Philip Lowe, Governor of the Reserve Bank of Australia (RBA) announced a further cut to the cash rate down to 0.1% on 3 November 2020. This is a 0.15% reduction from 0.25%, which was held since March 2020. This is broadly in line with market expectations and brings Australia’s official interest rate in line with rates in comparable countries (which is around zero). For investors, it means lower rates for longer, with a rate hike unlikely in the coming years.

What is driving the latest easing?

Put simply, the RBA’s economic forecasts show that it does not expect to meet its inflation and employment objectives over the next 2 years and sees the recovery as being bumpy and drawn out. The RBA has been undershooting its 2-3% inflation objective for the last 5 years now.

Will the banks pass on the RBA rate cuts?

Passing all of the 0.15% cut will bring some downward pressure on bank profit margins as a significant chunk of deposits are already at or near zero rates. However, I believe the banks will pass most of it on as they will be under pressure from the RBA and the government who have been providing them with a lot of support (including cheap funding which is now 0.15% cheaper). If they do not, they will face public backlash.

Implications for investors?

There are a number of implications for investors from the latest easing by the RBA.

First, ultra-low interest rates will likely be with us for several more years, keeping bank deposit rates unattractive, so it is important for investors in bank deposits to assess alternative options.

Second, the low interest rate environment means the chase for yield is likely to continue supporting assets offering relatively high sustainable yields. This is likely to include Australian shares where despite sharp cuts to dividends, the grossed-up for franking credit dividend yield on shares remains far superior to the lower yield on bank term deposits. Investors need to consider what is most important; getting a decent income flow from their investment or absolute stability in the capital value of that investment. Of course, the equation will turn less favourable if economic activity deteriorates again.

Third, the ongoing decline in mortgage rates along with easing lending standards will help boost house prices, but bear in mind that high unemployment and a hit to immigration will likely impact throughout the year ahead. The housing outlook also varies dramatically between cities given the rising demand for outer suburban and regional houses over inner city units.

Finally, lower rates and increased quantitative easing will help keep the Australian Dollar lower than otherwise, but it is still likely to rise over the year ahead if global recovery continues and this pushes up commodity prices.

If you are not satisfied with the interest rates on your savings or require assistance in reducing the interest rates on your mortgage, please speak to your financial adviser or a mortgage broker.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

One of the most important facets of financial planning is to understand our client’s risk profiles. Put simply, this is your tolerance to market volatility and downturns particularly, or the ‘sleep at night’ factor.

If your portfolio is invested with an asset allocation that does not match your risk profile, you will always be uncomfortable with market movements. The converse is that it is invested in line with your tolerance, and you aren’t concerned with short term volatility.

Typically, your risk tolerance is higher when you are younger, and decreases as you age. Think about the crazy things you might have done when you were 21, compared with the measured approach to your activities when you are 65. We react in exactly the same way with our investment decisions.

At 21, we have time on our side for market volatility and growth to smooth out, but this is not true as we age. This means that we must adjust the way we invest portfolios for clients in later life so that the exposure to growth assets is reduced, and there is an increase to the defensive assets.

Defensive assets are things like bonds, cash and other fixed interest instruments, that provide an income with a relatively level and stable capital value. Growth assets are domestic and international equities, property and infrastructure investments that have the ability to both grow significantly in value, as well as fall in value in times of stock market volatility.

Portfolios need to be constructed with a mix of these two broad categories, based on the client’s risk profile. Growth investors will typically have at least 80% invested in growth assets, whilst a moderately conservative investor might have only 20% in this category. A typical balanced portfolio, is middle of the road, a mix of growth and defensive assets in balance. This type of portfolio suits many people and doesn’t require much in the way of adjustment as we age. It’s perhaps not as exciting as a growth model, but is always a solid performer over the longer term.

At The Investment Collective, we will reassess your risk profile every 3-4 years, or more frequently if you become uncomfortable with market movements. This ensures that your portfolio matches your degree of comfort with markets.

If you would like to discuss the asset allocation in your portfolio, give one of our friendly advisers a call.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

If you’ve been made redundant, it’s important to take action so you can protect the lifestyle you’ve worked hard to achieve. Depending on the size of your redundancy payout and your current savings, you may want to reduce your spending to help see you through until you secure another position.

Making the most of your money

You could consider depositing your redundancy payout into an online savings account to give you the potential to earn extra interest while you determine what to do with your redundancy payment in the long term. If you have a home loan, you may also consider placing the redundancy payout in your mortgage offset account to reduce the ongoing interest cost on your loan.

Watch your budget

It may take some time to find a new job, therefore, it is a good idea to plan how your finances will see you through to re-employment. Online budgeting tools can be very useful in helping you understand what you spend and can help to identify areas where you can cut back.

Bad debt

Some people use part of their redundancy payment to pay off debts like their personal loans, car loans or credit cards. If you do put some money towards your debts, you may want to pay off those with higher interest rates first such as credit cards. Paying off these high interest accruing debts will assist with your ongoing cash flows.

Managing mortgage repayments

Keeping up your mortgage repayments when you’ve lost your income is often a priority. Contact your lender to talk through your options if you’re concerned that you may be out of work for some time and are worried about paying your mortgage. Delaying or restructuring your repayments, extending your loan term or switching to an interest only loan may be options to help you manage your financial situation through this period.

Review your employee benefits

You may need to make decisions about your life insurance and super contributions. Your super may be affected in ways you may not have anticipated after you leave your employer:

• You may lose some or all of your insurance cover when you are made redundant. So, check to see if insurance continuation options are available if it looks like you’ll lose your cover when you leave your current role.
• You may not be able to claim against your salary continuance, income protection or Total and Permanent Disability (TPD) policy if you are injured or ill while you’re out of work. If you’re made redundant, check with your insurer to find out how your policy is affected.
• You may lose your employee benefits or any fee discounts.
• Your super contributions from your employer will cease.

Seek professional financial advice

You may also want to consider seeking financial advice to help you make informed financial decisions in times of redundancy so you can continue to reach for your long-term financial goals.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

This may well be an understatement, but it has been an interesting year for financial markets, and it doesn’t look like it is finished yet.  Tensions between the United States (US) and China remain, which you would think will be tested further after the outcome of the US presidential election. But what does this have to do with investing?  Well, that depends on whether you want to think like an investor or like a gambler.

If your mindset is to achieve sustainable and growing returns over the long term then you’re thinking like an investor.

During COVID-19 lockdowns, the activity of speculating on the ups and downs of share prices has been prevalent.  This is essentially gambling and that’s ok, go your hardest if that’s a game you want to play, however, the only problem with gambling is, as most people know already, gamblers tend to lose.

An investor’s mindset is one of owning a piece of that business.  This requires owning a stock not for 10 minutes but for 10 years.  Only when you treat shares as an ownership stake in a business does one’s approach to allocating capital change.  Instead of betting on a price that shows up on a screen between 10:00 a.m. – 4:00 p.m. each day, you become interested in how the underlying business makes money, how it forms part of the business community and the economy and how it can grow over time.

Owning a business also affects the way you think about selling it.

If you owned a successful business here in Australia outright, would you sell it because of the concerns over who might win the US presidential election or because of a change in Europe’s inflation rate?  Probably not, however, because we don’t own a publicly listed company outright, the share price is subjected to those sellers who react irrationally on whether or not ‘The Donald’ will keep his job or get punted.

The consequences of buying and selling being based on emotion, impatience and fear is that share prices become yo-yos.  This can however, favour the investor who makes decisions based on the fundamentals of the ‘business’.  If the share price falls yet the fundamentals of the business have not changed, an investor thinks about owning more of that great business, not rushing to the exit.

If the idea of investing in a quality business appeals more to you than punting on where the share price will be today, tomorrow, next week or in six months’ time, you’re an investor.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

I have been a financial adviser for about 20 years, and met with quite literally hundreds of clients in all stages of life and with differing financial needs. It has always been fascinating to learn how people think and act in respect of their wealth. The financial planning process itself is pretty straightforward – confirm and clarify objectives and develop strategies, structures and investments that will help meet the objectives of our clients. As such, for me, it is the interaction with clients that I find interesting and sometimes still surprising. Listening to a client, and confirming back to them your understanding of their objectives and preferences is of course paramount in this process.

However, when I think of what I’ve actually spent most of my time discussing with them, it pretty much comes down to the same things, time and time again:

• Spend less than you earn.
• Invest surplus income in quality assets which generate income.
• Review those assets on a regular basis.
• Structure your financial affairs as simply as possible, but no simpler.

When it comes to investments:

• As a financial adviser my ‘value proposition’ does not include ‘shooting out the lights’ on investment returns (quite frankly, if I could do that on a consistent longer term basis, I wouldn’t need a day job!)
• Risk always equals return.
• We don’t want to avoid risk. However, we need to properly assess the risks and ensure we are appropriately compensated for them.

My aim is always the same. To place my client in a position to make an informed decision. It’s always their decision, I’m simply looking to provide constructive input.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

2020 has been an unconventional year, in which we have been faced with a once in a lifetime global health pandemic and our first recession in 20 years. A hot topic of late is the quality and safety of our aged care system, with the federal governments Aged Care Royal Commission well underway.

However, regardless of any flaws in our aged care system, it is still a key consideration for every Australian retiree and something that needs to be addressed as we get on with age and the need for ongoing care escalates. Below is a breakdown of the costs that you should expect if you are considering a move into an aged care facility.

Basic daily fee:

• Payable by all residents as a contribution for day to day living costs such as meals, cleaning, laundry, heating and cooling.
• Equivalent to 85% of the basic single person Age Pension.
• Currently $52.25per day (residents in designated remote areas may pay $1.06 per day more).

Accommodation payment or contribution:

• Cost of accommodation which may be payable depending on assets and income as well as choice of room. Also known as the applicable room fees, this can be negotiated with the aged care provider.
• Payable by residents not eligible for government subsidy in respect of cost of accommodation, however, partial subsidy may be required depending on asset/income assessment.
• Can be payable in either a fully refundable lump sum (RAD) or a daily accommodation payment (DAP) or a combination of both.

Means-tested care fee:

• Contribution towards cost of care which may be payable depending on assets and income.
• Income Component Thresholds – $27,840.80 per annum for singles and $27,320.80 (each) for a couple who are separated by illness. In a nutshell this means the tested fee will only apply to you if you earn above these income thresholds.
• Asset Component Thresholds – There are three levels of asset thresholds which determine if you are low means, moderate means or high means. The asset free threshold for low means is $50,500, moderate means is $171,535.20 and anything above $413,605.60 is high means.
• Subject to annual and lifetime caps with a current annual capping on fees of $28,087.41 and a lifetime capping of $67,409.85
• Currently the maximum means-tested care fee payable is $256.44 per day.

Additional charges / Extra services fee:

• Any other amounts agreed between the resident and the residential care facility.
• Includes additional care or lifestyle options.

Furthermore, you will need to consider whether to keep or sell the family home and for couples a key consideration is to decide if you move into care together or become separated by illness. It is a very complicated process and every scenario needs to be assessed based on its unique circumstances.

Please contact one of our financial advisers if you need advice in this area.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

The federal government has introduced a wide range of stimulus measures in the aftermath of COVID-19, but one group that appears to be overlooked is self-funded retirees. However, if they know the way the system works, there is still one strategy that may be well worth pursuing. That is to apply for a Commonwealth Seniors Health Card (CSHC).

The criteria are simple. You must be of age pension age but not eligible to claim an age pension, and you must pass an income test. There is no asset test. The income test is $55,808 per annum for a single and $89,290 per annum combined for a couple. Thanks to the changes in the deeming rates, a couple with almost $4 million in financial assets could be eligible for the CSHC and all the benefits that go with it. These are the amounts you can have across all your financial assets, such as superannuation, bank accounts, shares, and managed funds.

The obvious question is whether the CSHC is worth having. It varies somewhat from state to state, but one benefit to all holders is that medicines listed on the Pharmaceutical Benefits Scheme (PBS) are supplied at the concessional rate. Once you reach the PBS safety net, you will usually be supplied further PBS prescriptions without charge for the remainder of the calendar year. It may also be possible to save on your medical consultations, if your doctors are happy to bulk bill. Also, depending on where you live, there could be a regional travel card and rebate on your energy costs.

It’s been a tough year for retirees, with dividends slashed or suspended, stock markets around the world up and down, and rents vanishing if you are a landlord. This is why any assistance you can get is worth going for. Depending on your situation, the CSHC could be worth over $6,000 to you.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

Over the past few years, conversations I’ve had with clients regarding ethical investments have changed. Those interested in investing ethically are no longer a fringe minority, with a number of our clients displaying genuine interest in sustainable and ethical investments. Clients are looking for ways that they can invest their savings into causes important to them whilst also outlining industries they would like to avoid. These discussions have made clients aware that returns are not the only consequence of their investment choice.

What I’ve found is that each client has a different set of values when it comes to deciding whether or not an investment is ethical. I have some very passionate clients and there will be a level of scrutiny where all companies appear to be inappropriate investments.

Listed companies in Australia have aligned with the Environmental, Social, Governance (ESG) standards and improved their ESG reporting over the last few years. This level of transparency allows fund managers using a sustainable and responsible investment approach to better compare the sustainability and environmental impact of companies.

At The Investment Collective, our investment philosophy allows us to take a ‘hands on approach’ to position clients’ portfolios in stocks that we believe show the most promise and brightest future prospects.

Finding the right investments can be a complicated and timely process. A portion of managed funds claiming to be ‘sustainable’ fail to meet the most basic client expectations for a responsible or ethical investment. Ethics is more than just adding ‘sustainable’ to the name of the fund. We continue to actively look for new investments that provide a point of difference and have a renewed focus on finding responsible investment managers that align with our investment philosophy.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

Last week the Victorian Government introduced Stage 4 restrictions in an attempt to mitigate the spread of the COVID-19 virus throughout the community. Never before has the state experienced such a level of disruption to business, communities, and individuals. In this situation, and given the circumstances which contributed to it, a level of disquiet, frustration, and anger are absolutely understandable. Whether this lockdown strategy will be successful or indeed worth the price, remains to be seen.

That said, with all the negativity abounds, it’s important to be mindful of focusing on what we can individually and collectively control. What we can actually control comes down to what we think and what we do (including how we choose to react to events). That’s it! How we think will inform the priorities we choose and in turn, will impact on the choices we make.

The outcome of this will also depend on our perspective. Denying, or arguing against the reality of our situation may help us to ‘let off steam,’ however, it may also serve to hinder acceptance of a reality that individually we can’t control.

Life’s difficult, and at the moment it seems more difficult. However, accepting that life is difficult allows you to move towards opportunities for growth, learning and gratitude. The other aspect of perspective is a heightened sense of gratitude. Sure, freedoms that we may have previously taken for granted have been suspended, however, I had a good night’s sleep, warm and safe in my bed and in the morning had a warm shower and a full breakfast!

The final aspect of perspective is to know that all things end, and this certainly will also. It can be difficult to see this ending whilst we’re still very much in the middle of it, but it will end.

In the meantime, look for opportunities for growth and learn to remain optimistic knowing that we will get to the ‘the other side of this bridge’.

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.

The June quarter inflation numbers were printed this week and as expected, it was not good!

The chart below depicts the current situation we find ourselves in thanks to COVID-19.

As you can see, the cost of living dropped an unprecedented (have we had enough of hearing that word lately?) 1.9% over the past three months to June resulting in the annual rate of inflation coming in at -0.3%.

Since 1949, this is only the third time inflation in Australia has been negative!

In a nutshell, this means people are not spending money.  Since people aren’t, or more correctly, haven’t been able to spend money due to the restrictions brought on by COVID-19, company profits will be lower and if profits are lower so will dividends.  As to what extent, we’ll find out in August.

A low inflation rate impacts interest rates and this is not good for term deposit holders. If inflation is low, so are interest rates to encourage spending. However, it’s just not happening. In these times return expectations from our investments need to be adjusted to align with the environment we are in, which is low-growth. This looks like remaining for some time and it is a global phenomenon.

To counter this in the United States, this is how they’re addressing the issue there:

For now, adjust your return expectations from your investments and strap yourselves in, there’s a long way to go!

Please note this article provides general advice only and has not taken your personal, business or financial circumstances into consideration. If you would like more tailored advice, please contact us today.