Financial advice

Economic update

Economic Update

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Market and Economic overview


  • As anticipated, the Reserve Bank of Australia (RBA) left domestic interest rates on hold a 1.50%.  Official borrowing costs have been at this level since August 2016 – the longest period that Australian interest rates have remained unchanged;
  • CPI data confirmed that inflation ran at an annual pace of 1.9% in the March quarter; in line with the final quarter of 2017.  With inflation under control, there appears to be a low probability of the RBA increasing interest rates in the near future;
  • Employment growth appears to be coming off the boil.  Just 4,900 jobs were added in March, well below the +20,000 forecast.  Unemployment remains steady at 5.5%.  Owing to net migration into Australia and the associated increase in the workforce, strong job growth over the past year or so has not had a significant impact on the official unemployment rate;
  • Helped by solid bulk commodity exports – primarily coal and iron ore – Australia continues to enjoy a healthy trade surplus.  Exports were $825 million greater than imports in February.

United States

  • Following a period where market sentiment was largely driven by geopolitical news flow and events, investors started to refocus on the outlook for growth and monetary policy globally.  This was the primary driver of bond yields over the month;
  • Equity investors focused on a favourable Q1 earnings reporting season in the US.  In April, around half of S&P 500 companies announced their results for the first three months of 2018.  Of these, more than three quarters beat consensus expectations and have reported earnings growth of 24.6%, more than double that expected according to Thomson Reuters;
  • Data confirmed the US economy grew by 2.3% in the 12 months to 31 March 2018.  This was a slowdown from the 2.9% yoy growth in the previous quarter, mainly attributable to more subdued consumer spending versus the hurricane-related replenishment spree of the previous quarter;
  • Few observers seemed concerned about the slowdown, in the belief that consumer spending and growth will reaccelerate next quarter driven by tax cuts and the solid employment market;
  • Unemployment in the US remained at a 17-year low of 4.1% in March 2018, where it has been for the past six months;
  • There was a modest increase in US price pressures, with the core inflation measure most closely watched by policy makers – picking up to 1.9% yoy in March, the fastest pace in more than a year and approaching the Federal Reserve’s 2.0% target;
  • This supports the case for further increases in interest rates in the remainder of 2018 and beyond.  Global markets continue to pay close attention to commentary released by Federal Reserve Board members regarding monetary policy.


  • European growth appears to have moderated in early 2018.  French GDP growth decelerated in the March quarter;
  • The European Central Bank has suggested any moderation in the pace of growth will prove temporary and that conditions remain supportive of a broad-based expansion;
  • Economies in the EU continue to benefit from zero interest rates and an ongoing QE program.  The latter is due to conclude later this year, but could be extended if required;
  • UK GDP growth has also slowed from 2017.  The economy expanded at an annual pace of 1.2% in the March quarter, below forecasts and the slowest pace in more than five years;
  • UK inflation has also decelerated, to 2.5% yoy.  This suggests the Bank of England might not need to amend policy settings – the previously anticipated interest rate hike in May now appears to be a possibility rather than a probability.

New Zealand

  • Inflation fell to an 18-month low of 1.1% yoy in the March quarter.  Lower education costs appeared to contribute, with the government having made the first year of tertiary education free to students;
  • House construction prices rose 0.4%, the smallest since 2011;
  • With inflation towards the lower end of the RBNZ’s 1% to 3% target range, few observers are expecting interest rates to be increased from the current 1.75% level this year.


  • Moderating food prices have fed through to lower overall inflation in Japan.  Prices rose just 1.1% yoy to March 2018;
  • The Bank of Japan is believed to be considering when and how best to remove its current QE program.  The lower inflation reading suggests there may be no pressing need to do so;
  • For now, official Japanese interest remain negative, at -0.10%;
  • In China, data showed the economy grew at an annual pace of 6.8% in the March quarter.  The government continues to target 6.5% yoy economic expansion as the economy transitions towards domestic growth from export-oriented growth;
  • In South Korea, the economy grew at an annual pace of 2.8% in the March quarter.  April saw a historic meeting between the leaders of North and South Korea, with the two Heads of State agreeing to end the 65-year long Korean War and to complete a full denuclearisation of the Korean Peninsula.

Australian dollar

The subdued inflation print – combined with stronger data in the US – saw the Australian dollar weaken nearly 2% against the US dollar.  The Australian dollar fell by less against a trade-weighted basket of currencies, declining by just 0.3%.


Commodity prices were mixed in April, against a background of geopolitical uncertainty.  Aluminium (+11.4%) was the standout performer after the US imposed sanctions on Russian aluminium giant Rusal.  Nickel (+3.6%) and Copper (+1.1%) posted smaller gains, while Lead (-2.7%) and Zinc (-4.8%) declined.  Coking coal had another poor month, falling -13.4%.

WTI Crude continued its upward momentum, adding 5.6% to US$68.57 per barrel.  Robust demand, coupled with sidelined supply and trade sanctions helped support prices.

After sharp falls last month – on surplus concerns in China’s steel market – iron ore prices steadied, edging 0.7% higher to US$65.30 per tonne.

Gold fell -0.5% to US$1,315 per ounce on the back of a strengthening US dollar.

Australian equities

Most ASX-listed companies reported earnings during February.  Overall it was a satisfactory reporting season, with around 33% of companies delivering ‘beats’ versus 16% delivering ‘misses’. The S&P/ASX 200 Index returned 0.4%.

Health Care was once again the standout performer, adding 7.0%.  The sector was led higher by CSL, which posted strong gains on solid H1 earnings and FY18 guidance.

Consumer Staples added 2.2%, despite poor performance from sector giant Wesfarmers, which reported accelerating losses at its troubled Bunnings UK business.  Woolworths finished higher, while mid-cap a2 Milk Company rallied almost 50%.

Telecoms was the main laggard, falling -6.0%. Telstra’s disappointing run continued, with its share price hitting five-year lows.  Energy fell -3.7%, led lower by Woodside Petroleum and Whitehaven Coal.  Interest rate sensitive sectors also lost ground, with Property (-3.3%) and Utilities (-1.7%) both falling.

Consumer Discretionary fell -1.2%, masking the considerable divergence of individual company performance within the sector.  The share price of Myer and Domino’s Pizza fell sharply after they posted disappointing results.

Most other sectors, including Financials (+0.7%), Materials (+0.4%) and Industrials (0.4%), were little changed.

Listed property

The S&P/ASX 200 A-REIT Index performed strongly in April, returning 4.5%.  Industrials (+7.6%) was again the best performing sub-sector.  Retail A-REITs (+5.2%) turned around their recent run of underperformance to be the next strongest, while Office A-REITs (+1.8%) lagged.

A-REITs performed well despite significant increases in bond yields in both the US and Australia.

The strongest individual performers were Westfield (+8.0%), Goodman Group (+7.6%), and Iron Mountain (+6.5%).  Westfield shareholders are scheduled to vote on the proposed takeover by Unibail-Rodamco in late May, and with no competing bidders, the deal is expected to be completed in June.

The weakest performers were Viva Energy REIT (+1.0%), Vicinity Centres (+1.2%), and Dexus (+1.8%).

Viva Energy REIT underperformed despite a lack of company-specific news, while Vicinity Centres struggled on concerns over soft retail sales metrics.

Overseas property market returns were solid too and again outperformed broader equity markets. The FTSE EPRA/NAREIT Developed Index returned 2.0% in USD terms. In local currency terms, Japan (+5.5%) was the best performing market, while the US (+1.3%) was the worst.

Global equities

The MSCI World Index recovered from trade dispute induced intra-month lows of -1.4% (in USD terms) as investors started to focus instead on an encouraging earnings season in the US.  The index was up as much as 2.9%, before reports that global smartphone sales might have peaked saw technology stocks tumble.  The broader index recovered to finish April up 1.2%.

Despite delivering more than double the earnings growth expectations, the S&P 500 Index was one of the weaker markets.  Some investors are now questioning whether earnings growth can improve any further, particularly with a further three US interest rate increases anticipated for this year.  The UK FTSE 100 Index was one of the stronger markets, as a depreciating pound propelled the UK bourse to its highest level in almost three months.  The Index finished up an impressive 6.8% in local currency terms.

Value stocks edged ahead of their growth counterparts in April.  Large cap stocks also outperformed small caps, with a rallying energy sector helping to offset the hit to large cap US technology stocks mid-month.

The deteriorating outlook for smartphone sales also contributed to the MSCI Emerging Markets falling -0.4% in USD terms.

Taiwan Semiconductors, one of Apple’s largest suppliers for iPhone manufacture, fell almost -10% after warning shareholders of “weak demand” from the mobile phone sector.

In fact Taiwan was one of the weakest markets, down -4.6% in USD terms.  Russian stocks also struggled, down -7.4% as sanctions and diplomatic tensions over the recent spy poisoning in the UK triggered a run on Russian-related assets.

Global and Australian Fixed Interest

Bond markets rallied, with generic 10-year government bond yields falling 12 bps in the US, 15 bps and 16 bps in the UK and Germany respectively, and 21 bps in Australia.  Yields traded in unusually wide ranges (>20 bps) in most major bond markets

LIBOR (the rate used to calculate interest payable on short-term loans that banks make to one another) increased in the US.  Arguably the more interesting move is the spread between LIBOR and Overnight Indexed Swap rates; commonly referred to as the ‘TED’ spread.  In the US, 3-month TED spreads increased to their widest level since 2009.

Australian government bonds continued to outperform US Treasuries, with the 10-yr yield differential declining to -14bps.

Interestingly, the correlation between equity and bond markets continued to fall.  During March, sessions where global equity markets sold off aggressively typically saw limited movement in bond yields.  It will be interesting to see whether the historic correlation reasserts itself in the June quarter and beyond, or whether bonds and equities will continue to be driven by their own unique factors.

Global credit

Spreads were little changed, meaning government bond yields were the main driver of corporate bond returns over the month.

Improving profitability from the US earnings season to date supports issuers’ ability to service their repayment obligations and should continue to support a low level of defaults globally.

Many corporates remain highly leveraged, potentially causing some concern as funding costs increase.

A number of US issuers appear to be considering M&A, deploying excess capital being repatriated to the US under the revised corporate taxation regime.  Some have also noted increasing cost pressures, particularly relating to rising energy prices. Strong corporate profitability and low unemployment have not yet been reflected in significantly higher wages


Source: Colonial First State.

Good financial advice

The true value of financial advice

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Does investing in a financial planner really pay off? According to the latest research from Sunsuper you could be thousands of dollars better off when you make choices based on professional financial advice. Plus you’ll take more family holidays, have greater peace of mind and more confidence in your financial decisions.

Teaming up with research experts, Core Data, Sunsuper have released The Value of Advice Report. Insights include financial forecasts for three couples at different life stages and the lift in living standards and retirement expectations they’re enjoying as a result of seeking advice. In all three cases, it’s very clear that financial advice has a real and immediate impact on their lifestyle, and creates opportunities to achieve important personal goals.

1 – Building a bright future for a young family

Adam and Mara’s goals for their family of four aren’t out of the ordinary. Paying for private education and taking regular holidays are things that many families might prioritise but struggle to achieve when they’re paying off a home loan, while juggling work and family commitments.

Thanks to advice from a financial planner, Adam and Mara have settled personal debt, made appropriate investments to provide extra income for holidays and school fees, and arranged suitable insurances to make sure they’re secure in the event of injury or illness.

Expected financial benefits from implementing their plan include:

  • Cover private school fees starting from primary school (instead of high school only);
  • 32 family holidays before retirement;
  • An additional $54,720 in assets held at retirement.

2 – More time to travel in their prime

Heading down the home straight towards retirement, Amanda and John love to travel. They’re currently focused on their careers, but keen to be living a good life, now and in the future. Having enough to provide for their children in their will is also an important goal.

Following financial advice has allowed Amanda and John to manage their debt more effectively and ensure they’re covered by insurance in case of illness or injury. Their new strategy would also see them put more income into a holiday fund and their super savings.

Expected financial benefits from implementing their plan include:

  • Savings of $5k pa into a holiday fund for an extra 17 trips in their lifetime;
  • Increased life and TPD insurance cover to match debt and income needs;
  • An additional $78,720 in assets held at life expectancy that will benefit their children.

3 – Staying comfortable and independent in retirement

Having recently reached retirement, Jocelyn and Lou want to ensure they can continue to meet living and medical expenses and enjoy their senior years without financial stress. Not becoming a burden to their children is important to them and they’d like to retain assets to pass on to the next generation instead of having to sell them to generate more income.

With a new financial plan to guide them, Jocelyn and Lou can eliminate debts and reduce the burden of interest and loan repayments on their cash flow. They’ve also found ways to reduce their annual budget and still save money towards holidays.

Expected financial benefits from implementing their plan include:

  • Savings of $5k pa into a holiday fund for an extra 11 trips post-retirement;
  • $47,250 of savings in interest on current debts;
  • An additional $7,237 in assets held at life expectancy that will benefit their children.

Face your fears and feel better about finances

As well as looking at modelling for these three couples, Core Data also surveyed 1000 Australians as part of the research project. Of those who received advice, 80% said they felt more confident making financial decisions as a result and the same proportion believe advice has brought them more peace of mind, and 75% take a view that financial advice is worth more than it costs.

In spite of these clear benefits to wealth and wellbeing, nearly nine million Australians have unmet financial advice needs, according to Anne Fuchs, Head of Advice and Retail Distribution for Sunsuper. So what’s holding them back from seeing a financial planner? “Many people end up too scared to reach out to a financial adviser for fear they don’t know enough, don’t have enough or will be told their dreams just aren’t achievable,” says Anne. “This can leave many people to suffer in silence, not knowing what to do or who to turn to for help.”

Reaping the benefits of advice at every life stage

For others it can be a case of leaving it until retirement, because they’re too busy and managing their money well enough while they’re earning a regular income. However, the benefits of financial planning can be enjoyed now, and later, according to CoreData Principal Economic Researcher, Andrew Inwood. “Good advice does of course make you wealthier at retirement, but it also adds value all the way through your life in the choices you can afford to make about schooling, insurance, holidays, housing and personal interests,” says Andrew.

“The important thing to measure is how it adds value to every life stage and enables individuals’ life aspirations – that’s what we have modelled.”

Source: Money & Life.

Myths about Life Insurance

5 Common myths about life insurance

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Most of us like to think that insurance is a set and forget proposition that we pay for without too much consideration. However, no one can predict the future. Illness or injury can strike at any time with potentially devastating consequences. Australian Bureau of Statistics data shows that medical illnesses are the leading causes of deaths in Australia1. Topping the list are several types of cancer, Ischemic heart disease, stroke, Alzheimer’s disease and dementia. The health risks are clear yet many Australians are manifestly ill-prepared for these life events.

According to Rice Warner’s ‘Underinsurance in Australia’ report2, an average Australian couple around 40 years of age with children would require life insurance cover of approximately 10 times their annual earnings to repay debt and maintain their current living standards. However, very few Australians have anywhere close to this level of insurance cover.

It’s common for people to have an “it won’t happen to me” mentality, but unfortunately the facts speak for themselves. Taking some time to understand more about life insurance is worth its weight in gold as it could protect the financial stability of those you care for if you can no longer work or pass away.

Here we look at some common myths about life insurance.

Myth One: ‘I’m young and healthy. I don’t need life insurance.’

It’s easy to think you don’t need life insurance when you’re young, fit and healthy, but life has a funny way of ‘just happening,’ and if you are about to experience a significant life event such as getting married, having a baby, or buying your first home, you need to consider what could happen if the unexpected were to occur. For instance; if you were left without an income, how would you and your dependents cope financially?

It’s also important to consider what your health may be like in the future. Although you may be young and healthy now, unfortunately deteriorating health is a natural part of life. It’s a good idea to consider taking out life insurance early on in life, when you’re less likely to have any pre-existing medical conditions, as these could make you ineligible for life insurance cover or attract higher premiums when you’re older.

Myth Two: ‘I’m single and I don’t have any dependents. I don’t need life insurance.’

According to the Australian Institute of Family Studies3, the number of Australians living alone is as high as it has ever been with one in four people living in a single person household and that’s been the case for more than a decade now. While many of us are happy living alone, many of us also have financial responsibilities that aren’t linked to having a partner or a child.

Myth Three: ‘Life insurance is only worth it if you pass away.’

One main objective of life insurance is to provide financial security for your loved ones should you pass away. However, other personal insurances can also provide protection should you become critically ill, injured in an accident, or permanently disabled. Should this occur and you are no longer able to work, insurance can help you to pay for out-of-pocket expenses such as the cost of medical treatment and other household bills.


Myth Four: ‘My superannuation fund includes life insurance cover. I don’t need any more.’

Many super funds offer some form of life insurance for members but it’s often just a very basic level of cover and may not take into account your individual circumstances nor the amount of cover you would really need to maintain your standard of living if you could no longer work. This is where professional advice can help. Your financial adviser can tailor an insurance plan that’s designed specifically for you. This includes a review of any existing insurance policies you may have, an analysis of your financial obligations, and the level of financial support you want for your dependents; both now and into the future.

Myth Five: ‘I have private health cover. I don’t need life insurance.’

 There’s no denying that private health cover can be immensely beneficial if you require urgent or costly medical treatment. However, in many cases it won’t provide cover for ongoing post-operative costs such as any rehabilitation, or those financial obligations that continue while you’re unable to work, such as household bills and your mortgage repayments. Personal insurance can help by covering these additional expenses, and help protect your family’s financial situation should you be unable to return to work.

Reviewing your insurance arrangements with your financial adviser makes good sense. Even if it simply confirms that your existing insurance cover is fine. To find out more, please contact Revolution Financial Advisers.


1 Australian Bureau of Statistics, 2009, Causes of death, released May 2011

2 Rice Warner ‘Underinsurance in Australia’ report (July 2014)

3 Australian Family Trends No. 6. Australian Institute of Family Studies, March 2015.

know about super

What young people often don’t know about super

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If you’re like 56% of young Australians, you probably couldn’t say exactly how much money you have in superannuation, but according to the Association of Superannuation Funds of Australia (ASFA), what you’ve got in super may easily outweigh what you’ve got in your everyday bank account.

We take a look at the research which also highlights that the majority of those under age 29 strongly support super as a good way to save for retirement, even though many underestimate the amount of money they’ll need after they finish working.

How much the average young person has in super

ASFA found around 25% of Australians aged 15 to 19 had a super account, as did approximately 75% of those aged 20 to 24.3

While average balances were not that large, ASFA said they were rather substantial compared to what most young people had in their bank account.

ASFA pointed to figures from the Australian Bureau of Statistics, which showed the average super balance for those aged 20 to 24 was around $5,000, with that figure escalating to more than $16,000 for 25 to 29-year-olds.

What additional findings revealed

Key points from the ASFA research showed:

  • More than 60% of young Australians have multiple super accounts, with 30% reporting trouble in finding their old accounts;
  • Young people who have multiple accounts are potentially at risk of eroding their super savings because they’re paying multiple sets of fees and charges;
  • Nearly 10% of Australians under 29 are checking their super balance daily, which is important as it’s likely to be one of the biggest investments they’ll ever have;
  • On average, young people expect they’ll need $625,000 to retire, while those aged 60 and over expect they’ll need a much bigger sum of around $1 million.

Super tips for young people

  • If you earn more than $450 in a calendar month, your employer is required to make super contributions to a fund on your behalf at the rate of 9.5% of your earnings.
  • If you’re under 18, contributions are only payable if you work more than 30 hours a week.
  • If you are employed, you should check your payslip and your super account transaction records to make sure you are getting the contributions you are legally entitled to.
  • If you aren’t getting what you think you are owed, speak to your employer.  The Australian Taxation Office can also help you with information and in recovering any unpaid contributions, with non-payment of super affecting about 690,000 Australians annually.

What about insurance inside super?

Each super account you have will typically have a fixed administration charge of at least $100 a year and if you’ve taken out insurance through super, premiums will also be deducted from your balance.

While more than 70% of Australian life insurance policies are held inside super, and it may be beneficial for you depending on your circumstances, you should regularly review your preferences, as more than 25% of people under age 29 are unsure whether they have cover, let alone the right type.

Where to go for help

While retirement might seem like a lifetime away, remember, the more informed you are about super from a young age, the better off you may be down the track.

Revolution Financial Advisers can help you review and understand your current superannuation position.  Contact us to make an appointment.

 Source: AMP News & Insights

Savings account v term deposit

Savings account versus term deposit

By | Financial advice, Wealth Creation and Accumulation | No Comments

In a low interest rate world, it’s important to think about the best place to stash your cash – a savings account or a term deposit?

New research shows Australian households are tucking away an average of $409 each month. That is pretty impressive though chances are many people are using their spare cash to pay off debt rather than grow savings, and it can be a sensible strategy. You’re likely to save more on interest charges than you’ll earn on your savings.

That said, it always makes sense to have a pool of savings for rainy day expenses or to grow cash for personal goals. Record low interest rates make it essential to consider where your savings should be held, not just to maximise returns, but also to make it easier to reach savings targets.

Savings accounts and term deposits are the most popular choices for cash investments, and both have their pros and cons. The key to making the most of the different features offered by both is to allocate savings across short, medium and long-term goals.

A high-interest savings account provides at-call access to your money, so it can be a useful option for short-term goals like purchasing some new furniture or appliances.

The catch with many savings accounts is that your money is likely to earn a very low ‘base’ rate. Strict conditions apply in order to earn bonus interest. You need to be sure you can consistently meet these conditions, be it depositing a minimum amount each month or restricting your withdrawals, to earn the top rate. Even then, the bonus rate may only apply for a limited time.

A term deposit on the other hand, may offer a marginally higher interest rate, and it’s definitely worth shopping around for the best return.

Along with a guaranteed rate, you can’t easily tap into your savings during the fixed period, which can make term deposits a good option for medium to long-term goals like saving for a holiday or some home improvements. Pick your term with care though as unwanted fees and interest penalties can apply if you need to access the cash before the full term expires.

At present, online savings account rates can hit 3%, while the typical 24-month term deposit rate is 2.58%, though there are some at a fraction above 3%.

Savers may also want to consider a notice saver account. These are offered by a growing number of banks, and they act as a hybrid between a savings account and a term deposit. You’ll typically be asked to provide reasonable notice, often 30 days or more, before a withdrawal can be made. That’s not a bad thing as it makes savers think twice before dipping into their cash reserves.

 Source: AMP.

Importance of financial values for your children

The importance of financial values for your children and grandchildren

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We all know having children bring plenty of responsibilities and whether you are a grandparent or parent, it is vital to instill positive financial attitudes from an early age. Taking a proactive approach is the best method – so spend some quality time with your precious children and introduce some financial values but will apply throughout their lives.

Below are a few ideas to help with creating positive financial values:

  • You are the “example”

Always remember younger children look up to adults frequently and you’ll be often surprised on what they pick up on. So ensure your financial values are strong and in line with what you are teaching your children. If you take a more flippant approach to your money, this is likely to be passed down the generations of children and could lead to major financial issues later in life.

  • Encourage involvement

We all know it is important to make educated and strategic financial management decisions. Why not encourage your children to be involved in a minor money decision making process such as an item on the weekly shopping list.  You could educate them about the price, the value, when it is on sale etc. This will teach them to think about purchases and gain an understanding on the impact of our decisions.

  • The piggy bank

It’s always a good idea for children to understand the concept of saving – whether it’s via a traditional piggy bank or an online spreadsheet. You can establish ground rules of what they can spend their savings on – i.e. can they buy a DVD or an item of clothing, are they restricted from buying lollies? If the grandparent’s are contributing to the piggy bank savings, make sure you are all on the same path so the children aren’t given mixed messages.

  • Be Strong

As children become older they have a greater grasp of money and may start comparing savings amounts with other children. It’s important to convey that each family have their own situation and that they are respectful of this. A few extra dollars may be ok if they have reached their target savings amount and they discover the price has increased but it is important children know you aren’t their money safety-net. You won’t always be there to provide the extra dollars and rectify the situation.

Return to Work After Having Family

Returning to work after having a family

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Deciding to return to work after having a baby can be a daunting decision for any family. Combining work commitments with family responsibilities can be something of a balancing act. We look at some of the expenses you might encounter as well as some of the financial benefits.

The cost of childcare

For most parents, the first thing that comes to mind when contemplating returning to work after having a child is finding suitable childcare.

Recently released statistics show that in 2014 and 2015, 47% of couples and 51% of single parents with children under the age of 5 used paid childcare, and of those, 85% of couples and 67% of single parents were using childcare for work-related purposes*.

So unless you’re blessed with family who are willing and able to care for your little one for nothing, returning to work means you’re probably adding a new outgoing to your family budget.

The government offers two types of assistance to help families with the cost of childcare:

Child Care Benefit, where the fees charged by approved childcare providers are subsidised by the government. The number of hours of subsidised care you’re eligible for is dependent upon certain conditions, while the rate of your subsidy is dependent on your household income.

Child Care Rebate, which provides a rebate of up to 50% of your out-of-pocket child care expenses, up to an annual limit of $7,613 per child for eligible parents.**

But even with government assistance taken into account, childcare can be a considerable cost, and one that has risen significantly over recent years.

Statistics show that after any childcare benefit was deducted, the median amount spent per week per child was $162 for couple families and $114 for single parents in 2014 and 2015, which was an increase of 75% and 104%, respectively, on the amount spent in 2002 and 2003.***

The long-term view

If the cost of childcare will take up a large portion of your salary, returning to work might not seem to make good financial sense. However, it’s important to take a long-term view of your family finances, as well as considering the more immediate costs. After all, your children won’t be in childcare forever!

By returning to work, you’re continuing to build your super, as well as maintaining your industry knowledge, contacts, and skills, which will help protect your ability to both earn an income in the short term and build your future earning capacity. This will help protect your family’s long-term financial security.

How to deal with less income

Whether you’re dealing with less income due to the cost of childcare, or because you’ve changed your working arrangements, and are returning in a part-time role, or in a job share, this will also impact upon your family’s finances. Here are some tips to help you adjust to the change, as well as some ideas to help keep your finances on track:

Ensure you have a budget, which sets out how your money will be spent, and look for any areas you can reduce your spending.

Combat the reduction in your employer super contributions by boosting your super with any windfalls you may receive, such as your tax return. Your spouse can also make contributions into your super, which could benefit you both financially.

What to do with additional income

If you’re returning to work when your children are at school this could mean a boost in your household income, and you may be lucky enough to have money left over after all your expenses are met. If so, there are a number of things you could do to help you get ahead financially such as:

  • Making additional repayments on your home loan
  • Making additional contributions to your super
  • Repaying an outstanding uni debt, or any other debts
  • Saving for future expenses, such as your child’s education.

Other considerations

Being a parent, there are some other important financial matters you should think about. Ensure you have adequate insurance cover to help protect your loved ones should anything happen to you, make a will if you haven’t already got one, or update it to reflect your change in circumstances.

Source: AMP

* The Household, Income and Labour Dynamics in Australia (HILDA) Survey 2017, Table 2.11, pg 23

** Australian Government, Department of Human Services, Child Care Rebate

*** The Household, Income and Labour Dynamics in Australia (HILDA) Survey 2017, Table 2.13, pg 24


When is the right time to get advice?

By | Financial advice, Holistic | No Comments

We are often asked “when is the best time to come and see a financial adviser?” Our answer is always now! The sooner you engage with a professional who has the ability to improve your overall financial position and provide long term financial guidance, the sooner you will feel in control of this aspect of your life.

If you think financial advice is just about helping you save more for your retirement, think again. No matter where you are in life, getting good financial advice can help put you in the best possible place to achieve your life dreams, and protect you if things don’t go to plan.

Here’s how advisers can help you through some of life’s big events.

1 – Moving in with your partner

Starting a new relationship can be an exciting time and it can be easy to get carried away. As you start your life together, a financial adviser can help you plan a new budget, so you can start saving for mutual goals.

Your adviser can also make sure you’re both protected with adequate insurance, something that’s particularly important if children are involved.

2 – Setting up house

These days, buying your first home is harder than ever, with property prices at record highs in most Australian cities. An adviser can help you create a realistic plan to save for a deposit, helping you get your start in the property market.

Once you’ve found the right property, your adviser can help you choose a mortgage and manage your repayments potentially saving you thousands of dollars in interest over the life of your loan.

3 – Ending a relationship

Not every relationship lasts, and break ups can be painful and often financially detrimental.

Your adviser can help you work out how you and your ex-partner can split your shared assets (once you have reached an agreement with your ex-partner), including super and the family home. They can also help you get your finances back on track, with a budget to suit your new situation and lifestyle.

4 – Changing direction

It’s unlikely that you’ll stay with the same job for your entire lifetime. So if you’re thinking of changing your workplace or embarking on a new career, it’s time to sit down with your adviser. They can help you understand the financial implications of working less, or help you make the most of a higher income or overseas promotion.

If you’re nearing retirement, you may want to discuss a transition to retirement strategy, so you can spend less time in the office and more time at home. Or if you want to be your own boss, make sure you talk to your adviser about making tax-effective contributions to your super, so you don’t retire without a nest egg.

5 – Taking time out

There may be times in your life when commitments like parenting, taking care of elderly parents, studying or travelling will take priority over full time work.

If you’re planning on taking a break from work, your adviser can help you understand your financial options for funding this time off. Remember that while you’re not working you won’t receive any employer contributions to your super. So it’s important to talk to your adviser to help make sure your retirement savings don’t fall behind.

Source: Colonial First State

meeting tips with a financial adviser

Five tips for your first meeting with a financial adviser

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Every great journey starts with a first step and your financial advice journey begins with an initial meeting with your adviser. Here’s how to make sure the meeting is a successful one.

Taking on a financial adviser can be a life-changing experience. Your adviser will play a key role in your financial future by guiding you through strategies and helping you overcome obstacles so you can achieve your goals and create the lifestyle you want.

To get the most out of your first meeting, a little preparation can go a long way. Here are 5 tips to keep in mind.

1 – Know your goals

Before meeting your adviser for the first time, be clear in your own mind about what you want to achieve. During the meeting your adviser will listen to your hopes and aspirations, and use them as the foundation for your financial strategy.

Talk to your family and figure out where you’d like to be at different stages of your life, then make a list of your financial and lifestyle goals. Be sure to include both your short-term goals like going on a holiday or saving for an upcoming purchase, as well as longer-term goals like paying for your children’s education and growing your retirement nest egg.

Remember, your financial plan isn’t just about money — it’s about enabling you to enjoy the lifestyle you want.

2 – Do your homework

To build the right strategy for you, your adviser first needs to understand your financial circumstances. To get a complete picture of your overall financial position, it’s a good idea to create a file of documents that show your:

  • Income and savings
  • Regular expenses
  • Assets — like your home, car and investments
  • Debts — including your mortgage, credit cards and personal loans
  • Insurance arrangements.

Bring recent tax returns, payslips, bank or super statements and other financial documents with you to the meeting and also an up-to-date Will, if you have one.

3 – Be honest

During the meeting, be as clear and open as possible with your adviser, not just about your needs and goals, but also your hopes and fears for the future. You should also let your adviser know how much investment risk you’re willing take on, so they can create a financial strategy that you’re comfortable with.

Communication and trust are the keys to a strong client–adviser relationship but remember, it’s a two-way street.

4 – Ask questions

Your adviser will probably ask you lots of questions in your first meeting, so they can understand your unique financial situation. But the first meeting is also a great opportunity for you to find out more information as well.

Don’t be shy about asking your adviser to clarify any aspects of investing or the financial advice process that you don’t understand. It’s a good idea to think beforehand about the questions you plan to ask, so you can use the meeting time effectively.

5 – Let your adviser guide you

Do you know what the government’s recent changes to super rules mean for you? It’s fine if you don’t — your adviser will explain everything you need to know. Experienced advisers are professional, qualified specialists, who understand the complex laws and regulations that apply to your super and investments.

When you meet with your adviser, you can find out more about super and tax rules and how they might affect you. Then, your adviser will tailor a strategy to help you navigate these rules, so you can get the most out of your money and safeguard your financial future.

Source: Colonial First State.


Bubbles, busts and Bitcoin

By | Financial advice, Holistic | No Comments

The surge in Bitcoin has attracted much interest. Over the last five years, it has soared from $US12 to over $US8,000; this year alone it’s up 760%.

Its enthusiasts see it as the currency of the future and increasingly as a way to instant riches with rapid price gains only reinforcing this view. An alternative view is that it is just another in a long string of bubbles in investment markets.

Bitcoin’s price in US dollars has risen exponentially in value in recent times as the enthusiasm about its replacement for paper currency and many other things has seen investors pile in with rapid price gains and increasing media attention reinforcing perceptions that it’s a way to instant riches.

However, there are serious grounds for caution. First, because Bitcoin produces no income and so has no yield, it’s impossible to value and unlike gold you can’t even touch it. This could mean that it could go to $100,000 but may only be worth $100.

Second, while the supply of Bitcoins is limited to 21 million by around 2140, lots of competition is popping up in the form of other crypto currencies. In fact, there is now over 1,000 of them.  A rising supply of such currencies will push their price down.

Third, governments are unlikely to give up their monopoly on legal tender (because of the “seigniorage” or profit it yields) and ordinary members of the public may not fully embrace crypto currencies unless they have government backing. In fact, many governments and central banks are already looking at establishing their own crypto currencies.

Regulators are likely to crack down on it over time given its use for money laundering and unregulated money raising. China has moved quickly on this front. Monetary authorities are also likely to be wary of the potential for monetary and financial instability that lots of alternative currencies pose.

Fourth, while Bitcoin may perform well as a medium of exchange it does not perform well as a store of value, which is another criteria for money. It has had numerous large 20% plus setbacks in value (five this year!) meaning huge loses if someone transfers funds into Bitcoin for a transaction – say to buy a house or a foreign investment – but it collapses in value before the transaction completes.

Finally, and related to this, it has all the hallmarks of a classic bubble. In short, a positive fundamental development (or “displacement”) in terms of a high tech replacement for paper currency, self-reinforcing price gains that are being accentuated by social media excitement, all convincing enthusiasts that the only way is up.

Because Bitcoin is impossible to value, it could keep going up for a long way yet as more gullible investors are sucked in on the belief that they are on the way to unlimited riches and those who don’t believe them just “don’t get it” (just like a previous generation said to “dot com” sceptics). Maybe it’s just something each new generation of young investors has to go through – based on a thought that there is some way to instant riches and that their parents are just too square to believe it.

But the more it goes up, the greater the risk of a crash. Many people also still struggle to fully understand how it works and one big lesson from the Global Financial Crisis is that if you don’t fully understand something, you shouldn’t invest.

At this stage, a crash in Bitcoin is a long way from being able to crash the economy because unlike previous manias (Japan, Asian bubble, Nasdaq, US housing) it does not have major linkages to the economy (eg it’s not associated with over-investment in the economy like in tech or US housing, it is not used enough to threaten the global financial system and not enough people are exposed to it such that a bust will have major negative wealth effects or losses for banks).

However, the risks would grow if more and more “investors” are sucked in – with banks ending up with a heavy exposure if, say, heavy gearing was involved. At this stage, it’s unlikely that will occur for the simple reason that being just an alternative currency and means of payment won’t inspire the same level of enthusiasm that, say, tech stocks did in the late 1990s (where there was a real revolution going on).

That said, it’s dangerous to say it can’t happen. There was very little underpinning the Dutch tulip mania and it went for longer than many thought.

While crypto currencies and blockchain technology may have a lot to offer Bitcoin’s price is very bubbly at the current time.

Source: AMP

Review of 2017, outlook for 2018

Review of 2017, outlook for 2018

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Despite fears, we believe 2017 was a relatively smooth year and that 2018 is looking favourable for investors but we expect more volatility.

2017 – a relatively smooth year

By the standards of recent years, 2017 was relatively quiet. Sure there was the usual “worry list” – about Trump, elections in Europe, China as always, North Korea, the perennial property crash in Australia and there is the current mania in Bitcoin. We believe overall it has been pretty positive for investors.

  • Global growth continued the acceleration we had seen through the second half of last year. In fact, global growth looks to have been around 3.6%, its best result in six years, with most major regions seeing good growth. Solid global growth helped drive strong growth in profits;
  • Benign inflation. While deflation fears faded further, underlying inflation stayed low and below target, surprising on the downside in the US, Europe, Japan and Australia;
  • Rising commodity prices. Better than feared global demand and a surprise fall in the $US helped commodity prices along with constrained supply in the case of oil;
  • Politics turned out to be benign. Political risks featured heavily in 2017 but they turned out less threatening than feared. The political risk around Trump rose with the Mueller inquiry into his presidential campaign’s Russian links, business-friendly pragmatism dominated Trump’s first-year policy agenda and a trade war with China did not eventuate. The Eurozone elections saw pro- Euro centrists dominate, North Korean risks increased but didn’t have a lasting impact on markets and Australian politics remained messy but arguably no more so than since 2010;
  • Another year of easy money. While the Fed continued to gradually raise interest rates and started reversing quantitative easing and China tapped the monetary brakes, central banks in Europe and Japan remained in stimulus mode and overall global monetary policy remained easy;
  • Australia had okay growth hitting 26 years without a recession, but inflation remained below target. While housing construction started to slow and consumer spending was constrained, non-mining investment improved, infrastructure spending surged & export volumes were strong. Record low wages growth and low inflation kept the Reserve Bank of Australia (RBA) on  hold, though.

2018 – looking okay but expect more volatility

2018 is likely to remain favourable for investors, but more constrained and volatile. The key global themes are considered below.

  • Global growth to remain strong. Global growth is likely to move up to 3.7%, ranging from around 2% in advanced countries to around 6.5% in China, with the US receiving a boost from tax cuts. Leading growth indicators such as business conditions PMIs point to continuing strong growth but just bear in mind that they don’t get much better than this. Overall, this should mean continuing strong global profit growth albeit momentum is likely to peak;
  • US inflation starting to lift. Global inflation is likely to remain low but it’s likely to pick up in the US as spare capacity is declining, wages growth is picking up and as higher commodity prices feed through;
  • Monetary  policy  divergence  to  continue. The  Fed is likely to hike four times in 2018 (which is more than markets are allowing) and to continue with quantitative tightening but other central banks are likely to lag;
  • Political risk may have more impact after a relatively benign 2017. US political risk is likely to become more of a focus again (with the Mueller inquiry getting closer to Trump, the November mid-term elections likely to see the Republicans lose the House and the risk that Trump may resort to populist policies like protectionism to shore up his support), the Italian election is likely to see the anti-Euro Five Star Movement do well (albeit not well enough to form government), North Korean risks are unresolved and there is the risk of an early election in Australia.

Fortunately, there is still no sign of the sort of excesses that drive recessions and deep bear markets in shares, there has been no major global bubble in real estate or business investment, there is the bitcoin mania but not enough people are exposed to that to make it economically significant globally, inflation is unlikely to rise so far that it causes a major problem, share markets are not unambiguously overvalued and global monetary conditions are easy. So arguably the “sweet spot” remains in place, but it may start to become a bit messier.

For Australia, while the boost to growth from housing will start to slow and consumer spending will be constrained, a declining drag from mining investment and strength in non-mining investment, public infrastructure investment and export volumes should see growth around 3%.  However, as a result of uncertainties around consumer spending along with low wages growth and inflation, the RBA is unlikely to start raising interest rates until late 2018 at the earliest.

Implications for investors

Continuing strong economic and earnings growth and still-low inflation should keep overall investment returns favourable but stirring US inflation, the drip feed of Fed rate hikes and a possible increase in political risk are likely to constrain returns and increase volatility after the relative calm of 2017.

  • Global shares are due a decent correction and are likely to see more volatility, but they are likely to trend higher and we favour Europe and Japan over the US, which is likely to be constrained by tighter monetary policy and a rising US dollar;
  • Emerging markets are likely to underperform if the $US rises as we expect;
  • Australian shares are likely to do okay but with returns constrained to around 8% with moderate earnings growth;
  • Commodity prices are likely to push higher in response to strong global growth;
  • Low yields and capital losses from a gradual rise in bond yields are likely to see low returns from bonds;
  • Commercial property and infrastructure are likely to continue benefitting from the ongoing search for yield by investors;
  • National capital city residential property price gains are expected to slow to around zero as the air comes out of the Sydney and Melbourne property boom and prices fall by around 5%, but Perth and Darwin bottom out, Adelaide and Brisbane see moderate gains and Hobart booms;
  • Cash and bank deposits are likely to continue to provide poor returns, with term deposit rates running around 2.2%;
  • The $A is likely to fall to around $US0.70.

What to watch?

The main things to keep an eye on in 2018 are considered below.

  • The risks around Trump – the Mueller inquiry and the mid-term elections. We don’t see the Republicans impeaching Trump (unless there is evidence of clear illegality) but he could turn to more populist policies such as a trade war with China, a spat over the South China Sea or a clash with North Korea to boost his support;
  • How quickly US inflation turns up – a rapid upswing is not our base case but it would see a more aggressive Fed, more upwards pressure on the $US, which would be negative for US and emerging market shares and a rapid rise in bond yields;
  • The Italian election – the anti-Euro Five Star Movement is likely to do well and, even though it’s hard to see them being able to form government, this could cause nervousness;
  • Whether China post the Party Congress embarks on a more reform-focussed agenda resulting in a sharp decline in economic growth – unlikely but it’s  a risk;
  • Whether non-mining investment, infrastructure spending and export volumes are able to offset constrained consumer spending and a downturn in  the housing cycle and how far Sydney and Melbourne property prices fall.

Source: AMP Capital