We have probably all laughed at that and thought not in my family, I don’t need to plan for retirement, I will get what my parents or grandparents don’t spend.  The 2004 Survey of Consumer Finances noted that 21% of people born after 1964 thought they would inherit some money someday. After all, most of them still have living parents or grandparents.  I am not sure what the numbers are here in Australia, but I would expect them to be comparable.

So what’s the reality?

Well retirees have a lot of demands on their savings. Living costs, for one, are rising fast. At the same time, many people are not waiting until they die to help their children and grandchildren financially. Finaly the current market turmoil is seeing many people concerned about how long their retirement savings will actually last.

So for these reasons, I come up with 5 reasons why people born after 1964 (and this includes me), need to take accountability for their financial health and no rely on Mum and Dad bailing you out again

1. People who make it to 65 will live a lot longer. Modern medical advancements will simply keep us alive a lot longer. At age 65, the average male has a life expectancy of 18 years and an average female has a life expectancy of 21 years That’s a combined 39 years of living expenses for couples, and it isn’t easy or fun to scale back your standard of living.
2. Social Security will probably change. There is not too many people who think that the government will be paying out more in the future that it currently does now. With the talk about keeping people in the work force for even longer, there is even the chance that you may have to wait longer to qualify for a benefit.
3. Marriage Breakdowns. It is not unusual for a couple to divorce in retirement. After years of being together, they sometimes find in retirement that they have grown apart and simply want to go their own ways. As a result the family fortune is split sooner and between the living parents. Splitting up can be expensive in itself, and maintaining two households for decades afterward will often cost more than sharing a dwelling.
4. The desire to unlock a home’s equity to meet lifestyle and other costs. The good old reverse mortgage. The reality is that homeowners can tap into the equity in their home without the need to repay it until the house is sold at their death.
5. There is also the view that the transfer of wealth will increasingly happen while the older generations are still alive. People in the latter halves of their lives now find themselves school fees and university fees for grandchildren. Indeed we have seen people who have been helping their children and grandchildren out with home deposits and even simply bailing them out of mounting debts and a host of other financial calamities.

So that’s some reasons why waiting for the folks to pass it on may not be a smart idea.  It may be that now is the time for you to work out an alternative plan just in case this one does not work for you after all.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

One said to the other that he was surprised to see his land had gone down in value over the year.  The other agreed, saying that he had read in the papers forecasts of houses being worth millions of dollars in 20 years, or some such stuff.

I do actually recall the forecasting that was mentioned – its a bit misleading, but many people do believe whats written in the newspaper.

Consider the following (it is past of a newsletter I send to my clients every month and was written about a month ago).

The House Price Saga.

 This seems to be the number topic again, so I will chip in for my 2 cents worth – again.

 This year we are again in a time when first home owners will not again be able to afford a new home – last year they could, but not this year.

 An article appeared in the Sunday Mail on February 21 in the Smart Money Section regarding home prices.

 I have done a table below that summarizes some of the salient points of the article:

What does this mean – well in 1960, the average house was 3.38 times the average income, now it is 8.34 times. 

 Or if you like to look at it this way, house prices have increased since 1960 at 8.83% per annum and wages have increased at 6.88% per annum since 1960 – this is not a cause for alarm, however since 2000, house prices have increased by 15.84% – more than twice the 50 year average, while wages have increased by 4.11% – less than half the 50 year average.

 Interestingly interest rates were at their lowest over that time in 1960 – at 5%.  We are at the second lowest level now at 6.64% (although not for much longer) and repayments are at 29% of income – the only time they were higher was during the recession we had to have when house prices were at 3.56 times annual earnings.

 Does this matter to you – well given that nearly all Australians have their wealth concentrated in their houses, yes it does matter.

 Affordability is not an issue so long as rates stay low – rates stay low when the economy is not performing.

 What are our headlines saying at the moment? That we have dodged the recession bullet, interest rates will rise and prosperity is on the way.

 Also the other question is can house prices keep increasing at the rates they have in the past 10 years, or will they revert to normal – or dare I say it, less than the long run return.

 Its possible that returns will be lower in the longer term as we do have a rapidly ageing population – in short more old people than young people – young people buy more houses than older people.  With less young people (unless we have rapid increases in migration) demand for housing will probably subside, as a result prices will decrease also.

What will support the growth in housing returns – shortage of supply – although I can’t see that happening.  A rapid increase in wages – not if the Reserve Bank have their way.  Or finally an asset bubble where prices are artificially increased through measures such as the first home owners grant.

 I am not sure, perhaps you have a view, I am willing to listen to any thoughts you may have.

 But what I will say is that coupled with the inadequate level of savings that many Australians have (and that is all savings) and the increasing taxes or decreasing level of services our governments will be able to provide as a result of the money spent on preventing our recession that forgot to turn up, there are going to be a lot of Australians that hit retirement – the longest holiday of your life with very little money – hope they all have a contingency plan.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

This is an update to a blog posted nearly 2 years ago and the issue is still being discussed, but in relation to finding a Financial Planner what does and should matter to you, the client?

The topic of fees versus commission was written about by every financial columnist over the past 2 – 3 years, but more so during the height of the Global Financial Crisis.  The call being for fees to be the method of payment – by the client, and commissions – payable by the product provider being stopped. 

In a nutshell financial advisers receive payment from their employer, the client, through either commissions or by charging a fee for the service provided. The fee may be fixed or based on an hourly rate, or a combination of both which is used by many financial advisers. In reality the client pays the commission – the product provider will recoup this amount from the fees they charge over time anyway.

So what should you look for in terms of fees when seeking out a financial adviser?  There are plenty of independent websites and organisations that can give you tips and advice, so look around and do your homework.  But what’s important here is that consumers should be given a choice.  Not all consumers want to pay fees for services up front and are happy to pay adviser fees in the form of commissions. 

Providing clients are kept informed of commissions and fees, such a strategy may suit a client.  The down side is that advisers may be influenced to recommend investments with higher commissions and the client may not always be told of alternative investments that may be equally as good with lower fees.   An adviser may also continue to receive trail commissions even if a client chooses to no longer use their services but retain their investment.  However recent changes to a number of product providers means that the client may be able to turn off trailing commissions where there is no service being provided - this is a great thing for consumers.

When engaging an adviser who charges a fee for service, make sure you discuss and agree on the costs to be charged.  Charging directly for a service is a good incentive for a planner to give good advice and service but costs come straight out of your pocket and are often charged in advance.

While there will always be a debate of the pros and cons of commission versus fees, scrapping commission completely from the industry removes the right for consumers to choose.

The true issue is transparency.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

Without being alarmist, it has not been fun ride for those who have chosen to stick it out in the share market.  For many, shares are now just trash to be offloaded as quickly as possible before any more losses are made.  No doubt there are many people who have lost lots of money by selling during this period of extreme volatility.  I doubt if many of those people will ever recoup those losses.  Many will be first time investors into the markets and most likely will never re-enter the markets again – or unfortunately only enter when they peak next time and will no doubt go through this same phase again.

Many who have sold out have invested their money in cash, believing this is a safe option.   For spooked investors, there is no doubt that cash offers an alternative but is it really the treasure they believe it to be?  Cash pays virtually nothing and depreciates in value as inflation and tax eat into it.  Market Metrics 2008 produced by the Commonwealth Bank notes that cash also has additional hidden costs such as capital gains tax or capital losses if assets have been sold to make the switch. 

The Bank also notes that for those who sold their shares during this period of volatility, by the end of 2010 they will be worse off if the market recovers to its previous peak.  Now I haven’t the foggiest as to where the markets will be in one week, one month or in a year’s time, but what I do know is that share markets will rise again, and history has shown that when markets rise they often rise rapidly and in substantial leaps.

So while today’s share market may be just trash to some, smart investors know that a volatile share market is a potential treasure as it offers opportunities to buy shares at discounted prices.  Yes things are bad, but now is the time when smart actions will see smart investors reap the rewards of the recovery that will happen – it has to, just as all good things come to an end, so do bad things.

 Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

We’ve just spent Sunday enjoying some corporate hospitality as guests at the 2008 Gold Coast Indy. It was a glorious spring day, all warm sunshine and light sea breezes.

Sitting opposite the pit lane, you couldn’t help but be impressed with the efficiency of the pit teams who operated like a well oiled machine. As drivers entered the pit, wheels were changed and cars refuelled in a matter of – not hours, not minutes – but seconds. It makes you wonder why it takes hours to change the tyres on the family sedan doesn’t it?

When thinking of Indy, fast money, fast cars and fast women tend to spring to mind, and maybe not in that order depending on whose doing the thinking. When times are good and drivers are on a roll, earnings accelerate through generous sponsorships, prize money and team contracts. But I can’t help but feel given the gathering stormy economic clouds that the brakes may be biting on the good times and drivers may find their income slowing down.

It got me thinking, what does a racing car driver do when it looks like their source of cash is drying up; in fact how does anyone who relies on an erratic means of earning a living manage their cash flow?

If the business you’re in means your activity and income is concentrated in a few months of the year, you may find it difficult to organise your money so you can meet your outgoings all year round. There are ways of managing an erratic money flow and working with a financial planner can help you fine-tune your wealth management.

If your cash flow is slowing down, your adviser can work with you to even out the bumps such as putting your insurances into super, or reviewing your lifestyle to see if it can move down a gear or two. This will help you avoid resorting to fast but costly forms of finance such as credit cards.

It’s never too soon to prepare for the future and your adviser can help you to start an investment portfolio that will last the distance until your retire. You don’t need a large amount of capital to start, just a steady contribution that can be adjusted along with your lifestyle.

Lastly, make sure you organise a meeting with your financial planner a few months before the end of the financial year. By this stage, most people have a good idea on what their yearly income is likely to be and your adviser will work with you to put in place some tax effective strategies.

Remember, working with your financial planner will help stop the wheels from falling off in your life when the road gets rough.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

A humble hot dog man had a successful business selling quality hot dogs.  Every customer was served with a smile.  One day the man’s son came home from college and told his father a recession was coming so he better cut costs.  The hot dog man stopped advertising and garaged some of his hot dog carts.  Sales fell.  He retrenched staff and used cheap sausages and sales fell further.  Eventually he decided he would go back to doing what he was doing, that is selling good quality hot dogs with a smile … and sure enough…  sales went up.

You might be asking yourself what’s the point of the story?  The motto of the story isn’t whether or not Australia is heading for recession – this depends on whose point of view you wish to take and which newspaper you read after October’s Black Friday. 

The point is, the story is about how gloom and doom can become self fulfilling and how you have the power to create or avoid your own recession.  If you’ve been a sheep and docilely followed the pack by madly buying stock at the height of the stock market rise and now you’re desperately trying to recoup your losses by selling, just like the rest of the pack, then the sensationalist media predictions of loss and financial devastation are likely to come true for you. 

To use the delicate vernacular of Prime Minister Rudd, Australia is heading for an economic slowdown and there will be some unfortunate side effects such as job losses.   But if you hang in there and ride out the economic downturn, you may see some excellent returns down the track.  History has repeatedly shown that after every bust …. eventually there is a boom … but we just don’t know when that will happen. 

During periods of bust, people take their money out of the stock market and company stock prices are driven down for reasons that are not always logical.  Now is not the time to cash in your chips and park all your spare cash under the mattress.  For those with some financial common sense, a downturn provides some great opportunities because everything goes on sale.    If you have a bit of spare cash lying around, now might be a good time to consider discussing your  investment options with your licensed financial planner.

The stock market isn’t the only area where there also may be an opportunity.  In a lead up to an economic downturn, the Reserve Bank will often reduce interest rates in an effort to stimulate the economy and stop it from falling into a recession and we’ve seen that recently with the generous interest rate cut granted by the Reserve Bank in a swift response to the world financial crisis. 

Cheaper interest rates mean cheaper debts to companies and lower mortgage rates for families.  With stagnating house prices and predictions of further interest rate cuts, now may also be a time when we see the property market change direction.    

But remember, while you have the power to create or avoid your own recession and control your financial destiny, also make sure you have a chat to a qualified financial planner who will help steer you on the right financial path.  So call us on 1300 766 323.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

It’s good to see many of the younger generation are out there working and learning about responsibility. Some of today’s teenagers however are earning a sizeable income with Australian Bureau of Statistics showing year 12 students are today receiving an average of $245 a week.   That’s a far cry from a few bucks earned from Dad for washing the car back in my day.

I’m not sure why the Y generation isn’t called the I generation given the amount of i-gadgets and i-gizmos in the market place, but regardless of whether you think they are the “Y” or “I” generation, a Commonwealth Bank survey[1] found many of these young Australians have no plans to save or budget, yet most of them still plan to buy a car or go on an overseas holiday. 

What’s frightening is that nearly three quarters of those surveyed had some form of debt, with around half not concerned about their debts stating they do not let the amount of debt they are in affect their daily lives.  While the easy availability of credit is causing some problems, it seems that mobile phones consistently seems to top the list for causing debt.  It makes you wonder how important those gadgets are …. but I digress.

The good news is that young people are keen to learn about managing their money.  The report Financial literacy: Australians understanding money by the Financial Literacy Foundation noted that the majority of teenagers want to learn about budgeting, saving and managing debt and see leaving school as a significant milestone in which they can start gaining control over their finances. 

So if you have a significant young person in your life, or you happen to belong to the Y generation, it’s never too early to start down the path of managing money.    Start surfing, web surfing that is, because there lots of great websites full of ideas and practical tips that set young people on the right path to managing their money.   The Financial Planning Association for example has created Dollarsmart, a web based and CD financial toolkit for teenagers to help improve their financial skills and give them confidence when dealing with financial matters throughout their life. 

It might also be of use to start looking for a financial planner who can help you on the road to accumulating enough assets so that you get to decide when work becomes optional.  A good place to start is with the planner your parents use, check the websites and make a few calls, it could be an excellent investment for you to make.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

The report confirmed what is already well known about the ladies, that is that the fairer sex have budgeting and saving habits down pat.  It is a well known industry fact that women control over 80 percent of household spending and influence 99 percent of household purchasing decisions.  It was no surprise then to read that women in general are highly confident in their ability to budget, their ability to save and their ability to manage debt.    This is good news for the ladies because good budgeting and saving habits are vital steps for good money management.

It was also no surprise to read that the ladies tend to let themselves down a little when it comes to their retirement planning.   Many said they hadn’t thought about their long-term financial plans for their future and retirement or considered retirement to be too far away for them to think about.   The real worry however was that some of them felt financial planning was only important for those who had lots of money.  I’m not quite sure how much “lots of money” is, but every woman needs to take responsibility for her financial planning regardless of how much or how little money she has.

The real worry about the ladies’ retirement planning is that over a lifetime women on average earn less, have lower super balances, broken work patterns often because of family commitments and statistically speaking live longer.  Because of these trends, long term retirement planning should be a must for all the ladies, not one of those jobs that they will eventually get around to.

Interestingly the report found women are very confident in their ability to get information about money with a majority having sought financial information from professionals such as a financial planner, accountant or banks.  Even better, women are more likely than men to consider getting information and advice to help with the financial management.  It’s a bit like women’s insistence on asking for directions when lost in comparison to the blokes who insist on driving around, in circles if they have to, rather than admitting that they need help!

The ladies do feel a bit intimidated when it comes to complex issues like investing or understanding financial language.  This is a bit of a wake call for us in the financial planning industry to ensure that we speak in every day language and not financial gobblygook , an easy habit to get into when you are surrounded by financial staff every day.

Overall women make great clients.  They’re thirsty for knowledge, willing to consider all options and fiercely loyal when they find someone they trust.  If you’re looking for someone you can trust, that’s interested in your financial needs, then give us a call on 1300 766 323.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

We could be forgiven for thinking this is a relatively new phenomenon seemingly happening because of events happening around the world today.   However a quick check of the Australian Government’s Insolvency and Trustee Service of Australia statistics shows bankruptcy figures have been steadily increasing over the last 20 years regardless of the economic climate on the day.  Twenty years ago there were 7,534 bankruptcies Australia wide.  This had increased to 25,961at the end of the last financial year, yet today’s average household wealth is considered to better than ever. 

Just about everyone has found themselves in financial difficulty at some stage of their life.  Some people manage to work through their financial obstacles and come out all the wiser from their experience.  However some people’s money habits never change regardless of their financial experiences and as a result find themselves financially out of control.    What causes people to get into debt? 

An ANZ study found that unhealthy ways of financial thinking played a major key role in people getting themselves into financial difficulties.  Living for today where spenders ignore the consequences of their spending, aspirational spending where people attempt to ‘keep up with the Joneses’, people spending to make themselves feel better, and people relying on credit to provide a lifestyle but somehow forgetting the credit cards need to be paid back at some stage are causing people to live financially unhealthy lives.

It’s no surprise to learn from the study that unemployed households with incomes less than $15,000 per year felt financially out of control.  What was a surprise however was the large number of university educated and skilled households earning an income of more than $90,000 annually who also felt financially out of control.  Perhaps this last group particularly feels the need to aspire to a certain lifestyle. 

There’s nothing wrong with having goals and dreams of where you want to be but take control of your financial health by engaging the services of a financial planner.  A financial planner will help you to develop a savings and investment plan to build long-term wealth and help you to protect your assets.  Good financial advice can play an important role in everybody’s financial wellbeing regardless of whether they are entering or leaving the workforce, and research shows that those who engage in a financial planner are better prepared and feel more in control of their finances.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

[1] Understanding Personal Debt and Financial Difficulty in Australia, November 2005, AC Nielsen and ANZ

It’s sad, it’s tragic, a young couple forced out of their home because of rising interest rates.

But what really is mortgage stress?

I know that interest rates have risen, that fuel is up, I have a mortgage and a car.  I also know that purchasing your dream home first time around probably is not the smartest thing to do and I also know that filling your house with all the latest electrical gadgets on 1,000 days interest free is also not the best way to ensure your financial security.

I also seem to recall a time when banks looked at your income and calculated your loan repayments based on your ability to repay.  I also remember a time when first time around a young couple starting out maybe purchased a unit, or a low set three  bedroom brick (with no ensuite) in the suburbs and traded up to the fancy Mcmansion with four bedrooms, two bathrooms and a media room.

I also remember a time when interest rates were at 19%.  That creates real mortgage stress.

Perhaps the lesson to be learned from the current credit crisis and resultant mortgage stress, (which in my travels I have seen a lot of) is that much of it is self inflicted. 

Why? – Well 1,000 days interest free, no deposit, no repayments for 12 months, whatever the offer, it all means that you are committing your future income on the purchase of some sort of electrical appliance that you will take home now, get used to, enjoy it and then get a shock when you have to start making the repayments that you forgot to budget for.

Add in an interest rate rise or two and you have a double whammy of increasing mortgage repayments as well the repayments on last year’s television set.

No wonder we are hurting, we are still paying for last year’s spending and committing next year’s against items that have lost their gloss and shine.

Maybe it’s time we all – and this includes the lenders – take a step back in time, tone down our expectations and live to our incomes.

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.