Financial Newsletter Sunshine Coast
Welcome to Unique Financial Partnerships, keeping you up to date with all financial planning, self managed superannuation funds, tax minimisation, life insurance, on the Sunshine Coast and around Australia.
The information in this newsletter is current at the time of printing. Contact us for updates.
With this in mind, let's take a closer look at what has been happening on these fronts recently, and consider what impacts this might have on your own financial strategy.
The sharemarket rollercoaster
It was August last year when the impact of the US housing crisis and related credit market shakeout began to be felt, and ever since that time the world's sharemarkets have endured what can only be described as a rollercoaster ride. Australia's index seemed to overcome the initial credit market impact and finished the year almost 12% higher. Then in January we saw the biggest one-day fall for several decades - 7.1% on January 22nd - and by the end of the month, the gains of 2007 had been wiped out.
But whether this represents a loss to you as an investor, or merely a reduction in some of your recent gains, depends on your own investment history. Figure 1 below shows that investors who have held a portfolio that matches the market for the past five years have achieved a total return of 99% on their investment, or about 15% per annum. Over three years, the return has averaged 11% per annum. The clear message here is that having patience and keeping to your medium-to-long-term strategy when investing in shares is perhaps more important than ever.
We can also see in Figure 1 how often the market has either risen or fallen by more than 1% each day over the same period. This aspect of volatility has increased markedly in the last two years, and as there are few signs of this abating over the course of 2008, your investment timeframe should again be a key determinant of your investment decisions this year.
Where to from here with interest rates?
The Reserve Bank raised the official cash rate by 0.25% to 7.00% at its February meeting, and there are signs that more is to come over the course of this year. What has also been of concern to most homeowners is that the big banks have started to move their standard variable rates independently from the Reserve - and this is being blamed on the increased cost of funds due to the credit market issues stemming from the US.
It is important to remember that the standard variable rate is merely a measuring stick that we use to gauge what interest rates are doing. As an individual mortgage holder or investor, it is crucial to look more closely at the options available to you: fixed rate loans, honeymoon rates, professional packages, and so on. With rates having generally moved higher it is now a good time to shop around and make sure the features of your loan - such as offset and redraw facilities - are best suited to your particular situation.
As always, your financial adviser is here to walk you through these turbulent times, so make sure to contact us if you have any concerns and would like to have a personal chat.
A super strategy for (almost) everyone!
Over the past couple of years, the Transition to Retirement Strategy (or “TTR”) has been talked about at financial planning seminars, in the print media and on radio, and even between colleagues at the office water cooler or at weekend barbecues.
So what exactly is TTR and how can it benefit everyday Australians?
While there are some variations from case to case, all TTR strategies take advantage of a recent rule change which allows people to draw an income (pension) from their superannuation at age 55, even if they are still working.
The extra income might allow you to move from full-time work to part-time work. Or you could accelerate your debt reduction strategy. Or it could help you to meet regular expenses if your work income is not so regular.
But in many cases, the TTR strategy simply involves making “salary sacrifice” superannuation contributions (which can be very tax-effective) and then replacing that salary with the new pension income. Yes, this means adding to super through one door and then taking it out through the other, but the different tax rules can result in significant savings.
In general, a TTR strategy might be most effective for the following people:
- You are over age 55 (or close to it). The strategy cannot commence until this age, but if you are age 50 or more you should consider whether your current plan will put you in a position to maximise your benefits from age 55.
- You have a superannuation benefit that can be converted into a pension. Some superannuation funds won’t let you start a pension until you retire or cease work with a related employer, but fortunately these are becoming fewer and fewer. Also, the more superannuation you have, the more you are likely to benefit from the tax savings. And you may be able to transfer investments into superannuation at the last minute to boost your balance.
- You have a taxable income above $30,000. Generally, the more tax you currently pay on your income, the more potential tax savings and related benefits you can achieve through TTR strategies.
As everyone's situation is different, it is important to sit down with your Adviser to discuss the best way to tailor this strategy to your personal circumstances.
Estate planning – what will be your legacy?
If you thought there was no room for jest in the process of estate planning, you may need to think again.
It is said that a particularly wealthy man once left legacies to all his servants except his steward, to whom he gave nothing. His explanation was that, "having been in my service in that capacity twenty years I have too high an opinion of his shrewdness to suppose he has not sufficiently enriched himself”.
For some people, though, estate planning is nothing short of serious business.
When Princess Diana died tragically in 1997, most of her $35 million estate was bequeathed to her sons, Prince William and Prince Harry. The inheritance is held in trust for the boys such that they do not receive income from it until they reach age 25 (which William recently has) and the actual capital is not to be accessed until age 30.
You may not be leaving $35 million, but - whatever your legacy - plan now.
A laugh a day keeps the doctor away
Can you remember a time - perhaps as a child - when you had the giggles … and just couldn’t stop? It might have been a classic joke or a witty quip from one of your classmates at school or some other formal event.
It's said that children laugh on average 30 times per day but by the time we've reached adulthood we've reduced our giggles to only three per day.
Is having a good laugh worth it? Absolutely! Dr William Fry of Stanford University found that laughing 200 times burns off the same amount of calories as 10 minutes on a rowing machine! Another study showed that after a good belly laugh, blood pressure drops to a lower, healthier level than before the jocularity began.
So the next time you're feeling guilty about not getting to the gym or missing your daily exercise, go and find something funny and have a good belly laugh. It will be more fun, it will cost less and you might just live a longer and happier life!!
Here's some exercise for you …
An elderly Irishman lay dying in his bed. While suffering the agonies of impending death, he suddenly smelled the aroma of his favourite chocolate chip cookies wafting up the stairs. He gathered his remaining strength, lifted himself from the bed and slowly made his way out of the bedroom and down the stairs.
With laboured breath, he leaned against the doorframe, gazing into the kitchen. Were it not for death's agony, he would have thought himself already in heaven, for there, spread out upon waxed paper on the kitchen table were literally hundreds of his favourite chocolate chip cookies. Was it really heaven? Or was it one final act of heroic love from his devoted Irish wife of 60 years, seeing to it that he left this world a happy man?
Mustering one great final effort, he threw himself towards the table. His aged and withered hand trembled as he reached for a cookie, when his wife suddenly smacked it with a spatula. "Bugger off" she said, "they're for the funeral".
Regular servicing makes your plan run smoothly
Reviewing your financial plan from time to time is just like taking your car to the mechanic for a service. Here’s an example of how your insurances should be reviewed in light of a significant life event:
Jason and Leanne were blessed with their first child late last year. One of their good friends - who knew Jason to be quite casual when it came to finance matters - suggested they meet with his Financial Adviser to discuss their insurance situation given their newfound responsibilities.
The Adviser discovered that Jason and Leanne had last updated their life insurance when they bought their first home a few years ago. He noted that things were about to change, and insurance that only covered their mortgage would leave a shortfall should anything happen to one of them.
When it was suggested they increase their cover from $250,000 (the mortgage) to $750,000, Jason nearly fell off his chair! But then the Adviser explained: $400,000 would be drawn down over the long-term to replace Jason's income and allow Leanne to look after their son. Otherwise she could use these funds to hire a nanny if she eventually went back to work. Part of the remaining lump sum could be invested for their son's future education - this being one of their current savings goals that they would not want to change.
Having appropriate life insurance in place gives you and your family options should the unthinkable occur. Is yours up-to-date?
All representations and information contained in Futuro in Focus are made in good faith and are believed to be correct at the time of preparation. Articles are of a general nature and they do not purport to be specific investment advice. Individual needs or other considerations have not been taken into account, thus information contained herein should not be relied upon as a substitute for detailed advice. Futuro Financial Services will receive fees or brokerage from the provision of advice or placement of investments. You may, by contacting our Privacy Officer on 07 3018 0400 or by writing to Futuro Financial Services Privacy Officer GPO Box 942 Brisbane QLD 4001, request not to receive further editions of Futuro in Focus.