Your relevant Budget summary: The short, the long or the video version – your choice

Last year I branded the federal budget as boring, I won’t be doing the same this year! It’s a tough budget with all Australians told to bear the burden.

Tony Abbot has dubbed it “pain with a purpose” and according to Federal Treasurer Joe Hockey, “the economy is growing at less than normal speed and the time to fix the budget is now.”

For families, there is a focus on healthcare and education; for high income earners, a new tax just for them; for pensioners – new eligibility rules; and for the rest of us – a little bit of extra super.

For anyone who just wants an absolute bare bones budget breakdown, I’ve prepared a summary of the main points below. At the very least you can pretend to care if one of your friends or family members raises the matter.

And for anyone who would like a more comprehensive look at what this year’s Federal Budget involved, I’ve catered for your taste too by including some links to a much longer report and even a video.

First, the summary.

Personal Taxation

• A levy of 2% will apply for three years to incomes over $180,000 pa, starting in 2014/15. It will increase the top marginal tax rate to 49%.
• The levy will increase the Fringe Benefits Tax rate to 49% for three years, starting on 1 April 2015.
• Tax offsets available for dependent spouses and mature age workers will be abolished on 1 July 2014.
• Income thresholds determining the Private Health Insurance Rebate and Medicare Levy Surcharge will not increase for three years, starting in 2015/16.
• Interest on HELP debts will increase, with a maximum rate of 6% pa from 1 June 2016.

Superannuation

• People who make after-tax (non-concessional) super contributions from 1 July 2013 that exceed the cap will have the option to withdraw the excess amount plus earnings on the excess. Currently these excess contributions are taxed at 46.5%.
• The timeframe for increasing the Superannuation Guarantee contribution rate to 12% will be amended. The next increase, to 9.5%, will occur on 1 July 2014 where it will remain for four years. From 1 July 2018, the rate will increase by 0.5% pa before reaching 12% on 1 July 2022.

Social Security

• The age at which people will be eligible to receive the Age Pension will increase to 70 from 1 July 2035.
• From 1 July 2015, Family Tax Benefit – Part B will only be available to families who earn up to $100,000 pa, down from $150,000 pa. This payment will also be limited to families whose youngest child is under 6.
• The amount of income earned to be eligible for the Commonwealth Seniors Health Care Card will increase each year in line with inflation from 20 September 2014. However, tax-free payments from superannuation pensions will be included in the income assessment from 1 January 2015 for new applicants.
• From 20 September 2014, the Seniors Supplement will no longer be payable to holders of the Commonwealth Seniors Health Care Card. However, cardholders will still receive the Clean Energy Supplement.
• People receiving the Disability Support Pension under age 35 may need to undertake a compulsory workforce participation plan.

It’s important to note that at this stage, the measures announced are proposals only and may or may not be made law. So don’t go acting on them just yet…

If you’d like to hear more of what I have to say on the matter, click here for a recording of my most recent “You & Your Money” radio segment on 98.1FM Radio Eastern and click here for your more detailed Budget report.

And if you’d prefer to watch a 6 minute youtube budget update, click here.

Talk soon,
Caren

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,

C

Some perspective around the “fiscal cliff”

Dad and I often laugh about some of the “extreme” terms that are coined by the media. One of our favourites is “fiscal cliff”, I mean blimey, how scary does that sound?! For me that term conjures up an image of Barrack Obama hanging one-handed from the edge of a cliff with Republican Treasurer, Tony Parker, prying at his fingers.

Don’t get me wrong, the situation in the US is serious, but as always, we need to keep perspective.

With all the doom and gloom, there’s also been a lot of good news coming out of the States and so I feel a little bit of balance is called for… Below are some good news stories that you could have been excused for missing amongst all the negative noise.

• Whilst there’s been a lot of media coverage on the fact that that the US economy contracted slightly in the December quarter, it would seem this is mostly related to disruptions caused by Hurricane Sandy and a drop in defence spending. So far nothing concrete to indicate they’re heading back into recession. 
• The pace of growth in private final demand actually picked up from 2% in the September quarter to 3% in the December quarter, and basically what this means is that underlying growth is fine, which is a positive sign.
• US corporates are in a financially very strong position with approximately $1.7 trillion dollars in cash sitting offshore. More than 70% of listed US companies reported greater than forecasted earnings expectations last quarter and 65% reported greater than forecasted revenue expectations.
• Business investment is looking stronger, construction spending is on the rise, consumer sentiment is up and jobs growth has been fair.
• The Republican Party (who control the House of Representatives) have agreed to cooperate with Obama’s recent debt ceiling proposal, albeit with conditions, which is a positive step. As I mentioned on my radio program last year, I couldn’t ever imagine the Republican Party would want to be seen as the reason the US went back into recession and for this reason would ultimately always agree to raising the debt ceiling. However, last year that they left their cooperation until the 11th hour and the argey bargey caused some real confidence damage. And if I can just hark back to last week’s blog post, you’ll recall the impact investor confidence has on sharemarket performance in the current climate.
• Obama has proposed a “sequester” on automatic budget cuts and tax increases which would have otherwise come into play this year, and this should hopefully have a positive effect on confidence and economic recovery.
• The International Monetarty Fund (IMF) have conceded that some of their fiscal austerity measures have been harsher than necessary, and will take a more moderate approach going forward.
• The US banking system may not be completely “fixed” but is greatly improved, and definitely well ahead of Europe.
• The US has access now to abundant cheap energy in the form of gas, and by 2017 is set to overtake Saudi Arabia and Russia to become the largest single producer of oil in the world.
• The US housing crisis appeared to bottom late last year, and US households are reducing debt at around US $500bn per annum.

Without question, the US still have a massive task ahead to fully recover from the financial mess they got themselves into - a task made even more difficult by the political instability of a Government with no clear majority.

It’s easy to get caught up in the negativity because frankly that’s what’s thrust upon us every day, but at the end of the day, the question we really want answered is – how does this effect us? And you can only get this answer and perspective with a balanced view of what’s going on. Hopefully I’ve helped provide a little bit of that today.

GREECE is the word!

………or is it Spain?........Portugal?........USA?...
…..Italy?........France?...



In the olden days it used to be said that sharemarkets were efficient (because all investors had the same information on which to base decisions), and that today’s news didn’t effect sharemarkets because the markets worked on expectations of the future.

In these modern times, you could be forgiven for thinking that these long-held truths no longer apply, as markets gyrate to the latest news reports issuing particularly from the European scene.

John reckons he can lay the blame for all the ups and downs at the door of the communications industry. In the 70s, 80s, and even the early 90s, news travelled relatively slowly, and economics was not a regular feature of our daily news broadcasts.

The spread of computers, the advent of the internet, and the development of broadband have led to a situation where news of what’s happening in the world of finance anywhere around the globe reaches us almost instantaneously.

Couple this ready access to information with a dramatic increase in the number of small investors who can trade with ease over the internet, and we have a situation where daily market movements can be determined by these small traders, while the larger, longer term institutional investors sit back, and watch and wait.

We’re lucky, aren’t we????

Anyway…..to Greece.

For now, at, least the election result has averted a messy Greek default and exit from the Eurozone, which would likely have had a contagious effect on other European economies. European leaders met on 28/29 June, to hopefully can devise an acceptable plan for a sustainable solution to their systemic problems.

As part of this meeting they agreed to allow aid to be delivered directly to struggling banks, rather than through national governments. The upside being that banks can be re-capitalised without adding to the debts of individual countries.

The leaders also agreed to set up a joint supervisory body for banks across the Eurozone and approved a $160 billion stimulus package.

Meanwhile, across the water, the US economy has been showing signs of slowing, and may take a further hit in the new financial year as planned budget cutbacks settle in. The saving grace here is that, compared to Europe, the US is not fragmented in the same way (even though the political parties can sometimes make it seem that way), and no one fears a credit default by the US government.

With all that said, expect market gyrations to continue for some time, while the financial world settles down and anticipated stimulus packages kick in. Invest in the downturn, and wait for better times.

FEEL THE NOISE?

Oh man, it has been a noisy few weeks in sharemarket land. And most of that noise has been coming from the media – bless their often misguided, sometimes completely irresponsible, cotton socks.

This will be a fairly lengthy blog, but I think (hope) well worthwhile for anyone that’s wondering what on earth is going on. More importantly, it will provide some perspective.

But most importantly, there’s a prize offer at the end!!!!!

At my business, The Hendrie Group, our approach to managing finances has always been to identify long term goals and then to develop strategic plans to help meet those objectives.

As with all plans, nothing is set in stone, and there may well be variations along the way, to respond to changes both in your goals and to investment markets.

But we try to keep those changes to a minimum, by having a long term strategy, and filtering out the market “noise” which fills the media on an almost daily basis.

Those of you who regularly read my blog or listen to my radio program (98.1FM Radio Eastern Thursdays after the 9am news), will be accustomed to my periodic harangues about the need to be wary of sensationalism in media headlines and reporting. Not to mention, inaccurate reporting, media focus on “short termism” particularly in relation to investment returns, over-emphasis on the issue of fees, etc, etc ….. and to remain focused on the long term.

So, given the market gyrations of recent weeks, and the associated reports, I was pleased to read two articles which – in differing ways - reflected my philosophy.

In a topical article titled Why the fear industry has moved on from the Greek ‘crisis’ well-known and respected Australian finance journalist Michael Pascoe wrote:

“Is anyone feeling a little sheepish after all the hype about the potential Greek Armageddon last week? Probably not. The fear and worry industry immediately moved on to beating up the importance of China’s manufacturing industry numbers on Friday.

For all the theatre of protesters and police, the whiff of tear-gas in reporters’ constant pieces to camera, the repeated lines about the danger of Greece causing another global financial crisis….nothing much really happened.

…….Meanwhile, back at the headline factory, China’s indicator of manufacturing activity, the purchasing managers index (PMI) came in lower than expected for June. The Australian stock market allegedly saw that as a bad thing, indicating that China is slowing, albeit to a growth of about 9%. The Shanghai market saw it as a good thing, indicating that China is slowing and therefore Beijing won’t have to increase interest rates again. So it goes.”

(Market Perspective, The Sunday Age, July 3 2011, p22)

Jim Stackpool, a leading management consultant to financial planning businesses, says:

“Good financial professionals deliver certainty in a constantly uncertain world. Mining booms will come and go, international markets will fluctuate, countries - and companies the size of continents - will not perform predictably, natural and unnatural disasters will occur, and unforeseen threats will raise their ugly heads. The ramifications of each of these events will affect the assurance people seek, and good financial professionals anticipate this.

… (they) also understand our ‘natural financial wiring’… adversely affects most peoples’ decision making (that is most of us mere mortals tend to buy high and sell low), and they know how this thinking will most significantly affect the attainment of greater financial certainty in our lives.

Even more importantly, they understand their clients well enough to deliver the wealth management services required to reinforce and lead their clients on the financial journey most appropriate to deliver the assurance each and every client seeks.”

(Asset Financial Review, July 2011, p40-41)

(Note: All the bolding is mine for emphasis).
And finally, eminent Australian economist Shane Oliver (so not the media) wrote in his latest issue of Oliver’s Insights:

“A massive increase in economic and financial information flow is adding to investor jitters and driving a shift further away from long term-investing. This is likely to work against investors over time.

Investors should consider turning down the ‘news volume’ and refocus on investing for the long term, remembering the best time to invest is when everyone is gloomy. Averaging into weakness is a good way to go.”

(Oliver’s Insights, Edition 18, 29 June 2011)

So my message remains the same - stick with your long term strategy. Unless you really can’t stand the strain, in which case talk through your issues with your adviser.

Ok, now to the prize offer. If you have a Facebook account all you need to do to enter our draw is “like” our new Hendrie Group page before 31 July. The prize is a 26" Full HD LED Kogan TV with built-in DVD player and PVR. How good is that?

Talk soon,

C

A lesson in finance from Tulips

If you’ve read all the guff about me in my profile, you’ll know I have a background in literature and history (yeah, small career swerve!). One of my favourite novels is Thomas Hardy’s Far From the Madding Crowd. Great title eh? It was borrowed from a Thomas Gray poem (Elegy in a Country Churchyard).

Given my background, you can imagine how excited I was upon first entering the finance industry, to attend a lecture “Tulip Mania and the Madness of Crowds.” And I wasn’t disappointed. The protagonist of the story was the humble tulip, and I’m still not sure whether the moral of the story was supposed to be the role of supply and demand in economics, or the stupidity of the human race.

In the early 17th century, the Dutch literally went mad for tulips and demand ultimately outstripped supply. If I remember rightly, someone brought (stole?) some back from Turkey and didn’t want to share. Of course we know what happens when someone tells you that you can’t have something – you want it even more right? So began the manic trade of tulips.

There are stories of farmer’s mortgaging their farms just to get hold of a couple of tulip bulbs. Tulip traders made a fortune, and there was even a future’s market for these much sought after flowers!!

Obviously they became waaaaaaaaaaaaaaaaaaaaaay over-priced, and what has to happen then? Yep, you guessed it, a market correction! It started with some astute businessmen deciding that they would sell out and take some profits. This proved to be a prudent move given that new tulip varieties were being introduced, and thereby increasing the supply. Then a few more sold out of their “tulip position”, then a few more, and suddenly people started to panic, and the tulip market went into freefall.

To put things in perspective, tulip prices fell more than 90% in a matter of weeks. It’s impossible to accurately convert this to current monetary value, however popular consensus puts the comparison at something like $80,000 per bulb to less than a dollar per bulb.

You have to wonder at what point it occurred to some people that they had spent their life savings on flowers! OUCH.

More than one historian has linked this tulip phenomenon to the onset of the Great Depression in the Netherlands, not to mention “the madness of crowds”…

If you’ve seen the Wall Street sequel, you’ll recall Gordon Gekko showing Jake a painting and comparing Tulip Mania to the GFC. Not a bad analogy. When it comes to the sharemarket, crowd behaviour is both fascinating and frustrating. And unfortunately sometimes it is just plain mad. Think back to Greece, Portugal, Spain, Ireland, and more recently, Egypt. The way the market reacted was not in proportion to the relative potential market impact. And don’t forget our friend “Fat Fingers” who shook the US market by accidentally entering a trade in billions instead of millions.

I often tell my clients that if we took emotion out of the market, it would be extremely rational. However, it’s risk that drives reward so if there was no emotion there’d be little opportunity to make money. I guess we can’t have our proverbial cake.

The best advice I can give is to make sure you take a leaf out of Hardy’s book (pun intended), and stay far from the madding crowd when it comes to investment decisions. Make your decisions based on fact and fundamentals, and with professional guidance from your Financial Planner.

Talk soon,
C

Happy 2011!

So what were your New Year’s resolutions? Get fit? Give up smoking? Lose weight? Spend more time with the family? Work harder?

Did you make any financial resolutions?

The new year is a great time to take stock and make some decisions about your finances. Let me start you off with a few examples:

Create a Budget (or update the one you have).

This is the most basic step to getting your finances in order. It’s pretty tough to save money if you don’t have an accurate picture of what you’re spending. Creating a budget allows you to prioritise your spending and determine the patterns. Furthermore, you can work out where you don’t actually need to spend money.

It’s important to make your budget realistic so that you can stick to it. I suggest http://www.infochoice.com.au/distributions/asic/calculators/budgetplanner/index.asp This is a very comprehensive online budget tool. If you don’t already have a budget, it’s a great place to start.

If you do have a budget, then make sure you re-visit it each year in order to ensure it remains up-to-date and appropriate.

Get your credit card under control.

Eliminating debt is one of the most important aspects of any financial plan. Credit cards are probably the most expensive loan you’ll ever have (unless you’re planning a visit to a loan shark a la Sopranos style, in which case nothing I can say will help you).

Credit cards are very convenient, but you shouldn’t be spending more than you earn where you can help it.

Try to pay out your balance once a month – or at least make a decent payment.

Once you have that credit card under control – keep it that way!

Commit to investing:

There are many good reasons for investing, some include:

• provide for retirement;

• retire early;
• children’s education costs;
• sheer pleasure of knowing your money is working for you.

Make this year the year that you stop saying “I need to get around to seeing a financial planner” – do it, we don’t bite.

Perhaps you could make a commitment to save at least $100 per month into a regular investment plan.

Or if you have a lump sum of cash sitting in the bank that you know you don’t need for a few years, explore your longer term options

Invest your tax refund before you spend it! Instead of banking your refund along with the grocery and bills money this year, consider an investment that you can allow to grow over the next few years.

Protect what you have.

If you earn more than $40,000 and don’t have income protection insurance then you need to have enough income producing assets behind you to replace that income in the event you are unable to work due to illness or injury.

If you’re not in such a fortunate position, then you need income protection insurance. Simple as that. If you don’t have it, this could be your most important and valuable resolution.

Review Current investment strategy and portfolio.

The Australian Securities and Investment Committee (ASIC) recommends that all investors review their portfolio at least once a year. In fact, they have made it a legal requirement for all Financial Planners to offer an annual review service to their clients.

Investment is not a “set and forget” exercise. The reason reviews are so important, is because you can factor in changes to the market, economy, and your lifestyle.

Set financial goals and time frame:

It’s always easiest to save money when you have a specific goal – retirement, house deposit, paying off the mortgage, a holiday etc etc. It's important to work out what you want to achieve, and how long you have to achieve it.

A short-term strategy is just as important as a long-term strategy – but they are different. Don’t assume that what you’re doing is the most suitable just because it’s the way you’ve always done it.

Write down your short-term and long-term goals, as well as what needs to happen so that you can achieve those goals.

Learn more about the sharemarket.

Accepting that the value of your investment may go up or down over the short-term could greatly improve the potential for your money to grow over the long-term. Don’t be scared off by the last few years – learn from them.

Get good advice.

Engage professional advice to steer you through the investment maze. Like any professional service, check the financial adviser’s experience, qualifications, fees and services. Knowing your goals is one thing, but finding the best investment strategy to help you reach them can be difficult without guidance.

And yes, I would love it if you chose me and my terrific team to be the ones to help you!


Ok, I hope that gives you some ideas for this year’s financial resolutions. If you have any others, I would love to hear them! Just add a comment below or email me at askCaren@hendrie.com.au

Talk soon,

Caren