1. The Cycle of Market Emotions.
2. Super Estate Planning.
3. Want to Pay off your University HELP Debt Quicker?
4. Tips to Save Money!
 |
Portfolio Managers'
Investor Insights March 2010
|
|||
|
|
|
Welcome to the March 2010 edition of Investor Insights.
Please feel free to forward this newsletter to any friends or associates that may find the information beneficial.
Index
|
|
|
|
|
|
You have probably heard of the investment cycle – where markets move and investment options go up and down – but have you heard about the cycle of our emotions? When things are great we feel that nothing can stop us. When things go bad we look to take drastic action. Because emotions can be such a threat to our financial health, it is important that we are aware of them. This awareness can then protect us from the negative consequences of impulsive and irrational reactions.  As investors, we all start with optimism. We commonly expect things to go our way; usually we expect a return for the risk of investing. As our expectations are met we get excited about the possibility of even greater returns and the excitement becomes thrilling as the returns exceed our expectations. We are at the top of the cycle when we experience euphoria. It is at this point however, that we are at maximum financial risk. When we believe everything we touch turns to gold, we fool ourselves into believing that we can beat the market, that we cannot make mistakes, that excessive returns are common place and that we can tolerate higher levels of risk. The second phase of the cycle occurs when the market stops meeting our new lofty expectations and begins to turn. At first, we anxiously watch the market. Our anxiety turns to denial and then quickly to fear as the value of our investments decline. We start to act defensively and may think about switching out of riskier assets to more defensive shares or other asset classes such as bonds. In the third phase of the cycle, the realities of a bear market come to the fore and we become desperate. Many of us panic and withdraw from the market altogether, afraid of further losses. Those of us who persevere become despondent and we wonder whether the markets are ever going to recover and if we should be there at all. Ironically, at these times, we commonly fail to recognise that we are actually at the point of maximum financial opportunity. What are the consequences of this emotional roller-coaster? Emotions turn rational investors into irrational ones. As investors, we need to remember that markets move and our investments will always go in and out of favour. Developed, diversified, long-term financial plans are placed in jeopardy when investors are confronted by extraordinary events because we are guided by our emotions. This is where the role of the financial adviser is of utmost importance – your adviser will help you separate your emotions from reality and endeavour to steer you on the path of rational investing. You can also help to avoid the emotional roller coaster by being aware of the emotions you are likely to experience. The five most common behavioural pitfalls are: 1. Overconfidence – when investors overrate their ability to select winning shares or investment managers. 2. Loss aversion – research indicates that a loss causes about twice as much pain as a gain causes pleasure. During periods of market volatility investors experience the sense of loss more acutely. 3. Chasing past performance – we see this time and time again, but unfortunately, individual investors who are abandoning a well-diversified portfolio for bonds, or even cash, may be jeopardising their future financial security. 4. Timing the market – research shows that no one can accurately time the market. 5. Failure to rebalance – the risk/return characteristics of an investor’s portfolio should be independent of what’s happening in the market and this means selling high and buying low. Remember, this is one element of investing that is typically not considered but it can potentially have a huge effect on where we put our hard earned dollars. Speak with your financial adviser about strategies that are right for you. Source: Ventura
|
|
|
|
|
|
............................................................................................................
HERE'S A THOUGHT . . .
“Express your admiration for the traits, possessions or accomplishments of your customer. Little things mean a lot." ~ Brian Tracy
............................................................................................................
|
|
|
|
|
|
“There are only two things certain in life ….. death and taxes”
This well versed quote from Benjamin Franklin is familiar to many of us yet surprisingly, many people fail to adequately prepare their affairs to ensure the orderly and tax effective transfer of their wealth to the next generation. Many Australians have a will, and expect that this will address their wishes on their death. However, unbeknown to many, a person’s second largest asset (after their family home) is not covered by their will. Over recent years, superannuation has become the largest asset many people have, after their family home. Yet superannuation is, in the most part, not included for distribution as part of a deceased person’s estate. Superannuation is governed firstly by the “trust deed” of the superannuation fund to which a person is a member. Whether the fund is a retail or industry superannuation fund, employer sponsored fund, or a self-managed super fund, the trust deed is the primary source of reference when determining how a person’s accumulated benefit will be dealt with on death. Superannuation legislation also governs the payment of superannuation benefits. Superannuation law requires a member’s death benefit to be paid to a dependant of the member (this includes a spouse of the deceased member, their children, and others who may be financially dependent on the member). A death benefit may also be paid to a deceased member’s legal personal representative (their executor), in which case, it will be dealt with in accordance with the terms of the will. Many superannuation funds allow members to nominate one or more dependants to receive their death benefit in the event of their death. Nominations can be either binding, or non-binding nominations. In the case of a non-binding nomination, or where no nominations of beneficiary is made by the member, the trustees of the superannuation fund will exercise their discretion in determining to whom a deceased member’s death benefit will be paid. Where a non-binding nomination has been made, it may be overridden by the trustees of the fund. On the other hand, a binding death benefit nomination, provided it is properly made, is binding on the trustees of the fund and does not allow for any trustee discretion in determining to whom the benefit is to be paid. A binding death benefit nomination can be useful in cases where absolute certainty is required in terms of the payment of a superannuation death benefit. However, not all superannuation funds will allow their members to make a binding death benefit nomination. Information on the types of nominations that can be made will generally be available in the printed material produced by the superannuation fund, or on their website. Planning what will happen to your superannuation on your death is a very important matter. An effective superannuation estate plan can result in the right beneficiary or beneficiaries receiving their due entitlement in a timely and tax effective manner. As no two circumstances are the same, super estate planning is something that needs to be undertaken on a personal basis. For advice on the most appropriate structuring of your superannuation death benefit nominations, speak with your financial adviser. Source: Professional Investment Services
|
|
|
|
|
|
............................................................................................................
HERE'S A THOUGHT . . .
"Success usually comes to those who are too busy looking for it" ~ Henry David Thoreau
............................................................................................................
|
|
|
|
|
|
What is HELP?
HELP stands for Higher Education Loan Program. If you get a HELP loan from the government to pay for your studies a debt is recorded for you with the Tax Office. (HELP replaced the Higher Education Contribution Scheme (HECS) in 2005). When you're studying, each time you enrol you choose how to pay for your studies. By choosing HELP you are deferring payment of your studies to when you are working and in a better position to afford it. HELP loans are offered interest free. Once you start earning $43,151 per year you start making compulsory repayments on your HELP debt – this is usually once you've finish studying. You need to tell your employer if you have a HELP debt so they can deduct it from your pay. The minimum threshold for making compulsory repayments to HELP loans is $43,151 for the 2009/2010 tax year. This threshold changes annually. Should you pay it off quicker? If you're thinking about putting more money into paying off your HELP debt, called 'voluntary repayments', you need to weigh up the pros and cons. This is a good idea if: • You have no other debts • You have some spare cash you can contribute • You want to shed the psychological load of having a HELP debt It's probably not the best use of your money if: • You have a credit card debt or personal loan • You're not paying off any HELP debt yet anyway If you have a credit card debt or a personal loan you may be better off paying that loan off first because those debts will be charging you interest. Get your 10% bonus The government encourages you to pay off your HELP debt quicker by providing a bonus for all voluntary repayments you make over $500. If you contribute $500 or more in a tax year on top of your compulsory repayments you get a 10% bonus deduction. For example, Lei has a debt of $5,000 and makes a $1,000 voluntary repayment. She gets a 10% bonus ($100) so her total debt is reduced by $1,100. |
|
|
|
|
|
............................................................................................................
HERE'S A THOUGHT . . .
"All we need to make us really happy is something to be enthusiastic about." ~ Charles Kingsley
............................................................................................................
|
|
|
|
|
|
Here are great ways that can help you better manage your finances and save you thousands each year!
1. Use debit cards or cash. Paying by cash might make you think twice about breaking a $50 note. 2. Save for the future. Take 10% of your income and put it aside for savings. 3. Get an empty jar for loose coins. Every time you get home put any coins you may have in your pocket or purse into the jar. It won’t make you a millionaire but it all adds up over time. 4. Do a credit card check - Go to www.infochoice.com.au or www.canstar.com.au to find out if there are better offers. 5. Avoid late fees and penalties when you forget to pay your bills on time by setting up a direct debit through your bank account. 6. If you make fortnightly mortgage repayments instead of monthly repayments you can make an extra monthly payment each year. With one extra annual payment, you could dramatically reduce the repayment time of your mortgage! 7. Given variable interest rates have fallen considerably in the past year, if you keep paying the higher repayment you’ll wipe years off your loan. Household related: 1. Prepaid mobile phones are generally cheaper than contracts or if you use your mobile a lot you should look at capped plans. 2. Skip takeaway, cook at home instead. 3. Thaw frozen foods fully before cooking. 4. Fridges account for a large portion of household energy because they run 24 hours a day. Ensure they are running efficiently by not opening the door too often and keeping them well filled. 5. Use off-peak energy offers and try to run electrical appliances during off peak times eg. run the pool pump overnight (if permitted by your local council) or use dishwashers and clothes-dryers off-peak. 6. Finish your dishwasher cycle before the drying cycle and leave the door open to dry dishes. 7. With shirts and blouses, dab the backs of buttons with some clear nail polish to stop the thread unravelling. Transport and auto: 8. Check the tyre pressure on your car at least once a month to ensure your tyres are properly inflated. This can improve the fuel efficiency of your car and extend the life of your tyres. 9. I f you have a small chip on your car windscreen, try to get it fixed as soon as possible. Fixing an entire windscreen will cost much more than fixing a minor chip. 10. Plan your car trip ahead of time to ensure you take the most direct route and avoid any possible traffic delays at peak hour traffic times. 11. Remove any unnecessary items from the boot or the back seat of your car. These all add unnecessary weight and can considerably reduce the fuel efficiency of your car. 12. I f you don’t use your car roof racks often, remove them. This will reduce the level of drag on your car when driving. 13. Use supermarket petrol discount coupons. 14. Fill up on Tuesday or early Wednesday. 15. If you regularly use public transport, buy a weekly, monthly or quarterly ticket. Holidays and travel: 16. Airfares are cheaper in advance and if you book online. 17. Flying mid-week is also cheaper. 18. Book discounted flights with Jetstar on their Friday Frenzy between 4-8pm. Virgin Blue also have “red-hot” deals. 19. Online booking sites like www.wotif.com.au and www.lastminute.com.au are perfect for spur-of-the-moment deals. Entertainment & lifestyle: 20. Gym memberships average $20 a week so unless you are a regular, it is not value for money. 21. www.strawberrynet.com is excellent for cosmetics, skin care and hair care. 22. Instead of going to the cinemas, save your money by staying at home and hiring a DVD instead. 23. Go to the movies on “cheap Tuesdays”. 24. Cut-back on your alcohol intake. A month of not drinking any alcohol will save money and can also improve your health. 25. You can buy discounted wines and other alcoholic drinks at www.langtons.com.au, www.graysonline.com.au, www.sterlingwine.com.au 26. Bring your lunch to work, don’t buy it. This will pay for your holiday over a year! General shopping tips: 27. Write a grocery list before shopping and stick to it. 28. Over-60s, where possible, ask for a seniors discount and call Senior Shopper offers on 1300 366 265 to find the best deals. 29. Buy birthday and Christmas presents early. Mid-season, end of financial year and mid-year clearance sales are now on. Source: Colonial First State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This newsletter contains general information only and does not take into account the investment objectives, personal circumstances or financial needs of any particular investor. You should therefore obtain professional financial advice before making any investment decision based on the information provided in this document. In the event that this newsletter contains information about a particular financial product, you should also obtain a Product Disclosure Statement in respect of that product prior to making any decision to acquire that product.
|
|
|
|
|
|
|
|
|