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Let’s talk about investing….

Before I begin, I want to give you a little background as to why I am discussing this topic now. I am currently studying equities and investment analysis at Deakin University and listening to a podcast from the oracle of Omaha, Warren Buffett, and his offsider, Charlie Munger. Now at university, what I am being taught about investing is that I should be doing an extremely thorough analysis of a company through extremely robust mathematical, accountancy equations to find out if I should invest in that business or not.

Then, what I am hearing from arguably the greatest investor of all time, Warren Buffett, is that to invest in a business, it should be so damn obvious, you couldn’t pass it up even if you tried. At university, I am being taught that I should be trying to project future cashflows of the business then discount them back to the present value to see their growth potential (whatever that means). Whereas Buffett is saying that I should be looking into a business’ past to understand their present and future position. When he says ‘past’, he means going back to when the company originated and following its story over the years.

Ok, so with the above out of the way, let’s begin. I am a financial planner, not an investment analyst. 20% of my time is clarifying goals with clients, crafting a lifetime plan and funding that plan with an appropriate investment portfolio. The other 80% of my time is helping clients continue to work their lifetime plan, through all the cycles of the economy, politics and markets, to ensure their goals are being met.

None of my time is spent analysing a single company’s cashflow or growth potential to invest in. I repeat, 0% of my time as a financial planner is spent trying to predict which company will outperform the market or trying to time the market’s high or low point. What I spend my time on is in my circle of control and what I don’t spend my time on is outside of my circle of control.

Two key concepts I believe in for investing is regression to the mean and a zero-sum game. Yes, these are fancy university words, but let’s break them down to simplify their meanings. ‘Regression to the mean’ is simply saying you will achieve the market’s average return over the long run.

Remembering that the market is just the collection of the great businesses of this world. Some businesses will do extremely well one year, and others will perform poorly. But if you owned the whole stock market, you would receive the average return. The mean stands for the average or the middle. We will always regress back to this average return as average investors because we don’t have the knowledge of businesses that a Warren Buffett has. This average return from the stock market is absolutely fantastic to generate multigenerational wealth as it has provided an 11.1% return from 1950 to 2018 (JP Morgan, 2019,p. 63).

Some years will be lower than this and others will be higher, but for arguments sake, let’s say the average return of the average investor is 10%, assuming that all their investments are shares. It’s a completely different argument when property and cash are involved in a portfolio, as this could increase that return or reduce it. But that’s for another article.

Lastly, a zero-sum game means for you to win, someone else must lose and vice versa. If you are constantly trying to select companies for outperformance, buying and selling, timing the market, you will win some and lose some in the short run. However again, over the long run, you will receive the average market return… But hang on just a minute….

All this buying and selling is increasing your fees and costs. To buy a small piece of a company costs money (brokerage). To sell a small piece of a company costs money. You may incur capital gains tax issues. You may offset these gains with your previous losses. All this effort and anxiety to receive lower than the average return, due to fees. Is it really all worth it? I haven’t even mentioned the people that sold their shares at the bottom of the 2007-2009 Global Financial Crisis and then tried to buy back in later when the market was recovering. Yes, this is a topic for another article!

The point of all this is to say that investing is counter intuitive and counter cultural. If we want to be good at something, what do we do? We work extremely hard at it and learn all we can to be the best at it. In terms of investing, if you simply buy a passive index investment, whereby passive means all you do is contribute more to the investment each month and rebalance the portfolio once a year and index meaning buying as much of the global stock market as you can, at the lowest possible cost, then you will succeed in generating lifetime wealth for your family.

Rather than researching individual companies and actively trading each week, spend this time earning more money to invest, learning something new, maintaining your health and fitness or pursuing a favourite hobby, as well as spending time with family and friends. Don’t worry about what the markets are doing today, tomorrow or next week. Worry about living a great life and letting the great businesses of this world look after you and your family over the long run (20 to 30 years).

References:
JP Morgan (2019). Guide to the Markets. Retrieved from
https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets, accessed 29.03.2019.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

How to ignore media scaremongering

I am always surprised by media reaction to normal movements of the share prices of companies listed on the share market.

In recent days, following a large movement downward of share prices, the media went into overdrive with headlines screaming – “SHARE MARKET CRASH” “SHARE MARKET WIPEOUT” etc, etc, etc…

These headlines often scare people into making poor financial decisions, which is highly unfortunate.

I have made this video (link below) to continue to give clients of Income Solutions the proper knowledge, so you can ignore such scaremongering.

– David Ramsay

Click here to view video

What type of gift giver are you?

Are you aware of your gift giving tendencies? How do you compare to the average Australian? Do you keep track of your gift spending, plan for it, even budget for it? As part of Financial Planning week, the Financial Planning Association commissioned a Gift Giving survey to analyse Australia’s habits with some interesting results.

Australia is a generous nation, spending almost $20 billion on gifts per year. It is no wonder, gift giving is thought to have psychological benefits for the giver including feelings of trust and social connection and lower stress and blood pressure.

Do we realise how much we spend on gifts though? The survey has broken down the average Australian adult spends the following on gifts for loved ones each year:

– $437 for our spouse or partner,

– $361 per child,

– $201 per parent,

– $115 for our pet.

That is a hefty bill each year for a family of four, with four Grandparents and a dog = $2,515!

Another slightly concerning statistic is the proportion of Australians who account for their gift spending in their household budget. I know from my discussions with clients, their recollection of gift spending often comes in well below the averages above, which is represented by the survey indicating 73% of Australians don’t have a budget allocation for the gifts they buy.

So we know gift giving makes us feel good, but poor planning can mean we resort to debt to fund our giving, which brings along the possibility of regret.

A trend for those that do plan their gift giving is to buy multiple gifts of a nonspecific nature, in bulk. Bulk buying has the opportunity to save both time and money when gift giving – 44% of families with young kids employ this strategy.

Another strong trend is collaborating with friends, colleagues or family to buy a gift together, nearly 73% report participating in group gift-giving with younger generations finding this method particularly popular.

Finally, there is an emerging trend for Australians to think about the longevity and legacy of their gifts, also being mindful of the usefulness of a gift in the short term. 81% thinking about how long a gift will last.

Across those surveyed, four distinct gift-giver personalities emerged:

https://fpa.com.au/wp-content/uploads/2019/08/FPA_Gifts-That-Give-Research-Report-2019.pdf

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

HAVE YOU BEEN PICTURING YOUR PROSPERITY?

Elise Anderson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Have you been thinking about what you want to achieve in the next 12 months? The next 1-5 years? The following 5-10 years? What about retirement, what do you want that to look like?

When was the last time you took time out to think about what you want, both now and into the future?

Goal setting is important. You don’t want to miss opportunities along the way if you don’t know what you are looking for.

What is your passion? Life is too short to live without passion. Design the life you want.

Take things step by step. Use the power of your mind to keep you motivated. Visualise your goals. You did this at the Women in Sport Breakfast when you created Your Prosperity Picture. You chose images that meant something to you, with your own personal meaning, and put them on your board. Imagine how you will feel once you have achieved your goals. Does it feel good? Then keep going. Remember that the key to achievement and success is in your head. Believe in yourself! If you do, your actions will follow your thoughts. Put your board in a place where you will be reminded of your goals and what you are working so hard to achieve.

If a goal seems too big or too much work, break it down into smaller pieces. An Ironman Triathlete doesn’t just wake up one day and decide to give one a go. They start training – swimming, bike riding and running. Building their skills in each discipline. They may then build up their distances starting with a Sprint Triathlon, moving on to an Olympic Triathlon, completing a Half-Ironman and then finally their ultimate goal, the Ironman Triathlon. They are also not doing this alone. They have a team of people around them encouraging them and keeping them accountable. It is also important that the smaller wins are celebrated along the way otherwise it will be one big long slog to get to that end goal. Reward yourself. It will enable you to refocus and remind yourself why you are working so hard and what it is that you want to achieve.

Don’t wait until the time is right. This is called procrastination. The time might never be right. In the real world there is no perfect time to start. You have to be able to deal with problems as they arise. The best time to start was yesterday. The second best time is right now.

Your goals will change over time. Just because you have a plan now doesn’t mean it is set and forget. You should review this regularly to ensure that you are on track and your plan can change or evolve as you progress towards achieving your goal. Your goals may have changed significantly and you may want to create a new Prosperity Picture, this is good. You are progressing and working towards your goals and living your passion, designing the life you want.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

2019 FEDERAL BUDGET ANALYSIS

Treasurer Josh Frydenberg’s first Budget focuses on reducing the tax burden for the majority of working Australians, greater superannuation flexibility for retirees and a one off energy relief payment for eligible income support recipients.
Note: These changes are proposals only and may or may not be made law.

Personal tax savings 

Immediate tax relief 
Low and middle income earners will receive a tax saving of up to $1,080 per person. This can be claimed in the 2018/19 tax return.
Preservation of tax relief for low and middle income earners 
From 1 July 2022, the 19 per cent tax bracket will increase from $41,000 to $45,000, with an increase in the low income tax offset from $645 to $700.
Reduction in key marginal tax rate 
From 1 July 2024, the current 32.5 per cent marginal tax rate will drop to 30 per cent for income between $45,000 and $200,000.
Minimisation of bracket creep 
The Government estimates that from 1 July 2024, 94 per cent of taxpayers will have a marginal tax rate of no more than 30 per cent.

Greater superannuation flexibility for retirees 

Changes to voluntary super contributions 
Australians aged 65 and 66 will be able to make voluntary super contributions without meeting the Work Test – removing the need for people of this age to work a minimum 40 hours over a 30 day period.
Increasing age limit for spouse contributions 
The age limit for people to receive contributions made by their spouse on their behalf increases from 69 to 74 years.
Extended access to bring-forward arrangements 
People aged 66 and under will now be able to make three years’ worth of non-concessional contributions to their super in a single year, capped at $100,000 a year.

Small to medium business 

Increase in instant asset write-off 
The threshold for the instant asset write-off increases to $30,000 from $20,000. It has also been broadened to include businesses with up to $50 million in turnover, making it available to around 3.4 million Australian businesses.

Pensioners and welfare recipients 

Energy Assistance Payment 
Over 3.9 million eligible Australians will automatically receive a one-off payment of $75 for singles and $125 for couples (combined) to assist with their energy bills. This payment will be exempt from income tax and not counted as income for social security purposes.

Any questions? Please see your Income Solutions Adviser for more information.

Important Information
2019 Federal Budget Analysis 2 April 2019 2019 Federal Budget Analysis | 2 Important information The Federal Budget Analysis prepared by the MLC Technical team, part of GWM Adviser Services Limited. The information contained in this Federal Budget Analysis is current as at 2 April 2019 and is prepared by MLC Technical, part of GWM Adviser Services Limited ABN 96 002 071749, registered office 150-153 Miller Street North Sydney NSW 2060, a member of the National Australia Bank Group of Companies. Any advice in this Federal Budget Analysis is of a general nature only. Before acting on any advice, you should consider whether it is appropriate to your objectives, financial situation and needs. Any tax estimates provided in this publication are intended as a guide only and are based on our general understanding of taxation laws. They are not intended to be a substitute for specialised taxation advice or a complete assessment of your liabilities, obligations or claim entitlement that arise, or could arise, under taxation law. We recommend you consult with a registered tax agent. Past performance is not a reliable indicator of future performance. Before acquiring a financial product, you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. Small to medium business Increase in instant asset write-off The threshold for the instant asset write-off increases to $30,000 from $20,000. It has also been broadened to include businesses with up to $50 million in turnover, making it available to around 3.4 million Australian businesses. Pensioners and welfare recipients Energy Assistance Payment Over 3.9 million eligible Australians will automatically receive a one-off payment of $75 for singles and $125 for couples (combined) to assist with their energy bills. This payment will be exempt from income tax and not counted as income for social security purposes. Any questions? If you have any questions, please speak with your financial adviser or call us on 132 652 between 8 am and 6 pm (AEST), Monday to Friday

Unintended Consequences of the ‘Stress Sickie’

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

The term ‘take a sickie’ has been part of the Australian vernacular for generations, with many thinking it is their god given right after a big weekend to take an extra recovery day or two before heading back to work. Since employers have cottoned on to this phenomenon, many now request a medical certificate forcing a trip to the doctors and a medical reason for the absence. No harm.. surely?!

What many of us have been slow to realise is that these medical certificate trips are recorded on our medical history, which are commonly requested by insurers to make assessments both when applying for insurance cover and at the time of a claim.

A few trips to the doctor citing stress in order to get some time off work could result in an insurer putting an exclusion on all mental health conditions when they offer you cover. Or worse, a group insurer could use these doctor’s visits as proof of a pre-existing condition and then knock back a legitimate mental health claim in the future.

Another interesting learning I have come across when implementing insurance plans for clients are the instances where doctors’ reports do not match with the recollections of the patient. Many doctors are unaware of the consequences of writing ‘discussed feelings of depression’ when it could have been a more general conversation without a medical diagnosis. An insurer underwriting again may infer this as evidence of a pre-existing or recurring condition when it could have been a discussion of state of mind at the time.

It is all the more important to pay attention to how we interact with our medical records, including what we see our doctor’s for, what notes they actually write down during the consultation and who has access to those records going forward, because of the Governments new My Health Record initiative.

A My Health Record will be created for every Australian after 31st January 2019 unless you opt out. The record is designed to be a central place medical professionals can view your medical conditions, treatments, medicine details, allergies and test or result scans.

I encourage all Australians to take charge of your medical history, be aware of the implications of seeing a doctor on future insurance applications, and head to the My Health Record website before 31st January 2019 to make a decision for yourself whether a digital health record is right for you. https://www.myhealthrecord.gov.au/for-you-your-family

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Benefits of Advice

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

In the wake of the Royal Commission into Misconduct in the Banking, Superannuating and Financial Services Industry, it is important that we continue to focus on the benefits of receiving expert Financial Advice.

SunSuper commissioned CoreData to investigate the benefits of advice in their 2017 Value of Advice report which produced some interesting results. Overwhelmingly, those surveyed who receive financial advice are more ”well” in life.  They are better equipped to deal with unexpected expenses, more prepared for retirement and have more confidence in making financial decisions (1).

80% of those currently advised believe advice has given them more confidence in making financial decisions

Financial literacy is an important benefit and outcome of an advice relationship. Whilst we don’t expect clients to follow the movements of the NASDAQ, having an understanding of investment characteristics such as income versus capital values, the importance of asset allocation and investing for the long term gives clients greater confidence when making financial decisions.  This in turn brings a greater sense of financial security and less worrying about money.  After all, our definition of wealth is an absence of financial worry.

79% of those currently advised believe advice has given them more control over their financial position

Planning for the future is so important as it gives you confidence you can achieve your immediate and future financial goals.  Whether it is setting aside funds for a rainy day, increasing your savings, or contributing to a retirement plan, having an advice relationship allows you to map out your own path to financial freedom.

77% of those currently advised believe advice has helped them feel prepared for retirement

Many of us think that retirement is so far away that it doesn’t warrant planning now – this couldn’t be further from the truth.  Einstein’s 8th wonder of the world is compounding returns, earning interest on your interest, so paying attention to your retirement nest egg early, no matter how small, is well worth while.

67% of those currently advised feel advice has made them more equipped to handle sudden, one off costs

Through accountability, information and support, receiving financial advice can help people establish contingency plans, insurance and debt management strategies to deal with unexpected events and life’s twists and turns.

80% of those currently advised believe advice has given them more peace of mind.

Financial security is important for everyone, to know we are on the right track and not borrowing from our future to live the life we are currently.  A staggering statistic from the report is 39% of those unadvised felt they had enough money to pay for recreational activities compared to 79% who were advised.

Financial stress affects people’s lives in quantifiable ways.  It can affect your health, relationships at home, and both your productivity and attendance at work.  This is why we continue to believe in the value of financial advice; knowing that it improves lifestyle outcomes and overall wellbeing.

If you are interested in your own financial health check, please don’t hesitate to contact an Financial Adviser at Income Solutions.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Are you triggered?

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Language in general and the ways in which specific words are used is fluid and open to change over time. Think of the way that ‘bad’ and ‘wicked’ have become accepted to mean ‘good’ and ‘cool’. One example that has recently started annoying me is the way that my children (and all their mates) say that two teams are ‘versing’ each other. I always thought that it was ‘versus’ as in Hawthorn versus Geelong. Or that the two teams were playing each other. My wife tells me that I am already sounding like an old man and to get over myself!

You may have come across the term ‘trigger warning’ or that a person has been ‘triggered’. This term actually dates to the early post-traumatic stress studies that came out of WWI. It references the idea that reminders of trauma can trigger a debilitating physical, emotional and mental response. Over the last ten to twenty years it has become more and more common and can be seen in use when discussing substantial issues such as discrimination and racism.

Well I am going to give it yet another use here; what reality is going to trigger you in to action in regard to your relationship with money?

Seemingly innocuous transactions through a ‘have it now pay for it later’ system have begun to create a material negative impact on people’s finances such as their ability to get a home loan.

How Afterpay could impact your chance of getting a home loan READ HERE

The article linked above sights cases of people being turned down for a mortgage as they did not meet the banks servicing criteria because they had a live Afterpay account. The eye opening thing for me is that the women featured in the piece didn’t even need to use the Aftepay service as she had enough money to pay for her items outright. A well-meaning (although misguided) friend encouraged her to do so. Beyond the stated idea about the ease of spreading the payments the truth is that the process tacitly encourages us to spend more.

The article linked below goes further, reporting that research shows that people using this modern lay-by equivalent will also buy more expensive items, possibly ones that they can’t truly afford.

Afterpay, Zip Pay and others cause financial strife for ‘young’ shoppers: ASIC READ HERE

None of us want to be told directly what to do, especially if we know deep down that the thing that seems hard or that we can tell ourselves is unfair is in reality true and correct.

I am constantly reminded that I get better behaviours and choices from my kids when they feel they have reached a decision on their own rather than me simply telling them that they must do something.

I am not belittling the important issues that, when discussed, warrant a true trigger warning. I know that I am making an exaggerated point; I am doing so deliberately.

However, we must listen to the facts that are being presented, and if they are coming to us from multiple sources and conveying corroborating information to us then we ought to listen.

Lending criteria is getting tighter. We must be able to prove accurately that we can service loans. Spending less than you earn is an adage. Paying for something on credit, or through a payment system that’s lets you have it right now even if you can’t afford it right now has never been a successful way to manage your spending habits and it will have a consequence as you move through life.

It’s about a reality check. It doesn’t matter if it’s Afterpay or Zip Pay or a misuse of a basic credit card (insert your preferred method of buy now pay later here). It is recognising that it will have an impact on you. It may stop you from getting a home loan or you may get the loan but not at a competitive rate. It is pushing you further into debt and inducing all the stress that this causes. You may miss out on something that is truly to your benefit such as an important life experience or the ability to take a course that will further your career… whatever piece of information it takes to trigger you, lets take some action as you will be the beneficiary!

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

Everything Stays the Same, But for How Long?

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Interest rates are staying on hold again.

An interesting article on the 9 News finance webpage https://finance.nine.com.au/2018/12/04/12/05/ross-greenwood-analysis-why-interest-rates-have-been-on-hold-for-28-month provides some commentary and thoughts as to why this might be the case.

It suggests that rates will remain on hold, to a greater extent, until the end of 2020 whilst acknowledging that this is an oddity given certain factors including a well performing economy and low(ish) unemployment.

The reason that the article sights for the RBA not raising rates is falling house prices. It also notes that general rising living costs (fuel, power bills etc) means that households are under pressure to juggle all of their outgoings.

Overall the piece links intertwined economic factors to paint a picture that some uncertainty lies ahead.

Ever the optimist I can’t help but see a common-sense opportunity here…

We know that genuinely having an understanding of where your money goes is an incredibly powerful tool to help you feel confident about your current financial position and to enable you to make informed decisions about how to build for your future.

In the past I have pulled my punches a little in encouraging people to put time and effort into a writing a budget and most importantly sticking to it. I’ve possibly even let them off the hook when they don’t engage with the task but most people dread the exercise. Well no more.

Just do it.

You have to do it.

There is no excuse not to do it.

It isn’t even that hard.

Consider two basic approaches. You can use historic information pulled from your bank and credit card statements to understand where the money has been going or you can consider yourself as a business and set a budget for the year ahead.

The first approach can be a little time consuming, daunting and even painful (count the number of times Dan Murphy’s pops up on your statement and you will know what I mean)! It can allow you to take stock and adjust spending habits. It can even vindicate some of the discretionary spending that you have made as perhaps it wasn’t as bad as you feared! You are allowed to enjoy life, budgeting is not about restricting it’s about being honest with yourself and putting yourself in control.

If you take the second approach you need to do some planning. Take a moment, it may only be a couple of hours, to run through some of your non-negotiable costs such as power, phone and other utilities and ensure you are getting the best deal. Also set yourself a goal of where you would like

your debt to be come the end of the year; don’t simply settle for the minimum repayment that will satisfy the banks thirty year timeline. Again, include the fun stuff too so when you do have that dinner out or go to your friends birthday it can be enjoyed guilt free. Just be very clear on how much money is allocated to go where.

The final component regardless of the approach you take is monitoring and tracking. This can be manual through regular engagement with your online banking or via one of the numerous apps that exist to help you do this efficiently and accurately. As I said early though;

Just do it.

You have to do it.

There is no excuse not to do it.

It isn’t even that hard.

It may be that I am an optimist, I like to not think blindly. There are genuine trials and tribulations in life and significant challenges that are thrown at us. It is fair though to think that we might develop the fortitude, and lean on available support where needed, to give us the capacity to step back and find the opportunity that exists within these challenges.

A great client of mine lives with the mantra “everything is temporary”.

I have no doubt that rates will rise again at some point, when and by how much I am not game to say.

I am happy to say though that practical steps including setting a budget, tracking it and therefore sticking to it will go a long way to enabling you to get ahead on the repayments to your single largest barrier to creating meaningful wealth; your mortgage.

Far from being restrictive, understanding your budget will provide you the chance to make the most of this current opportunity.

These low rates, in the greater scheme of things, may well only be temporary. The cash rate has remained the same for “twenty-eight months straight” (a long time as the article intermates). However, put another way that’s just over 2 years or about one twentieth of your thirty-year loan term. To me low rates mean one thing, time to take control and time to get ahead!

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.

How to kill a conversation – ‘lets talk about super’

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Driving home from work last night there was a conversation the radio relating to super funds and how they perform relative to each other.

Many people would reach for the dial or press the button to change channels but the nerd in me resisted.

The item was a simple one; a firm has compiled independent research into the performance of super funds every year for the last five years and rates them accordingly on an annual basis.

The cynic in me listened intently for the criteria by which they had categorised the funds, but I had a bit of a ‘Wow!’ moment when they stated that they had looked at performance net of all fees and charges and had reached the overall conclusion that funds that charge lower fees typically outperformed funds that charged higher fees!

Further, in most cases, Australians would see a better performance from their super fund if they selected a low-cost index option that tracked the broader market rather than paying performance fees to active fund managers who fell short of the bench mark over the long-term.

Now I know I can be a bit sarcastic, but that ‘Wow!’ moment was genuine.

Simple, common sense advice can sadly be lacking in the superannuation space, frankly in financial planning in general. So when I hear it from an external source it jumps out at me and I realise that maybe we are not alone in our philosophies.

I downloaded the report that the firm produced, and a couple of key comments shouted at me from the pages;

Our research shows there is a clear correlation between high fees and long-term underperformance in super (The Fat Cat Funds Report Super Fund Guide 2018 page 3)

Poor fund performance comes predominantly from active management fees as well as higher administration and operating expenses than necessary (The Fat Cat Funds Report Super Fund Guide 2018 page 3)1

The funny thing is this information probably doesn’t surprise you. It is logical; it is common sense. So why don’t more of us follow it?

Like superannuation itself, the concept at the heart of following an index approach is BORING! We don’t want to talk about so its sits at the back of our minds. Over time we might not fully remember

why we are following that strategy anyway, particularly with the drip drip effect of other people’s opinions impacting on us. The reality is, what is there to talk about anyway?

Imagine the barbeque conversation;

“Yeah so I er um yeah paid no attention to my superfund again this year but as I track the broader Aussie market I got a nice steady long-term average return and I er um received a good level of fully franked dividends and I didn’t have to manage or worry about anything to get that…”

Well, that’s not very interesting is it? Not compared to the person who runs their self-managed super fund and trades shares daily and has a no recourse loan for the residential unit development that they are building up there in wherever and they had to meet with their accountant for three hours last week because there was some problem with the audit and now it seems like they might have to take that piece of art off the wall an put it storage because it “doesn’t really meet the sole purpose test after all”…. What?

Superannuation is an investment vehicle for you to set yourself up for the retirement lifestyle that you want. Research shows that a lower cost fund with an indexing approach will typically provide better long-term result than any other investment option. The point is that the more you pay in fees through more complex investment options the more likely that the long-term returns will be lower.

Our research shows that 96% of balanced super funds underperformed a simple low-cost index strategy after fees and taxes. This is consistent with research from Finalytiq4 which found similar results in the UK, and S&P Dow Jones whose SPIVA research shows that 80% of active Australian share fund managers have underperformed the index over 15 years. (The Fat Cat Funds Report Super Fund Guide 2018 page 35)

Why does superannuation need to be an interesting conversation anyway? Why does managing money have to be at all? Far more interesting is what you do with the time you have to enjoy life rather than worrying about money and what you spend your passive income on!

So how does any of this impact you? If you have made it this far through the article, then you have already met more than half of your required quota for paying attention to superannuation this year. Well done!

From here, check in with your adviser and (subject to your risk profile) determine your level of exposure to growth assets which should come via an index approach, balance that with your need for defensive assets and then ensure that you are on a fee favourable platform.

Simple but not easy I know; but it is common sense!

 

1 The Fat Cat Funds Report Super Fund Guide 2018 is produced by by Stockspot Stockspot Pty Ltd ABN 163 214 319 is a Corporate Authorised Representative (No. 453421) of Sanlam Private Wealth (AFS License No. 337927). They are a Robbo Advice firm and have no affiliation or connection to Income Solutions. We still believe that personal relationships are at the heart of quality financial advice, and have referenced the The Fat Cat Funds Report Super Fund Guide 2018 as an opinion piece.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.
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