Bitcoin – the ups and downs of investing

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Investing in Bitcoin – Some people may have made big money, but plenty of latecomers would have experienced dreadful losses.

If I could sum up the contents of my junk emails over the last 12 months in a single word it would be: Bitcoin. I can’t tell you how many unsolicited invitations I’ve received to start investing in bitcoin. This alone is a concern but when heavy hitters like the International Monetary Fund (IMF) start calling out the risks of bitcoin, the warning bells should definitely start ringing.

Bitcoin is one of many “cryptocurrencies” or digital currencies that aren’t backed by governments or banks. Instead it relies on a decentralised peer-to-peer network called a blockchain – a vast digital ledger that uses complex calculations to record all transactions made using bitcoin.

The technical details are complex. What’s much easier to grasp is the meteoric rise of bitcoin.

Big gains means big risks

For many years you could buy bitcoin for the price of a restaurant meal. Then in 2016 it started to take off. By mid-December 2017 bitcoin had soared in value to $AUD25,410. And that’s where things headed south. In mid-January 2018 bitcoin’s value had tanked to $AUD12,893.

As so often happens in speculative markets, some people have made big money. But plenty of latecomers would have experienced dreadful losses.

Security concerns

Hindsight is always a wonderful thing. But one of the fundamental rules of investing is that big returns come with big risks. Another maxim for successful investing is to only invest in something you understand, and it’s a reasonable bet plenty of people don’t fully grasp how cryptocurrencies work.

The problem is, crooks do. A report by the University of Cambridge notes that 22% of bitcoin exchanges having experienced security breaches. The same report says less than half the cryptocurrency payment companies in the Asia-Pacific, Europe and Latin America hold a government license.

It’s hardly reassuring stuff. And just recently the IMF warned that cryptocurrencies can “post considerable risks as potential vehicles for money laundering, terrorist financing, tax evasion and fraud”.

Yet despite all this, investors are still pouring money in, hoping to ride a second wave of gains.

Should I be investing in bitcoin?

History is littered with the fallout from speculative markets, and the pattern is often similar – a steep rise in value fueled by investors coming on board late in the cycle for fear of missing out.

For my money, a good investment is backed by a quality asset – like shares in a successful company, a well-located investment property, or units in a managed fund run by a reputable team. There are plenty such investments to choose from, and your adviser can help narrow down the choice of what’s right for you.

As it stands, cryptocurrencies are largely unregulated, and without the backing of an underlying asset there is no real reason why their value should continue to rise other than demand from over-exuberant investors. If you do plan to invest in bitcoin, my advice is to only tip in money you can afford to lose.

 

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.

Investment property or home first, which is a better buy?

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There’s a lot to consider when buying an investment property or home, especially for the first time.

 

Have you been saving for a long time and feel ready to get into the property market? Maybe you’re considering buying a home to live in or investing in a property you can rent out to somebody else.

Either way, it’s worth knowing some more about both options to ensure you’re making a well-informed decision, noting that regardless of what you choose to do, property prices can go through major swings that can occur with little warning.

Buying your first property to live in

  • First home owner grants. Depending on which state or territory you live in, a first home owners grant could help you to finance your first home purchase. This doesn’t apply to investment properties, and in some states you’ll lose your right to this grant if you buy an investment property first.
  • Security and stability. You can stay in your home as long as you like, as long as you’re making your home loan repayments.
  • Exempt from capital gains tax (CGT). Any home that is classified as your main residence, whether it’s your first place or not, is free from CGT when you go to sell it. If you’d like to know more, read our article – What is capital gains tax?.
  • Expenses stack up and aren’t tax deductible. There will be initial costs, such as stamp duty and legal fees, as well as ongoing costs, such as water rates, building insurance and repairs. When buying an investment property, you’ll also be hit with these costs, but depending on your situation some of the costs attached to your investment property may be tax deductible.
  • You may have to make some sacrifices. Where you really want to live may not be where you can actually afford to buy. So, whether it means choosing a place that’s smaller, further out from the city, or looking for a job closer to your new home, you may have to make some trade-offs.

Buying your first investment property

  • You may get a cheaper place. An investment property doesn’t need to tick all the boxes of your ‘dream home’, which means you could potentially buy something at a cheaper price.
  • It’s not an emotional decision. Your purchase should be based on investment potential, including forecast rental return and capital growth. So, instead of walking into a place and having to love the look of it, you can walk in with your investor’s hat on.
  • Earn rental income. If you’re renting out your investment property, you’ll be getting money from someone else to contribute to your mortgage, which means you could pay off your loan sooner. Bear in mind however that the rent you receive may not completely cover your home loan repayments and additional costs.
  • Tax advantages and disadvantages. Many of the costs associated with an investment property are often tax deductible. For instance, the interest and fees you pay on your loan, advertising for tenants, as well as cleaning, gardening, maintenance and pest control. Also, if your property is negatively geared—which simply means the interest, and other costs you incur are more than the income your investment property produces—the loss can reduce the amount of tax you pay on your earnings at tax time. On the flip side, if you sell your investment property down the track and make a profit, capital gains tax may be payable.
  • Management and obligations. If you’re time poor or located a long distance from your investment property, another thing you’ll need to think about is appointing a property manager to take care of certain duties. On top of that, there are various responsibilities that apply to landlords before, during and when ending a tenancy and these can differ depending on which state in Australia the investment property is located.

Some other useful tips

We’re here to help

Whatever you decide to do, make sure your strategy suits your lifestyle, circumstances and financial goals. And, if you’d like to talk to our bank relationship manager about your loan requirements, call us on 9851 0300 or visit www.tdls.com.au.

What you need to know about buy now, pay later services

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Take your product home, pay for it within the specified timeframe, get charged 0% interest. What could go wrong?

Branded the modern-day layby, ‘buy now, pay later’ services essentially offer the same thing, except you get the product up front—the outfit, the watch, even certain domestic flights within Australia.

If you haven’t heard of buy now, pay later services, or are keen to know more, we explain what they are, how they work and when it’s possible you could run into financial strife if you’re not careful.

What are buy now, pay later services?

Buy now, pay later services, such as Afterpay, Openpay and zipPay, are offered by approved retailers and provide another form of payment option when you’re shopping online and sometimes instore1.

They allow you to buy a product, take it home and pay for it in instalments over a set period of time via an online buy now, pay later account, which deducts your preferred debit or credit card.

While payments are withdrawn automatically (for instance, over four fortnightly instalments if you’re using Afterpay2), generally you can make repayments before they are due as well.

Purchase limits do apply though and depending on the provider will typically vary according to things like how long you’ve been using the service and your payment track record to date.

How do they charge?

Many buy now, pay later services are interest and fee free (if you pay on time that is!). If a payment is scheduled to be deducted and you don’t have the money in your account, and haven’t attempted to pay what is owed via other means, you’ll typically be charged a late fee.

For that reason, it’s important you have the right amount of money in your account when each instalment is due, and that you’re across any other charges that might be payable before signing up.

According to buy now, pay later services, such as Afterpay, late fees are not a primary revenue driver, with the group saying 80% of its revenue is derived from merchant fees paid by retailers3.

Another thing to consider, if you’re using your credit card, is while the buy now, pay later provider might not charge interest on your purchase, you may still have to pay interest to your credit card provider if you don’t pay the full amount owing on your credit card by the due date.

Key considerations

Spending what you don’t have

While buy now, pay later services can be very handy if you have available funds and can pay on time, if you don’t, little debts stemming from things like late fees can quickly snowball into bigger debts, which can have a variety of repercussions. For this reason, it’s a good idea to have a budget in place when it comes to spending, so you don’t get in over your head.

How your credit rating could be affected

Many buy now, pay later services don’t check your ability to make repayments, so if you’re already in the red, further debt could mean bad news and possibly debt collectors at your door. On top of that, while these services might not check your history, they’re still able to report black marks against you to credit reporting agencies, which could make it hard to borrow money in future.

If you have a customer complaint

Because you’re not going direct to the retailer when using a buy now, pay later service, you might also want to check out the provider’s dispute resolution policy so that there are no surprises if something you purchased doesn’t turn up, or you want to refund or return something that wasn’t quite right.

More information

It’s important to check the terms and conditions before you sign up to any new service provider to ensure you’re across things like fees and various other policies so you don’t get caught out.

In the meantime, if you’re struggling at all with your existing debt, you can talk to a financial adviser at Tailored Lifetime Solutions  by calling 9851 0300.

11 wedding budget planning tips

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The happiest day of your life doesn’t need to be the most expensive.

For some couples, the most expensive day of their life will be when they tie the knot, with around 35% of newlyweds blowing their wedding budget before they even walk down the aisle.

With the average Aussie wedding costing $36,200, and more than half of that money going toward food, drinks and the venue, we check out some ways you could potentially minimise your spend.

Tips to avoid a wedding budget blowout

1. Talk about money early with your partner and families (that is, if they’re going to be involved).  Decide what you’ll be able to pay for, and if your family is helping with expenses, to what extent. Meanwhile, if you want to set a budget, our budget calculator can help you crunch some numbers.

2. Start saving early. Make a list of what you want, put a limit on what you hope to spend and try to find a balance in between. Remember, on top of the venue, you may be looking to put money toward things such as wedding attire, photography, decorations and entertainment.

3. Book in advance.  Try to book the venue for your ceremony, reception and honeymoon well in advance to potentially avoid disappointment, or being forced into a last-minute, more expensive option.

4. Grab a bargain. Search eBay or Gumtree, or hunt down end-of-stock bargains, such as DIY wedding stationery, pre-loved decorations or even a wedding dress.

5. Have an out-of-season wedding. Be different! Have a July wedding to cut costs without sacrificing your precious memories. Many venues and suppliers have lower-priced deals during the winter.

6. Be realistic with your guest list. If you haven’t been in contact with friends in the last 12 months, why do it now? And, remember to lay down the law with the family, so you don’t end up with tables full of relatives you’ve never met!

7. Explore your network. Call on talented friends who can swap a service for a gift, such as a photographer, a hair stylist or make-up artist. Maybe someone knows a band that can play at the reception too.

8. Cut the ties. Times are changing and so are weddings. It’s ok to shed some traditions. Be practical about whether you need all the trimmings, like a videographer, bonbonnieres, gifts for parents or even the bridal party, if you need to cut costs.

9. Adopt informality. Swap a formal sit-down dinner for a cocktail party and save on room hire and catering costs. Or, if the venue allows it, organise the drinks yourself.

10. Pay attention to the fine print. Read your suppliers’ contracts, even if they are long and complicated. Don’t get caught out by any extra charges which are sometimes in the fine print.

11. Wishing well. If you’re already living together, chances are that you have most of what you need, with a wishing well often providing a polite way to ask for money. You can then use this to pay for the honeymoon or pay off some of the wedding expenses.

Start planning now

If you haven’t already got a wedding budget, review your finances and make sure you give yourself enough time to save for the wedding you want.

If you need help with your savings goals, AMP’s Bett3r account may be able to assist you in staying on track financially, as it enables you to track your bills, set up savings goals and know what’s safe to spend.

Finally, you can relax and enjoy the celebrations, knowing that declaring your love doesn’t have to come at a price you cannot afford.

Should I rent or buy a home?

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Whether to rent or buy is a hotly-debated question. The answer might come down to where in Australia you live.

With the housing market continuing to boom in many parts of Australia, it’s no wonder some potential home buyers are wondering if they’d be better off continuing to rent. While for others, who are priced out of the property market or can’t save enough for an initial deposit, buying may not be an option.

With rent money often referred to as ‘dead money’ you’d be forgiven for thinking that renting was the inferior choice, but there are transactional costs to do with buying a home, such as stamp duty and home loan interest payments that might be regarded the same way.

So is it better to rent or buy? The answer, like most things to do with the economy, is far from simple.

AMP Capital economist Diana Mousina says that while the question of buying versus renting mainly depends on each individual’s circumstances and stage of life, which city you live in also has an impact.

Sydney or Melbourne

Diana explains that the ‘phenomenal’ house and apartment price growth in Sydney and Melbourne over the past three years has coincided with a large increase in housing construction in these cities (particularly for apartments).

The result of more new properties in Sydney and Melbourne is that rent increases are slowing as an oversupply of property hits the market.

As a consequence, investment returns for property investors are also slowing and Diana says this will lead property price growth in Sydney and Melbourne to slow over the next 2-3 years (especially for apartments).

The combination of slow growth in rents – and the expectation that house price rises will also slow in the next few years – makes renting the better choice in Melbourne, and particularly Sydney, Diana says, as rents become comparatively more affordable and the opportunity for buyers to benefit from the kind of capital gains seen in recent years diminishes.

The rest of Australia

In the other major capital cities, slower house price growth and less new housing construction compared to Sydney and Melbourne in recent years means that rent increases have been stronger, Diana says.

‘The difference between renting or buying is more balanced outside of Sydney and Melbourne,’ she concludes.

What do the statistics tell us?

Statistics from the latest Census reveal that more and more Australians are renting.

In 1991, 26.9% of the population were renting their home compared to 30.9% in the 2016 census.1

In line with the rise in renting, less Australians owned their home – either outright or with a mortgage – in 2016 than they did in 1991, with home ownership dropping from 68.6% to 65.5%.2

Diana says these numbers show the impact that the recent boom in housing prices, coupled with low wages growth, has had on housing affordability, with more households choosing or in many cases having to rent, rather than to buy because of increased difficulty in gaining a foothold on the property ladder.

Weighing the pros and cons

Economics and statistics only tell part of the story, as both renting and buying have their pros and cons:

Benefits of renting:

  • You’ll have more short-term financial freedom because you don’t have to pay interest on a home loan, or for landlord expenses such as building maintenance, repairs, rates and property insurance.
  • You’re more likely to be able to afford to live in the suburb you want (because you’re not paying for the expenses of owning a home).

Downsides of renting:

  • You generally don’t have the same freedom to change or renovate the property like you would if it was your own.
  • You’re never sure how long you can stay in a rental property. This might be fine while you’re young and flexible, but as you grow older you might want more certainty and stability.

Benefits of buying:

  • You could own your home within 25 to 30 years, or sooner if you pay your home loan off more quickly, and will own an asset which will hopefully have increased in value.
  • Owning a home gives you certainty around where you’ll be living and additional security in retirement.
  • Because you own your property, you can renovate it, nail pictures into the wall or even remove the walls if you want to!

Downsides of buying:

  • The costs of buying a property add up – stamp duty, legal and conveyancing fees, interest, loan fees, pest and building inspections, bank valuation fees, rates, possible strata fees, title registration and ongoing costs of property maintenance and insurance.
  • There’s no guarantee the value of your property will increase – it could fall, leaving you with an asset that’s worth less than what you paid for it.

What’s right for you?

Diana says that as the housing market goes through cycles every few years, the longer you plan to live in the property the more attractive buying is because home owners will be able to ride out any medium-term price fluctuations.

‘Over the longer term we remain positive on the housing market because of solid fundamentals in the Australian economy,’ she concludes.

For more help

Use our rent vs buy calculator, which illustrates the potential benefit of either renting or buying a property over time, to explore your situation, or our borrowing power calculator to work out how much you could afford to borrow.

For more information about the process of buying a property, check out our Goals info centre page, and whatever you decide, it’s best to seek professional advice and talk to your financial adviser. If you don’t have an adviser but would like to speak to one call us on 131 267 or use our online tool.

1, 2 Census 2016, Australian Housing section  

Affordable school holiday activities

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We asked our readers for their top tips to keep the kids entertained during the school holidays without blowing the budget.

AMP News&insights ran a competition on Facebook asking our readers for budget-friendly ways to keep the kids busy in the school holidays.

Art and craft, board games and movies at home all proved popular, as did visits to the park, playground, picnics, riding bikes and camping.

And perennial favourites such as taking advantage of museums and galleries with free entry, and visits to the local library, also rated a mention.

Our readers’ most creative low-cost school holiday activities

If you’re looking for some fresh school holiday inspiration, some of the most creative ideas included:

  • Looking through photo albums together and creating a family slideshow.
  • Putting on a concert or play for friends, getting the kids to create the show, make costumes and props, and make tickets and food for the guests.
  • Getting the kids to write books and turning them into movies.
  • Going on a park crawl, by setting a timer and after an hour at a park, moving onto another one.
  • Using old bottles and jars to create terrariums using succulents and plants from the garden.
  • Getting together with a group of friends and each taking all the kids for a day, so you only have one day to plan and pay for, and some child-free days during the holidays.
  • Making a list of things for the kids to spot then heading out in the car and playing car bingo.
  • Cutting out pictures from old magazines and cards and creating new homemade cards for upcoming birthdays and events.
  • Scouring the internet in the lead up to the holidays for free and cheap activities to create a lucky dip jar to draw from when boredom sets in.
  • Instead of just playing board games, making one, including planning the theme, rules, making the board, cards and questions, then playing it.

Any advice in this page is general in nature and is provided by AMP Life Limited.  The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters. AMP Bett3r Account is issued by AMP Bank Limited ABN 15 081 596 009, AFSL 234517. Consider the terms and conditions available on request by calling 13 30 30 or at amp.com.au/bett3r and whether this product is appropriate for you. Fees and charges apply. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.

All information on this website is subject to change without notice.  Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability for any resulting loss or damage of the reader or any other person.