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FINANCIAL
CBD Level 2 62 Pitt Street Sydney
Bondi Suite 2201, Level 22 Tower 2, Westfield 101 Grafton Street Bondi Junction
A FEW WORDS FROM OUR TEAM...
Rozelle Level 1 442 Darling Street Balmain
NEWS FROM THE OFFICE Welcome to the Summer edition of the Financial Spectrum newsletter. What another incredible year it has been. Hello… Goodbye... We are excited to welcome Rebecca Hanifin to the team to lead our marketing. Rebecca is working on Financial Spectrum’s new website and will be manging our social media and newsletters. We would like to say a fond farewell to our paraplanner extraordinaire Melanie Taraborrelli who is leaving us at the end of this year to explore further career options. We wish her all the very best for the future.
THE MANAGEMENT TEAM
Brenton Tong & David Hancock
Christmas break The office will be closed from midday Friday 18 December to Wednesday 6 January. If you need to contact your adviser urgently during this period the best way to reach them is via email. Remember that the team are always here if you have any questions or concerns. You can contact us on 1800 886 018, or via Facebook or Twitter. F: www.facebook.com/financialspectrum T: @financialspectr Stay safe and have a wonderful Christmas and New Year!
Did you
know
we offer a reward for referring a friend?
All the best, The Financial Spectrum team.
// HOW TO GET ON TOP OF YOUR FINANCES IN 2016 P. 04
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As we move into 2016, it’s a good time to set a new year resolution to get on top of your finances.
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// ECONOMIC UPDATE P. 06
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The latest news from the Australian and global economy from economic experts.
// ASSET ALLOCATION EXPLAINED P. 08
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There are five different types of asset classes. Each with their own level of risk and return.
OUR TEAM REBECCA HANIFIN
THE TEAM VOLUNTEERING AT THE ANNUAL SPECIAL CHILDRENS’ CHRISTMAS PARTY’, DECEMBER 2015
Rebecca has been recruited to develop and drive forward the marketing strategies for the three companies. She comes to us after successful roles at Accenture, Ernst and Young and AMP Financial Services. Rebecca’s remit includes Financial Spectrum’s new website that will be launched early in the new year, as well as managing the company’s social media presence and newsletters.
The Special Childrens’ Christmas Party is an annual event which has been running since 1979. The children who attend have life threatening illnesses such as cancer and leukemia, children with physical impairments such as muscular dystrophy, children with intellectual impairments such as Down Syndrome, and children from severely underprivileged circumstances. For more information visit www.christmasparty.com.au
// ASK AN ADVISER! P. 10
// WHY YOU NEED INCOME PROTECTION INSURANCE P. 12
MARKETING MANAGER
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Have a question that you’d like to ask one of our financial planning experts?
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Would you be able to meet your financial commitments and maintain your lifestyle without your regular income?
// AVOIDING CHRISTMAS DEBT P. 14
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Tips to avoid an overspend this Christmas.
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HOW TO GET ON TOP OF YOUR FINANCES IN 2016
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As we move into 2016, it’s a good time to set a new year resolution to get on top of your finances. Here are some of the key tasks you should consider to get you there.
SET YOUR FINANCIAL GOALS
TAKE CONTROL OF YOUR SUPER
The new year is a great time to reflect and set new financial goals. Use the time over the break to consider your financial priorities and set targets for the short, medium and long term. Make sure your goals are specific, realistic and measurable, and write them down!
It’s never too early or late to take control of your super. If you’ve had more than one employer, there is a high chance you’ll have more than one super account that you may wish to consider consolidating to save costs, reduce paperwork and benefit from compounding returns. You can check, consolidate and find lost super, as well as keep track of your super online through myGov www.my.gov.au
BUILD A BUDGET The best way to take control of your finances is to set a budget. This will allow you to see the money going in and out of your household, and show you if you are spending more than you can afford.
ASSESS YOUR SAVINGS GOALS Now that you have an accurate picture of your cash flow, reassess your savings targets. Are you saving enough to achieve your goals, or do you need to review your spending? If you’re thinking about purchasing a big ticket item, find the best savings method to help you reach it. For example, if you’re looking to buy a new car at the end of the year you may want to consider a term deposit.
REVIEW YOUR SPENDING Small changes can make a big difference to your bank balance. If your budget uncovers that you’re spending more than you can afford, or if you’re falling short of your targets, consider one thing that you regularly do that you could change to save money. Perhaps give up your daily coffee or bring your lunch from home. Why not cancel your gym membership and walk to work instead?
ASSESS YOUR INVESTMENTS
CHECK YOUR INSURANCES In 2015 did you get married, start a family, take out a home loan or launch a new business? These are just some of the events that should trigger you to review your life insurances to ensure that you and your family are adequately protected in case of an accident, illness or death.
CREATE A WILL If you don’t have a will and you pass away, the division of your assets will be defined by the law. Put a plan in place to ensure that your assets will be directed to those you care about. If you already have one and your personal circumstances have changed, it may be a good time to review it. Be aware of events that may invalidate your will such as a new marriage. The Financial Spectrum team of independent financial planners are experts in financial planning for wealth creation and can help you in all areas of financial advice including investing, superannuation, life insurance and estate planning. Give us a call on 1300 886 018.
Now you’ve re-assessed your financial goals, it’s a good time to check that your expected investment returns are on track to helping you achieve your goals. Consider the returns, the risks and ensure you have exposure to a range of asset classes. Make sure you’re getting the best deal on your mortgage so you can pay it off sooner.
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ECONOMIC UPDATE THE LATEST IN AUSTRALIAN ECONOMIC NEWS....
THE LATEST The latest in the Australian economy. Source: Australian Economic Perspectives, CBA. Australia’s GDP growth The latest figures show that Australia’s GDP growth was 0.9% in QIII and 2.5% p.a. thanks to a large rise in exports and firmer household spending. The big contribution from net exports is the payoff from a mining investment boom. Export volumes will continue to rise over coming years and will be a strong contributor to economic growth. However, for Australian incomes, commodity prices have fallen sharply which means that the big lift in export volumes is not generating a commensurate lift in income.
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Business investment Business investment was unsurprisingly weak over QIII and reflects a large decline in engineering construction. We are still working through a large downturn in mining investment and are estimated to be over 70% through that process. We can expect to see further declines in total business investment until the downturn is complete.
Did you know
the ‘Dingo Fence’ is the longest fence in the world (5,530km). It is about twice as long as the Great Wall of China.
Household savings The household savings ratio was 9% in QIII which is down slightly from QII. This may help explain the stronger than expected rise in household consumption over QIII. Household savings remain unusually high, reflecting a shift towards more cautious behaviour since the GFC.
$AUD $1 AUD = $0.72 USD
CURRENT CASH RATE 2%
Current at 8 December 2015.
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ASSET ALLOCATION EXPLAINED The major factor in determining the amount of risk and performance of an investment portfolio is ‘asset allocation’ - the allocation of your funds to different types of investment assets. There are five different types of asset classes, each with their own level of risk and return.
1. CASH Cash is exactly that. It is money in the bank, a term deposit, or hundred dollar bills stuffed under Grandma’s mattress. Risk wise, cash is the safest and least volatile of the asset classes. Unless someone comes and steals it, there is little risk of loss. However, the risk with cash is that it produces the lowest returns over the long term and the value of cash can be eroded by inflation.
2. FIXED INTEREST Next up the risk and return scale is fixed interest. This includes investments such as government and corporate
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bonds, bills and debentures. Once again, bonds mainly produce income. But because they can be bought and sold, their value can fluctuate due to changes in interest rates. There is also risk associated with the quality of the issuer of the bond. Australian government bonds are considered amongst the safest investments in the world. At the other extreme, ‘junk’ bonds issued by some companies are very high risk.
3. PROPERTY Good old ‘bricks and mortar’ might sound like a safe bet, but property is towards the higher end of the risk and return chart. Investors can choose from many different types of residential and commercial property, each with varying risk and return characteristics. The property market is cyclical, and can experience downturns, but it can also provide steady and reliable income, along with good prospects of capital growth when chosen well.
4. SHARES Shares are considered high-risk investments, but they also offer higher returns to long-term investors. Large, wellestablished companies are usually a safer prospect than smaller start-ups. Many ‘blue-chip’ shares also provide steady income. As you know, share prices can move up and down over short time periods, causing anxiety for some investors. However, if you invest in the next Google or Apple, the capital growth can be spectacular!
5. ALTERNATIVE ASSETS Some investments don’t fit neatly into the previous classifications, and portfolio managers may place them into an ‘alternative’ asset class. This may include infrastructure investments, such as airports and toll roads, and absolute returns funds, which rely on trading strategies for their performance. How your money is invested in these different asset types is the major factor that determines the risk level and performance of your investment portfolio. As an example, if you have all your money in cash your risk level will be low, however your returns will be low as well. At the other extreme, if you have all your funds invested into the stock market, you might receive a much higher return over the long term, however there is also a much higher risk of experiencing negative returns.
EXAMPLES Chris is close to retirement and is becoming very conservative and cautious in his outlook. A suitable asset allocation for him might look like this: Cash: 10 percent Property: 10 percent Australian shares: 25 percent International shares: 15 percent Bonds: 40 percent Travis is only 25. He has nearly 40 more years to retirement and just wants to see a maximum return on his money, while being happy to accept negative returns some years. A suitable asset allocation for him might be: Cash: 5 percent Property: 10 percent Australian shares: 55 percent International shares: 25 percent Bonds: 5 percent From these examples, we not only see different risk profiles, but also allocations to higher income-producing investments for Chris, who is nearing retirement. As goals and attitudes differ greatly from one person to another, it is important your portfolio asset allocations are personally designed. Be sure to chat to one of our expert financial planners to find out more.
ASSET ALLOCATION - DESIGNER INVESTING Designing an individual’s asset allocation is much like designing a piece of machinery. We know that different types of investments will provide certain average performances over lengthy periods. We have a good idea of the probability of negative returns for investments types. It is also a fact that different types of investments will perform better one year than the next. By allocating assets into certain combinations of investment types, we can estimate the likely return over longer periods, and the risk of having a negative return in any one year. This is why each person needs to have their own asset allocation to suit his or her personal objectives, stage of life, and risk tolerance. This is one of the reasons we get you to complete a risk profile when you first see us.
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Q
My husband and I went into bankruptcy nearly six years ago due to a business failure. We want to secure our future and one day own our home. How do we get our credit rating back and improve our conditions? We have been told to apply for credit to give us a rating, but no one will touch us. How can we overcome this hurdle? - Sally, Petersham
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Have your own question? Ask our experts! Tweet us @financialspectr
Hi Sally. It’s great to see that you’re looking to the future with a positive attitude. Your details will be recorded on credit reference agency databases for seven years from the date of bankruptcy and, as you have found out, obtaining credit will be difficult during this period.
have a full understanding of your specific circumstances. We have a team of in-house mortgage brokers who will be happy to assist you. Feel free to contact our office and we can arrange a meeting for you with them.
If you would like to get finance to purchase a home and have a steady income, I would encourage you to consult an experienced mortgage broker who can work with you to find a lender. There are specialist lenders who do lend to people with a chequered credit history as is the case with you and your husband. A broker will be able to make enquiries on your behalf once they
In the meantime, I suggest you start saving a regular amount into a high interest bank account. When you go to a lender you can then show them that you have the ability to save on a regular basis. This will hopefully give them the confidence that you are not a high risk, which is what they are assuming based on your credit history.
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ASK AN ADVISER! ASK ANY QUESTIONS, WE WILL ANSWER...
Q
We have received about $5,000 in gifts for our newborn daughter. What’s the best thing to do with this money so that we can help to set her up financially in the future? - Anna, Melbourne
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Hi Anna. Thanks for your questions and congratulations on the birth of your daughter. It’s fantastic that you are starting now as you could make a real difference to her financial future with only a small amount of effort. Starting with this $5,000, if you save just $10 a week for her, she will have over $50,000 by her 21st birthday (assuming an earning rate of 7.5% p.a.). As you have less than $10,000 currently. Here are the main options you might like to consider: Option 1: Start up a savings account There are lots of online savings accounts which offer reasonable interest rates. Positives: • Simple and quick to set up • Easy access to add more funds whenever you like • The security of cash Negatives: • Cash is a poor long-term investment as investment returns are not very high Option 2: Set up a managed fund You could set up a managed fund for your daughter, where her money is pooled together with other investors and used to purchase investments such as shares, property and bonds. Positives: • Easy to set up • Managed by professional investors • Very likely to generate a higher rate of return than cash over the long term
• Generates compound interest at a higher rate, resulting in a higher account balance Negatives: • Subject to the ebbs and flows of the sharemarket (however this is generally compensated for by a long term investment window) • Investment is not guaranteed and open to risk Option 3: Invest in a share portfolio As you are looking at a long investment time-frame, investing in a small portfolio of shares on her behalf could be a viable option. Positives: • Potential capital gains from owning an asset that can grow in value over time • Potential income from dividends (or can look to dividend reinvest and keep building the share portfolio) • Something to pass on that can keep on growing throughout your daughter’s lifetime and provide passive income Negatives: • Shares can fall as well as rise, and there is the risk that the value of a company’s shares can fall to zero • Having a self managed share portfolio requires more decision making than a ‘set and forget’ style managed fund, you will need to keep regular tabs on the shares and make buy and sell decisions where necessary • The investment is not guaranteed and open to risk Your options are many and are dependent on how much you would like to see these savings grow and the risks you are prepared to take to make this happen. However, starting something at this early stage is a very good idea and can be a nice gift to pass to your child later on. If you’d like more information, we encourage you to contact one of our expert financial planners.
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WHY YOU NEED INCOME PROTECTION INSURANCE WOULD YOU BE ABLE TO MEET YOUR FINANCIAL COMMITMENTS AND MAINTAIN YOUR LIFESTYLE WITHOUT YOUR REGULAR INCOME?
If you were to suffer an illness or injury that left you unable to work for a few months or even several years, the impact on you and your family could be devastating. Just as you insure your house and vehicle, you should consider insuring your income. Most people view their home as their largest asset, but in reality it’s usually your ability to earn an income. For example, Robert is 35 years old and earning $140,000 annually. If Robert were to have an accident and be unable to work through to retirement age, his loss of future earnings would equate to $4,200,000. This doesn’t take into account of any salary increases, promotions, bonuses or inflation either which could easily double this figure. So unless you have a very expensive home or earn a low income, your ability to earn is usually your largest asset. If you are unable to work because of an illness or injury, then income protection insurance would usually pay you an income of 75% of your current salary. So if you’re on $100,000 per year, you’d get $6,250 every month before tax. You’d find comfort in knowing that you can put food on the table for your family and keep up with your mortgage repayments.
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Each income protection policy has its own definition of illness, disability and range of benefits, so it’s important to understand what you’re purchasing. There are also certain terms and conditions to consider when taking out income protection insurance.
WAITING PERIOD How long you have to wait from when your illness or injury first occurs until you receive the benefit. Commonly this is one month, but you can choose the waiting period to suit your needs. For example, if you have a lot of unused leave you may choose a longer waiting period.
BENEFIT PERIOD The length of time these benefits will continue. The income will be paid until you return to work or for a set benefit period. You can get a benefit period for a defined number of years or to age 65, and you will be paid for however long you are unable to work due to illness or injury up to that time or age. Some policies offer a rehabilitation period to help you ease back into work.
STEPPED OR LEVEL PREMIUMS Stepped premiums increase each year as you get
older. Level premiums do not change due to age but are generally more expensive in the beginning.
INSIDE OR OUTSIDE OF SUPER You can pay for income protection insurance out of your salary, or a lot of people choose for it to be deducted from their super. If you purchase it outside of your super, you have a little more control and generally have better features. When income protection insurance is purchased outside of your super, the premiums are tax deductible. Many super funds offer income protection. To see what cover is available: • Contact your super fund by phone or through their website • Check your member statement • Read your product disclosure statement (PDS)
place to start is by talking to your financial planner. A good financial planner can help you find the right cover and make sure that it is structured in a way that makes it as cost effective as possible. Sickness and injury can be stressful enough without worrying about how you’ll feed the family or that you may lose your home because you cannot maintain the mortgage repayments. Relieve the pressure about how you would support your family if you were to get unwell or to have an accident by getting income protection in place today. Be sure to get in touch with our expert financial planners who can help find the best policy to suit your needs.
When purchasing income protection insurance, you’ll need to think of your personal circumstances before deciding on what cover is right for you. You should also consider what other types of life insurance you may need, such as life cover and total and permanent disability cover. A great
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AVOIDING CHRISTMAS DEBT
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In the lead up to Christmas every year, retailers jump on the gift giving bandwagon telling us what we can’t live without and what our kids must have. With all the holiday hype it’s very easy to get caught up in the spending season and the shock can hit hard when the credit card statements arrive in January. Depending on just how bad your bill is, savings plans and wealth creation can be put on hold while you work to pay off your debt. Below are some tips to successfully navigate the silly season.
1. STICK TO A BUDGET Without a doubt, the best strategy is to keep within your means and only spend what you can afford. One good way to do this is to sit down and set up a budget of how much you have to spend on Christmas, subtract grocery expenses, then divide the remainder by the number of people you are buying for. Sticking to a budget and having the discipline to not fall afoul of the clever Christmas marketing strategies will always leave you in a good position.
2. SHOP ONLINE Retailers are savvy. It is so easy to get caught up in the pretty lights and decorations while you’re out shopping. Online shopping is a great way to avoid the glitz and only buy the specific thing you’re after. It’s also easier to shop around online to get the best price.
4. BE IMAGINATIVE So often we are fooled into thinking we need to spend a fortune at Christmas. Often the most special gifts are the ones that don’t cost much but have a lot of thought put into them. Why not pamper your mum with a foot massage, or a heartfelt letter? Or for your father, perhaps a handmade voucher for a father and son day of playing at the park and ice cream. In life it’s generally the experiences we remember, not things. I’ve overspent this year. Now what? If despite your best intentions you end up with a large debt after Christmas, you need to work hard to pay it off as quickly as possible before the interest bill starts adding up. With most credit cards charging upwards of 20% this can happen very quickly. You may need to set aside a portion of your income to pay it off, work overtime, or get an extra job until it is paid. And what about next year? With a bit of commitment you can remove the stress from next Christmas by starting to prepare now. You only need to put $2 into a money box each day and you will end up with over $700 to fund Christmas next year! Merry Christmas everyone!
3. BUY, SELL, RECYCLE For some extra cash, why not sell things you don’t need in a garage sale? Start with expensive items your kids have outgrown that another family might love to give their child for Christmas. It keeps items out of the landfill, gives you extra cash at Christmas, and a saving for the new owners. A win all round!
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FI NANCIAL S P ECT RU M CBD Level 2 62 Pitt Street Sydney P. 02 8238 0888 Rozelle Level 1 442 Darling Street Balmain P. 02 8238 0888 Bondi Suite 2201, Level 22 Tower 2, Westfield 101 Grafton Street Bondi Junction P. 02 8238 0888