Chris Black

Developments in the global economy

Business and consumer confidence in Australia remains fragile reflecting recent political uncertainty and mixed economic data. In contrast, US confidence has rebounded despite higher interest rates as households respond to robust labour market conditions and improving incomes.

00

Australia

The ABS Residential Property Price Index showed that capital city prices fell 0.7% in the June quarter and are down 0.6% over the past 12 months. However, there is significant variation between states with Hobart prices increasing 15.5% in the past 12 months while Darwin prices fell 6.1%. At the same time, consumer and business confidence has declined in response to recent political uncertainty. The NAB business confidence index fell to 4 in August from 7 a month earlier and a reading above 10 earlier in the year. Similarly, consumer confidence fell to 100.5 in September from 103.6 in August. Apart from political changes, consumers have also likely responded to increases in mortgage rates. On the positive side of the ledger, households were more positive about the employment outlook reflecting recent improvements in the labour market. The unemployment rate was 5.3% in August unchanged from a month earlier, and is the lowest rate since November 2012. Employment increased by 44,000 in August following a fall of 4,300 a month earlier.

US

The US Federal Reserve increased the fed funds rate range by 25 bps to 2.0-2.25% at its September meeting, and reaffirmed expectations that another hike was likely in December followed by a further two increases in the first half of 2019. The US equities market largely took the monetary tightening in its stride because it was expected and economic data continues to show robust growth. US retail sales continue to grow at a 6%-plus rate compared to a year earlier. At the same time, employment and wages growth remains robust suggesting consumption trends are likely to continue. Nonfarm payrolls increased by 201,000 in August and average hourly earnings have increased by 2.9% over the past 12 months. A fall in consumer confidence in August has been reversed with the Michigan consumer sentiment index increasing to 100.8 in September from 96.2 a month earlier.

Europe

The European Central Bank (ECB) has made slight downward revisions to its economic forecasts with GDP growth now expected to be 2.0% in 2018, 1.8% in 2019 and 1.7% in 2020. The forecasts are consistent with incoming data that suggests economic growth is on a stable, though lacklustre, path. Employment growth has consistently been at around 0.4% per quarter or a 1.5% annual rate for the last few years while wages growth has been stuck just below 2%. This is despite official interest rates being zero for the past two years. While the ECB is expected to keep interest rates unchanged well into 2019, they have confirmed that their quantitative easing program which has supplemented the zero interest rate policy will be discontinued at the end of the year.

China

Chinese inflation jumped 0.7% in August following five months of subdued and largely negative price changes. The increase was relatively broad-based with food, clothing, rent and fuel all increasing. In year-on-year terms, inflation is running at 2.3% which is well below the government’s 3% target. Other data continues to suggest a slight easing of Chinese growth with August vehicle sales 3.8% below year-ago levels and retail sales growth stuck at 9% compared to the 10% growth rate seen earlier in the year. Interestingly, house prices have accelerated growing by 7% year-on-year in August compared to the 5% growth rate seen through most of the past year.

Japan

Similar to Europe, the Bank of Japan has kept short-term interest rates at -0.1% at its September meeting. In contrast, they will continue to use quantitative policy to keep the 10-year government bond yield close to zero. The expansionary monetary settings are driven in large part by the subdued inflation outlook. Japanese core inflation was 0.9% in August, well below the Bank of Japan’s 2% target.

 

Developments in financial markets

Developed equities markets continue to enjoy robust returns, although the Australian market struggled in September, while emerging markets remain under pressure. A significant gap has opened in fixed interest markets with Australian bonds outperforming global bonds over the past 12 months.

 

Australian shares

The S&P/ASX200 Accumulation Index returned -1.3% in September, erasing August’s gain. Strength in the resources sector was not enough to offset weakness across most other sectors. Banks continue to suffer the fallout from the Royal Commission, but other sectors suffered similar if not greater declines. The worst performing sector was Healthcare which returned -7.7% in September, with CSL breaking its recent strong run and falling more than 10% while Cochlear also suffered a significant decline. Note, CSL is still up more than 50% over the past 12 months even with September’s fall. The Consumer Discretionary sector (-4.2%) and Utilities (-3.3%) also performed poorly. Best performing sectors were Materials (+4.2%), Energy (+4.3%) and Telecommunications (+2.7%). Nine of the top 10 performing stocks in the top 100 were mining or mining related companies. Northern Star (+20.0%), South32 (+15.1%) and Whitehaven (+10.9%) were the best performing stocks in the month. Worst performing stocks were CSR (- 12.5%), CSL (-11.0%) and A2 Milk (-11.0%).

International shares

The MSCI World ex Australia Index returned 0.8% in September following a 1.4% return in August. Emerging markets remain under pressure with the MSCI Emerging Markets Index falling 1.2% in the month. Over the past 12 months, developed market have returned around 12%, while emerging markets returns have been below 3%. Asian markets were mixed with Hong Kong’s Hang Seng Index falling 0.4% in September while the Shanghai Composite rebounded 3.5% following August’s 5.3% decline. The Singapore Straits Index rose by 1.4% and Japan’s Nikkei 225 was up 5.5% in the month and 18.5% in the year despite lacklustre economic growth. Major European markets were mainly higher with the exception of Germany’s DAX index which ended the month 1% lower. France’s CAC40 Index (+1.6%) and Italy’s MIB30 Index (+2.2%) both ended the month higher.

Fixed Interest and Cash

The Bloomberg Barclay’s Global Aggregate Bond Index hedged in $A and the Bloomberg AusBond Composite Bond Index both returned -0.4% in September, but a significant difference has opened up in returns over the past 12 months. Australian bonds have returned 3.7% while international bonds have returned a measly 0.9%. This reflects Australia’s higher yields, to begin with, combined with the small fall in yields seen over the past 12 months. In contrast, US 10-year government bond yields have increased to 3.06% from 2.33% over the same period. US 10-year and 2-year yields also increased in September, driven in part by the US Fed’s decision to again tighten monetary policy. Australian long bond yields also increased in the month although not to the same extent and shorter-term yields were largely unchanged.

Property

The S&P/ASX 200 AREIT Accumulation index reversed some of August’s gains, falling by 1.8% in September. Global REITs were harder hit, falling by 2.6% in the month. It is difficult to ignore the relationship with bond yield changes in September and over the past 12 months. Both Australian and global REITS fell in September as bond yields rose while over the past 12 months, global REITs have struggled to achieve a 5% return as US bond yields have risen significantly while Australian REITs have posted a 13.2% return with bond yields moving lower.

Currency and commodities

The Australian dollar was largely unchanged, ending the month at US$0.7218 compared to US$0.7192 a month earlier. Iron ore prices increased by 3.7% to US$69.5 and oil prices increased again with Brent oil ending the month at US$82.8. There were significant increases in the copper (5.0%) and zinc (+8.0%) price while lead (-2.9%), tin (-1.0%) and nickel (-1.6%) ended lower. The gold price also ended 1.3% lower at US$1187.3.

 

Key market returns at 30 September 2018

If you have any questions, please contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Fortress Financial Solutions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you have any questions, contact the Applied Research & Solutions team by sending an email to BTFGResearch@btfinancialgroup.com.

This publication has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac) and is current as at 9 October 2018. This document has been prepared for use only by advisers and clients of BT Advice, Magnitude Group Pty Ltd (trading as Magnitude Financial Planning) and Securitor Financial Group Ltd (“authorised users”). BT Financial Group is the wealth management arm of the Westpac group of companies (“Westpac Group”). This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. It is not the intention of Westpac or any other member of the Westpac Group that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. Past performance is not a reliable indicator of future performance.
Financial Service Guide (FSG): The Westpac FSG contains important information that applies to the research services provided by Westpac in this report. You should read the Westpac FSG which is available on Westpac’s website at www.westpac.com.au/disclosure-documents under “Westpac FSG”. Alternatively, you can ask your financial adviser for a copy.

Investing is complicated, and many people find it difficult to decide how to grow their money. A financial adviser can position you to reach your long-term investment objectives, by providing tailored strategies for you. A great adviser will also build a relationship with you that goes beyond managing your money and results in you feeling educated about your choices.

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

Image courtesy of the 2017 Value of Advice Report.

Welcome back to the #FortressFortnightly.

In this episode Chris talks about the most common question we get here at Fortress… what should I do with my money?

 

 

Send your suggestions to: info@fortressfs.com.au

 

Want to improve your finances? For a free consultation, please book online or contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

Developments in the global economy

Australian GDP is showing robust growth, but few are convinced that this reflects the true pulse of the economy or that it will be sustained going forward. Globally, economic data continues to show that the strong growth seen earlier in the year has passed, but is not suggestive of a significant slowdown ahead.

00

Australia

Real Gross Domestic Product (GDP) increased by a seasonally adjusted 0.9% in the June quarter, largely in line with market expectations. Upward revisions to the previous three-quarters due in large part to stronger than the previously reported dwelling and non-dwelling construction means that over the past four quarters the economy has grown by 3.4%. Household private consumption expenditure increased by 0.7% in the quarter to be 3.0% above year-ago levels. While the result is relatively strong, spending has been partly financed by a fall in the household saving ratio to 1.0%. Despite the encouraging GDP result, it is unlikely to prompt a change in the domestic monetary policy trajectory. There is little to suggest that growth is likely to accelerate further and inflation and wage measures remain subdued. Furthermore, given recent mortgage increases by major banks, consumers may naturally become more cautious without the need for higher official interest rates.

US

US retail sales increased by 0.5% in July to be up 6.4% year-on-year. While relatively strong compared to a year ago, the monthly results have been very volatile with the June figure revised down to show a 0.2% increase. Also prompting a note of caution has been the fall in the University of Michigan’s consumer sentiment index to 96.2 in August from 97.9 in July. This could reflect developing consumer concerns about higher interest rates including the expectation of another rate hike in September. Core inflation increased by 0.2% in July taking the year-on-year change to 2.4%. Little in the economic data suggests a change in the US Federal Reserve’s current strategy of measured but ongoing increases in official interest rates.

Europe

European economic data was unremarkable with updated GDP results relatively unchanged from the initial estimates and showing the economy grew by 2.2% over the past year. Growth momentum has eased from the strong pace seen in late 2017 and early 2018, which has seen the European Central Bank (ECB) reiterate its “rates on hold” mantra at recent board meetings. At the same time, headline inflation fell by 0.3% in July taking the annual inflation rate of 2.1%. The more important core inflation measure is running closer to 1% providing further evidence for the ECB to hold off on any monetary tightening. In line with other recent anaemic data, European retail sales fell 0.2% in July and are 1.1% above year ago levels.

China

A number of economic indicators are suggesting consumers may be easing back on spending, although this is unlikely to see a significant decline in overall growth which is expected to be maintained above 6.5% over the remainder of 2018. Motor vehicle sales were 3.8% below year ago levels in August with passenger vehicles suffering a greater fall, while the sale of commercial vehicles actually increased. Retail sales are showing 8.8% year-on-year growth, but this compares with the 10% pace seen earlier in the year.

Japan

The Japanese economy grew by 0.7% in the June quarter following a 0.2% decline in the previous quarter. A sharp rebound in consumption spending was a major contributor to overall growth, but this was not reflected in consumer confidence results which fell slightly in August and have been subdued for the past five months.

 

 

Developments in financial markets

Developed equities markets largely posted positive returns in August, while emerging markets failed to join in the upbeat sentiment. Fixed interest markets also posted positive returns as bond yields fell with Australian markets outperforming their global counterpart. Political factors were a major driver of the weaker A$ with weaker commodity prices also weighing on the currency.

 

Australian shares

The S&P/ASX200 Accumulation Index increased by 1.4% in July following a 3.3% return in June. Over the past 12 months, the market has returned 14.6%. The best performing sectors were Telecommunications (+7.9%), Industrials (+3.5%) and Consumer Discretionary (+2.1%). The bounce in Telstra and therefore the Telecommunications sector follows two months of sharply negative returns and a negative trend that has been in force for the past two years. Sectors generally seen as more defensive such as Utilities (-1.4%) and Consumer Staples (-0.5%) performed poorly while Info Tech (-1.2%) and Materials (-0.1%) also posted negative returns. The best performing stocks in the ASX100 were Cimic Group (+14.3%), TPG Telecom (+11.4%) and Brambles (11.3%) while Evolution Mining (-20.5%), A2 Milk (-8.7%) and Carsales.Com (-7.8%) were the largest detractors.

International shares

The MSCI World ex Australia Index returned 1.4% in August following July’s strong 3.2% return. Over the past 12 months, developed international equities have returned around 14%. In contrast, the MSCI Emerging Markets Index has returned only 4.3% over the same period. Asian markets were largely lower with Hong Kong’s Hang Seng Index falling 2.4% in August and the Shanghai Composite down 5.3%. The volatility of the Chinese market can be clearly seen in performance over the past few years with the Shanghai Composite rising by 9.4% in 2015, falling 12.3% in 2016, rising again by 6.6% in 2017 and falling again by 19.5% in 2018 to date. After a strong showing in July, European markets were again hit by a crisis of confidence as a result of ongoing political unrest and ambiguous economic data. Italy’s MIB30 Index (- 8.8%), France’s CAC40 Index (-1.9%) and the German DAX Index (-3.4%) all posted negative returns.

Fixed Interest and Cash

The Bloomberg Barclay’s Global Aggregate Bond Index hedged in $A returned 0.3% in July while the Bloomberg AusBond Composite Bond Index returned 0.8%. The stronger performance of Australian fixed interest partly reflected dwindling expectations of any change in Australian monetary policy and resulted in Australian government bond yields falling to 2.52% from 2.65% a month earlier. This follows continued undershooting in inflation outcomes compared to expectations and soft wages growth. In contrast, while US bonds yields fell slightly to 2.86%, most expect the US Fed to continue tightening monetary policy over the remainder of 2018 and into 2019 which is likely to see yields again move higher.

Property

The S&P/ASX 200 AREIT Accumulation index increased by 2.7% in August following July’s 1.0% return. The result was driven by the strong performance of Goodman Group (+11.1%) and Mirvac (+6.6%) but not all property trusts shared in the positive trend with Scentre Group down 0.7% and Abacus Property Group falling 7.0%. Global REITs lagged their Australian counterparts posting a 1.3% return following July’s 0.9% rise. The results over the past 12 months are more extreme with Australian REITS returning 15.8% while global REITS have returned 7.2%.

Currency and commodities

The Australian dollar was a casualty of the leadership challenge against Malcolm Turnbull. The A$ ended the month of August at US$0.7192 compared to US$0.7429 a month earlier. A fall in iron ore prices to US$67 and further weakness in other commodities also weighed on the dollar. Sharp falls in the Zinc price in July were matched by an 8.8% fall in August while Lead (-4.3%) and Copper (-5.0%) also suffered declines. Oil bucked the trend of lower prices with Brent oil ending the month 4.9% higher at US$77.7.

 

Key market returns at 31 August 2018

If you have any questions, please contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Fortress Financial Solutions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you have any questions, contact the Applied Research & Solutions team by sending an email to BTFGResearch@btfinancialgroup.com.

This publication has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac) and is current as at 12 September 2018. This document has been prepared for use only by advisers and clients of BT Advice, Magnitude Group Pty Ltd (trading as Magnitude Financial Planning) and Securitor Financial Group Ltd (“authorised users”). BT Financial Group is the wealth management arm of the Westpac group of companies (“Westpac Group”). This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. It is not the intention of Westpac or any other member of the Westpac Group that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. Past performance is not a reliable indicator of future performance.
Financial Service Guide (FSG): The Westpac FSG contains important information that applies to the research services provided by Westpac in this report. You should read the Westpac FSG which is available on Westpac’s website at www.westpac.com.au/disclosure-documents under “Westpac FSG”. Alternatively, you can ask your financial adviser for a copy.

We are thrilled to have kicked off a fortnightly video series covering… whatever you would like! Want tips and tricks on investing? Need super guidance? Want to know how much you will need to retire?

 

 

Send your suggestions to: info@fortressfs.com.au

 

Want to improve your finances? For a free consultation, please book online or contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you’re a freelancer, musician, artist, driver – anyone who undertakes contract work in exchange for money, you are part of what’s called the ‘gig economy’. A gig economy is an environment where temporary positions are common, and organisations contract independent workers on a short-term basis.

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

Article prepared by The Cusp and reused with permission. Information current as at April 2018 and may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. This information is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed hereto.

Happy Financial Planning Week 2018! Every year, the Financial Planning Association (FPA) holds Financial Planning Week, to remind Australians about the importance of financial planning. The theme for this year is “Share the Dream”. It is a great reminder of why we need a plan in place to realise our biggest dreams, not just for ourselves, but the next generation as well.

 

 

Developments in the global economy

Economic data reinforced existing monetary policy expectations. Continued robust activity and employment data in the US bolstered the case for continued, albeit measured, fed funds increases while subdued inflation in Australia and Europe underlined that rates are likely to remain on hold in these regions.

000

Australia

Consumer price increases remain relatively subdued with overall prices increasing 0.4% in the June quarter to be 2.1% higher than a year earlier. There were large increases in Health (+1.9%), Alcohol and Tobacco (+1.6%) and Transport (+1.6%) in the quarter, but these were offset by falls in Communications (-1.3%), Food (-0.4%) and Recreation and Culture (-0.4%). Producer prices are similarly subdued increasing by 0.3% in the quarter and 1.5% for the year suggesting there is little price pressure in the pipeline. Labour force data showed a 50,900 increase in employed persons, but the unemployment rate was unchanged at 5.4% in June. Indicators of residential construction including building approvals and housing finance suggest activity in this area will ease off, although approvals bounced back in June following a very weak May result. At this stage, there is little to suggest the Reserve Bank will see the need to tighten monetary policy despite the recent stronger than expected GDP growth figures.

US

US non-farm payrolls increased by 213,000 in June following a 244,000 rise in the previous month. However, an increase in the participation rate saw the unemployment rate rise to 4.0% from 3.8% in May. Of greater interest with respect to the pace of the Fed’s monetary tightening program was the relatively subdued 0.2% rise in average hourly earnings which translates to a 2.7% rise in earnings over the past 12 months. Core inflation is also continuing its slow grind higher with prices excluding volatile items such as food and energy increasing by 2.3% over the past 12 months. This compares to the 2.1% inflation rate three months ago and 1.7% 12 months ago. Activity data continues to be robust with the advance GDP results for the June quarter showing an annualised 4.1% increase.

Europe

Positive sentiment at the start of the year has increasingly given way to a more pessimistic attitude. The ZEW Indicator of Economic Sentiment fell to -18.6 in July, the lowest level since August 2012. The poor reading reflects the fact that more than 30% of analysts believe economic activity will deteriorate over the next six months. Other surveys such as the PMI have also deteriorated since the start of the year but have settled at a level suggesting the European manufacturing will continue to expand, albeit at a slower pace. While inflation is now running around 2%, this partly reflects higher oil prices. Excluding volatile items such as energy and food, inflation is closer to 1%. At its July meeting, the European Central Bank again flagged that official rates would likely remain unchanged into 2019 and that while asset purchases would continue they would start to be wound down after September 2018.

China

Chinese real GDP increased by 6.7% in the year to June, a touch softer than the recent 6.8% growth rate. While some have pointed to the trade war it is probably too early to see any specific impact on the economy, although it may be influencing investment decisions. Export growth was virtually unchanged in June, growing by 11.3% from a year earlier compared to the 12.6% gain in May. Consumer prices fell 0.1% in June to be 1.9% above year ago levels.

Japan

Despite speculation the Bank of Japan would move away from its easy monetary policy rhetoric, the last quarterly Outlook Report was consistent in positioning for an extended period of low interest rates. This likely reflects some easing in growth indicators from earlier in the year, concerns around the impact of consumption tax increases due in 2019 and still low inflation.

 

 

Developments in financial markets

A rise in US bond yields was not enough to curb positive investor sentiment which saw most equities markets end the month higher. In contrast to June, global equities performed better than the domestic market. Despite still positive economic momentum, most commodities including oil prices ended the month lower.

 

Australian shares

The S&P/ASX200 Accumulation Index increased by 1.4% in July following a 3.3% return in June. Over the past 12 months, the market has returned 14.6%. The best performing sectors were Telecommunications (+7.9%), Industrials (+3.5%) and Consumer Discretionary (+2.1%). The bounce in Telstra and therefore the Telecommunications sector follows two months of sharply negative returns and a negative trend that has been in force for the past two years. Sectors generally seen as more defensive such as Utilities (-1.4%) and Consumer Staples (-0.5%) performed poorly while Info Tech (-1.2%) and Materials (-0.1%) also posted negative returns. The best performing stocks in the ASX100 were Cimic Group (+14.3%), TPG Telecom (+11.4%) and Brambles (11.3%) while Evolution Mining (-20.5%), A2 Milk (-8.7%) and Carsales.Com (-7.8%) were the largest detractors.

International shares

The MSCI World Index rebounded sharply in July posting a 3.2% return following June’s 0.3% decline. An easing of trade tensions and largely positive economic data drove markets higher. The S&P500 Index increased by 3.6% with tech stocks rebounding from the fall seen in late June, although gains were again tempered late in the month.

Asian markets were largely higher following June’s weakness, although Hong Kong’s Hang Seng Index fell a further 1.3% after June’s 5.0% decline. The Shanghai Composite increased 1.0% as investors considered the previous month’s fall overdone. Note, the Shanghai Index has fallen 12.1% over the past 12 months. The Singapore Straits Times Index (+1.6%) and the Nikkei 225 (1.1%) benefitted from improved sentiment and the rebound in tech stocks.

Despite softer economic data and continued political instability, European markets were able to rebound with Italy’s MIB30 Index (+2.7%), France’s CAC40 Index (+3.5%) and the German DAX Index (+4.1%) all posting positive returns.

Fixed Interest and Cash

The Bloomberg Barclay’s Global Aggregate Bond Index hedged in $A was unchanged in July while the Bloomberg AusBond Composite Bond Index returned 0.2%, building on June’s 0.5% increase. Over the past 12 months, Australian fixed interest has returned 3.0%, outperforming their global counterparts that have returned 1.5%. US, UK and European government bond yields were all higher in the month, limiting the return on the global aggregate. In contrast, Australian 10- year bond yields have been largely unchanged over the past 12 months reflecting expectations that inflation pressures remain subdued and that the Reserve Bank of Australia is unlikely to change monetary settings.

Property

The S&P/ASX 200 AREIT Accumulation index increased by 1.0% in July following June’s 2.2% return. Strong performances from Mirvac (+5.1%) and Stockland (+4.5%) were offset by poor returns from Scentre Group (-3.2%) and Charter Hall Long Wale REIT (-3.2%). Global REITs posted a similar return of 0.9% in July. However, performance over the past 12 months has diverged significantly. Australian REITs have returned 14.2% over the past 12 months while global REITs have only managed to return 6.1%. This divergence may partly reflect the fact that US bond yields have risen over this period while Australian yields are barely changed.

Currency and commodities

The Australian dollar ended the month slightly higher at US$0.7429 compared to US$0.7407 in June. Interest rate differentials favouring the US$ have put pressure on the A$, but a 2.2% increase in iron ore prices to US$68.5 in July helped boost the A$. Other commodity prices were mainly lower although Tin managed to buck the trend by increasing 1.7%. Lead (-11.4%) and Zinc (-7.9%) were hardest hit and the gold price continued its recent downtrend falling 2.4%. After again getting close to the US$80 per barrel level, Brent oil prices ended July 6.5% lower at US$74.

 

Key market returns at 31 July 2018

If you have any questions, please contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Fortress Financial Solutions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you have any questions, contact the Applied Research & Solutions team by sending an email to BTFGResearch@btfinancialgroup.com.

This publication has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac) and is current as at 7 August 2018. This document has been prepared for use only by advisers and clients of BT Advice, Magnitude Group Pty Ltd (trading as Magnitude Financial Planning) and Securitor Financial Group Ltd (“authorised users”). BT Financial Group is the wealth management arm of the Westpac group of companies (“Westpac Group”). This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. It is not the intention of Westpac or any other member of the Westpac Group that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. Past performance is not a reliable indicator of future performance.
Financial Service Guide (FSG): The Westpac FSG contains important information that applies to the research services provided by Westpac in this report. You should read the Westpac FSG which is available on Westpac’s website at www.westpac.com.au/disclosure-documents under “Westpac FSG”. Alternatively, you can ask your financial adviser for a copy.

Asset allocation is a critical factor in determining the long-term return patterns of your portfolio. Asset allocation also helps you and your financial adviser determine the trade-off between risk and return that suits you.

Determining the amount of investment risk you can tolerate is essential. We will examine your income, investable assets, investment goals – even your attitude about risk – to determine the risk/return trade-off that’s right for you.

• Diversification. We will generally build your portfolio using a variety of asset classes to achieve a high level of diversification and long-term stability.

 

Periodic rebalancing should be considered

Your needs, goals, and investment time frame change over time. So, too, does the market. One of the ways a financial adviser adds value is by monitoring and periodically rebalancing the asset allocation of your portfolio.

Together with us, you can review your investment plan to make sure it stays on track to meet your short- and long-term investment goals.

 

Asset allocation can influence returns

Holding more shares in a portfolio has historically resulted in higher average annual returns but greater risk. The chart below illustrates how a portfolio made up of 100% shares delivered an average annual return of 10.8% significantly higher than the 7.1% average annual return of a 100% bond portfolio². The trade-off for that significantly larger return was a much greater exposure to the risk of loss.

Want to know your aset allocation? To book a free consultation with a financial advisert, please book online or contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

1 https://www.thebalance.com/what-is-asset-allocation-453765.
2 https://static.vgcontent.info/crp/intl/auw/docs/resources/plain-talk-guides/ptg_qualityfinancialadvice.pdf?20180808|082126
Final graph taken from Vanguard Plain Talk Guide.

Developments in the global economy

The US Federal Reserve tightened monetary policy for the second time this year with two more rate hikes expected in the second half. In contrast, there is little to suggest any change to the “rates on hold” position currently in force in Europe and Australia, notwithstanding the better than expected GDP result domestically.

000

Australia

Real GDP increased by 1.0% in the March quarter following a 0.5% rise in the previous quarter to be 3.1% above year ago levels. The result was slightly above market expectations but was met with a mixed reaction. Growth was largely driven by exports and government consumption spending which were seen as temporary boosts unlikely to be sustained in future quarters. However, other components including household consumption and investment also posted positive results which is encouraging in an environment where concerns continue to be raised about consumers’ ability to maintain spending patterns and business willingness to invest. On the issue of personal consumption, the Westpac-Melbourne Institute consumer confidence index posted a small increase in June and has been above the 100 level all year after spending most of 2017 with pessimists outweighing optimists.

US

The US Federal Reserve increased the fed funds rate by 25 basis points to 1.75-2.00% at its June meeting. This is the seventh increase in the current tightening cycle that started in December 2015 and the second this year. Expectations are for two more rate hikes this year. The gradual approach the Fed is taking to normalise official interest rates reflects the unusual nature of the current recovery which has seen GDP growth at relatively low levels compared to previous recoveries. Furthermore, inflation pressures have been largely non-existent until recently despite the falls seen in the unemployment rate. US core inflation increased by 0.2% in May to be 2.2% above year ago levels. Headline inflation is running at 2.8% in part due to fuel prices which have increased more than 20% over the past year. The US unemployment was 3.8% in May having fallen from 4.3% a year earlier.

Europe

The European Central Bank (ECB) met on 14 June, keeping its benchmark rate unchanged at 0% and providing a mixed update on the economic outlook. Growth expectations for 2018 were revised down to 2.1% from the previous forecast of 2.4%, with growth then expected to slow to 1.9% in 2019. Despite the lowering of the growth forecast, inflation forecasts for 2018 and 2019 were raised to 1.7% from 1.4% previously. The ECB’s inflation forecasts remain below their 2% target which prompted their guidance that interest rates were likely to remain unchanged at least until mid-2019. The less optimistic ECB outlook was also reflected in the Euro Area Business Climate Indicator which has come off highs seen earlier in the year and consumer confidence which is back in negative territory after six consecutive months of positive readings.

China

Recent Yuan weakness has been blamed on a combination of the perceived impact of the trade war, softer Chinese data and the increasing interest rate differential with the US. Data for Chinese industrial production showed a marginal slowing to 6.8% year-on-year growth in May. More significant was the slowing in year-on-year retail sales growth to 8.5%. This is the weakest reading since the early 2000s and compares with the 10%-plus growth rates seen over the past 12 months.

Japan

As in other regions, inflation readings jumped in May reflecting higher oil prices. Japanese producer prices rose by 2.7% year-on-year in May, although they were temporarily higher than this late in 2017. Consumer prices increased by 0.1%, following two months of significant decline and are 0.7% above year ago levels.

 

 

Developments in financial markets

The Australian share market has again posted strong returns with a rebound in financials assisting overall performance. Internationally, trade war concerns and some signs of slowing European and Chinese growth stifled most markets, although the US S&P500 still managed to post a positive return.

 

Australian shares

The S&P ASX200 Accumulation Index ended the month 3.3% higher. Despite trade war concerns between the US and various countries, Australian shares at one point in the month reached their highest level since early 2008. The energy sector had the strongest performance this month due to oil price increases while the Telecommunications sector has continued to perform poorly as Telstra fell to a seven year low during the month after announcing asset sales and significant job cuts. Local retailers have benefited this month after Amazon announced it will prevent Australian consumers from purchasing products from its overseas sites.

The best performing sectors in June were Energy (+7.8%), Information Technology (+6.3%) and Consumer Staples (+6.2%). Worst performing sectors in the month were Telecommunications (-5.8%), Industrials (+0.7%) and Materials (+1.8%). Strong performers in the ASX100 included APA Group (+16.1%), Northern Star (+15.8%) and Caltex Australia (+10.6%). The worst performing stocks were Ramsay Health Care (-12.0%), AMP Limited (-8.7%) and CSR Limited (-8.6%).

International shares

The MSCI World Index posted a -0.2% return in June. Trade war concerns between the US and various countries continued to plague markets throughout the month. The start of the month saw the US apply tariffs to metal imports from Canada, Mexico and the European Union who chose to retaliate with tariffs of their own. The risk of a full-blown trade war between the US and China intensified as Trump has proposed tariffs on US$50bn of Chinese imports and another US$200bn if China chooses to retaliate.

Asian markets this month including the Singapore Straits Times Index (-4.7%), the HK Hang Seng Index (-5.0%) and the Shanghai Composite (-8.0%) all had poor performances this month. The Shanghai Composite’s lacklustre performance can be attributed to signs of slowing growth in China which has been amplified by the current trade war concerns with the US.

Slower economic growth in European markets and trade disputes have negatively affected the Italy MIB30 Index (-0.7%), France’s CAC40 Index (-1.4%) and the German DAX Index (-2.4%).

Fixed Interest and Cash

The Barclay’s Global Aggregate hedged in $A (+0.2%) had a positive return in June following the previous month’s 0.3% return. The Bloomberg Composite Bond Index returned 0.5%. Australian 10-year and 3-year government bond yields decreased while US 10-year and 2-year government bond yields increased this month. Unemployment levels in the US are equalling its lowest levels since 1969 while other economic data in the US remained sturdy which contributed to US rates moving higher.

Property

The S&P/ASX 200 AREITs index posted a positive return of 2.2% in June. Dwelling prices across Australia’s major cities have fallen for the ninth consecutive month due to tighter lending standards and lower investment activity. The combined capitals have fallen a further 0.3% while there has been no change in value in regional areas this month. There is now much speculation whether this negative trend will continue for the major capital cities with some forecasters predicting it could continue for years due to the potential for even tighter lending standards being implemented in the future. On the other hand, some believe the worst is over as auction rates have stabilised in recent months.

Currency and commodities

The Australian dollar ended the month at US$0.7407 compared to US$0.7568 in May. The $A has continued to fall last month due to trade war concerns between the US and China as well as the interest rate differential between the two countries. Iron ore prices have risen 2.3% to US$67. Brent Oil prices have continued to rise due to OPEC raising production to lower levels than anticipated which is expected to add approximately 5 cents a litre to Australian petrol prices.

 

Key market returns at 30 June 2018

If you have any questions, please contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Fortress Financial Solutions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you have any questions, contact the Applied Research & Solutions team by sending an email to BTFGResearch@btfinancialgroup.com.

This publication has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac) and is current as at 6 July 2018. This document has been prepared for use only by advisers and clients of BT Advice, Magnitude Group Pty Ltd (trading as Magnitude Financial Planning) and Securitor Financial Group Ltd (“authorised users”). BT Financial Group is the wealth management arm of the Westpac group of companies (“Westpac Group”). This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. It is not the intention of Westpac or any other member of the Westpac Group that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. Past performance is not a reliable indicator of future performance.
Financial Service Guide (FSG): The Westpac FSG contains important information that applies to the research services provided by Westpac in this report. You should read the Westpac FSG which is available on Westpac’s website at www.westpac.com.au/disclosure-documents under “Westpac FSG”. Alternatively, you can ask your financial adviser for a copy.

On average there’s still a considerable gap between men and women when it comes to retirement investments. We look at some of the reasons why and suggest five tips to help women bridge the gap.

Source: Workplace Gender Equality Agency (WGEA) Gender pay gap statistics – February 2017. The gender pay gap is the difference between women’s and men’s average weekly full-time equivalent earnings, expressed as a percentage of men’s earnings.

The gender pay gap is influenced by a number of factors⁴, including women being more likely to be primary carers for family members (children, elderly relatives or people with disabilities), work in part time or casual jobs, hold lower paid roles and be less represented in senior executive positions.

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.
This information does not consider your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it.

This information is current as at 1 July 2018.

This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, we do not accept any responsibility for the accuracy or completeness of or endorse any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.

The tax position described is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ, and you should seek independent professional tax advice.

Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.

 

 

The end of the financial year is a good time to think about how you could grow your super and get started with saving for retirement. Here are some options you could consider to help your super work harder for you.

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.
This information does not consider your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs having regard to these factors before acting on it. This information is current as at 19 April 2018. This information has been prepared without taking account of your personal objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis.  There will be tax consequences if you breach these caps.  For more detail, speak with a financial adviser or visit the ATO website.  [Insert business name] cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of superannuation can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.

Developments in the global economy

Corporate and income tax proposals were the centrepiece of the 2018 Commonwealth Budget. Australian employment continues to increase at a brisk pace but has been insufficient to push the unemployment rate below 5.5%. In contrast, the US unemployment rate is now below 4%.

00

Australia

The Commonwealth Budget released in early May was dominated by proposals to lower income tax rates over the next decade, while reiterating the corporate tax cuts that were withdrawn in the face of a likely Senate defeat. Better than expected revenue is expected to see the budget return to balance in 2019-20. Last month’s consumer price data showing inflation running at 1.9% was complemented by wages data this month which continues to show subdued wages growth. Both private and public-sector wages increased by 0.5% in the March quarter, with total wages increasing by 2.1% over the past year. In the Budget, Treasury forecast wages growth of 2.75% for 2018-19, increasing to 3.25% in the following year, but at this stage there are few signs that wages will break out of the 2%-2.5% range. Labour force data showed a small increase in the unemployment to 5.6% rate in April, despite a 22,600 increase in employed persons. Full-time employment increased by 32,700, while part-time employment fell by 10,000.

US

The US unemployment rate continued its slow grind lower printing at 3.8% in May compared to 3.9% a month earlier. Non-farm payrolls increased by 223,000 compared to market expectations of 189,000. Average hourly earnings for private non-farm employees increased by 0.3% in May to be 2.7% above year ago levels. As the US Federal Reserve (the Fed) slowly ratchets up interest rates, wages growth is being closely watched as signal of building inflationary pressures. However, the Fed’s preferred inflation measure, the Core Personal Consumption Expenditure Price Index, remains relatively subdued increasing by 0.2% in April to be 1.8% above year ago levels. Consumer sentiment remains robust with the University of Michigan survey off recent highs at 98, but still at elevated levels compared to the long-term average.

Europe

Initial estimates of May inflation suggest consumer prices have spiked to an annual rate of 1.9% from the sub-1.5% that has persisted for much of the past 12 months. However, a large part of this increase is due to higher oil prices, with the core inflation measure expected to only show a 1.1% rise over the past year. Household and business confidence appears to have stabilised following recent sharp falls, but increased oil prices have the capacity to again dent confidence.

China

Chinese retail sales increased by 9.4% in April from a year earlier compared to a 10.1% rise in the previous month. The slowing in growth is not of immediate concern given that a similar pattern was seen late last year before sales returned to the 10% level. Also released were house prices showing a 4.7% rise in the price of newly built houses in April compared to a year earlier. However, results vary significantly across cities with prices falling in Beijing and Shanghai. More generally, consumer prices fell by 0.2% in April to be 1.8% above year ago levels. Apart from a spike in February, inflation has been largely below 2% for the past 12 months. GDP increased by 1.4% in the March quarter, keeping the year-on-year growth rate at 6.8%.

Japan

At its April meeting, the Bank of Japan left official interest rates unchanged at -0.1% and increased its GDP growth forecast to 1.6% for the 2018 fiscal year. However, actual Japanese GDP contracted by 0.2% in the March quarter following 0.1% growth in the previous quarter. Real GDP has increased by 1.0% over the past year. While the BOJ’s forecast is achievable, the recent growth momentum suggests it will be more difficult than previously expected.

 

 

Developments in financial markets

Despite significant uncertainty, the Australian sharemarket has managed to post two months of positive returns. However, this only makes up for the sharp decline in March and puts the index just above the level it started the year. International markets were mixed with Europe again hit by political uncertainty.

 

Australian shares

The S&P ASX200 Accumulation Index ended the month increasing by 1.1%. The start of the month showed promising signs of recovery for the financial sector after posting its largest single day gain since the Royal Commission was announced last November. Australian shares in general also began the month well due to a combination of factors including decreasing trade war concerns, a lower $A and positive earnings results from Australian companies. However, geopolitical issues later in the month such as renewed trade concerns and political issues in Italy weighed down the performance of Australian shares.

The best performing sectors in May were Health Care (+5.6%), Consumer Discretionary (+5.1%) and A-REITs (+3.1%). Worst performing sectors in the month were Telecommunications (-10.2%), Financials (-0.2%) and Consumer Staples (-0.4%). Lacklustre performance from Commonwealth Bank (-3.5%) and National Australia Bank (-4.0%) placed Financials as one of the worst performing sectors for the third straight month. Strong performers in the ASX100 included Challenger Limited (+19.4%), Domino’s Pizza Enterprises (+16.7%) and Investa Office Fund (+15.0%). The worst performing stocks were the A2 Milk Company (-12.2%), Treasury Wine Estate (-13.1%) and Link Admin Holdings Ltd (-17.3%).

International shares

The MSCI World Index posted a 1.0% return in May. News the US was willing to extend their allies’ exemptions for steel and aluminium tariffs until June 1 eased investor concerns at the start of the month. China’s Vice Premier Liu had negotiations with the US promising to toughen its laws on intellectual property, purchase more US goods and services as well as reduce China’s trade surplus with the US. The overall result from May is that efforts have been made from both sides to avoid an all-out trade war. However, negotiations are continuing and the level of uncertainty remains high.

The Italy MIB30 (-9.2%) was heavily affected this month due to the possible formation of a government consisting of the Five Star Movement and the Northern League. Their anti-EU stance and populist economic policies has dented sentiment.

Other European markets such as France’s CAC40 Index (-2.2%) and the German DAX Index (-0.1%) both finished the month with relatively smaller negative returns. Asian markets including the Singapore Straits Times Index (-5.1%), the HK Hang Seng Index (-1.1%) and the Shanghai Composite (+0.4%) had mostly negative returns.

Fixed Interest and Cash

The Barclay’s Global Aggregate hedged in $A (+0.3%) had a positive return in May following the previous month’s -0.4% return. The Bloomberg Composite Bond Index also returned 0.7%. Australian 10-year and 3-year government bond yields as well as US 10-year and 2-year government bond yields all decreased. The 10-year Treasury yield displayed volatility due to geopolitical risks in trade wars and political concerns in Italy pulling them down while positive economic data pushed rates higher.

Property

The S&P/ASX 200 AREITs index posted a positive return of 3.1% in May. CoreLogic data shows national dwelling values continued to fall in May with the median value falling by 0.1% due to weakening housing conditions in capital cities (-0.2%). This figure has been slightly offset by the continued growth in regional areas (+0.2%). Poor performance from the Melbourne housing market in May (-0.5%) means it has surpassed Sydney (-0.2%) as the weakest housing market over the past three months.

Currency and commodities

The Australian dollar ended the month at US$0.7568 compared to US$0.7530 in April. Iron ore prices have fallen 3.0% to US$65. Brent Oil has continued to make gains increasing to US$77 a barrel this month mainly due to the US withdrawal from the Iran nuclear deal. Decreasing inventory levels as well as high global demand have also contributed to this rise in oil prices which have been reflected in Australian petrol prices throughout this year. Nickel had a standout performance in May (+11.5%) while zinc (-0.9%) and gold (-1.0%) posted relatively small negative returns.

 

Key market returns at 31 May 2018

If you have any questions, please contact us on info@fortressfs.com.au

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Fortress Financial Solutions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you have any questions, contact the Applied Research & Solutions team by sending an email to BTFGResearch@btfinancialgroup.com.

This publication has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac) and is current as at 7 June 2018. This document has been prepared for use only by advisers and clients of BT Advice, Magnitude Group Pty Ltd (trading as Magnitude Financial Planning) and Securitor Financial Group Ltd (“authorised users”). BT Financial Group is the wealth management arm of the Westpac group of companies (“Westpac Group”). This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. It is not the intention of Westpac or any other member of the Westpac Group that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. Past performance is not a reliable indicator of future performance.

Financial Service Guide (FSG): The Westpac FSG contains important information that applies to the research services provided by Westpac in this report. You should read the Westpac FSG which is available on Westpac’s website at www.westpac.com.au/disclosure-documents under “Westpac FSG”. Alternatively, you can ask your financial adviser for a copy.

Developments in the global economy

March quarter GDP figures in the US and Europe suggest growth momentum may have eased slightly, but there are few signs of a significant slowdown. Chinese growth remains largely unchanged. Similarly, inflation appears to be slowly grinding higher but earlier fears of substantial rise now seem overdone.

00

Australia

The Consumer Price Index increased by 0.4% in the March quarter to be 1.9% above year-ago levels. Healthcare (+2.2%) and Education (+2.6%) showed the largest increases in the quarter while Clothing and Footwear (-2.0%) and Recreation and Culture (- 0.7%) showed the largest falls. Inflation remains just below the Reserve Bank’s 2-3% target but is showing little sign of a significant break through the target range. Labour force data showed some slowing of recent improvements with the number of people employed increased by only 4,900 in March. Full-time employment decreased by 19,900 while part-time employment increased by 24,800. The unemployment rate was unchanged at 5.5%. The shift from residential to non-residential construction continued to be seen in the ABS’s December quarter Building Activity report. Value of work on new residential buildings fell by 3.1% in the quarter to be 5.4% lower than a year earlier while non-residential work increased by 4.0% to be 14.8% above year-ago levels.

US

Initial estimates of March quarter GDP showed the US economy grew by an annualised 2.3%, slowing from the December quarter’s 2.9% pace. Possible issues with seasonal adjustment factors have meant that first-quarter GDP figures have been unusually low in recent years and we should not read too much into the slowing in growth from last quarter. US inflation continues its slow grind higher but the extreme concerns earlier this year of a significant inflation breakout do not appear justified by recent data. Headline consumer prices fell 0.1% in March to be 2.4% higher than year-ago levels while core prices increased by 0.2% but are only 2.1% higher than a year earlier. This is likely to remain an area of focus given concerns that tariffs imposed by the Trump administration will lead to increased prices of steel and aluminium which will eventually flow through to final consumer prices. The ISM Prices Index – a survey measuring raw material prices – increased to 79.3 in April, its highest level since 2011.

Europe

Positive economic sentiment has taken a hit recently with the ZEW Economic Sentiment Index falling significantly for the second consecutive month. This survey of financial professionals had been around 30 through 2017, varying around this number on a month to month basis. It had maintained a reading around 30 earlier this year, but in March fell to 13.4 with a further fall to 1.9 in April. This sentiment was reiterated by the European Central Bank (ECB) following their April Board meeting where they stated that incoming information pointed to some moderation in growth. Initial estimates of March quarter Eurozone growth showed the economy expanding by 0.4%, a slowing from the 0.7% growth seen in the previous three quarters.

China

Chinese GDP increased by 1.4% in the March quarter, keeping the year-on-year growth rate at 6.8%. Consumption continues to be a mainstay of overall growth, confirmed by retail sales figures showing 10.1% year on year increase in retail sales. The ongoing trade dispute with the US is yet to show any significant impact on the economic data. The sharp rise in Chinese inflation seen in February was reversed in March when prices fell by 1.1%. As a result, over the past 12 months, prices have increased a reasonable 2.1%.

Japan

Analysts are starting to focus on the impact of the 2020 Olympics on the Japanese economy. Olympic Games related investment is likely to boost economic growth with the Bank of Japan estimating it will add around 0.5% to growth through 2018-19. Increased tourism is likely to provide a further boost around the time the Olympics are held, but there is a concern that once this fades, growth could falter given that opportunities for further construction activity may be limited.

 

 

Developments in financial markets

Australian equities bounced back in April following sharp declines in March. The rebound in international shares was less pronounced but over the past 12 months, international shares have provided stronger returns than Australian shares. Bond yields were higher in the US and Australia reflecting expectations of increased inflation and further US monetary tightening.

 

Australian shares

The S&P ASX200 Accumulation Index ended the month increasing by 3.9% despite the continuing trade war between China and the US with Donald Trump threatening to implement more trade tariffs on China early in the month and the Financials sector continuing to be affected by the Royal Commission.

The best performing sectors in April were Energy (+10.8%), Materials (+7.6%) and Health Care (+7.4%). Worst performing sectors in the month were Telecommunications (+2.0%) and Financials (+0.2%). Chinese president Xi Jinping’s announcement that he is committed to open trade and improving conditions for foreign companies boosted local markets while the strong performance in energy stocks was fuelled by rising oil prices.

Strong performers in the ASX100 included Healthscope Limited (+25.6%), Santos Limited (+21.1%) and South32 Limited (+15.5%). The worst performing stocks were AMP Limited (- 19.0%), Perpetual Limited (-13.4%) and IOOF Holdings Ltd (-11.9%). AMP’s admission that shareholders and the profits of the company were more important than complying with the law and its customers was responsible for the sudden drop in its share price.

International shares

The MSCI World Index managed to post a positive result for April with a 1.0% return, with an unhedged return of 2.0% due to the fall in the $A. European markets turned around lacklustre performance from last month with France’s CAC40 Index (+6.8%), German DAX Index (+4.3%) and the Italy MIB30 Index (+7.0%) all achieving healthy returns. A contributing factor to this was positive expectations for first quarter financial results for US and European corporates. Investors have remained optimistic despite geopolitical concerns like the trade war between the U.S. and China and US-led missile attacks in Syria. Asian markets had mixed results with the Singapore Straits Times Index (+5.4%) and the HK Hang Seng Index (+2.4%) achieving positive returns while the Shanghai Composite (-2.7%) continued to fall for the third consecutive month. Early in the month in the US market, investors’ concerns about an intensifying trade war between China and the United States have continued as there continues to be uncertainty around the impact it could have on global economic growth. However, Xi Jinping’s promise at the Boao Forum to cut import tariffs helped boost US stocks and buoyed global markets.

Fixed Interest and Cash

The Barclay’s Global Aggregate hedged in $A (- 0.4%) had a negative return in April following the previous month’s 0.8% return. The Bloomberg Composite Bond Index also returned -0.4%. Australian 10-year and 3-year government bond yields as well as US 10-year and 2-year government bond yields all increased. The US 10- year Treasury rate was above 3% in April for the first time since 2014.

Property

The S&P/ASX 200 AREITs index posted a healthy return of 4.5% in April. For the first time since November 2012, dwelling values of the combined capitals have posted an annual decline (-0.3%) according to CoreLogic data. Both Sydney and Melbourne declined 0.4% in price during April while Brisbane also fell 0.1%. All other capital cities posted a positive return with Hobart (+1.2%) being a standout performer.

Currency and commodities

The Australian dollar ended the month at US$0.7530 compared to US$0.7680 in March. Iron ore prices rebounded slightly by 3.1% to US$67 after a massive drop last month. Brent Oil has continued to make gains increasing 7.7% to US$74.68 a barrel due to tensions in the Middle East causing supply issues. US sanctions against Russian nickel producers coupled with supply issues caused its price to increase by 2.6% in April. Zinc (-4.8%) and gold (-0.8%) both fell while copper (+1.4%) had a small gain.

 

Key market returns at 30 April 2018

If you have any questions, please contact us on info@fortressfs.com.au

Download the April Commentary PDF here.

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Fortress Financial Solutions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you have any questions, contact the Applied Research & Solutions team by sending an email to BTFGResearch@btfinancialgroup.com.

This publication has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac) and is current as at 7 March 2018. This document has been prepared for use only by advisers and clients of BT Advice, Magnitude Group Pty Ltd (trading as Magnitude Financial Planning) and Securitor Financial Group Ltd (“authorised users”). BT Financial Group is the wealth management arm of the Westpac group of companies (“Westpac Group”). This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. It is not the intention of Westpac or any other member of the Westpac Group that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. Past performance is not a reliable indicator of future performance.

Financial Service Guide (FSG): The Westpac FSG contains important information that applies to the research services provided by Westpac in this report. You should read the Westpac FSG which is available on Westpac’s website at www.westpac.com.au/disclosure-documents under “Westpac FSG”. Alternatively, you can ask your financial adviser for a copy.

Developments in the global economy

Greater than usual attention is being paid to US inflation and while some indicators are suggesting an increase in price pressures, broad inflation measures are yet to show any cause for serious concern. Australian economic data is little changed, with global developments monopolising the spotlight.

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Australia

The recent sideways trend in labour force data was reinforced by recent figures, although full-time employment fell by 49,800 persons in January. The unemployment rate fell slightly to 5.5% from 5.6%, due to part-time employment increasing by 65,900 thereby offsetting the drag from full-time employment. The wage price index increased by 0.6% in the December quarter taking the year-on-year change in wages to 2.1%. Subdued wages growth is a factor holding back household consumption with recent comments by the Reserve Bank suggesting this is now front of mind for public policy makers. Consumer sentiment eased back in February with the Westpac/Melbourne Institute index falling to 102.7 from 105.1 in January. Given the sharp falls in equities markets in early February, the decline in sentiment was relatively modest. Interestingly, while consumer confidence remains lacklustre, business confidence increased in January to be at its highest level in almost 10 years, if the temporary spike in April 2017 is excluded. Despite hopes of improved retail spending, sales remain subdued, increasing by 0.1% in January following a 0.5% fall in December.

US

The equity market falls in early February have led to an increased focus on inflation statistics and the likely US Fed response. US core inflation which excludes food and energy increased by 0.3% in January following a 0.2% increase in the previous month. This keeps year-on-year inflation unchanged at 1.8%. Other measures of inflation are suggesting greater pressures may be at play. For example, the ISM prices paid index increased to 74.2 in February from 72.7 a month earlier. However, it should be noted that the index is only as high as it was in May 2011. Subsequent to this, US inflation was stuck in a range of 1.5-2.3%.

Europe

Inflation pressures in the Eurozone remain subdued despite recent improvements in economic activity. The Producer Price Index (PPI) increased by 0.4% in January to be 1.5% above year ago levels. Initial estimates of February consumer inflation suggest it is likely to ease to 1.2% from 1.3% in January. Core inflation (excluding energy, food and tobacco) is expected to be lower at 1.0%. The lack of inflationary pressures is likely to see the European Central Bank (ECB) delay any increases in official interest rates. The EU unemployment rate was unchanged at 8.6% in January from the previous month, and significantly lower than the 9.5% reading from a year earlier.

China

A semblance of stability has emerged in Chinese economic data. House price increases appear to have settled at around 5%, following the roller coaster ride of the past few years which saw house prices fall by more than 5% in 2015 followed by a 12% increase during 2016. Similarly, the latest inflation reading of 1.5% is within the range of 1.2-1.8% seen over the past 12 months.

Japan

While recent partial indicators have been robust, the initial estimate of Q4 GDP disappointed. The Japanese economy increased by 0.1% in the December quarter following a 0.6% rise in the previous quarter. Private consumption was a strong contributor to growth while business spending slowed. Inflation ticked up in January, increasing by 0.4% following December’s 0.2% increase. Over the past 12 months, consumer prices have increased by 1.4%. Food prices increased sharply while clothes and footwear also contributed to inflation in the month.

 

 

Developments in financial markets

Concerns that US inflation pressures had finally been unleashed reverberated through most asset classes in February. Bond yields rose, equities sold off sharply and yield plays such as property trusts suffered. Equities recovered some ground as the month progressed but concerns still remain and this is being reflected in the increased volatility now being seen in returns.

 

Australian shares

Despite the volatile month due to the sell off on Wall Street, the S&P ASX200 Accumulation Index ended the month increasing by 0.4% following January’s fall of the same amount. The Australian market managed to rally despite the heavy falls earlier in the month as a result of positive half-year earnings results. Reporting season saw over a third of earnings results beating market expectations which helped investor confidence.

The best performing sectors in February were Healthcare (7.0%), Consumer Staples (2.2%) and Information Technology (1.3%), once again showing similar results to January where the top three performing sectors also included Healthcare and Information Technology. Worst performing sectors in the month were Telecommunications (-6.0%), Energy (-3.7%) and A-REITs (-3.3%).

There were a few companies that contributed to the fast recovery of the Australian share market such as A2 Milk Company (A2M) which performed extremely well posting a 47.5% return for the month. Other strong performers in the ASX100 included Insurance Australia (15.2%) and Lend Lease Group (14.8%). The worst performing stocks were South32 Limited (-13.1%), Domino’s Pizza Enterprises (-16.7%) and Vocus Group Ltd (-18.1%).

International shares

Following the release of higher than expected US wages growth in early February, concerns that inflation pressures had finally been unleashed became widespread. This set in train a chain of events including higher bond yields and expectations of a faster and steeper tightening of US monetary policy. This also fed into equities valuations concern that had laid dormant through the previous 12 months. Despite a rebound as the month progressed, international shares performed poorly with most markets posting negative returns.

The MSCI World ex Australia Index fell 3.6% in February largely reversing January’s gains. The Dow Jones experienced its largest daily fall since December 2008 during the financial crisis while major indices such as the S&P500 experiencing their worst weeks since January 2016. European markets took large dives with the German DAX Index falling 5.7% and the Italy MIB30 Index falling 3.8%. Asian markets performed even worse with the Shanghai Composite falling 6.4% and the HK Hang Seng Index falling 6.2%. However, Singapore’s Straits Times Index (-0.5% took a relatively smaller hit compared to other international markets.

Fixed Interest and Cash

US bond yields moved significantly higher in February as inflation fears surfaced. US 10-year government bond yields ended the month at 2.9% from 2.7% a month earlier. Yields in other countries were less impacted leading the Barclay’s Global Aggregate hedged in $A to return -0.2% in February. Australian yields ended the month largely unchanged. As a result, the Bloomberg Composite Bond Index returned 0.3% in February.

Property

The S&P/ASX200 AREITs index returned -3.3% in February, matching January’s decline. Over the past 12 months, AREITs have returned -0.2% with Utilities and Telecommunications the only sectors to have posted worse performance over this period. Global REITs returned -6.4%, with higher bond yields and fears of more to come having a greater impact on property trusts than the broader market.

Currency and commodities

The Australian dollar reversed in February ending the month at US$0.7762, compared to US$0.8057 a month earlier. Iron ore prices jumped 10.3% to US$80.5 per tonne but other commodity prices were largely softer. Copper fell a further 2.6% while zinc (-3.3%) and gold (-2.0%) reversed some of January’s gains. Brent Crude fell 6.2% to US$64.6 per barrel.

 

Key market returns at 28 February 2018

If you have any questions, please contact us on info@fortressfs.com.au

Download the February Commentary PDF here.

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Fortress Financial Solutions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

If you have any questions, contact the Applied Research & Solutions team by sending an email to BTFGResearch@btfinancialgroup.com.

This publication has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL 233714 (Westpac) and is current as at 7 March 2018. This document has been prepared for use only by advisers and clients of BT Advice, Magnitude Group Pty Ltd (trading as Magnitude Financial Planning) and Securitor Financial Group Ltd (“authorised users”). BT Financial Group is the wealth management arm of the Westpac group of companies (“Westpac Group”). This publication does not constitute financial product advice, investment advice or recommendations of any kind. This publication has been prepared without taking account of any person’s objectives, financial situation or needs, and so the reader should consider its appropriateness having regard to these factors before acting on it. This publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information in this publication may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be accurate at its issue date. While this material is published with necessary permission, no company in the Westpac Group accepts responsibility for the accuracy or completeness of, or endorses this material. Except where contrary to law, we intend by this notice to exclude liability for this material. It is not the intention of Westpac or any other member of the Westpac Group that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. Past performance is not a reliable indicator of future performance.

Financial Service Guide (FSG): The Westpac FSG contains important information that applies to the research services provided by Westpac in this report. You should read the Westpac FSG which is available on Westpac’s website at www.westpac.com.au/disclosure-documents under “Westpac FSG”. Alternatively, you can ask your financial adviser for a copy.

To explore the benefits of investment bonds, we have gathered some real-life case studies of some of our amazing clients (with their permission). Names changed of course!

 

The professionals

Jim and Sophie are both 40, own their home outright and have a property portfolio, funded by debt. Jim is a doctor who earns $150,000 p.a. and Sophie is a lawyer who earns $300,000 p.a. They wish to have the option of retiring at age 50 and are currently maxing out their super contributions (remember they won’t be able to access their super until 60, which is ten years after they want to retire). Their marginal tax rates are 39% (Jim) and 47% (Sophie). As a result, they pay a significant amount of personal income tax and are doing their best to lower this using debts and depreciation within their property portfolio. However, they still have surplus cash and want to diversify away from the property.

We instructed Jim and Sophie to invest $100,000 initially and then another $5,000 per month ($60,000 per year) into an investment bond.

This caps the investment tax at 30%, and if they do not exceed the 125% rule and keep the bond for 10+ years, there will be no other tax payable in their own names (even as a result of investment income), nor any capital gains tax upon withdrawal. We forecast that the bond will be worth $1.4M in ten years’ time. From age 50, we intend to withdraw $50,000 per year as income for Jim & Sophie, to bridge the gap until age 60 when they can access their supers. We also have the option to make a lump sum withdrawal at year ten to pay off their property debts (which means the rent from their properties will now be an income stream to assist with their retirement).

Using the investment bond has capped tax at 30%, we’ve used excess cash flow to generate capital growth through the investment and then avoided capital gains tax by meeting the bond conditions. A great outcome.

 

The unlucky bachelor

Not only is Phil getting divorced, he has just shacked up with his secretary who has three kids with a former partner.

He is a great stepdad to his new partners’ kids, but he wants to ensure that most of his assets are left to his biological children from his previous marriage. Phil earns $130,000 (so he is in the 39% tax bracket), has good consistent income and has been forced to sell a big commercial property asset as part of the marriage settlement. He has no plans to retire and will work until ‘he starts pushing up daisies’. I have a soft spot for my unlucky mate Phil…

Phil has cash left over and wants to invest for the long term. He is 66, has a healthy super balance but his main goal is to ensure his four biological adult children receive most of his wealth. We set him up with four separate investment bonds worth $200,000 each. Phil remains the owner of the policy but nominates each child as the beneficiary. Upon his death, he hopes that each child will receive the funds directly, without passing through his estate. This will ensure his current partner (and her children) plus his former partner cannot challenge his will and drag the estate through the courts (draining the estate through legal fees).

Nominating beneficiaries directly allows Phil to retain control of the funds while he is alive, but also control the flow of funds to his children with greater certainty. By comparison, if Phil left $800,000 in his bank account, then upon his death those funds would form part of his estate and MAY be contested and end up in the wrong hands (even if his Will nominated his children as beneficiaries).

Using four investment bonds, Phil has achieved tax efficiency and ensured his money passes directly to his children upon his death, which is important to him.

 

The grandparents

Steve and Barbara are retired after successful professional careers. They are self-funded retirees and have 3 children and 6 grandchildren. They like the simple things in life and want to help their family.

They decide to invest $25,000 into 6 separate investment bonds – one for each grandchild. They own the policies jointly and are the lives insured but nominate a single grandchild on each bond as the beneficiary. Additionally, they nominate a vesting age of 25 – this will ensure their grandchildren must wait until the age of 25 before cashing in or accessing the bond.

They invest in 50% Australian shares and 50% international shares to get strong growth over the next 20+ years. They want this money to be used wisely to help their grandchildren get ahead or repay their education costs.

By using investment bonds, they have provided an intergenerational legacy which will outlast them and give their family a head start in life.

Written by Chris Black, Director at Fortress Financial Solutions

 

We’d love to hear from you!  To see if you could benefit from an investment bond, please book online or contact us on info@fortressfs.com.au 

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

 

Want to cap tax on your investments and completely avoid Capital Gains Tax?  An  Investment bond may be for you!

 

What is an investment bond? Is it the nerdy brother of James Bond?

Yes, sort of… no.

An investment bond is a specially taxed investment that pays tax at the company tax rate of 30%.

Investment bonds are offered by certain Australian companies such as life insurance companies and friendly societies.

The best part is if you hold the bond for more than 10 years (and meet the investment rules), you won’t pay any capital gains tax when you sell the bond.

 

Who is an insurance bond right for?

If you and your partner earn more than $87,000, you are paying 39% tax on income and capital gains due to your marginal tax rate (or 47% if earning over $180,000). Unfortunately, we can’t do anything about your wage income being taxed at that rate, but there are ways to ensure your investment income is not subject to that same high rate of tax. Utilising an investment bond would cap this tax at 30%.

Investment bonds are also fantastic for those who want to retire before they can access super, or for those maxing out their super contributions ($25,000 if claiming a tax deduction).

They are also brilliant for people who have estate planning issues, like blended families.   Investment bonds allow you to nominate a beneficiary to be paid directly (without passing through the estate). This ensures there is no ability for other people to lay claim!

They can also be great for investors who have property-heavy portfolios who need additional diversification. Investment bonds are available across a range of asset classes, including Australian and International shares, fixed interest and even alternative investments. It is important to note however that because investment bonds have a timeframe of 10+ years, investing in growth assets typically provides a better outcome.

 

Who is an insurance bond wrong for?

Low income earners who don’t pay much tax,

Those who don’t have high savings capacities or the ability to contribute consistently

Impatient investors who don’t have a 10+ year time frame to invest

 

What’s the catch?

The ten year rule

If you hold an investment bond for at least 10 years the returns on the entire investment, including additional contributions made, will have no further tax payable (you must also meet the 125% rule below).

That means no capital gains tax, nor income tax payable to the investor. Yippee!

If you don’t hold the bond for ten years, it’s not disastrous… you just don’t get the full tax benefit. You get credited for the tax you have paid (at 30%) and then may have to pay additional tax to “top up” to your marginal tax rate.

Tax treatment of investment bond withdrawals

Year withdrawal made	Tax treatment
Withdrawals within 8 years	100% of the earnings on the investment bond are included in your assessable income and a 30% tax offset applies*.
Withdrawals in the 9th year	Two-thirds of earnings on the investment are included in your assessable income and a 30% tax offset applies.
Withdrawals in the 10th year	One-third of earnings on the investment are included in your assessable income and a 30% tax offset applies.
Withdrawals after the 10th year	All earnings on the investment are tax free and do not need to be included in your assessable income.

 

The 125% rule

Investors are encouraged to make additional contributions each year up to the value of 125% of last years’ contributions. If you stay under the limit, it is deemed as part of the initial investment and keeps ticking along to the golden tenth year.

If you exceed the 125% rule, the start date of the bond resets and you must wait another 10 years for the full tax benefits to be realised. This means if you don’t make any contributions in one year, you can’t make any more contributions. In this case, if you want to keep this strategy alive, you can simply start another bond…

 

Ownership and fees

Ownership is important when setting up an investment bond. The bond needs an owner, a life insured and a beneficiary. Putting the right people into these roles is important to ensure the funds are controlled and then passed on correctly. Additionally, if you pull out the funds early, there can be top up tax implications, so ownership is important.

Fees are also important to consider when doing any sort of investment. You can invest in a well-diversified aggressive portfolio at a price of about 1% of total running costs. This makes investment bonds comparable to traditional investments such as super and managed funds.

 

What investment options are available?

That really depends on the product provider. The investment menu is more limited than the open market, however it is improving. Most investors can be catered for using both indexed and active managed funds that provide good diversification, or even a really concentrated exposure (dependent on the goals of the investor).

 

Are they right for ME though?

Investment bonds are brilliant for the right people, but inappropriate if used incorrectly.

They are a bit more complicated than other investment types, and typically better for high, consistent income earners, that may or may not need additional asset protection, have a 10+ year investment view, want professional management and ultimately tax efficiency.

So, to be honest, its best to consult your finance professional. If you can’t find one, give us a call…

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

A new survey has discovered that Australians are saving more now than any time since the 1980s. It turns out that factors such as net worth and income play a huge role in how much we stash under the mattress each month, as does your age and household behaviour.

 

The average Aussie now saves $427 per month (according to a recent Suncorp survey), which is more than at any point since the 1980s.

Between the 1970s and early 2000s, savings rates of Australian families reduced due to easy access to credit, falling real interest rates, rising asset prices, rising household income and high household confidence.   By 2003, Australians weren’t saving enough for a vegemite sandwich.

Then financial crisis hit, causing a strong resurgence in savings (thank goodness!) As might be expected, households’ savings tend to increase with income, but decrease with wealth and gearing. The average now suggests that Aussies are saving around 12% of their disposable income.  Financially constrained and migrant households tend to save more than other households (all else being equal). While saving differs substantially across age groups we find that, this does usually reflect differing circumstances.

 

Age

The Suncorp survey found that younger Australians, aged 25 to 34, are killing it at saving: $533 a month on average.  How they spend their savings however is cause for concern.  Many young Aussies are not saving enough for retirement due to prioritising saving for emergencies and large purchases like real estate or holidays.  This doesn’t leave much left to save for retirement, which seems a problem for the ‘distant future’.

A more detailed Reserve Bank discussion paper (2014) also found that Aussies save less between ages 35 and 45.  This is understandable as middle-aged households are usually paying off mortgages and supporting children, leading to much higher costs of living during this ten-year period.

 

Net worth

Unsurprisingly, wealth and income significantly affect our ability and propensity to save.  The richest 20% of households save nearly 15% of their disposable income, double the average.

Interestingly though, the effect of owning a home outright depends on age. For the young, it’s associated with higher rates of saving and probably has a lot to do with personality, rather than a pure ‘wealth effect’.

Older households, on the other hand, show a decreased tendency to save if they own their own home. That’s probably down to feeling a greater amount of financial security, which reduces the desire to save for emergencies.

 

Income

The savings gap between rich and poor is even more extreme when separated by income: the top 20% of households save 25% of their income, compared to negative 26% for the lowest income earners.

This is surprising as you would expect a household’s level of income should not affect their saving ratio (since households with high income would also have high consumption). International data supports this: as countries grow richer, household incomes trend higher but saving ratios do not. In Australia however, higher incomes do correlate with higher savings.

 

How do you stack up?

Comparison may be the thief of joy, however knowing what everyone else is saving can be empowering.  If you are falling seriously short of your savings goals, it may be worth having a professional analyse your spending habits, check your tax strategy and ensure your retirement goals are on track.

To book a free consultation to improve your position, or get your savings goals on track, please book online or contact us on info@fortressfs.com.au 

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.This article originally appeared on InvestSmart.com.au
All images taken from RBA Research Discussion Paper: Household Saving in Australia by Richard Finlay and Fiona Price.

 

While you may have lost sight of resolutions you set on 1 January, now is your chance to review your goals (or set new ones) so you can make the 2019-2020 financial year one of real achievement.

 

What do you want to get out of the new financial year?

July marks the start of a new financial year, and provides a timely reminder to start thinking about your goals (and potentially revisiting those resolutions you may have forgotten about from January 1).

The secret to sticking to your goals, and making this new financial year one of real achievement, is by making a few small, regular changes that will help you reap the benefits over time. So with this in mind, we’ve put together our top tips that will help you hit the ground running in getting the most out of your hard-earned cash their new financial year.

Time to plan

The new financial year presents a terrific opportunity to re-evaluate your goals and aspirations as they may have shifted over time. It’s helpful to take stock of where you are now and start making a plan to work towards where you want to be.

Don’t know where to begin? Start by calculating your net worth. Although daunting at first, this calculation is a useful starting point to see where you’re at financially, and to help you decide on some achievable goals. Simply subtract your liabilities (what you owe e.g. mortgage, loans, credit cards etc.) from your assets (what you own e.g. home, super, savings etc.) Otherwise you can always ask us to do it for you!

Assets – Liabilities = Your Net Worth

Once you’ve made this calculation, you can start writing down your financial goal(s) for the year. It might be to improve your net worth by a specific amount by this time next year, or to funnel money towards a specific debt so you can take a guilt-free holiday in 2020. Commit to it by marking a progress review in your calendar every three months.

Prepare a budget

Did you know that Australians’ biggest financial regret is not saving enough?

Taking control of your money and income streams is the most effective tool there is to getting your finances under control. Many people think we need to earn more but often what we really need is to spend less. Understanding what you are currently spending your money on and making small changes to these habits can instantly improve your financial position.

To get started, add up how much you spend during an average month. Then check your net income, including any income from investments or interest earned. Subtract the amount you spend from your overall income. This is the amount you are left with to put towards clearing your debts or increasing your savings.

Net Income – Expenses = SURPLUS
(that you can put towards savings or debt repayments)

If you’re not happy with the amount you are able to save, take a look at your spending and see if there are any areas where you could cut back. For budgeting to work, it needs to be sustainable. That generally means making smaller cutbacks and sacrifices over a longer time frame. If you failed the last time you tried to stick to a budget, it might’ve been because it was unrealistically strict for your lifestyle and needs.

Struggling to find the time to create a budget? With so many time-saving financial apps on the market, it’s worth taking a moment to track down the best tools for the job. Want the budget template that we all use? Send us an email and we’ll forward it through to you.

 

Are you up for the challenge?

If you’re feeling a little daring, you may like to challenge yourself to a ‘spending fast’. For one month you’ll purchase only essentials, putting all other income towards supplementing your savings or making a dent in your debt. Not only is it a fun challenge, it will teach you more about your spending habits (and why you may not be hitting those savings goals) than any spreadsheet can.

Make yourself accountable

As with any goal in life, you need to regularly review your progress. You may even need to review your goals in case they have shifted, and run over the steps you’re taking to achieve these goals (such as the basics above) to see if there are any areas you can still improve upon.

Reviewing your finances with a trusted person (whether a partner, family member, or a professional) can also help make you accountable and more likely to stick with your plan. When you share your goals with someone else, and commit to reporting back to them on your progress, it can really motivate you to keep going and help turn your new saving and spending regime into a habit.

Don’t forget to work in some ‘rewards’ when you meet certain goals and targets!

Looking ahead

Sometimes all we need is a little push to do the things we’ve been putting off, and 30 June presents the perfect opportunity to make some new financial year resolutions. Once you’ve decided what your goals are for the new financial year, the next step is turning those dreams into reality. So start making those small changes now that will make a big difference later. It might just be something worth celebrating.

 

If you ever need some assistance putting your plans into action, we’re always here to help! You can get in touch with us on (07) 4646 4970, by email at info@fortressfs.com.au or book your free appointment online.

Fortress Financial Solutions is an award-winning financial planning firm based in Toowoomba that specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

The cost of education in Australia has risen a staggering 61% in the last decade, whilst child-raising costs have gone up by 50%. Meanwhile, our household incomes have only risen by about 25%, which means the cost of raising children is growing at double the rate of our average incomes. Yikes!

According to ASG Planning for Education Index 2018 released on 16 January 2018, the cost of education in Australia has soared 61% in the past decade and could cost a staggering $475,342 to educate one child through the private system.

ASG is a member owned organisation and specialist education benefits provider and provides estimates on the cost of education in Australia. It estimates the full cost of primary and secondary education for a child born in 2018 could cost $66,320 in the public system, while faith-based education was estimated to cost $240,676 per child.

 

Estimated average costs to educate a child born in 2008 vs 2018 across metropolitan Australia:

	2008	2018	% increase
Government/Public School	$53,756	$66,329	23%
Faith-based school	$156,104	$240,679	54%
Private school	$295,214	$475,342	61%

The figures include the cost of school fees, as well as an estimate for extra-curricular activities, computers, travel expenses, uniforms, school excursions and camps. Interestingly, the Australia Bureau of Statistics’ Household Expenditure Survey also supports this rise in education spending in their report released in 2017 which found costs rose by up to 44% in the six years between 2009-10 and 2015-16 mainly extra spending on school fees.

The ASG research “reveals a child’s education is one of the most significant investments a family could make. If you have three children, the cost of educating them in Sydney or Melbourne’s private education system could top $1.6million. That’s significantly more than the purchase price of the average family home.”

 

Can you afford not to have an insurance protection plan?

Nobody likes to think about worst case scenarios.  However, when you are responsible for a family, it is important to always have a Plan B.  If something happened to you, could your family afford the cost of raising children and the increasing cost of education, along with home and car loan repayments, credit cards and other household bills?

Taking out insurance, and maintaining it, can help you to negotiate life’s curveballs. The great thing about having a plan in place is that if you have an accident and are not able to work, this plan can help ease some of the financial burden on you (so you can get better) and on your family (so they can carry on with normal life).

 

If you would like help with preparing for a new baby, budgeting for private education costs, or looking at insurance to protect your wage, please book online or contact us on info@fortressfs.com.au 

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Complied by Emma Linton Doig, Practice Manager at Fortress Financial Solutions.

Fortress Financial Soultions Pty Ltd is a Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

Source: http://www.news.com.au/finance/money/costs/privately-educating-a-child-born-2018 
Source: https://www.asg.com.au/doc/default-source/2018-asg-planning-for-education-media-releases—australia/asg_2018-planning-for-education_national_approved.pdf?sfvrsn=2

This article was published update by CommInsure.

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