MTO News August 2009

Where are the markets going?

In the past 3 months the australian sharemarket has climbed in value by 14%. The property investments have increased by 7%, while international investments have also increased in value. Hence we appear to have passed the worst of this downturn.

I have no doubt that over the next few months we will have further bad news, however it would appear to be time to be less conservative and a little more growth biased in your investing.

Our next quarterly review of investments is scheduled in Sept/Oct when the majority of companies will have reported their annual results, however I encourage anyone who is wanting to take advantage of the market movements to start considering their position now and planning how they can make the most of the investment bargains that are developing.

Investment Property

Investment property continues to be one of most popular methods of building your wealth. In this newsletter we look at why you should seriously consider investment properties.

We know that property prices have fallen over the past 12 months. This is not great news for investors who already have a property, however in spite of this, house and unit prices have outperformed the majority of other investments.

The good news for people looking at new investments is that the price falls have made an investment property more affordable. Rents on properties have reduced slightly, however they are still very strong and the returns are better now than they were two to three years ago. This is partly due to the first home owner grant encouraging people to purchase a property and the global economic crisis causing people to be a little more conservative in their outlook.

We believe that the rental market will strengthen in the medium term. With the banks looking at loan applications more critically it is more difficult to obtain a loan, and with lower employment levels we foresee demand for rental properties increasing.

The other major factor for any investment property is the cost of borrowing. With borrowing costs at forty year lows, property is generally more affordable when compared to two years ago. The combination of lower prices, lower borrowing costs, and a positive outlook for rents suggests that people should be reviewing whether now is the time to be adding a rental property to their investment portfolio.

If you decide to look at an investment property you should also consider the best strategy for purchasing the property. For example, should the property be in joint names or perhaps a family trust or self-managed superannuation fund. Self-managed super funds in particular can be an ideal way to buy a property, because they may not have to pay tax after you reach the age of 55. Typically this results in tax savings of over $50,000 over the life of the property, all of which ends up boosting your retirement.

Value of Advice

I recently read a book by Colin Nicholson, who is one of Australia’s most well known share traders. Colin retired from the paid work force many years ago and now manages his investments, which have grown to a significant amount.

In his book he made a very interesting statement. “He considers his investments to be a business!” The more I thought about this the more I agree with his thinking.

If you want to live comfortably in retirement then it is likely that your investments will be worth at least $600,000. This is serious money and needs to be managed properly. Colin states that he spends a significant amount of time monitoring his investments and researching different investments, because he considers this is a serious business. He keeps written records of his decisions and reasons for investing and has a risk management strategy in place.

Colin has achieved outstanding results through his intensive management. Hence it really does appear that you get the results you pay for, and that your investments will benefit from being properly researched and treated like a business.

To me this is why people use our financial planning services. Someone needs to consider your wealth as a business and with knowledge and care manage the money. In Colin’s case he is managing this intensively and I respect his dedication. However for most of our clients this management is handed over to MTO and this is the value that we add to your lifestyle.

Protecting your Wealth

Most people are naturally positive in their outlook so they always assume the best outcome from all their investments. Unfortunately we do not know what the future holds for us.

Almost every week for the past month we have heard of a house burning down in the nightly news, and most nights we can listen to the latest road casualty.

Many people are gambling with their future.

They are happy to borrow and buy a home or investment property, yet they don’t consider what would happen if they were seriously hurt in a car accident and could not work for six months or longer. For many people this would have terrible impacts on their and their family’s lifestyle, and wipe out any investments they may have.

We strongly recommend that our clients protect both themselves and their important assets with insurance and also protect their future by making a commitment to building their long term wealth.

As I said to a client recently who was not sure about their future. “One day your salary will stop. It might be due to an illness or accident next month, or it may be due to retirement. But it will happen - absolutely guaranteed! Your job is to ensure that you have a plan in place to look after yourself and your family. Insurance to cover the short term and investments to cover the long term!”

Insurance is always a dull topic. However when considered as part of your wealth creation strategy is has a vital part to play. If you are not convinced you have enough insurance and a solid wealth creation plan in place then ring us to discuss the matter.

Disclaimer

The information contained in this newsletter is current as at 4th August 2009. It should be regarded as general information only, rather than advice. It has been prepared without taking account of any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation an needs. Investors should note past performance is not a reliable indicator of future performance.

Opinions as to future matters are predictive in nature and may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and may differ materially from results ultimately achieved.

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