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A fun and entertainingly educational forum, specifically designed for Australian “suburbanites".

Wednesday, March 20, 2013

Is now the right time for Australians to invest?

Many Australians are wondering whether right now is a “good” time to invest. I know this because suddenly my friends and family care about my opinion! What’s happening here is largely psychological. You see we all know that the best time to buy is while the market is down, but when we actually make a decision to invest it can be hard to resonate logic with emotion when we’re seeing negative numbers. So when we see positive numbers after a sustained period of under-performance we think – oooooh, things were bad, now they’re looking good, should I jump in quickly before I miss the boat? It’s simply human nature to react this way.

Investing is a long-term commitment and you should expect to experience a number of different market cycles during your investment term. A sensible time-frame underpinned by a diversified portfolio of quality investments should perform to expectation over the long-term, regardless of the “ups and downs” in between (thankfully a GFC should only be a 1 in 50 year event!!). So it’s really about “time-in” the market rather than “timing” the market.

That said, if the market is clearly undervalued then yes it presents a pretty terrific opportunity.

BUT, there’s a key difference between companies or even countries that are struggling, and those that are under-valued. Just because the price is low doesn’t automatically make it a sensible investment – it might be a dog. The basic fundamentals need to be strong to be well-placed for recovery.

If a company or country is struggling because of poor management, high debt levels, inefficiencies etc, then you probably want to steer clear. If it’s a case of the market simply not recognising their value because of the current environment then, it may be worth a good look for future performance potential.

When it comes to the overall Australian sharemarket at the moment it’s neither cheap nor expensive, and any time is a good time to invest if you have the right time-frame. But of course if you happen to be in a position to invest when the market is low, then it’s a particularly good time. So if you’re looking to do some “contrarian investing” (ie. buy low, sell high) while the market is still in recovery mode, just make sure you know why the price is low when making your investment decisions.

Talk soon,

Wednesday, March 13, 2013

Women and Super

Last Friday was International Women’s Day, so I thought it was appropriate to reference something I read in the Herald Sun from 6 March (there was no one in the lunch room to “quiz me” so I had to actually read the paper…). According to the article, a recent Canstar research report claims that stay-at-home mums miss out on $160,000 - $290,000 in superannuation savings.

Yikes, that’s a lot of money!

I’m definitely not suggesting that women who choose to stay at home with their children should now rush back to work to improve their super balance, but it does mean that somewhere along the lines you may need to address the “hole” and make sensible financial decisions to get back on track.

But what is “on track”?

Last week I mentioned that a typical rule of thumb is that you’ll probably need about 60%-80% of the annual income you earned before retirement to maintain a similar standard of living.

And if you like your statistics, the Association of Super Funds Australia (ASFA) release national figures each quarter benchmarking what most Australians need to spend to achieve a modest or a comfortable retirement.

According to the latest the ASFA Retirement Standard figures, a couple looking to achieve a comfortable retirement needs to spend $56,339 a year, while those seeking a ‘modest’ retirement lifestyle need to spend $32,555 a year. The figures for a single person are $22,585 and $41,186 respectively.

Of course, everyone’s different, but these figures can be a helpful guideline when you’re working out whether you’re likely to have a “super hole” (yep, double entendre deliberate) to fill in retirement - male or female!

Click here if you’d like to read a copy of the Herald Sun article, and click here for full details of the ASFA Retirement Standard including assumptions and their definitions of modest and comfortable.

Talk soon,


Wednesday, March 6, 2013

Preparing for retirement: How much? Where to invest? When to start?

Blogging about retirement last week put me in mind of a particular client that came in to see us a year or so ago concerned about his retirement plans following the GFC. The reason he’s memorable because of his great turn of phrase. He told us -“I think I’m up that proverbial creek.”

So the first thing we did was prepare some projections to get a realistic picture of what his income position was likely to look like in retirement. He was very pleased (and surprised) to learn that based on his current financial position, it was very likely that he would still be able to achieve a reasonably comfortable level of income in retirement.

On top of that, we were able to give him some advice on some simple strategies he could put in place now to achieve a significantly better result and to be able to retire when he had originally hoped.

A great result for him, but the real point of relating that story is to again illustrate the importance of addressing the situation before you retire rather than leaving it to chance.

Picture this scenario. You’ve just retired, your last pay cheque has been paid into your bank account, and the realisation hits you - your super and savings need to fund your living needs – for the rest of your life! What if the money runs out too soon? How can you know if you have enough for all your retirement plans, as well as paying the usual bills? Knowing is definitely better. Which begs the question…

How much is enough?

Everyone’s living needs are different, but a typical rule of thumb is that you’ll probably need about 60%-80% of the annual income you earned before retirement to maintain a similar standard of living. Other factors to take into consideration include:

• your (and your partner’s) life expectancy;
• the annual rate of interest or investment return you can reasonably achieve on your retirement savings;
• the annual rate of inflation;
• the type of lifestyle you’d like to maintain, and any plans that might require lumps sums (eg. travel, upgrading the car or home etc);
• the amount of tax you will have to pay;
• any other potential sources of income.

Where should you invest your savings in retirement?

The most secure investments are generally interest bearing and capital stable, eg. cash, bank accounts, government bonds, savings bonds, and term deposits. However, if you invest your retirement savings solely in a conservative spread of investments producing a return of, say, 4%-6%, you may not earn enough income to cover your needs. Other markets, such as shares or property, shouldn’t be ignored altogether. These types of investments are likely to bring higher long-term returns and greater capital growth.

The right mix of investments, and the quality of the underlying assets are really important to the amount of income you can earn and the longevity of your savings. You also need to decide upon the most appropriate, and tax effective strategy for your income needs - annuities, allocated pensions, superannuation, managed funds, term deposits, bank accounts etc.

When’s the right time to start preparing your finances for retirement?

There’s no magic age to start the planning process but at least five years before you retire would seem sensible. And anyone who is 55 or over should definitely be looking at the very attractive tax savings available to you and the difference they could have to your retirement balance. For a lot of people we’re talking tens of thousands of extra dollars…

As I mentioned last week, a very sensible first step is just getting some projections done so that you know where you stand. If you’d like to know more about what is involved in our projections service, click here.

And if you’d like more detail, please tune into my weekly local radio program “You and Your Money” Radio Eastern, 98.1FM, straight after the 9am news on Thursday.

Talk soon,