Sharemarkets, dollars & interest rates
 It has been an incredibly busy month in the financial markets with sharemarket rallies, the printing of new money in the US, the Australian dollar soaring to new heights (in 27 years) and interest rates (unexpectedly) being kept on hold at home.
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The great Australian dream - property - What options will
your Children or Grandchildren have?
 With the average house price in Sydney having reached $595,745 (according to Australian Property Monitors), you may be pondering how your children or grandchildren will ever be able to purchase their first home.
Here are a few ideas that you might like to consider for them or something you may even like to start talking to them about.
Read more »
Did you know?
 A few things that we believe you should know...
Read more »
Sharemarkets, dollars & interest rates
 It has been an incredibly busy month in the financial markets with sharemarket rallies, the printing of new money in the US, the Australian dollar soaring to 27 year highs and interest rates (unexpectedly) being kept on hold at home.
Markets move higher:
September is usually one of the most volatile month on the sharemarket calendar. Many investors were bracing for the worst, only to be very pleasantly surprised. The Dow had its biggest September rally since 1939, rising 7.7%. Closer to home, our sharemarket also edged higher with an increase of over 4% for the month.
One of the events that contributed to the sharemarket’s result was the US announcement of the next round of quantitative easing to help kickstart the US Economy. Basically the US is printing money so that the Federal Reserve can help stimulate the economy by injecting more cash into the banking system. According to Perennial (Perennial Perspective Monthly Investment Update, October 2010), “The theory is that the extra cash in the bank’s hands will help lending and equity investment and also push long (interest) rates down even further. Whilst you or I would go to jail for attempting to "create" money in a similar way, the important issue is that, unlike a struggling third world country, the US Federal Reserve will eventually sell the assets it has purchased back into the economy to wipe out the paper debt it has created.”
“The crucial issue in the US is that smaller US companies may still be finding the banks a difficult source of finance. Conversely, large companies are taking advantage of incredibly cheap finance in the corporate credit market. For instance, IBM recently raised US$1.5 billion for three years at an interest rate of just 1% p.a.!”
It is not surprising therefore that the US dollar has depreciated further. This, coupled with strong employment figures locally and the widely held belief that our interest rates will continue to rise, have seen the Australian dollar soar. In fact, our currency reached its highest rate in 27 years or since the Australian dollar was floated. It is widely anticipated that we will reach parity in the near future. To give you an indication as to just how steeply our currency has climbed, the Australian dollar was US81c in June, meaning that it has risen by 22% in this short space of time. Whilst this is great if you are heading on an overseas holiday or importing goods, it does hurt our exporters and potentially our local tourism market. Furthermore if you hold an international share fund which is unhedged for currency purposes, it means that your return in Australian dollars will have declined.
Good news for borrowers, not so good for our savers:
In a shock move by the RBA, our interest rates were kept on hold at the RBA’s latest meeting. After the latest employment figures were released, financial commentators now believe there is a 60% chance that rates will rise by 25 basis points to 4.75% at the next meeting to be held on Melbourne Cup day. Should this anticipated rate rise occur, the predictions of the Australian dollar reaching parity may occur sooner rather than later.
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The great Australian dream - property - What options will your Children or Grandchildren have?
 With the average house price in Sydney having reached $595,745 (according to Australian Property Monitors), you may be wondering how your children or grandchildren will ever be able to purchase their first home.
Here are a few ideas that you might like to consider for them or something you may even like to start talking to them about.
First home saver accounts
The first home saver account is an account whereby you contribute on a regular basis and the Government will help by adding 17% on the first $5,500 each year (an extra $935 pa). In addition, the fund is taxed at a maximum rate of 15% rather than your marginal tax rate.
The Government have recently announced proposed changes to the scheme, making it much more attractive for young Australians to utilise the account. One of the changes is allowing you to transfer the monies to your mortgage if you bought your home prior to the 4 year qualification period rather than forcing the money into your super fund.
Anyone can make a contribution on behalf of the owner and of course every little bit counts!
Starting a managed fund
Whilst the First home saver account is a bank account, there are other ways to save for the deposit needed, such as using a managed fund. Managed Funds offer exposure to growth assets such as shares and property, as well as cash and fixed interest depending on how long you plan on investing for and what ‘risk appetite’ you have. Once again, anyone can make contributions and they can be as little as $100 per quarter
Use your super to purchase a home which will ultimately be passed to them
With the changes to legislation regarding borrowing to invest inside your super, this is a strategy we are starting to see take place.
Essentially super fund members are borrowing inside their Self Managed Super Funds to purchase an investment property. The intention is to withdraw the property as a lump sum, once they have formally retired and met a condition of release (this withdrawal will be tax free after the age of 60). The retired member will then pass the ownership of the property over to the child.
Whilst this isn't the core purpose of their fund, it is a way for parents to consider looking after their dependants after they have gone. SMSFs aren’t right for everyone, but for those with larger balances this is a way to tax effectively get into a property for their loved ones without putting the equity in their own home up for grabs!
If you are wondering how to help your children into a property, please feel free to talk to your Financial Advisor about the best way forward for you.
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Did you know?
 A few things that we believe you should know….
- Centrelink are currently conducting 10,000 random file audits. Centrelink customers are being randomly selected to undertake an audit of their files. Should you be selected, you will be asked to complete updated details of your income and assets, including providing proof for all of your accounts. You will then be asked to go to Centrelink for an appointment to confirm the relevant information. If you are one of these people please let us know and we will be happy to support you through the process.
- The paid parental leave scheme kicks off on 1st January 2011. It will provide eligible working parents 18 weeks of paid parental leave at the minimum wage, currently $570 per week before tax. If you need information on this please refer to the family assistance website www.familyassist.gov.au .
- There are over 32 million super funds in Australia and only some 22 million Australians. If you think you have lost track of your super funds go to the Super Seeker on the ATO website, www.ato.gov.au (it is on the right hand side of the screen). Remember to do this, you will need your tax file number handy.
- Even in a rising interest rate environment you can still get competitive variable rates of 6.5% or lower and 3 year fixed rates of 7.5%. Now might be the time to check your home loan, but be careful before changing loans as there can be significant exit fees, particularly in the first 4 years of the loan. If you would like a review of your home loan, please speak to your Advisor.
- We have a president in our midst- Our very own Financial Planner and Superannuation Specialist, Jo Hall, was elected as the President of the Kawana Waters Chamber of Commerce and Industry at the September AGM. Jo says she is excited about the role and the opportunities for small business in the Sunshine Coast. She added that she thinks it is hilarious that Keith refers to her as “Madame Presidente”.
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