» financial planning

Australian Share Market Update, August 3rd, 2010

admin — Tue, 03 Aug 2010 08:14:54 +0000

Another good day after a strong night on Wall Street, saw the All Ordinaries Index gain 32.1 points to end the day 0.7% higher at 4586.5 after the RBA decided to leave the official cash rate unchanged at 4.50% today.

Rio Tinto Limited (RIO) gained 2.6% to close at $73.00 after announcing plans to spend $170m to further fund the construction of the rail and port infrastructure related to its flagship Simandou iron ore project in Guinea.

Hills Industries Ltd (HIL) gained 11% to close at $2.41 after announcing that net profit in FY10 rose by 323% to $40.2m, helped by a turnaround in the company’s home hardware division. HIL declared a final dividend of 5.5cps (ff), lifting the FY10 payout by 25% to 12.5cps.

Major stock rises:

Macquarie Group (MQG) $39.55 +4.99%
Caltex Australia Limited (CTX) $10.75 +3.97%
JB Hi-Fi Limited (JBH) $20.04 +3.35%
Perpetual Ltd (PPT) $30.59 +2.82%
Rio Tinto Limited (RIO) $73.00 +2.60%

Major stock falls:

Spark Infrastructure (SKI) $1.19 -3.64%
Goodman Fielder (GFF) $1.29 -2.27%
Primary Health Care Limited (PRY) $3.50 -1.96%
Sonic Healthcare Limited (SHL) $10.37 -1.52%
Cochlear Limited (COH) $70.31 -1.37%

If you do have any questions about this or would like to know more about us, please email me at admin@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.

House Prices – Are they too high and implications for retirement

admin — Tue, 15 Jun 2010 18:46:05 +0000

I had a meeting with some potential clients yesterday and the discussion turned to their (to me anyway) lack of preparation for retirement.

The husband (like all good dominant alpha males with a strong case of denial) advised that given that they had not accumulated anything other than their house, would be able to sell that to fund their retirement.

This always concerns me when I hear it for a couple of reasons:

1) Yes you can sell your house – but you will still need to live somewhere and very few people want to move from where they are comfortable to a smaller house in a less affluent suburb;

2) There is a social stigma to doing this – “It doesn’t bother me,” they say – 10 years before they have to, but when they do have to, they cannot move. Actually it also amazes me when people say they can live quite frugally if they have to but have a house full of plasma televisions;

3) Downsizing for many people is a smaller property – but usually at the same price; and

4) I am yet to actually witness a family selling their house to fund their retirement – have seen a few have to sell their house because they hit hard times or the breadwinner died, but that is a story for another day.

So it is with interest that I again read that market commentators say that our housing market is one of the 2 most overvalued in the world and needs to fall by 42% to reach its long term price ratio compared with family incomes – I have mentioned this a number of times in the past, see the following link : http://www.thebfsreport.com.au/featured/house-prices-again-is-it-a-bubble-or-not/

But I do think that Australians need to be aware of housing trends, particularly if they do think it will be the mainstay of their retirement income – have a look at this article, the link is attached and let me know what you think: http://www.theaustralian.com.au/business/housing-market-a-time-bomb-says-investment-legend/story-e6frg8zx-1225880119320

PS – The couple won’t be clients; they didn’t pass my screening tests.

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:

Cost of Living Increases – the Past decade and the implications for investors

admin — Fri, 11 Jun 2010 09:15:22 +0000

For the past 2 years we have heard how tough all people are finding it in the real world.

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:

Item	10 year Increase
Fruit and Vegetables	60%
Milk	36%
Cheese	66%
Bread	49%
Beef and Veal	44%
Lamb and Mutton	109%
Beer	64%
National Electricity Prices	91%
*Wages*	*44%*

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:

The transfer of wealth between generations….maybe

admin — Wed, 09 Jun 2010 02:48:48 +0000

You’ve probably seen those ads for retirement planning featuring retirees on Harley Davidsons saying “Retirement is payback time” or have seen the stickers on the caravans of the grey nomads that say “I’m spending my children’s inheritance.” Or even better, “Live long enough to be a burden on your children”.

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

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.
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.
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.
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.
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:

House Prices Again – Is it a bubble or not

admin — Thu, 25 Mar 2010 07:28:27 +0000

I overheard two people talking about their land valuations today – we got them in the post yesterday.

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:

Year	Average House Price	Average Income	House Price / Income	% of Household Income for Mortgage repayment
1960	7,000	2,073	3.38	15%
1980	44,800	12,580	3.56	23%
2000	110,600	38,558	2.86	34.4%
2010	481,310	57,691	8.34	29%

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:

Perkonomics – funny word, interesting concept

admin — Mon, 13 Oct 2008 00:45:50 +0000

I was having a bit of a web surf the other day and came across “perkonomics1″, described as perks and privileges given by a business to a customer, particularly those little perks that may give a client a bit of status or convenience.

Some of their examples included Lexus owners in Australia given the opportunity for free parking at a number of cultural centers, including the Sydney Opera House or Palmeiras, one of the major football teams in Brazil, reserving 5,000 seats exclusively for Visa Card customers.

When it comes to financial planning fees or insurance premiums people are quick to think of the money going out, on how much it will cost them, and not so quick to think of what they may be getting in return.

Now your insurance company or financial planner may not offer perks as lovely as a free car park at the Opera House and if they did you may want to question why, but there are plenty of pluses in sticking it out with your financial and insurance plan.

There’s the obvious benefits of course including having choices and financial freedom in your old age and protecting yourself and your family during traumatic events such as illness or injury. But what are some of the lesser known perks that may make life a little easier for you? I have listed a few below to get you thinking.

Payable benefits may be increased or free accidental cover may be offered by your insurance company if you continue your cover for a certain period of time, often about five years.
Expert advice from worldwide medical doctors and institutions if you are paid a benefit for a critical illness as part of a trauma or permanent disability policy.
Grief and support services may be offered to your immediate family as a result of a traumatic event at the time of claim.
Insurance premiums may be temporarily suspended if you find yourself without employment or on maternity leave.
Assistance towards financial planning costs may be provided if a lump sum benefit is paid.
Loyalty discounts on premiums may be offered if you personally have two or more policies.
Further discounts may be given by having multiple lives. We’re not talking about the family moggy here, we mean you may get offered a discount if you and your partner take out life insurance, and additional discounts may be given if your brother or various extended family members also take out cover. Multiple lives discounts may be offered in a business partnership as well.
In terms of investments, Agribusinesses may offer grower tours where you can undertake site tours and as an investor you may be able to buy their products at discounted prices.
Fund managers may provide seminars to help you stay educated and on top of financial markets.

Not all companies offer the same benefits, so you may need to shop around to find which products suit you. Better still, save yourself loads of time by engaging a financial planner to put together an insurance and financial plan to suit your circumstances.

1http://www.trendwatching.com

Please Note: