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A FEW WORDS FROM OUR TEAM...
CBD Level 2, 62 Pitt St Sydney Rozelle Level 1, 442 Darling St, Balmain
Bondi Suite 2201, Level 22 Tower 2, Westfield 101 Grafton Street Bondi Junction
NEWS FROM THE OFFICE Welcome to the Autumn edition of the Financial Spectrum newsletter. It has been a busy year so far for all the team. We’ve had lots of questions over the past month about Superannuation so have included an article in this issue about the upcoming changes and how they might affect you.
THE MANAGEMENT TEAM
Brenton Tong & David Hancock
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 We hope that you and your family enjoyed a wonderful Easter together.
Did you
All the best, The Financial Spectrum team.
know ?
That we have 3 offices across Sydney!
// WHEN CAN YOU ACCESS YOUR SUPER? P. 04
04 2
New superannuation preservation ages will come in to effect on the 1st July 2015.
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// ECONOMIC UPDATE P. 06
06
The latest news from the Australian and global economy from economic experts.
// COMMODITIES, ENERGY, AUSTRALIAN DOLLAR & INTEREST RATES ARE DOWN P. 08
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The current economic environment is one of the most contrasting and challenging scenarios that we’ve seen in a long time.
OUR TEAM MELANIE TARABORRELLI
KATHLEEN ASTOR
Melanie has been with us since 2012 having joined us from her role at NAB Financial Planning. She has a passion for numbers and heads up the Paraplanning team which is responsible for the research and analysis of our financial and investment strategies. Melanie is a whiz on the computer and has flair for patient home renovating. You’ll often find her on the other end of a phone call or email solving your problems and helping you to keep your plan on track.
Kathleen is a veteran at Financial Spectrum of which many of you will know, being part of our team since 2007. Kathleen is a highly valued member of the Paraplanning team being responsible for research, analysis and production of our financial plans. Kathleen has developed exceptional customer service skills with our clients often singling her out for Christmas presents and extra chocolate at Easter. Kathleen is a keen traveler and is always up for an adventure.
// ASK AN ADVISER! P. 10
// GIVE BACK & SEE THE SIGHTS WITH VOLUNTOURING P. 12
SENIOR PARAPLANNER
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Have a question that you’d like to ask one of our financial planning experts?
PARAPLANNER
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If you love travelling to new places but have the urge to do more than just see the sights, the concept of “voluntouring” might be perfect for you.
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WHEN CAN YOU ACCESS YOUR SUPER? New superannuation preservation ages will come in to effect on the 1st July 2015. If you were born after 1960, you might need to re-evaluate your retirement plans. Changes to superannuation preservation ages are geared toward encouraging Australians to maximise their retirement savings. Allowing income from income streams to be tax-free after age 60 ensures superannuation savings are primarily used for funding retirement, rather than paying off the mortgage or paying for that shiny sports car you’ve been eyeing off.
From the 1st July 2015, the new preservation ages will be:
Date of birth
Preservation age
1 July 1960 - 30 June 1961
56
1 July 1961 - 30 June 1962
57
1 July 1962 - 30 June 1963
58
1 July 1963 - 30 June 1964
59
From 1 July 1964
60
The new preservation ages mean that if you were born from July 1960 onwards, you will need to wait longer before being able to access your superannuation. This is the Government’s way of encouraging longer time in the workforce, more retirement savings, and less reliance on the pension.
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CASE STUDIES To illustrate simply how preservation and tax affects superannuation, we took a look at two clients with different situations: 1. Tony is 58 and still works full time. As he’s over his preservation age, he came to see us about a Transition to Retirement (TTR) strategy which would allow him to keep working and contributing to his super whilst taking pension payments to make up the shortfall in his salary. Tony’s take home pay would be unchanged yet he would be able to increase his superannuation contributions to boost his super savings. Graeme plans to retire at 60, when he will convert the balance of his super to an income stream; the payments will be tax-free. TTR strategies are gaining popularity for good reason. Talk to your financial adviser to find out if a TTR strategy could work for you too.
Her tax position looks like this: After preservation age (56)
Taxed at
Lump sum
$10.000
Marginal tax rate or 21.5% whichever is lower
Income stream
Prior to age 60
Marginal tax rate
Income stream
After age 60
Income is tax-free
As you can see, superannuation is highly complex and everyone’s retirement goals differ. When you speak with us about your retirement plans, we work with you, to develop a strategy that helps you achieve your goals. Give us a call today so we can show you how 1800 886 018.
2. Jenny is a 54-year-old single lady who wants to retire from work within the next year. She will need to live off her investment savings until she reaches her preservation age (56). At that stage, Jenny plans to take a lump sum to go on a cruise, then take the balance of her super in the form of a pension.
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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. The Australian Bureau of Statistics (ABS) recently completed its report card on the Australian economy in 2014. Most of the commentary in the media about that report focussed on the below-trend growth and the negative implications for the labour market. There are however other features of the economic story which have received less attention. On average Gross Domestic Product (GDP) rose by 2.7% in 2014. This is below trend (trend growth is generally 3 - 3 Âź % p.a.) but well above the 2.1% rise in 2013. QIV figures for 2014 were recently released showing that GDP growth rose by 0.5%. Overall, the Australian economy expanded by 2.5% over 2014. The main
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contributors to quarterly growth were net exports and household consumption. Thanks to a combination of lower interest rates, rising wealth effects from higher house and share prices, and lower petrol prices, household spending rose by 0.9% in QIV, the largest rise since September 2010. As far as predictions for the economy in 2015, all roads lead to the labour market. More jobs are required to offset the losses that will occur as the mining construction boom winds down. More jobs will also ease household job security fears and allow the various forms of stimulus in the economy to work more effectively. Trends in unemployment will be the largest
Did you know
that Melbourne was originally called Batmania?
determinant for how far and fast the RBA pushes on with interest rate cuts. Back in February the RBA surprised many by easing the cash rate by 0.25% to 2.25%. Another 0.25% rate cut is likely in the coming months, taking the cash rate to 2%. The cash rate has not been at these levels since the early 1960s (50 years ago!). Markets are now fully pricing in a cash rate of 1.75% by the end of 2015. The postmeeting Statement on Monetary Policy (SMP) revealed the central bank has lowered its GDP projections for 2015 and 2016.
$AUD $1AUD = $0.76 USD
CURRENT CASH RATE 2.25%
Current as of 21th March 2015.
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by Brenton Tong
COMMODITIES, ENERGY, AUSTRALIAN DOLLAR & INTEREST RATES ARE DOWN
WHERE DO I INVEST NOW?
The current economic environment is one of the most contrasting and challenging scenarios that we’ve seen in a long time. Where there has typically been at least a few, if not several, “go to” investment areas in the past, the current economic climate is a little complex. Right now the economy is stable but not strong, property prices are high (in Sydney), the Australian dollar has dropped significantly, combined with record low interest rates and falling commodity prices. For those investing, especially retirees, no matter which way you look the returns just aren’t appealing. Typically, if you can’t find something to invest into, you keep your funds in cash which is safe and will give you a modest return. This would typically give you protection until you find the right investment, however at the moment, interest rate returns on term deposits and cash are running at (or lower than) inflation – you’re barely keeping up and possibly falling behind. It is important to keep a close eye on the strategic elements of your investment plan now more than ever. Advice for our financial planners is not just about investing, but doing the right thing at the right time. While cash may not be the best returning asset class at the moment, if you’re struggling to find value in the current market, be patient and wait. If you’re earning cash rates for 3, 6 or 12 months until you can see value in your target markets, so be it. Earning 2-4% on cash will not help you to achieve many goals, but it could be better than rushing out and trying to invest into the first thing you think has a chance of making a return. If you have a 10 year plus time frame, 6 months will not make much difference. If you’re being more aggressive and gearing into the markets, make sure you’ve got the right time frame and a solid risk mitigation plan in place. Given the current jobs market, we would suggest that you avoid too much negative gearing and maintain a healthy cash buffer. Long-term players will do fine in the current market, but speculators could get quite badly hurt. Keep in mind the total cost of gearing – investment property loans are now under 5% so you’ve got a much better chance of having a neutral investment property. If you’re borrowing for shares, keep in mind that
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KEY 02
we’re in a low return environment, so if your cost of borrowing is too high, it’s going to be hard to get significant returns that will justify the risk of a geared portfolio.
Fees – everyone hates paying them, but they’re a fact of life. But, with a little bit of effort, you may be able to drop the amount of fees that you’re paying. Similar to taxes, if you can save 0.5% in fees, that’s 0.5% return that you’re keeping. If you’re not sure about the fees that you’re paying, check in with family, friends, or get professional advice from one of our experienced financial planners.
If you are looking to invest now because you’re a bit more upbeat on the investment markets, here are my key things to think about for 2015 and the current environment: • International shares are widely predicted to outperform the local share market this year. While this is an element of crystal balling, keep in mind that with the currency having fallen recently, your Australian Dollars are not buying as much of the overseas investments and this is going to have an impact on your returns • Property is always polarising. Commercial property appears to be faring better, however there are some economic headwinds with regards to retail as well as office leasing. There is better liquidity in the market and much was learned from the catastrophes of the GFC. Residential property is interesting with such low interest rates, however given that it’s typically a very lumpy and illiquid asset, be cautious around your asset allocations so you’re not forced to sell. Sydney is by far and away the strongest market but there is still a lot of value across the country. • Australian shares are well priced and solid yields are still available, however you certainly have to ensure that you’ve got long term investing on your mind.
KEY 03 looking at the economy there are not much triggers that most economists feel are going to push rates up to levels we saw a few years ago. Finally, when looking at your overall portfolio, it’s always vital to look at the efficiency of what you’re doing. It’s more important now more than ever. Given that yields and overall returns have been falling, the money that you’re paying out is even more important than it was before. The four keys things that you should be looking at:
KEY 01 Tax – do you have the right tax structures in place? It doesn’t hurt to look and take a proactive approach to this. A modest tax saving could boost your returns a great deal – every dollar you don’t have to pay in tax are additional returns you get to keep.
Interest rates – the banks are always looking for new business, however they’re not as good at looking after old business. It’s often quite easy to approach a different bank and get a better rate and loan package than you already have. While changing banks can be a bit of work, it’s often worth the hassle. If you don’t want to do it yourself, ask for our recommendations for a mortgage broker to assist you.
KEY 04 Cash rates – similar to mortgages, it can be time consuming to shift banks to earn more interest – but it comes down to value for money. Is the $1,000 extra you’ll earn by moving banks worth the one hour you’ll spending setting it up? Get the best advice in these complex economic times. Give our expert financial planners a call on 1800 886 018.
• Term deposits are falling, but could fall further, so if you know you’re locking your money away, take a medium term view on it. Rates will go back up, however
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Q
A
10
I’m 28 and work full time. I have a number of debts at the moment and wanted to know whether I would be better off consolidating them into one loan? - John, Drummoyne -
Thanks for your question John. If you’re able to consolidate your loans at a lower interest rate, then generally this is a good idea. You do however need to consider any exit fees etc that you will incur by paying off any of your loans prior to the end of the loan period. It may be the case that these fees outweigh the benefits of paying off the debt at a lower interest rate. - David Hancock, Financial Planner -
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ASK AN ADVISER! ASK ANY QUESTIONS, WE WILL ANSWER...
Q
A
I’ve heard from a friend that you can use your superannuation as a downpayment for a mortgage on an investment property. Is this true? And if so, is it advisable to take this course of action? - Samantha, Earlwood -
Thanks for your question Samantha. In short, yes, the general concept that your friend has explained to you is correct. Through a Self Managed Superannuation Fund (SMSF), you are able to borrow money to purchase an investment property (or other investments such as shares or managed funds).
Have your own question? Ask our experts! Tweet us @financialspectr
It is important to remember however, that there are a number of conditions that apply. These include that you cannot rent the property to a relative etc. Another thing to consider is that the lending criteria is stricter and that you will require a higher percentage deposit and pay a higher interest rate. Your question about whether investing through your superannuation is ‘advisable’ really depends on your personal situation. I would encourage you to give our expert financial planners a call to get some personalised advice on your circumstances and whether it’s the right strategy for you. - David Hancock, Financial Planner -
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GIVE BACK & SEE THE SIGHTS WITH VOLUNTOURING If you love travelling to new places but have the urge to do more than just see the sights, the concept of “voluntouring” might be perfect for you. Also known as volunteer vacationing, voluntouring combines travel to new destinations while giving back to the local community. Depending on your profession, experience and passion, you may be able to find a volunteer opportunity that utilises your knowledge and expertise. There is something to suit everyone, from young people seeking a different experience in their “gap year” to professionals contemplating a sabbatical. For medical and health professionals, the options are endless. In 2010, our own Brenton Tong completed a volunteer experience at a childrens’ rescue centre whilst on holiday in Kenya. The centre works with young boys aged 3 - 15, many of whom are orphaned by HIV, the victims of abuse, or abandoned by their parents due to a variety of circumstances. Brenton remembers his time volunteering fondly. “The boys are such a joy to spend time with. They find happiness despite their history and circumstances. I spent two of the best weeks of my life getting to know them, playing with them, and hopefully helping them to smile just a little. I will never forget it.”. Five years on, he is still in touch with many of the boys from the centre through the internet and funds 3 of them to attend school for a brighter future. He is looking forward to going back again in a few years and taking his small children along as well.
Brenton and Joel. Friends for life. If you’re interested in voluntouring, you should be aware that it can involve working in remote or politically unstable regions. If you source your volunteer opportunity through a quality intermediary, they undertake security checks and are your best source of finding opportunities. The following are a great place to start: • Global Volunteer Network (GVN) http://www.globalvolunteernetwork.org/ • Go Voluntouring http://govoluntouring.com/
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F I NA NCIAL S P E CTRUM CBD Level 2, 62 Pitt St Sydney P. 02 8238 0888 Rozelle Level 1, 442 Darling St Balmain P. 02 8238 0888 Bondi Suite 2201, Level 22 Tower 2, Westfield 101 Grafton Street Bondi Junction P. 02 8238 0888 Spectrum Wealth Advisers Pty Ltd (ABN 57 134 661 706). AFS Licence 334400). The information provided in this newsletter is of a general nature only and is not intended to be relied upon as a substitute for professional advice. Financial Spectrum has not taken individual circumstances, objectives or needs into consideration. Before acting on any advice, you should consider whether the advice is appropriate for your individual circumstances. You are advised to seek independent financial advice. While Financial Spectrum believes that the information contained in this publication is correct, no warranty of accuracy, reliability or completeness is given.