Lifestyle & Retirement Planning
because advice matters
In this issue:
A world of opportunities
The good, the bad
and the ugly
A New Year revolution
Economic update Contact:
It seems that Santa is about to deliver us a recession buster of a Christmas Andrew Garrigan
this year! Lifestyle & Retirement Planning
10 Aberdeen Street
The Australian share market is up more than 48 per cent since its low Geelong Victoria 3220
in March. The dollar is up from US61c in October 2008 to above US90c.
Unemployment is much lower than was feared 6 months ago. Some P 03 5229 1555
superannuation funds are already back in the black. The iron ore ships F 03 5222 6172
and coal freighters are queued up outside our ports in what looks like E email@example.com
a new resources boom. W www.yourfinancialplan.com.au
Frankly, if racing for the end of the Global Financial Crisis was an Disclosure: Lifestyle & Retirement Planning and
international Olympic event, we’d be in line to win gold! (And gold Andrew Garrigan are authorised representatives
of FYG Planners Pty Ltd (ABN 55 094 972 540)
broke through the US$1,000 an ounce barrier for the third time ever Australian Financial Services License 224543.
The recent interest rate rise is the only cloud on our horizon, but we all
knew that the Reserve Bank had only dropped the rate to keep credit
flowing in hard times. So this rise is actually a sign of our economic
recovery and a very welcome Christmas bonus for retirees living on fixed
investments. Naturally we all hope that the recovery continues, that the
rest of the world soon follows Australia, and that we’re not going to be
hit by a significant spate of interest rate rises in 2010.
In the mean time, please have yourself a merry little Christmas, you’ve
Lifestyle & Retirement Planning Newsletter
world of opportunities
One year after the global
economy plunged into the
worst recession in decades,
Australia has cemented its
reputation as the Lucky
Country. Investors could
be forgiven for asking
why anyone would live or
Australia accounts for just 1.2 per cent While company profits were actually
invest anywhere else. of GDP and 1.7 per cent of world down around 15 per cent in the year to
assets. June 30, the market had been bracing
Choice is another reason to look
beyond Australia’s shores. If Australians The rapid rise in the Aussie dollar has
In fact, Australia is the only advanced want to share in the future profits of also increased the attraction of
nation to escape recession this year. global heavyweights such as Microsoft, Australian shares for local investors.
According to figures from the Google, Sony, Toyota, Johnson &
International Monetary Fund, Australia’s How do currency fluctuations affect
Johnson, Nokia and British Petroleum
economy is on track to grow by 0.7 per the mix?
they have to invest overseas, even if
cent in 2009, compared with an they do so via an Australian-based While it’s prudent for Australians to
average of -3.4 per cent for the top 33 managed fund. diversify their investments beyond the
economies. local market, currency fluctuations add
Timing and market cycles should also
The economy is in such good shape another layer of complexity. When the
be taken into consideration. While
that the Reserve Bank of Australia Australian dollar strengthens,
Australian shares are enjoying their
(RBA) has gone out on a limb and investment earnings measured in
moment in the sun, at some point they
started lifting interest rates. foreign currencies, especially the US
will be eclipsed by other markets. As
dollar, are worth less when converted
As a result, overseas investors have the past year proves, it is impossible to
into Australian dollars.
been piling into Aussie dollars, shares predict what lies ahead. So it is prudent
and bonds. The Australian share to ensure you are not overly exposed to For example, while the MSCI global
market recovered 48 per cent from its a single market or investment. market index excluding Australia
low in March to the end of October and jumped 17.1 per cent in the year to
Asset consultant Mercer believes
the dollar managed a similar feat, up October 31, in Australian dollar terms it
overseas shares have been
50 per cent from its low in October last actually fell by 14.5 per cent. This
undervalued for the past year. In its
year. occurred because the Aussie dollar
October market valuation report it
moved higher over the period.
While there’s no question that Australia points to the stronger outlook for
is a great place to live, there are earnings growth in the US and notes Of course, the currency effect works
compelling reasons why it is as that while Australian shares are fair both ways. When the Australian dollar
important as ever to build a diversified value, they are no longer trading at weakens, foreign investment earnings
investment portfolio with a range of bargain basement prices. are worth more when converted back
asset classes and geographic into Aussie dollars. Hedging can help to
We’re not suggesting selling Australian
locations. reduce the impact of currency
shares to buy US shares. Far from it.
fluctuations, especially for Australian
The attraction of international There is still good reason to buy
investors with a stake in international
When it comes to investing, size We have the good fortune to be a
In other words, investing is always a
matters. The US accounts for more major exporter of commodities in a
case of swings and roundabouts with
than one fifth of the world’s gross region where demand is high.
good reason to diversify your
domestic product (GDP), twice that of The better-than-expected performance investments while you stay the course.
China, and one third of world equities, of company profits means Australian If you want more information about the
real estate and debt securities. shares have been able to recover a extent to which your investments are
significant amount of lost ground. diversified just give us a call.
The good, the bad
and the ugly
There’s good debt and there’s bad debt, and then there’s the good debt that can get pretty ugly if
it’s not managed properly. In a nutshell, good debt is when you borrow to buy an appreciating asset
and bad debt is when you borrow to buy a depreciating asset or to meet day-to-day expenses.
The trouble with bad debt is that you either sell your portfolio to clear the of at least seven years.
can often be paying for it long after investment loan, or keep the portfolio
Whether debt is good or bad, it’s
you have forgotten what it was you going and use future income from
always good to clear it as quickly as
bought in the first place! And if your your dividends to reduce the loan.
possible. It is wise to pay off your bad
bad debt is on a credit card, then it
Margin lending can also be in the debt before your good debt as you
can be all too easy to let the debt roll
good debt basket. As long as you should be able to take advantage of
over each month.
are not too highly geared, the market the tax concessions available with
Good debt, meanwhile, can provide needs to fall by a significant amount your good debt.
you with a platform to accelerate the before you would be asked to make
In years gone by, it was common to
growth of your wealth. Borrowing to a margin call to bring your loan-to-
wait until you had saved up for what
buy an appreciating asset such as valuation ratio back into line.
you wanted. Nowadays the ease of
a share portfolio or property means
To make doubly sure you are not obtaining credit cards and loans can
you can get more for your money, and
hit for a margin call, consider lead to reckless behaviour. But there’s
then leverage off that larger slice of
making regular interest payments still an important place for good
the pie. In many instances you can
and reinvesting income from your debt. Given most of us will have a lot
claim tax deductions on the interest
investments rather than capitalising more years in retirement and would
paid on good debt borrowings.
the interest (adding the interest to like to be self funded, borrowing to
The equity you have built up in your your loan amount). accelerate wealth can prove to be a
home can increase either by making very successful investment strategy.
Margin lending has become more
additional repayments while interest
attractive since the reduction in the It’s just important to remember to
rates are still low or simply through
caps on deductible contributions to keep bad debt to a minimum and
rising property prices. If you then
super. Since July of this year, the make sure you use good debt wisely
take out an investment loan with
maximum concessional contribution — otherwise it can all turn a little ugly.
that equity as security and invest,
to super has been slashed from
say, in a share portfolio, you can use
$100,000 to $50,000 each year — and
the dividends you earn from your
to $25,000 if you are under age 50.
share portfolio — your good debt
— to make extra payments on your As a result, you may find you need
mortgage. other ways to accelerate your wealth,
particularly in light of the share market
This can accelerate paying off your shakeout we have experienced over
home loan. Each year as you pay these past 22 months. Leveraging
off more of your mortgage, you through margin lending can provide
can extend your investment loan, that option but it is not suitable for
so the investment loan increases all investors. Margin lending can be
while the mortgage decreases. Once considered as one part of an overall
your mortgage is paid off, you can long-term strategy with a time frame
Lifestyle & Retirement Planning Newsletter
It happens every 31st of The first thing you should do is decide you can spend fewer hours at the office
December. Millions of people whether or not you have the time and without sacrificing the quality of your
all over the western world energy available to achieve the change work?
you want, because if your life is already
promise themselves to overcommitted you are more likely As you can see, the difference between
improve at least one important to fail than to succeed. If your day is wishful thinking and real behavioural
aspect of their lives and make already overcrowded, for example, it change is commitment and a plan, and
it their New Year’s Resolution is unlikely that you will find the extra this is never more important than when
to do so. 30–60 minutes each day to jog, swim, planning a brighter financial future.
ride a bike or go to the gym unless you
According to Wikipedia, the most drastically reorganise things. In a famous Yale University survey,
popular resolutions remain unchanged graduates were asked if they had ever
year after year, drawn from a list that It is also important to prepare yourself written down a financial plan. Only 3
includes getting out of debt, saving long before New Year’s Day. Don’t per cent said Yes. Twenty years later,
money, getting a better job, getting fit, promise yourself to start eating they quizzed the same graduates about
reducing stress, drinking less alcohol, healthier food from January 1st and their financial worth. The 3 per cent
and quitting smoking. Sound familiar? then do nothing about it until after who had taken the trouble to write
feasting at Christmas. down a plan were richer than the other
These are all important and worthwhile 97 per cent put together. (It also helps
goals, but here’s the sad thing. Start investigating a healthier eating if you can automate the plan — a bank
Research indicates that by January 7th plan now, source suppliers of healthier transfer to place part of your salary to
of the new year, 25 per cent of these foods like an organic home delivery an investment account every month,
resolutions will already be broken. And service, see a nutritionist if you need for example, eliminates the need for
this attrition rate will continue, so that to, and be ready to start your healthy willpower.)
up to 80 per cent are likely to have eating plan on January 1st.
been abandoned before March 1st. And finally, tell all your friends about
Similarly, if you are resolved to achieve your resolution so you can earn their
So how can you make sure that you a healthier work–life balance in 2010 praise if you succeed and feel their
will be one of the minority who do by giving more time to your partner, scorn if you fail — peer pressure is a
not break their new year’s promise to family, social life or personal fitness, powerful incentive!
themselves? We think the answer is a you are going to have to work out how
New Year Revolution instead of a New to implement your new priorities well Commit, plan and make your
Year Resolution — a whole new way to before the new year starts. Isn’t the commitment public: three simple
approach this important commitment. December break a great opportunity to steps to staging a New Year’s
experiment with some new routines and Revolution in 2010!
make some key decisions about how
General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal ﬁnancial
advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than