The impact of natural disaster on property values and insurance

The impact of natural disaster on property values and insurance

Updated on Finance

Australia’s vast expanses and varied climates make us prone to natural disasters. In recent years alone, we’ve experienced the devastating impacts of bushfires in the southern parts of the country, flooding along the Eastern Coast, as well as significant storm events and cyclones. As you can imagine, the aftermath of a natural disaster typically involves a lot of clean-up and rebuilding for those affected. However, there are also a number of flow-on effects from these events for those not directly affected that are of particular importance to homeowners and first home buyers. Impact on Home Values A natural disaster can drastically reduce the market value of affected properties, as property buyers become deterred by the high risk factor associated with the property or area. This can also make it difficult for owners to sell their homes or vacant land, as the buyer pool willing to take on that risk reduces. In some cases, properties in high-risk areas may become uninsurable, which can further impact value, sometimes causing these properties to become unsellable as purchasers are deterred by the inability to insure the property. Impact on Insurance Following a natural disaster, insurance companies are inundated with claims for damages, which can take months, or even years, to process. Property owners in affected areas may face increased premiums, regardless of whether or not the event directly impacted them, due to insurance companies requiring their underwriters to assess potential future risks to ensure a balanced risk portfolio across their entire insurance pool. For example, in its ‘Report on Home and Contents Insurance Prices in North Queensland’, the AGA reported that North Queensland’s home and contents insurance premium rates had increased by around 80 per cent over the period of its investigation. Throughout that time, North Queensland experienced Cyclone Larry, Cyclone Yasi, and the Mackay Storms. By comparison, premium rates across Australia increased by around 25 per cent for the same period. Underinsurance or uninsurance is often the outcome, with homeowners either unable to afford the cover or justify the cost, presenting a substantial financial risk to homeowners if a natural disaster occurs. Tips for Property Buyers It is crucial to conduct thorough research, especially when considering buying a property in an area prone to disasters. Know the Property History Research the history of the property, including the surrounding area, to understand the risk for natural disasters: Research historical records of property damage in the area. Check with the local council for any risks in the area and any tools they might offer. Be familiar with the environmental factors that create risk for the area. Read the Fine Print Not all insurance policies are created equal, so it’s essential to understand the terms and policy definitions of any insurance contracts, particularly for disaster prone areas: Discuss the appropriate levels of insurance coverage with an insurance agent, Research insurance providers and consider their options. Also, by researching insurance coverage and obtaining quotes during your property due diligence, you can factor the actual cost into your budget to ensure you can afford cover and not be forced into uninsurance or underinsurance. Risk Mitigation & Disaster Management If you’re looking to purchase a property in a high risk area, be aware of risk mitigation strategies to assist with reducing risk. Understanding your property’s building materials and construction methods may help to protect your property. Understanding risk mitigation activities you could take to reduce your exposure. For example, in bushfire prone areas, being aware of hazard reduction activities such as fuel-reduction burning, removal of vegetation and maintaining fire lines. Without appropriate insurance cover or a streamlined disaster management plan, the financial implications of natural disasters can have dire consequences. If you’d like further advice in relation to ensuring you are adequately protected, or if you require assistance with purchasing a home, please reach out to discuss how we might be able to assist. The information provided in this article is general in nature only and does not constitute personal financial advice.

4 Time-Tested Investment Strategies for Young Investors

4 Time-Tested Investment Strategies for Young Investors

Updated on Education, Finance, Investing

The newest generation of young investors were raised during the Age of Information. Growing up alongside the internet, this generation has been exposed to more information and technological advancement than any generation before them. Young investors have greater access to education around investing, more diverse opportunities for investing, as well as a rise in social media content creators creating communities around building wealth – making this topic much more popular among younger generations. However, the world of investing can still seem intimidating, especially for young adults who are just starting out. While investing does involve risk, there are some time-tested investing strategies that all young investors should adopt to set themselves up for success: 1. Know your financial goals Before investing, it’s essential to know what you’re working towards. Are you saving for a house deposit? Or are you building wealth so that you can retire early? You may want to launch a business. Or start a family? Knowing your financial goals can help determine the best investment strategy for you. Once you have set your goals, you can develop a financial plan for achieving these through investing. 2. Start small and grow your portfolio over time When starting, you might think you don’t have “enough” to begin investing. Starting small and gradually increasing your portfolio over time is a great way to begin. It allows you to “learn the ropes” and build your knowledge and confidence over time, without feeling like you have too much at stake. Getting started sooner rather than later also means you’re taking advantage of the power of compounding returns. Compounding returns happen when you reinvest your investment earnings, allowing your investments to grow over time. The earlier you start investing, the more time your investments have to compound, leading to significant long-term growth. 3. Diversify your investments You might have heard the term ‘Don’t put all your eggs in one basket’, which, in the world of investing, translates to ‘Don’t put all your money in one investment’. Diversifying your investments across different asset types is a key strategy that can be used to lower portfolio risk and provide more stable investment returns. 4. Keep calm… and remember your investment plan Investing should generally be viewed as a long-term strategy, as markets are cyclical and typically go through periods of growth, decline and stagnancy. This means that you will likely experience a market crash at some point in your investing journey, which can be a scary time for investors. It’s important to stay calm and avoid making impulsive investment decisions. In many cases, the best strategy during a market crash is to stay the course and stick to your investment plan. Further, market corrections can often present a great opportunity to invest as markets sell off and asset prices reduce. As Warren Buffet said: “Be fearful when others are greedy and greedy when others are fearful”. While investing may seem daunting at first, incorporating these fundamental strategies will pave the way for success. And a final tip… Seek expert guidance! A financial adviser can help you set achievable financial goals, plan ahead, and making informed investment decisions that will keep you on track towards building lasting wealth. Don’t navigate the financial world alone – let us be your partner in success! The information provided in this article is general in nature only and does not constitute personal financial advice.

Financial Success: More Than Just Money

Financial Success: More Than Just Money

Updated on Finance

When discussing financial success, many people tend to use the terms “rich” and “wealthy” interchangeably. While being rich is often associated with having a lot of money or material possessions, being wealthy is about having financial abundance that is sustainable over the long term. Being Rich Being rich is often associated with having a high net worth, a large income, or significant assets. It’s a term used to describe people who have accumulated substantial money or wealth. However, being rich does not necessarily guarantee financial success. Someone who is rich may have a lot of money, but they may not have the financial stability or security that comes with being wealthy. Being Wealthy On the other hand, being wealthy is a more sustainable form of financial success. Wealth is often created through long-term investments, passive income streams, and wise financial planning. A wealthy person has accumulated enough assets and income-generating investments to provide a steady income stream, allowing them to live comfortably without relying on external factors. Financial success requires more than just having a lot of money… it is about having financial security AND freedom: Financial security means having enough money to cover your basic needs and some comforts. Financial freedom is the ability to make choices based on what you truly want rather than being constrained by financial limitations. The path to financial success requires a good understanding of financial literacy, clearly defined personal values, a long-term perspective, and the ability to establish, and stick to, a strategic plan. Financial Literacy Understanding how money works, including managing, investing, and saving it, is critical to achieving financial success. This knowledge will help you make informed decisions about your finances and enable you to take control of your financial future. Personal Values Successful people achieving financial freedom often clearly understand what is most important to them. They know their values and use them as a guide when making financial decisions. This approach helps them focus on their priorities and avoid impulsive purchases that jeopardise their long-term financial security. Long Term Perspective True financial success and wealth isn’t built on the back of “get rich quick” philosophies. There is no “magic pill” for financial success; it’s a lifestyle, not an overnight fix. Building wealth takes time. It requires focus, discipline, patience, and long-term commitment. Strategic Planning Achieving financial success requires strategies such as creating a budget, investing wisely, and building passive income streams. Again, these are all strategies that require patience and commitment. It is essential to stay focused on your goals and take the necessary steps to achieve them. While the above factors each play a critical role in your journey to financial success, the secret ingredient lies in defining what financial success and wealth mean to you personally, as someone else’s definition of financial success may look very different to yours. Some ways to achieve this are to: Assess your lifestyle – Consider what your ideal lifestyle looks like; where are you, who are you with, what are you doing? Define your values – Figure out what is important to you and define your values based on this. Your values can then provide a framework to make decisions based on what is important. Set Financial Goals – Be clear on what you want to achieve in life. You can then define your vision further by setting specific financial goals. If you are ready to start your journey towards achieving financial success, a financial adviser can help. They will assess your financial situation, identify your goals, and create a long-term financial plan tailored to your individual needs. With their guidance and support, you can take control of your financial future and achieve the financial security AND freedom you deserve. The information provided in this article is general in nature only and does not constitute personal financial advice.    

Fixed rate mortgage expiring… Now what?

Fixed rate mortgage expiring… Now what?

Updated on Budgeting, Economy, Finance

If your fixed interest rate expiry is coming up, you might have started to think about what happens next and what action you need to take. Or you might be sticking your head in the sand and avoiding the topic entirely. Be warned! The worst thing you can do is take no action at all. If your fixed interest period is due to expire, then it’s time for a review of your finances – Revisit your budget A fixed rate expiry will mean a change to what is often one of our biggest expenses – the home loan repayment. In a rising interest rate environment, this likely means a bigger expense you will need to allow for. By revisiting your budget, you can make sure you can afford the new home loan repayment amount, or adjust your spending where needed. Know your financial situation Your financial situation is going to impact what options are available to you and what options might be best for you. If there’s been recent changes to your income position such as job loss, income reduction or maternity leave, for example, this may impact your ability to refinance your loan. As a result, you may have to stick with your current lender on terms you may not be happy with. If you have surplus cash flow that you want to use to reduce debt, a variable rate loan might be more appropriate so that you’re not as limited with the ability to make repayments. Alternatively, if cash flow is tight, you might appreciate the stability of a fixed rate loan, and knowing your repayment amounts won’t increase during the fixed rate period. By having a good understanding of your current financial position and future goals, you can determine what your needs are and what the best strategy is for you moving forward. Look at what the market is doing One of the main factors to consider when deciding between a fixed and variable interest rate is the current market. While no one has a crystal ball, it’s important to consider what is happening with the economy, housing markets and interest rates. Are interest rates trending up or down? And what might this mean for both fixed and variable interest rate loans? Get clear on your options When your fixed interest term expires, you will need to choose between either re-fixing your loan for a period or switching to a variable interest rate loan. This is also a good opportunity to review your existing loan provider against other loan providers, to ensure you are being offered a competitive rate. With your market research in hand, it’s time to call your existing lender to request a rate review. You can let them know you are considering refinancing your loan and want to know what the best they could offer is. It might be time to switch lenders if they’re not prepared to offer you a competitive rate.   The information provided in this article is general in nature only and does not constitute personal financial advice.

How to create a Debt Repayment Plan

How to create a Debt Repayment Plan

Budgeting, Finance, Superannuation

Debt can be overwhelming and stressful, but creating a plan to pay it off can help ease that burden. In Australia, household debt is on the rise, with the average household owing over $260,000 in 2021, according to the Australian Bureau of Statistics. If you’re struggling with debt, here are some tips and strategies for creating a debt repayment plan. Create a Budget The first step in creating a debt repayment plan is to create a budget. This will help you understand where your money is going and where you can cut back on expenses. List all of your income and expenses, including bills, rent or mortgage payments, groceries, and any other expenses. Once you have a clear picture of your finances, you can start to identify areas where you can save money. Prioritise High-Interest Debt If you have multiple debts, it’s important to prioritise the ones with the highest interest rates. These debts are costing you the most money in interest charges, so paying them off first will save you money in the long run. Make minimum payments on all of your debts, and put any extra money towards the one with the highest interest rate. Automate Payments Automating your debt payments can help ensure that you don’t miss any payments and incur late fees. Set up automatic payments for the minimum payments on all of your debts, and then add extra payments as you can afford them. This will also help you stay on track with your debt repayment plan. Choose a Repayment Strategy There are different methods of debt repayment, such as the snowball and avalanche methods. The snowball method involves paying off the smallest debt first, while the avalanche method involves paying off the debt with the highest interest rate first. Choose the method that works best for your situation, and stick to it. Case Study Let’s compare two scenarios to see how creating a debt repayment plan can make a difference. Scenario 1: Sarah has $10,000 in credit card debt, with an interest rate of 20%. She is making minimum payments of $200 per month, but is struggling to make progress on paying off the debt. Scenario 2: John has the same amount of credit card debt, but has created a debt repayment plan. He is making minimum payments of $200 per month, but has also cut back on expenses and is putting an extra $200 per month towards the debt. He is using the avalanche method, and has prioritised the credit card with the highest interest rate of 25%. After one year, Sarah will still have $8,360 in credit card debt, and will have paid $1,440 in interest charges. In contrast, John will have paid off $4,800 of his debt, and will have saved $1,200 in interest charges. Creating a debt repayment plan can make a big difference in your financial situation. By creating a budget, prioritising high-interest debt, automating payments, and choosing a repayment strategy, you can take control of your debt and work towards becoming debt-free. If you need help creating a debt repayment plan, speak with our advisers who can provide guidance and support.   The information provided in this article is general in nature only and does not constitute personal financial advice.

How to help your adult child buy their first home

How to help your adult child buy their first home

Updated on Budgeting, Finance, Superannuation

By Robert Goudie This savings strategy is about building a healthy deposit and allowing kids to learn about consistent, regular saving. The strategy will require patience to build a substantial deposit over several years. I also acknowledge that not all parents are able to help their children buy their first home. In my professional life as a personal financial adviser, I have seen many parents assist their children in purchasing their first home.  This has often been done with a lump sum. But, unfortunately, this doesn’t have the bonus of any tax efficiency or teaching children a regular savings habit to give them a sense of achievement. Purchasing a home can be difficult, especially as property prices have increased significantly in recent years. For many people, the high cost of housing (and living) has made it difficult to save a deposit for their first home, and even if they can do so, they may not be able to afford the monthly mortgage payments on a home that is within their budget.  Building a larger deposit can reduce the debt levels needed to buy their first home or even help them to buy in their preferred area. For parents with the financial capacity and want to help their children save for their first home without handing over a large lump sum, this strategy, combined with some patience, provides an effective way to build the deposit faster. (Please note: I would only recommend parents to do so that have met their own retirement financial goals and have the extra capacity to help out)  By subsiding your children’s income regularly, it can allow your child to start salary-sacrificing pre-tax dollars into superannuation – something that they normally couldn’t do without your help. Superannuation salary sacrifice Salary sacrificing is a way for employees in Australia to contribute part of their pre-tax salary into their superannuation account. This can be a tax-effective way to save for retirement because the contributions are taxed at a lower rate than your marginal tax rate. In Australia, the tax rate on contributions made through salary sacrifice is 15%. Contributions are made from your pre-tax salary, which means they are not taxed at the same rate as your income tax. This can be a significant saving if you are on a high marginal tax rate. For example, suppose you are on a marginal tax rate of 45% and were to salary sacrifice $10,000 into your superannuation account. In that case, you will pay $1,500 tax on those contributions (15% of $10,000). However, if you received that $10,000 as salary instead and then contributed it to your superannuation account after tax, you would pay $4,500 in tax (45% of $10,000). In this example, salary sacrificing would save you $3,000 in tax ($4,500 – $1,500). This can be a significant saving, especially over the long term.  However, it is important to note that there are limits on the amount you can salary sacrifice into your superannuation account each year. FHSSS In recent years, the Australian Government has implemented the First Home Superannuation Saver Scheme (FHSSS), allowing individuals to save for their first home inside their superannuation account. The policy was designed to help first-time home buyers save for a deposit more quickly by allowing them to make voluntary contributions to their superannuation account, which can then be withdrawn for a home deposit once certain conditions have been met. Under the FHSSS, individuals can apply to withdraw voluntary contributions of up to $15,000 from any one financial year from 2017 onwards, up to a total of $50,000 across all years. If you are in a couple, this is a combined $100,000.  Again, these contributions are taxed at a rate of 15%, which is generally lower than an individual’s marginal tax rate.  The money saved through the FHSSS can be withdrawn (less the 15% tax) for a home deposit once the individual has held their superannuation account for at least 12 months and met other specific eligibility requirements.  Note that superannuation contributions, including contributions made under the FHSSS, must still be within the standard annual caps for concessional super contributions. The FHSSS is one of several government initiatives aimed at helping Australians save for their first home and addresses housing affordability issues in the country. It is available to Australian citizens and permanent residents aged 18 and older who have not previously owned property in Australia and meet additional eligibility requirements. Let’s crunch the numbers Let’s assume a couple make a $14,705 contribution each into superannuation, earning $80,000 each per year, and continue this strategy for a full four years. We will first look at the amount saved in superannuation that can be used for a first home deposit and compare this saving with after-tax dollars outside the superannuation system.  After four years of salary sacrificing into superannuation and assuming no investment returns, you would have accumulated a combined $99,994. Compare this to saving after-tax dollars; you would have accumulated $77,054 in comparison. If a couple is lucky enough to have the ability to achieve the above, they would have saved $102,000, which is an extra $23,400 when compared to saving in after-tax dollars. Now let’s look at the amount of income that would need to be provided by those generous parents or grandparents to ensure that the household cash flow remains the same:  $15,000 less the marginal tax rate of 34.5% is $9,825 per person or $19,650 for a couple. Other thoughts Of course, many individuals and couples may already be actively saving for their first home deposit. Therefore, they may not need their generous relatives’ full support to achieve the above. Grandparents and parents can also choose to add a lump sum to help them at the time of purchase. It is worth noting that I have seen many clients take significant pleasure in helping their children and seeing the benefit of this assistance whilst they are still alive. However, as mentioned above, any gifting needs to ensure that generous relatives do not compromise…

Why the share market is not the same as the economy

Why the share market is not the same as the economy

Updated on Economy, Finance

At the beginning of 2022 the Australian economy appeared to be sliding into recession, dragged down by higher interest rates and even higher inflation levels. As a result, it was tempting to believe the share market was also set to tumble. And while that’s not impossible, the local market traded higher during each of Australia’s last nine recessions, with some of the strongest trading on the Australian share market occurring when the economy was contracting. For example, 1983 was the best year ever on the Australian share market, climbing 60 per cent higher, while the economy was stuck hard in the 1981-1983 recession. So, while it is tempting to think poor economic times mean a dismal outlook for the market, there are four key reasons why that is usually not the case. Firstly, the market is driven by expectations. There is an old saying; investors buy on the rumour and sell on the facts. Big share market falls occur suddenly, well before the economy officially moves into recession, as investors promptly react to bad news. Once the economy is in recession, investors look to the future and how companies can take advantage of emerging opportunities in an improving economy. Improvements that can take time to show up in economic data. Secondly, the share market reflects investor sentiment, while consumer concerns and beliefs dominate the economy. Consumers might cut back on buying clothes or going out in preference to boosting savings when they fear bad times. In contrast, professional investors are constantly looking for opportunities, and economic downturns where small businesses go bust and consumer sentiment changes, usually create them. Thirdly, the share market comprises large successful companies. In contrast, economic statistics are dominated by what is happening to individuals and small businesses. Two groups that can respond very differently to world events. For example, the war in Ukraine prompted a rise in energy prices, particularly for oil. Most individuals and small businesses responded by cutting back on their petrol consumption, while large oil companies are cranking up production to take advantage of these higher prices. Finally, the share market has a much smaller universe than the economy. The market is made up of large companies entirely focused on getting larger and more profitable and, in doing so, attracting more investors to support their efforts. The economy is made up of Governments, individuals, and small businesses, all making a wide range of decisions about how they will live and operate in an ever-changing world and are basing those decisions on a raft of factors. So, while the share market and economy are connected, they are influenced by widely different variants that often see them heading in different directions.     The information provided in this article is general in nature only and does not constitute personal financial advice. 

Quarterly Economic Update: July-September 2022

Quarterly Economic Update: July-September 2022

Economy, Finance

As geo-political tensions tighten in Ukraine, economies around the world are reeling from mounting energy prices, soaring costs of living and in a desperate attempt to bring down inflation, higher interest rates.  The US economy appears certain to fall into recession. Markets have suddenly become volatile as shares are sold in preference to holding funds in defensive assets such as cash. This in turn is reaping havoc on world currency markets. Funds are flooding into US dollar denominated investments and in doing so, are sending the value of the greenback sky high against other currencies.  Speculation is mounting that the British pound may fall to historic lows in coming months and may even reach parity with the US dollar, driven by the newly elected Prime Minister Liz Truss, implementing a big borrowing, low taxing budget. This controversial attempt to boost the British economy comes at a time when central banks around the world, including the Bank of England, are lifting interest rates in order to reduce economic activity and so, dramatically slow the rate of inflation.  The Organisation of Economic Co-operation and Development is now forecasting economic growth will slow from 2.8 to 2.2 per cent during the next twelve months as the United States, China and Europe all cut back on economic activity.  While Australia is not spared from this global slowdown, with the OECD forecasting domestic growth will tumble from 2.5 to 2 per cent during the coming year, it should survive this turbulent period better than most. Much will depend on this month’s Federal Budget. The first by the newly elected Albanese Government, it will tread a line between its reform agenda including much talk about tax cuts and trying to slow the economy and so reduce inflation.  Although the employment rate across the nation remains high, spiralling prices for basic foodstuffs and other essentials is putting enormous pressure on the Government to provide relief to those struggling to get by. In the meantime, petrol prices are set to bounce higher as the Federal Government restores the fuel excise tax, adding 23 cents a litre to both petrol and diesel sold in Australia.  In addition, the Reserve Bank has made it clear it will continue to lift the domestic cash rate and with it most other local interest rates, until it has clawed back the rate of inflation from an expected high of 7 per cent, to less than 3 per cent.  Higher interest rates are already impacting homebuyers. Five rate rises since May, mean a couple earning $92,000 each, can now borrow $264,000 less than they could in April according to analysis by the research house, Canstar. So even with a 20 per cent deposit, a couple’s maximum budget has dropped from more than $1.63 million to $1.37 million and this in turn is being reflected by prices in the property market. As buyer’s budgets have fallen, so too have property prices. CoreLogic Home Value Index shows house prices in Sydney have dropped by 7.6 per cent this year while Melbourne prices have fallen by 4.6 per cent.  With the Reserve Bank determined to force even higher interest rates on the economy in order to defeat inflation, there is no end in sight to higher interest rates and further property price falls.   The information provided in this article is general in nature only and does not constitute personal financial advice. 

Personal risk management plan – do you have one?

Personal risk management plan – do you have one?

Finance

Risk Management Plans don’t only apply to businesses – every person and family should also have a plan to help them cope in the event of an unexpected crisis. No doubt you have insured your car as the risks of damage are obvious to you on a daily basis. You will almost certainly have insured your home and contents against fire, burglary or storms. But what about your greatest asset: your income? Statistics show that as a working adult, earning an average income is worth more than $3.7 million over a 40-year full-time career, assuming no increase in earnings. How would you cope if your family’s primary income earner met with serious illness or accident? Your Risk Management Plan Professional guidance is crucial in establishing your risk management plan. You need to consider the extent of your financial commitments and review what assistance may already be in place. This may include insurance cover within your superannuation, employer protection, existing insurance policies or other sources. Fortunately, a range of insurance policies are available to cover the risks you confront. These include: Loss of Life or Total & Permanent Disablement. By including this in your superannuation it is effectively a tax deduction as your superannuation comes from pre-tax income. Income protection. A critically important cover for income earners. It will provide you with income in the event of sickness or accident for a predefined period. If you are a small business operator you can include the costs of operating your business while you are incapacitated. The premiums are a tax deduction. Trauma insurance. This is sometimes referred to as critical illness insurance and provides for a lump sum in the event of suffering a specific injury or illness. It is ideal for a non-income earning partner who may not qualify for income protection. Child Trauma insurance. Many families are devastated when a child is struck with a critical illness. This may mean one or both parents having to give up work while the child undergoes lengthy treatment. Some companies are now providing specific policies to assist the family in such a catastrophe. A licensed financial adviser will be able to help you prepare a Risk Management Plan… just in case. The information provided in this article is general in nature only and does not constitute personal financial advice.

Retirement wrongs that could send you broke!

Retirement wrongs that could send you broke!

Updated on Finance

While retirement should be the best years of your life, many Australians make simple, avoidable mistakes with their finances that can leave them without the funds to really enjoy life. However, with some simple good advice at the start of retirement, these mistakes can usually be avoided, leaving retirees to focus on what is really important and that is, simply enjoying life. Making emotional investment decisions Many people reach retirement age and panic that they don’t have enough money. This then prompts them to make high risk investments in the vague hope of catching up on lost time. Too often their dreams of big profits blind them to risks and many end up losing a chunk, if not all, of their money. All retirement savings are irreplaceable and should be invested with this in mind. Ignoring your portfolio At the other end of the spectrum are retirees who think they have so little saved for retirement that it doesn’t matter what they do with it, in terms of their investments, it won’t make any difference to their lives. This is almost as big a mistake as taking excessive risks. No matter how much money you have saved for retirement, you should be pro-active in making sure these funds are safely invested and providing for you. Miscalculating your retirement funds Many misjudge either the total amount they have to retire on, and/or, the level of income it will generate. This is particularly the case when the decision is made to keep an investment property in retirement. The high value can often give a false sense of financial security, while the actual income generated after all the costs are deducted, can be extremely low. Determine just how much money you have saved for retirement, conservatively judge how much income will be generated from those savings and ensure you don’t spend more than your investments generate. Changing asset allocations to conservative assets, such as cash For many, retirement is the first time they have had to manage or decide how to invest a large amount of money. This can be unnerving at the best of times. Throw in a small market downturn and it is not unusual for people to panic and sell perfectly good investments. This is, of course, the worst option. By panicking and selling investments when the market has taken a step down, losses are locked in and any chance of recovering those funds as the market improves, is lost. Keeping up with the “Joneses” Too often, we’re swept along by what others do. Focus on how you want to live. Think about what will make you happy in retirement and then invest your savings safely so you can focus on enjoying life. For most, the things that make them happiest are free. Time spent with grandchildren, walking barefoot on a beach, or spending time in the garden, all cost very little money and are a fabulous boost to the body, health and mind. If you have any doubts at all about how you should structure your finances, make the decision to get quality advice before you make any of these mistakes. It will be the best investment you make in retirement. The information provided in this article is general in nature only and does not constitute personal financial advice.

What does a good financial adviser do?

What does a good financial adviser do?

Updated on Aged Care, Budgeting, Economy, Finance, Insurance, Investing, Retirement, Superannuation

Some people may think that a financial adviser’s role is to forecast the direction of the share market from month to month and invest clients’ money accordingly. This is not the reality, of course. Investments are only one small part of what your financial adviser can provide for you. Consider for a moment the number of websites, newsprint and broadcast time dedicated to financial topics these days. Australians seem to have an insatiable appetite for understanding finance. Whether it’s the latest share market activity, economic news or the constantly changing tax and superannuation rules, a licenced financial adviser can help answer your burning questions and save you the hassle of finding it yourself. Usually, the benefit you receive from a financial adviser can be spelt out in dollar terms. It might be the income tax you have saved by re-structuring your salary, or a new concession from the Australian Tax Office (ATO) or Centrelink that you didn’t know you could get. The finance section of your newspaper or online magazine probably includes a regular “advice” or “Q & A” column. By law, these columns must warn readers that the advice does not consider your personal situation or needs, and you should consider its appropriateness before acting. In setting your financial strategy, a good financial adviser will take the time to get to know you and your circumstances. This means that everything recommended to you—the investment portfolio, super contribution strategies, savings plans and insurance advice—is tailored to your personal needs, goals, and tolerance to risk. As the years go by, your financial strategies will need adjusting due to changes in the broader environment or something closer to home. Whatever the case, your adviser is there to help you make the most of the good times and the bad. And a regular financial review doesn’t always mean major changes, but at least you’ll know that you’re on the right track – and not having to do it alone. Quality, knowledgeable advice is critical, and wherever you are on your financial path, now is always the best time to talk to us.   The information provided in this article is general in nature only and does not constitute personal financial advice.

It’s time to get focused on super in your 40s

It’s time to get focused on super in your 40s

Updated on Budgeting, Education, Finance, Investing, Retirement, Superannuation

Typically your forties is a time of established careers, teenage kids and a mortgage that is no longer daunting. There are still plenty of demands on the budget, but by this age there’s a good chance there’s some spare cash that can be put to good use. A beneficial sacrificeAt this age, a popular strategy for boosting retirement savings is ‘salary sacrifice’ in which you take a cut in take-home pay in exchange for additional pre-tax contributions to your super. If you are self-employed, you can increase your tax-deductible contributions, within the concessional limit, to gain the same benefit. Salary sacrificing provides a double benefit. Not only are you adding more money to your retirement balance, these contributions and their earnings are taxed at only 15%. If you earn between $90,001 and $180,000 per year that money would otherwise be taxed at 39%. Sacrifice $1,000 per month over the course of a year and you’ll be $2,880 better off just from the tax benefits alone. It’s important to remember that if combined salary sacrifice and superannuation guarantee contributions exceed $25,000 in a given year the amount above this limit will be added to your assessable income and taxed at your marginal tax rate. What about the mortgage?Paying the mortgage down quickly has long been a sound wealth-building strategy for many. Current low interest rates and the tax benefits of salary sacrifice, combined with a good long-term investment return, means that putting your money into super produces the better outcome in most cases. One caveat – if you think you might need to access that money before retiring don’t put it into super. Pay down the mortgage and redraw should you need to. Let the government contributeLow-income earners can pick up an easy, government-sponsored, 50% return on their investment just by making an after-tax contribution to their super fund. If you can contribute $1,000 of your own money to super, you could receive up to $500 as a co-contribution. Another strategy that may help some couples is contribution splitting. This is where a portion of one partner’s superannuation contributions are rolled over to the partner on a lower income. Your financial adviser will be able to help you decide if this strategy would benefit you. Protect what you can’t afford to loseWith debts and dependants, adequate life insurance cover is crucial. Holding cover through superannuation may provide benefits such as lower premiums, a tax deduction to the super fund and reduced strain on cash flow. Make sure the sum insured is sufficient for your needs as default cover amounts are usually well short of what’s required. Seek professional adviceThe forties is an important decade for wealth creation with many things to consider, so talk to us and we’ll help you make sure the next 20 years are the best for your super.   This is general information only

What is money… really?

What is money… really?

Updated on Economy, Finance

That $50 note in your pocket. What’s it worth? “$50,” you say, probably thinking it’s a dumb question. But is it really? Or a sheet of plastic and a bit of ink that likely cost the note printer less than a cent? Your $50 note only has value because the government declares that it does. This lack of intrinsic value means your $50 note, and the balances of bank accounts that represent most money in circulation, might better be described as currency rather than ‘real money’. Over the past few thousand years all sorts of items have been used as currency, from shells and cocoa beans to soap and cigarettes. But to be considered real money, several key criteria need to be met. The most important are that it is: Recognised as a medium of exchange and accepted by most people within an economy. Durable. Portable, having a high value relative to its weight and size. Divisible into smaller amounts. Resistant to counterfeiting. A store of value over long timeframes. Of intrinsic value, i.e. not reliant on anything else for its value. Throughout history gold and silver have come closest to meeting these and other criteria, though nowadays you’ll have difficulty in paying for your groceries with gold Krugerrands. Also, you’ll want to keep your gold and silver in a safe place, and it was people seeking to do just that which gave rise to paper money and our current system of bank-created money. What started out as a good idea… Centuries ago goldsmiths would take in gold and silver for safekeeping and issue the owners receipts, or notes, confirming the amount of gold held. The depositors soon discovered that these notes could be used for payment in place of the physical gold, but the goldsmiths noticed something else. It was rare for anyone to redeem all their notes at once. They saw the opportunity to issue notes as a loan that borrowers paid back over time, with interest. Provided borrowers paid back their loans on time and only a small proportion of owners wanted their gold back at any given time, all was well, and goldsmiths transformed into bankers. But this didn’t always work out. An economic shock might see everyone wanting their gold back, and if the bank couldn’t deliver the full amount that was demanded, it went broke. To help prevent this, many countries created central banks, with some governments even acting as lender-of-last-resort. While government control and the rules around banking have evolved over time, private banks are still the source of most currency created today. When things get real In economically stable times it’s easy to think of currency and real money as the same thing. However, a couple of examples reveal the difference between the two. One is when a government starts printing money to pay for its programs. Inflation usually results, and the value of currency can plummet. In the case of hyperinflation, paper money and bank deposits can quickly become worthless as happened in Germany in the 1920s. The difference between currency and real money and the issue of intrinsic value has implications for other investments. If you would like to learn more, talk to us. We’re here to help.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: July – September 2020

Quarterly Economic Update: July – September 2020

Updated on Finance, Investing

COVID-19 remained the big story of the last quarter. Tragically, by the end of September the pandemic had caused over one million deaths. That was up by 500,000 since the end of the previous quarter, and many countries were experiencing devastating ‘second waves’. While most of Australia managed to keep case numbers of coronavirus at very low levels, Victoria provided a case study in the severe human and economic impacts of having the virus escape control. Now it is epidemiologists, rather than economists, that we look to for advice on how to transition to a post-pandemic world. Unemployment ups and downs The official unemployment rate from the Australian Bureau of Statistics was 7.5% in July, but showed a welcome drop to 6.8% in August. Meanwhile, NSW claimed that 70% of jobs initially lost in the pandemic had been restored. However, when JobKeeper, people working zero hours but classified as employed, and a big jump in gig workers are taken into account, the real unemployment rate is much higher. Roy Morgan estimated that the actual unemployment rate is closer to 13.8% and the combined unemployment and under-employment rate is 22.8%. Still, both these figures were down from their peak in late March. Property problems The major property markets of Sydney and Melbourne declined for the fourth month in a row, with the ABS reporting that in the June quarter these major city housing markets dropped by 2.6 and 2.8% respectively. And the outlook for housing construction is none too rosy. Australia relies on immigration to generate the population growth that stimulates construction and supports the prices of existing dwellings. With our borders effectively closed that population growth will either be delayed or will fail to materialise. Rental income is also expected to decline, particularly in markets with a high proportion of overseas students who are unable to return to Australia. The markets After a bit of a rally through July and August the local share market ran out of steam, with the S&P 500 index finishing the quarter down by 1.4%. International markets continued to produce some excitement. Despite weakening a little towards the end of the quarter the MSCI All-Country World Equity Index rose 7.2%. Much of this was attributable to the US market with the S&P500 up 7.6% and the NASDAQ up 10.2%. The Aussie dollar also weakened slightly towards the end of the quarter, finishing flat against the Euro and British Pound, up 2% against the Yen, and up 3.8% (from the high 60s to low 70s) against the US Dollar. The outlook If you thought that interest rates couldn’t go any lower, think again. The RBA has flagged the possibility of a further cut in the cash rate with commentators predicting a cut of 15 basis points to take the rate to just 0.1%. Internationally, the US presidential election could see an increase in market volatility with the final outcome anything but certain. For further information on current market conditions, contact us.     The information provided in this article is general in nature only and does not constitute personal financial advice.

Positioning your portfolio in turbulent times

Positioning your portfolio in turbulent times

Updated on Finance, Investing, Superannuation

As any experienced investor knows, all investment markets have their ups and downs. Regardless of investor experience, turbulent times are a cause of anxiety, and that can lead to poor decision-making. So, if turbulent markets are inevitable, even if their timing is not predictable, how should portfolios be positioned in anticipation of and in response to market volatility? What’s your objective? First up, it’s important to go back to your investment objective. Is it to grow wealth over the medium to long term? Or are you more concerned with preserving capital? Your objective also needs to take account of your risk profile. With your risk tolerance and objectives clarified, it’s time to get to grips with asset allocation. This is the process of deciding what proportion of your portfolio will be allocated to each of the major asset classes: cash, fixed interest, property and shares. Asset allocation is the engine room of your portfolio. The amount that you apportion to the major asset classes has the biggest effect on your portfolio performance. It has a greater bearing on your returns than individual asset selection. Asset allocation is also your key risk management tool, the more you allocate to shares and property the greater the volatility, and therefore the risk. However, in this context, risk isn’t always a bad thing. A higher risk portfolio may at times fall more in value than a lower risks portfolio, but over the long term it is also more likely to generate higher returns. Oops, too late Unfortunately, the motivation to position a portfolio for turbulent times is often a sudden upset in investment markets. But this doesn’t mean it’s too late to do anything. If your investment objectives and risk tolerance haven’t changed, rebalancing your portfolio (i.e. bringing the asset allocation back to its ideal position) may help to position it for the next upswing in investment markets. Waiting out the storms While positioning can help with portfolio risk management, many investors opt to wait out any storms. Why? Because for all the ups and downs, bull markets and bear markets, bubbles and crashes, major share markets have delivered solid long-term growth. In fact, it has been claimed that investors have lost more money trying to anticipate corrections, than they would have lost in riding out actual corrections. A detached view Concerned about the financial outlook and your portfolio’s current position? We can provide an impartial assessment of your portfolio, help you identify your objectives and your risk tolerance, and recommend investments to help you weather the turbulent times. Talk to us today to get started.     The information provided in this article is general in nature only and does not constitute personal financial advice.

Unlocking financial secrets for different phases of life

Unlocking financial secrets for different phases of life

Updated on Finance, Investing

One of the keys to financial success is to adopt the right strategy at the right time. As you move through the stages of life, here are some tried and tested ‘secrets’ that will help you build and protect your wealth. Teens and young adults Time is on your side so get saving. Through the magic of compound interest, a little bit invested now can grow into a big amount over time. Most young people don’t want to think about life in 50 years time, but if a 15-year-old starts saving just $10 per week into an investment returning 5% pa (after fees and tax), when they turn 65 their total outlay of $26,000 will have grown to over $116,000. Contributing those savings to a tax-favoured vehicle such as superannuation may provide an even higher final return. Single life Saving is still a key strategy as careers are established, but usually with a shorter timeframe and a specific purpose in mind – buying a home, for example. This is a time when savings strategies can be brought undone by the allure of desirable things and the ease with which one can go into debt. Take care not to indulge in too many luxuries, and avoid taking on any high interest debt, such as credit cards. Rather, commit to working out a budget and sticking to it. Family focus The time of kids and mortgages is also the time of peak responsibility. It’s likely that your most valuable asset is your ability to earn an income, and illness, disability or death could deprive you and your family of that income. The financial consequences of each of these possibilities can be managed with a blend of income protection, total and permanent disability, trauma and life insurances. Preparing for retirement With offspring launched into the world and earning capacity often at a peak, a wealth of opportunities open up for pre-retirees. By all means enjoy some lifestyle spending, but don’t forget to supercharge your super in anticipation of a long retirement. In times of normal interest rates, using surplus income to pay off any outstanding home loan is often recommended, however, when interest rates are very low, investing spare income into super and leaving debt repayments until later may deliver a better outcome. Golden years Australians are up there with the leaders when it comes to enjoying long and healthy retirements. That means retirement savings need to last, so a): don’t go too hard too fast in spending your super, and b): don’t invest too conservatively, particularly in times of ultra-low interest rates. On the plus side, if you’ve employed the above secrets in each phase of life, you should be in good shape to enjoy a long, financially comfortable retirement. Whatever your stage of life, there are many things you could be doing to secure your financial future. To find out more, talk to us today.     The information provided in this article is general in nature only and does not constitute personal financial advice.

COVID-19 Economic Update

COVID-19 Economic Update

Updated on COVID-19, Finance

During the last quarter one story has dominated the news – COVID-19. By the end of June at least 10 million people had contracted the disease, and over 500,000 had died. With 8,000 cases and 104 deaths, Australia was amongst the countries that have been most successful in limiting its spread. However, this success came with a major cost. By June, 800,000 fewer people were on the nation’s payrolls than at the start of the pandemic. The travel, hospitality and entertainment sectors were particularly hard-hit. One consequence of this major loss of employment is that many people took advantage of the ability to withdraw up to $10,000 from their superannuation prior to the end of June. As of mid-June, over 2.3 million people had applied, with nearly $16 billion worth of withdrawals processed. A further $10,000 can be withdrawn in the new financial year. While this will prove a real lifeline for the many people who need the money now, those who do withdraw the maximum amounts are likely to be tens of thousands of dollars worse off in retirement, with younger people facing the biggest losses. Key numbers Perhaps surprisingly, investment markets took an optimistic view of the long-term financial consequences of COVID-19. While not returning to its record highs, the S&P ASX200 index rose 16% over the quarter, a little behind the MSCI All-Country World Equity Index (up 18.7%) and the US S&P500 (up 18%). However, the real action was on the tech-heavy NASDAQ, which lifted 30.6% over the three months to set a new high. The RBA cash rate stayed at 0.25%, with no great expectations of a change anytime soon. The Aussie dollar rose steadily, increasing from 61.7 to 69.1 US cents from the end of March until end of June. It enjoyed similar gains against the British Pound and Japanese Yen, and a slightly smaller gain against the Euro. While there are many factors that influence the value of the dollar, this last quarter saw it closely following the fortunes of one of our major export commodities – iron ore. What next? COVID-19 is likely to remain the dominant story for some time yet. Following the initial lockdown, countries around the world, Australia included, are conducting something of an experiment in trying to ease restrictions without triggering ‘second waves’ or other outbreaks. Events in Victoria have shown how challenging this can be, but successfully lifting lockdowns is a critical step towards restoring anything resembling normal economic activity. Another challenge facing the federal government is how to continue to support the millions of people on the JobKeeper allowance and the JobSeeker supplement. With these programs due to end in September, there is concern that their sudden cessation will deliver another blow to the economy.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Investing 101

Investing 101

Updated on Finance

Whether it’s taking a more active interest in our superannuation, starting to build an investment portfolio, or even trying our hands at playing the stock market, we can all benefit by understanding the language and key concepts of investing.   Asset classes There is a huge range of potential investments out there, and these can be grouped together in asset classes that are based on shared characteristics. There are many asset classes, however the major ones that most mainstream investors focus on are shares, property, fixed interest and cash.   Shares give investors part ownership in specific companies. The share market sets the value of each share and prices can fluctuate significantly, even from day to day. This price volatility means that, relative to other asset classes, shares are higher risk, particularly in the short term. However, investors expect to be rewarded for taking on this risk by the potential for shares to deliver higher long-term gains than the other asset classes. Property also provides investors with full or partial ownership of growth assets. Income is received in the form of rent, and property can also provide capital growth. As property can, at times, fall in value, it is considered a medium to high-risk asset class. Fixed interest refers to investment in government or corporate bonds. Bonds are a type of loan, and each bond has a maturity date (the date the loan is repaid), a maturity value (the amount returned at the maturity date), a coupon rate and a market value. The coupon rate is fixed for the life of the bond (hence the term ‘fixed interest’), but the market value can fluctuate depending on movements in interest rates. Cash covers bank accounts and term deposits. Returns are in the form of interest payments, and cash is generally considered to be a low risk asset class. Why are asset classes important? One of the golden rules of investment is that when seeking higher returns, investors must take on a greater degree of risk. Quality fixed interest investments provide a high certainty of a particular return. They are low risk, and the returns they offer reflect this. However, for any given share, we don’t know what its price will be in a week, a month or a year. Prices may be volatile, the return is uncertain, so a share is a higher risk investment. However, that risk can be a positive thing – upside risk – which is the potential for the share to generate a higher than expected return.   Asset classes bundle together investments with similar risk and return profiles. By blending these asset classes together in different proportions – a process called asset allocation – investors can construct portfolios that provide levels of risk and return that suit specific needs.   This blending of different asset classes results in diversification, which is a critical risk management tool. As different asset classes over and under perform at different times, mixing different asset classes lowers the volatility, and hence the risk, of a portfolio.   As far as returns are concerned, studies have shown that over 90% of a portfolio’s performance is determined by the asset allocation. It’s vastly more important than individual investment selection or the timing of purchases and sales.   Help is at hand Of course, there’s more to investing than can be conveyed in a short article, but that’s no reason to delay putting the various markets to work. Speak to us today and we can help you understand your risk comfort level and design an investment strategy that’s right for you.   The information provided in this article is general in nature only and does not constitute personal financial advice.

What to consider when withdrawing your super early

What to consider when withdrawing your super early

Updated on Finance

[fsn_row][fsn_column width=”12″][fsn_text] As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus.   One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year.   For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be.   Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation.   Taking the maxMuch depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal.   At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal.   But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87.   Reducing the riskOn the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension.   There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution.   COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, speak to us.   The information provided in this article is general in nature only and does not constitute personal financial advice. [/fsn_text][/fsn_column][/fsn_row]

Shares are more than numbers

Shares are more than numbers

Updated on Finance, Investing

[fsn_row][fsn_column width=”12″][fsn_text] Whether it’s by direct purchase, via a managed fund or through superannuation, most Australians hold some form of share investment. Many of us are aware that if the numbers in the finance report on the evening news are mostly green that’s good and if they’re red that’s bad, but beyond that we give little thought to what shares are and why we should take an interest in them.   What’s a share? When you buy shares, you aren’t just buying a piece of paper or a digital entry on an electronic register. You are actually buying a physical part of a company. It might be a tiny fraction of the total value, but it still provides you with certain rights and responsibilities, including the opportunity to participate in the direction of the company. Shares are real assets and depending on the size and stability of the company, you can even borrow against them.   The benefits For most people, the most important aspect to share ownership is being able to share in the profits and growth of the company. For ordinary shares, a portion of the profit is usually paid out via twice-yearly dividends. Some profits may be retained to fund the growth of the company, and this should be reflected in an increase in share price over time. These capital gains can be realised by selling the shares. The downside is that, if the company does poorly, investors may see a fall in the value of their shares.   Getting involved Beyond receiving dividends and (hopefully) watching the share price increase, many investors take little interest in their shares. But shareholders also enjoy the right to have a say in the running of the business, by voting for or against the appointment of specific directors and on resolutions at the Annual General Meeting. One share equals one vote, so large institutional investors such as superannuation funds usually have the greatest say, but even small investors can turn up at the AGM and potentially ask questions of the board. And groups of shareholders may get together to influence a company’s direction on a range of business or governance issues.   Buying shares in up and coming companies is also a way of putting one’s money where one’s values and interests are, for example in renewable energy, recycling, medical technologies, batteries or emerging markets.   The rewards of investing in shares can be enormous, and they’re not just financial. There’s real pride to be gained from looking at a company that has achieved great things and to know that you’ve played a part in its success.   However, there is a financial risk associated with owning shares, so if you want to treat your share portfolio as more than just numbers on a screen, speak to us.     The information provided in this article is general in nature only and does not constitute personal financial advice. [/fsn_text][/fsn_column][/fsn_row]

When an SMSF may be the wrong idea

When an SMSF may be the wrong idea

Updated on Finance, Investing, Superannuation

Since the Australian Government introduced compulsory employer contributions to people’s superannuation funds in 1992, Australia’s funds invested in super have grown to $3 trillion. In this time, self-managed super funds (SMSF’s) have grown in popularity too. There are currently just over 1 million members with $747 billion in SMSFs across Australia. SMSFs can have between one and four members. While not yet legislated, the government has proposed allowing up to six members in an SMSF. Most SMSFs in Australia have two members (70%), with most other SMSFs having a single member (23%). According to the ATO, the average value of assets in people’s SMSFs is $320,000. The general recommendation is to have a minimum balance of $200,000 in your SMSF. While it can be tempting to see the potential of being in complete control over your super balance, it may not always be a good idea to set up an SMSF. Why set up an SMSF?Many people opt to set up an SMSF to have more flexibility in where they invest their money. Along with more investment options such as residential property and rare asset classes such as art, valuable collectables and physical gold, your SMSF income is taxed at a lower rate of 15%. Compared to the marginal income tax rate for average and high-income earners (usually between 30% to 45%), establishing an SMSF can be an attractive option. However, as with any other type of investing, there are potential downsides and SMSFs can carry significant risks and costs. What are the risks associated with having an SMSF?There are several risks associated with having an SMSF. To establish an SMSF, you are legally required to have an investment strategy. When you have an SMSF, you also need to ensure you get tailored advice from your financial adviser to mitigate the risk of making poor investment and financial decisions. Many SMSFs also choose to invest in one asset, such as residential property. This leaves your super balance overexposed to risk, compared to if you had a balanced portfolio in a super fund. Unlike a traditional super fund, an SMSF has time-consuming administrative tasks and costs. Some of the costs you may incur when you have an SMSF include annual compliance, audit and management costs, investment fees, brokerage fees, wholesale managed fund fees and advisory fees charged by your accountant and financial adviser. If you have an SMSF, it’s important that these fees don’t equate to more than 2% of your super balance. On a balance of $200,000 in an SMSF, the fees would ideally need to be below $4,000 per year. When you have an SMSF, you are in complete control of your investing, which means you are also solely responsible for keeping up to date with your compliance requirements. The legislation around SMSFs is constantly changing. If you don’t have a genuine interest in continually staying updated on these changes, or the fees to seek regular advice are going to push your annual costs over 2% of your balance, you need to rethink whether an SMSF is the right option for you. To summariseWhile establishing an SMSF can offer you flexibility in how you manage your retirement funds, there’s a raft of risks and costs associated with having an SMSF. Further, an SMSF can be a lot of work, so it may not be the right option for you if you’re unsure whether you want to commit to the ongoing financial, legal and administrative requirements associated with having an SMSF. If you are considering establishing an SMSF or deciding whether an SMSF is suitable for you, speak to us to obtain personalised advice for your unique situation.    The information provided in this article is general in nature only and does not constitute personal financial advice.

Your wealth during the COVID-19 pandemic

Your wealth during the COVID-19 pandemic

Updated on COVID-19, Finance, Investing

There isn’t a single person in the world who hasn’t been impacted by COVID-19. As new case numbers start to slow in Australia, so too is our economy. This time presents new challenges as everyone gets used to a “new normal” and figures out the best way to weather the coming months. This article provides an overview of different measures the Federal Government has announced to support individuals and businesses, current market performance and what you should be thinking about when it comes to your finances and continuing to build long-term wealth. Government support for individuals and businessesThe Federal Government has announced two economic stimulus packages and the JobKeeper Payment to support individuals and businesses. An overview of the Federal Government’s measures announced to date is detailed below. Support for individualsThe Federal Government has announced a range of measures to help individuals. Eligibility to access these measures is determined on criteria such as your employment status or loss of income due to COVID-19. Some of the key measures include: two $750 payments to social security, veteran and other income support recipients (first payment from 31 March 2020 and the second payment from 13 July 2020); access to the JobKeeper Payment from your employer (if eligible) equal to $1,500 per fortnight; a time-limited supplementary payment for new and existing concession recipients of the JobSeeker Payment, Youth Allowance, Parenting Payment, and Farm Household Allowance equal to $550 per fortnight; early release of superannuation funds (see overview below); and temporarily reducing superannuation minimum drawdown rates (see overview below). Full details about the Federal Government’s measures to support individuals are available on the Treasury website. Early release of superannuationEligible people will be able to access up to $10,000 of their superannuation in the 2019-20 financial year and a further $10,000 in the 2020-21 financial year. To access your super early, you need to meet ONE of the following five criteria: You are unemployed You are eligible for the JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment special benefit or the Farm Household Allowance You were made redundant on or after 1 January 2020 Your working hours have reduced by at least 20 per cent after 1 January 2020 You are a sole trader, and your business activity was suspended, or your turnover has reduced by at least 20 per cent after 1 January 2020 If you are considering early release of your superannuation, you need to consider what the potential long-term impacts may be to the growth of your super fund and retirement income. While $20,000 may not seem like a lot of money now, it could have significant compounding value if left in your fund. Understandably, people may not have any other choice to support themselves financially. Make sure you speak to a financial professional to understand your risks and if this is a suitable option for you. If you are eligible, you can apply for early release of your superannuation directly with the ATO through the myGov website. Temporarily reducing superannuation minimum drawdown ratesThe temporary reduction in the minimum drawdown requirements for account-based pensions has been designed to assist retirees who do not wish to sell their investment assets, while the value of those assets is reduced. The minimum drawdown rates have been temporarily halved. Support for businessesThe Federal Government has announced a range of measures to help businesses facing financial difficulty. Eligibility to access these measures depends on factors such as your turnover and how much your business’s revenue has decreased due to the COVID-19 pandemic. Some of these measures include: increasing the instant asset write-off threshold for depreciating assets from $30,000 to $150,000; allowing businesses with turnover below $500 million to deduct 50 per cent of eligible assets until 30 June 2021; PAYG withholding support, providing up to $100,000 in cash payments which allows businesses to receive payments equal to 100 per cent of salary and wages withheld from 1 January 2020 to 30 June 2020; and temporary measures to reduce the potential actions that could cause business insolvency. Full details about the Federal Government’s measures to support businesses and eligibility criteria are available on the Treasury website. How the banks are approaching home loansBanks have announced that homeowners experiencing financial difficulty can pause their mortgage repayments for between three and six months. It’s important to remember that, in most cases, interest will still be capitalised and added to your outstanding loan balance. When payments restart, your lender may require increased repayments, or the term of your loan may be increased. These are important factors you need to discuss with your lender. What should you focus on when it comes to personal finance?While it can be tempting to sell all your investments now as the market declines, this locks in your losses and puts your wealth in a weak position. If you haven’t already defensively positioned your investments, speak with a financial adviser about how to best adjust your investing over the coming months. You should also consider how to maximise your returns as the market recovers. Investing and building wealth is a long-term game. As such, you should be investing with a long-term time horizon in mind. What should I do next?During this time, you may face some challenges with your finances. Your ability, however, to understand the options available to you and what the current period means on a long-term basis is key to getting through this challenging time productively. Further, making well thought out decisions now will give you the strong foundations you need in your health and wealth as the world recovers and embarks on a new period of growth. Before you make any big changes to your financial situation, speak to us to obtain personalised advice for your unique situation.   This is general information only

Economic Update: First quarter results reflect shock

Economic Update: First quarter results reflect shock

Updated on Finance

The first quarter of 2020 will forever be remembered for delivering one of the greatest health and economic shocks of all time. The economic damage was an inevitable consequence of governments worldwide taking unprecedented action to curb the spread of the novel coronavirus that emerged in China in December 2019. Never have so many people in so many countries experienced such major upheaval to their daily lives at the one time. With numerous countries enacting harsh measures to reduce person-to-person spread of the virus, many sectors of most economies effectively ground to a halt. Tourism, travel, entertainment and hospitality were particularly badly affected, but the fallout will be felt far and wide for some time to come. By the numbersFinancial markets (and many governments) were slow to appreciate the magnitude of the coronavirus threat. Major share markets rose steadily, setting record highs on 20 February, then, as the likely economic consequences of tackling coronavirus became apparent, markets plunged. From its peak of 7,163 the S&P/ASX 200 index fell to 4,546 on 23 March. A rally then saw the index rise to 5,077 at the end of March, 24% down from the start of the quarter. In the US, the S&P 500 fell 34% from top to bottom. The MSCI All-Country World Equity Index dropped 35%. Both indices recovered ground at the end of the quarter to limit January to March losses to 18% and 21% respectively. The Reserve Bank moved quickly to further cut interest rates to 0.25%. This is as low as the RBA is prepared to go, with the Governor indicating this rate will be with us for several years come. Partly in response, and partly due to investors seeking the relative safety of the US dollar, the Australian dollar plunged from US$0.66 US to US$0.55. It then staged a partial recovery to end the quarter at US$0.61. Falls against other currencies were less severe. Massive stimulusGovernments around the world responded with programs that will, over time, pump almost unimaginable sums of money into the economy – hundreds of billions of dollars in Australia, trillions in the US. Banks have deferred some loan repayments, and many landlords will forgo rent payments. The focus is on helping employers retain staff, to provide income support to people who do lose their jobs, and to assist pensioners. One aim is to minimise economic disruption now to facilitate a quicker recovery once coronavirus is brought under control. However, despite these economic initiatives, escalating public health measures saw thousands of businesses close in March, with job losses estimated to be more than one million. While most of the economic stimulus measures were widely applauded, some concern was expressed over the ability of eligible people to withdraw up to $10,000 from superannuation this financial year, and again in 2020/2021. Withdrawing money from super at a time of depressed prices will likely have a major adverse impact on future superannuation savings, leading a number of observers to suggest that this option only be considered once all others have been exhausted. Few silver liningsIt’s difficult to find any silver linings in the clouds of the current crisis. While motorists may welcome the drop in petrol prices, due to oil falling from over US$60 per barrel to near US$20 per barrel, this is a sign of how hard the pandemic is hitting the economy. One small positive: with airlines grounded, people staying home and many industries closed, air pollution and carbon dioxide emissions are down. For advice on how to manage your investments through this financial downturn contact us today.   This is general information only

The upside of a market downturn

The upside of a market downturn

Updated on Finance

Most people view share market downturns as unequivocally bad events. Suddenly, hard earned savings aren’t worth as much as they were yesterday. It seems as if our money is evaporating, and in the heat of the moment selling up can look like the best course of action. The alternative view But on the opposite side of each share sale is a buyer who thinks that they are getting a bargain. Instead of getting 10 shares to the dollar yesterday, they might pick up 12 or 15 to the dollar today. When the market recovers, the bargain hunters can book a tidy profit. So why do share markets experience downturns, and what are the upsides? A range of natural and manmade events can trigger market selloffs: Terrorist attacks Infectious disease outbreaks such as SARS and COVID-19 Wars, the possibility of war, and geopolitical issues such as threats to oil supplies Economic upheavals, the bursting of speculative investment bubbles, and market ‘corrections’ In short, anything that is likely to reduce the ability of a broad range of companies to make money is likely to trigger a market sell off. The common thread that runs through the causes of downturns is uncertainty. In the immediate aftermath of the 9/11 attacks nobody knew what the size of the threat was, and markets dropped. As the fear of further attacks receded, markets soon recovered. However, the initial drop in market value occurred quite rapidly. By the time many investors got out of the market the damage was already done. Paper losses were converted to real losses, and spooked investors were no longer in a position to benefit from the upswing. After the initial sell off it took the ASX200 Accumulation Index just 36 days to completely recover from 9/11. Other downturns and recoveries take longer. The Global Financial Crisis began in October 2007, and it wasn’t until nearly six years later that the ASX200 Accumulation Index recovered its lost ground. This caused real pain to investors who bought into the market at its pre-crash peak, but for anyone with cash to invest after the fall, this prolonged recovery represented years of bargain hunting opportunities. If? Or when? Of course, much hinges on whether or not markets recover. While history isn’t always a reliable guide to the future it does reveal that, given time, major share market indices in stable countries usually do recover. It’s also important to remember that shares generally produce both capital returns and dividend income. Reinvesting dividends back into a recovering market can be an effective way of boosting returns. Seek advice Of course, it’s only natural for investors to be concerned about market downturns, but it’s crucial not to panic and sell at the worst possible time. The fact is that downturns are a regular feature of share markets. However, they are unpredictable, so it’s a good idea to keep some cash in reserve, to be able to make the most of the opportunities that arise whenever the share market does go on sale. For advice on how to avoid the pitfalls and reap the benefits offered by market selloffs, speak to us today.   This is general information only

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