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RBA opens door to interest rate cut

25/11/2014

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Low interest rates were working in Australia, and any further cuts would also be effective, says Reserve Bank of Australia deputy governor Philip Lowe.

Dr Lowe told a dinner packed with bank economists that unlike in other countries where poor credit demand had rendered monetary stimulus largely unproductive, Australian investors had responded to the RBA's easing.

The cash rate, which has been on hold at 2.5 per cent since August last year, is expected to remain there at least until the middle of next year, according to consensus forecasts.

Some outlying forecasters, however, have not ruled out a further cut next year to address stubborn patchiness in the Australian economy.

According to global fund manager AllianceBernstein, the "collapse" of commodity prices and a cooling property market in Australia could force the RBA's hand next year.

Dr Lowe told the annual dinner of the Australian Business Economists that such a cut, if needed, would work.

"[In Australia], we are seeing lower interest rates lead to higher asset prices and that's inducing more real activity in the economy," he said.

"The problem that other countries have had is that mechanism is not working, or at least not working very effectively.

"My judgement would be that if further interest rate reductions were required, they would have some effect in stimulating economic activity."

Dr Lowe's comments – and a preceding speech – appeared to drive the Australian dollar lower in international trading. Early on Wednesday, it was fetching US85.23c, close to four and a half year lows, after a dip when Dr Lowe's speech was published.

He said one of the limits to the usefulness of monetary easing was consumer and investor confidence. As this wanes, the returns from interest rate cuts diminish, he said.

"One of the reasons why there's a limit to the continuing benefits of stimulatory monetary policy is you get to the point where the confidence effects don't seem to be as strong as they were in normal times," Dr Lowe said.

"I don't think we're there yet, so we're in a fortunate position that if we do need to lower interest rates, we can."

Rising house prices and investment in Australia were the fruits of the RBA's current easing cycle, he said. He dismissed talk of a property bubble, but said the central bank had singled out the build-up of risk in loans to buy-to-let investors.

"We wanted the higher housing prices to make it more attractive for people to undertake new construction, and by and large that's happening," he said.

"The issue is whether that process is going too far," he said.

"Our judgment so far is that what's happened there is broadly okay.

"The issue we've focused on is the increased investor loans, in particular investor loans that are interest only. Our sense is that as a whole, those portfolios have become a little more risky."


Source: www.smh.com.au

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Super results, strong returns

19/11/2014

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Superannuation profits are on the rise again, clawing back last month’s losses, plus some.

The strong returns are expected to continue to December with total profits for the 12 months set to nudge 8 per cent in 2014.

According to the latest performance reports the average super fund made a 1.2 per cent profit for October, driven by a rising Australian share market and increased share prices.

Super pension funds, however, fared slightly better, up 1.5 per cent for the month, according to independent research group SuperRatings.

Last month the average balanced super fund made a loss of 0.6 per cent and pension funds fell 0.7 per cent.
The Australian sharemarket increased 4.4 per cent during the month, pushing up profits for most super funds but particularly those weighted toward local share investments, SuperRatings chairman Jeff Bresnahan said. International shares did not perform as well, up 0.7 per cent for the month.


With the end of the year in sight, expectations are for a strong finish for most funds.
“It’s likely we’ll see a positive return, not in the double digits, but well ahead of the rate of inflation,’’ Chant West director Warren Chant said yesterday.

“While it won’t be anywhere near the lofty returns of the previous two years — 12.8 per cent and 17.2 per cent — it will still represent the fifth positive return in the past six years and the tenth in the past 12 years,’’ Mr Chant said.

Profits across all investment options were positive during October, with the property option leading the month with a 2.8 per cent increase, compared with cash of 0.2 per cent, according to SuperRatings.


Source: www.dailytelegraph.com.au

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Mixing work and retirement

15/11/2014

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With the right advice behind them, retirees can easily re-enter the workforce without jeopardising their pension benefits, Mark Teale writes.  

The terms “work” and “retirement” at first appear to be at the opposing extremes of the spectrum, but for a portion of the population this is certainly not the case. 

Work does a couple of very important things outside providing a person with an income so that they can survive on a weekly basis. Work allows a person to continue to contribute to society, allows them to mix and broaden their social circle and also provides purpose and self-respect - these benefits also contribute to a longer and more importantly healthier life. 

Retiring into an existence where he or she does not have enough funds to travel the world, eat out and play golf four days a week (if so inclined) and where the only entertainment is the walk to the shop to purchase the paper and buy a coffee will lose its attraction very quickly.

It’s important to remember that the work a person does in retirement does not need to be a continuation of their previous working career. 

You don’t need to build a new career, just contributing and picking up some extra cash might be all that’s required. So what might appear to be a menial job such as shelf packing, stop/go sign operators, headstone restorer or even a barista should never been seen as being beneath a person’s abilities, the reason a person is working now is entirely different to the reason a person worked pre-retirement. 

For the part age pensioner, the extra reason to find work is the generous income test which applies to their earned income. 

The “work bonus” not only allows them to earn $250 over a 14 day period without any effect on their age pension, it also allows them to build a bank of $6,500 in credit which equates to $250 multiplied by 26 fortnights. 

So what this means, is that for the Age Pensioner who enjoys playing Santa Claus every Christmas in the local shopping mall and, depending on how much Santa is paid, they could work every year during this period pick up some extra cash and not have their pension affected. 

But like all government legislation, it does not come without some pitfalls. For example, if you earned $500 over a five day period instead of a 14 day period, the amount of income taken into account for the fortnight would not be $250 but $410.  

The prior Pension Bonus Scheme which provided a lump sum payment to people who deferred their application for age pension for a maximum of five years while working, was closed to new registration on 1 July 2014. 


Source: www.moneymanagement.com.au

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Handing over the SMSF keys

5/11/2014

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When it comes to symbols of personal freedom few are as powerful as keys to the car.

So it is no surprise that the baby boomer generation is keen to hang on to the car keys - and the independence that goes with it - for as long as possible.

A recent story in the Financial Times looked at how major car companies are working on technology to help the ageing baby boomers stay behind the steering wheel as long as possible. Ford has announced its research area is working on a car seat that will have the ability to detect when a driver is having a heart attack while other companies are working on driver technology aids to help monitor intersections and provide early warnings and alerts for drivers.

This is all a demand-driven response to the ageing population and is perhaps preparing us for when a 100-year-old driver will not be considered "abnormal" according to the social researchers.

Car keys are one sign of independence. A self-managed super fund (SMSF) is another.

The SMSF sector already has almost half the $559 billion of assets in pension or drawdown mode and for large part that is working well as people tailor portfolios to provide retirement income streams.

The question that looms large is when would be the appropriate time to hand over the keys - or trading authorities - for the SMSF or even when it is appropriate to wind it up.

What is rewarding and engaging at 65 or 75 might become burdensome at 85. Worse you may not realise your decision-making ability has declined.

This is a challenge unique to the SMSF sector by the very nature of the type of funds.

Stereotypes are open to challenge but where a typical SMSF has two members it is not unusual for one person to be much more engaged/hands-on with the management and investment of the fund.

That is not to ignore or underplay the legal responsibilities on all trustees of the fund but simply to accept practical differences in the levels of involvement and engagement.

The risk factor obviously rises with age where illness or some other life event happens unexpectedly to the active trustee then the management of the fund could be neglected or worse.

For SMSF trustees this is a critical component of the estate planning section of financial planning. But it is more than just having the administrative house in good order.

The flexibility and control that SMSF's have is a big part of their appeal when people set them up. But the sunset stage brings with it a range of personal questions that lead to decisions involving considerable technical complexity.

There is considerable focus within the financial advice industry on how SMSFs are investing their portfolios. But perhaps the greater need for specialist advice will be around the drawdown and then windup phase to ensure handing over the SMSF keys will be as seamless as possible.

Source: www.vanguardinvestments.com.au

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Growing your super

3/11/2014

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Your employer puts 9.5% of what you earn into super for you. Why would you want to put more of your own money in?  If you can afford to, it makes sense to put extra money into super. Even small things you do to help your super grow will pay off later.


Why top up your super?
  • Your super might need to last 20-40 years after you retire (depending on how long you live for).
  • You'll need more money than you think because, over time, the cost of things increases.
  • You might want money for extra things after you retire (like travel).
  • The tax benefits on super make it a good way to invest your money.
  • The government might match any extra money you put in to boost your super.
  • When you retire, you won't get a regular income from working anymore. You'll have to live off money you earn from your super investments and any money you may be able to get from the government's age pension and other benefits.

What to think about?
Any money you put into super must stay there until you retire. You need to weigh up the potential benefits of topping up your super now against other things you might do with your money.  You might want to pay off your credit card, save for a deposit on a house, or pay off a home loan. Depending on your circumstances, it might make better financial sense for you to do these things rather than put extra money into super.

Topping up your super
Building up super from your own money is generally an excellent investment, thanks to tax concessions and other government benefits.  You can make extra contributions to your super fund from money that you have already been taxed on. These are called after-tax contributions.  If you put your own after-tax money into super, you could receive a government co-contribution depending on how much you earn. If your total income is $34,488 or less, the maximum co-contribution is $500, based on $0.50 from the government for every $1 you contribute. Co-contributions reduce as your income increases, phasing out completely for total incomes of $49,488 or more. (These income levels are for the 2014-15 tax year.)  The rules for government co-contributions can change, so check the Australian Tax Office (ATO) for the latest information.
You can also increase your super and pay less tax by using salary sacrifice - this lets you 'sacrifice' some of your pre-tax income into various benefits, including super. It may sound complicated, but for some people this is a very good way to boost their super savings. Check whether salary sacrifice is available in your workplace, and see whether it's a good option for you. Make sure salary sacrificing won't reduce what your employer would otherwise contribute.

Source: www.moneysmart.gov.au

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Dollar Cost Averaging

2/11/2014

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Reduce your risk using dollar cost averaging
They say 'time in the market is more important than timing the market'. What this means, and research has shown, is that your investment returns depend more on picking the right investments and giving them time to perform, than picking the right times to buy and sell.  The best way to overcome trying to pick the peaks and troughs is to use the investment strategy called dollar cost averaging. Don't worry about the terminology - it's jargon for 'investing regularly.'

What is dollar cost averaging?
Put simply, dollar cost averaging is where you continue to invest a regular amount at regular times regardless of the market value, and you don't try to pick the right time. Over time, this will average the cost of your investment.

Dollar cost averaging helps you maintain a disciplined approach to investing: when prices decline and many pull out of a market, you will continue to invest the same amount and acquire more units. And when prices are high, and many rush in, you will be buying fewer units. It eliminates market emotion from investment decisions and reduces the impacts of market peaks and troughs.

At a glance
  • It is important to spend time in the market instead of timing the market.
  • Dollar cost averaging means investing regular amounts at regular times.
  • Dollar cost averaging is a disciplined approach to investing which reduces the impact of market movements.

Source: www.amp.com.au

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The RBA has once again voted to leave the cash rate on hold at 2.5 per cent.

1/11/2014

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http://www.rba.gov.au/media-releases/2014/mr-14-19.html
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    Author

    Sean Thomas - Financial planner 

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