Gearing explained in plain English

I have a client who is a really smart guy.  He has a list of qualifications as long as your arm (not my arm coz that would be pretty short) and he's one of the best in his field.  But when I told him that gearing involved borrowing he was positively stunned.  No one had ever told him that before.

What's the point of telling you this story?  Simply that gearing isn't necessarily a straightforward investment concept and if it's a subject you find confusing - well, you're in good company!

We've prepared a simple fact sheet that explains all the important points about gearing in plain English! Click here to read it, and if it's something you'd like to explore further, just give us a call.

By the way, my client told me I should tell as many people as possible his story in the spirit of financial eduction.

Talk soon,

Caren

PS. Please don't keep me a secret.  If you know someone who'd enjoy this or find it useful, pass it on!

The doctor's thoughts on keys to successful investing

Regular readers will know that I have two favourite Australian economists (there's no way for that not to sound nerdy) - Felix Stephen and Shane Oliver.

Shane Oliver - sorry Doctor Shane Oliver - recently wrote a great article on Keys to Successful Investing, which I found to be relevant, easy-to-understand and entertaining.  All of which you have to admit is fairly surprising given it was written by an economist :)

A lot of his points confirm issues I've raised in previous blogs (a fresh perspective is always valuable), and he highlights some areas where he feels investors may have lost sight of what's really important.

His key points include:

• Four investment market realities: there is always a cycle; it's a mad, mad, mad world; starting point valuations matter a lot for returns; and the power of the compound interest.

• Keys to successful investing: know yourself; seek advice; invest for the long term; diversify; turn down the noise; avoid short-termism; focus on investments offering sustainable cash flow; recognise there is no free lunch; buy low, sell high; don't fret the small stuff; don't over rely on expert forecasts; recognise the aim is to make money, not to be right; beware the crowd at extremes; and if you have the right strategy, never despair.

Anyway, I don't believe in re-inventing the wheel, so click here if you'd like to read a full copy of the article.  I really do recommend it.

Talk soon,

Caren

Are you the risk in your rental property?

Ok, so I stole the idea for this blog entry from my brother Dean. Doesn’t make the message any less valid right? He has no copyright on it, so I’m more than justified (methinks the lady doth protest too much).
Watching The Block a few weeks ago was a fairly grim experience. Fact - Melbourne’s property market is struggling a little at the moment. Even though most (all??) of the properties sold afterward, it was pretty clear that potential buyers are wary and holding their cards pretty close to their chest at the moment.

I read in the paper that the average purchase price of the homes on The Block including stamp duty was apparently $950,000.

Major renovations including stumping, plumbing and re-wiring etc averaged $300,000 per property. With cosmetic renovations averaging $100,000.

According to what I was reading, the average total cost per house was $1.35 million….

Now it was a TV show, and I really have no idea of how much of their own money contestants had to spend over and above prize money, all I know is that when it comes to property these days we’re dealing with pretty big numbers.

Along with the big numbers, tends to come the big loans.

We prepare hundreds of tax returns at The Hendrie Group, and we’re always surprised by the number of people with rental properties, but no income protection insurance.

A rental property is a huge investment in your long-term financial security, and no one wants to be in the position of having to sell in a downmarket because you’re unable to work for a while. It makes sense to spend a comparatively small - and tax deductible - amount to protect yourself.

Something I’ve always told my clients is that when it comes to property, if you need money quickly, you can’t just sell the bathroom, you have to sell the whole house. And times like these are a good example of why you don’t want to be forced into a position where you have to sell.

I have a very close friend who was diagnosed with breast cancer on Melbourne Cup Day last year, and she still hasn’t been able to return to work. And it looks like she won’t be able to go back to work until about June next year – that will be almost 2 years! Imagine two years unable to work. Fortunately she does have Income Protection, so can concentrate on getting well without having to worry about being able to service her debts, let alone her day-to-day living needs.

My advice to anyone that owns a rental property (or frankly, anyone earning $40,000 or more) is if you don’t have income protection cover, then you should explore your options. At the very least, you should be in the best position to make some informed decisions about your financial security.

Talk soon,
C

PS. I have oodles (technical term) more information on income protection insurance if you’d like to know more. Just email me at askcaren@hendrie.com.au.