Provision Newsletter

Download Market Watch – January edition and read the full report. (1MB file)

This edition:

• The year ahead should be positive for investment markets as monetary conditions remain easy and global growth picks up

• We explore what to look out for in 2014

• Can gold reverse last year’s 28% decline or are further falls in store in 2014?

Market Watch is designed to provide you with a clearer understanding of complex investment issues.

If you would like to discuss any of the issues in this edition, please contact us.

Myth 1 – Super is a type of investment.

Wrong. Super is a tax-effective way to save for your retirement. Within super you can invest in different types of investments—or asset classes—with different levels of risk and return.

Myth 2 – I have no control over my super.

Wrong. Super is your money and, while it’s invested over a long term, there’s a lot you can do to take control over your retirement savings. You don’t need to accept the default investment option.

You can change your super investment to reflect where you’re at in life. Most super funds offer a choice of investments depending on how much risk you’re prepared to take on.

• If retirement is still a fair way off, you have longer to recover from any market downturns. So you might be willing to take on more risk.

• If you’re nearing retirement, you have less time to recover from any market downturns. So you might take a more conservative approach and take on less risk.

You can put your super into an investment platform, offering a wide range of investment options, from direct shares all the way through to managed funds.

You can even set up a self managed super fund to take full control of your super. But don’t forget, you’ll take all the responsibility for complying with rules, administering your fund and managing your investments. Most SMSF owners get professional help with the paperwork.

Myth 3 – I won’t have to share my super in a divorce.

Wrong. Super is on the table in any divorce settlement, along with the family home and other investments. It’s treated just like any other asset. And that counts for de facto couples as well.

You can split your super payments as part of a settlement. But you’ll still need to keep that money in a super fund until retirement.

Myth 4 – I can’t access my super until I retire.

Not strictly true. Many people don’t realise that if you were born before 1 July 1960, you can start a transition to retirement strategy when you turn 55. It’s a really tax-effective way to start drawing an income from your super, while still working and contributing towards your retirement nest egg.

You can call AMP on 131 267 or your financial planner to find out the real story behind super.

What you need to know

Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

It’s always the same. You’ve hit it too hard over the festive season and come New Year’s Day you feel like a wreck.

The physical hangover is the easy bit—pop a vitamin, brew a strong pot of coffee and get some rest. But it’s the emotional and financial hangover that can take longer to shift.

The best of times, the worst of times

Christmas and New Year can be a wonderful time to catch up with family and friends. But let’s be honest, it can also be pretty stressful.

When it comes to the festive season, it’s all about striking a balance. You want to buy some decent presents, but you need to keep to a budget. You want to please friends and family, but you need to think about your own wellbeing. And you want to have fun, but you don’t want to wipe yourself out.

For some, the constant round of engagements with friends, colleagues and relatives can be an emotional rollercoaster. The temptation is to accept every invitation, leaving no time for yourself. For others, it can be a lonely time of year and a reminder of times past.

Hip pocket stress

With so many demands on your wallet, it’s easy to let your spending get out of control. You can wake up to a substantial credit card bill that puts you behind on your budget before you’ve even started and knocks your New Year’s saving resolutions for six.

You can take steps to reduce your financial stress.

• Put a limit on the value of gifts.

• Go Kris Kringle with the family rather than buying separate presents for everyone.

• Encourage share plates at gatherings.

Check out AMP’s Budget planner, call AMP on 131 267 or talk to a financial planner about how you’re going to build and protect your wealth in the year ahead.

What you need to know

Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

What’s behind the increasing hope about the recovery in non-mining sector growth?

The mining boom has largely run its course and there’s been a lot of uncertainty about what that means for the Australian economy, with some predicting a recession.

Fortunately, the Reserve Bank has cut interest rates quite aggressively, leading to a pick-up in the housing market. Rising house prices along with rising share prices mean that people are starting to feel wealthier and this is positive for spending. Approvals to build more homes are also up strongly. Business and consumer confidence are looking up and Australians seem to be becoming a bit less focused on paying down their debt.

This all suggests that non-mining activity will pick up, Australia will avoid a recession and the economy will probably improve over the next 12 months.

What are the biggest opportunities and threats for the Australian economy in 2014?

In terms of opportunities, we should see higher retail sales as the housing recovery filters through, boosting company profits and share prices.

We should see more opportunities for exporters as the Aussie dollar loses value.

And we’ll probably also see growth in unlisted assets such as commercial property and more opportunities to invest in infrastructure as state governments offload assets.

In terms of threats, one might arise from spending cuts if the Government decides to aggressively deal with the budget deficit. And this could risk pushing us back into a lower growth environment.

Conversely, if things go too well, then we could be looking at higher interest rates as inflationary pressures return. But that’s probably a fair way away.

Longer term, there are structural issues that need to be addressed to make the economy more competitive and return more flexibility to the workforce. Now the mining boom’s over, we need to work harder or more effectively to maintain growth in living standards.

What are the three most important factors to think about when investing in property?

A decent income flow is critically important. A low rental yield means you’re very dependent on capital growth, for a decent return.

Don’t underestimate the costs. When you’re investing in shares or managed funds or term deposits, the costs are usually fairly transparent. With rental property they are often hidden but they can really add up. Particularly property maintenance and various taxes.

And don’t forget that property prices can go down as well as up. Australians pay quite a lot for the average house compared with their income and there’s always a risk if something goes wrong with the economy.

Overall, the key is to find property offering stable rental income in good areas where demographic demand over time will be relatively strong.

Eurozone and the US—what can we expect from them in the New Year?

In the US, there might be a bit of uncertainty at the start of next year as politicians need to agree on funding the Government and raising the debt ceiling again.

But next year sees mid-term elections in the US. So the Republicans probably won’t want to push as hard as they in October because Americans would blame them for any economic uncertainty and this may damage their Congressional election prospects.

And as the politicians argue, the US economy continues to improve. Believe it or not, the US Budget deficit has fallen from 10% of GDP in 2010 to 4% now and in 2014 will probably move to 3%.

Meanwhile, at some point in the months ahead the US Federal Reserve will start to slow the rate at which it is buying US government bonds and mortgage backed securities. This could trigger financial market nervousness but note that it will only be occurring because Fed the US economy is stronger. In other words it will be a case of “mission on the way to being accomplished” – which is actually good for confidence and good for growth.

In the Eurozone, the debt crisis continues to recede. Towards the end of next year, the European Central Bank will publish stress tests of the banking sector. They will need to find a way to prop up banks that don’t have enough capital. They probably will, but as usual there might be a bit of uncertainty along the way.

But the broad picture on both fronts is still one of economic recovery. The markets should be able to withstand the stress tests in Europe and the fiscal and monetary issues in the US.

For more information on how current financial markets are affecting your investments and to find out how we can help, call your AMP financial planner or call us, today.

What you need to know

This document was prepared by AMP Capital Investors Limited (ABN 59 001 777 591, AFSL No 232497). This document, unless otherwise specified, is current at Monday, 9 December 2013 and will not be updated or otherwise revised to reflect information that subsequently becomes available, or circumstances existing or changes occurring after that date. While every care has been taken in the preparation of this document, AMP Capital Investors Limited makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance.

This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.

The recent bushfires in New South Wales have had a devastating effect, with insurance losses so far estimated at more than $183 million.[ 1] While loss of life has fortunately been minimal, many people have suffered the loss of their home and priceless memories.

By 2020, the annual cost of bushfires is estimated to rise to about $18 billion, with double the number of major events, a longer fire season and a 25 per cent increase in area burnt.[ 2]

Protect yourself in the short term…

It’s important to make short-term plans so you’re prepared for any immediate emergency.

• Update your fire safety plan – it’s vital to know what you’re doing in case of an emergency.

• Fire proof your property – make sure you minimise any risks and cut down vegetation where possible.

• Store precious photos elsewhere or scan them into Cloud storage such as Flickr or Photobucket – you don’t want to be worrying about possessions if you have to act quickly.

• Save important documents online – a secure and accessible Australia Post Digital MailBox is a great way to go paperless.

…and the long term

It’s also a good idea to make long-term plans. After an emergency, there are huge demands on local services and tradies can be in short supply. It can take more than 12 months to repair or rebuild homes, according to the Insurance Council of Australia.[ 1]

Insurance can help you get back on your feet after suffering the ravages of a bushfire or other natural disasters such as cyclones and floods. The New Year can be a good time to review your home and contents insurance and make sure you’re fully insured.

It’s also a good idea to think about personal insurance. If the worst happens, and you’re out of action through illness or injury, insurance can help you pay the bills and put food on the table, while you’re getting back on your feet.

• Trauma insurance pays a lump sum if you suffer an illness or injury covered in your policy.

• Total and permanent disability insurance pays a lump sum if illness or injury prevents you from ever working again.

• Income protection generally pays up to 75 per cent of your salary if you can’t work due to illness or injury.

• Life insurance pays a lump sum to your beneficiaries (usually your family) in the event of your death.

Check out AMP’s Life insurance calculator to see how much cover you may need to fully protect yourself and your family.

Then call AMP on 131 267 or your financial planner to develop an insurance plan that fully covers you and your family.

What you need to know

Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

Today’s modern family is almost unrecognisable from traditional households, according to the latest AMP.NATSEM report. ¹

Life is more complex, family structures are more varied and the challenges of the modern age are placing ever greater pressure on the way we live. Today’s modern family usually starts with a couple living together before marriage, perhaps deciding to delay having children. And when they do start a family, while it’s more common for women to be the primary carer, most mothers will quickly return to work, at least part-time.

• We’re having children later

First time mothers are on average 29 years old, compared to 30 years ago when they were just over 25. And almost one in four babies are born to mums aged 35 or over.

• More women are in the workforce

More than half a million, or one in four Australian households, now have a female as their major breadwinner—140,000 more households than 10 years ago.

• More children are in new family structures

Blended and step-families now make up almost 11 per cent of Australian families with dependent children, compared to 6.8 per cent in 1986.

• Our marriages are lasting longer…

Divorce rates in Australia have stabilised at 2.2 divorces per 1,000 people and marriages are lasting longer—on average 12 years, up from 10 years in 1991.

• …and we’re becoming more tolerant

The number of same-sex couples has increased 72 per cent in 10 years, with most of this growth coming from non-metropolitan areas. This significant increase is likely to be driven by same-sex couples being more comfortable about disclosing their relationship.

Changing families, changing finances

It’s important to take into account your family structure when you’re managing your finances.

If you’re the breadwinner, you should check you’re receiving a super boost. From 1 July 2013, the amount your employer is required to pay into your super increased to 9.25 per cent. Check your latest super statement or log in to My Portfolio to find out whether you’re getting the correct super payments.

If you have some disposable income to play with, you may want to put more money towards your super. You can put up to $25,000 of your pre-tax salary (including the super contributions your employer makes on your behalf) into your super at the concessional tax rate of 15% ².

If you’re expecting an addition to your family, you should review your insurance. If something happened to you, could your family pay the bills, cover the mortgage and put food on the table? Our life insurance calculator can help you work out how much cover you may need. And don’t forget to keep your beneficiaries up to date so your benefits go to the right people.

If you’re taking time off to start a family, you should take advantage of every tax break out there. Whether you’re married, de facto or in a same-sex relationship, there’s a tax offset for couples when the higher earner makes extra contributions to their spouse’s super from their after-tax income. It’s a great way to boost your combined super, reduce your tax bill and build up your retirement nest egg ³.

Want to know more?

• Download the full report

• Watch the video series: Naomi and Matt, Mr and Mr, His Kids Her Kids

What you need to know

Any advice in this document is general in nature and is provided by AMP Life Limited ABN 84 079 300 379 (AMP Life). The advice does not take into account your personal objectives, financial situation or needs. Therefore, before acting on this advice, you should consider the appropriateness of this advice having regard to those matters and consider the Product Disclosure Statement before making a decision about the product. AMP Life is part of the AMP group and can be contacted on 131 267. If you decide to purchase or vary a financial product, AMP Life and/or other companies within the AMP group will receive fees and other benefits, which will be a dollar amount or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

¹ Cassells R, Toohey M, Keegan M, and Mohanty I (2013), ‘Modern Family: The changing shape of Australian families’, AMP.NATSEM Income and Wealth Report Issue 34, October.

² This applies to those earning less than $300,000. For those earning above $300,000, the concessional tax rate is 30%.

³ Conditions apply – for more information, call AMP on 131 267 or speak to your financial planner.