by Financial Foundations on 16/01/2019

2018 Small Business Of The Year Award

2018 SMALL BUSINESS OF THE YEAR AWARD

Posted on January 16, 2019

Last month FFA was honoured to WIN the 2018 “Small Business of the Year Award” (Up to 25 employees) at the Greater Dandenong Chamber of Commerce Business awards! Out of 12,500 business in the Greater Dandenong area, we feel privileged to win this award. We thoroughly enjoy helping our clients achieve their financial goals and seeing them succeed. Thank you to all of our clients for trusting us and allowing our team to help you in your financial journey – We look forward to the many years ahead!

Article below courtesy of the Dandenong Star Journal.

Planting the seeds of success

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2018 Year In Review

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2018 YEAR IN REVIEW

Posted on January 13, 2019

Investors started 2018 full of hope, with the global economy and financial markets in good shape, but by year’s end they were uncertain and a little anxious about what lay ahead. Markets responded with last minute falls across all asset classes.

The issues that weighed heavily at the end of 2018 were the unresolved trade dispute between the US and China, confusion over the final Brexit deal, rising US interest rates, falling oil and commodity prices and the US government shutdown. Australians were also distracted by political instability and falling house prices in Sydney and Melbourne.

With so much focus on what may, or may not, lie ahead, it was easy to lose sight of the solid progress we’ve made.

POSITIVE ECONOMIC GROWTH

The global economy grew at a steady clip of 3.1 per cent. However, the World Bank estimates global growth will ease slightly to 3 per cent this year and 2.9 per cent in 2020 as central banks remove monetary stimulus in place since the financial crisis.ⁱ

The US economy continued its strong recovery with growth of 3 per cent in the year to September.

China’s growth slowed to 6.5 per cent, still remarkably strong by global standards but its lowest since 2010, as the effects of its trade dispute with the US begin to bite.ⁱⁱ

Australia enjoyed steady growth of 2.8 per cent in the year to September as we notched up a world-beating 27 years without recession. Corporate profits are at record levels, inflation is a tame 1.9 per cent and unemployment fell to 5.1 per cent. While wages growth of 2.3 per cent was an improvement, it’s still well below the 20-year average of 3.25 per cent.

Yet consumers remain cautiously upbeat. The Westpac Melbourne Institute rose a percentage point over the year to 104.4 – anything over 100 is regarded as optimistic.ⁱⁱⁱ

FOCUS ON INTEREST RATES

The Australian dollar fell 10 per cent in 2018 to finish at US70c, due largely to US dollar strength and a widening of the gap between local and US interest rates. High US interest rates increase the global cost of borrowing and boost the value of the greenback.

The US Federal Reserve lifted rates four times to 2.5 per cent but indicated there may be only two more hikes in 2019, rather than three as previously forecast, due to the slowing economy. By contrast, Australia’s cash rate finished the year where it started at 1.5 per cent.

At the other end of the yield curve, US 10-year government bond yields were barely changed at 2.7 per cent, reflecting market fears of economic slowdown. Yields on Australian 10-year bonds eased to 2.3 per cent.^iv

FALLING COMMODITY PRICES

The lower dollar is good news for our exporters and should soften the impact of falling commodity prices which have been caught in the cross-hairs of trade wars and fears about an economic slowdown.

Iron ore was down 3 per cent to US$71.50 a tonne while oil, copper, aluminium, zinc and nickel prices dropped between 16 and 19 per cent. The one bright spot for local producers was wheat, up almost 20 per cent.^iv

SHAREMARKET CORRECTION

Global sharemarkets retreated as the year came to an end, with the MSCI World Index down 10.4 per cent on a world of worries.^v

US shares fell 6.5 per cent, their worst annual performance in a decade. In Europe, UK shares fell 12 per cent with no Brexit deal in sight while political and economic uncertainty also weighted heavily on share prices across the Eurozone. In Asia, Chinese shares suffered the heaviest losses (-25.5 per cent) while the Japanese market fell 12 per cent.^iv

Australian shares tapped into the global mood, with the ASX 200 down 6.9 per cent, its worst year since 2011. However, when you add dividends the total return from shares was down just 3.5 per cent, and closer to zero after franking credits are taken into account.^vi

PROPERTY MARKET LOSES STEAM

The heat came out of Australia’s residential property market in 2018, with big falls in Sydney and Melbourne dragging the national market down 4.8 per cent according to figures from CoreLogic.^vii This is the biggest annual fall in a decade and follows tighter lending practices, rising supply, higher mortgage interest rate and falling investor demand.

After rental income is included, the annual return from property was down 1.2 per cent.

It was a case of the further they rose, the harder they fell. Sydney (-8.9 per cent) and Melbourne (-7 per cent) were hardest hit, while Perth (-4.7 per cent) and Darwin (-1.5) were also in retreat. Prices continued to climb in Hobart (8.7 per cent), Canberra (3.3 per cent), Adelaide (1.3 per cent) and Brisbane (0.2 per cent).^vii

LOOKING AHEAD

The late market reversals of 2018 were driven by gloomy expectations rather than the reality of solid economic progress. Future performance will depend on US interest rates, the resolution of trade tensions between the US and China and, to a lesser extent, the negotiation of a workable Brexit.

In Australia, uncertainty will persist until the Federal election is out of the way. Then investors can get back to focusing on fundamentals such as our solid economic growth, a strong corporate sector, resilient consumers, low interest rates and more affordable housing.

i World Bank, 5 June 2018, http://www.worldbank.org/en/news/press-release/2018/06/05/global-economy-to-expand-by-3-1-percent-in-2018-slower-growth-seen-ahead
ii Trading economics, as at September 2018, https://tradingeconomics.com/china/gdp-growth-annual
iii Westpac Melbourne Institute, 12 December 2018, https://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0009/2943036/PressReleaseCSI20181212.pdf
iv Trading economics.
v Financial Times, 1 January 2019, https://markets.ft.com/data/indices/tearsheet/summary?s=MS-WX:MSI
vi Year in Review 2018, CommSec Economic Insights, 2 January 2019
vii CoreLogic, 2 January 2019, https://www.corelogic.com.au/news/australian-dwelling-values-fell-48-through-2018-marking-weakest-housing-market-conditions-0

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by Financial Foundations on 17/12/2018

Avoiding The Holiday Debt Hangover

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AVOIDING THE HOLIDAY DEBT HANGOVER

Posted on December 17, 2018

We’re coming up to the festive season and for all its fun and frivolity, it’s also a time when we loosen the purse strings to accommodate the excess.

We all know there’s nothing worse than starting the new year with unpaid debt. Making a solid plan for your silly season spend can make a big difference and will help you avoid a holiday debt hangover.

PSYCHOLOGY OF THE FRENZY

The Christmas frenzy is pretty powerful. Even the biggest Scrooges in our midst can succumb. And it’s not hard to see why. We are bombarded with marketing from all corners at this time of year leading us to make purchases we normally wouldn’t without really giving them much thought. This can all be rather fun in the moment but can result in anxiety come January, when the credit card bill is due.

One way to manage this pressure to spend is to be aware of the psychological concepts marketers employ to turn a sale. Scarcity theory is a big one.i Creating the perception that an item is limited in some way is a great way to close a deal. And Christmas provides a line in the sand that few can resist.

There’s also the fact that the brain produces dopamine when it anticipates reward rather than upon receiving the reward itself.ii The hype and anticipation around Christmas provides a dopamine hit making it hard to resist the sensory overload of the decorations and carols when you hit the shops.

REMIND YOURSELF WHAT IT’S REALLY ABOUT

The best way to counter this marketing frenzy is to remind yourself what Christmas is really about for you and your family. For most of us it’s reconnecting with our loved ones, sharing a meal, and finding some way to give back. This doesn’t have to be material in nature. There are plenty of ways to show someone you care that don’t involve expensive purchases. Giving someone your time, or lending them an ear, can often be so much more valuable.

Now’s also the time to have the chat about Christmas values with your children. Kids are particularly susceptible to the holiday hype. And if you want to maintain your budget and avoid the sulks come Christmas morning, setting some boundaries around what they can expect gift-wise can be helpful (Santa may have some limitations on what he can carry).

AVOID UNNECESSARY DEBT ACCRUAL

The average Australian credit card holder spent $3342 on plastic in December last year.iii Worryingly, many were unable to pay it back for months, often accruing unnecessary interest. Credit cards can be handy if used correctly. But you need to ensure you have the cashflow to meet your repayments. Having a holiday season budget will help here.

Another trend to be aware of is Afterpay. A bit like layby except you get the product immediately, for many it is a form of forced budgeting, but for others it can lead to making purchases they can’t afford, and the late repayment fees can really add up.

CUT THE CLOTH ACCORDINGLY

It’s important to remember everyone has different means and expectations around the festive season. There’s no point trying to keep up with the Joneses if it’s going to put a dampener on the rest of your summer. If, on the other hand, you’re one of the lucky ones who has the ways and means to live large at Christmas, remember not everyone does.

We call it the silly season for a reason. And there’s no harm in spending a bit more in December in the name of fun and family. We all have our limits however, and knowing yours could help you avoid a holiday hangover in the New Year.

AVOIDING POST-CHRISTMAS DEBT

Make a list (check it twice!)
Set a budget and stick to it
Shop around for the best deals
Watch the use of credit cards and Afterpay

i http://theconversation.com/the-psychology-of-christmas-shopping-how-marketers-nudge-you-to-buy-88011
ii https://www.theguardian.com/science/punctuated-equilibrium/2011/aug/11/1
iii https://www.news.com.au/finance/australians-are-being-warned-not-too-overspend-on-their-credit-cards-this-christmas/news-story/2cf080bfd59c545f9b9e34770c564f95

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by Financial Foundations on 10/12/2018

Protecting Your Family

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PROTECTING YOUR FAMILY

Posted on December 10, 2018

The holidays are traditionally a time to relax and reflect on the importance of family. They are also an opportune moment to think about how you can care for and protect your family all year round.

When you are enjoying the summer break with your loved ones, it can be hard to imagine anything could ever go wrong. But life is unpredictable, which is why life insurance is so important, particularly when you have people who depend on you.

Whether you are a young couple starting out, a growing family with kids at school and a mortgage, or empty nesters with debts to clear before retirement, having the right insurance cover could make a world of difference if the unthinkable happened.

Life insurance is not one product but many, to cover a range of needs. If you are unsure which cover is right for your family, begin by asking yourself a series of ‘what ifs’.

WHAT IF YOU GET SICK OR INJURED AND ARE UNABLE TO WORK?

You probably insure your car and your home, but the impact on your family is potentially much greater if you lose the ability to earn an income. Whether you are out of action for months or years, few families have enough savings to tide them over until you recover and return to work.

The solution is Income Protection insurance, also called Income Replacement or Salary Continuance cover. This replaces up to 75 per cent of your current income if you are unable to work due to illness or injury. Depending on the policy, it can cover you for short or long periods, sometimes up to age 65, after various waiting times.

WHAT IF YOU SUFFER A MAJOR ILLNESS?

The survival rates for critical illnesses such as heart attack, cancer and stroke are improving, but recovery can take a long time and the financial and emotional toll on your family can be high.

The solution is Trauma insurance, also called Critical Illness. This pays a lump sum if you are diagnosed or suffer one of a specific list of illnesses. You could use the money to reduce your working hours, spend time recovering with your family, or to pay for treatment, rehabilitation or a carer.

WHAT IF YOU BECOME PERMANENTLY DISABLED AND UNABLE TO WORK?

A serious injury or illness can come out of the blue, leaving you unable to provide for your family. A government Disability Pension is unlikely to fully replace your previous salary. And the National Disability Insurance Scheme, while providing care packages, does not pay regular income or a lump sum.

The solution is Total and Permanent Disability (TPD) insurance. This pays a lump sum which you can use to pay off debts, cover medical costs or invest to provide regular income to help maintain your family’s lifestyle.

WHAT IF YOU FALL CRITICALLY ILL OR DIE?

It’s a sad fact that any of us could be diagnosed with a terminal illness or die prematurely in an accident. If this happened to you, how would your partner and children cope emotionally and financially? The kids still need to be fed, clothed and educated, the mortgage or rent must be paid, and your partner may need time off work for extra caring duties, adding to the financial pressure. If you don’t have kids or they have left home, your partner could be left with a mortgage and other debts.

The solution is Life cover, also called Term Life or Death cover. This pays a lump sum on your death or the diagnosis of a terminal illness, allowing your family to focus on supporting each other, secure in the knowledge that the bills will be paid.

All these policies can be bought separately or bundled together as often happens with Death and TPD cover.

You may already be covered for some level of insurance via your super fund, however it might not be adequate for your needs. It’s important to have insurance that is tailored to your personal circumstances, that will protect your family’s financial and emotional well-being come what may. We are here to help.

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On the economic news front, there was some good news. Consumer prices eased by more than expected in October. The news that inflation may have been tamed means interest rate rises may be behind us, for now. The positive data also led to a jump in the Australian dollar, taking it to a new four-month high.

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by Financial Foundations on 03/12/2018

Summer 2018

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SUMMER 2018

Posted on December 3, 2018

December is upon us and summer has arrived with bushfires in Queensland and flooding rains in NSW. Our best wishes go out to all those affected as well as our brave emergency services workers. And to all our clients, we wish you a safe and happy holiday season.

November was a month of surprises. Oil prices plunged 22 per cent to US$58.73 a barrel after US President Donald Trump’s decision not to sanction Saudi Arabia over the murder of Jamal Khashoggi. British Prime Minister Theresa May reached agreement with the European Union on a plan for Brexit but getting the deal through the UK parliament will be difficult.

In Australia, the Victorian Labor Party won a landslide victory and Prime Minister Scott Morrison announced an early April 2 Federal Budget before a May election. The result of all this uncertainty was ongoing market volatility. Wall Street fell with oil prices but finished on a positive note after US Federal Reserve Chair Jerome Powell seemingly indicated that US interest rates may not rise much further. The S&P500 finished the month 2 per cent higher.

Locally, the economic news was positive. The Reserve Bank lifted its growth forecast for 2018 to 3.5 per cent from 3.25 per cent. The Federal Budget edges closer to surplus, with a lower-than-expected budget deficit of $2.35 billion in the year to October, the best in a decade. Unemployment held steady at 5 per cent in October, while petrol prices dropped 22 per cent in November to a national average of $1.37 a litre, the biggest fall in a decade. The Australian dollar is trading around US73c, up from US70- 71c at the start of November. Australian consumers responded positively, with the ANZ/Roy Morgan Consumer Confidence rating firming slightly to 118.6 points.

CAN YOU AFFORD YOUR DREAM RETIREMENT?

Planning your dream retirement can be an exciting time. The chance to travel overseas or around Australia without having to rush back to work, time to pursue new hobbies, learn a language or spend time with the grandkids. The possibilities are endless, but what will it cost?

Working out how much you will need to live the dream, and what you can afford will come down to a variety of factors. These include whether you own your home, the value of your superannuation and other investments, the return you earn on those investments and your spending patterns. You may also have a younger spouse who will be dependent on income from your investments after you die.

And that’s the big unknown, because none of us know how long we will live.

PLAN FOR A LONG LIFE

Today’s 65-year-olds can expect to live to an average age of 84.6 years for men and 87.3 for women, or roughly 20 and 22 years respectively in retirement. That’s a long time, and it’s only an average. Half will live longer than that.i

The challenge is to ensure your cash lasts the distance, however long that may be.

A good way to begin thinking about your retirement needs and working out a budget is to visit the ASFA Retirement Standard, where you will find detailed budgets for different households and living standards.ii

ADDING UP THE COSTS

The ASFA Retirement Standard calculates that singles aged around 65 would need $27,425 a year to live a modest lifestyle while couples would need $39,442. A comfortable lifestyle would cost $42,953 for singles and $60,604 for couples.

To put this in perspective, the full age pension is currently $23,823.80 a year for singles and $35,916.40 for couples.iii As you can see, this does not stretch to ASFA’s modest budget, let alone a comfortable lifestyle, especially for pensioners who are paying rent or still paying off a mortgage.

Of course, everyone’s needs will be different. Some people may need to spend more on their health, while a contented gardener and homebody may need less money than a keen global traveller with a season ticket to opera, theatre or football.

It’s also important to recognise that your spending patterns are likely to change in predictable ways over the course of your retirement, determined by your health and mobility.

THE THREE STAGES OF RETIREMENT

Most people go through three phases of retirement.

The active years. In your 60s and 70s you finally have the flexibility to travel, spend time with the grandkids and pursue other interests. Expenditure is likely to be high, especially if overseas travel is high on your bucket list. You may also want to help your adult children financially.

Slowing down. At some point the joints get a little creaky, your mobility and activity decline as does your spending. Travel is closer to home, you may do some voluntary work and begin to live a little more frugally. Spending on health may increase and many will consider downsizing their home.

The frail years. Most of us hope to remain in our own homes, but many will spend our final years in residential aged care. This may be due to increased frailty, a sudden medical event or cognitive decline. Whatever the reason, spending on health and aged care are likely to increase significantly. While government subsidies may reduce the out-of-pocket costs, having savings will increase your options and access to high quality care at home or an aged card facility.

SEEK PROFESSIONAL HELP

Australians are living longer, healthier lives which means many of us can expect to enjoy almost as many years in retirement as we did in the workforce. And that requires careful financial planning.

Before you can set financial targets and investment objectives, you need to work out what your dream retirement might cost.

If you would like help to make your retirement dream a reality, give us a call.

i https://www.aihw.gov.au/getmedia/7b986857-7b41-4aae-b7ff-eab57eb20f13/20457.pdf.aspx?inline=true
ii https://www.superannuation.asn.au/resources/retirement-standard
iii https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/eligibility/payment-rates

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by Financial Foundations on 08/11/2018

Benefits Of A Super Long Engagement

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BENEFITS OF A SUPER LONG ENGAGEMENT

Posted on November 8, 2018

Superannuation is a long-term financial relationship. It begins with our first job, grows during our working life and hopefully supports us through our old age.

Throughout your super journey you will experience the ups and downs of bull and bear markets so it’s important to keep your eye on the long term.

The earlier you get to know your super and nurture it with additional contributions along the way, the more secure your later years will be.

Like all relationships, the more effort you put into understanding what makes super tick, the more you will get out of it.

Your employer is required to make Superannuation Guarantee (SG) contributions into your account of at least 9.5 per cent of your before-tax income. If you are self-employed you are responsible for making your own voluntary contributions, but these are tax-deductible.

CHECK YOUR ACCOUNT

The first step is to check how much money you have in super and whether you have accounts you’ve forgotten about.

You can search for lost super and consolidate all your money into one fund if you have multiple accounts by registering with the ATO’s online services.ⁱ Having a single fund will avoid paying multiple sets of fees and insurance premiums.

The next step is to check what return you are earning on your money, how it is invested and how much you are paying in fees.

If you don’t nominate a super fund or investment option, your SG money is invested in the ‘Balanced’ or default option nominated by your employer. Balanced options typically have 60-75 per cent of their money invested in growth assets such as shares, with the remainder in bonds and cash.

Over the past 10 years, $100,000 invested in the median balanced option would have nearly doubled to $193,887, but there was a wide range of performance (see the graph below). The best performing balanced option returned $214,464 over the same period while the worst returned $156,590.ⁱⁱ

The difference between the best and worst performing funds could fund several overseas trips when you retire, so it’s worth checking how your fund’s returns and fees compare with others. You can switch funds if you are not happy, but it’s never wise to do so based on one year’s disappointing return. Super is a long-term investment so get in the habit of looking at your fund’s performance over five years or more and comparing its returns with similar products.

A decade of super returns

Source: Super Ratings

STATE YOUR PREFERENCES

Default options are designed for the average member, but you are not necessarily average. Younger people can generally afford to take a little more risk than people who are close to retirement because they have time to recover from market downturns. So think about your tolerance for risk, taking into account your age, and see what investment options your super fund offers.

As you grow in confidence and have more money to invest you may want the control and flexibility that come with running your own self-managed super fund.

Also check whether you have insurance in your super. A recent report by the Australian Securities and Investments Commission (ASIC) found that almost one quarter of fund members don’t know they have insurance cover, potentially missing out on payouts they are entitled to.ⁱⁱⁱ

Insurances may include Total and Permanent Disability (TPD) and Income Protection which you can access if you are unable to work due to illness or injury, and Death cover which goes to your beneficiaries if you die.

BUILDING YOUR NEST EGG

Once you understand how super works you can take your relationship to the next level by adding more of your own money. Small amounts added now can make a big difference when you retire.

You can build your super in several ways:

Pre-tax contributions of up to $25,000 a year (including SG amounts), either from a salary sacrifice arrangement with your employer or as a personal taxdeductible contribution. This is likely to be of benefit if your marginal tax rate is higher than the super tax rate of 15 per cent.
After-tax contributions from your takehome pay. If you are a low-income earner the government may match 50c in every dollar you add to super up to a maximum of $500 a year.
If you are 65 and considering downsizing your home, you may be able to contribute up to $300,000 of the proceeds into your super.

You could also share the love by adding to your partner’s super. This is a good way to reduce the long-term financial impact of one partner taking time out of the workforce to care for children. You can split up to 85 per cent of your pre-tax contributions with your partner. Or you can make an after-tax contribution and, if your partner earns less than $40,000, you may be eligible for a tax offset on the first $3,000 you put in their super.

Before you make additional contributions, adjust your insurance, or alter your investment strategy, it’s important to assess your overall financial situation, objectives and needs. Better still, make an appointment to discuss how you can build a positive long-term relationship with your super.

i https://www.ato.gov.au/individuals/super/keepingtrack-%20of-your-super/#Checkyoursuper
ii https://www.superratings.com.au/2018/09/20/%20dont-panic-what-superannuation-is-teaching-thepost-%20gfc-world/
iii https://download.asic.gov.au/media/4861682/%20rep591-published-7-september-2018.pdf

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