MTO News Jan 2010

The world is emerging from the Global Crisis. Already managed funds, Superannuation investments, Property and Shares have all started to grow substantially. Many of our clients have seen their investments increase by 20% over the past 12 months. Like every year there are always some financial storm clouds that people can see on the horizon. Astute investors understand that just as clouds are part of the normal weather cycle, and bring rain and life to our country side, financial uncertainties are normal and we need to work with them rather than hoping they will go away.

The big question is what should our clients be doing this year? 

Here are our top tips for the year.

1. This year repaying credit cards will be an excellent strategy. As interest rates increase any credit card debt will become a major problem, so everyone needs to reduce card debts as fast as possible.
   
   
2. We believe the age pension will continue to be seen as a major expense by the government. Already we have seen the pension age being increased to age 67, and the age pension now reduces at 50c for every dollar you earn over the threshold value of $124 per week. Unfortunately people cannot afford to be complacent about their retirement. Hence astute investors who are still working will use the next twelve months to build significant retirement nest eggs.
   
   
3. Borrowing to invest is still tax deductible and often the simplest method to get a tax deduction and grow your wealth at the same time. Used well, investors can achieve outstanding returns by borrowing to invest. As an example an investor who borrowed $100,000 five years ago and bought Commonwealth Bank Shares would have an investment now worth over $300,000 and received dividends of over $55,000. Even after the worst financial crisis in many years this is a great result.
   
   
4. Anyone who is retired and living off their investments has had a difficult couple of years. Investment values fell and interest rates dropped as well. For a while it seemed that no matter what you did the situation seemed bleak. However interest rates will continue to rise this year, and managed funds and shares should also perform well. Our tip is make sure you keep centrelink updated on your financial position. If your investments have decreased in value make sure you are obtaining the maximum age pension you are entitled to. Also give your investments a chance to recover over the year and consider deferring significant expenses.
   
   
5. Term deposit rates are increasing at present. If you are looking at term deposits our top tip is shop around and, not lock in your money for too long because you may well find that you can do better in 3 months. Bonds investments are like a term deposit, however they are provided by governments and large companies such as Telstra and Origin Energy. These are paying a slightly higher rate of return than term deposits, however they do not have a capital guarantee. As a small part of a superannuation fund these bonds can help boost returns over the longer term for more conservative investors who feel uncomfortable with shares or property.
   
   
6. According to a recent survey 74% of people aged over 50 were concerned that their retirement savings would not be sufficient to fund their preferred retirement lifestyle. Our big tip to anyone who falls into this category is to make a commitment this year to make a major step up in the size of their investments. This could be purchasing an investment property, or a managed fund. Set a goal for your retirement, if each of our clients went into retirement with two investment properties valued at $500,000 each and another $500,000 of other investments then they would be in a solid financial position.
   
   
7. According to research conducted in the USA in 2008 the average share market managed fund returned 11.6%pa, however the average investor in those same funds returned only 4.5%pa. The investments were reasonable, but investor returns were poor. The reason for the difference is poor investor behaviour. People predominately invested when everything looked great, and returns had been outstanding for several years, and did not invest for several years after market crashes. Unfortunately this behaviour pattern almost always means that investors put their money into investments near the peak of a boom time when investments were expensive, and did not invest when the investments were cheap. Our tip to all clients is ensure they are not guided by emotions, but by a well constructed investment strategy, otherwise it is very likely that they will turn a reasonable investment into a very poor performer.
   
   
8. Manage your risks. Ultimately your entire financial wealth depends on your health and ability to earn an income for 40 years or more. Don’t be foolish enough to assume that nothing will happen to you over this length of time. Buy life insurance and income protection insurance, and be happy if you never use it.
   
   
9. Reducing your debts is important. This year is a particularly good year to actively reduce your personal debts. One way to do this is to commit money you don’t have yet to paying down debts. Use 50% of any pay rise, tax refund, or other new income to give yourself a boost in paying of personal debts.
   
   
10. Be realistic in your expectations. Investing $100 every week is great and is very worthwhile, however it will take about 40 years to turn into $1,000,000. You can achieve the same result after 30 years if you are prepared to increase the investment to $200 per week, or you can borrow $250,000 and invest this and achieve the $1,000,000 in only 20 years. 

If you have any queries about any of our top tips for 2010, please ring up our office and we would be delighted to help you. 

So often we see people who are looking for early retirement , yet they are hampered by a lack of money. As people approach retirement they sometimes feel they have been entered into a hurdles race like you see during the Olympic Games. They are racing towards the finish line, but someone has placed all these hurdles in the way that they need to jump over. 

We are running a special seminar for everyone who would like to win the retirement planning race on the 15th of Feb. This is an open seminar to all our clients, and also to any friends and relations who feel this seminar would help them. 

We will be addressing how to ensure you obtain the most income in retirement, maximise your centrelink age pension, and minimise tax. We will also cover the most efficient ways to overcome all those hurdles, such as lack of savings, conflicting financial commitments, and lack of control over your superannuation. 

The seminar will be in our office on Monday the 15th Feb, starting at 5:30pm. Light refreshments will be available. RSVP as soon as possible because we only have limited seating available. 

We know that it is impossible to suit everyone so if you would like to attend the seminar, but cannot attend this session please let Robert Bullock know and we may be able to arrange a second session at a different time and date.

Often insurance isn’t given a second thought until it comes time to make a claim. Receiving your Insurance renewal notice serves as a timely reminder of your cover and that renewing your policy is important. here are some key points when considering renewing your insurance. 

Even if you’re healthy, it’s good to have insurance 

• Yes, it could happen to you, the chances of falling seriously ill are higher than you might think. 

• Your entire financial security relies on one thing - being able to continue working right up to retirement.  Protect yourself and your loved ones with life insurance and income protection. 

• You can’t rely on government benefits to maintain your lifestyle 

• Private Health insurance won’t pay your day to day expenses

What may have been sufficient 12 months ago may no longer be appropriate for your current circumstances, therefore renewal is also a key time to review your situation. 

If you would like to review your current level of protection, please contact our office to organise a meeting with our Risk Insurance Specialist. 

The information contained in this newsletter is current as at 12th January 2010. 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.