S. dollar, Volcker increased the funds rate to an unprecedented 20% in mid 1981, pushing the prime interest rate to a usurious 21.5% by the middle of 1982. Finally, Volcker's radical intervention slowed the rate of CPI inflation and restored confidence in the U.S. dollar. It also brought the price of crude oil down and smashed the prices of gold and silver.

The Committee to Flood the World

Post Volcker, the Federal Reserve's dilemma was how to bring down interest rates while managing the CPI independent of increases in the money supply, e.g., to neutralise the Triffin Dilemma (a conflict between domestic monetary policy and the demands placed on a currency by international trade) and to support U.S. federal government borrowing during the Cold War. The first key to the solution was to look at inflation strictly in terms of its effects on prices and not as an increase in the money supply, which is a function of interest rates. When interest rates are low, prices tend to rise because the money supply expands more quickly, thus the second key was to de-couple prices and interest rates. The third and final key was to manage the psychology of the consumer in terms of inflation expectations. While altering the CPI to reflect relatively stable prices and managing consumer inflation expectations were easily accomplished, de-coupling prices and interest rates was a more difficult problem because the prices of global commodities were not entirely under U.S. control. Ultimately, managing the CPI required managing global commodity prices, especially the price of crude oil.

A crucial breakthrough came in 1988. The article, "Gibson's Paradox and the Gold Standard" by Robert B. Barsky and Lawrence ("Larry") H. Summers in the Journal of Political Economy, showed that the price of gold was inversely correlated to interest rates. Since gold is not industrially consumed in significant quantities, the price of gold changes relative to the value of major currencies. Specifically, the price of gold had proven to be a barometer of U.S. dollar inflation after 1971. What was more important was that the prices of gold and crude oil tended to correlate. The implication of Gibson's Paradox was that interest rates could remain low as long as the price of gold did not rise. If interest rates could remain low without causing an accelerating increase in the CPI, as had happened in the 1970s, the money supply could be expanded indefinitely.

A few years after Alan Greenspan took the helm as Chairman of the Federal Reserve in 1987, interest rates were slashed and the resulting increase in the U.S. money supply began to pull away from the increase in the CPI. For roughly two decades, beginning with Volcker's success in the early 1980s, the price of gold declined while oil prices remained relatively stable, despite the fact that interest rates had come down.

The innovations in U.S. monetary policy developed principally by Summers and Greenspan helped to make it possible for the United States to up the ante in the Cold War, which ended with the collapse of the U.S.S.R. in 1991. Setting aside all other issues, the U.S.S.R. had arguably been spent into oblivion by the U.S. The fall of the U.S.S.R. seemed to guarantee the hegemony of the U.S. dollar for decades to come.

During the 1990s, Greenspan, together with Larry Summers, who was Deputy Secretary of the U.S. Treasury under Robert Ruben at the time, championed financial deregulation. Confident in their ideas, the so-called "committee to save the world" prevented regulation of over the counter (OTC) derivatives and succeeded in effectively repealing the Banking Act of 1933 (the Glass-Steagall Act).

In hindsight, Greenspan held interest rates too low for too long in the 1990s resulting in the dot-com bubble. The bursting of the dot-com bubble was a shot across the bow of the "committee to save the world" but the warning went unheeded. The Federal Reserve moderated the downturn beginning in 2000 by lowering interest rates and they remained low. U.S. banks took advantage of deregulation and low interest rates to speculate and to increase their leverage, especially in the mortgage market, while hedging the additional risks in the fast growing OTC derivatives market. As the resulting real estate bubble grew, the notional value of OTC derivatives exceeded $600 trillion on a global basis (more than ten times world GDP) and financial services industry profits expanded to 40% of S&P 500 business profits.

The price of gold had begun to move up after having made a historic low in June of 2001 and, in 2006, the price of crude oil began to rise at an accelerating rate revealing a fundamental flaw of de-coupling interest rates from prices. The flaw was that the Federal Reserve had absolutely no control over the flow of increased liquidity resulting from its policies. The "committee to save the world" was flooding the world with cheap U.S. dollars. Increased liquidity linked to low interest rates was fueling unprecedented levels of financial speculation and increasing the risk and magnitude of asset price bubbles, such as the dot-com bubble and the real estate bubble. To make matters worse, excessive monetary expansion was weakening confidence in the U.S. dollar.

Pressured by rising oil prices, the U.S. economy began to roll over in 2007. As the U.S. housing bubble began to burst, beginning with sub-prime loans, the price of West Texas Intermediate (WTI) crude oil hit an all-time high of $145 in June 2008. Roughly four months later, a financial crisis far larger than that of 1929 began to take place, i.e., the bursting of the largest credit bubble and monetary expansion in the history of the world. In October 2008 Greenspan testified before the U.S. Congress saying "...I found a flaw...in the model that I perceived is the critical functioning structure that defines how the world works..."

Quantifying the Crisis

The policy responses of the U.S. federal government and of the Federal Reserve (under Chairman Ben S. Bernanke since 2005) to the financial crisis and to the so-called Great Recession were radically inflationary. The Federal Reserve loaned $16 trillion to financial institutions worldwide and $7.77 trillion to U.S. banks and corporations. The Federal Reserve also purchased roughly $1 trillion worth of toxic mortgage backed securities (MBS) from banks and monetised a total of roughly $800 billion of U.S. federal debt, expanding its balance sheet from $900 billion before the crisis to $2.7 trillion.

In the face of the most severe economic decline since the Great Depression, the U.S. federal government embarked on a $700 billion economic stimulus plan, despite the fact that tax revenues were falling. In addition to an initial $800 billion bailout package, government sponsored entities Fannie Mae and Freddie Mac were taken into receivership, making the U.S. federal government liable for roughly $5 trillion of mortgage debt. In 2009, the total liabilities of the federal government were estimated to be as high as $23.7 trillion by then Special Inspector General for the Troubled Asset Relief Program (SIGTARP), Neil Barofsky. As a result, U.S. federal government debt increased sharply and, in 2011, the U.S. credit rating was downgraded for the first time in history.

Loss of value in the U.S. dollar, caused by radically inflationary monetary policies, set off a global currency war in 2009 and pushed global commodity prices higher than they would otherwise have been. Higher crude oil prices, despite lower demand, slowed economic recovery. At the same time, high debt levels, bank bailouts, soaring government budget deficits and falling tax revenues produced a sovereign debt crisis in Europe. Although the focus of the still developing sovereign debt crisis remains on Europe, the skyrocketing debt and unfunded Social Security and Medicare liabilities of the U.S. federal government, estimated to be more than $63 trillion, foreshadow a similar crisis in America.

The Trap of Financial Warfare

One of the key reasons why the U.S. has yet to experience a sovereign debt crisis is that the world reserve currency status of the U.S. dollar supports demand for the U.S. dollar and for U.S. federal government debt. However, the U.S. dollar is in the process of gradually losing its world reserve currency status. Global trade is fragmenting into increasingly autonomous trading blocks defined by currencies and trade relations, such as the BRIC nations (Brazil, Russia, India and China), together with South Africa.

Demand from emerging economies, particularly China, is placing steady upward pressure on the price of crude oil. Higher oil prices resulting from a combination of a weaker U.S. dollar and increased global demand threaten to push the U.S. economy back into recession. Setting aside flat to declining supplies of sweet light crude oil (Peak Oil), the fact that the price of gold has risen roughly 500% in a single decade suggests much higher oil prices in the future.

Iran, which is the world's third largest oil exporter and a major supplier of oil to China, lies outside of U.S. control. Iran refuses to sell oil for U.S. dollars, partly as a consequence of the overthrow of the democratically elected government of Iran in 1953, orchestrated by the U.S. Central Intelligence Agency, and partly as a consequence of current U.S. policies in the Middle East.

In March of 2012, the U.S. unilaterally removed Iran from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system, effectively cutting it off from world commerce. However, wielding the U.S. dollar's world reserve currency status as a blunt instrument could be counterproductive in the current international climate. If the U.S. dollar were to lose its world reserve currency status over a short period of time, a U.S. sovereign debt crisis would be certain and a catastrophic collapse of the U.S. dollar, i.e., hyperinflation, would be possible.

Having taken a decision to act unilaterally against Iran, the U.S. may be forced to resort to more extreme measures if the world reserve currency status of the U.S. dollar begins to break down. Of course, the U.S. does not control the oil trade solely through financial means. With Israel as a close ally, Iraq and Afghanistan occupied by U.S. forces, close ties with Turkey, Saudi Arabia, Kuwait, Qatar and other Middle Eastern countries, Iran is surrounded by more than 40 U.S. military installations.

A successful invasion of Iran would eliminate the largest non U.S. dollar oil exporter, delaying the breakdown of the U.S. dollar's status as the world reserve currency. Although a war with Iran would cause a spike in oil prices, U.S. control of Iran's oil would increase the supply of oil available for purchase in U.S. dollars, which would bring the U.S. dollar price of oil down and enhance the ability of the U.S. to manage the price of oil to meet the needs of the U.S. economy. Controlling a major supplier of crude oil to China and India would give the U.S. additional leverage to support the U.S. dollar and U.S. debt, as well as a means of influencing the policies and economic growth of the two largest nations. The option of invasion, however, may be time limited. If Iran were to eventually obtain nuclear weapons, the risks involved in a U.S. invasion would escalate.

As an alternative to invasion, a limited U.S. military action might involve surgical strikes on Iranian nuclear research and power facilities, as well as on Iranian military forces that pose a threat to the U.S. military. Destroying Iranian nuclear facilities and suppressing potential counterstrikes also suggests neutralising Iran's threat of disrupting the oil trade by closing the Straight of Hormuz. Thus, a limited U.S. military action would involve military operations on a scale not seen since the invasion of Iraq in 2003.

A limited U.S. military action might leave a weakened Iranian regime in place after the conflict and reignite the moderate, pro-democracy Green Movement that was brutally suppressed in 2009. Regime change from within might restore democracy to Iran after twenty six years of U.S.-imposed monarchy and more than three decades of quasi-democratic religious oligarchy. However, regime change is unlikely to result in the sale of Iranian oil in U.S. dollars or to extend the reign of the U.S. dollar as the world reserve currency. A preemptive strike by the U.S. could also strengthen political support for the current Iranian regime.

There seems to be no political will in Washington D.C. to change course from a U.S. military conflict with Iran, despite the fact that a U.S. attack on Iran will increase anti-U.S. sentiment in the region and amplify the Islamic extremist dimension of the U.S.-led War on Terror. The drumbeat to war in the U.S. news media is loud and clear and, if history is any guide, the U.S. will soon, e.g., after the 2012 presidential election, "cry havoc and let slip the dogs of war".

By Ron Hera 16.04.2012

Articles by Ron Hera, the Hera Research web site and the Hera Research Newsletter ("Hera Research publications") are published by Hera Research, LLC. Information contained in Hera Research publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in Hera Research publications is not intended to constitute individual investment advice and is not designed to meet individual financial situations. The opinions expressed in Hera Research publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and Hera Research, LLC has no obligation to update any such information.

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