An article in the Financial Review on Saturday June 5 actually quantified price increases for the past decade – given my view that we are now post GFC more accountable for meeting our income needs in retirement and this actually made me a bit nervous – am I doing enough, are you doing enough, but look at the table below to see what has increased by how much over the past decade:

In the past 10 years, household indebtedness as a percentage of disposable income – what you owe divided by what you earn has grown from 90% to 156% – this is far greater than in the UK and the US – and they are supposed to be the basket cases – we better hope China does not slow down.

Interestingly, according to RP data, house prices have risen by 146% nationally in that time with Brisbane showing the highest gain of 185%.  Melbourne rose by 153% and Sydney by only 83% – I think this could be the better than building a gate at the border to stop the southerners coming on – they simply won’t be able to buy a house here, actually none of us will, last person out, please turn off the overpriced electricity.

What this means for the average investor is that you really do need to ensure you discuss with your advisor the strategies you can employ to ensure that your portfolio manages to keep pace with inflation, capital growth needs to be an important part of your forward planning.

If you do have any questions about this or would like to know more about us, please email me at paul@bronsonfs.com.au or visit us at www.bronsonfs.com.au

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.

A useless fact no doubt – but those over 65 cost more to keep alive than those under 5, and generally neither of those age groups are working.  Although for all those 5 years old out there, given our increasing medical costs, they may find themselves back in the salt mines or cleaning chimneys.

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.