Even with the varying degree of lockdowns experienced across Australia in 2020 and 2021, the world remains largely at our fingertips. In fact, through the pandemic the use of our phones or computers to organise dinner, groceries, shopping, and workout programs only increased.

Technology has undoubtedly enabled greater convenience in our lives. However, it’s important to recognise that convenience may come at a cost. It’s worth asking yourself if you would you still opt for the convenience if these costs were known up front?

Why we spend on convenience

We know that convenience often comes with an additional price, whether that be delivery fees to have that item arrive straight to our door rather than battling the shopping centre car park, or paying for an Uber on that night out rather than catching public transport.

With many of us living busy lives, home cooking is often what falls off our priority list – stats show that Aussies spent $2.6 billion on food and drink orders through food delivery companies in 2021.ⁱ

And shopping has never been easier; with a few clicks you can purchase items at any time of the day or night, no matter where you are. Pre-pandemic stats from Australia Post show that 40 million parcels were delivered in December 2019, and with many housebound due to restrictions the following year, in November 2020 online shopping had grown more than 45% year on year in Australia.^ii,iii

Assessing the true value

Convenience often gets prioritised over cost, yet when you do the sums, you may be shocked to know how much you are paying for this privilege. You might have the sinking realisation that all those Uber trips or Deliveroo dinners may have been better spent paying off your mortgage or going on holiday.

Yet that doesn’t mean that convenience needs to be abandoned for the sake of frugality. The key is to recognise where it adds value.

For instance, shopping online may come with an extra cost due to a delivery fee, but it saves you time and stress facing the crowds at the shops. An online fitness program is more expensive than simply running around the block or investing in dumbbells, but it can keep you motivated and more likely to meet your goals.

It’s worth thinking about what will add to your life as well. Putting time aside to cook meals can be a worthwhile pursuit – it can bring the family together or give you some solo time to unwind – or it could add to your stress. Understanding what fits in with your lifestyle will help determine whether you’re better off making your own meals or ordering them in.

Consider what is important to you. If you want to improve your health by eating wholesome, fresh food, being on a first-name basis with your local fish and chip shop is at odds with that. Visiting a farmers’ market on the weekend, where you can select your own produce, will suit you better than doing a big grocery shop online.

Tracking the costs

Logging what you spend will make what you’re paying for clearer, which will help with comparisons. If you get takeaway three times a week, how much would you save by replacing even just one meal with a home-cooked alternative? Would the amount you pay for registration for the second car you barely use be better off spent on an e-bike?

There are many expense trackers you can use, such as Mint or Pocketbook, to help keep track of how much you are spending and on what. Once you have the figures, look for alternatives for things that aren’t bringing you the value you would expect.

If the money being spent isn’t adding satisfaction or making your life run more smoothly, you’re not paying for convenience – you’re paying for something you don’t need. By streamlining your expenses, you will not only save money but add to your life’s contentment with conveniences that make a difference.

i https://www.moneyaustralia.net/uber-eats-statistics/

ii https://auspost.com.au/content/dam/auspost_corp/media/documents/publications/2019-australia-post-annual-report.pdf

iii https://auspost.com.au/business/business-ideas/selling-online/delivering-online-shopping-boom

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The pandemic has changed the way so many of us live, with jobs, travel and lifestyle all transformed during COVID. Now, as we start emerging on the other side, it may be a good idea to check whether these changes have impacted on your life insurance needs.

In some cases, you may require more cover and in others perhaps less. This is not just down to COVID. Changes to your insurance needs at any given time are a constant throughout your life.

Insurance through the ages

What you need as a single 20-something building your career is generally quite different from your requirements in your 40s when you may be juggling a young family and a mortgage. Then as you approach retirement and beyond, perhaps with your mortgage paid off, your needs change yet again.

On top of these life cycle changes, what may have seemed appropriate before COVID may no longer work. Perhaps you are working fewer hours and as a result have a lower income. Or perhaps you have opted to take early retirement.

Certainly, insurance companies have been mindful of people struggling to pay premiums during the pandemic and have generally honoured payouts on income protection cover if they occurred within that timeframe.

Whatever your circumstances, now is a good time to consider whether your current policies work for you.

What’s covered?

Life insurance is the umbrella term for four main types of cover – death, total and permanent disability (TPD), income protection and trauma.

Death cover is self-explanatory. It pays a lump sum to your nominated beneficiaries when you die. It is often packaged with TPD which covers things like living expenses, repayment of debt and medical costs if you are no longer able to work. If your TPD is held through your super fund, generally this will only be paid if you cannot work in “any” occupation; if it is held outside super, you may be covered if you can no longer work in your “own” occupation.

Income protection cover will pay part of your lost income for a pre-determined time if you get sick or are injured and need time off work. It is particularly useful if you are self-employed or a small business owner as you don’t have access to sick leave.

Trauma cover meanwhile provides a lump sum amount if you are diagnosed with a major illness or serious injury such as cancer, a heart condition, stroke or head injury. Such payments can be a big help with paying medical bills.

Check your super

Death and TPD insurance can often be purchased through your super fund. If, however, you took advantage of the early release of super allowed during COVID in 2020, it could be that you no longer have sufficient savings in your fund to cover the premium payments. Or, if you’ve been out of work due to COVID and not made any contributions to your super for 16 months, your account may have been deemed inactive under super law and closed.

It’s important to note that if you lost your job due to COVID, then any automatic cover in your super with your previous employer may have stopped. If you have a new employer, the cost may have increased. Also keep in mind that income protection insurance doesn’t cover you if you have lost your job due to a business closure or other COVID-related event.

Protect your mental health

One area that has received more attention during COVID is mental health. Not all insurance policies provide cover for mental health without exclusions or additional premiums. Nevertheless, according to the Financial Services Council, insurers paid out $1.47 billion in mental health claims in 2020.ⁱ

If your circumstances have changed, then it may be worth examining whether your life insurance cover still suits your needs and whether there are ways you can save money through lower premiums. For instance, you might reduce the amount you are insured for or remove some of the benefits.

If you would like to discuss your life insurance needs and whether your existing cover is still appropriate give us a call on Phone: 07 5641 4134.

i https://www.abc.net.au/news/2021-02-08/insurance-coverage-mental-health-after-covid-19/13122144

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

It’s a common misperception that the greatest determinant of portfolio return variability is your stock selection.

Understandably, choosing which ETFs, individual shares, active funds or other securities to invest in is often the most exciting part of portfolio construction for new investors, and of course it remains an important factor.

But as Vanguard research shows, it’s your underlying asset allocation that most explains the fluctuations in your portfolio, and not which securities you’ve invested in nor when you did.

Because of this, your strategic asset allocation is your best weapon against market volatility and the best mitigator of market risk. Sticking to it by periodically rebalancing your portfolio is likely to give you the best chance of investment success.

But wait, what is rebalancing?

Rebalancing a portfolio simply means adjusting your investments to match the target asset allocation you first decided on.

The aim of rebalancing is not to maximise your portfolio returns, but to control how much risk you’re taking on. This is determined by how much of your portfolio you put towards each asset class (as each asset class entails different levels of risk).

Over time, your portfolio will begin to drift from your target asset allocation depending on how the market has performed. For example, a boom in equities is likely to mean the value of your shares has grown disproportionately to your other assets. Because a greater portion of your portfolio is now made up of shares, the level of risk you’re now taking on has also inadvertently increased.

Why is rebalancing sometimes overlooked by new or younger investors?

While the process of rebalancing can be quite simple, the actual decision to rebalance can sometimes be met with a mental block, particularly for those who started investing post COVID outbreak and haven’t yet experienced a significant market correction. After all, selling a well-performing asset and buying an investment with lower returns seems a little counterintuitive. If shares are doing so well, why would you want to sell?

The answer lies again in risk control. A bull run in equities cannot last forever (and we’ve already started to see share prices begin to taper off). If your portfolio is overweight in equities and inadequately diversified across different asset classes, it’s likely a sudden fall in shares will negatively impact your portfolio value more than usual.

Similarly, in bear markets, investors are thought to be more risk averse. This can lead to being underweight in equities or higher-risk assets for fear of further loss, and an unwillingness to rebalance into these asset classes even though your risk level has reduced to below what’s needed to generate sufficient returns. This may be particularly true for new or younger investors who might not have a lot of capital to invest and are therefore more protective of where they allocate funds.

Why should younger investors practice rebalancing?

Rebalancing instills discipline, which is perhaps the most important trait for all investors to have. The willpower to stick to an investment plan and strategic asset allocation no matter the market climate is the most effective way to achieve your financial goals.

By practicing rebalancing early on, younger investors can refine sound investment behaviours that will remain imperative throughout their entire investment journey.

How and when should investors rebalance their portfolios?

Most rebalancing strategies are either based on a time trigger, a threshold trigger or a combination of both.

With a time-based strategy, the portfolio is rebalanced on a predetermined schedule such as quarterly, semi-annually or annually (but not daily or weekly).

With a threshold-based strategy, the portfolio is rebalanced only when its asset allocation has drifted from the target by a predetermined percentage, such as 5 or 10 per cent.

Investors can also rebalance by:

1. Reinvesting dividends. Direct dividends and/or capital gains distributions from the asset class that exceeds its target into an asset class that is underweight.

2. Making additional contributions. Add funds to the asset class that falls below its target percentage.

3. Transferring funds between asset classes. Shift money out of the asset class that exceeds its target into the other investments.

For more information on how to rebalance your portfolio, see here. Alternatively, you can contact us on Phone: 07 5641 4134 to discuss in more detail. 

Source: Vanguard February 2022

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

It’s not just about agreeing on a price when buying a property. The conditions of the offer are very important. They help protect both the buyer and the seller. Michael Sloan, from The Successful Investor, explains the finer points, so you don’t miss anything in the pressure of the moment.

Typical conditions of an offer

When negotiating with the seller, you’ll have the opportunity to make the offer subject to various conditions. So what are the common conditions you need to be aware of before making an offer on a house or property?

• Subject to finance and valuation.

• Subject to building inspection and pest inspection.

Why you should take care with the conditions

It’s important to use a solicitor or licensed conveyancer who understands offer conditions when buying a home. Making sure the offer is favourably worded could save you a lot of hassle in the future.

Don’t rely on the agent to write the offer conditions for you. They’re acting in the seller’s best interests, not yours. This is why it’s important to get independent legal advice before signing anything.

But remember, offers and conditions need to be kept as simple as possible for the seller. If they’re too complicated, the seller could reject your offer and you could miss out on the property.

Stay in control of your offer conditions

Many real estate agents expect the buyer to accept whatever wording they include in a contract of sale. They may make comments like ‘That’s a standard condition – you can’t change it’. They may threaten that you’ll lose the property unless you sign the paperwork. Don’t listen.

Take the contract to your own solicitor before signing. Get them to make changes to the conditions of sale if they’re not in your favour. If you’re determined to sign the contract before getting legal advice, make sure you show it to your solicitor during the cooling- off period.

Each Australian state and territory has different laws about the cooling-off period and the financial penalties you’ll incur if you pull out of a sale. Make sure you find this information out before you sign. The period always begins when you sign the contract of sale and not when the seller signs.

Contract cancellations need to be made in writing and within the set period either in person, or by email or fax.

As we mentioned, the standard contract conditions you’d include when you put an offer in include pest, building and finance. But none of these conditions apply at an auction. There’s also no cooling-off period. Still, there are few things you should do to protect yourself before bidding at an auction:

• You can pay for a building and pest report to be done on the property before the auction. These aren’t cheap, though, so think carefully about whether you’re really serious about the property. If you miss out at the auction, you won’t get that money back.

• You can get pre-approval for finance, but check beforehand that the property you plan to bid on is suitable security.

If you’re ready to purchase your home? Talk to us on Phone: 07 5641 4134 today.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/buy-first-home/offer-conditions

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

There is a saying ‘a fool and his money are often parted’ but with scammers becoming ever more devious and sophisticated in their methods, it pays for everyone to be aware of the latest tricks being employed.

According to Australian Competition and Consumer Commission (ACCC) data, last year was the worst year on record for the amount lost to scammers, with a record $323 million lost during 2021. This represents a concerning increase of 84% on the previous year.ⁱ

And with Australians spending more time online than ever before, predictably the area of most growth is cybercrime.

Incidences increasing

Cybercrime increased over 13% during the 2020-21 financial year, with data revealing one attack occurs every 8 minutes.ⁱⁱ

Police records indicate that as the number of house break-ins and burglaries decreased through COVID, the amount of digital scams increased as criminal activity found an alternative outlet and moved online.ⁱⁱⁱ Scammers also exploited the pandemic environment by targeting an increasing reliance on online activity and digital information and services.

Most common scams

Phishing, where scammers try to get you to reveal information that enables them to access your money (or in some cases steal your identity), is one of the most common scams. Last year Scamwatch, a website run by the Australian Competition and Consumer Commission (ACCC), received more than 44,000 reports of phishing, costing Australians $1.6 million.^iv While some phishing scams are obvious, like free give-aways, you can also be directed to sites that masquerade as financial providers or government departments and they can look pretty official.

The trick to not be taken in is to be very wary of clicking on a pop up or unknown site and do an independent google search or verify the site is secure. Before submitting any information, make sure the site’s URL begins with “https” and there should be a closed lock icon near the address bar. It’s also a good idea to keep your browser and antivirus software up to date.

Scams that cost us the most

Investment scams are becoming ever more sophisticated and the amounts associated with these scams are significant. Investment scams accounted for $177 million in 2021.^v

In one of the most disturbing trends of the year, the Australian Securities and Investment Commission (ASIC) said some investment scammers were presenting impressive credentials, including their funds ‘association’ with highly regarded domestic and international financial services institutions.

Those doing their diligence on the funds were met with professional-looking prospectuses offering very high returns and claiming investor funds would be invested in triple A rated or government bonds, offering protection under the government’s financial claims scheme. Scammers even cleverly honed in on those most likely to be tempted by these investment products by gathering the personal and contact details potential ‘investors’ entered into fake investment comparison websites.

While the rise in, and increasingly compelling nature of investment scams is certainly of concern, we are here to help if you have any opportunities you’d like to explore that need thorough investigation.

Staying scam-proof

• Be alert, not alarmed – always consider the fact that the ‘opportunity’ you are being presented with or the fine or fee you are being asked to pay may be a scam.

• Don’t be swayed by the fact that it looks like it is coming from a well-known company or source.

• Keep your personal details and passwords secure. Be careful how much information you share on social media and be wary of providing personal information.

• Beware of unusual payment requests. Scammers will often ask for unusual methods of payment which are untraceable like iTunes cards, store gift card or debit cards, or even cryptocurrency like Bitcoin.

The best way to avoid scams, is to be aware of the tactics being employed and maintain a sceptical frame of mind. If something seems too good to be true, or if your alarm bells are ringing take your time and do your due diligence before taking any action.

i, v https://www.savings.com.au/news/scamwatch-2021

ii https://www.cyber.gov.au/acsc/view-all-content/reports-and-statistics/acsc-annual-cyber-threat-report-2020-21

iii https://www.abc.net.au/news/2021-09-22/financial-crimes-increasing-as-burglars-switch-to-fraud/100473828

iv https://www.scamwatch.gov.au/get-help/protect-yourself-from-scams

Important: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

It is important to understand where this income will come from, how long it will last, and whether your retirement investments are on track, or whether some adjustments need to be made to get you there.

Work out how long your super or account-based pension will last

There are many variables that come into play when calculating how long your super or account-based pension will last in retirement, and it can be challenging to figure it out alone.

If you’ve transferred your super to a pension account already, then you can use the MoneySmart calculator to help estimate how long your pension will last. And if you haven’t, we recommend you speak to an adviser who can discuss with you different considerations that will impact how long your account-based pension will last.

Here are some of the fundamental things you need to know about a couple of other retirement income options.

Account based pensions

Account-based pensions are a popular retirement income product. They fluctuate in value and are linked to the market so your investment, and therefore your long-term income, isn’t guaranteed.

How long an account-based pension lasts will depend on:

• the amount of initial capital invested

• the return from the underlying investments

• the amount of fees charged

• how much you withdraw as income each year.

The tax benefits of account-based pension are:

• you don’t pay tax on pension payments from age 60

• if you’re aged between preservation age and 59, the taxable portion of your pension payments will be taxed at your marginal tax rate less a 15% offset

• you don’t pay tax on investment earnings.

In some cases, the underlying investments for most pension accounts are chosen to minimise fluctuations but still provide a bit of growth.

Defensive assets

These include cash and fixed income. In general, they’re lower risk and provide lower returns over the long term.

Growth assets

These include equities and property. They’re usually open to market fluctuation but tend to provide higher returns over the long term.

Generally, defensive assets provide you with a relatively steady return and, therefore, income. However, some growth assets are usually needed to keep your funds growing during your retirement, so they last longer. With an account-based pension, you can mix defensive and growth assets to a ratio that you’re comfortable with.

Annuities

Some annuities could provide you with regular and guaranteed income for either a fixed period or for life. They are more secure than account-based pensions as your income is guaranteed regardless of what the share market and interest rates do.

The downside is that you’re locked in to the agreed income for the whole term or the rest of your life. If your circumstances change, you generally can’t withdraw a lump sum. A lifetime annuity also has no residual capital value, which means you can’t leave it to someone in your will.

The best of both systems

Continuing to build your investments, including your super funds, is still crucial in retirement. They need to keep growing to ensure your retirement income lasts as long as possible.

This means it becomes increasingly important to protect your super growth funds from market falls while still allowing them to grow if the market goes up.

Other things to consider

Age pension eligibility

When it comes to the Age Pension, there are several rules to determine your eligibility. You can learn more by visiting Services Australia but some of the basic rules are:

• You must have reached your Age Pension age, which is currently 66 (after 1 July 2019, age pension age will go up 6 months every 2 years until 1 July 2023).

• You must be a resident of Australia.

• You must pass income and asset tests.

If you don’t meet the income and assets tests to be eligible for the Age Pension, you may be able to access the Commonwealth Seniors Health Card (if you pass an income test). This card provides affordable medicine, bulk billed doctor visits and depending on what state you live in, there may be some other concessions that you’re entitled to. You can find out more from Services Australia.

Speaking to a financial planner

With so many options, it’s a good idea to seek help to ensure you’re investing in a way that suits you. Particularly as there are some more complex considerations, such as tax implications. Talk to us on Phone: 07 5641 4134. 

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://business.nab.com.au/

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The best thing investors can do when markets are volatile is to stay invested.

Of course, that’s often easier said than done, especially when market commentators point to a market correction or when your portfolio is down for consecutive days or weeks.

For those new to investing, particularly those who jumped into the market when shares were booming last year, the recent market turbulence feels something like a rude awakening.

In times like these however, it’s useful to remember a few grounding investment principles that can get you through the good and the not-so-good.

Stick to your plan

Before you invest your first dollar, new investors need to have well-defined investment goals and a realistic investment plan. This means understanding how much money you have to invest, how much you can contribute regularly, how comfortable you are if that money goes down in the short-term, and how long you have to reach your desired outcome.

It’s easier to stick to a plan if you’ve got one written down.

Investors who fare best are the ones who don’t regularly tinker with their portfolio and are in it for the long-haul.

A good example of this is that during the COVID crash in March 2020, investors who stuck to their plan and stayed invested were able to reap the benefits of a swift market recovery. Those who cashed out at market lows lost the opportunity to regain portfolio value when markets picked back up.

Tune out the noise

Social media is rife these days with market commentary, stock predictions and portfolio strategies. Each corner of the internet will espouse a different investment philosophy, and while this might make for interesting debate, it can also be a little overwhelming for new investors.

In times like these, it’s not about disengaging from market information altogether, but rather about choosing what to listen to.

Investing can be emotionally charged at times which can lead to investors making impulsive decisions. So, when you’re struggling to decide who and what to listen to, first examine the source for credibility and bias, and then consider if the information is relevant before you take action (if any at all).

Remember, what might work for one investor may not work for the next as there’s a multitude of individual considerations (i.e. risk tolerance, investment confidence, timeframe, and objectives) that define an investor’s individual approach.

The best thing you can therefore do is to remind yourself of your investment plan, and the fact that no advice online has been tailored specifically to your circumstances.

Markets will consistently rise over the longer-term

For younger investors with a longer investment time frame, short-term market volatility is unlikely to materially impact long-term returns.

What might seem like a downward trend for markets right now is, importantly, only temporary.

Markets are cyclical, but history shows will rise over the longer term even when there’s been sharp falls in the past.

For example, a $10,000 investment in Australian shares 30 years ago would still have grown to $160,498 even with significant market downturns such as the Great Financial Crisis in 2007-2008 and the COVID-19 outbreak in 2020.

Vanguard’s annual Index Chart can serve as a good reminder to investors of the importance of perspective, and how sticking to a long-term investment plan, with diversification across a range of asset classes, allows you to grow your wealth even in the face of market crises and short-term volatility.

If the current market volatility has you concerned, please don’t hesitate to give us a call on Phone: 07 5641 4134 to discuss your overall investment strategy.

Source: Vanguard February 2022

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Using your home as the base for your business is increasingly popular, particularly due to COVID-19, with many of Australia’s 2.1 million enterprises with four or less employees now based at home.

As a result, the ATO is busy revisiting the rules on the tax deductions you can claim for a home-based business. Your claimable expenses will depend on how you operate your business, so it’s worth checking the current rules to ensure you know what’s what.

Your business structure matters

The structure (sole trader, partnership, trust or company) you use to operate your business affects your entitlements and obligations when claiming expense deductions.

Sole traders and partnerships can claim a deduction for the costs of running their business from home. What you can deduct is governed by whether or not you have an area of your home set aside as a ‘place of business’.

Trusts and companies, however, must have a genuine market-rate rental contract or agreement in place with the property owner covering which expenses the business is responsible for paying.

Different types of expenses

For home-based sole traders and partnerships, there are two main types of claimable expense.

Running expenses are the increased costs from using your home’s facilities for your business, such as heating, cooling, cleaning, landline phone and internet, equipment and furniture depreciation, and equipment repairs.

These can be claimed if you have a separate study or desk in a lounge room, even if the area doesn’t have the character of a place of business.

You can only claim deductions for the portion of your expenses related to running your business. Any part of an expense related to personal use cannot be claimed.

You may also be able to claim motor vehicle expenses between your home and other locations if the travel is for business purposes.

Claiming your business costs

When you calculate your running costs, you can choose the actual cost, fixed rate or temporary shortcut method. Each one is acceptable provided it’s reasonable for your circumstances, excludes your private living costs and there are appropriate records for your calculations.

With the actual cost method you use the real cost of the expense, while the fixed rate uses a set cost of 52 cents for each hour you operate your business. This covers heating, cooling, lighting, cleaning and depreciation. Other expenses need to be worked out separately.

The temporary shortcut method (available until 30 June 2022), is an 80 cents per hour rate covering all your expenses.

Occupancy expenses can’t always be claimed

Your business can claim occupancy expenses (such as mortgage interest, council rates, and home and contents insurance) if the area in your house set aside for your business has the character of a place of business (even if most of your business is conducted online).

Indicators of a place of business include identification (such as an external sign) it’s a place of business, the area is not easily adaptable for domestic use and is almost exclusively used for your business, or you receive regular client visits.

If you are eligible to claim occupancy expenses, they must be apportioned based on the share of the year your home is used for business and the portion of the floor plan.

Recordkeeping is essential

The ATO expects you to keep records for at least five years to show your business actually incurred the claimed expenses.

You must be able to substantiate your claims with written evidence or receipts for all running costs. If you claim occupancy expenses, you need to substantiate your mortgage interest, insurance, council rates and rental agreement with the homeowner.

The ATO also requires you to demonstrate how you calculated your expense claims and separated them into business and private use.

Capital gains implications

A word of warning though. If you claim deductions for the cost of using your home as your main place of business, there may be capital gains tax (CGT) implications when you sell.

If you claim occupancy expenses, the usual main residence exemption may not apply to the proportion of your home and the periods you used it for your business.

If you have recently started working from home or plan to do so, we can help you work out the best method of claiming deductions for your home-based business. Call us today on Phone: 07 5641 4134.

Important: Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

If you guarantee a loan for a family member or friend, you’re known as the guarantor. You are responsible for paying back the entire loan if the borrower can’t.

If a lender doesn’t want to lend money to someone on their own, the lender can ask for a guarantee.

Before you agree to be a guarantor, think carefully about your own finances. Make sure you understand the loan contract and know the risks.

If you’re feeling pressured or unsure about a financial decision, speak to a financial counsellor. It’s free and confidential.

Know the risks of going guarantor

If you’re thinking about guaranteeing a loan, make sure you understand the risks. Take the same care as if you were taking out a loan for yourself.

You may have to pay back the entire debt

If the borrower can’t make the loan repayments, you will have to pay back the entire loan amount plus interest. If you can’t make the repayments, the lender could repossess your home or car if it was used as security for the loan.

It could stop you getting a loan

If you apply for a loan in the future, you’ll have to tell your lender if you’re guarantor on any other loans. They might decide not to lend to you, even if the loan that you guaranteed is being repaid.

You could get a bad credit report

If either you or the borrower can’t pay back the guaranteed loan, it’s listed as a default on your credit report. This makes it harder for you to borrow in the future.

It could damage your relationship

If you’re a guarantor for a friend or family member who can’t pay back the loan, it could affect your relationship.

If you don’t feel comfortable guaranteeing a loan, there may be other ways to help. For example, you might be able to contribute some money towards a house deposit.

Understand the loan contract

Before you sign a loan guarantee, get a copy of the loan contract from the lender ahead of time. Ask lots of questions so you understand the details.

Loan amount

Check whether you will be able to meet the loan repayments if the borrower can’t. Work out the total you would have to pay back, including the loan amount, interest, fees and charges.

If you guarantee the total loan amount, you will be responsible for the loan amount and all the interest. It’s better to guarantee a fixed amount so you know exactly how much you might have to pay.

Loan security

You may have to use an asset — like your house — as security. This means that if the borrower defaults on the loan, the lender might sell your house to pay the debt.

Loan term

A longer loan term may sound good but you will pay more in interest. Be careful about guaranteeing any loan that has no specified end date, like an overdraft account.

Business loans

If you’re asked to go guarantor on a business loan, you must understand the loan contract. You should also find out everything you can about the business.

• Ask for a copy of the business plan to understand how it operates.

• Speak to the accountant and look at financial reports. Make sure the business is financially healthy with good prospects.

How to get help

Being a guarantor might not work out as planned. In most cases, if the borrower can’t make their repayments, you won’t be able to get out of the loan contract.

Challenge a contract

You may be able to challenge a loan contract if:

• you became a guarantor through pressure or fear

• you had a disability or mental illness at the time of signing

• you didn’t get legal advice before signing and didn’t understand the documents or the risks — for example, you thought you had guaranteed a smaller amount.

• you think the lender or broker tricked or misled you

You can speak to a lawyer or get free legal advice about your situation.

Case Study

Mary guarantees a business loan for her son.

Mary’s son Leo has worked in hospitality for years. When he saw a popular local food franchise for sale, he thought it would be a great opportunity to run his own business.

The franchise director told Leo that the company had a strong brand, high profits and low costs. Leo thought it was a safe bet.

He applied for a $250,000 business loan with his bank. Mary agreed to go guarantor for the loan, using the family home as security.

Leo was hit with slower business and higher costs than he expected. After paying rent and franchise royalties, he is struggling to make his loan repayments.

Leo and Mary are talking to the bank about repayment arrangements. But the bank might sell the family home to cover the loan.

If you’re considering going guarantor on a loan, call us today on Phone: 07 5641 4134.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/loans/going-guarantor-on-a-loan

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

It’s been a rocky start to the year on world markets but that doesn’t mean you should hit the panic button. Staying the course is generally the best course, but that’s easier said than done when there’s a big market fall.

In January markets plunged some 10 per cent but then staged a recovery. That volatile start may well be an indication of how the year pans out.ⁱ

The key reasons for this volatility are fear of inflation, the prospect of rising interest rates and pressure on corporate profits. Add to that ongoing concern surrounding COVID-19 and the conflict between Russia and Ukraine, and it is hardly surprising markets are jittery.

But fear and the inevitable corrections in share prices that come with it are all a normal part of market action.

Downward pressure

Rising interest and inflation traditionally lead to downward pressure on shares as the improved returns from fixed interest investments start to make them look more attractive. However, it’s worth noting that inflation in Australia is nowhere near the levels in the US where inflation is at a 40-year high of 7.5 per cent. In fact, the Reserve Bank forecasts underlying inflation to grow to just 3.25 per cent in 2022 before dropping to 2.75 per cent next year.ⁱⁱ

Reserve Bank Governor Philip Lowe concedes interest rates may start to rise this year, with many market analysts looking at August. Even so, he doesn’t believe rates will climb higher than 1.5 to 2 per cent. After all, with the size of mortgages growing in line with rising property prices and high household debt to income levels, rates would not have to rise much to have an impact on household finances and spending.ⁱⁱⁱ

Even with rate hikes on the cards, yields on deposits are likely to remain under 1 per cent for the foreseeable future compared with a grossed-up return (after including franking credits) from share dividends of about 5 per cent.^iv

The old adage goes that it’s “time in” the market that counts, not “timing” the market. So if you rush to sell stocks because you fear they may fall further, you risk not only turning a paper loss in to a real one, but you also risk missing the rebound in prices later on.

Over time, short-term losses tend to iron out. Growth assets such as shares offer higher returns in the long run with higher risk of volatility along the way. The important thing is to have an investment strategy that allows you to sleep at night and stay the course.

Chance to review

A downturn in the market can also present an opportunity to review your portfolio and make sure that it truly reflects your risk profile. Years of bullish performances on sharemarkets may have encouraged some people to take more risks than their profile would normally dictate.

After many years of strong market returns, it’s possible that your portfolio mix is no longer aligned with your investment strategy. You may also want to make sure you are sufficiently diversified across the asset classes to put yourself in the best position for current and future market conditions.

A recent study found that retirees generally have a low tolerance for losses in their retirement savings. Retirees often favour conservative investments to avoid experiencing downturns, but this means they may lose out on strong returns and capital growth when the market rebounds.^v

Think long term

Over most 10-year periods, shares outperform all other asset classes. And even when share prices fall, you are still earning dividends from those shares. Indeed, the lower the price, the higher the yield on your share investments. And it is also worth noting that with Australia’s dividend imputation system, there are also tax advantages with share investments.

For long-term investors, rather than sell your shares in a kneejerk reaction, it might be worthwhile considering buying stocks at lower prices. This allows you to take advantage of dollar cost averaging, by lowering the average price you pay for a particular company’s shares.

Investments are generally for the long term, especially when it comes to your super. Chopping and changing investments in response to short-term market movements is unlikely to deliver the end results you initially planned.

If the current turbulence in world markets has unsettled you, call us on Phone: 07 5641 4134 to discuss your investment strategy and whether it still reflects your risk profile and long-term objectives.

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.

i https://thenewdaily.com.au/finance/finance-news/2022/02/03/market-volatility-opportunity/

ii https://www.abc.net.au/news/2022-02-02/rba-governor-philip-lowe-press-club-address/100798394

iii https://www.ampcapital.com/au/en/insights-hub/articles/2022/february/the-rba-ends-bond-buying-but-remains-patient-on-rates-we-expect-the-first-rate-hike-in-august

iv https://www.ampcapital.com/au/en/insights-hub/articles/2022/february/the-rba-ends-bond-buying-but-remains-patient-on-rates-we-expect-the-first-rate-hike-in-august

v https://www.firstlinks.com.au/market-fall-reveals-risk-tolerance-loss-aversion