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Five great charts on investing for income (or cash flow)

Posted On:Oct 15th, 2019     Posted In:Rss-feed-oliver    Posted By:Provision Wealth

Since I first looked at “Five great charts on investing for income” two years ago, the Australian cash rate has halved, 10-year bond yields have fallen by two thirds and interest rates have resumed falling globally. Ever lower interest rates and periodic turmoil in investment markets provides an ongoing reminder of the importance of the income (cash) flow or yield

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Since I first looked at “Five great charts on investing for income” two years ago, the Australian cash rate has halved, 10-year bond yields have fallen by two thirds and interest rates have resumed falling globally. Ever lower interest rates and periodic turmoil in investment markets provides an ongoing reminder of the importance of the income (cash) flow or yield an investment provides. The environment of low interest rates is challenging for those relying on investment income to fund their living costs and investing for income can seem daunting. So this note looks at five charts I find useful in understanding investing for income.

 

Chart #1 Alternatives to bank deposits

The income yield an investment provides is basically its annual cash flow divided by the value of the investment.

  • For bank deposits, the yield is simply the interest rate, eg bank 1-year term deposit rates in Australia are about 1.3% and so this is the cash flow they will yield in the year ahead.

  • For ten-year Australian Government bonds, annual cash payments on the bonds (coupons) relative to the current price of the bonds provides a yield of 1% right now.

  • For corporate debt, it’s a margin above government bond yields and depends on the riskiness of the company but is currently averaging around 2% in Australia.

  • For residential property, the yield is the annual value of rents as a percentage of the value of the property. On average in Australian capital cities it is about 4.2% for apartments and around 2.8% for houses. After allowing for costs, net rental yields are about 2 percentage points lower. 

  • For unlisted commercial property, yields are around 4.9%.

  • For infrastructure investment it averages around 4%, but franking credits could add 0.45% to this.

  • For a basket of Australian shares represented by the ASX 200 index, annual dividend payments are running around 4.3% of the value of the shares. Once franking credits are allowed for, this pushes up to around 5.6%.

The next chart shows the yield available on a range of investments both now and in December 2009 for comparison.


Source: Bloomberg, REIA, RBA, JLL, AMP Capital

Key messages: First, the yield on bank deposits and government bonds is woeful. Second, there are alternatives to cash when it comes to yield or income, notably shares, property and infrastructure but even here yields have generally trended down (albeit less so for shares). Of course, investors need to allow for risk. Bank deposits have close to zero risk but any move to higher-yielding investments does entail taking on risk.

Chart #2 The gap between yields on different assets provides a guide to value

The next chart shows average yields on Australian shares and unlisted commercial property relative to the one-year term deposit rate since 2000. With share and property yields not plunging to the degree bank deposit rates have, the gap between the former and latter is extremely wide. In fact, the share yield is in its historic range. All things equal, this suggests commercial property and Australian shares continue to provide better value. The same applies to unlisted infrastructure.


Source: JLL, Bloomberg, AMP Capital

Key message: comparing yields provides a guide to relative value, and shares and unlisted commercial property remain very attractive relative to bank deposits.

Chart #3 Shares can provide stronger growth in income with less volatility than bank deposits

Investing in shares entails the risk of capital loss, but can offer a higher and less volatile income flow over time. The next chart compares initial $100,000 investments in Australian shares (ASX 200) and one-year term deposits in December 1979 and the income they have provided over time (before franking credits are allowed for in the case of shares).


2019 data is year to date/annualised. Source: RBA, Bloomberg, AMP Capital

The term deposit would still be worth $100,000 (red line) and last year would have paid roughly $2200 in interest (red bars). By contrast the $100,000 invested in shares would have grown to $1.31 million (blue line) now and last year would have paid $47,792 in dividends before franking credits (blue bars). The point is that dividends tend to grow over time (because profits and hence an investment in shares tends to rise in value) and are relatively stable compared to income from bank deposits, which vary with interest rate settings. Over the period the worst decline in dividend income from shares was a 32% decline between 2009 and 2011, whereas the income from bank deposits plunged 68% between 1990 and 1994 and by 65% between 2011 and this year. And it’s set to plunge even more given the falls in term deposit rates since June. Once franking credits are allowed for, the comparison would become even more favourable towards shares.

Key message: shares come with the risk of capital loss, but a well-diversified portfolio of Australian shares can provide stronger growth in income with less volatility in that income than bank term deposits. The key question investors focused on income (or cash flow) need to ask is what is most important: stability in the value of their investment or a higher, more sustainable income flow than bank deposits offer? But if investors do go down the share path, it’s critical to have a well-diversified portfolio of shares paying high and sustainable dividend yields. Look for stocks that have a reliable track record of growing those dividends and that have dividends that are not threatened by things like excessive gearing.

Chart #4 A bird in the hand is worth two in the bush

A high and sustainable starting point yield provides some security during volatile times. Since 1900, dividends (prior to allowing for franking credits) have provided just over half of the 11.8% average annual return from Australian shares and as can be seen in the next chart their contribution has been stable in contrast to the capital value of shares.


Source: Global Financial Data, Bloomberg, AMP Capital

Dividends are relatively smooth over time because most companies hate having to cut them as they know it annoys shareholders, so they prefer to keep them sustainable.

Key message: a high and sustainable income yield for an investment provides some security during volatile times. It’s a bit like a down payment on future returns.

Chart 5 Yield provides a guide to future returns

The income yield an investment provides is a key building block in its total return, which is determined by the following.

Total return = yield + capital growth

Generally speaking, the higher the yield an investor invests at, the higher the return their investment will likely provide. This is self-evident in the case of bank deposits because the yield is the return (assuming the bank does not default on its deposits – which is very unlikely in Australia given government protections). It can be seen in relation to bonds in the next chart, which shows a scatter plot of Australian ten-year bond yields since 1950 (along the horizontal axis) against subsequent ten-year bond returns based on the Composite All Maturities Bond Index (vertical axis). Over short-term periods, bond prices can move up and down and so influence short-term returns, but over the medium term the main driver of the return a bond investor will get is what bond yields were when they invested. If the yield on a ten-year bond is 5%, then if you hold the bond to maturity your return will be 5%. Of course, a portfolio of bonds will reflect a range of maturities and so the relationship is not perfect, but it can be seen in the next chart that the higher the starting point bond yield, the higher the subsequent return.


Source: Global Financial Data, Bloomberg, AMP Capital

When bond yields are high, they drive high bond returns over the medium term and vice versa. For example, when Australian ten-year bond yields in January 1982 were 15.2% it’s not surprising that returns from bonds over the subsequent ten years were 15.4% per annum. Similarly, when bond yields were just 3.1% in January 1950, it’s no surprise that returns from bonds over the next ten years were 3.1%. At 1% now, we are off (the bottom of) the chart meaning record low bond returns for the next decade.

Similar, albeit less perfect, relationships exist for other asset classes – the higher the yield, the higher the subsequent return.

As always, there are some risks investors must watch out for. At the individual share level, a very high dividend yield may be a sign of a “value trap” – where current profits and dividends may be fine but there is an impending threat to the company and so the share price is low. Second, high distributions may also be unsustainable if they are being paid for out of debt and reflect excessive gearing or high-risk investments. There is no free lunch.

Key message: while returns have been solid lately, low investment yields do warn of lower returns ahead – most notably from government bonds.

 

Author: Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist, AMP Capital Sydney, Australia

Source: AMP Capital 15 Oct 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties 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 article 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 article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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Succession planning: A competitive advantage strategy

Posted On:Oct 14th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Sidestep the negative effects of change with thorough succession planning and you’ll put your business ahead of the curve. Not only does this improve your company’s value, but it also provides something every good business manger strives for: your employees’ peace of mind.

You know this is true – succession planning is the cornerstone of any business that lasts. It smooths

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Sidestep the negative effects of change with thorough succession planning and you’ll put your business ahead of the curve. Not only does this improve your company’s value, but it also provides something every good business manger strives for: your employees’ peace of mind.

You know this is true – succession planning is the cornerstone of any business that lasts. It smooths the way as one leader leaves and another takes over, creating an environment in which the new management – and your business – can be successful, while reducing the effects of the unavoidable turmoil of change.

Yet succession planning is so often overlooked.

According to Deloitte, 86 percent of leaders see leadership succession planning as ‘urgent’ or ‘important’, but only 14 percent believe they do it well.

This is something that I’ve seen regularly as the CEO of Star Business Solutions – an MYOB business partner.

Here it is in a nutshell:

  • Succession is inevitable

  • Planning is imperative to manage risk

  • It can affect your entire business

  • Consider the emotional aspects

  • Data provides objectivity during uncertainty

Succession planning for a family business is especially important, because the organisation is more than just a company – it’s a legacy, tied to the life’s work of just a couple of people. It’s so complex that there have been entire books written on the subject.

But even in traditional businesses, the process of letting go and handing over the reins to a successor can be surprisingly painful for the exiting leader.

Managed poorly, it’s not uncommon for the process of succession to stir up feelings of resentment, resistance and even hostility in otherwise level-headed business people.

In the middle of all that upheaval, the organisation and your team are left struggling to keep the doors open and the lights on.

A great succession plan doesn’t just create organisational stability, market confidence and value, it also comes with a raft of other benefits.

  • More diverse leadership – with the objectivity that comes from succession planning, you’ll be able to more clearly see what your company needs, rather than simply replacing leadership like for like.

  • A career pathway mapped for emerging leaders – this means you’ll be more able to attract and retain top talent with the promise of genuine opportunities to come.

  • A strong and healthy culture – panic-purchasing leaders is the fastest way to erode staff good will, and damage that intangible, yet utterly important element: culture. When you have time to consider your options, you’ll be able to choose leaders who will embody your company values and maintain a strong and healthy workplace culture.

Why succession planning will get you ahead

Having an eye on those inevitable future changes means you’ll transition more smoothly, and your new leadership will get fully operational faster. But that’s not all.

A succession plan is about more than just planning for the future – since so many businesses fail to do it, it actually gives you a competitive advantage.

You’ll be sidestepping the messiness, infighting and underperformance that so many of your competitors will deal with.

Systems ready for change

While software isn’t the be-all and end-all of business, an old or inefficient system can make a succession process far more difficult.

At the most basic level, when BAU relies too heavily on the knowledge of one leader, it creates risk – when that leader leaves, even with the best preparation, it’s likely they’ll be leaving gaps through which leak money, time and good will.

This is especially important if you’re replacing first-generation leaders, who’ve built the business almost from scratch. They may not even be aware of how much they know – the ratios, the leading indicators and warning signs, for example.

These can, and should, be taken out of leaders’ heads and embedded into the business intelligence reporting. This will mean the system plugs the knowledge gaps, and keeps everything ticking over, while staff and new leadership get their feet under them.

These systems should also enable leaders to track progress simply and quickly. This delivers much-needed oversight, allowing others in the leadership team, the board and any consultants to keep an eye on the business as the incoming leaders learn the ropes. This gives new leaders a safety net – they can trust that any major misses will be caught early by those in the business with more experience. Similarly, during a hand-over period, it allows the outgoing leadership to stay engaged with performance, without feeling like they’re breathing down their successor’s neck.

The data objectivity can also help minimise resistance and resentment. Planning for and finding a successor based on transparent, accessible data will let all management be engaged in the process, and more readily accept outcomes.

Plan for changes of leadership team, not just the CEO

Succession planning is so often focused on protecting the business when the CEO is replaced.

The reality is that this role, while truly critical, is only one piece of the management puzzle.

Any sudden or poorly planned exit of any of your senior leadership team can create problems. The new leaders, underprepared, could have gaping holes in their knowledge of your business systems and processes, and in their understanding of the new team.

At best, this will mean they take much longer to begin working at capacity. At worse, they’ll lose the respect and support of the people they’re leading, and make decisions that abjectly affect their department and the business as a whole.

A well-prepared leader will be equipped with the context and understanding needed to be successful in the role from day one – and for that they need to be entering the business under an agreed plan.

Establish long lead times

The ideal time to plan for succession of an organisation as a whole is when a business is established.

For senior leadership, preparing for their departure should begin as part of their induction process. Obviously, that rarely is the case, but it indicates how critical early preparation is.

With long enough lead time, preparing for this change becomes BAU for everyone in your business, rather than something that seems to come out of nowhere. It also gives you time to properly develop criteria for evaluating candidates and gives the outgoing leader a chance to prepare for the change – both practically and emotionally.

There can be huge problems with the outgoing CEO not letting go emotionally and practically. It can make the new leader’s job impossible and they’ll go elsewhere.

In a best-case scenario you’ll have five years to prepare for a change in CEO, with three years being the minimum. Succession plans for the remainder of the executive, and other management will need less time.

Establish accountability and advocacy

According to research from Deloitte, succession planning is often overlooked due to a lack of ownership – it’s not clear who bears responsibility for creating the plan or for finding top talent.

This means that while people acknowledge the importance of succession planning, they’ll assume it’s someone else’s job until told otherwise.

Similarly, having advocates at executive level will help build a succession culture into the organisation – staff at every level will expect succession planning as a normal part of growth and success.

Design for where you’re going

Most succession planning looks at what you need in order to maintain the status quo.

A moment’s pause will reveal the flaw here – succession planning should be about the future of the company, not its present.

Focusing on the needs of your business in the future won’t just better prepare your next leaders for the changing world but can help remove a barrier to successful planning itself: fear.

In most businesses, staff at all levels are incentivised to appear irreplaceable – and that butts up against the most basic goal of succession planning, which is, quite literally, to replace people. That often leads to leaders spending time protecting their patch and holding back from preparing people to take over.

If the goal is to build leaders for what the business is next, it removes the feeling that leaders are replaceable now.

This makes it easier for the outgoing leadership to accept that their replacement will – and should – do things differently. This can be particularly difficult if the outgoing leader still has an ongoing financial relationship

You might think, ‘It’s my money so I have a right to be involved here’, but it becomes counterproductive. You have to trust that you’ve made the right choice of leader, and then let them get on with their work.

Sidestep the messiness, smooth the transition

A successful business doesn’t stand still – it grows, innovates, maybe even diversifies. Meanwhile, your leadership can either stand still, or move forward with the future of the business.

A great succession plan, not just for the CEO but for all the individuals on the management team, creates an environment of stability, confidence and value in a business – definitely a competitive advantage. Not only that, but it diversifies the leadership, offers career paths for promising staff, keeps an eye on the future of your business, and maintains a healthy work culture for the present.

A smart leadership team will recognise the emotional and cultural risk of a poorly planned succession. You’ll manage a smoother transition by keeping software systems up to date (retaining specialist knowledge that’s currently in the heads of the Old Guard), assigning responsibility and advocacy for succession, and establishing clear future goals.

Most importantly, your plan will begin long before it’s needed, so when succession time happens, everyone is well prepared and ready for the inevitable.

Who knows? They might even look forward to the fresh air of change.

Source : MYOB 

Reproduced with the permission of MYOB. This article by Trish Hall was originally published at https://www.myob.com/au/blog/succession-planning-competitive-advantage/


Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page. 

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Understanding cash flow

Posted On:Oct 14th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Understanding cash flow in the time it takes to play a game of solitaire.

In the time that it takes to go through your deck and figure out your game strategy, this article will help you understand what cash flow is and how to write a cash flow statement.

That’s only two minutes of reading time. Ace.

One of the biggest reasons businesses

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Understanding cash flow in the time it takes to play a game of solitaire.

In the time that it takes to go through your deck and figure out your game strategy, this article will help you understand what cash flow is and how to write a cash flow statement.

That’s only two minutes of reading time. Ace.

One of the biggest reasons businesses fail is because of “inadequate cash reserves”. That’s just a fancy way of saying they ran out of money.

Making sure you’ve got positive cash flow – meaning you’ve got more money coming into your business than going out of it – is the single biggest factor that will affect your financial health.

Cash flow is all about the liquidity of a business. That is, the amount of money flowing in and out of a business and how much cash you actually have on hand.

The state of your cash flow will change with your business. For example, you probably won’t have much cash flow when you launch your business, as you probably wouldn’t have made many sales.

But as your business grows, keeping on top of the cash coming in and out of your business will become more and more important.

How to write a cash flow statement

Cash flow statements are an overview of money a business has coming in (inflows), and how much it has going out (outflows).

It’s important to write up cash flow statements regularly so you know that there’s enough cash to keep the business functioning.

Cash flow statements are important for many reasons. These include:

  • To make sure business expenses, such as bills and wages, are paid on time

  • To apply for a business loan

  • To convince potential investors to invest in the business

Cash flow statements generally include three main parts:

1. Operating activities

How does your business make money on a day-to-day basis?

The ‘operating activities’ section of your cash flow statement covers how your business makes revenue.

The cash inflows in this section record whenever customers buy your product and services. The cash outflows record your everyday operational costs, such as wages, materials and other expenses.

2. Investing activities

This section of the cash flow statement relates to any long-term investments the business makes. This could include the purchase or sale of property, vehicles or other equipment, which are considered non-current assets.

The investing activities section could also include financial assets, such as securities purchased on the stock market.

3. Financing activities

This section of the cash flow statement includes information about any financial activities your business undertakes. This could include taking out business loans or issuing stocks.

This is also the part of the cash flow statement that records any debt that the business needs to repay.

Managing your cash flow

How you manage your cash flow depends on what your business does and how often you make sales.

For example, businesses that sell many low-cost products and services every day – such as grocery stores – will have inflows every day.
But a construction company that might only do one or two big jobs per year might have bigger chunks of money coming in only a few times per year.

As you can imagine, the cash flow statements of these two businesses would look very different. How they manage their cash flow and put together their statements will also be very different.

We’ve put together some general tips for managing your cash flow, as well as more specific tips for managing cash flow in a business with significant seasonal differences.

Top 3 takeaways

  1. Your cash flow is the amount of money coming in and out of your business.

  2. A cash flow statement helps you keep track of the movement of your business’ money. Update this regularly so you keep on top of your business’ finances.

  3. A cash flow statement includes information about operational activities, investing activities and financial activities.

Please contact us on |PHONE| if you seek further assistance on this topic.

 

Source : MYOB 

Reproduced with the permission of MYOB. This article by MYOB Team was originally published at https://www.myob.com/au/blog/understanding-cash-flow/

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

 

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How to stop freaking out about speaking in public

Posted On:Oct 14th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

The first rule of being a good public speaker is understanding it doesn’t come naturally, says public speaking coach Andrew Griffiths. Here’s how to overcome that.

According to this study people prefer the idea of death to speaking in front of a crowd of strangers.

Gulp. Seems a bit drastic, doesn’t it?

But as entrepreneur, author and public speaking coach, Andrew Griffiths told Flying Solo

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The first rule of being a good public speaker is understanding it doesn’t come naturally, says public speaking coach Andrew Griffiths. Here’s how to overcome that.

According to this study people prefer the idea of death to speaking in front of a crowd of strangers.

Gulp. Seems a bit drastic, doesn’t it?

But as entrepreneur, author and public speaking coach, Andrew Griffiths told Flying Solo the  good news is that public speaking is something we can learn to excel at.

Lucky for us, he shares a stack of excellent tips in this video.

Here’s a sneak peek at the top 3:

1.Prepare, prepare, prepare

According to Andrew a big part of the reason we feel nervous about speaking is because we feel under prepared. He recommends doing your research and writing your speech well ahead of time so you can practice.

2.Remove the ‘unknowns’

Where possible try and Google the venue to find out what size the room is that you’ll be speaking at, and where in the room you’ll be standing.

3. Get to know your audience

Always arrive early to the event and use that time to chat to people in the audience. Andrew recommends telling them that you’ll speaking and if they have any thoughts on the topic, as this can be great addition to your intro.

 

Source : Flying Solo

This article by Lucy Kippist reproduced with the permission of Flying Solo – Australia’s micro business community. Find out more and join over 100K others.

 

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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Myth busting: the cost of setting up renewable energy in a home

Posted On:Oct 14th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Market research indicates the average Australian home has 17 connected devices; ‘smart’ devices in the internet of things that offer everything from efficiency to safety, convenience and entertainment.1  Renewable energy devices – behind the meter, on the roof and in your pocket – are the next frontier, offering real savings and the potential to power them all.

In 1981, you could

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Market research indicates the average Australian home has 17 connected devices; ‘smart’ devices in the internet of things that offer everything from efficiency to safety, convenience and entertainment.1  Renewable energy devices – behind the meter, on the roof and in your pocket – are the next frontier, offering real savings and the potential to power them all.

In 1981, you could buy a personal computer (PC) for about the same price as a used car. The next screen revolution – flat screen televisions – hit the market in the late 1990s to the tune of about $15,000 for a large model.

Prices dropped rapidly over the next decade as technology improved. Research shows the average Australian home now has 6.6 screens, including internet-capable televisions, tablets, smartphones and high definition televisions.2

So it goes that breakthrough technologies seem to be underestimated and overpriced at the outset, but costs decline rapidly as the technology improves and adoption becomes widespread.

The declining cost of renewable energy

Similar dynamics can be observed in renewable energy technology.

The climate crisis upon us and finite reserves of coal and gas capture a decade-long debate about how our electricity should be produced. In mainstream debates, renewable energy is increasingly being understood as a necessity, not a choice, to future-proof energy sources for homes and businesses.

For example, in 2017, onshore wind was named the world’s cheapest way to produce electricity. Its unsubsidised levelised cost of energy (LCOE) range of US$30-60 per megawatt hour (MWh) fell below the range of the cheapest fossil fuel, natural gas (US$42-78 per MWh). Solar was right behind as the world’s second-cheapest energy source, with the high end of its LCOE range (US$43–53/MWh) less than any other generation source. Globally, Australia has the lowest costs for solar-powered generation.3

If history repeats itself, this means that as energy companies transition their portfolios to hold greater proportions of renewable electricity generation, retail energy costs should decrease over time.

In the meantime, there are savings and gains to be made by investing in distributed energy resources (DER) that generate power directly for the home and reduce the amount of energy one needs to consume. Rooftop solar is the most common, with an investment case that’s more compelling than you might think.

Myth 1: Installing renewable energy in a home is a major expense

Rooftop solar, with or without a battery for storing your power, is one of the most commonly deployed DER solutions.

Australia’s Clean Energy Council estimates 1 in 5 rooftops have solar panels installed – including 2 million homes – with 6 panels installed each minute in 2018.

Recent market surveys indicate the average price across Australian capital cities for a 5kW system without battery storage is $5,100. A system of this size is generally suitable for a family of four and takes anywhere from two to seven years to pay for itself.4

As for batteries, market research suggests they are still relatively expensive, and the payback time will often be longer than the warranty period of the battery. The current cost is between $8,000 and $15,000 (installed), depending on capacity and brand.5  It’s worth checking what’s available in your area, as there are some government schemes that offer financial incentives. At a minimum, it’s worth making sure your system is ‘battery ready’ as battery costs are declining rapidly.

Myth 2: Long-term cost-savings aren’t that significant

According to Clean Energy Council Chief Executive Kane Thornton, homes with rooftop solar are saving on average about $540 per year on their electricity bills.

This represents a 25 percent saving on the average annual electricity bill of $2,088 for a four-person home.6

According to Choice, the price of a 5kW solar system has fallen by around 58 percent in the last six years – and the technology is getting cheaper.

Looking ahead

Distributed energy resources are set to play an increasing part in Australia’s energy system. These small-scale energy solutions are forecast to dramatically increase and deliver almost half of all electricity supplied by 2050.7

Current examples of DER include rooftop solar, batteries, microturbines, fuel cells, electric vehicles and ‘demand response’ applications that moderate consumption.

Solar is the most prevalent today and, while the technology is continually improving, it is already a compelling investment that is within the reach of many.

As technologies continue to improve, the choice and benefits for investor-owners in solar and other solutions should expand.

Source : AMP CAPITAL September 2019 

Australian IoT@Home Market Study, Telsyte, 2019
Australian Video Viewing Report, Nielsen, 2018
Global renewable energy trends, Deloitte Insights, 2018
How to buy the best solar panels for your home, Choice, 2019
How to buy the best solar battery storage, Choice, 2019
What is the average electricity bill?, Canstar Blue, 2019
The Distributed Energy Integration Program, Australian Renewable Energy Agency, 2019

Important notes: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties 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 article 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 article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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Tips on how to save money and how to budget

Posted On:Oct 14th, 2019     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

Planning can help you reach your savings goal sooner.

Do you want to save money for the future? Saving money is a process, and it helps to have a plan and budget to reach your financial goals. If you’re looking for ways to save money, these budgeting and money saving tips could help you reach your goals sooner.

How do Australians save?

Research

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Planning can help you reach your savings goal sooner.

Do you want to save money for the future? Saving money is a process, and it helps to have a plan and budget to reach your financial goals. If you’re looking for ways to save money, these budgeting and money saving tips could help you reach your goals sooner.

How do Australians save?

Research by the Australian Securities and Investments Commission has found that almost three quarters of Australians save by putting spare money into a savings account, either by doing this themselves or by automatic transfer1.

Some of the other popular ways to save money include keeping money in an account that can’t be touched (like a term deposit), building up extra savings in a transaction account or depositing savings into a home loan offset account2.

What are you saving for?

The first step to save money is to figure out what your savings goal is. Recent research indicates that the most popular things Australians are saving for are a holiday, a rainy day and to buy or renovate a home2.

You could be saving for one of these goals, or something else, like having a baby, funding your kids’ education, or for retirement. No matter what your goal is, it helps to have it in mind—then you can work out how much you’d like to save to reach this goal, and by when.

Once you have your goal, write it down, tell a friend, or both. Research suggests that writing your goals down, sharing them and tracking them means you’re more likely to achieve them3.

What are some common tips to save money?

Once you’ve decided what you’d like to save for, how much you need to reach your goal, and when you need to reach it by, the next step to consider is where your money will come from. One of the most common ways to save money is to create a surplus between how much you earn and how much you spend each month.

If you’re spending every cent that comes in, you may need to identify extra income sources to help you earn more money, or think about reducing your spending to free up money for your savings goals.

When it comes to how to budget and save, these budgeting tips could be helpful to you get started:

1. Create and track your budget

Creating a money smart budget is often seen as the best way to save money. By tracking your income and your spending, you can identify where your money goes, and from this you can look into avoiding some non-essentials or reducing some expenses.

For example, if you buy your lunch every day at work, you could bring your lunch instead. If you spend on non-essentials like pay TV, gym memberships, entertainment and eating out, you could either cut back completely, or find more affordable options.

In the end, every bit adds up. It’s your lifestyle so you don’t need to deprive yourself of every bit of fun, but even cutting back a little bit here and there on expenses could make a difference.

2. Review your bill providers

Unfortunately, bills are a part of life, but it’s possible you may not be getting the best deals out there, especially if it’s been a while since you last contacted your providers.  Reach out to your gas, electricity, mobile phone and broadband providers, and see if they have better deals that you can switch to help you save more money, or get more from your provider.

Another option to consider could be shopping around for a new provider, especially if your contract is due to expire. There are plenty of product and service comparison sites available online which can help you make an informed decision that suits your lifestyle and your budget.

3. Think green and cut wastage

Thinking green doesn’t just help the environment— it can also be one of your ways to save money. For example, if you find you’re throwing out food at the end of every week, you might be able to reduce your grocery spending and your food waste. Likewise, instead of replacing household goods, you could consider repairing, reusing, or upcycling them for another purpose.

If you are a two-car household, it may help to think about whether you can do without the second car. While this may mean you spend more on public transport and taxis, the upside is that there are environmental benefits, plus you could save money on petrol, tolls, parking, registration, insurance and maintenance.

4. Consolidate your debts

If you have a number of debts, consolidating them into one may save you money and make budgeting and money management easier. Having multiple debts, such as credit card debt, personal loans and a home loan could mean you’re paying more in interest rates and fees than you have to, because you’re paying to different providers.

There are plenty of debt consolidation loans out there, so if you are considering this option then it may be beneficial to either speak to a financial adviser or look on a comparison website for the best deal.

What’s the best way to save money you’ve earned?

Once you’ve identified what you’re saving for and where you’re going to get money to save, you’ll need to work out the best way to save money.

The way you save money could be different, depending on whether your saving goals are for the long term or short term. For example, a separate savings account where your money is readily accessible might be useful for a short-term goal. On the other hand, a term deposit, where your money is tied up for a set period of time in return for higher interest, could be a more suitable option for a longer-term goal.

When you’re looking for a suitable savings product, you’ll need to factor in many things, such as the fees charged, interest rates, how accessible your money is, whether you can set up an automatic direct debit and whether there’s a minimum amount you need to deposit each month.

If you’re looking for ways to save money, here are some of the most common options out there:

Save money in a savings account

Most banks in Australia offer a variety of options for transaction and savings accounts. Standard savings accounts usually offer low fees and access to your money, but you may get a lower interest rate. High interest savings accounts typically have higher interest rates, but there may be penalties for withdrawing your money before a set period of time has passed, or if you don’t meet ongoing minimum deposit requirements.

Save money in an offset account

An offset account can help you save money by minimising the interest you pay on your home loan. Offset accounts allow you to put extra money into your account to offset your home loan balance, so you can save money and you only pay interest on the remaining portion of your loan.

Save money using a term deposit

As well as transaction, offset, and savings accounts, many banks also offer a term deposit option. Term deposits work by locking your money away for a certain timeframe (or ‘term’) in exchange for a guaranteed interest rate return during that time. A general rule of thumb is the longer the timeframe, the higher the interest rate.

Term deposits are generally low in fees, typically require a minimum initial deposit, and can sometimes require a minimum ongoing deposit. If you withdraw money from your term deposit account before the timeframe is over, you could pay additional fees.

Save money through investment bonds in Australia

Investment bonds are a tax-effective way of saving for the long term (longer than 10 years). Australian bonds typically require either a minimum deposit or minimum ongoing deposits, and you can choose how your money is invested.

Other options to save money

If you’re looking to save and grow your savings over the longer term, you could also consider putting your money into an investment. Some of the best ways to invest money in Australia include shares, property, exchange traded funds, and additional super contributions; however, this will depend on your lifestyle, the amount you have to save, and your risk tolerance.

Before investing your savings, it might be useful to speak to a financial adviser to help you make the right choice for your goals. Please contact us on |PHONE| if you seek further assistance on this topic .

Source : AMP October 2019 

1 ASIC Moneysmart, How Australians save money.
2 ASIC Moneysmart, How Australians save money.
3 Dominican University, Goals Research, pg 3

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person.

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