Archive for month: June, 2018

You are here: / / / June

Changes to Powers of Attorney – Victoria

/in /by

On 1 May 2017 the Powers of Attorney Act 2014 (Vic) was amended by the Powers of Attorney Amendment Act 2016 (Vic).
The amending Act introduced changes to clarify some operational and other matters associated with the making of a power of attorney.
Further changes have been implemented via the new Medical Treatment Planning and Decisions Act 2016 (Vic) which came into effect in March 2018.
This article outlines some of the changes and revisits the purpose of a power of attorney.
Primary and alternate attorney appointments
The Act now provides principals with greater flexibility when appointing alternate attorneys and / or supportive attorneys under an enduring power of attorney.
A principal may now appoint multiple alternate attorneys for any primary appointed attorney. A principal may also appoint one alternate attorney for multiple appointed attorneys.
The amended provisions essentially confirm that a principal is not restricted in the number of alternate attorneys he or she may appoint – before the amendments, the legislation provided only for an alternate attorney to be appointed on a one-to-one basis.
Revocation
The Act promotes consistency by making it clear that a new enduring power of attorney will revoke a previous enduring power of attorney in its entirety, unless a contrary statement is made in the new appointment.
Previously, the Act required that a new enduring power of attorney specifically state the intention to revoke a previously-made appointment, otherwise the new appointment would only revoke the previous one to the extent of any inconsistencies.
What is a Power of Attorney?
A Power of Attorney is a legal document that enables you to choose another person or persons to act on your behalf.
There are presently two categories – a General Power of Attorney and an Enduring Power of Attorney.

A General Power of Attorney is usually used for a specified period and / or for a certain purpose. For example, you may appoint an attorney to act for you if you are purchasing a property and propose being overseas at the time the sale is finalised. Your attorney will be able to sign and act on your instructions which will be legally effective.
In Victoria, there are presently two types of Enduring Power of Attorney – and unlike a General Power of Attorney, these continue to be effective after the principal becomes incapacitated.
An Enduring Power of Attorney (financial and personal) allows the attorney/s to deal with personal matters, financial and legal matters, or both and are often made between spouses enabling one to continue with the daily management of personal and financial affairs if the other is unable to. Alternatively, an elderly parent may appoint a child or children as the attorney or an alternate attorney.
The other type is an Enduring Power of Attorney (Medical Treatment) which allows the attorney to make decisions about the principal’s health treatment.
Advance Care Directive
The Medical Treatment Planning and Decisions Act 2016 (Vic) came into effect on the 12 March 2018 and replaces the existing Medical Treatment Act 1988 (Vic).
New laws allow you to make a legally recognised Advance Care Directive and to appoint a medical treatment decision maker to cover the possibility that you may not be able to make medical decisions for yourself.
In the absence of such an appointment the new Act determines who has legal authority to make such decisions – generally this will be the person’s domestic partner.
A person no longer makes a separate Enduring Power of Attorney (Medical Treatment) document; however an existing appointment will still be recognised under the new laws. The present laws however do not allow for the inclusion of the principal’s wishes with respect to advanced care planning. This changes with the new laws.
An Advance Care Directive may include directives with legally binding instructions about future treatment to which you may consent or refuse, and a values directive outlining your values and preference with respect to future medical treatment. The Act also allows the appointment of a support person to assist and to help communicate a principal’s decisions with respect to medical treatment.
What do I need to do?
Planning for the inevitable is essential to ensure the ongoing management of your personal, medical and financial affairs are conducted in accordance with your wishes.

A Power of Attorney enables you to appoint one or more persons you trust to handle your legal and personal affairs, for when you are no longer able to do so yourself.
An Enduring Power of Attorney will help to ensure that your affairs are handled as you would want them to be, should you lose mental capacity.
If you already have a Power of Attorney or an Enduring Power of Attorney the law changes will not affect the validity of these documents.

Sourced from and article by Sally Nicolazzo & Associates Lawyers, June 2018

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

Sport lovers enjoy better financial fitness

/in /by

Sport lovers enjoy better financial fitness

 

Online source: Produced by AMP Life Limited and published 2 October 2017

Print source: By AMP Life Limited, originally published on 2 October 2017

 

If your golf clubs have been under wraps or your tennis racquet has been tucked away for some time, it could be worth dusting them off. Research by AMP found Australians who play sport regularly are 64% more likely to achieve their financial goals than those who don’t.

Plenty of us think about getting in better shape. That can mean heading outdoors for a round of golf or just kicking a ball around the local oval with the kids. The health benefits of physical activity are well documented, but AMP’s study also found a clear link between our sportiness and the way we manage our money.

According to the survey, playing sport on a regular basis makes us more likely to think about our long term financial wellbeing. As a guide, people who frequently play sport are 66% more likely to make extra contributions to their super fund, and more than twice as likely to own an investment property as less active people.

If you ride a bike or play netball, take a bow – the AMP survey found you’re likely to be among the nation’s most financially savvy thinkers. Cricketers are most likely to have a financial advisor, and golfers top the league table for personal savings – with one in three having more than $50,000 in savings.

When you think about it, these results aren’t all that surprising. Keen sportspeople often achieve success by setting personal or team-based goals. So it’s a natural step to set goals in other areas of life like money management.

A number of overseas studies confirm AMP’s findings that physical and financial health often go hand-in-hand.

One group of US researchers explained the link, saying that people who make healthy choices today to enjoy good health tomorrow, are also more likely to regularly put money aside to achieve greater financial security in the future.

I freely admit I’m no sports scientist, but it’s fair to say there’s another link between physical health and fiscal fitness – both can be achieved when you make it part of a regular routine.

Getting physically fit involves taking the time to exercise regularly. It may not happen overnight but your fitness should improve over time.

The same applies to financial security. It’s all about developing and sticking to good money habits – like using a budget to gain control of your cash, spending less than you earn, and saving and investing for the long term. It’s not hard and it delivers great results without working up a sweat.

People who take their sport seriously use a coach for help lifting their game, and your financial advisor is like a mentor for your money. It could even be worth thinking about having your next meeting over a round of golf, and achieve two goals at the same time.

*********************************************

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

First home buyer help

/in /by

New legislation aims to benefit first home buyers

 

Online source: Produced by AMP Life Limited and published December 2017
Print source: By AMP Life Limited, originally published on December 2017

Changes aimed at improving housing affordability have passed through parliament. See what the new rules could mean for you.

Government proposals around improving housing affordability in Australia were passed through parliament on 7 December 20171.

As part of the changes, first home buyers will be given a tax concession through the ability to save for a home deposit inside super.

We take a look at what the changes could mean for you, bearing in mind that like with all important financial decisions, it’s a good idea to get financial advice before deciding what’s right for you.

Tax concession for first home buyers

From 1 July 2018, eligible first home buyers will be able to withdraw voluntary super contributions (which they’ve made since 1 July 2017), along with associated investment earnings, to put toward a home deposit.

How does it work?

Under the First Home Super Saver Scheme (FHSSS), first home buyers who make voluntary contributions of up to $15,000 per year into their super can withdraw these amounts, in addition to associated earnings, from their super fund to help with a deposit on their first home.

If eligible, the maximum amount of contributions that can be withdrawn under the scheme is $30,000 for individuals or $60,000 for couples.

Voluntary contributions can be made by salary sacrificing from before-tax income, by making personal tax-deductible contributions, or by making personal after-tax super contributions.

When the money is withdrawn, before-tax and tax-deductible contributions are taxed at your marginal tax rate, less a 30% tax offset, while after-tax contributions aren’t subject to tax.

Due to the favourable tax treatment, generally available through super, this scheme intends to help first home buyers grow their deposit more quickly.

Things to note

To make a withdrawal under the scheme, an application to the Australian Taxation Office will be required, and an eligible person is only allowed one FHSSS withdrawal in their lifetime.

There are super contributions which will not qualify and cannot be withdrawn under the scheme, such as super guarantee contributions made by your employer, as well as spouse contributions.

FHSSS amounts that are withdrawn and not subsequently used for a property purchase must be put back into super as after-tax contributions, or penalties will apply.

The first home buyer must reside at the property for at least six months in the first 12-month period from when it can be occupied.

Additional rules may apply to your situation, so make sure you do your research and speak to us before making any decisions.

Putting the global “debt bomb” in perspective – seven reasons to be alert but not alarmed

/in /by

Key Points

  • Global debt levels have reached new records.
  • Countries with very high gross debt to GDP include Japan, Belgium, Canada, Portugal and Greece. The main areas of rising debt since the Global Financial Crisis (GFC) have been public debt in developed countries (with more to come in the US) and private debt in emerging countries (and of course household debt in Australia).
  • Global debt is not as a big a concern as headline numbers suggest & debt to income ratios will tend to rise through time simply because of saving & investing.
  • Key signs to watch though are a broad-based surge in debt along with signs of excess such as overinvestment, rapid broad-based gains in asset prices and surging inflation and interest rates.

Introduction

Here’s my forecast: “The global economy is going to have a significant downturn and record levels of debt are going to make it worse.” Sound scary enough? Put it in the headline and I can be assured of lots of clicks! I might even be called a deep thinker! The problem is that there is nothing new or profound in this. A significant economic downturn is inevitable at some point (it’s just the economic cycle), debt problems are involved in most economic downturns and such calls are a dime a dozen.

A standard scare now is that memories of the role of excessive debt in contributing to the GFC have worn thin and total global debt has pushed up to a new record high of over $US200 trillion – thanks largely to public debt in developed countries (with more to come in the US as Trump’s fiscal stimulus rolls out), Chinese debt and corporate debt (and household debt in Australia of course). Also, that its implosion is imminent and inevitable as interest rates normalise and that any attempt to prevent or soften the coming day of reckoning will just delay it or simply won’t work. However, in reality it’s a lot more complicated than this. This note looks at the main issues.

Global debt – how big is it and who has it?

Total gross world public and private debt is around $US171 trillion. Adding in financial sector debt pushes this over $US200 trillion but that results in double counting. Either way it’s a big and scary number. But it needs to be compared to something to have any meaning or context. A first point of comparison is income or GDP at an economy wide level. And even here new records have been reached with gross world public and private non-financial debt rising to a record of 233% of global GDP in 2016, although its fallen fractionally to 231% since. See the next chart.

Source: IMF, Haver Analytics, BIS, Ned Davis Research, AMP Capital

The next table compares total debt for various countries.

Source: IMF, Haver Analytics, BIS, Ned Davis Research, AMP Capital

The next chart shows a comparison of developed world (DM) and emerging world (EM) debt – both public and private.


Source: Haver Analytics, BIS, Ned Davis Research, AMP Capital

It can be seen that the rise in debt relative to GDP since the GFC owes to rising public debt in the developed world and rising private debt in the emerging world. Within developed countries a rise in corporate debt relative to GDP has been offset by a fall in household debt, so private debt to GDP has actually gone down slightly. And a rapid rise Chinese debt (particularly corporate) has played a role in the emerging world.

Of course, it needs to be mentioned that measures of gross debt exaggerate the total level of debt. For example, because of government holdings of debt instruments via sovereign wealth funds, central bank reserves, etc, net public debt is usually well below gross debt. In Norway net public debt is -91% of GDP and in Japan it’s 153% of GDP. But as an overview:

  • Japan, Belgium, Canada, Portugal and Greece have relatively high total debt levels;
  • Germany, Brazil, India and Russia have relatively low debt;
  • Australia does not rank highly in total debt – it has world-beating household debt but low public & corporate debt;
  • Emerging countries tend to have relatively lower debt, but rising private debt needs to be allowed for particularly in China, where corporate debt is high relative to GDP.

The bottom line is that global debt is at record levels even relative to GDP so it’s understandable there is angst about it.

Seven reasons not to be too alarmed about record debt

However, there are seven reasons not to be too alarmed by the rise in debt to record levels.

First, the level of debt has been trending up ever since debt was invented. This partly reflects greater ease of access to debt over time. So that it has reached record levels does not necessarily mean it’s a debt bomb about to explode.

Second, comparing debt and income is a bit like comparing apples and orangesbecause debt is a stock while income is a flow. Suppose an economy starts with $100 of debt and $100 in assets and in year 1 produces $100 of income and each year it grows 5%, consumes 80% of its income and saves 20% which is recycled as debt and invested in assets. How debt, debt to income & debt to assets evolves can be seen in the next table.


Source: AMP Capital

At the end of year 1 its debt to income ratio will be 120%, but by the end of year 5 it will be 173%. But assuming its assets rise in line with debt its debt to asset ratio will remain flat at 100%. So the very act of saving and investing creates debt and {% rising debt to income ratios. 1 China is a classic example of this where it borrows from itself. It saves 46% of GDP and this saving is largely recycled through banks and results in strong debt growth. But this is largely matched by an expansion in productive assets. The solution is to spend more, save less and recycle more of its savings via investments like equity.
Third, the rapid rise in private debt in the emerging world is not as concerning as they have a higher growth potential than developed countries. Of course, the main problem emerging countries face is that they borrow a lot in US dollars and either a sharp rise in the $US or a loss of confidence by foreign investors causes a problem. This has started to be a concern lately as the $US is up 7% from its low earlier this year.

Fourth, debt interest burdens are low and in many cases falling as more expensive, long maturity, older debt rolls off. And given the long maturity of much debt in advanced countries it will take time for higher bond yields to feed through to interest payments. In Australia, interest payments as a share of household disposable income are at their lowest since 2003, and are down by a third from their 2008 high. There is no sign of significant debt servicing problems globally or in Australia.

Fifth, most of the post GFC debt increase in developed countries has come from public debt & governments can tax and print money. Japan is most at risk here given its high level of public debt, but borrows from itself. And even if Japanese interest rates rise sharply (which is unlikely with the BoJ keeping zero 10-year bond yields with little sign of a rise) 40% of Japanese Government bonds are held by the BoJ so higher interest payments will simply go back to the Government.

Sixth, while global interest rates may have bottomed, the move higher is very gradual as seen with the Fed and the ECB, Bank of Japan and RBA are all a long way from raising rates. What’s more, central banks know that with higher debt to income ratios they don’t need to raise rates as much to have an impact on inflation or growth as in the past.

Finally, debt alone is rarely the source of a shock to economies. Broader signs of excess such as overinvestment, rapid broad-based gains in asset prices and surging inflation and interest rates are usually required and these aren’t evident on a generalised basis. But these are the things to watch for.

Concluding comment

History tells us that the next major crisis will involve debt problems of some sort. But just because global debt is at record levels and that global interest rates and bond yields have bottomed does not mean a crisis is imminent. For investors, debt levels are something to remain alert too – but in the absence of excess in the form of booming investment levels, surging inflation and much higher interest rates, for example, there is no need to be alarmed just yet.

1.↩  [My favourite example of the complex relationships between income, saving and debt came from Bank Credit Analyst Research. Suppose there is an island with 100 people, each making 100 coconuts a year. Here’s three possibilities.

Case 1: Output is 10,000 coconuts with each person consuming 100. Saving and investment are zero and no debt is created.
Case 2: Each person consumes only 75 coconuts a year, selling the remainder to a plantation who buys them with a bank loan and plants them resulting in 2500 new coconut trees. Consumption is 7500 coconuts. Savings and investment are 2500 and debt has gone up by 2500 coconuts.
Case 3: Each person consumes 125 coconuts, by importing 25 each from foreign islands. Consumption is now 12,500 coconuts, savings is -2500 coconuts, investment is zero and the current account deficit is 2500. External debt goes up by 2500. This gets risky if the other islands want their coconuts back!

So debt can rise even if an economy lives within its means & invests for the future. ]↩ 

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

An additional 21 great investment quotes

/in /by

Introduction

Investing can be frustrating and depressing at times, particularly if you don’t understand how markets work and don’t have the right mindset. The good news is that the basics of investing are timeless, and some have a knack of encapsulating these in a sentence or two that is both insightful and easy to understand. In recent years I’ve written insights highlighting investment quotes that I find particularly useful. Here are some more.

Having a goal and a plan

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” Dave Ramsey

The only way to be able to build wealth is to save and invest and you can only do this if you spend less than you earn. That is, you have to start with a savings plan.

“Put time on your side. Start saving early and save regularly. Live modestly and don’t touch the money that’s been set aside” Burton G Malkiel

In investing time is your friend and the earlier you start the better. This is the best way to take advantage of the magic of compound interest. The next chart – my favourite – shows the value of $1 invested in various Australian asset classes since 1900 allowing for the reinvestment of any income along the way. That $1 would have grown to just $234 if invested in cash, $866 in bonds but a whopping $529,293 if invested in shares.


Source: Global Financial Data, AMP Capital

While the average share return since 1900 is only double that in bonds, the huge gap in the end result between the two owes to the magic of compounding returns on top of returns. A growth asset like property is similar to shares over long periods in this regard. Short-term share returns bounce all over the place and they can go through lengthy bear markets (shown with arrows on the chart). But the longer the time period you allow to build your savings the easier it is to look through short-term market fluctuations and the greater the time the compounding of higher returns from growth assets has to build on itself.

“If you fail to plan, you plan to fail.” Often attributed to Benjamin Franklin

Having a clear understanding of your investment goals – like saving for a home or retirement or generating income to live on – and a plan to get there is critical. If you don’t have a clear plan you will be subject to all sort of distractions which can blow you a long way from where you want to get with your investments.

The investment cycle

“Bull markets don’t die of old age but of exhaustion.” Anon 

Bear markets are invariably preceded by excess in the economy – over investment, high levels of debt growth, high levels of inflation and tight monetary conditions – and excess in the share market in the form of overvaluation and investor euphoria. It’s this excess which drives exhaustion and hence the end of a bull market, not its age.

“The stock market has predicted 9 of the past 5 recessions.” Paul Samuelson

In the short term the share market moves all over the place with each significant plunge eliciting calls for an impending recession and a deep bear market. But most of the time it’s just noise providing an opportunity for investors before a rebound. For example, over the past 50 years in the US there has been 21 episodes of 10% or greater share market falls, but only seven saw recessions and bear markets.

Risk

“The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital. Not only is the mere drop in stock prices not risk, but it is an opportunity.” Li Lu

Risk is often portrayed as market volatility when in reality it’s a whole lot more: the risk of capital loss; the risk of not having enough investment income; the risk of not having enough to last through retirement. It’s also perverse – the risk of capital loss is lowest after a period of high volatility and vice versa.

Contrarian investing

“The day after the market crashed on 19th October 1987, people began to worry that the market was going to crash” Peter Lynch

This is perhaps a bit flippant, but it goes to the heart of crowd psychology and why it’s best to go against the crowd at extremes. When times are good the crowd is relaxed, happy and fully invested. So everyone who wants to buy has. This leaves the market vulnerable to bad news because there is no one left to buy should prices drop. Similarly, after a sharp fall the crowd gets negative, sells their investments to the point that everyone who wants to sell has and so the market sets up for a rally when some good or less bad news comes along. So the point of maximum risk is when most are euphoric, and the point of maximum opportunity is when most are pessimistic.

Pessimism

“It is easier being sceptical, than being right.” Benjamin Disraeli

The human brain evolved in a way that it leaves us hardwired to be on the lookout for risks. So a financial loss is felt more negatively than the beneficial impact of the same sized gain. Consequently, it seems easier to be sceptical and pessimistic. As a result, bad news sells and there seems to be a never-ending stream of warnings regarding the next disaster. But when it comes to investing, succumbing too much to scepticism and pessimism doesn’t pay. Historically, since 1900 shares have had positive returns seven years out of 10 in the US and eight years out of 10 in Australia.

“A pessimist sees the difficulty in every opportunity, an optimist sees the opportunity in every difficulty.” Winston Churchill

This is what stops many investing after big falls – all they see are the reasons the market fell. Not the opportunity it provides.
“Without a saving faith in the future, no one would ever invest at all. To be an investor, you must be a believer in a better tomorrow.” Jason Zweig

If you don’t believe your term deposit is safe, that borrowers will pay back their debts, that companies will see good profits and that properties will earn rents then there is no point in investing.

Psychology

“An investment said to have an 80% chance of success sounds far more attractive than one with a 20% chance of failure. The mind can’t easily recognise that they are the same.” Daniel Kahneman

Beware of tricks that your mind plays on you when investing. Numerous studies show that people suffer from lapses of logic – eg, assuming the current state of the world will continue, being overly confident and assessing the risk of certain events by how they are presented. The key for investors is to be aware of these biases and try to correct them.

Noise

“Stock market news has gone from hard to find (in the 1970s and early 1980s), then easy to find (in the late 1980s), then hard to get away from.” Peter Lynch

The information revolution has given us access to an abundance of information and opinion regarding investment markets. The danger is that it adds to the uncertainty around investing resulting in excessive caution, a short-term focus, a tendency to overreact to news and to focus on things that are of little relevance. The key is to recognise that much of the noise and opinion around investing is ill informed and of little value.

“The ability to focus is a competitive advantage in the world today.” Harvard Business Review

The key in the face of this information and opinion onslaught is to turn down the noise and focus.

“If you can keep your head when all about you are losing theirs…If you can wait and not be tired by waiting… If you can trust yourself when all men doubt you…Yours is the Earth and everything that’s in it.” Rudyard Kipling, If, as quoted by Warren Buffett 

Keeping your head and remaining calm is critical in times of extreme – when the crowd is convinced the path to instant riches has been revealed or when the crowd is convinced that economic disaster is upon us. These periods throw up great temptation to buy when you should be selling and vice versa. But you will only get it right if you keep your head & stay calm.

Forecasting

“I believe that economists put decimal points in their forecasts to show that they have a sense of humour.” William Gillmore Simms

The dismal track record of precise forecasts regarding things like economic growth, share prices and currencies indicates that relying on them when investing can be dangerous. There is often a big difference between getting some forecasts right and making money. Good experts will help illuminate the way and put things in context, so you don’t jump at shadows but don’t over rely on expert forecasts – particularly the grandiose ones.

Having a process

“I am going to reveal the grand secret to getting rich by investing. It’s a simple formula that has worked for Warren Buffett, Carl Icahn and the greatest investment gurus over the years. Ready? Buy low, sell high.” Larry Kudlow

Yep it’s that simple. Or it should be, but many do the exact opposite and buy high after a lengthy period of strong returns convinces people it’s a great investment (but the risks point down), and then sell low after fall in the price of an asset leads people to believe that it’s a bad investment (but that’s when the risks point up). The key to is do the opposite – buy low, sell high and it’s very helpful to have an investment process to do that.

“Three simple rules – pay less, diversify more and be contrarian – will serve almost everyone well.” John Kay

This helps bring the essentials of investing together. They stand to reason: the less you pay for an investment the greater the return potential; just having one or two shares leaves you very exposed should the news turn bad regarding those shares but if you diversify across a range of shares you can reduce the risk of a fall in your overall portfolio; and doing the opposite to the crowd means you can avoid the points of maximum risk in markets when most are fully invested and take advantage of periods of maximum opportunity when most have sold.

“Success consists of going from failure to failure without loss of enthusiasm.” Winston Churchill

As with all things we need to recognise that to learn we need to make mistakes and to be persistent.

Balance

“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness” Albert Einstein

This applies to life in general, but it also applies to investing – don’t jump around all over the place and keep it simple.

“A man should make all he can, and give all he can.” Nelson Rockefeller

It’s not financially possible for everyone but consider giving a bit away for good causes if you can – and not just for the tax deduction as you will feel good and it will bring good karma.

“The trouble with doing nothing is that you don’t know when you have finished.” Cafe blackboard in Byron Bay

…so it’s always good to do something and investing is something worth doing (and worth doing well)!

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.

How are Australia’s states and territories tracking?

/in /by
June 2018

  • An end to the fall in mining investment is helping to stabilise growth in Australia’s mining states and territories (WA, Qld and NT to a lesser extent) while a slowing housing sector is starting to act as a drag on NSW and Vic. Tas is benefitting from a lift in population growth and housing “refugee” demand from Sydney and Melbourne. Growth in SA and the ACT has been stable.
  • After years of growth divergences across the states and territories, expect a convergence in growth across the regions over the near-term which means more comparable activity across the nation.

Introduction

The various comparative advantages of Australian states and territories (e.g. tourism in Qld, manufacturing in Vic and SA, mining in WA, QLD and NT and agriculture in SA and TAS) means there are often periods of growth divergences across the country as industries are impacted by different trends at various points in the economic cycle.

A multi-speed economy has been a feature of Australia’s economic environment for numerous years. The mining investment boom over 2010-12 transferred labour and investment to Western Australia (WA), Queensland (Qld) and (to a lesser extent) the Northern Territory (NT) from the rest of the country and these regions outperformed the rest of the nation. This changed after the downturn started in mining investment (from 2013) when mining state growth slumped while growth in the large non-mining states of New South Wales (NSW) and Victoria (Vic) lifted as services demand rose and interest rate cuts spurred a housing boom. More recently, slowing home price growth in Sydney and Melbourne, a bottoming in WA growth and an upturn in Tasmania (Tas) is leading to a growth convergence across Australia (see chart below) and should result in more comparable outcomes across the states and territories.

Source: ABS, AMP Capital

Our tracker of state and territory performance (see table below) based on the latest indicators reveals that Vic and ACT are ranked as the best performing state/territory across the various metrics, followed by NSW, with SA and Tas running around the middle of the pack. Qld, the NT and WA are still lagging behind because of the remnants of the mining investment decline.


In this note, we look at key indicators of state and territory performance, as well as the outlook for the medium-term.

The state of the labour market


Source: ABS, AMP Capital

NSW employment growth has been strongest across Australia over the past year, with large gains in healthcare, retail and construction being partly offset by losses in public administration and professional service jobs. But the steadily increasing participation rate has been pressuring the unemployment rate a little higher (although the unemployment rate is still the lowest across all of the states). The labour market is expected to remain solid in NSW, especially in infrastructure-related construction jobs. Qld’s unemployment rate still remains elevated but jobs growth has been good and the state has absorbed the majority of mining-related job losses. Recent federal government funding towards infrastructure projects in Qld will be positive for employment. The SA and Vic labour markets have weathered the closure of car manufacturing and SA may benefit from higher spending on battery technology at the margin. Vic jobs growth has been modest, helped by gains in construction and transport (which are likely to continue) while public administration has also had job losses, along with healthcare. The WA labour market has probably gone through its worst, but strong employment growth is unlikely as mining investment still has further to fall. NT jobs growth remains slow. The ACT labour market is very reliant on government funding and the size of the public sector.

Home Prices

Source: CoreLogic, AMP Capital

The big negative for NSW and Vic will be declining dwelling prices in Sydney and Melbourne and its impact on consumers. Very high new dwelling supply in the two cities (especially for apartments) over recent years, affordability pressures given the run-up in prices and a tightening in lending standards is putting downward pressure on prices. We expect prices in Sydney and Melbourne to fall another 4% this year (predominately focussed in apartment prices), another 5% next year and a modest fall in 2020. Prices in Perth and Darwin look to be bottoming, or close to it, price growth in Brisbane is likely to be modest while Hobart price increases are expected to continue to be solid due to investor (and potentially relocation) demand from the rest of Australia.

Limited upside for consumer spending across regions

The employment and wages outlook are the major drivers for the consumer outlook. Wages growth in WA (+1.5%pa) and NT (+1.1%) are significantly below the rest of Australia (+2%) from the mining investment drag while wages growth across the rest of Australia is clustered around 2% or slightly higher. Better employment growth is needed to lift wages and household spending (the chart below shows that WA retail spending is clearly trailing behind) but it does look like the worst of the wages slump has passed. The next risk is the negative housing wealth effect which will impact NSW and Vic the most.

Source: ABS, AMP Capital

Don’t forget about population growth

Population growth is often overlooked but needs to be considered, given population and productivity growth are the two fundamental drivers of potential economic growth. Australian GDP growth has been much higher compared to our global peers over recent years partly due to strong population growth.

Victorian population growth continues to outpace the rest of the states significantly (see chart below). Part of the flows are from overseas migration but Vic also enjoys strong interstate flows.


Source: ABS, AMP Capital

The strength in underlying population growth in Vic has been an important source of housing demand for the state and in keeping prices from declining too much, particularly over recent periods. In comparison, NSW home price has been declining faster than in Vic. While NSW population growth is also good overall, one negative offset has been interstate outflows (see chart below) which has been accelerating lately. These NSW “refugee” outflows appear to be going towards QLD lately and probably reflect housing affordability pressures in Sydney.


Source: ABS, AMP Capital

Housing affordability pressures do not look like they are easing for now, so NSW is likely to continue to see interstate outflows and Vic inflows may slow and the beneficiaries will be Qld, Tas and SA. Keep in mind that short-term visitors (e.g. those staying for education purposes) mainly reside in Sydney and Melbourne and would not be included in population flows but still add to demand for housing and provide a positive offset to lower prices.

Implications for investors

Some convergence in growth outcomes across the states and territories over the near-term means that investors should anticipate more comparable outcomes across Australia.

Diana Mousina
Senior Economist
AMP Capital

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

Retirement travel: Holiday money saving tips

/in /by

Ways to save when your bank balance doesn’t quite match your retirement travel goals.

One of the great perks of life after work is your ability to travel whenever you like, but what do you do when your bank balance doesn’t quite match your retirement travel goals?

Never fear, these five holiday hacks will help you tick off your bucket list and save money while you’re at it.

Smart ways to save money

1. Travel off-peak

It’s great to know that the freedom that comes with being retired can also save you money. From avoiding travelling during school holidays – when flight and accommodation prices are at a premium, to flying outside of peak business travel times (such as Mondays mornings and Friday evenings), to travelling in low or shoulder season – there are serious savings to be made by adopting this strategy. And there’s an added bonus: by avoiding peak times you can enjoy the sights without the crowds too.

2. Use age to your advantage

Being older has its benefits – and one of these is the discounts that come with being a senior. In particular, seniors can often save on train travel and entry to attractions, though you may need to have your seniors card or passport with you to qualify. And even if a seniors/concession/pensioners rate isn’t displayed, be sure to ask if one is available.

3. Eat out at lunch not dinner

Travelling on a budget doesn’t mean you have to miss out on eating out, or going to even the finest restaurants. The trick here is to eat out for lunch, rather than dinner. Restaurant meals are often cheaper at lunchtime, and for even better value, restaurants, especially those in Europe, often offer lunch specials as a set, three course menu (look for prix fixe menus).

4. Utilise the tourist refund scheme

If you’re holidaying outside of Australia, you can claim back the goods and services tax (GST) or wine equalisation tax (WET) paid on items purchased within 60 days of your trip, provided you take them on holiday with you and they meet other key criteria1. This can lead to a substantial saving if you need to upgrade a big-ticket item such as an electronic device like your camera, phone or tablet, or even for a splurge such as a new handbag. For more information, visit the Government’s Tourist Refund Scheme page.

5. Borrow, don’t buy

Depending on where – and when – you’re going, you may need special equipment for your trip. But rather than forking out big dollars, especially if it’s something you’ll only use once, ask around. You may find friends and family are more than happy to loan winter coats, snorkeling gear, travel adapters or even luggage. If you have to buy gear just for your trip, consider second hand rather than new to save.

For more help

If the trip of a lifetime, or even just your next adventure is on the agenda, it may be useful to put in place a saving strategy before you go. AMP Bank has a range of savings accounts and term deposits which can help to make more of your money.

And for more tips on budget friendly travel ideas, check out our articles 7 trips where you’ll pay next to nothing for accommodation, and Top money-saving travel tips from our readers, and for holiday inspiration read Over 50s travel – adventure holidays aren’t just for the young.

5 lessons from a cash only week

/in /by

Will paying cash change my spending habits? What I learned when I could only pay with cash for a week.

Firstly, an admission. I never – ever – have cash. I’m that annoying friend who doesn’t have cash to cover her share when spitting bills, that colleague who borrows money to chip into the birthday collection, the parent who gives her kids an IOU for their pocket money.

It’s not that I don’t spend money – believe me, I do – but my life is an endless cycle of direct debits, bank transfers, credit card and PayPal payments, and Tap and Go, with the odd dash to the ATM when actual cash is required – but even then, I’ll only withdraw enough to cover the expense itself.

While living cashless can be inconvenient at times, my rationale is if I don’t have cash, I can’t spend it. Which is, of course, highly dubious, given technology has never made more convenient, or easier, for us to be parted from our hard-earned money. So what lessons can we learn from a cash-only week?

Does cash really burn a hole in your pocket?

I wanted to test my theory to discover if having to pay in cash would actually change my spending habits, so I committed to a cash-only week.

The first question was how much cash to withdraw. The fridge and pantry were stocked, and the bills on direct debit, so I figured I’d only need cash for ‘incidentals’ – but I honestly had no idea how much these would be.

This led to my first lesson: I’m so removed from cash that I’ve lost touch with how much things actually cost. In the end, I withdrew $500 – and couldn’t remember the last time I had that much cash in my wallet.

What I learnt from my cash-only lifestyle

1. I’ve lost touch with what things actually cost

Much in the same way as I didn’t know how much cash to withdraw for the week, when I was faced with some expenses I had no idea how much they would actually cost.

For example, there was a gap payment owing between the cost of the service and my private health insurance when I took my daughter to the dentist and also for an unscheduled trip to the physiotherapist. I honestly had no idea how much these charges would be until the words came out of the receptionist’s mouth. (They turned out to be $70 and $97, respectively, in case you were wondering).

Perhaps even more revealing was when I got a regular prescription filled. Despite this being something I buy every 6 weeks, I usually Tap and Go to pay for it so I honestly didn’t know how much it cost.

2. I’m a lot more casual about money than I used to be

Not knowing how much that prescription cost was a lightbulb moment for me. I realised that when I pay using Tap and Go I rarely even bother to check the amount the sales assistant has entered anymore, especially for small payments.

Given it’s easy enough to accidently enter an extra zero, turning the $8.50 into a $850 expense – something I’d rather pick up at the register than later on when I realise I’ve got no money in my account – I’ve decided not to be so cavalier in my attitude to small expenses in the future – especially when paying by card.

3. There are some things you can’t pay cash for

Sometimes cash isn’t king. Despite my best intentions there were things I couldn’t pay for using cash.

Firstly, getting public transport to work required a payment by either Opal card or credit card – there was no option to use cash.

I also had to buy some tickets for my daughter’s upcoming ballet performance and the only way I could do this was online via credit card.

Conclusion: In today’s modern world, living a pure cash-only existence would be very hard.

4. It’s harder to overspend when you’re paying with cash

I’ll admit, I had one fail during the week – a mid-week online clothing update. It cost me $300. While I did cull my online basket down from $500, would I have walked into a shop and spent $300 in cash in a one-off shopping trip? Possibly not.

What this taught me is that it’s much easier to overspend when spending ‘invisible’ money. I justify this by reminding myself how much I hate physically shopping for clothes and telling myself I can return anything that I don’t like or doesn’t fit, (free of charge and for a full refund), but we all know the likelihood of this happening…

Having to physically hand over cash for lunches, snacks and coffees at work strengthened my resolve to bring food from home more often and confirmed my conclusion that I’m more conscious of what I’m spending and less likely to overspend when paying with cash.

5. The cash I had dictated what I did for the week

In my student days I’d withdraw the cash I needed for the week and every dollar would be closely accounted for. If I couldn’t afford to go out with my friends, I’d stay home. This week was a little bit like that.

I made decisions for the week based on the money I had, rather than deciding what I’d like to do, and then working out how to pay for it. I found there was a lot more incentive to regulate my spending when I could see the cash literally disappearing before my eyes.

So, it turns out that my theory was completely wrong:  I’m actually less likely to spend money when I have a wallet full of it, as having cash gives me greater visibility over what I’m actually spending.

Other ways to track your spending

If carrying around a wallet full of cash isn’t practical for you, there are other ways you can get greater visibility over where your money goes. If you’re an AMP customer you can log into My AMP and use our Money Manager tool, which allows you to see your AMP and non-AMP accounts in the one place, with your transactions categorised automatically.

And if you’d like to try a cash-only week (or longer) yourself, it’s useful to keep notes on your experience to help you identify your spending habits and priorities.

Good luck!

Work Expenses – what can you claim on tax?

/in /by

With the ATO keeping a close eye on deductions, make sure you’re across what you can and can’t claim.

If you’re claiming back some of the money you’ve spent as part of your job this year, it’s a good idea to ensure you’ve kept the appropriate records that may be required ahead of lodging your tax return.

The Australian Taxation Office (ATO) said recently Aussies needed to keep the necessary records, adding that it would be paying close attention to claims made for certain work-related expenses1.

If you’re not really sure what you should be claiming, here’s a rundown on what you should know.

What is a legitimate deduction?

When completing your tax return for the financial year (1 July 2017 to 30 June 2018), you’re able to claim deductions for some expenses, most of which will be directly related to you earning an income.

The main thing to remember is a work-related expense is only deductible if2:

  • you paid for it and were not reimbursed by your employer
  • it relates to you earning an income and was not for personal use
  • you have a record, such as a receipt.

Note, if the total amount you’re claiming is $300 or less, you generally won’t need receipts, unless your claim relates to car expenses, meal allowances, award transport payments, or travel3.

However, you may be asked to tell the ATO how your claim was worked out and explain why the claim is reasonable, based on the requirements of your occupation.

What if expenses are related to work and personal use?

If your expenses are for both work and personal use, you can only claim a deduction for the work-related portion, which could for instance be 50% of your phone and internet bundle.

Another example is say you go on an overseas study trip, but are taking a holiday at the same time, you wouldn’t be able to claim the entire trip as a work-related expense.

What are some typical examples of things you can claim?

Below are some common examples of tax-deductible work expenses and for more information, including deductions for specific industries and occupations, check out the ATO website.

  • Vehicle and travel expenses (which generally won’t include travel between work and home)
  • Clothing, laundry and dry-cleaning expenses (which typically only applies if you wear occupation-specific clothing or a uniform)
  • Home office expenses (such as computer, phone and internet costs, but only the proportion that relates to work and not your own personal use)
  • Self-education expenses relevant to your job (such as course fees, textbooks and journals)
  • Tools and equipment (such as sunscreen and sunglasses if you work outside, or laptop and relevant software if you work in an office)
  • Other deductions (which might include things like union fees).

Meanwhile, remember there are other things outside of work that you may be able to claim, such as personal super contributions, interest, dividend and other investment-related income deductions, as well as gifts and donations to deductible gift recipients.

Is there any help to make tax time easier?

You can use the myDeductions tool in the ATO app to save a record of your deductions throughout the financial year, which you can upload when you do your tax return or provide to your tax agent, who may be able to provide you with additional tips if your tax situation is a bit more complex.

To ensure you’ve got all the relevant information you need ahead of filing your tax return, check out the ATO’s tax time checklist. And, keep in mind, if you’re lodging your own tax return, you have until 31 October 2018 to lodge it, or potentially longer if you’re using a registered tax agent.

 

1 ATO media release – Australians on notice to keep their receipts
2 ATO – Deductions you can claim
3 ATO – Work related expenses Rules for written evidence to substantiate deductions