The Federal Budget was handed down by Treasurer Wayne Swan on Tues.

This is a summary of ramificatons that may affect your financial planning.

In a moment, more Money Matters. But first….

Balance

We make our own wine. My Father made his own wine, and now my Brother and I and our families have continued making wine using the traditional methods our Father taught us.

Whilst I reckon it tastes pretty good (it always tastes good when you make it yourself!), it’s not about the wine for me. It’s about the tradition, and family.

We all get involved, from picking up the grapes from the Clare valley, to crushing, pressing and bottling – wives, Children and importantly our Mother all contribute  – there is usually Italian music playing in the back ground and shared meals to end long days.

I can’t wait to taste our 2012 Ross Grenache, named in honour of The Master.

Kind Regards

Maurice

The Real Cost of Money.

What plans have you made to triple your income over the next 20 years?

Too many people pay too little attention to the effects of inflation. We are lulled into a false sense of security by commentators talking about our current low inflation environment.

We forget however, that this year’s cost increases are added to last years, and so forth. The compounding effect of inflation is very scary over longer periods of time. Can you remember how much you paid for fuel in 1980? Does around 35 cents a litre ring a bell?

Don’t even start me on the price increases for electricity and water. This past weekend’s media report a record numbers of people having their electricity cut off because they simply can’t afford to pay their bills.

Sure the current inflation rate of 3-4% is much lower than the 8-9% we endured during the 80’s, but it’s all relevant. In the 80’s there were times when you could earn 12% from bank accounts, now 5% is a great return on cash.

And its cash investments that suffer the most from the effects of inflation.

A tax payer paying 30% marginal tax with money invested in a bank account earning 5% interest basically just stays even after tax and inflation.

Tax payers in higher tax brackets are worse off, actually losing money by investing in cash.

Growth assets such as shares and property however, provide a hedge against inflation, with returns increasing over time to combat rising costs. That’s why they are called growth assets, because despite being volatile they grow at a faster rate than rising costs over the long term.

Hence investors should use cash investments for their short term needs, and growth assets such as shares and property to remain financially secure into the future.

If the next 20 years is anything like the last 20 years, you are going to need to triple your income to maintain your current standard of living.

What plans have you made to triple your income over the next 20 years?

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This article is not advice. This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.  

In a moment, more Money Matters. But first, Balance….

OK I confess, I’m a list-maker.

And I am sure I must drive my team and family crazy when I harp on about the tools I have developed over time to help me prioritise my day.

But the truth is that I make lists and prioritise my workload so that when I am not at work physically , I can truly be not at work mentally so that I can enjoy my Family and leisure time.

How do you cope with a busy schedule? Please share your thoughts on my blog.

Kind Regards

Maurice

Cash Flow is King

During periods of increased economic uncertainty, understanding and securing your cash flow needs is a priority,  especially if you are already retired, or nearing retirement.

When you are in secure employment, if you listened to the wisdom of your Grandparents you will spend less than what you earn and invest the surplus into growth areas such as shares and property. The idea being that those growth assets will grow over time, and eventually allow you to replace the income you are currently working for, with income generated from your investments.

If the price of those assets fall , you don’t need to worry too much because firstly you have plenty of time before you need to access your investments. Secondly, you are still working so your cash flow needs are being met from your employment  income.

In fact, you will rejoice during periods of temporary price falls as you will be buying assets at a fraction of their value  – basically guaranteeing your future profits.

But what if you are already retired?

Well, with proper financial planning advice you will have distinguished between your cash flow and capital growth needs,  and invested in such a way that you have secured your cash flow without the need to have to sell growth assets like shares and property at a loss during periods of temporary price falls.

This won’t stop you being concerned when prices fall, as nobody likes a reduction in the value of their investments. But  it will help you eliminate making a loss caused by having to sell long term assets at less than their value.

What if you are hoping to retire soon?

Again, with proper financial planning advice you will be redesigning your investments so that you can secure several years  of  immediate cash flow needs, and comfortably invest the rest of your portfolio in growth assets to secure your future cash flow needs without the need to have to sell them during periods of temporary price falls.

Seek sound advice. Understanding your cash flow needs is the first step to give you confidence in your investment strategy.

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This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed

In a moment, more Money Matters, but first….

Balance

Emily, Fil and I spent a few days in Canberra in January.

We really enjoyed the War Memorial, and Questacon is a must if you have Children.  Another highlight was visiting the National Gallery of Australia who are currently featuring a Renaissance art exhibition.

Both Parliament houses are interesting. You can see how it must be easy for our politicians to feel like they are in a pressure cooker whilst parliament is sitting – there is not even a coffee shop within walking distance.

We enjoyed Canberra, it was interesting. We wont be rushing back too soon, but we will go back another day.

Kind Regards

Maurice

Money Matters

Eat well forever, sleep well tonight

2011 was a year in which many thought we had turned the corner on the global financial crisis (GFC), or were about to. Many of the after effects of the GFC were supposedly cleared away, and it looked like an economic recovery was just around the corner.

But 2011 brought a new set of unannounced disasters, from natural ones such as the devastating earthquakes in New Zealand and Japan, and floods in Australia – to financial ones such as the current sovereign debt crisis playing out in Europe.

So despite what the Government and some economists are characterising as a once-in-a-generation trade boom, Australian equities were battered for a second straight year.

Our focus on asset allocation and lifelong cash flow planning – ensuring you only take as much investment risk as you can
tolerate, and taking no more risk than you need to take in order for you to achieve your desired future lifestyle – means that often we find our recommended portfolios are more conservative than those I see when new client’s come to us for a second opinion.

Our aim is to help you ‘eat well forever, while sleeping well tonight.’

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This article is not advice. This article is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.

In a moment, more Money Matters, but first….

Balance

In the midst of the frantic activity in these last few day’s before we close the office over Christmas, we take a breath and reflect on the honour you bestow on us in choosing us to be your Financial Advisors. Thank you! We appreciate your support and the confidence you show when you refer your family and friends to us.

In the last few weeks we have farewelled Karina who has shifted interstate with her family, and congratulated Keiaha who proudly announced the safe arrival of her Son Dane. We also welcome back Lynette whom many of you will already know. Fil and I feel blessed to have such a wonderful team who care about our business and you our clients as much as we do.

So on behalf Shelley, Lynette, Fil and I in Port Augusta, and David and his team in Adelaide, we wish you all a safe and happy Christmas, and look forward to working with you in 2012!

Kind Regards

Maurice

PS – our office will be closing at 5pm on Wed 22nd, and re-opening on Monday Jan 9th.

Money Matters

Some quality time with family and friends over Christmas and New Year will be a welcome relief to many battle scarred and weary investors and their advisers

2012 is upon us, and whilst financial predictions are useless it would be safe to assume investment markets will continue to be volatile and that market commentators and the media will continue to send out mixed and confusing messages.

Understandably many investors will be paralysed into inaction by these mixed messages and by the fear that 2012 will be a repeat of 2011.

So to for our last edition of Money Matters for 2011, I thought it would be timely to share with you, and to remind myself, of the three key pillars of my financial belief system.

1. Investor behaviour, not investment markets determine a person’s financial well-being. We can’t control markets, and despite all of the economic mumbo jumbo we are fed every day, most people certainly don’t understand investment markets. We can, however, control how we behave during the differing market cycles. There is a way to systematically create wealth day in, day out – regardless of what the markets are doing.2. It’s not what you earn, but what you do with what you earn that determines a person’s financial well-being. Why is it that there are people earning six figure sums who have created zero net worth, whilst others on modest incomes are systematically increasing their wealth – often beyond their wildest dreams?

   3. To achieve financial freedom – you need to make money while you sleep – not just while you work. To escape the rat race and achieve financial freedom, you need to replace the income you earn from your labour. To do that you need a systematic plan of acquiring assets that earn you money while you sleep.

Planning to be financially free from the rat race is not an end in itself – it’s about creating choices so that you can spend more time doing the things you love with the people you love. Don’t be paralysed into inaction. Plan to be financially independent. Seek advice, and take advantage of the opportunities that 2012 will bring.

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This article is not advice. This article is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.  

In a moment more Money Matters, but first….

Balance

Fil and I had a brilliant time in Penang last week (apart from Fil tearing some ligaments in her hand while jet skiing, but that’s another story…). Our time away was too short, but long enough away from Nathan and Emily.

Malaysian people are just so nice and accommodating. The Hotel blurb used the words ‘effortless hospitality’. And thats exactly how they made us feel – that they were genuinely happy to not only help us, but to ask how we were and if we were enjoying our stay.

I’m sure as a customer in a shop, or tourist in a new town you also have experienced the difference between a genuine and effortless versus a strained and distracted “Hi how are you? Can I help you?” 

Genuine and effortless appears to be part of the culture in Malaysia.

What a wonderful world it would be if it was part of the culture of the whole planet.

Kind Regards

Maurice

Flavour of the Month Investing

Advertising of the latest flavour of the month investment tempts many investors to get into an investment when that investment has shown healthy returns for some time. Often this means it was too late to get in, profits had already been made.

Fear causes many to exit investments after that investment has gone down in value, crystallizing what was only a paper loss into a real loss.

This is buying high and selling low. The exact opposite to what we all know we should be doing to create wealth.

Understand that markets move in cycles, good times follow bad times, which follow good times. By changing investments into the best performing area at the time is a recipe for disappointment.

Creating wealth is a little like getting fit. It is important to develop a long-term strategy and then being disciplined enough to stick to your strategy everyday. If your strategy is sound, don’t be tempted to change it mid stream to take advantage of a seemingly better alternative. The alternative is usually only better for a short while.

All investors are different. Varying needs and commitments mean that different investors require different investment strategies to achieve their personal goals.

Once you’ve developed your strategy, don’t let greed and fear lead you off course.

• Buy in gloom, sell in boom. Buy low, sell high. We have all heard it, but unfortunately as human beings we let our emotions get in the way of making smart decisions with our money.

•  The media has a huge influence on our sentiments, and often our decisions are coloured by the language we here everyday. “The stock market goes into negative territory today”. What does that mean anyway? For the novice investor, it means LOSS. For the astute investor it means BUYING OPPORTUNITY.

• TV shows featuring poor souls paying too much at property auctions only help to fuel MAD CROWD DISEASE. The symptoms of this disease are that you feel you must buy something because everyone else is or you may miss out. In other words you are encouraged to buy high.

• Remember that every time there is a sale of either a share or a property, there are two parties; a buyer and a seller. In boom times of either shares or property, the seller is usually taking a profit; the buyer is usually speculating and hoping that the price will continue to go up. Similarly, in gloom times the seller is usually scared of making a greater loss or is being forced to sell to repay debt, the buyer is usually taking advantage of lower prices. Who is the smart one and who is the bunny?

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This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.  

In a moment more Money Matters, but first…

Balance

Fil and I are taking a few days off next week to celebrate our 25th Anniversary – can’t wait!  Here’s a photo of a much younger Us on our Wedding Day.

Price Vs. Value

Many share market investors are almost myopically focussed in the movement of the capital price of their share investments, especially so in times of abnormally high volatility like we are experiencing now.

 This focus is encouraged by the availability and transparency provided by the daily trading of shares on public exchanges and the uninformed bleating by media financial experts.

 We know the price of everything, but do we understand the value?

 Other types of investments, for example, direct property or the ownership of small businesses, provide far less transparency over movements in the underlying investment value. As a result, for these investment types, the investor’s perception of performance is determined more by the profit or income being generated, rather than any short-term movement in the capital or sale value of the investment.

  This is where too many share market investors miss the point. In the long term it will normally be the income stream that provides the bulk of return to an investor, not the capital gain.

 The reason for the extent to which dividends account for the bulk of investment returns is not intuitively obvious. The distinguishing characteristic of dividend income is that it is expected to increase each period. Ignoring tax, a 5% quoted dividend return is exactly the same a 5% interest bearing return in year one. However, over time the dividend dollar amount gradually increases in size even though the dividend percentage may stay the same. The dividend percentage is payable against the inevitable growth in the value of the share. Simple compounding interest!

 Not only does income represent a more important source of return for long-term share investors than capital price movements, it also tends to be a more stable source of return.

 Firms tend to maintain dividend payouts even if they experience a temporary decline in profitability. There is evidence of this occurring in the current round of profit reporting, with global and local economic factors impacting on share prices and earnings, but relatively few companies announcing reductions in dividends.

Several Australian blue chip companies are currently priced with fully franked dividends in the 6% to 7% range, which may prove to be attractive for those investors willing to focus on income streams and “ignore” the unusually high level of day-to-day volatility in share prices currently being experienced

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This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.

Read an update from Hillross Chief Economist here Brad Matthews Article

As I write this at 11-40am Tues August 9th, the Aussie share market is down nearly 5% for the day.

Aussie shares are following the lead from the US overnight.

When markets are being hammered like this many big name companies, with solid balance sheets paying great dividends take a hammering.

Why? Because they are liquid and they can be easily sold.

So who is selling? Let’s take the Big Australian Banks as an example. Is it reasonable that their price today effectively makes their dividend yield over 7%, when historically they average aroung 4.5%?

No, it’s not a reasonable rational decision to sell part of a business as solid as an Aussie Big 4 bank at these prices. Unless you have to.

So the sellers either have to sell (because of a margin call, or because they have over bought or…?) OR they are being driven by fear to make an irrational decision.

So who is buying? It seems a reasonably rational decision to me to buy an Aussie bank (as an example only) paying a 55% greater dividend yield than their historical average AS LONG AS I have the TIME to let the price come back up to rational levels.

What about your super and investment managed funds?

Well the facts are growth portfolio’s are being hammered right now.

Does this matter and should I change to a more conservative portfolio?

YES it matters – get advice.

Good advice, and prudent portfolio planning means you should be in a position to NOT HAVE TO SELL good quality assets at fire sale prices, that you have enough cash flow to last through scary times, and IF POSSIBLE be in a position to BUY great assets at discounted prices.

Now is not the time for knee jerk reactions – get advice.

Kind Regards

Maurice

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This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.