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Identifying undervalued assets

Recent research has found that an alarming 31 per cent of SMSF trustees consider choosing investments as one of the hardest aspects of running an SMSF. Value investing is one such strategy that SMSF investors can utilise to boost their portfolios.

Value investing involves identifying undervalued assets that have the potential to increase in value over time. These assets are generally priced well below their intrinsic value due to missed expectations, market crashes, cyclical fluctuations and so forth.

To identify undervalued assets or asset classes you need thorough analysis and good judgment. Look for asset classes that are inexpensive and backed by news. It is much better to invest in industries where you understand the business dynamics, i.e., how they make their money, underlying conditions and so on.

Furthermore, looking for businesses in industries with a sustainable competitive advantage where external factors do not affect them too much is ideal.

When evaluating stocks look at companies with a low debt load, are paying steady dividends and have a quality rating that is average or better. Other metrics to consider include:

Price-to-earnings ratio: This is a stock’s current share price divided by its annual earnings. A lower ratio indicates it is cheaper. Stocks with a ratio of 9 or less are typically undervalued.

Price-to-earnings growth: A stock’s price-to-earnings ratio divided by its projected earnings growth rate over a certain time frame. Ideally, companies with no deficits and where earnings increase over that time period are better.

Price-to-book value: This is calculated by dividing the current price by the book value per share. Investing in stocks which are selling below their book value is key.

As with any other investment strategy, it is best to seek professional advice if you are unsure whether value investing is appropriate for you.

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What to consider when consolidating your super

August 27, 2020

The ATO reported that 45% of working Australians were not aware that they had multiple super accounts in 2016. Having multiple super accounts is particularly common for individuals who have had more than one job. If this is you, it is important to identify and manage your super accounts because having more than one can be costly as a result of account fees from multiple funds.To combat this, you may want to consolidate your super, which moves all your super into one account. Not only does this save on fees, but it also makes your super easier to manage and keep track of.

Before consolidating your super, it is important to do the following:

Research your funds’ policy
Compare your active super accounts so you can make the right choice about which one you should close. Things to assess include:

Check employer contributions
Changing funds may affect how much your employer contributes, as some employers contribute more to certain funds. Check your current accounts to see if changing funds will affect this. Once you have selected a super fund, regardless of whether you choose a new super fund or one of your existing ones, provide your employer with the details they need to pay super into your selected account.

Gather the relevant information
When consolidating your super, you will need to have the following details ready: