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Provision Newsletter

Take control and spring into super!

Posted On:Sep 18th, 2013     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

For most of us, spring means swooping magpies, blossom on the fruit trees and changing the winter doona. It may also mean the arrival of your annual super statement in your letter box or inbox.

Making sense of your super statement

Your super statement might look a bit daunting, but it’s not as complicated as you think. To help make

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For most of us, spring means swooping magpies, blossom on the fruit trees and changing the winter doona. It may also mean the arrival of your annual super statement in your letter box or inbox.

Take control and spring into super!Making sense of your super statement

Your super statement might look a bit daunting, but it’s not as complicated as you think. To help make it easy, here is a simple checklist to guide you through your super statement this spring.

  • Did you receive your statement?

If you haven’t received your statement, your contact details may be out-of-date or your statement may be sent at a different time of year—for example on your account anniversary.

Go to myportfolio.com.au to check we have your correct address and update your account details. If it’s your first time on My Portfolio, you can register in a few simple steps and start taking control of your super future—not just once a year, but all year round.

  • Did you get more than one statement?

You might have good reasons for owning more than one super account to keep the benefits of a particular fund, such as insurance. But more often than not, it’s accidental. The more funds you have, the more sets of fees you’ll be paying.

If you’ve been thinking about finding and bringing together your super accounts, this is a great time to do it. The ATO’s super seeker site ( ato.gov.au/Calculators-and-tools/SuperSeeker) is a good place to start looking.

  • Have all your contributions been paid?

Check your statement to make sure all payments made by your employer appear on your statement, as well as any extra voluntary contributions you’ve made.

From 1 July, the minimum rate of employer super contributions is increasing from nine per cent to 9.25 per cent, the first of a series of increases over the next few years taking the rate to 12 per cent.

You can boost your retirement nest egg by:

  • sacrificing some funds from your pre-tax salary at a concessional tax rate
  • taking advantage of government incentives.

 

  • Where are your savings invested?

Your statement tells you how your money is invested and where your future contributions will be allocated. Different asset mixes may work best for you, depending on your financial goals, when you plan to retire and how much risk you’re prepared to take on.

Calculators ( amp.com.au/calculators) are a helpful way to better understand how much you’ll need to live on in retirement and whether you’re on track to get there.

  • Are you fully protected?

Your statement tells you how much insurance cover you have with your fund and how much it’s costing.

Many super funds provide a default level of insurance cover. But you might want to think about increasing your cover to make sure you and your family are fully protected financially if something happened to you.

  • How much are you paying in fees?

Your statement tells you the fees and costs you have paid for your super fund to manage and invest your savings. These include rebates (fees paid back into your account as per your fee structure), and direct fees (the fees that apply to your plan and Benefit Category).

  • Who will receive your money if something happens to you?

Your statement tells you who you’ve nominated as your beneficiary (if you have made your nomination)—the person who will receive your benefit in case of your death. It’s important to renew your nomination regularly, particularly after significant changes in your life.

Do you have any questions about your super or your super statement? Call us today on 07 5447 7740 for a conversation.

 

What you need to know

Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

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A fresh look at insurance

Posted On:Sep 18th, 2013     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

The burst of energy that comes with spring helps us look ahead and set goals for the future, and that may involve taking a fresh look at your insurance cover.

Like the seasons, life’s constantly changing. Having financial protection that continues to meet your needs through these changes is as important as an umbrella in winter.

Everyone’s needs are different,

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The burst of energy that comes with spring helps us look ahead and set goals for the future, and that may involve taking a fresh look at your insurance cover.

Like the seasons, life’s constantly changing. Having financial protection that continues to meet your needs through these A fresh look at insurancechanges is as important as an umbrella in winter.

Everyone’s needs are different, so when it comes to insurance—whether it’s life, income protection, trauma or total and permanent disablement cover—it’s not simply a case of set-and-forget.

Financial protection when you need it most:

  • Life cover provides a lump sum when you die.

  • Total and permanent disablement cover pays you a lump sum when you’re so ill or injured that you are unlikely to ever be able to work again.

  • Trauma cover pays a lump sum when you’re diagnosed with a condition covered under your policy.

  • Income protection cover pays up to 75 per cent of your income when you’re sick or injured and unable to work.

 Do you need more?

Every day, underinsurance combined with an unexpected event has a significant impact on the finances of Australian families. The typical Australian family will lose half or more of their income following a serious illness, injury or the loss of a parent[ 1].

Insurance levels can be adjusted as your needs change. Over time you may extend your mortgage or take on new financial commitments and having too-little cover in place could leave you short-changed down the track.

You may need less…

Similarly, you only want to pay for what you need.

As you get older your debt levels may reduce. Say you’ve paid off your home and have minimal debt or the kids are financially independent—you may no longer need as much insurance. That’s when your cover can be scaled down.

Our tomorrows are changing

It pays to look ahead when considering your insurance needs.

With the Australian divorce rate at 42 per cent, many blended families are changing their debt levels in later years and single people are bearing their responsibilities independently.

While the majority of Australians are healthier and living longer, we know that more than half of 65-year-olds are living with some form of disability. That’s when insurance can help to ensure that you have the quality of life you deserve.

Expected years of life for men and women aged 65 in 1998 and 2009

Expected years of life for men and women aged 65 in 1998 and 2009. People aged 65 have an increased life expectancy with more than half the increased time expected to be spent in good health. Women aged 65 can expect to live longer than men of the same age, but with more time in poor health.[ 2]

Spring into action

With only five per cent of Australian families currently holding a level of cover that matches their circumstances, it’s time to make sure your insurance cover fits your needs[ 3].

Spring into action and see if you’ll be better-off by increasing or reducing the level of cover you have. Call us today on 07 5447 7740, so you’ll be better-off tomorrow.

 

[1] Dr Simon Kelly and Dr Quoc Ngu Vu. (February 2010). The Lifewise/NATSEM Underinsurance Report: Understanding the social and economic cost of underinsurance. lifewise.org.au

Dr Simon Kelly and Dr Quoc Ngu Vu. (2010) Journal of Financial Advice, (Volume 3, Issue 3. The economic cost of underinsurance for a typical family. natsem.canberra.edu.au

[2] Australian Institute of Health and Welfare. (2012). Australia’s health 2012: in brief. Cat. no. AUS 157. Canberra: AIHW.

[3] Dr Simon Kelly and Dr Quoc Ngu Vu. (February 2010). The Lifewise/NATSEM Underinsurance Report: Understanding the social and economic cost of underinsurance. natsem.canberra.edu.au

What you need to know

Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

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Practical matters

Posted On:Sep 18th, 2013     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth
Q: There's a lot of political debate about the surplus. Why is balancing the books so important?

The ideal situation is to have a modest level of public debt, usually less than 60 per cent of Gross Domestic Product (GDP), and to run a balanced budget over the course of an economic cycle. Beyond a certain level though, investors will regard

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Q: There's a lot of political debate about the surplus. Why is balancing the books so important?

The ideal situation is to have a modest level of public debt, usually less than 60 per cent of Gross Domestic Product (GDP), and to run a balanced budget over the course of an economic cycle. Beyond a certain level though, investors will regard public debt as unsustainable and demand that the government pay higher interest rates. This can also affect private borrowers as government borrowing rates often form the base from which all private sector interest rates are determined.

The political debate tends to exaggerate some of these arguments. Australia's level of public debt is quite low by global standards—around 25 per cent of GDP compared to the US, which is about 100 per cent of GDP and parts of Europe, which is even higher than that. The debate in Australia has focused on how long we are taking to get back to surplus, as we are currently looking at eight years of budget deficits, which is a long period. It’s about balance—a small level of public debt is fine, but at excessive levels, it’s a problem. Fortunately, we are a long way from that.

Q: There seems to be fears of a potential housing bubble in Australia – should we be worried?

The best outcome for Australia would be a period of moderate house price growth, averaging around 2.5 per cent per annum and no more than five per cent, because rising house prices are good for household wealth, but if they are too strong it becomes unsustainable and housing becomes increasingly unaffordable. With house prices growing at around five per cent, we are nowhere near the bubble-like proportions we had a few years ago, when house price gains were typically around 15-20 per cent per annum.

The only way house prices will surge and have a bubble is if home buyers become prepared to take on a lot more debt again. Fortunately though Australians are more cautious about debt these days, having seen the impact of too much debt in the US and Europe and what excessive growth in house prices can do. This suggests there's probably not going to be another house price bubble. The more likely scenario is prices will continue to go up over the next 12 months and then it will settle down at a fairly modest annual pace.

Q: With interest rates at historic lows, shouldn't we direct all our spare money into property?

It's a question of balance. Beyond the family home, putting more money into property means acquiring investment property, and currently the rental yields on property are very low. History tells us the best returning assets in Australia over long periods of time tend to be property and shares, followed by bonds and cash. In the interests of having a well-diversified portfolio, it’s probably best to have a mix of these assets.

The further you are away from retirement, the greater the bias towards growth assets like property and shares. But typically Australians already have a high exposure to property via the family home and when rental yields are quite low compared to the yield on shares (typically around 5.5 per cent once you add in franking credits), it makes more sense to look at shares as an investment rather than property. The bottom line is to have a balanced portfolio and to seek advice on the appropriate mix depending on one's circumstances.

Q: Developed market shares are outperforming emerging market shares. What’s the effect on our currency?

Over the last year or two we have seen emerging market shares struggle. In fact, year-to-date, they are down about 12 per cent, whereas shares of developed countries such as the US, Europe, Japan are up around 10 per cent or more. After a decade or so where the global cycle favoured emerging shares over developed markets, it seems the cycle is starting to swing back the other way, as growth in emerging countries slows a bit and growth in developed countries improves. This has implications for Australia, because we benefited from surging commodity prices that flowed from strong growth in the emerging world, which in turn boosted the value of the Australian dollar.

As the emerging world slows down a bit, at a time when the supply of resources is increasing on the back of significant investment in new mines and energy sources, the trend in commodity prices has turned down. This, combined with falling interest rates in Australia, is putting downwards pressure on the Australian dollar. For investors, this makes unhedged international investments more attractive relative to hedged international investments. Hedging refers to an overseas investment, where the underlying manager uses foreign exchange contracts to translate that investment back to Australian dollars, so when the Australian dollar rises in value the investor won't suffer a loss. With the Australian dollar in a down trend, it’s desirable to have more exposure to foreign currency, through unhedged international investments.

For more information on how current financial markets are affecting your investments and to find out how we can help, call us today on 07 5447 7740.

 

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 September 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.

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Costly kids…

Posted On:Sep 18th, 2013     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

In spring many children look forward to the end of a long year at school or university. And while formal studies may soon start winding down, it’s a great time to focus on developing money smarts in your kids.

Because these days, without financial skills children may tend to rely on their parents’ ongoing financial support for longer. And

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In spring many children look forward to the end of a long year at school or university. And while formal studies may soon start winding down, it’s a great time to focus on developing money smarts in your kids.

Costly kids… Because these days, without financial skills children may tend to rely on their parents’ ongoing financial support for longer. And the cost of raising children in Australia is continually increasing.

In fact, the latest research conducted by the National Centre for Social and Economic Modelling (NATSEM) reveals it now costs a middle-income family more than $400,000 to raise a child from birth to age 24.

So, according to the AMP.NATSEM report Cost of Kids: The Cost of Raising Children in Australia[ 1], if you have two children, you could spend as much as $812,000 by the time they leave home—that’s an increase of more than 50% since 2007 when it cost $537,000.

Helping kids help themselves

Children are living at home for longer and housing prices continue to soar. So it’s more important than ever to help give children the tools to manage their own finances.

Helping kids set and reach goals for first-time financial experiences—like buying their first car, moving out of home, getting a job or meeting their first big bill—can make a big difference to their financial habits.

The cost to families

A 24-year-old is five times more expensive than a four-year-old child and the proportion of income devoted to raising children is steadily increasing. This impacts families and parents in many ways. Like getting the balance right between raising children and working towards their own needs in retirement.

In order to meet the financial needs of raising children, 63.4 per cent of parents are working full-time.

What are we spending the money on?

A middle income family spends an average of $458 per week to raise a child—starting at $133 per week for children aged up to four years and escalating to $678 per week for children aged 18-24.

More than half a middle-income family’s household budget is spent on meeting basic expenses for kids up to 24 years:

  • Food – 18%

  • Transport – 20%

  • Clothing – 7%

  • Recreation – 12%.

Another significant cost for families is their children’s education. Private school fees cost an average of $216 per week compared to public schools which cost around $12. And independent Catholic schools cost about $81 each week.

Read the latest AMP.NATSEM income and wealth report [ 2] at amp.com.au to see how different families are meeting the costs of raising children. And remember, when it comes to equipping kids with financial smarts, parents can be powerful role models.

 

[1] Phillips B, Li, J, Taylor, M (2013), Cost of Kids: The Cost of Raising Children in Australia. AMP.NATSEM Income and Wealth Report, Issue 33, May 2013, Sydney, AMP

[2] Since 2001 AMP and NATSEM have produced a series of reports showing the way Australians live and work, and what our financial and personal aspirations look like.

What you need to know
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

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Super for contractors

Posted On:Sep 18th, 2013     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

There’s a lot of upside to being a contractor, but it’s important to keep in mind the benefits you may not be getting to make sure you’re not short changed in retirement. If you’re a contractor, or know someone who is, here’s some food for thought to help spring clean your finances!

Q: Are you a contractor or an

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There’s a lot of upside to being a contractor, but it’s important to keep in mind the benefits you may not be getting to make sure you’re not short changed in retirement. If you’re a contractor, or know someone who is, here’s some food for thought to Super for contractorshelp spring clean your finances!

Q: Are you a contractor or an employee?

You’re contracted for a set task or project. You submit invoices for the hours you work. If this sounds like you, you may be one of Australia’s 980,000 independent contractors.[ 1] About 8.5 per cent of Australian workers are employed on this basis.[ 2]

Not all contractors are the same and everyone’s situation is different.

If you’re not sure about your exact employment status, you can use the Australian Taxation Office’s Employee/contractor decision tool. Then you can use the Superannuation guarantee eligibility decision tool to work out if you’re entitled to super. Both tools can be accessed at ato.gov.au.

Your classification has important implications for your tax and superannuation. Determining whether an individual contractor is an employee for Superannuation Guarantee purposes is a tax issue for the individual or the entity contracting the individual. It’s a complex area and it’s a good idea to consult a tax adviser.

980,000 – number of independent contractors in Australia

8.5% –  percentage of Australians employed as contractors

Q: What’s the upside to contracting?

Contracting can be a great experience, particularly if you’re after more control over how much you work, or what you’re working on. By forgoing some of the benefits of permanent employees, you can also earn more money.

Similarly, if you’re coming back from a career break or joining the workforce for the first time, securing a contract role can often be easier, and sometimes lead to permanent employment.

Q: That’s great. But what’s the downside?

If you’re sick, you will not get paid sick leave. And when it comes to super you may not have any super contributions made for you.

Employees have superannuation contributions paid into a nominated superannuation fund by their employer. But as an independent contractor you might be on your own. You’re responsible for funding your own super, just as you’re responsible for paying your own tax.

Q: So, why does super matter so much?

When you’re starting to make your way in the workforce, the lack of super may not seem like a big deal. After all, retirement is a fair way off. And you’ve got more money in your back pocket for Friday night. And when you’re younger, it’s easy to think of super as ‘lost money’. You can’t access it now, so it’s out of sight and out of mind.

But as you establish yourself in the workforce and build up a bigger retirement nest egg, your perception of super is likely to change.

If you’re contracting later in your career—for example, after returning from parental leave— or know someone who’s winding back their hours leading up to retirement, like one of your parents, you’ll know all about the importance of super.

Super can be the difference between achieving the lifestyle you want in retirement and needing to rely on the aged pension. Spend too many years as a contractor and you could be playing catch-up if you don’t start making regular super contributions.

Q: How can you build up your super?

You need to think about the best long-term strategies to build your retirement nest egg.

  • Make regular contributions from your pre-tax income into your super.

  • Take account of government incentives, like co-contributions and spouse contributions.

  • Review your investment mix of growth and defensive assets to make sure it reflects your life stage and risk tolerance.

Now is the time to spring into life, take control of your retirement savings, and really own your tomorrow. For more information, call us today on 07 5447 7740.

 

[1] Australia Bureau of Statistics. (19 April 2013). Media release: Decline in independent contractors.

[2] Independent Contractors Australia. Independent Contractors: How many (Australia). independentcontractors.net.au

 

What you need to know
Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

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Investments in a class of their own

Posted On:Sep 18th, 2013     Posted In:Provision Newsletter Articles    Posted By:Provision Wealth

It’s that time of year; we’ve emerged from winter, alive to the new possibilities of spring—the perfect time to consider the main investment asset classes and bring new life to your investment portfolio.

Asset class

 

Type and purpose

Characteristics

Risk

Return

Cash (bank accounts and term deposits, cash management trusts)

Defensive asset aimed at generating income.

Provides a more stable, lower-risk income in the form of regular interest

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It’s that time of year; we’ve emerged from winter, alive to the new possibilities of spring—the perfect time to consider the main investment asset classes and bring new life to your investment portfolio.

Asset class

 

Type and purpose

Characteristics

Risk

Return

Cash
(bank accounts and term deposits, cash management trusts)

Defensive asset aimed at generating income.

  • Provides a more stable, lower-risk income in the form of regular interest payments.

  • Normally used for short-term investment and investors with a low tolerance to risk.

  • Can be used as a building-block in a longer-term investment strategy—for example, can enable an investment in shares once savings reach a particular balance.

In addition to being an investment asset class, cash forms a key component of day-to-day budgeting.

Low

Low

Fixed interest
(government and corporate bonds, mortgages and hybrid securities)

Defensive asset often used to generate income.

  • Capital value can be more volatile than cash, but is still considered relatively stable.

  • Income is usually paid in the form of regular interest payments or coupons.

  • The investment is locked-in for a pre-determined period of time.

Low to moderate

Low to moderate

Property
(directly held residential, industrial and commercial property and real estate investment trusts commonly called REITs)

Growth asset used to generate capital growth and income.

  • Relatively higher risk than fixed interest but generally less than shares.

  • Directly held property:
    • Must be sold for any increase in capital value to be realised—this can involve significant costs in time and money.

    • Has the potential to generate income when the property is leased and rent is received.

  • REIT investments:
    • Offer the opportunity to invest—in directly held real estate or real estate mortgages—via stocks on a stock exchange.

    • Are typically more liquid (can be converted into cash more quickly with minimal impact on the price received) than directly held property.

Moderate to high

Moderate to high

Shares—also called equities
(holdings in Australian and international companies)

Growth asset for generating capital growth and income

  • Considered one of the most volatile asset classes. But tend to achieve higher investment returns over long time frames.

  • Provide part-ownership and the opportunity to share in the profits and future growth of a company.

  • Often provide a combination of capital growth—or capital loss—due to the performance and changes within a company, and income through dividend payments or franking credits.

    With international shares, in addition to the factors already mentioned, the valuation of the currency of the country in which the company operates can affect the shares’ value—positively or negatively.

High

High

Revitalise your portfolio

Spring’s a great time to focus on your future plans and goals, and consider how you’re investing for tomorrow. Speak with us today on 07 5447 7740, about opportunities to revitalise your investments.

 

What you need to know

Any advice contained in this article is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

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