Author: Britt Ambrose

The long-term impacts of COVID-19 on the Australian economy

Written by Britt Ambrose on 14 October 2020. Posted in Australian Economy. No Comments on The long-term impacts of COVID-19 on the Australian economy

While we remain in the first phases of economic shock, it’s fair to say that the effects of COVID-19 will be widespread and felt for a long time to come.

Workforce and industry

COVID-19 has had a heavy impact on Australia’s employment landscape. Recent figures indicate a7.4%unemployment rate, and while job losses are hitting families hard in the short-term, these workforce shifts are also shaping how industry and employment will look in the future.

Certain sectors, like aviation and tourism, might never be the same again. Increasingly, organisations are being forced to make structural changes – operations are being moved online, and businesses are automating processes typically performed by humans. Now that these difficult changes have been made, it’s likely some of them will become permanent even after COVID. This is particularly true in the hardest-hit sectors of hospitality and retail, where businesses will need to transform to survive, changing the landscape of these industries for the long-term.

Globalisation, trade and population growth

Short-term travel restrictions and disruption to the global supply chain have driven governments around the world to reassess their stance on globalisation. Production of some goods will be moved onshore, particularly those that are deemed of national significance like healthcare products, and there will be more slack built into supply chains to account for reduced reliability. Most significantly, Australia will feel the impact of a vast reduction in migration, with the Prime Minister estimating that 34,000 migrants will arrive in the country in the year to come – a staggering drop from the 533,500 who arrived in 2019. A lack of migrants over the longer-term will result in population decline and a reduced workforce that could have an enduring economic impact on the healthcare, tourism, housing, and agricultural sectors.

Education and skills

The pandemic will have a lasting effect on a generation of learners. International students aren’t arriving, domestic students are learning over Zoom and tertiary institutions are losing money and staff at a rapid rate. A crisis in higher education could have long-term impacts on thestructure of the sector and some institutions may not survive. But it isn’t all necessarily bad news. Rapid, innovative training courses could begin to take the place of the traditional Bachelor’sdegree, as school-leavers get the skills they need to enter a fast-evolving workforce and keep Australia competitive in key industry sectors.

Australia is going through a difficult time, but it’s important that we keep our attention focused on long-term growth and recovery.

Do you need to discuss how best to set yourself up for the future?

Why not book an appointment with one of our planners to review your situation, contact us on 02 9328 0876.

General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.

Photo by Engin Akyurt on Unsplash

Keeping fit at all stages of life

Written by Britt Ambrose on 14 October 2020. Posted in Life Balance. No Comments on Keeping fit at all stages of life

In your late 30s and 40s

Staying fit at this age sets an important foundation to keep you healthy for decades to come. Ideally, you should be active on a regular basis, mixing weighted and cardiovascular exercise. When it comes to cardio, variety is key. Try in-person or online group gym classes like boxing, Zumba or spin and set yourself a physical challenge like a timed run to keep things interesting.

In your 50s

Your fifties is a great time to start focusing on resistance training to keep your muscles and joints healthy. Slow and steady movements using light weights or elastic bands will work on vital small muscle groups, and can be more challenging than you might think. Since we are all spending more time at home, find household items that could double as weights. Online Pilates classes are also a fantastic way to build a strong core – try to work at least one resistance workout into your weekly routine of activity.

In your 60s

Heading into your sixties, it’s important to stay as active as possible. Experts recommend one hour of moderate exercise five times a week for maximum health benefits. Moderate exercise gets your blood pumping and heightens your breathing, but you should still be able to have a broken conversation. Incorporate activity into your social time with a hike, game of tennis or a dip in the pool.

In your 70s

As you get older, working on strength, flexibility and balance will help you live a happier and easier life. Depending on your strength levels, there are plenty of chair-based or body weight stability exercises that you can work on at home. Daily stretches, walks and balance exercises will help you maintain your range of movement and keep you mobile and active for years to come.

Please be mindful of any existing injuries or medical conditions before taking up exercise. Always consult with a doctor if you are starting a new exercise regime.

Does your financial strategy fit your long term lifestyle plans?

Why not book an appointment with one of our planners to review your long term goals, contact us on 02 9328 0876.

Photo by Filip Mroz on Unsplash

How life insurance can help when buying a home

Written by Britt Ambrose on 13 October 2020. Posted in Life Insurance. No Comments on How life insurance can help when buying a home

In the lead up to buying your first home there are many factors to take into consideration. Not only do you need to work out where you want to live and what you would like to buy but what you are able to afford. Many people will meet with a mortgage broker or bank to determine their financial position and borrowing capacity. At this point in time it is also important to consider the protections you have in place to cover the potential mortgage if you were unable to make the repayments.

Do I need life insurance to buy a house?

As with everything in life, it depends on your personal and family circumstances. Although it is not required when buying a house, life insurance often plays an extremely important role when it comes to securing your family’s future.

Regardless of whether you’re purchasing your first home, buying a new home to accommodate your growing family, purchasing an investment property or holiday home, or even downsizing as you approach retirement, buying property is a significant financial responsibility, which for most will be an ongoing mortgage commitment.

Life insurance can provide peace of mind that you have financial assistance to help cover your mortgage and the financial responsibilities that come with owning a home, whatever may happen.

Should I buy life insurance before moving into my home?

Searching for and buying a new home is a busy and emotionally-charged time.

With so much going on it can be tempting to delay purchasing life insurance until after you’re set up in your new home or have finalised arrangements around your new investment property.

But just because you’re not living in your new home or are yet to move tenants in, it doesn’t mean you’re not financially responsible for it and should consider how to ensure you’re financially protected.

If you already have life insurance in place, it is important to review your policy and ensure that it provides you with enough cover if your debt has increased. When reviewing your cover, it is worth looking at the level of cover you have in place, the waiting period, the benefit period and what you are covered for.

What is the difference between lenders’ mortgage insurance and life insurance?

You might have heard of the term lenders’ mortgage insurance (LMI) before and wondered how it differs from life insurance. The main difference is that LMI protects the lender, whereas life insurance protects the individual who holds the policy.

As it stands, generally most people need to have at least 20% of the purchase price as a deposit to avoid paying LMI when taking out a loan.”

For example, if you have less than a 20% deposit (or haven’t been accepted for the federal government’s First Home Loan Deposit Scheme), you may have to pay between $2,500 and $10,000 in LMI.

While you are responsible for paying for LMI, it’s designed to protect the lender, not you and your family.

Therefore, if you default on your loan and the sale of your property doesn’t equal the unpaid value of the mortgage, lenders can generally claim on the LMI policy to make up the shortfall.

This is vastly different from life insurance. With Life Insurance you can receive a lump sum payment which could help your family pay off the mortgage and other necessities if you were to pass away. And when coupled with other insurance products, you can help protect against accidents or illnesses that might result in you falling behind on your mortgage payments or other financial commitments. Therefore, reducing the chances of you defaulting on your payments and allowing you to keep your property.

What types of life insurance should I consider when buying a home?

There are four main types of life insurance that people buying a home generally consider, including:

Income Protection Insurance: Provides you with monthly payments of up to 75% of your monthly income to help you to continue living your life, which you may choose to put towards covering part or all of your mortgage repayments depending on your circumstances.

Life Insurance: Protects your family’s future and gives them options if you are no longer around with a lump sum payment which could be used to cover the ongoing costs and commitments that come with owning a home.
Total Permanent Disability Insurance: Gives you options to help you live a better quality of life if you are permanently disabled and can’t work. This can help ensure a disability doesn’t prevent you from covering the expenses relating to your home. It can also allow you to use this lump sum payment to make modifications to your home if this was required from your illness or injury.

Recovery Insurance: If you claim on recovery insurance, it provides you with a lump sum payment. This allows you to focus on your recovery and rehabilitation, rather than financial pressures, such as paying for your mortgage.
If you’d like to explore some options to help meet your financial goals or review your current financial measures that in place, reach out and get in contact with us.

Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors.”

Need some help exploring your options?

Our experienced planners can review your individual sitation, get in touch, either book an appointment or contact us on 02 9328 0876.

Photo by Kelli McClintock on Unsplash

Investment goal setting

Written by Britt Ambrose on 1 September 2020. Posted in Investing. No Comments on Investment goal setting

Planning for your goals when you invest means giving yourself the best chance of success.

Without a plan, it’s easy to get distracted by daily headlines. You can end up reacting to the news, timing the market, chasing returns and missing out on long-term gains.

With a plan, you know where you’re heading because you have a map. Along the way, you may not know exactly what each day will bring or have control of everything but a plan will keep you focused on your goals.

1 Quantifying your goals

The best way to define your goals is to make them time and dollar specific. This means we assign them a timeframe and the dollar figure we’re going for. If you have multiple goals (for example, paying for both retirement and your child’s education expenses), each needs to be clearly defined and accounted for.

This step is often skipped as investors tend to quickly jump to solutions. However, defining your goals delivers clarity and a sense of ownership over your investment plan. We work with you to help you get this right. People don’t come to us with clearly defined financial goals, so don’t feel pressured into feeling like you need that clarity before seeking financial advice. Client goals are born in our first meeting.

2 Constructing your investment plan

With clarity around your goals, it’s possible to move on to establishing a plan to achieve them. This involves working out the initial and ongoing regular dollar amount to invest and a suitable investment strategy. These will depend on the specifications of your goals and are prepared by your financial planner. Your planner will explain the reasons behind the recommendations as well as suitable products that will fit your plan.

Because most objectives are long-term, your investment plan should be designed to endure through changing market environments, and should be flexible enough to adjust for unexpected events along the way.

A sound investment plan can help you to practice healthy investor behaviour, because it demonstrates the purpose and value of asset allocation, diversification, and rebalancing. It also helps you to stay focused on your intended contribution and spending rates.

3 The danger of lacking a plan

Without a plan, investors often build their portfolios from the bottom up, focusing on each investment holding rather than on how the portfolio as a whole is serving your objectives.

Another way to characterise this process is “fund collecting”: Investors can be drawn into evaluating a particular fund or other type of investment and, if it seems attractive, they buy it, often without thinking about how or where it may fit within the overall asset allocation.

While paying close attention to each investment may seem logical, this process can lead to a collection of holdings that does not serve your ultimate needs. As a result, your portfolio may wind up being under diversified (all your eggs in one basket) or you may end up holding a whole lot of expensive double ups (over diversification).

With no plan to focus on, investors are led into such situations by common, avoidable mistakes such as performance chasing, market timing, or reacting to market “noise.” They are moved to action by the performance of the broader equity market, increasing their equities exposure during bull markets and reducing it during bear markets. Such “buy high, sell low” behaviour has been well documented and caused by our hard-wired emotional response to fear, rather than a rational one.

4 Staying focused on your goals

Once the plan is in place, it’s revisited on a regular basis so you can track your progress.

The future will not go exactly according to plan and that’s ok. It’s not about getting things exactly right about the future because we can’t. Your investment plan will, at some point, inevitably become an outdated map. The landscape will change. That’s life.

Our ongoing planning process will ensure we address things as they come up. We’ll communicate with you on a regular basis, sometimes more frequently than other times.

Having us on your side means we won’t continue to defend the outdated map but instead will be your guide in the ever-changing landscape. We’re here to make sure you’re heading the right direction. We’ve got you.

Every now and then you will have a tendency to listen to ideas that can hurt you financially. We believe investors should employ their time and effort up front, on the plan, rather than in ongoing evaluation of each new idea that hits the headlines. This simple step can pay off tremendously in helping you stay on the path toward your financial goals.

So, whether it’s a new car, education expenses or a comfortable retirement, if you keep your eyes on the end goal, you’ll stand more chance of reaching your destination and achieving investment success.

The most important step is to begin.

How does your investment goal strategy look?

If you want a fresh look at how to reach your investment goals, book an appointment with one of our experienced planners, contact us on 02 9328 0876.

Article by Sydney Financial Planning

5 habits to become financially secure

Written by Britt Ambrose on 7 August 2020. Posted in Financial Strategies. No Comments on 5 habits to become financially secure

Believe it or not, being secure financially doesn’t involve magic or an outrageous stroke of luck.

More often than not, it results from good habits, such as keeping track of your finances, cutting back on expenses, and planning ahead.

Here are five habits you can develop

That will help you become the awe of your friends and family!

1 Set Goals

It’s time to take control of your financial security and a great place to start is to identify short, medium, and long-term financial goals.

These might be saving for a family holiday, making additional contributions to your superannuation, paying off expensive credit card debt, or just keep it simple and save a set amount each pay-day.

2 Regular check-ups

Creating a budget is an incredibly important step to achieving your goals as you work towards your financial security.

Rest assured it’s easier than you think using a good budgeting tool. And there are plenty of helpful apps and websites out there to choose from. We tested a few and liked the simplicity of ASIC’s MoneySmart Budget planner.

Calculate your household’s monthly income: Look at your payslips or bank statements to see how much is going into your account on an average month.
Tally your monthly expenses: Check your bank statements, bills, and receipts to see how much you’re spending. Don’t forget to factor in the big ticket items you purchase less often.
Remember your goals: Make an allowance to put some of your income aside to achieve your goals. Can you afford to save 20% of your income or do you start a bit lower?
Crunch the numbers: You’ll now have a summary of how much you’re saving, or losing each month. Don’t forget to save a copy.
Find saving measures: Boost your savings, identify and cut back on unnecessary expenses. That might include take-away coffee, restaurants, or subscription services you rarely use.

The first few months of sticking to your budget will be the toughest, so start by setting a realistic budget. Sticking to consistent saving will mean that you can build up an amount that can be used for a significant goal, like paying off a car loan, or saving a deposit for your first home.

3 Optimise your bank accounts

Give your saving efforts a big boost with the checklist below:

Streamline banking – Get paid into an account that’s not accessible by debit card. Pay off your monthly essentials first, such as rent and utilities, then transfer your budgeted savings into a separate account.
Finally, only put as much as you’ll need in a spending account. That’s this month’s budget.
Bank fees – How much are fees eating into your savings and spending accounts? If you don’t know, find out, then shop around for a better deal.
Credit cards – Tackle your outstanding credit card balance, check to see if you own any credit cards you no longer need. The sooner you can stop using them and pay off the balance the sooner you will have extra money to put towards your goals. Remember late payment fees and interest can really put a dent into your savings.

4 Track your spending

You need to keep your eye on the ball at all times. That’s because it’s one thing to create a budget and set financial goals, but entirely another to stick to them.

So set aside 15-30 minutes each week or fortnight to make sure you’re keeping on track. This regular review is also a good opportunity to identify any expenses you don’t really need. Your streamlined bank accounts should
make this very simple to track your progress.

Notice the spring in your step if you’ve stuck to your budget and saved towards your goals. Remember how good that feels!

5 Plan for the unexpected

Your income is fundamental to achieving your financial goals, so for financial security, you should be confident that you have adequate protection in place.

Ask yourself how quickly you would burn through your savings if you were unable to work for three to five months? Or even longer?

By having different types of insurance you can help protect yourself and your family when you need it the most.

Taking out the right cover for you means that you can be confident that if something unexpected did occur, your efforts to become financially secure are protected.

Would you like to explore options to help meet your financial goals?

Connect with one of our planners to review your current financial position, either book a virtual meeting or call us on 02 9328 0876.

Article by Sydney Financial Planning

Photo by Fuu J on Unsplash

August Economic Update 2020

Written by Britt Ambrose on 4 August 2020. Posted in Australian Economy. No Comments on August Economic Update 2020

Bill Bracey, the Principal and Senior Financial Planner at Sydney Financial Planning looks at a few statistics on what has happened with the economy so far and gives his insights into what’s to come.

Bill also shares with us his experience over the years supporting his clients who have come out on top because they have a financial plan for the long-term.

If you would like to speak with Bill and the team about your financial plan…

Get in touch to either book a virtual meeting or call us on 02 9328 0876.

Video by SFP – Bill Bracey | Senior Financial Planner

2019-20 saw poor returns

Written by Britt Ambrose on 13 July 2020. Posted in Australian Economy. No Comments on 2019-20 saw poor returns

Key lessons for investors from the last financial year were to: maintain a well-diversified portfolio; timing market moves is hard; beware the crowd; turn down the noise; and don’t fight the Fed.
With coronavirus risks still high, investment markets may see more short-term volatility. But over the next 12 months returns from a well-diversified portfolio are likely to be constrained, but okay.

Introduction

The past financial year was poor for investors as coronavirus knocked economies into what is likely to be their biggest hit since the 1930s. Shares were hit hard, but the blow was softened by a strong rebound in the June quarter. This note reviews the last financial year and takes a look at the outlook.

Pre and post covid

The past financial year can effectively be divided into two halves. The period from July last year into early this year saw generally strong returns from shares and growth assets, as fear of recession faded helped by central bank easing and a truce in the US/China trade war and gave way to expectations of some improvement in global economic growth. Despite devastating bushfires and a subdued growth outlook even the Australian share market made it to a record high in February. Against this backdrop, returns from government bonds were subdued.

This now seems like it was a different world as it all started to fade and ultimately reverse as the coronavirus epidemic started to become a problem in China in January. Initially it was hoped it would be contained to China (which successfully controlled it allowing a reopening of its economy from March) but from late February the number of cases escalated in Europe then the US, Australia and ultimately emerging countries, resulting in severe lockdowns driving sharp economic contractions in economic activity. So, between 20th February and 23rd March share markets collapsed by around 35% dragging down commodity prices. This also saw the $US surge and the Australian dollar plunge to around $US0.55.

However, from late March shares staged a rebound driven by policy stimulus, a decline in new covid cases, economic reopening and a rebound in economic data. From their March lows to June highs global shares rose 40% & Australian shares rose 35% and commodity prices and the $A also rebounded.

So, despite this wild ride, for the financial year as a whole global shares returned 5.2% in Australian dollar terms. This was led by the US share market which outperformed due to a heavy tech and health care exposure, a relatively low exposure to cyclical shares and massive Fed quantitative easing. Australian shares didn’t fare so well & still lost 7.7% for the financial year.

Cash and bank deposits had very low returns as the RBA cut the cash rate to 0.25% in March. But bonds had reasonable returns as plunging yields provided capital growth for investors. Despite the plunge in interest rates and bond yields, listed property saw double digit losses as the coronavirus driven slump in economic activity pushed up vacancies and depressed rents in retail and office properties. Returns on airports were similarly depressed weighing on direct infrastructure returns.

This all saw small negative returns for balanced growth superannuation funds of around -1.5% after fees and taxes. Of course, it would have been much worse were it not for the June quarter rebound in shares. The hit to super returns also followed several years of strong returns and the five-year average is just over 5% which is not so bad given (pre tax) bank deposit rates averaged around 2% and inflation averaged 1.5%.

2019-20 major asset class returns

Source: Thomson Reuters, AMP Capital

Like shares, Australian residential property had a roller coaster ride – first rising 10% on rate cuts and the Federal election before starting to slow as coronavirus hit.

Key lessons for investors from the last financial year

These include:

Maintain a well-diversified portfolio – while shares and listed property had a rough ride, bonds and exposure to global shares and foreign currency provided some stability.
Timing markets is hard – while it always looks easy in hindsight, getting out in February at the top and then getting back in March at the low would have been very hard to time.
Beware the crowd at extremes – as is often the case shares hit bottom in March at a time of extreme investor pessimism.
Turn down the noise – the noise around coronavirus is at fever pitch making it very hard to maintain focus on long term investing, so the best thing is to turn it down a notch.
Don’t fight the Fed – despite near zero interest rates and high public debt levels, policy stimulus can still be applied on a massive scale and still impacts investment markets.

The negatives

There are a bunch of threats which are likely to lead to a further correction in shares in the short term, ongoing bouts of volatility and constrained returns. Here are the big ones.

First, while some countries have got new coronavirus cases well down, it’s still on the rise globally particularly in emerging countries and the US and Victoria have seen a resurgence in cases. This is threatening a return to economically debilitating country wide lockdowns (as opposed to targeted measures). Even partial lockdowns will slow the recovery – eg, our rough estimate is that the new six-week lockdown of Melbourne, which accounts for about 20% of Australian GDP will knock nearly 1% off Australian GDP this quarter, which will slow the recovery (but not derail it as it should be offset by growth in other states).
Second, the shutdowns will leave lasting collateral damage in terms of bankruptcies and higher unemployment as the embrace of technology has been sped up, companies cut costs and skills atrophy, all of which will weigh on growth.
Third, in Australia the main collateral risk is that the combination of high unemployment, a collapse in underlying housing demand on the back of a plunge in immigration and a depressed rental market drive a sharp collapse in home prices triggering negative wealth effects.
Fourth, the run up to the US election has the potential to drive increased share market volatility if it looks increasingly likely that Biden will win and raise taxes, and the risk is probably greater if President Trump decides he has nothing to lose and ramps up tensions with China and maybe Europe. With betting markets favouring a clean sweep by the Democrats some of the former is probably already priced, but an intensification of trade wars is probably not.
Finally, shares are expensive on traditional metrics like PEs.

The positives

However, there are a bunch of positives providing an offset.

First, several Asian countries have shown its possible to control the virus – notably China, South Korea, Taiwan and Japan. Maybe the SARS experience helps along with the culture of wearing masks. Surely, we can learn from them.
Second, progress is continuing to be made in terms of vaccines and treatments for coronavirus. I am a bit sceptical about a vaccine, but the latter may be contributing to lower death rates. If deaths remain low compared to the first wave there is less risk of a return to hard lockdowns (Victoria excepted!) and less self-isolation.
Third, policy makers remain committed to do whatever they can to support businesses, incomes and jobs with record levels of fiscal stimulus relative to GDP and massive monetary stimulus. This is different to normal recessions where it takes longer for policy makers to swing into action. To this end policy stimulus will be extended in the US and in Australia (with the Treasurer talking about another phase of income support and possibly bringing forward tax cuts).

Fourth, a range of economic indicators have seen a Deep V rebound from shutdown lows starting in China and then in developed countries, suggesting significant pent up demand. This is most evident in business conditions PMIs but also in retail sales. On balance we see a gradual bumpy economic recovery from here. Australian GDP is expected to contract -4.5% this year and grow 4% next year.

2019 20 global manufactiring and service pmi

Source: Bloomberg, AMP Capital

019 20 aus shares yeild vs bank deposits

Source: RBA; AMP Capital

Finally, the plunge in interest rates and bond yields have increased the present value of shares and other growth assets, which explains why price to earnings multiples are so high. Or looked at another way, shares remain attractive despite lower earnings and dividends because the alternatives like bank deposit rates are even less attractive.

What about the return outlook?

With coronavirus risks still high, investment markets may see more volatility. But over the next 12 months returns from a well-diversified portfolio are likely to be constrained but okay.

After a strong rally from March lows shares remain vulnerable to short term setbacks given uncertainties around coronavirus and US/China tensions. But on a 6 to 12-month view shares are expected to see reasonable returns helped by a pick-up in economic activity & massive policy stimulus.
Cash and bank deposit returns are likely to be poor at less than 1% as the RBA is expected to keep the cash rate at 0.25%. Investors still need to think about what they really want: if it’s capital stability then stick with cash, but if it’s a decent income flow then consider the alternatives.
Low starting point yields are likely to result in low returns from bonds once the dust settles from coronavirus.
Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield, but the hit to economic activity and hence rents from the virus will weigh heavily on near term returns.
Home prices are expected to fall by around 5 to 10% into next year as higher unemployment, a stop to immigration and the weak rental market impact.
Although the $A is vulnerable to bouts of uncertainty about the global recovery and US/China tensions, a continuing rising trend is likely if the threat from coronavirus recedes.

Loans and guarantees are helpful but they leave businesses more indebted, whereas actual fiscal stimulus provides a direct boost. So actual fiscal support is a better measure and on this front Australia at 10.6% of GDP has provided by far the strongest fiscal stimulus of G20 countries. What’s more, Australia’s centrepiece JobKeeper wage subsidy is superior to approaches taken by many other countries as it keeps people “employed”, minimises confidence zapping negative headlines around unemployment, preserves the employer/employee relationship, keeps workers getting paid and provides a subsidy to struggling businesses. Unemployment is likely to rise to around 10% which is bad, but its far better than the 15% that would likely occur in the absence of JobKeeper or 20% or so unemployment in the US.

Things to keep an eye on

The key things to keep an eye on are: coronavirus hospitalisations and deaths, as a guide to the degree of isolation; global business conditions PMIs and unemployment; US election prospects; and Australian house prices.

Get help making sure your investment strategies that can ride the storm…

Speak with one of our Financial Planners, we’re here to help, either book a virtual meeting or get in contact with us on 02 9328 0876.

Article by AMP Capital

This article was prepared by Dr Shane Oliver. Dr Shane Oliver who provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

The recession and your home loan

Written by Britt Ambrose on 1 June 2020. Posted in Property. No Comments on The recession and your home loan

We are seeing a crisis that seems to be affecting all of us and the possibility of a recession has turned into a reality, but we have yet to see how much this recession is going to be affecting other aspects of our economy. Home loans are probably the biggest concern for many, and it makes sense that people want to protect their investment. With that said, here are some relevant and very useful moves that you can implement in order to help recession-proof your home loan.

Maximise emergency funds

There has never been a more crucial time for everyone to make an extra effort to save as much money as possible. Having six months’ worth of your salary in your emergency fund is a can be a great milestone and acts as your first line of defence when the chips are down.

Times are very unpredictable right now and we all need to make sure that a portion of our monthly earnings is going into our savings fund where possible.
This is probably the most essential tip that we can give to anyone right now. It’s a universal strategy that works for everyone regardless of their professional and their financial status.

Mortgage redraw and offset

As you may have seen in the news, certain lenders are now taking the additional repayments you’ve made out of redraw so they’re no longer accessible. These banks and lenders are inside their rights to do so but if you have that money set aside for emergencies it might be worth looking at an offset account.

An offset account sits beside your home loan and any money in the account offsets the interest on your loan. This is essential how redraw facility works but the difference is, bank and lenders don’t have access to remove money from the offset account.

Life insurance review

Be warned that insurances polices such as Income Protection do not cover you in case you lose your job or your business goes under.

Reviewing your current life insurance cover, insurance needs and premium costs to ensure they’re right for your individual needs. COVID-19 has shed new light on the need to be adequately covered but it’s also prudent to ensure you’re not over insured as the premium costs could be used towards building your emergency funds.

Final thoughts

These are times of uncertainty and we don’t know what could happen tomorrow in terms of our financial stability. The most important thing that we can all do is to ensure that we are covering all aspects of our finances to withstand this crisis with optimal results.

Keep in mind that factors such as the COVID-19 pandemic are temporary, but the rippling effect of a bad financial situation could be felt for years to come. That’s why, in times like these, it’s crucial you pay extra attention to your financial situation and avoid any unpleasant surprises without being prepared.

If you’d like to look at recession proofing your financial position, please feel free to contact us to see how we can help.

Stay safe!

Did you know about SFP’s Finance service?

Why not arrange to meet with our expert Leigh Morris our Senior Credit Advisor to review your situation. Make a booking or call us on 02 9328 0876 to arrange a meeting.

Article by Leigh Morris | Senior Credit Adviser & Director

Photo by Emre Can @ Pexel

The lucky country…

Written by Britt Ambrose on 12 May 2020. Posted in Coronavirus Crisis. No Comments on The lucky country…

If, as a we expect, this results in a relatively stronger recovery for the Australian economy, then Australian assets should benefit relative to global assets.

Introduction

Back in January when the bushfires were raging, I feared Australia’s luck had ran out. But right now, I thank god I live in The Lucky Country! Donald Horne’s original conception of the term in the 1964 book of the same name about Australia being run by “second rate people who share its luck” always seemed a bit too negative to me. Sometimes it may seem that way for a patch and yes mistakes are made, but when it really matters, I reckon we are led pretty well. Particularly in times of crisis. Think the 1980s when Hawke and Keating opened up and modernised the economy. Or through the GFC when a rapid policy response was a big reason Australia avoided recession. The response to the current crisis will likely also go down as a time when Australia rose to the occasion.

Of course, we are still not out of the woods on coronavirus and there are some bad stats ahead on the economy. This is indicated by our Australian Economic Activity Tracker which is based on high frequency alternative data and is running down 40% on year ago levels, reflecting a preponderance of components most affected by the shutdown.

Australian economic activity tracker

Source: Bloomberg, AMP Capital

The good news is that it is up from its early April low, but there is still bad news ahead of us in the official statistics. Unemployment likely spiked to around 10% last month which is the highest since the 20% seen during the Great Depression and official data to be released in the months ahead is likely to reflect a 10 to 15% contraction in the economy in the first half of the year, all of which risks further depressing confidence.

But three things suggest Australia looks likely to come through this period of global misery relatively well compared to many other countries and this may mean the Australian economy contracts less and rebounds faster, ultimately supporting Australian asset classes relative to other countries’ assets.

First, Australia has performed better than many countries in controlling coronavirus

While things were bleak in late March, Australia’s success in “controlling” coronavirus (touch wood) stands out globally. After a rapid escalation in new cases, Australia imposed a shutdown around 22 March. New cases peaked in late March at over 500 a day and have since declined to less than 30 a day, albeit with a few clusters still causing problems. New cases may have peaked in the US but are still averaging around 29,000 per day.

Comparing OECD countries in how they are managing the coronavirus outbreak (based on recovery rates, active cases per capita, total cases per capita adjusted for the number of days since the first case and testing per capita) Australia ranks first, with NZ 2^nd (guess where your next overseas holiday might be!) compared to Italy at 28^th, the UK at 31^st, Sweden at 36^th and the US the worst performer in the OECD at 37^th.

Source:Worldometer, AMP Capital

Better weather, less congested living, a younger population and luck may have played a role, but the big driver looks to have been a public health response driven by expert medical advice as opposed to bravado or crackpot theories. And this has been backed up by Australians pulling together to do the right thing. By contrast Europe and the US have been marked by a slower response (eg lockdowns in Italy and Spain did not occur until new cases per million people were around 30, compared to around 12 in Australia). And Australia has achieved a similar virus outcome with a less stringent lockdown to New Zealand.

Australia’s better record in containing the virus means two things. First, it has kept pressure off the health system so those who need hospitalisation can get it. As a result, Australia has managed to do a much better job of saving its own people than many other countries. Deaths per million people are around 3.9 in Australia, compared to 84 in Germany, 221 in the US, 280 in Sweden, 443 in the UK and 485 in Italy – that’s 124 times worse than Australia’s death rate! The value of saved lives swamps the cost to the economy from the shutdown.

Coronavirus per million

Source: Worldometer, AMP Capital

It also provides Australia more scope to open the economy sooner and with greater confidence that a “second wave” of cases will be avoided – in contrast to the US where there is no clear downtrend in new cases. Indications from the Government are that a phased easing of the shutdown looks on track to start this month with most businesses running again by July.

Second, Australia has seen a superior policy response

Australian fiscal response g20

Source: IMF, AMP Capital

The global government policy response to the economic threat posed by coronavirus shutdowns has been huge. See the next chart. However, in many countries it includes a large element of loans and debt guarantees as opposed to actual fiscal stimulus in the form of spending or tax cuts. For example, providing a loan (or a guarantee to enable a loan) to a business to help it survive the shutdown versus providing it with a wage subsidy.

Third, Australia’s major trading partner is 2-3 months ahead of the rest of the world

Finally, we may benefit from our biggest export market – China, which takes a third of our exports – being ahead of the global recovery curve by around 2-3 months and focused on infrastructure spending. This explains why prices for our key export – iron ore – are holding up relatively well compared to say the price of oil (of which we are a net importer).

Implications for the Australian economy

If, as appears likely, a phased easing of the lockdown starts this month, then April should prove to be the low point in economic activity and growth should return to the economy in the second half. This does not mean that things will quickly bounce back to “normal” – the easing of the lockdown will likely be gradual to minimise the risk of a “second wave”, some businesses will not reopen, uncertainty will linger, debt levels will be higher and business models will have to adapt to different ways of doing things. This may mean returning to the office on a rotational basis and shops & restaurants reopening but with distancing rules. Domestic travel may be back withing a few months, but international travel looks unlikely in the absence of a vaccine until next year (except to NZ). But it will still see a return to growth, albeit it may not be until end next year before economic activity returns to pre-virus levels.

The combination of better success in controlling the virus with less risk of a second wave, better protection of the economy with a stronger policy response and Australia’s exposure to China make it likely that the Australian economy will contract less and recover faster than other comparable countries.

While many fret that without tourism and immigration Australia can’t recover, this is not true. The travel ban has only accounted for a small part of the hit to the economy. Australia actually has a tourism trade deficit of 1% of GDP (we lose more from Australians going overseas than we gain from foreigners coming here) so a ban on international travel will actually boost GDP. However, we do have a 2% trade surplus in education, and this would be lost if foreign students can’t come. Similarly, immigration contributes just less than 1% to economic growth each year in Australia. However, this is all dwarfed by the 10 to 15% hit to economic activity which has mostly come from the domestic shutdown. And it could be argued that a workable testing and quarantine requirement could be introduced to allow students and immigrants to return on a 6-9 month timeframe.

Risks to watch

The main risks to watch for are: a “second wave” of coronavirus cases driving a new shutdown beyond the six month protection out to September provided by JobKeeper, increased JobSeeker and the bank debt payment holiday; the lockdown triggering a house price crash resulting in severe second round effects on the Australian economy – this is probably a much greater risk if the lockdown continues beyond September; and political tensions around the origin of Covid 19 damaging Australia’s trade relationship with China in some way.

Concluding Comment

It’s a great time to live in Australia. If we can control the spread of the virus, get our economy going before other trade competitors, and get as many people as we can back to work – our economy should right itself. The Chinese economy is recovering, and we can also benefit from that as we export our raw materials to China. Some positive news finally!

Bill and the team at SFP.

Get help making sure your investment strategies that can ride the storm…

Speak with one of our Financial Planners, we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

How deep will Australia’s recession be…

Written by Britt Ambrose on 21 April 2020. Posted in Australian Economy. No Comments on How deep will Australia’s recession be…

Introduction

This is our 4th update since the COVID-19 crisis started. The feedback we are getting is that our SFP insights have been very welcomed, and they have represented a voice of reason in an ocean of fear. Sydney Financial Planning has been operating for 31 years. In 1991 during the recession we had to have, we were there to help guide our clients through this tough period. In 1991, 2001, 2008 and again today in 2020 when the financial markets fell dramatically, we continue to be here for you, guiding and advising you through a rough patch.

Is this normal?

Looking forward, is this just a normal recession we will go through or is it worse and deeper? Or is it short-lived? Will we get back to normal quickly? When will the financial markets return to normal?

At the time of penning this article, the Australian Share Market has staged a
staggering 20% recovery. So, congratulations to all our clients who did not panic. Congratulations to our clients who took our advice, and took advantage of this fantastic opportunity to buy in at a 40% discount.

A great proportion of the working population has never known a recession in Australia, and others will be haunted by the last in the early 1990s. This time around, I think Australia is in for a different experience to what we’ve seen and known before – and that’s not entirely a bad thing.

The Australian government has, rightly, sacrificed economic activity in the name of health in response to the COVID-19 crisis. It’s not alone in this, as you’d well know, major economies worldwide have done and are doing the same thing, albeit in different ways.

An unfortunate victim in this is Australia’s almost 30-year run of economic growth as we are experiencing our first recession since 1991. The March quarter is most likely going to be negative, and the June quarter will see a big hit to economic activity thanks to the
virus-driven shutdowns, possibly in the order of 10 percent. In other words, our economy will shrink considerably as this virus runs its course.

Again, Australia won’t be alone in this, a global recession is likely as major powerhouses like the US and China factor in the huge economic hit of social distancing, isolation measures, and a virtual shutdown of regular activities, businesses, and services that are not essential.

How will this affect me?

There is a range of factors Australians will feel as we move through the recession period, and a big one will be how tough the jobs market is. There will be much higher unemployment, it will be harder to switch jobs, and it’s reasonable to expect more redundancies and terminations as the crisis continues.

This leads to a loss in income and falling wages, which reduces the spending power of affected Australians. Compounding that, even for those who are holding on to their jobs, uncertainty will rise – people worry about the future, they worry about their income, they worry about their employment prospects. That will impact spending patterns, and how much people are willing to part with beyond the essentials.

It’s worth pointing out some of the potential opportunities for our investors who are prepared to take a long-term view. For one, interest rates will be lower, the official cash rate is currently sitting at the all-time low of 0.25%. This will mean it’s cheaper to service a mortgage.

The residential property market is also likely to take a hit, which could provide lower entry points for people who have struggled – particularly in cities like Sydney and Melbourne – with affordability. The same logic applies to shares. Although the market is currently more volatile, for those with a long-term outlook, there are opportunities to find value at a lower price point. This especially applies to all those reinvested dividends, if you’re in the accumulation stage.

Finally, what we think will be different about the recession before us and those Australia has seen before, is that the current crisis is not the result of a bust after a boom. This is an enforced shutdown and a significant disruption – it was not caused by anything fundamental in the Australian economy. Because of that, we are positive that once the virus is under control, we can recover and reach a more normal functioning in a quicker way than we have before. Adding confidence to this is that government and financial support programs – notably the wage subsidy and debt payment holidays – have been applied early and aggressively and should help protect many businesses and individuals so that the economy can bounce back reasonably quickly once the virus is under control.

Stay the course and keep healthy. This too shall pass.

Advice team of Sydney Financial Planning

Remember we are available to help you during this unprecedented time…

If you have ANY questions please get in touch to speak with one of our Financial Planners we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

Article by Michal Bodi | Senior Financial Planner

Photo by Casey Horner on Unsplash

Acessing superannuation in Coronavirus Crisis

Thinking of accessing your super due to coronavirus crisis?

Written by Britt Ambrose on 3 April 2020. Posted in Australian Economy. No Comments on Thinking of accessing your super due to coronavirus crisis?

There are two opportunities to access super:

Up to $10,000 before 1/7/2020 AND up to additional $10,000 between 1/7/2020 – 24/9/2020

One application permitted in each period
Applications are available from 20th April 2020
Withdrawals will be tax free. No impact on Centrelink.
Don’t contact your super directly, the applications must be done online via MyGov account (or by phone to ATO)
Make sure you have set up MyGov account
You will be able to self-assess for faster processing
Your ATO MyGov account will display all super in your name – you can elect to claim a portion from each account (say $5K from one and $5K from other)
If you’re rejected, you’ll be notified in 2-3 days
No timeframe set for when money will be released BUT
Normal ID requirements are waived for fast approvals (government intention).

Who is eligible?

If you’ve been unemployed or eligible to receive Jobseeker Payment, equivalent Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance, or
On or after 1 January 2020, you’ve been made redundant; or had your working hours reduced by 20% or more; or as a sole trader your business was suspended or turnover decreased by at least 20%.

Other important information:

Due to current market downturn, you’re likely to crystallise loses in your account
You can always contribute the amount back to super if not used (subject to usual contribution caps)
Notice of Intent (NOI) to claim tax deduction for the year needs to be send to your super before withdrawal
Once you receive money, consider keeping withdrawn funds in a suitable account (e.g. offset account)
Check your insurance benefits and premiums payable, otherwise you can lose your cover.

Remember we are available to help you during this unprecedented time…

If you have ANY please get in touch to speak with one of our Financial Planners we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

Article by Michal Bodi | Senior Financial Planner

Photo by Diego PH on Unsplash

Coronavirus - Recession, Depression or Economic Hit?

Is coronavirus driving a recession, depression or an economic hit like no other?

Written by Britt Ambrose on 29 March 2020. Posted in Australian Economy. No Comments on Is coronavirus driving a recession, depression or an economic hit like no other?

There are big differences between the current disruption to economic activity – which could be very deep in the short term – and past recessions and depressions.

Introduction

Global and Australian shares have fallen well beyond the 20% decline commonly used to delineate a bear market. From their highs to their recent lows major share markets have had roughly 35% falls as investors have moved to factor in a big hit to growth from coronavirus shutdowns.

Recession now looks inevitable and they tend to be associated with deep and long bear markets, but now there is even talk of depression suggesting an even deeper bear market. In reality, there are big differences now compared to past recessions and the Great Depression, so it really looks like an economic hit like no other with very different implications for the bear market in shares. But let’s first look at past bear markets as they provide some lessons for investors regardless of the cause.

The two bears – gummy & grizzly

There are 2 types of bear markets in shares:

“gummy” bear markets with falls around 20% meeting the technical definition many apply for a bear market but where a year after falling 20% the market is up (like in 1998 in the US, 2011 and 2015-16 for Australian & global shares); and
“grizzly” bear markets where falls are a lot deeper and usually longer lived (like in 1973-74, US and global shares through the tech wreck or the GFC).

I can’t claim the terms “gummy bear” and “grizzly bear” as I first saw them applied by stockbroker Credit Suisse a few years ago. But they are a good way to conceptualise bear markets. Grizzly bears maul investors but gummy bears eventually leave a nicer taste (like the lollies!). The next table takes a closer look at bear markets. It shows conventionally defined bear markets in Australian shares since 1900 – where a bear market is a 20% decline that is not fully reversed within 12 months. The first column shows bear markets, the second shows the duration of their falls and the third shows the size of the falls. The fourth shows the percentage change in share prices 12 months after the initial 20% decline. The final column shows the size of the rebound over the first 12 months from the low.

Based on the All Ords. I have defined a bear market as a 20% or greater fall in shares that is not fully reversed within 12 months. Source: Global Financial Data, Bloomberg, AMP Capital

Since 1900 there have been 12 gummy bear markets (in black) and six grizzly bears (in red). Several points stand out.

First, gummy bear markets tend to be shorter & see smaller declines around 26% compared to 46% for the grizzly bears.
Second, the average rally over 12 months after the initial 20% fall is 15% for the gummy bear markets but it’s a 23% decline for the grizzly bear markets.
Third, the deeper grizzly bear markets are invariably associated with recession, whereas the milder gummy bear markets including the 1987 share market crash tend not to be. All the six grizzly bear markets, excepting that of 1951-52, saw either a US or Australian recession or both whereas less than half of the gummy bear markets saw recession. It’s also the case for the US share market.
Finally, once the bear market ends the rebound is strong with an average gain of 29%. Trying to time this is hard with many who get out on the way down finding they don’t get back in until the market has risen above where they sold!

Recession versus depression or something else?

So, one of the key messages from history is that if we have a recession then the bear market will likely be grizzly and severe with markets even lower than they are today in 12 months’ time. It’s not necessarily that simple though as the shock this time is very different to those seen in the past. But first the bad news. Recession now looks inevitable. There is now even talk of “depression”. While there is a huge unknown around how long it will take to control the virus and hence how long the shutdowns will last it is looking clear that the short term hit to GDP will be deeper than anything seen in the post WW2 period hence the increasing references to the pre-war depression:

Chinese business conditions PMIs for February fell an unprecedented 24 points due to shutdowns starting 23rd January. Consistent with this Chinese economic activity indicators are down 20% from levels a year ago. Chinese March quarter GDP could well be down 10% or so.

Business conditions PMIs for the US, Eurozone, Japan and Australia all plunged in March as lockdowns ramped up. The average decline for these countries composite business conditions PMIs was an unprecedented 12 pts. This takes them below levels seen in the GFC. And the shutdowns have only just started so further falls are likely in April. So like China, developed countries could conceivably see 10% or so falls in GDP centred around the June quarter.

g3 bus conditions pmis

Source: Bloomberg, AMP Capital

impact to Australia GDP from covid19

Source: ABS, AMP Capital

By way of example the next chart shows the industry make-up of the Australian economy. The shutdowns will see a large hit to roughly 25% of the Australian economy, particularly accommodation & culture, retailing & real estate.

Big differences v past recessions and depressions

But while the slump in economic activity may be deeper than anything seen in the post war period, depression may not be the best description. Most definitions of depression focus on it being over several years and seeing a very deep fall in GDP compared to a recession which is shorter and shallower. The current hit to economic activity may be very deep but it won’t necessarily be longer than past recessions. And there is good reason to believe that if the virus comes under control in the next 2-6 months and we minimize the collateral damage from the shutdowns that the hit to activity may be shorter. There are big differences between the current situation and that of past recessions and Great Depression of the 1930s:

First, recessions and The Great Depression (which saw GDP contract by 36% over 4 years and unemployment rise to 25% in the US and GDP fall by 9.4% in Australia with a rise in unemployment to 20%) were preceded by a period of excess in terms of investment, consumer discretionary spending, private debt growth and inflation that had to be unwound. This time around there has been no generalised period of excess and there has been no large-scale monetary tightening to bring on a downturn.
Second, monetary policy was tightened in the lead up to past recessions and in the early phase of the Great Depression whereas global monetary policy was eased last year and that easing has accelerated this month with rate cuts, a renewed ramp up of quantitative easing (QE) and central banks around the world establishing various ways to ensure credit flows to the economy. In the 1930s banks were simply allowed to fail. Now they are being supported by ultra-cheap funding. Much of this owes to the GFC experience which has made it easier for central banks to now ramp up QE and introduce support mechanisms.
Third, going into the Great Depression fiscal policy was tightened to balance budgets whereas in the last month we have seen massive and still growing global fiscal policy stimulus swamping that of the GFC. The latest US fiscal stimulus package alone is around 9% of US GDP.

g20 countries fiscal thrust

Source: IMF, AMP Capital

Fourth, there has been no trade war such as the Smoot-Hawley 20% tariffs on US imports that were met by global retaliation and saw global trade collapse in the 1930s.

The bottom line is that while we may see the biggest hit to global and Australian GDP since the 1930s thanks to the shutdowns, there are big differences compared to the Depression suggesting that a long drawn out global downturn is not inevitable. Basically, it’s a disruption to normal activity caused by the need to stay at home. In fact, growth could rebound quickly once the virus is under control and policy stimulus impacts. Which in turn should benefit share markets and could see this latest bear market turn into a gummy bear market rather than a grizzly bear market. Of course, at this point we are still waiting for convincing evidence that markets have bottomed. And the key is that the number of new cases of coronavirus starts to slow and that collateral damage from the shutdowns are kept to a minimum.

Closing Comment

Wow a lot can change in a short period of time!

In my last update I acknowledge there was a lot we did not know about this event and how it may play out. I finished with what we do know. After 31 years in Financial Planning
I have learnt that numbers and history do not lie, that’s why we are obsessed with numbers and graphs to illustrate, our conclusions.

I now ask you to re-read the table above, of what happened to the Australian Share market over the past 100 years when negative events occurred Globally, then look at the % gain in first 12 months after a low. Numbers don’t lie, nor history. Markets will recover, and when you’re sick you talk to the Medical Dr, when your financial affairs are sick talk to the Financial Dr. Now more than ever, you need to talk and review your situation to navigate out of here.

Please feel free to call us, we’re here to help you.

Bill and the team at SFP.

Remember we are available to help you during this unprecedented time…

If you have ANY please get in touch to speak with one of our Financial Planners we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

Article by Bill Bracey – Principal & Senior Financial Planner | Sydney Financial Planning

Federal Government Stimulus Package 2020

Further Federal Government stimulus package announced

Written by Britt Ambrose on 23 March 2020. Posted in Australian Economy. No Comments on Further Federal Government stimulus package announced

The new measures include initiatives for individuals, households and businesses. Business initiatives include measures to both enhance cashflow and provide easier access to credit.
Enabling legislation (where required) is expected to be introduced to Parliament in the sitting week commencing 23 March 2020.

The proposed measures are briefly summarised below and will require passage of legislation and/or regulations to provide certainty as to the specifics of the proposals.

Federal Budget: the Government has also announced that due to continuing uncertainty associated with the Coronavirus pandemic that the Federal Budget which was due to be handed down in May will be deferred until 6 October 2020.

1. Measures to support individuals & households

Proposed effective date: various, see below.

Temporary early access to superannuation.

Proposed effective date: 2019-20 and first quarter (approx.) 2020-21. Applications available from mid-April 2020.

The Government recognises that immediate financial necessities may temporarily outweigh the stated purpose of superannuation as a retirement savings vehicle and will temporarily allow additional early access to super savings in prescribed circumstances.

People who meet the below criteria will be allowed to access:

up to $10,000 of their super before 1 July 2020, and
up to an additional $10,000 in the three months starting from 1 July 2020 (timeframe is approximate and subject to legislation).

Amounts released under these rules will be paid tax-free and will not affect Centrelink or DVA payments.

Individuals eligible to apply for early release include:

Those who are unemployed; or
Those eligible to receive Jobseeker Payment, equivalent Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance; or

Those who on or after 1 January 2020:

Were made redundant; or
Had their working hours reduced by 20% or more; or
As a sole trader, their business was suspended or turnover decreased by at least 20%.

Those eligible must apply to the ATO through the MyGov website and must self-certify that they meet the above requirements. The ATO will then process the application and issue a Determination to the applicant and their super fund.

The super fund will be able to then pay the applicant directly. Those eligible will only be allowed one withdrawal application in each period (i.e. cannot ‘top-up’ by making a second request if an original withdrawal for less than $10,000 was made).

Applications for early release of super under this measure are expected to commence from mid-April 2020, approval and benefit payment time frames have not been announced at the time of writing.

Early release of super benefits under this measure will also be available to members of SMSFs.

Accessing super benefits in times of market down-turns is usually not recommended as it may crystallise losses. However members who experience loss of employment or a significant decrease in income may find this measure provides immediate financial relief and the basis to re-build.

Further details of this measure are available in this fact sheet released by Treasury.

Support for retirees – temporary reduction in minimum pension drawdown requirements

Proposed effective date: Financial years 2019-20 and 2020-21.

Similar to measures that applied following the 2008 Global Financial Crisis, the Government has proposed a 50% reduction in the minimum income drawings required from account based pensions and similar products for the 2019-20 and 2020-21 income years.

This measure is designed to allow those whose circumstances permit to reduce income payments from their superannuation based pensions or income streams so as to minimise the need to sell down assets in depressed markets.

Those who have already taken 50% or more of the required minimum payment in the 2019-20 financial year could contact their fund and cease any further payments until 30 June (subject to passage of regulations/legislation).

This measure is not compulsory. Individuals who need the income or simply do not wish to reduce their income payments need not take action.

Superannuation pensioners who are funding their income requirements from a cash account may also decide to take no action.

Details of this measure are available in this Fact Sheet released by Treasury.

Support for retirees and income support recipients – further reduction in deeming rates

Proposed effective date: 1 May 2020.

Adding to the 12 March 2020 announcement, the Government has announced a further 0.25% reduction in deeming rates.

This will mean that part-rate pensioners and allowees will have less income assessed from their financial investments. If a recipient is income tested, the effect of the reduced deeming rate may result in an increase in social security entitlements.

Any increase in the amount of income support received due to the reduction in deeming rates will commence to flow through to clients’ bank accounts from 1 May 2020.

The following table illustrates the new deeming rates:

Table 1: Reduction in deeming rates

Payments to income support recipients (households)

Proposed effective date: various, see below.

The Government will now provide two payments of $750 to eligible social security, veteran and other income support recipients (including concession card holders). Each $750 payment is a set amount, regardless that the recipient may have multiple eligibility (e.g. be an income support recipient and concession card holder).

The first payment will be made to those receiving eligible income support or other benefits as at 12 March 2020, or those who have applied for a benefit as at that date (or up to 13 April 2020) and are subsequently approved.

The second payment will be available to those who are eligible income support recipients or concession card holders as at 10 July 2020 and will be paid automatically from 13 July 2020. However, those who are receiving a payment that is eligible to receive the Coronavirus supplement (see below) will not receive this second $750 payment.

Each eligible person in a household can receive the payment (e.g. a pensioner couple would receive a total of $1,500 in each round of payments).

The payments will be exempt from tax and not included in the income test for social security, veteran or Farm Household Allowance payments.

Eligible recipients must be residing in Australia. For the first payment, eligible benefits include:

Age Pension
Disability Support Pension
Pension Concession Card
Carer Payment and Allowance
Commonwealth Seniors Health Card
Veteran and War Widow(er) payments
Veteran Gold Card

Youth Allowance
Newstart Allowance/Jobseeker payment
Farm Household Allowance
Family Tax Benefit
Parenting Payment
Austudy
Partner Allowance

The first payment will be made from 31 March 2020 with 90% of payments expected to be made by mid-April 2020.

The payment will be made automatically to income support recipients. Those whose only qualifying benefit is a concession card will be contacted to confirm bank account details.

In addition, eligibility criteria for benefits such as Sickness Allowance and Youth Allowance or other study related payments will be relaxed where the recipient can demonstrate inability to work or lack of compliance is due to Coronavirus related causes.

To be eligible for the second payment the person must be residing in Australia and receiving one of the payments or concession cards listed above except for payments which receive the Coronavirus supplement (see below).

These excluded payments include: Jobseeker Payment, equivalent Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance.

The Government Fact Sheet on Payments to Households is available from Treasury.

Enhanced income support for individuals

Proposed effective date: 27 April 2020

The Government is temporarily expanding eligibility to income support payments and establishing a new temporary ‘Coronavirus supplement’. The supplement will be paid at the fixed rate of $550 per fortnight for six months commencing 27 April 2020 and is in addition to existing income support payments.

Those eligible for the supplement include existing and new recipients of the following payments:

The Jobseeker Payment (previously Newstart Allowance and other payments transitioning to the Jobseeker Payment);
Youth Allowance (YA) Jobseeker Payment;
Parenting Payment (partnered and single);
Farm Household Allowance; and
Special Benefit recipients.

For the period of the Coronavirus supplement there will also be expanded access to the payments listed above.

The Jobseeker payment (and YA Jobseeker payment) will be available to permanent employees who lose their jobs. These payments will also be available to sole traders, self-employed and contract or casual workers whose reduced income meets the income test criteria.

Asset testing of Jobseeker payment, YA Jobseeker payment and Parenting Payment will be waived for the period of the supplement.

The one week ordinary waiting period has already been waived and the Liquid Assets Waiting Period (LAWP) will also be waived for those eligible for the supplement. Those already serving a LAWP will have the remainder waived.

Income maintenance periods and compensation preclusion periods will continue to apply. Claimants for the Jobseeker payment will have to certify that they are not receiving or eligible for paid employer leave or accessing income protection payments.

At this time measures are also being taken to streamline the application process including reduced documentation requirements and relaxation of mutual obligation and study requirements where these are impacted by the Coronavirus.

Details of this measure are available in this Fact Sheet released by Treasury.

2. Measures to support small and medium size employers

Proposed effective date: Various – see below

With reference to the tax-free payment announced by the Government on 12 March 2020 to boost cash flow for small and medium size businesses.

The Government has now indicated it will enhance that previously announced tax-free cash flow boosting payment. Instead of the previously announced $25,000 maximum, the government is to now provide up to $100,000 (minimum payment of $20,000) to eligible small and medium-sized businesses. Payments will now also be made to eligible not for-profits (NFPs including charities) that employ people.

Small and medium-sized business entities (including NFPs/charities) with aggregated annual turnover under $50 million and that employ workers are eligible.

The payments will only be available to active eligible employers established prior to 12 March 2020. However, charities which are registered with the Australian Charities and Not-for-profits Commission will be eligible regardless of when they were registered, subject to meeting other eligibility requirements. This recognises that new charities may be established in response to the Coronavirus pandemic.

Under the enhanced arrangements, tax-free payments will be made in two stages.

First stage

Eligible businesses that withhold tax to the ATO on their employees’ salary and wages will under the first stage receive a payment equal to 100% (up from 50%) of the amount withheld, up to a maximum payment of $50,000.

Eligible businesses that pay salary and wages will receive a minimum payment of $10,000 (up from $2,000) even if they are not required to withhold tax.
The tax-free payment in this first stage will be delivered by the ATO as a credit in the activity statement system from 28 April 2020 upon businesses lodging eligible upcoming activity statements.

Second stage

In the second stage, additional payments will be made in the July – October 2020 period. To qualify for the additional second stage payments, the entity must continue to be active.

Eligible entities will receive the additional payments equal to the total of all of the boosting cash flow for employers payment they received under the first stage. This means that eligible entities will receive at least $20,000 (2 x $10,000) minimum, up to a total of $100,000 (2 x $50,000) maximum combined under both payments.

For monthly activity statement lodgers, the additional second stage payments will be delivered as an automatic credit in the activity statement system. This will be equal to a quarter of their total first stage Boosting Cash Flow for Employers payment and received following the lodgement of their June 2020, July 2020, August 2020 and September 2020 activity statements (up to a total of $50,000).

For quarterly activity statement lodgers, the additional second stage payments will also be delivered as an automatic credit in the activity statement system. This will be equal to half of their total first stage Boosting Cash Flow for Employers payment and received following the lodgement of their June 2020 and September 2020 activity statements (up to a total of $50,000).

Further details of this measure are available in this Fact Sheet released by Treasury.

Other measures announced to support the cash flow needs of small and medium-sized business entities include:

Under a ‘Coronavirus SME Guarantee Scheme’, the government will provide a guarantee of 50% to SME lenders to support new short-term unsecured loans to SMEs. The Scheme will guarantee up to $40 billion of new lending. According to the government, this will provide businesses with funding to meet cash flow needs by further enhancing lenders’ willingness and ability to provide credit.

The government is also cutting red tape by providing a temporary exemption from responsible lending obligations for lenders providing credit to existing small business customers. This reform is aimed at helping small businesses get access to credit quickly and efficiently.

As always I want to reiterate that myself and the team at SFP are here to answer ANY questions you may have during this time. Stay safe in these uncertain times, we’re in this together.

Bill and the team at SFP.

If you have ANY questions during this unprecedented time…

Please get in touch to speak with your Financial Planner we’re here to help, either book a virtual meeting of get in contact with us on 02 9328 0876.

Bill Bracey – Principal & Senior Financial Planner | Sydney Financial Planning

Coronavirus and financial markets melt down. What to do?

Written by Britt Ambrose on 15 March 2020. Posted in Australian Economy. No Comments on Coronavirus and financial markets melt down. What to do?

Maybe I was wrong? Australians rushing out buying toilet paper and fighting over it like it was gold being handed out for free.

Some wise person once said:

“Off with the head and on goes a pumpkin!”

Thank god my clients still have their own head and use the knowledge they have gained through us and are not making irrational decisions about their investments.

Yes, the phone rang, and yes, we are all concerned, but the vast majority asked me then same question.

Q: “Bill, in all your correspondence you have sent us this calendar year – is this what you meant when you said, “This is how the rich get richer and the poor get poorer”?

A: YES!

Then most asked me…

Q: “Is the time right now to start to invest when assets values have fallen greatly?”

A: YES! (but I also say) patience grasshopper.

This crisis will eventually pass, as investors and Australians become accustomed to the new normal that included the new coronavirus COVID-19, becoming a normal part of daily life along with the flu, obesity, car accidents and other medical issues.

The difficult part is the ‘unknown’ as we don’t know how long the dislocation phase will last, where we need to reduce social interaction and possible isolation for a limited time. This has significant economic impacts and greatly increases the probability of a recession.

The global markets have moved from raging Bull to Bear Market. How long will this last and when is it good to start investing again?

That’s the Million-dollar question.

The answer is; nobody knows. The best advice is everybody’s situation is vastly different and you need individual high-quality advice.

What I do know is;

That we are in a bear market and we don’t know how far away the bottom is.
That right now there is possibly some phenomenal buying opportunities.
That markets perform over time and bounce back as seen in the below table.

Source: Schroders. Refinitv data correct as at 3 March, 2020. Data shown is for the S&P 500 Total Return Index, which includes price increases and dividend payments. Past performance is not a guide to future returns. 413199
This is a period of adjustment because we are moving from a long Bull market and nobody can ever pick the bottom of the Bear Market (nor the top of the Bull Market for that matter).
If you buy somewhere towards the bottom of the market, there is exceptional value and money to be made.
In times like this, the poor unadvised panic and sell at the bottom, and the well-advised rich buy from the poor. That’s how the Rich get Richer!
I’ve started investing part of my spare cash back into to the market.
I’ve been through many of these volatile times before I’ve learnt what to do and how to best advise clients, as do all our Financial Planners at Sydney Financial Planning.

If you still have questions and things are not clear; I urge you to arrange to talk with your Financial Planner.

Bill Bracey and the advice team

Have you set things up to weather this trend?

If you need your personal situation reviewed by your Financial Planner or you don’t have a planner yet, get in contact with us on 02 9328 0876.

Bill Bracey – Principal & Senior Financial Planner | Sydney Financial Planning

The plunge in shares – seven things investors need to keep in mind

Written by Britt Ambrose on 3 March 2020. Posted in Australian Economy. No Comments on The plunge in shares – seven things investors need to keep in mind

Shares may still have more downside and the uncertainty around the coronavirus crisis is very high, but we are of the view that it’s just another correction.

Key things for investors to bear in mind are that: corrections are normal; in the absence of recession, a deep bear market is unlikely; selling shares after a fall locks in a loss; share pullbacks provide opportunities for investors to buy them more cheaply; while shares may have fallen, dividends are smoother; and finally, to avoid getting thrown off a long-term investment strategy it’s best to turn down the noise during times like this.

Introduction

The plunge in share markets over the last week has generated much coverage and consternation. This is understandable given the rapidity of the falls – with US shares having their fastest 10% fall from an all-time high on record – and the uncertainty around the coronavirus (Covid-19) and its impact on economic activity. From their highs to recent lows US shares have fallen 13%, Eurozone shares have fallen 16%, Japanese and Chinese shares have fallen 12% and Australian shares have fallen 12%. This note looks at the issues for investors and puts the falls into context.

What’s driving the latest plunge?

The plunge basically reflects two things.

After very strong gains from their last greater than 5% correction into August last year, share markets had become vulnerable to a correction.
The uncertainty around the impact of the coronavirus outbreak which is on the verge of becoming a pandemic and its impact on global growth has unnerved investors dramatically. Shares had recovered from their initial fall on the back of the virus into early February on signs that the number of new cases in China was falling (which is continuing), limited cases outside China and expectations that policy easing would limit any damage. This has been blown apart in the last week as cases have popped up en masse in Italy, South Korea and Iran, more cases have appeared elsewhere around the world and this has resulted in expectations of a deeper and longer hit to global growth.

After big falls shares have become technically oversold, measures of negative investor sentiment such as the VIX (or fear) index and demand for option protection have spiked. So, shares could have a short-term bounce. But given the uncertainties around Covid-19 – with more cases in the US and Australia likely to pop up – the situation could get worse before it gets better, so the share pullback could have further to go – notwithstanding short-term bounces.

Considerations for investors

Sharp market falls with headlines screaming that billions of dollars have been wiped off the share market are stressful for investors as no one likes to see the value of their investments decline. The current situation is doubly stressful because of fears for our own and others health – particularly for the elderly. However, several things are worth bearing in mind:

First, while they all have different triggers and unfold a bit differently to each other, periodic corrections in share markets of the order of 5%, 15% and even 20% are healthy and normal. For example, during the tech/dot-com boom from 1995 to early 2000, the US share market had seven pull backs greater than 5% ranging from 6% up to 19% with an average decline of 10%. During the same period, the Australian share market had eight pullbacks ranging from 5% to 16% with an average fall of 8%. All against a backdrop of strong returns every year.

During the 2003 to 2007 bull market, the Australian share market had five 5% plus corrections ranging from 7% to 12%, again with strong positive returns every year. More recently, the Australian share market had a 10% pullback in 2012, an 11% fall in 2013 (the taper tantrum), an 8% fall in 2014, a 20% fall between April 2015 and February 2016, a 7% fall early in 2018, a 14% fall between August and December 2018 and a 7% fall into August last year. And this has all been in the context of a gradual rising trend. And it has been similar for global shares – with the last big fall in US shares being a 20% plunge into Christmas eve 2018. See the next chart. While they can be painful, share market corrections are healthy because they help limit a build-up in complacency and excessive risk taking.

sfp e14 001 corrections normal

Source: Bloomberg, AMP Capital

sfp e14 002 Australian shares climb a wall of worry

Source: Bloomberg, AMP Capital

Related to this, shares climb a wall of worry over many years with numerous events dragging them down periodically, but with the long-term trend ultimately up & providing higher returns than other more stable assets. Bouts of volatility are the price we pay for the higher longer-term returns from shares.

Second, the main driver of whether we see a correction (a fall of 5% to 15%) or even a mild bear market (with say a 20% decline that turns around relatively quickly like we saw in 2015-2016) as opposed to a major bear market (like that seen in the global financial crisis (GFC)) is whether we see a recession or not – notably in the US as the US share markets tends to lead for most major global markets. The next table shows US share market falls greater than 10% since the 1970s. I know it’s heavy – but I like this table! The first column shows the period of the fall, the second shows the decline in months, the third shows the percentage decline from top to bottom, the fourth shows whether the decline was associated with a recession or not and the fifth shows the gains in the share market one year after the low. Falls associated with recessions are highlighted in red.

Source: Bloomberg, AMP Capital

Several points stand out:

First, share market falls associated with recession tend to be longer and deeper.
Second, after the low the, share markets generally rebound sharply – which invariably makes it very hard for investors to time, as by the time they realise what has happened and get back in the market is above where they sold.
Finally, as would be expected the share market rebound in the year after the low is much greater following falls associated with recession.

So, whether a recession is imminent or not in the US is critical in terms of whether we will see a major bear market or not. In fact, the same applies to Australian shares. Our assessment is that a US/global recession is not inevitable. We have not seen the excesses – in terms of overall debt growth (although housing debt is a source of risk in Australia), overinvestment, capacity constraints and inflation – that normally precede recessions in the US, globally or Australia. And we have not seen the sort of monetary tightening that leads into recession. In fact, monetary conditions remain very easy. However, the uncertainty around the coronavirus outbreak and the likelihood of economic shutdowns designed to contain it beyond those in China do suggest a greater than normal risk on this front. That said even if there were a recession growth would likely rebound quickly once the virus came under control as economic activity sprang back to normal helped by policy stimulus.

Third, selling shares or switching to a more conservative investment strategy or superannuation option after a major fall just locks in a loss. With all the talk of billions being wiped off the share market, it may be tempting to sell. But this just turns a paper loss into a real loss with no hope of recovering. The best way to guard against making a decision to sell on the basis of emotion after a sharp fall in markets (as many including me are tempted to do!) is to adopt a well thought out, long-term strategy and stick to it.

Fourth, when shares and growth assets fall, they are cheaper and offer higher long-term return prospects. So, the key is to look for opportunities the pullback provides – shares are cheaper and some more than others. It’s impossible to time the bottom but one way to do it is to average in over time.

Fifth, while shares have fallen, dividends from the market haven’t. They will come under some pressure as the economy and profits take a hit from a deeper and longer coronavirus outbreak. But companies like to smooth their dividends over time – they never go up as much as earnings in the good times and so rarely fall as much in the bad times. So, the income flow you are receiving from a well-diversified portfolio of shares is likely to remain attractive, particularly against bank deposits.

sfp e14 004 aust shares offer attractive yield

Source: RBA, Bloomberg, AMP Capital

Sixth, shares and other related assets often bottom at the point of maximum bearishness, ie, just when you and everyone else feel most negative towards them. So, the trick is to buck the crowd. “Be fearful when others are greedy. Be greedy when others are fearful,” as Warren Buffett has said.

Finally, turn down the noise. At times like this, negative news reaches fever pitch. Talk of billions wiped off share markets and warnings of disaster help sell copy and generate clicks & views. But we are rarely told of the billions that market rebounds and the rising long-term trend in share prices adds to the share market. Moreover, they provide no perspective and only add to the sense of panic. All of this makes it harder to stick to an appropriate long-term strategy let alone see the opportunities that are thrown up. So best to turn down the noise.

Concluding Comment

So in summary as I suggested in January in my update to you, times like this offer opportunity and we have seen times like this before. This is where the rich get richer and the poor non advised, get poorer.

Please take time to watch my 5 minute video that explains what you should be doing with this market.

Now more than ever its important to keep your nerve and shut out the media who pump FEAR into the masses.

Please feel free to contact us at Sydney Financial Planning, we are experienced at dealing with volatile times and know what to do.

Bill Bracey and the team

Have you set things up to weather this trend?

If you need your personal situation reviewed by your SFP Planner or you don’t have a planner yet, get in contact with us on 02 9328 0876.

Bill Bracey – Principal & Senior Financial Planner | Sydney Financial Planning

Workers compensation vs income protection

Written by Britt Ambrose on 28 February 2020. Posted in Financial Strategies. No Comments on Workers compensation vs income protection

When it comes to covering your income if you can no longer work, what’s better? Income protection, workers compensation, or both?

What’s the difference between income protection and workers compensation?

The key difference between workers compensation and income protection is whether cover will be provided and to what extent.

When it comes to workers compensation ^[1], cover will only be provided if the accident or illness occurs as a direct result of the job. Payments can be used to cover income for the duration that you are unfit to work or up to 65 years old in most cases (sometimes 67), as well as any medical expenses or rehabilitation. The key point when it comes to workers compensation though is where and why the injury or illness has occurred. If you cannot prove that it was a result of jobs undertaken at work, then you will not be eligible for compensation.

In contrast, Income Protection ^[2] can cover you for injuries and illnesses suffered both at and because of work, and also outside of work. When you consider 75% of accidents occur when a person is at home or during leisure time, compared to 25% at work ^[3]. Taking out income protection may help you to cover outgoings and expenses, should something occur outside of work that impacts your ability to earn an income.

Workers’ compensation costs and benefits are paid for by the employer, with workers compensation systems varying from state to state ^[4]. Income protection insurance premiums on the other hand are usually paid for by the individual.

What does income protection offer? You can’t make an informed decision unless you have all the facts.

Income protection can give you the support of an alternative source of income if you are unable to work due to an injury or an illness. Benefit payments of generally up to 75% of your average income are paid monthly, which can help you to cover expenses.

Remember, relying on workers compensation means you won’t be covered if the injury or illness isn’t due to work or your workplace and usually, you’ll need to present evidence to prove the injury or illness occurred as a direct result of your job. Sometimes, this may be difficult and this can result in lengthy delays. And if you’re self-employed, a sole trader or an independent contractor you may not be covered under a workers compensation scheme. While some people believe income protection is only for high income earners, this isn’t the case.

What is the impact of having both workers compensation and income protection? You can have both workers compensation and income protection. However, having access to workers compensation may mean a reduced insurance benefit ^[5] from your income protection policy. Why? Income protection is designed to help cover your loss of income, but if you’re already being compensated for the loss of that income from somewhere else, such as workers compensation, this will be factored in and generally your income protection benefit will be reduced accordingly.

According to the Australian Bureau of Statistics ^[6] 47% of Australians who suffered an injury or illness as a result of work received no financial assistance in 2017/18. While workers compensation is great, it doesn’t cover everything, especially not broken bones that prevent you from working if they occur while on holiday or even just as a result of a fall at home.

Income protection offers peace of mind, so that you and your family can be protected should your income be affected by injury or illness.

Still have some questions? Are you covered?

Speaking with one of our financial advisors is a good place to start. Make a booking or call us on 02 9328 0876 to arrange a meeting.

[1] Fair Work Ombudsman 2020, Workers Compensations, viewed January 2020 https://www.fairwork.gov.au/leave/workers-compensation
[2] TAL Slice of Life Blog, 2 January 2019, Income Protection Insurance: Protect against the unexpected, viewed January 2020 https://www.tal.com.au/slice-of-life-blog/ip-protect-against-the-unexpected
[3] Finder.com.au 2020, Income protection insurance vs WorkCover, viewed January 2020 https://www.finder.com.au/income-protection-vs-work-cover
[4] Nolo 2020, Who Actually Pays for Workers’ Compensation?, viewed January 2020 https://www.disabilitysecrets.com/workmans-comp-question-20.html
[5] Compare the market 2020, Do I need life insurance or income protection?, viewed January 2020 https://www.comparethemarket.com.au/life-insurance/information/life-insurance-or-income-protection/
[6] Australian Bureau of Statistics, 2018, Work-Related Injuries Australia,July 2017 to June 2018, viewed January 2020, https://www.abs.gov.au/ausstats/abs@.nsf/mf/6324.0

Are grandparents giving too much?

Written by Britt Ambrose on 28 February 2020. Posted in Financial Strategies. No Comments on Are grandparents giving too much?

Not so long ago, it was the norm for adult children to lend a financial helping hand to their ageing parents. These days, the support is more likely to flow downwards, and grandparents are increasingly likely to provide financial support to their children – and even grandchildren.

As school costs soar for instance, a growing number of grandparents are dipping into their pockets to give their grandchildren a quality education. Industry research shows almost one in four education savings plans are started by people aged 60 or older.ⁱ

In other families, time rather than money is being provided. Faced with expensive and often limited formal childcare options, many working families turn to grandparents as a source of low cost childcare. A 2014 report by AMP and the National Centre for Social and Economic Modelling (NATSEM)ⁱⁱ found that grandparents provide 23% of all childcare to children aged under 12.

Informal childcare can be taxing

Quite naturally, many grandparents relish the opportunity to spend one-on-one time with their grandkids. However, along with the physical demands of caring for a youngster, providing childcare can also be financially taxing, and it’s not just about occasional outings to the zoo or the purchase of a few age appropriate toys.

At a time when the pension eligibility age is being raised and pension rates reduced, caring for a grandchild can have a significant impact on a grandparent’s financial wellbeing.

One in five have changed jobs to offer childcare

A survey by National Seniors Australiaⁱⁱⁱ found many grandparents who provide informal childcare are ‘working around care’, and making significant adjustments to their own career as a result. Among those surveyed, 70% altered the days or shifts they worked, 55% reduced their working hours, and 18% had even changed their job because of their caring commitment.

On the plus side, the same study found grandparents reported enjoying a far better relationship with both their grandchild and adult child as a result of providing care. But it comes at a cost. Just over one-third (34%) of respondents said their childcare responsibilities had a negative impact on their incomes, household budgets and/or retirement savings.

It’s all about finding a balance

These results highlight the need for seniors to find a balance in how – and how much – they help their adult offspring and grandchildren.

We all want the best for our family but as we age we need to think about our own needs too. Increasing longevity means longer retirement periods to plan for, and giving too much today could limit your ability to remain financially independent throughout retirement.

Having open and frank discussions with your adult children about the level of support you can realistically provide – both physical and financial – is the starting point in achieving this balance. These may not be easy conversations to have but they are critical to achieve a win-win for all family members.

Speak to us about the best way to structure your finances so you can help your adult children while still achieving your retirement goals.

Need help structuring your finances so you can help your children?

Speaking with one of our financial advisors is a good place to start. Make a booking or call us on 02 9328 0876 to arrange a meeting.

i Australian Unity media release: Grandparents step in to fill the education savings gap, 31 October 2014
ii AMP.NATSEM Income and Wealth Report, Child Care Affordability in Australia, Issue 35 – June 2014.
iii National Seniors Australia, Grandparent childcare and labour market participation in Australia, September 2015

What do Australians want financial advice on?

Written by Britt Ambrose on 28 February 2020. Posted in Superannuation. No Comments on What do Australians want financial advice on?

According to the recent ASIC report ^[1], the topics Australians want financial advice on:

Investments (e.g. shares and managed funds) 45%
Retirement income planning 37%
Growing superannuation 31%
Budgeting or cash flow management 22%
Aged care planning 18%

Despite this, only 12% of Australian surveyed sought financial advice in the past 12 months.

Like many Australians, you might have thought about helping secure your family’s financial future by working with a financial adviser.

According to the recent Australian Securities & Investments Commission report, ‘Financial advice: What consumers really think ^[2], 79% of Australians believe “financial advisers have expertise in financial matters that I do not have”.

Yet here’s the kicker: only 12% have actually sought advice in the past 12 months.

The good news is 41% of Australians intend to get financial advice in the future, and 25% intend on doing so in the next 12 months. Below we’ve covered the areas they are most interested in seeking advice on.

1. Investment Advice

According to the ASIC report, perhaps unsurprisingly, 45% of Australians want advice on investments (e.g. shares and managed funds)

But, a 2019 report by global investment solutions firm Russell Investments – ‘Why work with a financial adviser? ^[3]’ states that researchers have discovered over 200 unconscious biases that influence our decisions, which could have a detrimental effect on our future wealth.

“People tend to let their emotions and other human tendencies influence their decision making. But when it comes to investing, acting like a human may actually cost you money,” the Russell Investments report states.

“To be a successful investor, it is important to be objective and disciplined when making investment decisions.

2. Retirement Income Planning

According to the ASIC report, 37% of survey participants wanted advice on retirement income planning.

Indeed, according to the 2017 ASX Australian Investor Study ^[4] report, retirement and wealth accumulation are “front of mind for all age groups, and individuals are investing in products that reflect these goals”.

The ASX report states that a single person seeking a ‘modest’ lifestyle in retirement requires a lump sum of at least $370,000 (without the age pension) invested and returning 7% p.a.

For couples, this lump sum needs to be at least $400,000.

In order to have a ‘comfortable’ retirement, households will require double these amounts.

One of the most important jobs a financial adviser has is helping you to determine the best investment strategy and risk profile to achieve your long-term retirement objectives.

“Investing early to accumulate wealth will make the difference between a modest and a comfortable retirement in the future – and whether or not individuals will need to rely on the age pension,” the ASX report states.

Financial advisers, like us, can help you craft a diversified portfolio that is intended to provide not just a comfortable living when you eventually retire, but also design a strategy that takes into account your age, circumstances and risk appetite.

3. Superannuation

The ASIC survey shows that 31% of Australians also want advice on growing their superannuation.

Now, superannuation seems to be another one of those financial topics that people know about, but don’t truly understand, despite the major long-term benefits.

In fact, research by the Association of Superannuation Funds of Australia (ASFA)^[5], has found that Australians under 30 years of age tend to have higher balances in their superannuation accounts than their bank accounts.

And yet, 40% of young people have absolutely no idea what their superannuation balance is.

There are also several tax deduction benefits related to superannuation contributions, and this is the kind of information a financial adviser can provide while helping you get the most out of your superannuation plan.

4. Cash Flow

It turns out that 22% of ASIC survey participants wanted advice on budgeting or cash flow management. And for good reason.

This is where we can really make an impact in your current day-to-day life – not just decades down the track. We can help you manage your monthly budgets, reduce your debt and make sure you have enough cash flow to comfortably make it to the end of each month.

Let us help you sleep better and get your financial future on track.

Speaking with one of our financial advisors is a good place to start. Make a booking or call us on 02 9328 0876 to arrange a meeting.

[1] & [2] Australian Securities and Investments Commission (ASIC) August 2019, Financial advice: what consumers really think, viewed January 2020 https://download.asic.gov.au/media/5243978/rep627-published-26-august-2019.pdf © AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION. REPRODUCED WITH PERMISSION. PLEASE SEE THE WEBSITE FOR FURTHER INFO
[3] Russell Investments 2019, Why work with a financial adviser?, viewed January 2200 https://www.jsagroup.com.au/wp-content/uploads/2019/08/2019-Value-of-an-Adviser_Investor-Report.pdf
[4] Deloitte Access Economics 2017, ASX Australian Investor Study, viewed January 2020 https://www.asx.com.au/documents/resources/2017-asx-investor-study.pdf
[5] The Association of Superannuation Funds of Australia Limited (AFSA) 2020, Young people and superannuation, viewed January 2020 http://www.superguru.com.au/about-super/youngpeople

How to create realistic goals… and stick to them

Written by Britt Ambrose on 26 January 2020. Posted in Goal Strategies. No Comments on How to create realistic goals… and stick to them

When it comes to the big things in life we all have our goals. Getting promoted at work. Educating the kids through school. Saving for a comfortable retirement.

It’s important to aim high. But if the goals you set are overambitious, with no checkpoints along the way, you could be setting yourself up for disappointment. So it may be a good idea to make sure your goals are realistic and achievable.

One area where setting goals can be beneficial is health and fitness—whether it’s losing a few kilos at the gym or aiming for a PB at the next half-marathon.

Check out the video below, where corporate health consultant Jack Hemnani talks about how he helps his clients set realistic goals and stick to them.

Think short, medium and long term

Your finances could benefit from the same treatment as your fitness. When you’re saving and investing your money, you need to know what you’re aiming for.

Think about how much you earn and how much you spend. Are there any ways you could cut down your spending to allocate more money towards your goals?

It could also be a good idea to make your goals and timeframes realistic, and set interim targets. Let’s say you’re saving $25,000 for a new carⁱ:

You could set yourself a realistic short-term target of saving $5 a day by going without a coffee or bringing lunch to work, and set up automatic debits to a high interest savings account.
You could set a ‘trigger’ amount for the medium term—say $1,000—and when you reach it you could consider rolling your savings into something that may generate higher returns, such as a term deposit or a diversified investment option.
You could start planning your next long-term challenge once you reach the magic number of $25,000 and achieve your goal—after rewarding yourself, naturally.

And different goals could benefit from different approaches.

When you’re putting money aside for retirement, superannuation could be an effective tax-friendly option to boost your savings, depending on your circumstances.

But with super, your money is locked away until your preservation age. So if you’re looking at achieving a more short-term goal—like saving up to buy a new car—you may need to investigate other options where you could access the savings sooner.

Six steps to creating your financial goal checklist

1 Big picture.

Think about your overall long-term goal—this may not necessarily be financial but more about how you want to live or how you want your family to live.

2 Magic number

Work out how much money you’ll need to achieve your goal.

3 Small steps

Look at the incremental steps you need to take to achieve your goal—you may feel more motivated to achieve bigger goals if you set checkpoints along the way.

4 Write it down

Try this…just for a second. Close all your apps, put down your smartphone, pick up a pen and paper…and write it down. It’s amazing the effect that putting something down on paper can have on your motivation, especially in a digital age. Sure, you can then get on to your laptop to set up some useful spreadsheets and reminders. But you’ve got a written record to remind you.

5 Back on track

Here’s the thing. You might initially fail. As a wise manii once said, ‘Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.’ While there might be ways you can stop yourself going off piste—such as transferring a set amount to your savings account when your pay cheque comes in—it’s a good idea to work out how you’re going to get back on track when you (inevitably) fall over.

6 You deserve it

As humans you can say we’re hardwired to expect a reward. So you might want to treat yourself when you reach your goals—every step along the way

Is it time to get some extra help with goal planning?

Why not book an appointment with one of our planners to help you gain momentum, contact us on 02 9328 0876.

i The case example is illustrative only and is not an estimate of the investment returns you will receive or fees and costs you will incur.
ii Irish novelist and playwright Samuel Beckett.

Article by – AMP Life Limited. First published 09 July 2019.

Super investment options – what’s right for you?

Written by Britt Ambrose on 26 January 2020. Posted in Superannuation. No Comments on Super investment options – what’s right for you?

If there’s one thing certain in life it’s change. And generally your attitude towards saving and investing will change as you get older.

How your super is invested when starting your first job may not be the right approach when you’re approaching retirement. Luckily you can change your investment options at any time and this could make a real difference to how much money you have when you retire.

There are usually several different investment options to choose from. If you haven’t selected an investment option, you’re probably invested in your fund’s default option, which will generally take a balanced approach to risk and return.

To get up to speed on your super investment options, we’ve answered three common questions: how your money is invested, the different options available, and how your stage of life may influence your preferences.

What do super funds do with my money?

Typically, no less than 9.5% of your before-tax salary (if you’re eligible) is paid into super, which is then taxed at a maximum of 15%. Your super fund will invest this money over the course of your working life, so you can hopefully retire comfortably.

Your super fund will let you choose from a range of investment options and generally the main difference will be the level of risk you’re willing to take to potentially generate higher returns.

If you’re not sure what you’re invested in, contact your super fund. You may also be able to see your current investment option by logging into your super fund’s online portal – this may also give you a current balance and other information such as your projected super savings over a lifetime.

What are the super investment options I can choose from?

Most super funds let you choose from a range, or mix of investment options and asset classes. These might include ‘growth’, ‘balanced’, ‘conservative’ and ‘cash’ but the terms can differ across super funds. Here’s a small sample of the typical type of investment options available:

Growth options aim for higher returns over the long term, however losses can also be notable when markets aren’t performing. They typically invest around 85% in shares or property.

Balanced options don’t tend to perform as well as growth options over the long term, but the loss is also less when there are market downturns. They typically invest around 70% in shares or property, with the rest in fixed interest and cash.

Conservative options generally aim to reduce the risk of market volatility and therefore may generate lower returns. They typically invest around 30% in shares and property, with the rest in fixed interest and cash.

Cash options aim to generate stable returns to safeguard the money you’ve accumulated. They typically invest 100% in deposits with Australian deposit-taking institutions, such as banks, building societies and credit unions.

Super funds may have different allocations, so it’s important to read your super fund’s product disclosure statement before making any decisions. It could be a good idea to consider factors such as your current stage in life, and future plans and goals before choosing the super investment option that’s right for you.

What’s the right investment option for me?

Choosing the most suitable investment option generally comes down to your goals for retirement, your attitude to risk and the time you have available to invest.

If you’re young, you may have more time to ride out market highs and lows, and therefore be willing to take on more risk in the hope of achieving higher returns.

If you’re closer to being able to access your super, you may prefer a conservative approach as a share market crash could be harder to recover from than if you’re 20 years away from retirement.

While many people put off thinking about super, being informed and engaged from a young age and throughout your career may make a big difference to the returns generated and your final super balance.

Need some help working out the best option for you?

Why not book an appointment with one of our planners to go through your individualc circumstances, contact us on 02 9328 0876.

Article by – AMP Life Limited. First published December 2019.