Bronson Financial Services

Stock Markets and Your Reactions – What to do next

admin — Mon, 08 Aug 2011 04:30:44 +0000

Here is a copy of an email I sent to all my clients this morning about the current stock market turmoil.

It is important to remember that while we cannot control the market snad all that goes on in the world, we can control our reactions to those events. Keep that in mind while you read on…

Like you we are watching nervousness and uncertainty play out on world markets, reminding us all that Australia is part of the global economy. We have spoken to a number of fund managers such as Russell Investments, who continue to monitor the situation and from these discussion want to share with you the following thoughts.

Market Action

A gloomy global economic outlook sent investors on a mass exodus out of risky markets Thursday and into the refuge of US government debt, sending yields to yet another round of new 2011 lows. The intense flight into safe-haven Treasurys forced benchmark 10-year yields down more than 50 basis points since last Friday; there hasn’t been such a large one-week drop in yields since November and December of 2008, when Lehman Brothers collapsed, sparking a financial-market frenzy. This morning, the 10-year US Treasury note yields 2.40%.

Investors across the globe have been buffeted by economic and political turmoil in recent days. In the US, fears have turned from worries about a possible default by the US government to a weakening economic outlook. A string of recent weaker than expected economic data have pointed to a possible slowing of the recovery. Over the weekend we saw the lowering of the US credit rating by Standard and Poors (S&P). It is important to note that S&P merely rate the risk profile of a country or company – they do not determine whether they get any funds, so I would not expect this too impact on the desirabilty of investors to still hold US Bonds. However nobody seems to know what will happen on the stock markets around the world when they open later today.

In Europe, leaders are still working through a longer term solution to the sovereign debt crisis impacting peripheral countries such as Greece, Portugal and Spain. Investors are increasingly nervous that troubles are spreading to Italy and Spain, driving down stocks across the region and sending borrowing costs of peripheral nations soaring.

European stock markets plunged 3.4%, the largest one-day drop in more than a year, while US major indices continued the falls, ending down around 4.5%.

The breaking of short term technical levels, automated trading systems and the imposition of automated sell trade curbs in the US, fed the worries of traders.

Keeping market moves in perspective

Despite last week’s extreme movements, there was nothing in terms of a fundamental change in the world economy that happened in the past 7 days. The fact is we remain in a volatile market environment, set against the backdrop of a grinding global recovery.
It is helpful to put last weeks’ moves against the backdrop of the following key fundamentals:

The recent softer US data is consistent with our long held view of many fund managers that economic data overseas will oscillate between good and bad for a while yet, but that the net effect is the continuation of a grinding recovery over the next year or more.
Despite Eurozone debt concerns, core countries such as Germany continue to deliver strong growth, and one of the best performing sharemarkets in the world over the past year – despite everything going on with Greece.
Equity valuations remain ok (on the cheap side of longer term averages). US earnings in particular remain robust with 75-80% of reporting companies in the current earnings season beating expectations – 43% of these by more than 5% (though most fund managers do expect US earnings growth to slow to a more sustainable pace going forward).
US government bond valuations are now considered to be at extremely expensive levels. The debt ceiling/deficit cutting issues will be worked through and US default is an extremely low probability going forward.
The central scenario for Europe is that sovereign debt worries will continue to muddle through for now, but with any agreement on a long term solution still a way off yet.
Emerging economies remain the key drivers of global growth. Central scenario is for a soft rather than hard landing in China (slowing to 8% pa or so – still impressive).
Its also real important to keep in mind that stock markets generally have 4 bad years in any 10 year period, with 6 good years. While every “crisis” is different, the cycle seems to remain constant. The issues now are economic and will fix over time. History has shown us that those who have rebuilt their portfolios have done so by taking the opportunity to buy quality investments at discounted prices. Those who have lost and sworn off investments forever and locked in the biggest losses are those who bought high and sold low.

Key Message

Whenever there are large market-driven movements like last night, it is likely there will be continued volatility until things settle down again.
The key point you as an for investor is not to panic. Many of the people we speak with remain confident that while market conditions will continue to be volatile over the rest of the year, now is not the time to make knee-jerk reactions and run to cash (as many did in the depths of the GFC – with terrible results in the ensuing recovery).
Keep your head, stick to your long term strategic plan, and look through the current noise to keep headlines in perspective (especially against the backdrop of market valuations and economic fundamentals). There is nothing in the past week or so that should change your medium to long term investment strategy.

Volatility of this nature has us all concerened and we will remain in regular contact with various fund managers over the days and weeks ahead. We will take all necessary steps to keep you appraised of any new developments and that you give me a call to discuss anything that you need to at anytime.

Please don’t let newspaper stories and headlines be your source of information, as we kow with al stories, sometimes the truth gets in the ways of metaphors, so as I said before, give me a call.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

Please Note:

This publication has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

Changes to bank lending

admin — Wed, 09 Mar 2011 04:36:31 +0000

Early in February a change to mortgage lending rules came in that I think requires a bit of discussion – its also worth bringing up as many people still don’t get that bank lending practices are a key determinant in the growth of the value in residential property.

Under the changes, anybody over the age of 40 who applies for a mortgage on their principal place of residence will need to demonstrate how their mortgage will be fully repaid by the age of 65 either from their superannuation (not a very good move in my opinion) or from other assets.

The new lending guidelines mean that anybody who cannot show how they will repay the loan without selling their house by age 65 will not be approved for a loan.

The impact of this is that people in their 40’s tend to upsize to bigger houses etc, many taking on 25 year loan terms because it makes the mortgage more affordable. This option will may no longer be available.

A person of 45 will need to demonstrate that they will have their loan paid off in 20 years – maximum, a 50 year old in 15 years. I think this may reduce the number of people looking to buy, less buyers may lead to price pressure, hence lower growth.

Actually if memory serves correctly back in the day when bank managers knew your name and your details, this was how lending was done. Deregulation and competition changed this, loans were given out to all and sundry, property prices went through the roof (as did other assets) and we had a little thing called a global financial crisis.

I do not think this will prevent us from another “GFC” type event, but sensible lending guidelines should help, but I think there may be a bit of pain for many along the way.

I also suspect that many people who thought their house would be used to help fund their retirement living costs may need to re-evaluate, particularly if property values growing at the levels we saw from 2000 – 2005 are the basis on which these plans have been made.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Aged Care and Family Communication

admin — Thu, 27 Jan 2011 02:38:49 +0000

This week we did some work with a family where the mother of the family, at the sprightly age of 90 has just decided to move into a residential aged care facility.

Sometimes called nursing homes, it’s not until you are faced with helping a person make the transition from independent living that you actually appreciate the complexities and mystery that surrounds what I think is one of the more complex areas of financial planning.

You see when a person makes the decision (or in some cases has it made for them) to move into a facility, the actions they take in that process can have a number of financial impacts. These depend on the level of care the person needs – whether a bond has to be paid, what daily fees etc will be paid.

This is an area that you really should talk to your financial planner about before embarking on this path. This is not what I wish to cover today.

One of the hardest things it seems to me is the decision for a person to go into aged care. What really hit home for me was that after 40 years plus living in the one house, this lady had two days to pack up her memories and make the shift from independent homeowner to aged care facility resident.

Leaving a house of possessions and memories and moving into a bedroom (the facility is new and quite nice, but still after 4o years in your own home….) can be a major shock to the system in itself.

But let’s get back to the 2 days issue. This decision was really a few years too late. There have been a lot of family arguments about the family house, who gets what and how it’s done. Brother is against brother and its all getting messy.

The solution – family communication. This is easier said than done, after all it’s just not right for a child to ask their parents about their financial situation, or is it.

This is a conversation all middle aged children need to have with their parents – who gets what, when the plug gets pulled and at stage of life do we make the move from independent living and on what terms and conditions. Ignore this conversation at your peril – it’s only a matter of time before you have to act.

Finally go hug your children, tell your parents you forgive them for your childhood (only kidding), life is fleeting and as this lady said to me, those 40 years have gone by so quickly and the decision to move had to be made so fast that they couldn’t say a proper goodbye to all their friends in the area.

Make sure you and yours don’t ever miss the chance to say goodbye.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Attitudes towards Superannuation

admin — Thu, 27 Jan 2011 02:34:56 +0000

Recently the Australian Institute of Superannuation Trustees (AIST) commissioned a report into attitudes on superannuation.

A list of the key findings and a thought or two are listed below:

35% of those surveyed thought paying off the house produced a much better return than superannuation;

Many Australians do see their house as a cashable asset they can sell to fund their retirement. The reality is that many of those who do downsize to fund their retirement expenses find that they cannot find a house or suburb of similar standing to that to which they had become accustomed – they end up having to reestablish themselves in a community they do not like.

41% of respondents thought the Age Pension would not exist when they retire;

If that is you I hope you have made provision for your retirement – even I think this will be the case – one day, just not sure when.

66% believe that the government would change the rules by the time they retired;

Many people tell me that they won’t invest into super because the government always changes the rules. Let’s look at a few of those changes – the Superannuation Guarantee levy – that’s good, Tax free after 60 – that s great, Preservation – makes sure it is there for its original purposes, The tax on contributions – can’t fathom the logic behind that – let’s hope that the changes that people think will happen relate to the contributions tax. It’s hard really to find fault with many of the changes – super really is super.

30% were worried that their fund would go broke and their nest egg will be gone;

So what are they doing about it? Diversification could probably help in this regard, as would paying a little attention to your investments.

30% said they knew nothing or very little about their superannuation;

Probably the same people who complain about government being involved in everything they do and then complaining that government needs to do something because they didn’t.

Only 6% were confident they would have enough to retire on;

And probably expect someone else to take responsibility for their inaction.

20% don’t know how much superannuation they have;

I really wonder what these people think will happen when they retire – this is really scary, we as individuals and adults need to be responsible for our own financial well being.

27% could not imagine the day they will stop work.

Me neither, but it’s going to happen one day – either we die, get made redundant or too sick to work, but everything ends one day.

I apologise if any of this seems harsh, but really our laissez faire attitude while endearing is a recipe for disaster especially when it comes to taking responsibility for our own retirements. It has been said many times that the average person will live about 20 years in retirement while their investments will live about 3 years – I hope you are not one of the people destined to a life of poverty after all those years of hard work.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Superannuation – Who has enough?

admin — Thu, 27 Jan 2011 02:32:16 +0000

A survey was released a year or so ago by AMP highlighting the shortfall Australians have in their superannuation savings with approximately 31% of all Australians being on average 11% behind in their savings needs.

While many will be quick to point out that we have recently seen a fairly significant fall in the value of global share markets, I think that we all need to look at ourselves and ask why this is the case – as I would contend that either I see more people unprepared for retirement than the average financial planner or that maybe these statistics understate the real issue.

What I find is that until a person is faced with their actual retirement date – be it as a result of retirement, illness or redundancy, most people just don’t care.

However tell a person that there is only 6 months left until they retire and all of a sudden they cannot stop thinking about how much (or little) they have put away. The reality is of course that by then it is just too late.

I was talking with a 36 year old male today who made the comment that retirement is so far away that he would rather use his super now. This of course gets me thinking what would you do with it now?

Spend it? Maybe, but I am not sure a new flat screen television will keep you fed when your income does not come in.

Invest it maybe? That’s a good idea, what would you invest in – shares, property, term deposits – the same thing your superannuation invests in – but without the taxation advantages.

If you take the time to look at your superannuation and realise that it is one of your most important investments you will ever have, you will see how if you do take the time to review your portfolio with your adviser on a regular basis that it is something you can be involved in and have an influence on.

If however you take the ostrich route and keep your head buried in the sand, then you will only have yourself to blame when you realise that you have just received your last pay cheque and financial oblivion is not too far away….

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Your Personal Risk Management Strategies

admin — Thu, 27 Jan 2011 02:26:41 +0000

Much has been written recently about how to restructure investment portfolios and what to do with your money given the current turmoil surrounding investment markets.

Some of this has been good advice, some a bit questionable. But it does however highlight the need for strategies to

a) cope with the unexpected; and

b) to minimise your own risks in life.

A lot of time has been devoted to retirement incomes and how we all need to save for our own retirements – but what if you don’t get there, or get sick or injured along the way – I know it probably won’t happen to you, but it will more than likely happen to the person sitting next to you.

Consider the following:

In 2006 one of the country’s leading insurers paid out over $136m in claims.

Of that 50% was for death claims with the youngest claimant being 19 years of age.

The other 50% was paid out to those who will either never work again or were off work for an extended period of time.

Some sobering stats – the youngest Income protection claimant was 20.

The youngest Critical illness claimant was 27. More than 82% of these claims were for cancer, heart attack or stroke.

So I ask you, when you have your first heart attack, what are you going to lose, the house or the mortgage?

You see not only do we develop strategies to increase our wealth, but we also need to look at ways to protect it – after all take away your ability to earn an income and your plans will fall apart.

If you have not looked at your personal wealth protection portfolio over the last 3 years, now is the time to do it, – why I hear you ask – because no insurer will look at you once you have your heart attack.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Retirement – Are you ready?

admin — Thu, 27 Jan 2011 02:23:07 +0000

It’s not hard to lose a couple of hours daydreaming about THE TRIP whether it be touring through Europe, or tripping round Australia caravanning under the stars surrounded by miles of emptiness. Most of us hope to do such a trip when we retire along with the hobbies and activities that so far have been pushed aside as we grapple with the mortgage and the school fees.

But how well prepared for retirement are you? It’s never too early to start planning so if you haven’t thought about your retirement yet, here are a couple of facts to get you thinking ….

Surprisingly Australians are one of the world’s greatest investors, beating the Americans, the French and the Swedes in the investment stakes. But we still fall short of the investment needed for a comfortable retirement. If you wanted to retire on a comfortable income equivalent to about $48,000 in today’s terms you need a lump sum of at least $600,000. How do you compare? The average super balance for those over 60 is about a third of what investors need to comfortably retire on. You may need to save more than you expect.

I’m not sure how the Americans, French and Swedes intend financing their retirement but for us Aussies, super is an excellent incentive to save. It provides great tax benefits and it’s also convenient because it’s compulsory and often done automatically by an employer. Super gives you access to a wide range of investments and as a long term investment, it has time to grow. A long term investment strategy also helps smooth the highs and lows that inevitably occur with any quality investment.

Retirement doesn’t happen overnight yet I am still amazed at how many people are financially unprepared for this major life event. For those aged 45 and above, on average 42 percent of their wealth is tied up in the family home with only 17 percent of their wealth held in super. Your home is a worthy asset, but bricks and mortar don’t pay the bills – that is unless you intend selling the family home. Take an active role in preparing for your future by creating an investment plan. Planning investment strategies to suit your circumstances will give you flexibility and choices in your retirement. It’s a good idea to do your homework but with so much information around … where do you start?

From our research we know most people want to learn more about investing and planning for their retirement. Almost one third of Australian use a financial planner, and 84% of those who saw their financial planner in the last 12 months said they were fairly confident they would have enough money to retire on. As a professional, it’s our job to keep abreast of investment information so we can advise you on setting your financial goals, superannuation, retirement planning, managing debt and much more.

So, if you haven’t had a chat to a financial planner about your future, now is as good a time as any to pick up the phone and make that appointment.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Who gets financially stressed?

admin — Thu, 27 Jan 2011 01:44:42 +0000

With rising interest rates and increasing costs of living, we are being bombarded with stories of gloom and doom as families increasingly battle to feed the kids and pay the mortgage.

We could be forgiven for thinking this is a relatively new phenomenon seemingly happening because of events happening around the world today. However a quick check of the Australian Government’s Insolvency and Trustee Service of Australia statistics shows bankruptcy figures have been steadily increasing over the last 20 years regardless of the economic climate on the day. Twenty years ago there were 7,534 bankruptcies Australia wide. This had increased to 25,961at the end of the last financial year, yet today’s average household wealth is considered to better than ever.

Just about everyone has found themselves in financial difficulty at some stage of their life. Some people manage to work through their financial obstacles and come out all the wiser from their experience. However some people’s money habits never change regardless of their financial experiences and as a result find themselves financially out of control. What causes people to get into debt?

An ANZ study found that unhealthy ways of financial thinking played a major key role in people getting themselves into financial difficulties. Living for today where spenders ignore the consequences of their spending, aspirational spending where people attempt to ‘keep up with the Joneses’, people spending to make themselves feel better, and people relying on credit to provide a lifestyle but somehow forgetting the credit cards need to be paid back at some stage are causing people to live financially unhealthy lives.

It’s no surprise to learn from the study that unemployed households with incomes less than $15,000 per year felt financially out of control. What was a surprise however was the large number of university educated and skilled households earning an income of more than $90,000 annually who also felt financially out of control. Perhaps this last group particularly feels the need to aspire to a certain lifestyle.

There’s nothing wrong with having goals and dreams of where you want to be but take control of your financial health by engaging the services of a financial planner. A financial planner will help you to develop a savings and investment plan to build long-term wealth and help you to protect your assets. Good financial advice can play an important role in everybody’s financial wellbeing regardless of whether they are entering or leaving the workforce, and research shows that those who engage in a financial planner are better prepared and feel more in control of their finances.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Women Managing Money

admin — Thu, 27 Jan 2011 01:38:39 +0000

I had a bit of a flick through the Financial Literacy Foundation’s recent report Financial Literacy Women Understanding Money and came across some positive results for women in general.

The report confirmed what is already well known about the ladies, that is that the fairer sex have budgeting and saving habits down pat. It is a well known industry fact that women control over 80 percent of household spending and influence 99 percent of household purchasing decisions. It was no surprise then to read that women in general are highly confident in their ability to budget, their ability to save and their ability to manage debt. This is good news for the ladies because good budgeting and saving habits are vital steps for good money management.

It was also no surprise to read that the ladies tend to let themselves down a little when it comes to their retirement planning. Many said they hadn’t thought about their long-term financial plans for their future and retirement or considered retirement to be too far away for them to think about. The real worry however was that some of them felt financial planning was only important for those who had lots of money. I’m not quite sure how much “lots of money” is, but every woman needs to take responsibility for her financial planning regardless of how much or how little money she has.

The real worry about the ladies’ retirement planning is that over a lifetime women on average earn less, have lower super balances, broken work patterns often because of family commitments and statistically speaking live longer. Because of these trends, long term retirement planning should be a must for all the ladies, not one of those jobs that they will eventually get around to.

Interestingly the report found women are very confident in their ability to get information about money with a majority having sought financial information from professionals such as a financial planner, accountant or banks. Even better, women are more likely than men to consider getting information and advice to help with the financial management. It’s a bit like women’s insistence on asking for directions when lost in comparison to the blokes who insist on driving around, in circles if they have to, rather than admitting that they need help!

The ladies do feel a bit intimidated when it comes to complex issues like investing or understanding financial language. This is a bit of a wake call for us in the financial planning industry to ensure that we speak in every day language and not financial gobblygook , an easy habit to get into when you are surrounded by financial staff every day.

Overall women make great clients. They’re thirsty for knowledge, willing to consider all options and fiercely loyal when they find someone they trust. If you’re looking for someone you can trust, that’s interested in your financial needs, then give us a call on (07) 5577 8653.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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Teenagers and their money

admin — Thu, 27 Jan 2011 01:31:10 +0000

Remember the days when you knocked on the neighbours’ doors after school offering to wash the car or do the babysitting for a few bucks in the pocket. Those days are long gone with many teenagers today juggling formal part time work alongside their education. A recent survey noted that nearly half of those aged up to 19 and studying full time were also in paid work.

It’s good to see many of the younger generation are out there working and learning about responsibility. Some of today’s teenagers however are earning a sizeable income with Australian Bureau of Statistics showing year 12 students are today receiving an average of $245 a week. That’s a far cry from a few bucks earned from Dad for washing the car back in my day.

I’m not sure why the Y generation isn’t called the I generation given the amount of i-gadgets and i-gizmos in the market place, but regardless of whether you think they are the “Y” or “I” generation, a Commonwealth Bank survey[1] found many of these young Australians have no plans to save or budget, yet most of them still plan to buy a car or go on an overseas holiday.

What’s frightening is that nearly three quarters of those surveyed had some form of debt, with around half not concerned about their debts stating they do not let the amount of debt they are in affect their daily lives. While the easy availability of credit is causing some problems, it seems that mobile phones consistently seems to top the list for causing debt. It makes you wonder how important those gadgets are …. but I digress.

The good news is that young people are keen to learn about managing their money. The report Financial literacy: Australians understanding money by the Financial Literacy Foundation noted that the majority of teenagers want to learn about budgeting, saving and managing debt and see leaving school as a significant milestone in which they can start gaining control over their finances.

So if you have a significant young person in your life, or you happen to belong to the Y generation, it’s never too early to start down the path of managing money. Start surfing, web surfing that is, because there lots of great websites full of ideas and practical tips that set young people on the right path to managing their money. The Financial Planning Association for example has created Dollarsmart, a web based and CD financial toolkit for teenagers to help improve their financial skills and give them confidence when dealing with financial matters throughout their life.

It might also be of use to start looking for a financial planner who can help you on the road to accumulating enough assets so that you get to decide when work becomes optional. A good place to start is with the planner your parents use, check the websites and make a few calls, it could be an excellent investment for you to make.

If you do have any questions about this or would like to know more about us, please email me at admin@bronsonfs.com.au or give us a call on (07) 5577 8653

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