Money Matters ‘the benefits of sound advice’
Spring Issue #23
Staying In Touch Welcome to the new look Spring edition of Money Matters for 2010. It’s that time of the year again when we have to think about lodging our tax returns. If you receive a refund this year, have you given any thought to what you might do with that extra money? It’s often tempting to go out and spend it, but before you do, read our front page article – ‘It’s your tax refund - what are you going to do with it?’ to find out how you can use it to improve your financial situation. A good financial adviser views the relationship they have with their clients as a partnership. However you have to also play your part by updating them on your financial situation or any important changes in your life. To make sure your adviser can do the best job for you, make sure you keep in touch. We outline the importance of communicating with us in our article ‘10 reasons why you should contact your adviser’. Market update: How are the Australian markets affected by the world markets? Over the last few months we have seen how closely our market can be influenced by overseas events. Although Australian shares gained 13.8% for the financial year, this positive result doesn’t reflect the turbulence experienced in the last three months and the erosion of gains made by the market and superannuation funds in 2009. We outline some issues that affect our market in the investment article ‘How closely are Australia’s fortunes tied to global markets?’ Do you drink enough water? The benefits of drinking water extend far beyond simply quenching thirst. When considering the fact that the human body is comprised of more than seventy percent water, it becomes easy to see why regular consumption of water is beneficial for everyone. Read our back page article about the benefits of drinking water to find out just how vital it is to us all! With our continued focus and commitment to providing quality strategic advice to you, we want to make sure we are helping you in every way possible. Please contact us if you have any questions or would like to discuss your financial position. Regards,
Frances Magill
Authorised Representative
Brian Magill
Authorised Representative
Authorised Representatives of Matrix Planning Solutions Limited Contact Details: 250 Wright Street, Adelaide SA 5000 PO Box 6359 Halifax Street, Adelaide SA 5000 Telephone: 08 8231 8100 Facsimile: 08 8231 0155 Email: frances.magill@fmfinancialstrategists.com.au
It’s your tax refund what are you going to do with it?
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any of us will start to receive tax refunds in the coming months, with many more to come in the coming years. Have you given any thought to what you might do with that extra money in your pocket? It is often tempting to go out and spend it on a holiday or new wardrobe. While this might give you some short term happiness, it won’t help with your long term financial position. Now is the time to plan to use some extra cash to improve your financial situation. Let’s consider some options: Firstly, you could reduce your mortgage. By putting more into your mortgage each month, you are acquiring more equity in your home and reducing the interest. Remember, the more you get your debts under control, the better your financial position will be in the future. Having more equity in your home also means that you can perhaps reborrow that money again in the future for investment purposes or to purchase other assets. What about a regular investment plan? A regular savings investment plan will help you meet future objectives such as a new home, family education or retirement. Most funds will require a minimum deposit of $2000 or so - a great possible use for your tax refund. An ongoing savings plan of even a modest amount each month can start to build over time and harness the power of compound interest. By using managed funds, you can access diversified investments with modest contributions. While such investments are subject to fluctuations in value, history shows they offer growth over the long term. There are also likely to be tax benefits from franking credits on dividend income.
You could top up your super. If you’re nearing retirement and you’re expecting a tax refund, why not use at least some of it to make a contribution to your super account? Your superannuation fund will normally surpass any other investment vehicle simply due to the fact it is only taxed at a maximum of 15%. Remember though, once your money is contributed it is usually not accessible until you retire. If you’re sure you won’t need to access your money until you retire, this may be the best place to invest it. Finally, use a little bit just for fun. If you have a sizeable refund, invest most of it wisely. But there’s also nothing wrong with using a little bit of it to go out for a nice dinner or take your significant other to a movie or a sporting event. While it’s important to be financially responsible most of the time, we all need some fun from time to time too! Start planning how to improve your tax refund for next year. It’s unfortunate but many of us wait until the year ends before thinking of tax. Chances are that you can improve how you structure your finances to improve tax efficiencies, possibly resulting in a larger refund, by taking steps to discuss your situation now. Both your adviser and accountant can help, but only if you give them some time! If you have questions regarding how you should use your tax refund, call our office today.
Money Matters 10 Reasons Why You Should Ring Your Adviser
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our financial plan needs to support your goals, whatever changes may occur in your life. To ensure your adviser can do the best job for you, make sure you keep in touch. Below we have listed 10 reasons why you should contact your adviser: 1. If you are injured, fall ill or there is a death in the family If you have insurance, your adviser is in the best position to tell you whether there is the possibility of making a claim. You may be surprised at what is covered. At this tough time the last thing you may think about is calling your adviser, but this is the most important time to make contact as you may have insurance cover in place that could help you through this difficult time. 2. If you are considering contributing more into your superannuation by way of salary sacrifice or other contributions. Seek advice from your adviser before you allocate additional funds to your superannuation as this money may be used in a more beneficial manner e.g. paying off your current debts. For example, if you have a large mortgage or credit card debt you may be better off in the long run paying this off first. Also, there are limits to the different superannuation contribution ‘types’. Exceeding these limits can result in excessive taxation– make sure you seek advice about what is best for you. Adviser Quote: “We’ve recently found out that a client passed away following a terminal illness. His widow thought the insurance had lapsed and never told us he was ill. We followed up and the insurer paid a claim of $250,000, because in fact, the cover was in place when he was first diagnosed and he was entitled to claim.” Brendan Minehan, Matrix Adviser.
3. If you are considering changing any of your investments It’s important to seek advice from your adviser before you make any changes. Your adviser keeps informed about market conditions and can discuss them with you, often preventing a rash move. For example, during a down market you may have the urge to sell your investments and move to the safety of cash, but by crystallising the loss, you will be out of the market when the shares rebound. And, while you may get a good tip on a new stock or fund, your adviser may have more in depth information to assist you to make a good decision. 4. If you are considering a major purchase outside your normal budget Sometimes it’s hard to avoid but if you are considering purchasing a new car, completing home renovations or making a major purchase, you will need to consider the future implications of this purchase on your budgeting plan. Make sure you contact your adviser to discuss what impact this may have. 5. If you want to reduce your salary sacrifice contributions or cease salary sacrifice arrangements If you have commenced a Transition to Retirement (TTR) pension but then lower your salary sacrifice contributions (relative to the recommended strategy) or choose to temporarily cease salary sacrifice arrangements, you may be using up your accumulated super but not topping it up! 6. Thinking of purchasing an investment property? This is a very attractive option for many people, but have you considered whether it supports your overall financial strategy? Ask your adviser to do the numbers with you, to see whether this is a good option at this time. Your adviser can help you evaluate the cost and returns of negative gearing, as well as compare this to other options. Also, many people think that they need to have an investment property to reduce their tax liability… there may be better investment opportunities that will fit your circumstance so be sure to seek advice. 7. You have changed jobs, been promoted, gone part-time or had a baby and plan not to return to work Any of these events might affect your insurance and your superannuation, and
Adviser Quote: “I know that some income protection policies can pay out straight away if the policy holder has a specific injury like a broken leg. This would cover for loss of income for 2 months giving the client time to recover. We hope that clients would know to call us when something like that happens- we are here to help them get the most out of their cover.” Deanna Coorey, Matrix Adviser thus your retirement plans. For example, if you change occupations or get a promotion, eg – a manual role may become office based, this may reduce your insurance premiums. Or if you have a baby and choose not to return to the workforce, adjustments may need to be made to your insurance cover and super. 8. When you listen to your mates advice around the BBQ Each person has a different circumstance and its important to keep on track with your own plan. If you hear about a new investment opportunity from your mates while out socialising or if someone tells you they are cashing in all their investments to get out of the market - be sure to talk to your adviser before you make any changes to your own investments. 9. You quit smoking By giving up smoking you can significantly reduce your insurance premiums and the extra money you save can improve your budgeting plans. 10. If you turn 55, retire or receive an inheritance Turning 55 presents the opportunity for you to start a Transition to Retirement strategy (TTR) where you can start receiving some of your accumulated superannuation in the form of a pension. If you retire and are no longer receiving a salary or if you receive a large inheritance it will obviously impact your financial situation so make sure you discuss this with your adviser. Be sure to contact our office today if you have to update your adviser on changes to your financial situation.
How closely are Australia’s fortunes tied to global markets? Following the lead of overseas markets, local stocks tumbled in unison (losing 11.2% between April and June 2010) in response to uncertainty and fear over a deteriorating situation in Europe. The table below shows the market volatility as well as how international equity markets have moved over the past 12 months. How can we be so negatively affected by events in Europe, given the healthy state of Australian companies and our economy? The answer is, negative sentiment and pessimism, which spreads rapidly across global markets, and causes investors (both Australian and overseas) to pull out of riskier assets and into cash and safe havens such as US Government bonds. We also can’t escape the fact that when investors begin to doubt the strength of global growth, Australian companies are going to be caught up in the sell off, given that a significant portion of Australian company revenues are generated offshore.
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Global Financial Crisis (GFC) followed by a sharp recovery by share markets globally in 2009, and then…the recovery evaporates in a matter of months. In what was truly a ‘tale of two halves’, the 2009/10 Financial Year ended on a sour note for Australian investors. The first half showed plenty of promise, with Australian shares benefiting from optimism in world financial markets, but since February this year, we’ve had the European Sovereign Debt Crisis, China has undertaken efforts to slow its potentially overheating economy, and the US recovery turned out to be patchy at best. All of these serve to remind us that although the Australian economy is in a solid position, our market is, however, intertwined with global market sentiment and events.
Though the fortunes of the Australian market are tied to global movements, our market did fare slightly better than most other developed markets in the April to June 2010 period, compared to the falls experienced in the US (down 12.2%), Japan (down 14.6%), the UK (down 13.3%) and China (down 23.3%).
Both in terms of our sharemarket... Just how closely the Australian market is influenced by overseas events was seen over the last few months. Although Australian shares gained 13.8% for the financial year, this positive result doesn’t reflect the turbulence experienced in the last three months and the erosion of gains made by the market and superannuation funds in 2009.
Performance of Global Share Markets
…and our economy? The Australian economy on the other hand isn’t tied so closely to global events as much as our share market is. Our economy has been relatively well insulated (enjoying one of the strongest growth rates in the developed world), whilst most
3 Month Performance Ending 30 June 2010 %
12 Months Performance Ending 30 June 2010 %
Australia (S&P/ASX 300 Index)
-11.2
13.8
US (S&P 500 Index)
-12.2
12.2
UK (FTSE 100 Index)
-13.3
15.9
Germany (DAX Index)
-3.1
5.8
Japan (Nikkei 300 Index)
-14.6
-8.7
China (Shanghai Index)
-23.3
-18.1
Source: Morningstar, Inc.
other developed economies fell into recession during the GFC and continue to struggle. The main reason for this is that Australia has continued to benefit from demand (from China, India and other emerging markets) for our resources such as iron ore and coal. This, however, doesn’t mean that we are immune from weak global growth going forward. For example, a deep recession in Europe may not affect Australia directly (Europe only accounts for about 5% of Australia’s exports), but this would have a more direct effect if Europe’s demand for products from Asian economies fell substantially. Seeing that Asian economies rely on Australian raw materials for production, we would be impacted. Looking Ahead The rapid change in fortunes over the last few months demonstrates just how quickly extreme market optimism can turn into extreme pessimism and work its way rapidly through markets that are increasingly interconnected, with gloom in one country/region overshadowing sentiment in robust economies such as Australia. Unfortunately, such turbulence is likely to continue throughout the year as markets and economies adjust to the issues at hand. There is no doubt that the adjustment process will be slow, however, from an Australian perspective it’s important for investors to look beyond the shortterm: Australian companies are in a healthy state (with strong balance sheets and low debt levels) and a solid Australian economy continues to benefit from robust Asian economies, with China to continue to underpin growth over the coming years. If you have any questions regarding your investment strategy please speak with your financial adviser today.
Top 10 Health Benefits of Drinking Water
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hen considering the fact that the human body is comprised of more than seventy percent water, it becomes easy to see why regular consumption of water is beneficial for everyone. Water enables the body to function in more ways than you may realise. The benefits of drinking water extend far beyond simply quenching thirst. Water contributes to almost every aspect of a person’s health.
younger when it is properly hydrated. Water helps to replenish skin tissues, moisturise skin and increase its elasticity. Better Productivity: Your brain is said to consist of 80% water, thus drinking water helps you think better, be more alert and have higher concentration. Improves Exercise Performance: Drinking water regulates your body temperature. You will feel more energetic when doing exercises as water helps to fuel your muscle.
We have outlined 10 reasons below why you should ditch that next cup of tea or coffee, and replace it with a glass of H2o!
Assists with digestion & constipation: Drinking water raises your metabolism because it helps in digestion. Fibre and water go hand in hand so that you can stay regular.
Headaches: Water is a natural remedy to relieve headache and back pains due to dehydration. Although there are many other reasons that contribute to headaches, dehydration is the common cause. Weight loss: Drinking water can assist in helping you lose weight because it flushes down the by-products of fat breakdown. Drinking water also helps suppress your appetite so you’ll eat less. Plus, water has zero calories. Make sure you consult your doctor before starting a weight loss regime. Healthier Skin: Your skin will look
Less cramps & sprains: Proper hydration helps keep your joints and muscles lubricated, so you’re less likely to suffer from cramps and sprains. Keeps you from getting sick: Drinking plenty of water helps fight against flu and other ailments like kidney stones and heart attack. Water with a little bit of lemon added is often used for ailments like respiratory disease, intestinal problems, rheumatism and arthritis.
Relieves Fatigue: Your body uses water to help flush out toxins and waste products. If your body lacks water, your heart, for instance, needs to work harder to pump out the oxygenated blood to all cells, along with the rest of the vital organs. This results in your organs being exhausted and so are you. Reduce the Risk of Cancer: Related to the digestive system, some studies have shown that drinking a healthy amount of water may reduce the risks of bladder cancer and colon cancer. Water dilutes the concentration of cancer-causing agents in the urine and shortens the time in which they are in contact with bladder lining. So why not turn on the tap... and reap the benefits of drinking water - one of the greatest health discoveries of all time! What not to drink - Be sure to stay away from Electrolyte Drinks eg. Soft drinks, cordial, coffee and alcohol as they are no substitute for water. They can actually make you dehydrate. The reason is that these type of beverages contain chemicals (waste & toxins) that require the body to use water to remove them.
Market Update International shares: Slowing global growth and concerns regarding European sovereign risk is likely to reduce opportunities for international shares. We will continue to monitor these developments and convey, in a timely manner, whether any change in our position is warranted. The favoured areas are Asia and emerging markets. Stock and country selection is going to be much more important over the coming year as volatility remains high.
Australian shares: The market has had a significant correction over the past two months. Investors should focus on quality in this environment. We consider a slight
overweight appropriate on a three-year outlook for the large cap sector. Also, managers with strong stock picking skills are expected to out perform. Large caps are preferred over small caps and the focus should be on quality companies with strong income streams. Funding and liquidity still remain key issues.
Property: Property is likely to underperform equities on a three year outlook and we suggest under weighting the sector. Quality direct property valuations are starting to show signs of recovery although likely to be slow as access to funding remains difficult. The listed property sector has undergone significant recapitalising and opportunities are likely to emerge over the coming year.
Fixed Interest: With the direction of interest rates in Australia likely to be up, opportunities for fixed interest are likely to be limited over the coming year. A benchmark weight for the sector is appropriate. The credit market should provide selected opportunities over the coming year as credit spreads contract further and investment grade credit becomes more attractive. A cautious approach to sovereign debt is required with safe haven sovereigns preferred. Please contact our office to discuss any queries you may have on your investment portfolio.
Disclaimer: Money Matters is a private communication to clients and contains general information and advice only. It is provided by Matrix Planning Solutions Limited (ABN 45 087 470 200. AFSL No. 238256). As the particular circumstances and needs of individual investors may vary greatly, the information herein should not be used as a substitute for personalised advice. You should read the product disclosure statement before investing in any product Whilst every effort has been made to ensure the information is correct, its accuracy and completeness cannot be guaranteed, thus Matrix Planning Solutions Limited cannot be held responsible for any loss suffered by any party due to their reliance on the information or arising from any error or omission. Privacy Statement: This newsletter is provided as an information service for you and your family. If you do not wish to receive information of this kind in the future, please contact us by mail, email or phone and we will remove you from our mailing list.