Total Wealth Management

Banking on your misguided loyality

February 22, 2016/0 Comments/in Investment /by Chris

If you have been banking with your current lender for more then 10 years, then it may be that you have a dose of misguided loyalty to that lender, and they love it! In a recent Canstar Blue consumer survey it was revealed that 75% of respondents were satisfied with the customer service at their bank.

news-quality.com

Is that it? Only 75%!

I also suspect that it is much lower then this number if the respondents were to dig deeper into the loans they had, found out exactly what they were paying for and what they were really using. You should not assume that your lender is offering you a great credit card and home loan rate, you need to know for sure.

What can you do about it? To see if you pass the misguided loyalty test, answer the following three questions. If you can not confidently answer each one with a yes, then you fail the test:-

Do you know what the exact interest rate is on your current home loan?
Do you know what loan features you have and if so, are you are using what you are paying for?
Has your local bank manager has contacted you in the last two years to say hello and see how you are going with your home loan?

Don’t line your lenders pockets! Paying off your mortgage is one of the smartest things you can do for yourself and your family. Here is a three step plan of action to make sure you are on the way to being mortgage free:-

Know your numbers. How much principal did you pay off last month compared to interest? Knowing this number will give you a true sense of how much better you may be able to do with a more suitable home loan.
Tidy up your budget. The extra effort put into identifying where you can find an extra $100 per month can take years off the life of your loan. If you can couple this with a better rate then you may be well ahead of the eight ball.
Motivate yourself. In order for this to work you will need to print out your amortization schedule, this is a table showing the amount of principal and the amount of interest that comprise each payment so that the loan will be paid off at the end of the term. Check out the great calculator on the following site, amortization schedule calculator. Use this to keep track of your mortgage payments and note the difference that extra payments make to the loan term and interest charged.

On a final note, you should know that the real cost of your mortgage is the opportunity cost. The estimated ‘real’ cost of your home is three times what you repay, that is three houses or if you are comfortable with misguided loyalty, one house for you and two for the bank. Extra repayments short circuit your amortization schedule because an extra 10% off your mortgage payments may be five years off your loan term.

If you feel you have been betrayed by your lender and are guilty of having a misguided loyalty, if you need help to work out your numbers, or if you would like some advice on which loan may be suitable for you, please give me a call on 0439 663744 and we’ll see what you may be able to save.

What is Investment Yield?

February 8, 2016/0 Comments/in Investment /by Chris

What is an investment yield? The yield an investment provides is basically its annual cash flow divided by the value of the investment.

For bank deposits the investment yield is simply the interest rate, eg bank 1 year term deposit rates in Australia are around 2.4% and so this is the cash flow they will yield in the year ahead.
For ten year Australian Government bonds, annual cash payments on the bonds (coupons) relative to the current price of the bonds provides a yield of 2.5% right now.
For residential property the investment yield is the annual value of rents as a percentage of the value of the property. On average in Australian capital cities it is about 4.2% for apartments and around 2.8% for houses. After allowing for costs, net rental yields are about 2 percentage points lower.
For unlisted commercial property, investment yields are around 6% or higher. For infrastructure investment it averages around 5%.
For a basket of Australian shares represented by the ASX 200 index, annual dividend payments are running around 5.3% of the value of the shares. Once franking credits are allowed for this pushes up to around 6.9%.

Yield and total return

The yield an investment provides forms the building block for its total return, which is essentially determined by the following.

Total return = yield + capital growth

For some investments like term deposits the yield is the only driver of return (assuming there is no default). For fixed interest investments it is the main driver – and the only driver if bond investments are held to maturity – but if the bond is sold before then there may be a capital gain or loss.

For shares, property and infrastructure, capital growth is a key component of return, but dividends or rental income form the base of the total return. Prior to the 1960s most investors focused on yield, particularly in the share market where most were long term investors who bought stocks for dividend income. This changed in the 1960s with the “cult of the equity”, as the focus shifted to capital growth. It was pushed further through the bull markets of the 1980s and 1990s. Similarly at various points in the cycle real estate investors have only worried about price gains and not rents.

Key issues for investors to consider

In searching for a higher investment yield investors need to keep their eyes open. It’s critical to focus on opportunities that have a track record of delivering reliable earnings and distribution growth and are not based on significant leverage. In other words make sure the yields are sustainable. On this front it might be reasonable to avoid relying on some Australian resources stocks where current dividends look unsustainable unless there is a rapid recovery in commodity prices.

To get your finances heading in the right direction, call our office now, make an appointment and we will conduct a thorough review to ensure your portfolio matches you goals and you are getting your share of investment yields. To read the entire article from AMP’s Dr Shane Oliver, please go the the following link, Oliver’s Insights.

2016 Investment Themes

January 25, 2016/0 Comments/in Investment /by Chris

2016 has started with many of the same fears/investment themes as seen in 2015. This note provides a summary of key 2016 investment themes on the global economic and investment outlook in simple point form.

Global growth of 3% or just above, with the US around 2%, Europe and Japan lagging and China running around 6.5%, but Brazil and Russia still in recession.
Scope for a cyclical bounce or at least stabilisation in commodity prices, but in the context of a continuing secular downtrend in response to excess supply.
Continuing low inflation on the back of global spare capacity and weak commodity prices, notably oil, the over riding investment theme among them all.
Continuing sub-par growth in Australia of around 2.5% for most of the year in response to falling mining investment, the commodity price slump and budget cuts but with the hope of some improvement by year end.
Easy monetary conditions with the US very gradually raising rates (two hikes at best, but the risk is one or none), but on going easing in Europe, Japan, China and Australia.
A further rise in the $US but at a slower rate than seen over the last two years, with the $A falling to around $US0.60.
Modest gains in shares, with global shares outperforming Australian and emerging market shares again.
Solid returns from commercial property and infrastructure, but soft gains of around 3% for Australian residential property prices as Sydney and Melbourne slow.
Low returns from low yielding cash and bonds.

pixilink.com

The key risks for 2016 investment themes

The Fed could prove to be too aggressive in raising rates, and even if it isn’t the fear of this could continue to weigh.
The combination of the Fed and low oil prices causing ongoing problems for indebted US energy producers could cause more weakness in credit markets.
Political uncertainty could remain a threat in the Eurozone, particularly in relation to Spain (after its messy election) and around populist/extremist parties gaining support.
Chinese growth could disappoint with policy uncertainty around Chinese shares and the Renminbi continuing to unnerve investors.
Plunging emerging market currencies (and commodity prices) could trigger a default event somewhere in the emerging world on US dollar debt.
The loss of national income from lower commodity prices and the continuing unwind in mining investment and a loss of momentum in the housing sector could result in much weaker Australian economic growth.
More geopolitical flare ups – eg, South China Sea, tension between Sunni Saudi Arabia & Shia Iran, terrorist threat.
Factor X – there is always something from left field. Last year it was China fears.

Five reasons why the RBA will likely cut rates further in 2016

The outlook for business investment is still weak.
To offset a slowing contribution to growth from housing.
Commodity prices are weaker than expected.
The $A needs to fall further.
To offset the monetary tightening from bank mortgage rate hikes for existing home owners.

What does all this mean for your share portfolio?

For the full article please go to AMP economist Dr Shane Oliver

There is a lot of pessimism around and monetary conditions are very easy and likely to get easier still as while the Fed may start to tighten other central banks are still easing. A global recession is unlikely – deep and long bear markets normally require a recession (in the US at least). Share valuations are good, particularly against low bond yields and interest rates, showing 2016 investment themes give credence to some optimism.

Renting VS Buying, it’s quite simple really!

January 15, 2016/0 Comments/in Archived, Investment, Mortgage Finance /by Chris

To help answer the renting VS buying question, I will never forget the feeling of handing over 7 x $50 notes each week to our real estate agent/landlord back in 1987 when I rented in Gosford. For my partner and I, this was enough to motivate us to get a deposit together to purchase our first home. If you feel the same way then read on!

These days you don’t get the same feeling of ‘giving your money away’ as we did back then as we didn’t have ‘the internet’, now digital banking creates a false impression so that the amount you are paying does not feel like it is that much. Take my word for it, pay your rent with cash and see how much it hurts.

albaconsol.com

Renting VS buying largely comes down to convenience and cost. In order to live close to the city or even the suburbs, you have a much greater demand due to the close proximity of everything; therefore the property prices are going to be much higher. The only option that may be left open to you is to move further out. You might think that this is not an option, so I guess you first need to weigh up the costs associated such as fuel/public transport and time. That block 20 kilometers out of town is likely to be half the price of the one in town; that $100K – $200K is a lot of fuel and time, especially considering that your first place is a stepping stone to your ultimate ‘dream home’.

Other then the monthly mortgage, which is often a similar amount to what you are currently paying in rent, there are also many costs associated with acquiring your first place including; Stamp duty, inspection reports, rates and maintenance. If you are considering making the switch, it is essential that you have a plan to ensure you have considered all of the costs involved.

If you stop and truly consider the pros and cons of moving further out, you might be surprised at the benefits of ownership living out of the city and leaving behind the renting VS buying dilemma. I once had a 2 hour commute each way to work! Not much fun at the time but we did see some nice growth in the property we purchased at the time.

These points, of course are the down side of getting your own place, on the other hand the upside is quite appealing. Consider the following points:-

A place to call your ‘own’, your own block of dirt & the pride that goes with it
An investment that will hopefully grow in value over time
A more permanent residence with out leases and continual moving
No increases in weekly rent (currently interest rates are low or falling)

Lets face it, the longer you put it off the dearer it will get. History has shown that property values are likely to climb steadily higher, so if you look ahead 5 years, would you rather be renting still or settled into your own place? For me, renting VS buying is an easy decision!

If you would like to compare the options available to you give me a call at TWM Finance for help.

By Chris Howard, Mortgage broker at TWM Finance

Financial Goals

January 11, 2016/0 Comments/in Investment /by Chris

What financial goals will you achieve by 2020?

dailyfinance.com

Research shows that financially successful people are people who set plans.

A recently conducted survey with the self-made rich found that the more financially successful you are, the greater the likelihood that you’ve set personal financial goals to help you achieve that success.

The data also shows that highly successful entrepreneurs are about three times as likely as ordinary people to write down their goals as a way of motivating themselves to keep achieving.

As the saying goes, “Nothing measured, nothing managed.”

If you don’t set down your financial goals in plain black-and-white, how do you expect to reach them?

Take 10 or 15 minutes to answer these five simple goal-setting questions and you can set a fresh new course for wealth-building in the new year:

“Where do I want to be in 2020?”

Remember 2011? If you’re like me, it seems like just yesterday.

The next 5 years will fly by even faster, so now’s the time to figure out exactly what you want for yourself and your family when you get there.

Whatever net worth goal you choose, staying mindful of that specific number is guaranteed to help you make smarter choices about your partners, customers, and projects in the coming months.

Bet on it.

“What are my annual income goals for the next five years?”

With your net worth goal set for 2020, it’s not so hard to figure out how much money you’ll need to start socking away in the next five years if you really want to get there. Ask yourself what income you’ll need to achieve in each of the next five years to put yourself in position to reach your 2020 financial goals.

On the line below “2020,” write “2019” and so on down to 2016.

Beside each year, write down your target annual income for that year, and your target average monthly income for the year.

“What are my monthly goals for 2016?”

Now you’ve got your work for the next 12 months.

A set of interim income goals for each month will help you be clear about your priorities right away.

That’s because now you can see, maybe for the first time ever, the direct cause-and-effect relationship between what you choose to do this month and what you’re building toward 5 years from now.

On the next 12 lines down the page, starting with “D” for December, count down the initials of the next twelve months: “D, N, O, S, A, J, J, M, A, M, F, J.” Then put your magic monthly number next to each initial.

4. “Where can I post my goals so I don’t lose sight of them?”

Some of you are lucky enough to attain your dreams without giving much thought to your goals, but most know that the obligations of daily life will always conspire to distract you from the prize.

So if you really want to achieve the 18 important benchmarks you’ve just committed to paper, make sure you don’t put them away, and forget about them.

What do you have posted on the wall at eye level above your workstation?

Whatever it is, even if it’s a picture of your family, move it nine inches to the left, and fill that empty space with your goal sheet!

“How can I keep raising my game throughout 2016?”

Here’s a New Year’s resolution that might prove to be the most valuable one you’ve ever made.

Resolve to celebrate every great new deal you close this year by redoing this 10-minute exercise.

Every time your business takes a leap forward, every time you find that you’ve exceeded your monthly goal, create a new map of your goals, for next month and the next YEAR.

Write “Resolve, Review, and Revise” at the bottom of your sheet. Each time you write up a new goal sheet, keep lifting your vision of what you can achieve in the coming months. There’s no telling just how happy 2016 will be once you achieve your financial goals!

Article: Biz-e-news

GEN-Y – Redefining the Australian Dream

December 10, 2015/0 Comments/in Archived, Mortgage Finance /by Chris

GEN-Y are redefining the Australian Dream because the Australian dream was simple when our parents were young.

deakin.edu.au

They’d get jobs in a handful of sectors, buy a humble brick home in the suburbs for less than $100,000 and have a couple of kids. Four television channels and board games provided entertainment. On weekends friends were invited around for barbeques. To communicate with people outside the home people used telephones that were connected to the wall. Our parents certainly couldn’t have predicted that their millennial children – born between the early 1980s and mid 1990s – would grow up to be digital natives whose own aspirations would be entirely different. After spending super chilled summers running around under the sprinkler in the backyard, we must come to terms with the fact that a bit of lawn and enough room for a Hills Hoist may no longer be a given when we have families of our own.

According to Prof. Sgro, we’re better educated than our parents, so although we may appear frivolous at times, he’s sure we’ll wind up with more than Instagram snaps of our travels when we get old. ‘Culturally and socially we’ve been sold on the idea of having a house and security,’ Prof. Sgro says, but adds that the next generation of investors will think beyond the picket fence and put their income into profitable activities, commercial properties or shares. He suggests that bright digital natives are more entrepreneurial. We’ll use our skills for start-ups and invest in business ventures. ‘Gen Y is mobile. They have better things to do with their money than have it sitting in a house,’ he says.

Economist Brian Haratsis suggests that millennials shouldn’t rule out owning a home entirely, in the process of GEN-Y – Redefining the Australian Dream they may find it may take longer to get into the market than it has in the past. ‘The big issue now is your deposit,’ he points out. ‘If you look at what the future repayments are, it’s not that bad compared with the past. It’s thinking creatively about how you get your deposit so that you can enter the market.’ He says if you need $60,000 for a deposit and can’t save it then you should get into the share market. Safer bets like BHP, Coles and Woolworths will enable people to accumulate wealth over time. ‘As you move through your financial life those shares may form part or all of a deposit for an investment,’ he explains.

It seems that uncertainty is the only certainty for GEN-Y’s redefining the Australian Dream, but if any generation is equipped to handle it, it’s this one.

Financial Outlook for 2016

December 4, 2015/0 Comments/in Investment /by Chris

2015 has seen another long worry list for investors and this poses the question of what the financial outlook for 2016 might be.

kiplinger.com

Some of these – such as terrorist attacks in Paris, the escalating war in Syria, refugee problems in Europe, Greece’s latest tantrum and tensions in the South China Sea – have not had a lasting impact on investment markets. However, worries about deflation, falling commodity prices, fears of an emerging market (EM) crisis led by China and uncertainty around the Fed’s first interest rate hike have had a more lasting impact. In Australia the focus remained on the rebalancing of the economy after the mining boom as well on property bubbles. While it has not been a bad year for investors, overall returns have been constrained.

For Australia, the economic outlook for 2016 is likely to continue to rebalance away from mining. However, in the face of a further fall in mining investment, falling national income, a slowing contribution from housing and upwards pressure on bank mortgage rates from increasing capital requirements, further monetary stimulus in the form of more RBA interest rate cuts and a lower $A are likely to be needed. If this occurs then improving conditions in sectors like consumer spending, tourism, manufacturing and higher education should see GDP growth move up to around 3% by year end.

The main things to keep an eye on for the financial outlook for 2016 are:

how aggressively the Fed raises rates – continued low inflation is likely to keep the Fed gradual (as we expect), but a surprise acceleration in inflation would speed it up;
whether China continues to avoid a hard landing;
whether non-mining investment picks up in Australia – a failure to do so could see more aggressive RBA rate cuts;
ongoing geopolitical flare ups, including in the South China Sea; and
whether the global economy can finally throw off the worry list and constraints seeing growth perk up.

All in all, the financial outlook for 2016 may well be more of the same …for the whole article please go to the following link from AMP Capital’s Head of Investment Strategy and Chief Economist, Shane Oliver. financial outlook for 2016

Total Wealth Management Office Relocation

December 1, 2015/0 Comments/in Archived /by Chris

After 7 years at the Ipswich Corporate Centre, Rod has finally decided to relocate our office to 11 Lawrence St North Ipswich. We are all looking forward to the new air conditioning, no stairs or lift and plenty of car parks. We will be shifting during week commencing December 14th and will spend time over the Christmas break to set everything up correctly.

With all the changes happening we will continue to keep you posted via our newsletters along with this web page. We hope to see you in our new office soon.

Investment information overload

November 24, 2015/0 Comments/in Investment /by Chris

The technology revolution has made it easier and easier to track our investments, and perhaps suffer from investment information overload. Within this revolution, some of the news is balanced, but a lot of it is not.

Human nature is naturally cautious because our brains evolved at a time when we had to be on the lookout for physical threats. As a result bad news always attracts more interest and so “bad news sells”. Of course, this also applies to financial news. But it also feeds into a common behavioural trait called “myopic loss aversion.” And here lies the threat to our long term financial health as a result of investment information overload.

When the value of an investment falls it makes sense that unless something has fundamentally gone wrong investors should be thinking about increasing their allocation to it to take advantage of it now being cheaper and better value and therefore offering better return prospects. The reality though is that many are motivated to do the opposite as the distaste for loss combines with another well-known behavioural trait called “recency bias” that causes investors to give more weight to recent events than they should so they project recent news of falls in their investment into the future.

The information overload we are now seeing is likely to be reinforcing this because it is increasing our exposure to news about our investments. And this constant feedback is likely adding to “myopic loss aversion”.

By contrast if you only look at how the share market has gone each month and allow for dividends the historical experience tells us you will only get bad news (ie a loss) 35% of the time in Australia and the US. The key I think is to find ways to turn down the volume on financial news because if you are exposed to it less frequently you are less likely to make decisions that are contrary to your long term investment goals.

…for the whole article please go to the following link from AMP Capital’s Head of Investment Strategy and Chief Economist, Shane Oliver.

Investment Information Overload

Has low investment growth settled in?

November 12, 2015/0 Comments/in Investment /by Chris

Global investment growth has been sub-par and is likely to remain so for a while yet. The same applies in Australia. This means low inflation, low interest rates, periodic growth scares and potentially a longer economic cycle. For investors, it means ongoing low returns on bank interest and constrained investment returns. But it’s not all bad – if investment growth were stronger we would return to worrying about high inflation and much higher interest rates.

Slow and uneven investment growth reflects a whole range of factors:-

While the GFC was seven years ago now, it appears to have had a more lasting effect on confidence

It seems we have been seeing a series of global economic calamities

Rising inequality has been weighing on consumer spending

Slower labour force growth

Weaker growth in emerging countries

The implications are for continuing low interest rates, average returns are likely to be constrained and the economic cycle is likely to be longer then normal. Baring a shock – such as a major geopolitical event – the next major global economic downturn looks like being several years away yet. Which in turn suggests that the cyclical bull market in shares as a way to go before we see stronger investment growth.

When real economic growth is running around low levels and is fragile, periodic growth scares are likely to occur more often as the fear that adverse developments will trigger a return to recession is greater as there is less of a growth buffer. As we have seen since the GFC, these can be triggered by bad weather, military flare ups like in Ukraine, the Middle East, etc. Such growth scares keep investors nervous. So we have seen a sense of ongoing scepticism about the recovery in the global economy and in share markets that has occurred since the GFC. Investors have never quite fully bought the recovery story.