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IMFG Market Update - Q4 Dec 2023

Thu, 11 Jan 2024 04:50:03 GMT

IMFG Market Update - Q2 June 2023

Update on investment markets for the quarter ending 31 December 2023 from Lisette Walsh & Steve Garth. In what may be surprising to some, the quarter delivered very strong investment performance, with markets expressing relief and optimism that interest rates and inflation will be under control earlier than previously anticipated. The year has delivered strong investment returns for the long term focused investor, most of it coming in the last eight weeks of the year.

General Advice Warning

Any advice or information in this publication is of a general nature only and has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your personal objectives, financial situation and needs. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, it is important for you to consider these matters and to seek appropriate advice. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither we nor our employees give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Identity McIntyre Pty Limited and Specialist Advice Pty Limited are Authorised Representative(s) of IMFG Pty Limited Limited ABN 18646084666, AFSL number 527657, an Australian Financial Services Licensee, Registered office at Level 8, 171 Clarence Street, Sydney NSW 2000.

2023 Financial Market Review

Wed, 20 Dec 2023 02:48:52 GMT

2023 - The year that was...

It’s not quite the end of 2023 yet, but with data to November 30 it’s close enough to review the performance of the Australian and global equity markets and the global bond market. We are not expecting any big changes as we come into the final weeks of the year, but of course the unexpected could always happen!

Before reviewing the performance of markets this year, it’s always a good idea to do this in context of what happened last year. The threat of rising interest rates against a background of soaring inflation pushed stocks down in the first months of 2022, and coupled with the conflict in Ukraine and the start of the aggressive interest rate cycle that began in May the market remained volatile throughout the year.

In Australia the ASX 200 index reached its lowest point at the end of September and was down negative 9.6 percent. The last quarter saw a recovery, and the index finished 2022 down negative 1.1 percent. But that was relatively good compared to the rest of the world – in the US the S&P 500 index was down by more than 20 percent at times – what’s termed a bear market – and finished the year down negative 18.5 percent. The high tech stocks did even worse – they ended the year down by negative 32.5 percent.

And as interest rates rose from essentially zero to end 2022 at 3.1 percent after 8 consecutive rate rises the bond market delivered its worst returns on record, with the Australian bond market down near negative 10 percent and the global bond market coming in at negative 12.3 percent.

What were the predictions this time last year? Given that central banks had more work to do to bring inflation back to their target 2 – 3 percent band, the general view was that Australia and the global economy were heading for an unavoidable recession. It was going to be another tough year for equities, and particularly for high-tech stocks – which in theory are more interest rate sensitive than other sectors. But bond managers were very bullish on fixed interest, with commentary that bonds were about to make an historic recovery in the face of the economic slowdown.

So how has 2023 played out?

Australian Equities

In fact 2023 kicked off with a bang for the ASX with one of the strongest January returns on record. Why? Well no-one really knows, but at the time commentators were saying that the market had reassessed the effect of interest rate rises and concluded it's not going to be as bad as they thought back in December.

The market did fall over in early March when several US regional banks got into trouble and collapsed, and regulators had to step in to rescue the depositors. This reverberated across the global banking system, and in Europe Credit Suisse was sold to fellow Swiss banking giant UBS. But the banking “crisis” passes swiftly, and from there the market continued to rally – despite the continuing rate increases from the RBA – reaching a peak of 7.5 percent at the end of July, as shown in the chart below.

It was about that time that both here in Australia and the Federal Reserve Bank in the US reiterated that they expected interest rates will not be coming down anytime soon – rates would stay “higher for longer”. This became a mantra for quite a few weeks, wiping out the gains for the year and by the end of October was sitting on a year to date return of zero.

But from early November the market has been unexpectantly going up. it's what some people call a Santa Rally, which is not uncommon in that markets finish the year with a sense of optimism. In this case the Santa Rally has been driven by the sudden fall in bond yields, indicating that interest rates will start coming down sooner than expected. By the end of November the ASX 200 had returned a positive 4.8 percent year to date.

Global Equities

In fact festive cheer has come early to world markets on growing certainty that central banks will start slashing interest rates next year. Global stocks posted their best monthly performance in three years in November and global investment-grade bonds returned almost 4% - the best month on record going back to 1997.

While major markets were beaten down in 2022 it's the exact reverse in 2023 - even though interest rates have continued to go up. As mentioned, this is meant to be bad for high-tech stocks (at least that's what we were told way back in January) but the high-tech Nasdaq index has returned a staggering 37 percent this year, as shown in the chart below.

The Benefits of Diversification

Of more interest to an Australian investor is how these returns from other markets have played out in a diversified portfolio. While Australia has returned 4.8 percent developed markets (represented by the MSCI World ex Australia Index) has retuned an impressive 21%, while the Emerging Markets (represented by the MSCI Emerging Market Index) are up just over 8 percent for the year.

Depending on the mix of Australian to global shares a diversified portfolio has had an excellent year, returning anywhere between 12 to 14 percent – much greater than the average of around 8% over the last 20 years.

Global Bonds

The global bond market had the worst year on record in 2022, and while no one expected bonds to fully recover that drawdown there was hope they would make a lot of ground back. And in the first quarter bonds certainly made a good start, thanks to those US Banks that fell over. Investors believed that this was the start of the recession we had to have – to borrow a famous saying – and there was a flight to the safety of bonds. The good news here was that bonds performed their traditional duty of providing a safety net when equities fall.

However, the banking “crisis” was short lived and soon interest rates – and yields – continued their march upward. The chart below shows the yield of the Australian 10 year Government bond throughout the year, superimposed on the quarterly returns of the global bond market (as represented by the Bloomberg Global Aggregate Bond index hedged to Australian dollars). As yields go up, bond prices go down.

New Paragraph

It was a miserable second quarter and a really bad third quarter for the bond market, and in fact by around October those bond yields were hitting heights not seen for 15 years or so. It was looking very grim on the bond side and then everything changed. Instead of “higher for longer” the new mantra was “the pivot is near” - the Federal Reserve in the US had not only finished with rate hikes but were going to start cutting interest rates as early 2024.

By the end of November there is an overall positive return for bonds. The Australian bond market has returned 2.5 percent, with the global bond market right behind on 2.4 percent. While these returns are not quite as good as cash, it does show that bonds are on the way back.

2023: The Year That Was

We can sum up 2023 by saying that while Australia had a modest return of 4.8% (to November 30) international markets had an outstanding year lifted by the high-tech stocks in the US. A diversified portfolio of Australian, developed, and emerging shares had a return of around 13 percent, 5 percentage points higher than the average return for the last 20 years. And the bond market is now returning to a state of normality, with positive returns, good income, and the ability to take its traditional role as a safety net when equity markets have sudden downturns.

I hope you all enjoy the holiday season and all the best for a great new year in 2024.

Dr Steve Garth

Independent Member of IMFG Investment Committee

December 12, 2023

General Advice Warning

Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, it is important for you to consider these matters and to seek appropriate advice. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither we nor our employees give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

Identity McIntyre Pty Ltd (ASIC No 461171) is a corporate authorised representative of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000.

Australian Financial Review article by Angus Dockrill

Wed, 09 Aug 2023 03:33:49 GMT

The big mistakes of retirement aren't what you think

Co-founder and Director of IMFG, Angus Dockrill wrote an opinion piece on retirement in the Australian Financial Review, published on 8th August 2023, available on their website here . Should you want to discuss ways to improve your financial future contact us on 02 9002 0570.

IMFG Market Update - Q2 June 2023

Wed, 12 Jul 2023 05:46:20 GMT

IMFG Market Update - Q2 June 2023

Update on investment markets for the quarter ending 30 June 2023 from Angus Dockrill & Steve Garth. Bond markets reflect ongoing worries about the terminal rate of interest rates. Sharemarkets are more optimistic. Who is right? And do you need to be 'right' to have a successful investment experience? On balance, the financial year has delivered strong investment returns for the long term focused investor.

General Advice Warning

IMFG Market Update - Q1 2023

Tue, 18 Apr 2023 02:09:44 GMT

IMFG Market Update - Q1 2023

Update on investment markets for the quarter ending 30 March 2023 from Angus Dockrill & Steve Garth. Macro forces, including rising interest rates and cost of living pressures, continue to dominate news headlines. Throw in the collapse of some US and European banks and there was lots going on in the quarter. How did markets react?

General Advice Warning

To Hike or not to Hike? Now that is the question.

Mon, 27 Mar 2023 23:03:54 GMT

To Hike or not to Hike? Now that is the question.

Economists are at odds over whether the Reserve Bank of Australia should suspend rate hikes in April or raise the cash rate by another 25bps, as the RBA confronts how to bring inflation down with higher interest rates while not sending the economy into recession. The bond market is indicating rate increases are over… but inflation remains uncomfortably high. Will the RBA hike again?

The collapse of several US regional banks and the global bank Credit Suisse has dramatically affected the market’s expectations for future interest rate moves. The bond market indicates that the aggressive tightening campaign by global central banks is over amid growing concerns that the contagion sparked by Silicon Valley Bank’s collapse will end in a global recession. Markets worldwide have fallen, with banks stocks being particularly hard hit.

In early March RBA governor Philip Lowe confirmed that the central bank was closer to a pause and said that the board would be carefully assessing the monthly employment and business indicators, which have now been released, along with retail trade figures and the monthly consumer price index (CPI) indicator. And this was before the recent global banking crisis.

Reading bond yield tea leaves – have we seen the end of higher rates?

Market watchers see yields on bonds as an indicator of future interest rates ^[1] . After the collapse of the Silicon Valley Bank, the Australian three-year bond yield plunged from 3.4% per cent down to under 3% - this is a dramatic move in the bond world. Given that the official cash rate is currently 3.6 per cent, it would appear traders have eliminated any further tightening by the RBA from their rates profile, and in fact, they have started to factor in a small risk of a rate cut later this year.

This follows a similar pattern in the US, where the yield on the two-year US Treasury bond, which is sensitive to interest rate expectations, plunged more than half a percentage point on March 13th, posting the biggest three-day fall since the Black Monday crash of October 1987. Reading yield curve tea leaves, traders are now expecting around 0.75 percentage points of Federal Reserve rate cuts implied by year-end.

But yield curves are not only a reflection of interest rates – the yield on bonds is driven by supply and demand dynamics, which take into account estimates of future economic activity, that includes a collective view of future cash rates but also encompasses views on national productivity, unemployment and inflation.

Importantly, bonds are also seen as a safe haven asset. Some see the collapse of Credit Suisse and the US banks as a precursor to a global recession, and this is where the flight to safety comes in, driving a greater demand for bonds, which pushes yields lower.

Inflation is easing – but not fast enough

Despite the large and sudden drop in bond yields, the Federal Reserve in the US pressed ahead with another 25 bps at their most recent meeting on March 22 ^nd , setting a new target range of 4.75% to 5%, the highest level since 2007. While most economists predicted this latest rate rise by the Fed, it still surprised many. US inflation eased in February but remained stubbornly high, presenting a challenge for the Federal Reserve as it confronts how to slow the economy with higher interest rates while not sending it into recession.

The RBA now face the same challenge - have they done enough to slow the economy and bring inflation back down to their target band or 2% - 3% or do they need to keep raising rates and risk sending the economy into recession.

So will the RBA keep raising rates or are we done for this cycle?

But while inflation is slowing both here and in the US, it isn’t going away as quickly as many may have hoped. Federal Reserve officials have continued to beat the drum on their aggressive inflation fight, saying the central bank will keep hiking interest rates until it’s under control.

The issues are the same for Reserve Bank of Australia. Market pricing for RBA’s terminal rate has moved considerably. But the solid underlying momentum in the economy, as evidenced by the robust business conditions and stable labour market, suggests further tightening may be needed.

The RBA may indeed pause rate rises at its April meeting, or it may follow the US with another 25bps increase. We will find out on April 4 ^th at 2:30pm (AEST). While another hike will be hard for those with mortgages and continue to put pressure on the housing market, the cost of living will only reduce as inflation comes down to the RBA’s target band.

The positive news for investors is that inflation is moving in the right direction, and we expect that interest rates are now very close to their “terminal rate” for this cycle.

[1] Yields and prices are inversely related, so falling yields on bonds means that bond prices are increasing, and rising yields means that bond prices are falling.

General Advice Warning

Australian Banks and the Current Global Banking Crisis

Sun, 19 Mar 2023 23:37:27 GMT

Australian Banks and the Current Global Banking Crisis

Volatility has struck financial markets as several banks in the US and Europe collapse, requiring governments and regulators to step in to protect depositors. Contagion fears are widespread, and banking shares are being particularly hard hit. So, if there is another GFC brewing, are Australian banks at risk? The short answer is no.

Following the collapse of Silicon Valley Bank and two other regional banks in the US on the weekend of 11 ^th and 12 ^th March, widespread fear hit global banking shares. When the US market opened on Monday, other US regional banks such as First Republic, Western Alliance and Bancorp all fell more than 40% amid fears that, like Silicon Valley Bank, they will need to sell their investments at massive losses.

But these were relatively small banks. Then over in Europe, Credit Suisse – a much larger bank with global operations - reported it had found “material weaknesses” in its past financial reporting. The bank’s biggest investor — the Saudi National Bank — said it would not bail out the ailing bank.

Credit Suisse shares took a beating, and the bank asked Switzerland’s central bank for support. The other big Swiss bank, UBS, is poised to buy Credit Suisse for its wealth and asset management units while divesting its investment banking division.

Fears of failing bank “contagion” have seen the global financial sector come under pressure, including in Australia. The S&P/ASX 200 Financials Index was down 6.5% in the week following the SVB Group and Signature Bank collapses.

What’s the root cause of these failures? In a nutshell, it’s got to do with rising interest rates and poor management. Central banks worldwide have been raising interest rates at a historic pace in the face of persistently high inflation. The huge interest rate increases have been a problem for some banks as their margins have been squeezed.

Are Australian banks at risk? The short answer is no. Most of the world’s banking systems sit somewhere on the spectrum ranging from “safe” to “competitive”. Competitive banking systems have many more banks (there are more than 4000 in the US). That means they have to give better deals to their customers, and they often target more niche markets, making them less diversified and riskier.

Safe banking systems have far fewer banks (although there are 97 banks in Australia, the big four effectively make up about 90 per cent of the mortgage and deposit markets used by everyday Australians). That huge market dominance means they don’t need to engage in loss-making competitive behaviour.

As the Reserve Bank has raised interest rates, Australian banks have passed that on quickly and fully to those who borrow from them (i.e., those with a mortgage ), but slowly and partially to t hose who deposit money with them. In other words, Australian banks – particularly the Big 4 – are a protected species when it comes to higher interest rates, as they can maintain their capital prudence by managing different rates that they apply to borrowers and depositors.

While banks in some countries will come under pressure in the face of further interest rate increases, and their customers will be nervously watching how the next few weeks unfold, here in Australia, you can sleep easily – our big banks are safe, and our little banks have very strong backing from our authorities and government. Australia's banking system is highly regarded for its robust regulation and supervision, underpinning our strong performance during and since the GFC.

This is not to say that the Australian stock market will be immune from increased volatility in global markets. Pressure on the global banking sector has some effect on the global economy, but in general, stock markets and economies are two very different things.

The Financial Sector makes up around 14.6% of the world market, nearly all of which is in the large “safe” banks like ANZ, CBA, NAB and Westpac. And the big banks in the US, like Wells Fargo, Citigroup, and Bank of America, have all reported significant deposit increases since SVB collapsed last week. The banks that have been in the news lately – SVB, Signature and Credit Suisse – collectively make up less than 0.07% of the world stock market.

So while we cannot predict what the overall market will do in the coming weeks, we can say that Australian banks are in no danger of collapsing. The best way to ride out the current volatility is to stay in a diversified portfolio of Australian and international shares in which individual security weights in the portfolios are linked to market capitalisation weights. That will help reduce idiosyncratic exposure to any single stock and deliver strong returns over the long term.

General Advice Warning

Are you retirement ready? Here are some tips to help make the transition.

Thu, 09 Mar 2023 03:07:05 GMT

Are you retirement ready? Here are some tips to help make the transition.

Superannuation has recently been thrust into the spotlight with the government's proposed tax changes.

Any media discussion around superannuation and retirement often leads to thoughts about retirement. Those thoughts are either “will I have enough money to retire?” or “what will I do with myself when I retire?”.

For some, it’s the second question that can sometimes be of more concern than the first, with the concept of not working and no longer having the routine of employment being a scary prospect.

To ease the transition into retirement, we’ve put together a few tips that can help with the transition:

Break the work habit

Breaking the routine of work is one of the biggest challenges for retirees. After all, it’s a routine that has been followed for nearly 40 years. An excellent way to break the habit is to plan a holiday once you finally retire. A long holiday can help break the work habit and be a reward to look forward to when retirement day finally comes.

Transition to part-time work

Going from full-time to no work is often too big a leap for many retirees. An easier transition can be made by reducing your hours to part-time and seeking volunteer work to fill in the other time, which can be very rewarding.

Look for new hobbies or activities

As you ease into retirement, you will have much more time to pursue current interests, or find new ones. We often use work as an excuse for not being able to pursue our interests, whether they be hobbies or activities such as gardening or playing golf. If you are an active person, committing to a round of golf at the same time every week will help you develop a passion and ideally want more time to play golf rather than work. Other options are learning new skills that you’ve never had the time to pursue. It may be skills like cake decorating or woodworking that can become passions later in life.

Plan to do more in your 60s

It’s a harsh reality, but as you get older and into your 70s, it can be more challenging to be active and get the most out of your retirement. If you plan to travel in retirement, plan to do it in your 60s and don’t wait until your 70s. This is particularly important if you plan to visit locations that may require you to be more physically active than others. Don’t miss the opportunity to tick off that bucket list location because of health issues that may arise as you age.

Share your thoughts and concerns with your partner

If you are concerned about retirement, you must share those with your loved ones. Retirement is a journey that should be shared, and it can bring friction to a relationship if you and your partner aren’t aligned on your retirement goals. This can be more of an issue if there is an age gap between a husband and wife which means one will reach retirement age earlier than the other. In some cases, one part of the couple may still be working full-time while the other has a lot more time on their hands. This is where new hobbies and activities become essential to help fill the time, otherwise loneliness and resentment can cause friction and tension.

Set a retirement date

One final piece of advice for retirement is to set a date. Ideally you would select this date well before your actual retirement date so you have time to plan your finances and feel comfortable as the date draws closer. Setting a date will also help if you are sitting down with your financial adviser to put the right strategies in place when you finally retire.

Whilst many people look forward to the day they retire, the transition can be difficult for others. Hopefully our tips will make that process a little easier, and if you want to have a conversation about retirement and your plans to fund it, reach out to me or one of our wealth management specialists today.

Author: Angus Dockrill

Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions. See his profile here

General Advice Warning

Identity McIntyre Pty Limited and Specialist Advice Pty Limited are Authorised Representative(s) of IMFG Pty Limited Limited ABN 18646084666, AFSL number 527657, an Australian Financial Services Licensee, Registered office at Level 8, 171 Clarence Street, Sydney NSW 2000.

IMFG Market Update - Q4 2022

Thu, 26 Jan 2023 23:58:34 GMT

IMFG Market Update - Q4 2022

IMFG's Scott Douglas and Dr Steve Garth share their wrap up of 2022 and share their perspective on what we might expect in local and international markets in 2023.

General Advice Warning

Gravity catches up with big tech.

Thu, 24 Nov 2022 22:22:34 GMT

Gravity catches up with big tech.

In the Roadrunner cartoons, Wile E. Coyote would chase his nemesis relentlessly, even running off cliffs and continuing running into mid-air. Only when he looked down and realised there was no longer any support did he fall.

This gives rise to the term “a Wile E. Coyote moment” in financial markets.

When investors realise the stock market has been running without support for a long time, and prices that should have long since been gradually coming down suddenly collapse.

Coyotes can defy gravity for years in the markets — but generally, there comes the point when gravity catches up to them. This year has seen the large tech stocks having to readjust to a world where persistent inflation has forced central banks to push up interest rates, thus ending the years of cheap money and the ability to defy gravity.

The large tech stocks are now known by the acronym FAANGs, which represents Facebook, Apple, Amazon, Netflix and Google. But the acronym generally applies to large tech stocks, such as Microsoft [1] . A combination of rising interest rates, market saturation, increasing competition and a reset in tech stock valuations has changed the narrative for FAANG in 2022.

The chart below shows the FAANG index's extraordinary performance [2] relative to the broader US market (represented by the S&P 500 index) over the last five years.

Microsoft, Google-owner Alphabet and even Apple have all suffered write-downs to varying degrees this year, but the fall from the sky of Meta Platforms Inc., the Facebook parent, and Amazon has been particularly hard.

Meta has underperformed the S&P 500 since it went public in 2012. For investors who thought they were betting on the next big thing, it won’t be surprising if they start to think twice.

Unfortunately for the tech sector, the bad news continues with Amazon.com Inc. Its third-quarter earnings released at the end of October were in line with market expectations. Still, shares plummeted 13% when the company issued a disappointing fourth-quarter forecast. It’s the second time this year Amazon’s results have been disappointing enough to spark a double-digit percentage sell-off. In April, a weak forecast for the second quarter led to a 14% drop in the stock.

Like the rest of Big Tech, Amazon has had a rocky year as it confronts macroeconomic headwinds, soaring inflation and rising interest rates. Those challenges have coincided with a slowdown in Amazon’s core retail business as consumers returned to shopping in stores. Amazon has been down as much as 40% this year.

As the chart above shows, FAANG stocks were doing better than the market even before the Covid-19 sell-off in March 2020. Investors worked on the assumption that these companies would benefit from the pandemic, which they unquestionably did — but it is only now that investors have fully grasped that they shouldn’t be valued as though the pandemic conditions would continue forever. Remarkably, if you measure relative performance between the FAANG+ index and the broader S&P 500 index from March 2020, then the indices are now level pegging.

The sell-off in the “new economy” tech sector has seen a rotation into the “old economy” stocks, which tend to have more stable earnings streams and typically are less sensitive to interest rate increases. High-growth tech names are more sensitive to rising interest rates as, typically, they are valued based on their projected profits far into the future. As the US Federal Reserve continues with its aggressive tightening monetary policy, the future profits of tech firms will be worth far less.

This is not to imply that there is anything wrong with these companies, and they will continue to deliver products and services that are sought after by consumers. But their valuations are at last being examined critically.

The takeout for an investor is that trying to time the “next great thing” in the stock market is a difficult game to play. Which company will turn out to be the best investment? What sector will be the strongest performer? Which country will offer the highest return? The truth is nobody knows.

Fortunately, you don’t need to rely on guesswork to invest well. It turns out that for long-term investors, a diversified approach that includes all segments of the market – both domestic and international – is a great way to increase your opportunity set, manage overall risk and improve the reliability of outcomes.

This article was inspired by Wile E. Coyote Moment as Tech Goes Off the Cliff by Bloomberg Opinion columnist John Authers. Economist and New York Times editorial writer Paul Krugman is usually credited with making the connection between Wile E. Coyote with economic disaster in 2003.

[1] FAANG lost its “G” in 2015 and its “F” in 2021 when Google and Facebook rebranded themselves as Alphabet and Meta Platforms , respectively. Netflix has been hit particularly hard, and the company has dropped behind its peers in terms of growth and prominence. So after booting Netflix from FAANG, replacing it with Microsoft and adjusting for the corporate name changes, we now have a new acronym: MAMAA—for Meta, Amazon, Microsoft, Apple and Alphabet

[1] We use the FANG+ Index, which has ticker code NYFANG, to plot the performance of these large tech stocks. The NYSE FANG+ Index provides exposure to 10 tech giants – Apple, Amazon, Netflix, Alphabet (Google), Microsoft, Alibaba, Nvidia, Baidu, Tesla and Meta (Facebook).

General Advice Warning

The value of patience. Why you need to block out the noise.

Wed, 26 Oct 2022 23:36:17 GMT

New Title

It's a trying time for investors right now.

On the first Tuesday of every month, we expect to be welcomed with an interest rate rise by the Reserve Bank and negative media commentary regarding the Australian economy.

In this age of social media, 24/7 media coverage and clever marketing algorithms, it can be hard to block out the negative noise when it seems to follow you everywhere you go.

The fact it does follow you though, is no accident.

As consumers in a digital age, it should be no surprise that investment articles you read on websites or social media influence the type of content you are offered through these platforms.

Marketing algorithms are tracking your interests constantly, so if you read an article about the negative state of the investment market, you will see more articles supporting the same viewpoint.

It then becomes very easy to start believing all the negative content, which will feed any concerns you may have about your current investment strategy.

This is, unfortunately, the digital age we live in.

While it is true that markets are volatile at the moment and it is difficult to hold your nerve, we only need to look back at the start of the Covid pandemic in 2020 and the news coverage at the time to understand the difference between perception and reality.

Articles in March 2020 predicted a return to the days of the Great Depression and a catastrophic impact on the Australian economy. Predictions were made of over 15% unemployment, and the global equities market reacted with recession fears removing $9 trillion from the market in days.

With the benefit of hindsight, we now know that the Australian economy faired very well during the pandemic, with the unemployment rate reaching historic lows and the global equities market bouncing back later in 2020 as viable vaccines became available.

Put simply, those that were patient and focused on their investment plan did better than those who sold assets that had already fallen in price. They benefited from being patient and staying the course.

But the big challenge for investors is blocking out the noise.

Doing this isn't easy, but one good way is to review the following investment lessons that have stood the test of time:

Lesson 1: There is no such thing as easy money

Thousands of people buy and sell stocks daily, but the number that do it profitably is small. It's easy to get sucked into the prospect of easy money, but always remember there is no such thing.

Lesson 2: Always expect the unexpected

Any attempt to time the market is fraught with peril. If anything, the Covid pandemic has taught us to expect the unexpected, especially when it comes to the investment markets.

Lesson 3: An investor's greatest enemy is often themselves

Investors often let their emotions get in the way of rational thought. They also overestimate their abilities as an investor, often letting ego get in the way of tried and true investing principles and underestimating the risk associated with an investment. This often leads to poor investment decisions. You must not let your ego get in the way of making intelligent, rational decisions.

Lesson 4: Don't be influenced by recency bias

When markets are good, investors tend to be overly optimistic. Then, when markets are down, they become pessimistic. This is called recency bias, and it's easy to be influenced by it. When it kicks in, investors start to think that the good times will continue and vice versa. But as we know, markets fluctuate and go both up and down. By not being influenced by recency bias, you are not as affected by market fluctuations and benefit from investing for the long term.

Lesson 5: Recessions are always identified with a lag

The truth about recessions is that the economy is often on the road to recovery by the time an economy is identified as being in a recession. Calls of a recession are made based on analysis of market conditions over a period of time. The data used to determine a recession is not available in real-time and is analysed often months down the track which means they are identified with a lag. Any market noise about a recession needs to be viewed through this lens and not factored into current investment decisions, as you are making decisions based on old data.

Lesson 6: To make money you need to learn to be patient

As Warrant Buffett says, "There is nothing wrong with getting rich slowly". Patience is the cornerstone of Buffett's investment strategy, and he always advises investors to remain steady when the markets go haywire. It's sound advice and helped him to become a very wealthy man.

As we've seen during 2022, the investment markets are fluctuating significantly and it's easy to be influenced by the negative press. What's important is ensuring we learn the lessons of the past, stay patient and focused on your plan and long-term goals. As always, if you want to discuss your current investment strategy and review your plans, one of team of financial advisers would be happy to help.

General Advice Warning

Identity McIntyre Pty Ltd (ASIC No 461171) is a corporate authorised repre sentative of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000.

IMFG Market Update - Q3 2022

Wed, 12 Oct 2022 23:21:38 GMT

IMFG Market Update - Q3 2022

IMFG's Scott Douglas and Dr Steve Garth provide an update on the Australian and International markets for Q3 2022

General Advice Warning

Inflation forecasts and market expectations

Mon, 12 Sep 2022 00:34:01 GMT

Inflation forecasts and market expectations.

How high will inflation go? When will cash rates peak? What can we expect from growth in the future?

We don’t have answers to these questions, but they do tell us something about the relationship between inflation forecasts and market inflation expectations.

Inflation forecasts are the numbers economists produce for where they expect inflation to be in the near term, usually over the next year or two. These forecasts are prepared by the private sector and official economists, the latter often working at a country’s central bank, given the importance of inflation as an input to monetary policy.

Market expectations, on the other hand, are entirely different. These are inflation expectations over very long periods derived from bond market pricing.

Because bond yields represent a return to the investor intended to compensate for inflation over the life of the bond, then we can say something about expected inflation. For long-term bonds, this average expectation for inflation might be for the next 10, 20, or even 30 years.

When we combine economist inflation forecasts and market expectations for inflation, we have two very different views of the future. Each is important in its own way for setting monetary policy.

Stocks and bonds are both reflections of expectations and forecasts. These inputs also shape the market’s view on expected returns. Higher inflation will require higher returns to compensate. This, in turn, necessitates lower asset prices and higher earnings.

The apparent disadvantage of inflation forecasts and market expectations is that they are just that: forecasts and expectations. They are not guaranteed to be correct, and because predicting future events is impossible, they are always wrong to some extent

On the forecasting side, we know that forecasting economic variables for as little as one year into the future has a mixed track record at best. Once we move further out, to say two years, forecast errors become significant. Market practitioners fare little better in inflation expectations or other market pricing. Large corrections to financial market prices are a seemingly permanent feature of markets and bear testament to that.

The difficulty is so well known that researchers have established that current market prices or variables outperform more sophisticated models as an estimate.

If forecasts and expectations can never be entirely correct, how should we invest in inflationary environments? History has shown that over the long term, a balanced portfolio of equities and shares, designed to meet your risk tolerance, has outperformed inflation.

The role of inflation forecasts and market expectations continue to pose challenges for policymakers, but as an investor, prudent portfolio construction designed to deliver long-term returns through a range of scenarios is something you can invest in with certainty.

General Advice Warning

Identity McIntyre Pty Ltd (ASIC No 461171) is a corporate authorised repre sentative of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000.

Known Unkowns: What do we know about the performance of bonds and stocks over the next 12 months?

Fri, 19 Aug 2022 00:30:54 GMT

Known Unkowns:What do we know about the performance of bonds and stocks over the next 12 months?

This is a question that I have seen or heard several times in the last few weeks:

Given the current state of the markets, are bonds or equities likely to do better over the next 12 - 24 months given that both have seen significant drops over the past 12 months?

Now I am not in the business of making predictions, and of course it is impossible to answer this question without a crystal ball. More importantly, the answer is irrelevant because the golden rule in this particular contest is to stick with a well-diversified portfolio that has been designed to meet your goals by your financial advisor.

So if you want a definitive answer to the above question you can stop reading now. But there is some evidence we can use to see how stocks and bonds may play out from here.

The question as stated is one of making a prediction based on “unknown unknowns” – we don’t know what will happen in the next 12 month or how that will impact the performance of stocks and bonds. However, there are “known unknowns” that help frame the problem. What information do we have to help us look forward on bond and stock returns?

Have bonds bottomed out?

Let’s start with bonds. It has been the worst start to the year in bonds since the 1940’s, and the last time we saw a negative annual return from bonds was back in 1994.

However, when we look at a plot of yields and quarter by quarter bond returns we can see that yields have reached an apex and starting to come down.

Note that it is bond yields that affect bond prices, not interest rates (i.e.overnight cash rates which the RBA control). Yields are forward looking and rise in expectation of future interest rates and expectations around inflation and the economy in general.

The fall in yields (and hence rise in bond prices) towards the end of June and into the first weeks of July tells us two things:

First, this is an indication that the market has priced in future cash rate increase, but if cash rate were to be realised it would have a significant impact on households’ ability to service their mortgages, particularly amid rising living costs caused by inflation. As a result, it will be difficult for the RBA to increase the cash rate beyond current market expectations, which should limit Australian bond yields from rising much further.

Secondly, the expectations around a future recession also create more uncertainty in the equity world. This leads to a move back into bonds as they are seen as a safe-haven asset, are unlikely to suffer further capital losses, and are now yielding close to 4 percent yield to maturity.

In short, bonds should provide a positive return going forward.

What is the story with stocks?

Predicting the short term path of equities is impossible as we don’t have the same forward looking relationship between yields and prices. But we do know something about market downturns.

Market downturns are always unsettling, but we do have nearly 100 years of data on the US stock market to help us look at market returns after a downturn. As the chart below shows, over the past century US stocks have averaged positive returns over one-year, three-year, and five-year periods following a steep decline.

A year after the S&P 500 crossed into bear market territory (a 20% fall from the market’s previous peak), it rebounded by about 20% on average. And after five years, the S&P 500 averaged returns over 70%. So we cannot say whether stocks have bottomed out or whether there is more volatility to come, but we do know that on average markets recover very quickly from a downturn.

Fama/French Total US Market Research Index returns, July 1, 1926–December 31, 2020

Won’t a recession be bad for stocks?

Are we headed into a recession? That is a possible outcome from the current path of cash rate increases. As mentioned earlier, there are signs of a flight back to quality bonds for this very reason. But does that mean that stocks will continue to fall?

One of the best predictors of the economy is the stock market itself. Markets tend to fall in advance of recessions and start climbing earlier than the economy does.

In the chart below we show the annual return of stocks sown as an equity premium, which is the return of the market minus bills) in Australia and the US against annual GDP growth. The dots in the lower right quadrant show where GDP growth has been negative, but the return on stocks has been positive. In fact, in this data set (from 1980) there has not been a period where GDP growth was negative and stocks were also negative (lower left quadrant).

So even if we know for sure the economy is heading for recession (and we don’t know that for sure) it does not mean stocks will be negative in the negative growth period. The stocks have already worn the pain of a coming recession before the recession arrives.

What else do we know about the behaviour of bonds and stocks?

We do know that over the long run bonds and stocks are modestly correlated – in other words, most times both asset classes have positive returns on an annual basis. Stocks have negative annual returns on average every 4 years, while it is less common for bonds to have an annual negative return.

Typically, bonds play the support role most evidently when stocks have negative years. It is rare when both stocks and bonds are both negative – but it has happened before, as shown in the above chart. And keep in mind that we are only halfway through 2022, so a lot can happen in the next 6 months.

Typically, when bonds or stocks have had a negative annual return they bounce back strongly in the next 12 months.

Conclusion

We cannot definitively answer the question as to who will win between stocks and bonds over the next 12 – 24 months. We have shown here that bonds may well have finished their cycle and may now return 3% - 4%. Of course, yields can still go up or down, but one is not expecting the drastic shifts in yields we have seen in the first 6 months of this year.

We do not know what equities will do in the short term, but we have shown that equities recover from market downturns quickly. There is much media speculation that we (or the US) are heading into a recession, but we have shown here this does not mean that equities will have a negative return if there is an economic recession.

We believe that staying invested in the portfolio that has been designed for you by your advisor puts you in the best position to capture the recovery. If you change your portfolio by shifting the asset allocation from equities to bonds (or vice versa), it should be a strategic, not tactical, choice. The only good reason to change your portfolio now is because you learned something about your risk tolerance, or your investment goals have changed.

General Advice Warning

Identity McIntyre Pty Ltd (ASIC No 461171) is a corporate authorised repre sentative of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000.

IMFG Market Update - Q2 2022

Fri, 08 Jul 2022 01:03:09 GMT

IMFG Market Update - Q2 2022

IMFG's Scott Douglas and Dr Steve Garth share their insights into the status of the financial markets for Q2 in 2022.

General Advice Warning

Don’t Panic! 10 tips for surviving a downturn in the markets.

Thu, 07 Jul 2022 02:43:13 GMT

Don’t Panic! 10 tips for surviving a downturn in the markets.

After a long period of the financial markets being largely ignored by the media, news of their daily fluctuations has been pushed back to the forefront – just as they did in 2008/2009 and the first quarter of 2020.

For investors, the questions that come to mind are:

What are we going to do now?

How concerned should we be about the future?

What is causing all the market fluctuations?

How safe are our investments?

Is there anything that can be done about it?

This is a worrying time for anyone who owns shares. Seeing the balance in one's portfolio go down can be very emotional.

The reason for the increase in volatility is that everything is becoming more expensive and banking regulators like the RBA are using the tools they have at their disposal (like the cash rate) to curb rising inflation.

The increase in inflation is due to a number of factors, including disruptions to global supply chains caused by the pandemic and of course Russia’s invasion of the Ukraine.

The central banks, who last year were downplaying the inflationary shock as temporary, are now expressing concerns that this could become permanent and are taking action to prevent it.

This is happening as the world starts to make a difficult and decades-long transition away from fossil fuels in an effort to control climate change.

The result of these factors is a major change in the stock and bond markets. Bond yields, which just a couple of years ago were negative, are now increasing.

Expect more volatility

What does this mean for your investments?

The danger for individual investors is in trying to time the market, getting out when conditions seem bad and then getting back in when things have calmed down.

The most recent example of the virtue of discipline was in early 2020 when major benchmarks fell sharply by between 30 and 40%.

This downturn in the market is likely to be more severe and longer-lasting than the one we saw two years ago.

Ten points to keep in mind when looking at your investments are:

1. The stock market has generated strong annual returns over the past century and fluctuations are a normal part of the investment cycle.

2. We know the virtue of being patient in difficult times. In periods ranging from the 1987 crash to the US savings and loans crisis of the late ‘80s, to Asia's financial crisis in 1997-1998, those who held tight (or were patient) came out ahead.

3. The markets anticipate future events and price in bad news accordingly.

4. What moves markets is the unexpected. Imagine what would happen to stock markets if Russia and Ukraine came to an agreement to end the conflict.

5. Even when the markets are falling, somebody is buying. By definition, there cannot be more sellers than buyers if trades are happening because this would create a downward spiral. Markets work by bringing in new buyers who absorb some of the stock being sold off by earlier investors.

6. In recent years, income investors have complained about the low yields in bond markets. However, this is no longer the case, as the correction in global bonds has led to higher yields.

7. There are things you can control such as how you allocate your portfolio between stocks, bonds, commodities, property and other assets.

8. Remember that nothing is permanent, not even good markets or bad ones. The turning point will often come before the economic indicators suggest it.

9. Despite the volatility in the market, companies are still innovating and creating wealth. The energy transition is a prime example of this.

10. Stay committed to your financial plan even when things get tough. A well-constructed financial plan is one that fits you and your risk tolerance, allowing for some flexibility during difficult times.

Enduring a downturn in the market can be difficult, but it is ultimately achievable with a well-thought-out plan, a long-term focus, and an understanding that the market will eventually recover.

If you are looking for some advice or a second-opinion on your investment strategy, give us a call on 02 9002 0570 or email info@imfg.com.au.

Author: Angus Dockrill

Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions. See his profile here

General Advice Warning

A Survival Guide for Market Volatility

Fri, 24 Jun 2022 02:19:51 GMT

A Survival Guide for Market Volatility

Investors worldwide have realised that fighting inflation is going to be painful—which in turn has caused turmoil in the markets. Since the start of the year, the Australian market is down 12% - but that’s good relative to other markets.

The S&P 500 has fallen more than 20% since January in the US, making it officially a bear market. And the Nasdaq, where the big tech stocks trade, is down more than 30%.

We haven’t seen this sort of volatility in markets since March 2020, when the pandemic caused markets to fall by more than 30%. However, Government stimulus packages meant that the bear market was the shortest on record – markets had pretty much recovered over the next month. By the end of the year, all the major markets were showing positive returns. But now, central banks are raising interest rates instead of cutting them. Many economists are saying that we are heading towards a recession.

When markets are volatile, it is very un-nerving for an investor, and more so if you are in retirement or are approaching retirement. You can either do something – anything – or you can do nothing. In volatile times it’s always best to do nothing – so let’s look at some strategies to help get you through this period.

General Advice Warning

Identity McIntyre Pty Ltd (ASIC No 461171) is a corporate authorised repre sentative of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000.

A Survival Guide for Volatility

Download Your Free Whitepaper

The Bond Bear Market - How do 1994 and 2022 compare?

Thu, 16 Jun 2022 00:34:47 GMT

The Bond Bear Market - How do 1994 and 2022 compare?

For the last 30 years, 1994 has been known as the Great Bond Bear Market. But that's the old Great Bond Bear Market - there is now a new Great Bond Bear Market. What are the similarities and what are the differences between 1994 and 2022? Is it really deja vu all over again?

General Advice Warning

Identity McIntyre Pty Ltd (ASIC No 461171) is a corporate authorised repre sentative of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000.

What does a change of government mean for the stock market?

Tue, 24 May 2022 00:29:04 GMT

What does a change of government mean for the stock market?

The Australian Election held on May 21st generated lots of views and news, but one thing that is rarely talked about is what effect elections have on financial markets? And this may surprise many people, but the reason that it's not normally part of the election debate is that, well, elections don’t actually have any impact on the stock market!

This is not necessarily because financial markets don’t take elections into account. But the truth is that elections are just one of many factors that drive the prices of securities. And it is very hard to separate any one of those myriad factors from the others.

The issues that move financial markets have more to do with rising measures of consumer price inflation, the removal of emergency policy stimulus by central banks and Russia’s invasion of Ukraine.

Of course, it is in the interests of politicians of either side to claim they ‘manage’ the economy and talk up the dire consequences of what would happen if their opponents took power. But markets to date have not been showing any disquiet either way.

There is very little evidence from history either that election wins from one major party or the other has a definitive impact on the local share market, separate from all the other things going on at the time of the election.

The chart below shows the frequency of monthly returns of a broad-based Australian equity benchmark in the months when Australia elections were held over the past 50 years, going back to the election of the Whitlam government in 1972.

The red marks represent the months the Australian Labor Party won. The blue marks represent months the Liberal-National Coalition won. The grey marks represent non-election months over this half-century period. Dashes representing returns of a given month are stacked in ascending order of return within each column, with the highest return within that range on top.

In this time, there were 19 Australian federal elections, of which 10 were won by the Coalition and nine by Labor. The chart shows election month returns have been well dispersed throughout the range of outcomes, with no clear pattern based on which party won.

For instance, the single worst result in this sample was the election held in May 1974, won by Labor under Gough Whitlam and a month in which the local share market fell more than 14%. But then the single best result was also an election won by Labor under Bob Hawke in July 1987, when the market rose by more than 14%.

Of course, other things were also happening in both those years. From 1973-74, for instance, global equity markets were suffering one of their worst downturns following the collapse of the Bretton Woods system of fixed currencies and a global oil shock.

Figure 1: Distribution of Monthly Returns

MSCI Australia Index, January 1970 – April 2022

Chart from Dimensional Fund Advisors, April 2022

In 1987, global share markets were coming to the end of a five-year bull run that ended in October that year with the so-called Black Monday crash.

The point is that at any one time, there is news coming from many different directions – from company earnings to economic data to geopolitical events to policy and regulatory changes.

It is natural for investors to look for a connection between who wins power in Canberra and which way stocks will go. But shareholders are investing in a company, not a political party. And companies focus on serving their customers and helping their businesses grow, regardless of who is in government.

This means that making investment decisions based on the predictions of election outcomes or actual outcomes is unlikely to result in reliable excess returns. On the contrary, it may lead to costly mistakes.

Ultimately, this adds up to a strong case for relying on a consistent approach to your asset allocation—making a long-term plan and sticking to it.

General Advice Warning

Identity McIntyre Pty Ltd (ASIC No 461171) is a corporate authorised repre sentative of IMFG Pty Limited, Australian Financial Services Licensee number 527657 Registered Office at: Level 8, 171 Clarence Street, Sydney NSW 2000.

Why do your values matter when it comes to investing?

Thu, 12 May 2022 01:44:50 GMT

Why do your values matter when it comes to investing?

We all have values that we live by. They are the motivational drivers that help us determine what’s important in life. They give meaning to the things we do. They are individual to us, guide our behaviour, and allow us to feel fulfilment in life.

But we’re not always consciously aware of what our values are. Many of us rarely spend time stopping, thinking, and considering our values. Not knowing what we truly value in life can lead us to make bad decisions inconsistent with what we want to achieve in life. It can cause us to escape into bad habits or look for quick wins to uplift ourselves.

It’s easy to dismiss values too. Instead, we focus on what our society, culture, or community values and try to meet these expectations. We don’t spend the time to articulate what our top five values are. And, it takes a lot of effort to know and accept what you value.

This will often lead to decisions being made that don’t lead us to live our best life. We hit key turning points in our lives and do what society or others expect us to do. Not what we want to do for ourselves or those we love.

For example, many of us, from a young age are encouraged to save for our retirement. We spend the majority of our lives working hard to do all the things we want when we retire. This is drilled into us so much that we are saving more than we need for retirement, with many people leaving their retirement savings untouched or spending down only a little.

A school of thought suggests saving makes us feel happy and fulfilled. However, this is just a mask for what behavioural economics calls loss aversion, the observation that humans experience losses asymmetrically more severely than equivalent gains. This overwhelming fear of loss leads us to make bad decisions, behave irrationally, and give lawyers the job of bequeathing our assets to those we love.

Understanding our values can help us make better decisions. The above example can help us reduce our fear of loss and turn it into a positive gain by giving our money meaning and spending it on something truly important to us. Our values help us define what success looks like for ourselves. And when we begin to live a life that meets our success criteria, we feel more fulfilled and happy - even if it means spending the savings we’ve spent years to create.

Values Matter

So, values matter to all of us. They are our guiding principles or guardrails that can keep us living our best life. And when we achieve our goals, we feel a sense of meaning and purpose. We feel good about ourselves and driven to continue to live a life full of purpose.

But defining what you value is hard. There are so many words to choose from. You’re often too busy to stop and wonder what really matters. This is where we come in.

Using a framework based on the eight dimensions of wellbeing can help you to uncover what you value in life. These eight dimensions are outlined below:

Environmental: Related to the surroundings you occupy

Physical: Affected by physical activity, healthy nutrition and adequate sleep.

Intellectual: Seeking out ways to use your knowledge and skills.

Spiritual: Related to your values and beliefs that help you find meaning and purpose.

Emotional: Ability to cope effectively with life and build satisfying relationships with others.

Financial: A feeling of satisfaction around your financial situation.

Occupational: A feeling of satisfaction with your choice of work.

Social: A sense of connectedness and belonging.

We work with you to determine a set of household values and then set goals and tasks to help you live a life more aligned with your values. We also keep you accountable, helping you to make decisions that take you closer to achieving your goals. And, we measure how you’re going and help you see the successes and failures so that we can continue to make the best choices for both now and in the future.

Why not take the first step in getting to know more about what you value in life by completing our Your Life survey . The survey helps to identify what’s important to you in life, and then determines how close you are living a life aligned with that value. You will receive a score at the end of the survey based on your responses. Our advisers can then work with you to improve your score. Empowering you to live your best life by aligning your finances with your values.

Author: Angus Dockrill

Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions. See his profile here

General Advice Warning

Understanding the sustainable investing opportunity

Wed, 04 May 2022 00:52:55 GMT

Understanding the sustainable investing opportunity

The trend towards conscious consumption and awareness of the impact of climate change has accelerated significantly over the past decade. Globally, the covid-19 pandemic has been a significant catalyst for this increased awareness. In Australia, the pre-pandemic bushfires and more recent flood crises have also made consumers far more aware of climate change.

Mastercard has confirmed these trends with market research finding in 2021 that in Australia, 57% of consumers [i] are more mindful of their impact on the environment since Covid-19.

This increase in mindfulness and awareness of climate change has a significant impact on investment decisions. Investors are now actively looking to how they can positively impact the environment when developing an investment strategy.

But sustainability and concern for environmental impact go far beyond simply choosing to reuse shopping bags at a supermarket checkout line. Investors now have the opportunity to build and hold an investment portfolio that reflects their commitment to sustainability – without compromising investment returns.

What is sustainable investing?

Sustainable investing, also known as socially responsible investing, incorporates environmental, social and governance (ESG) factors into investment decisions. Individuals choose to invest this way to make a measurable environment and social impact – alongside achieving solid investment returns. An individual's values and priorities influence their investment decision, with investment returns, not the only factor assessed when determining the value of an investment.

Sustainable investing is on the rise globally. The Global Sustainable Investment Alliance reports that assets under management that follow a sustainable investing strategy have surged from $30.7 trillion in 2018 to $35.3 trillion in 2020.

What has driven the growth in sustainable investing other than Covid-19?

While the Covid-19 has had a significant impact, according to Ernst & Young , growth in sustainable investing has been driven by millennials who prefer to invest in alignment with their personal values. Growth has also been influenced by evolving macro-economic trends, specifically global population increases and the greater demand this places for food, water and energy. The increasing need for clean water and sanitation, innovation in energy generation and distribution, improved health care and more efficient transportation point to higher long-term demand for sustainable investment growth.

How do you become a sustainable investor?

As with all investing, you must reflect and understand what sustainability issues matter to you as an investor. While on the surface, you might view a reduction in greenhouse gas emissions as a key priority and how an organisation produces its products and services. But other aspects of sustainable investing should also be considered when thinking about your portfolio. These may include how it behaves towards its employees and stakeholders or the broader impact the company may be having on society. This includes how it is helping others to help create a more sustainable future.

Understanding what issues matter to you can then be used to integrate the criteria into the recommended strategy.

Do you have to compromise on investment returns?

The one key question often raised by investors is if their commitment to sustainable investing will negatively affect investment returns. The simple answer is no.

Underlying any effective investment recommendation from IMFG will always focus on sound investment principles. The key to achieving your investment goals is to look for measurable sustainability outcomes within our broader investment framework. Our strategies for sustainable investing always seek broad diversification, efficient cost management, and higher expected returns alongside measurable sustainability goals.

How do you begin your sustainable investing journey?

Whether you are an experienced investor or just beginning your journey in wealth creation, the first important step is to have an introductory meeting with your current advisor or an IMFG wealth creation specialist. At IMFG, our wealth specialists undertake a detailed discovery process to help you understand your investment values and access various sustainable investment options depending on your requirements and investment profile. If you would like to discuss your opportunities for sustainable investing, contact us on 02 9002 or email us at info@imfg.com.au.

[i] “How the Covid 19 Pandemic has Impacted Consumer Attitudes About the Environment”, https://www.mastercard.com/news/media/qdvnaedh/consumer-attitudes-to-the-environment-2021.pdf

Author: Angus Dockrill

Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions. See his profile here

General Advice Warning

IMFG Market Update - Q1 2022

Thu, 14 Apr 2022 01:51:58 GMT

IMFG Market Update - Q1 2022

IMFG's John Foley and Dr Steve Garth provide a market update for Q1, looking at the impact interest rates, inflation and the conflict in the Ukraine is having on local markets.

General Advice Warning

Federal Budget Summary 2022-2023

Wed, 30 Mar 2022 22:12:16 GMT

Federal Budget Summary 2022-2023

This year’s Federal Budget includes a range of key spending measures to drive Australia’s economic recovery. These measures include temporary stimulus to low and middle-income Australians as well as infrastructure and regional recovery spending measures.

Our Federal Budget Summary provides a succinct summary of the key measures. Download your copy below.

Rising Interest Rates in the US: Implications for Australian investors

Fri, 18 Mar 2022 11:27:33 GMT

Rising Interest Rates in the US: Implications for Australian investors

After much anticipation and media speculation, on March the 16 ^th the US Federal Reserve raised its Federal Funds target interest rate from a range of 0-0.25% to the range of 0.25-0.5%. The Fed had kept its benchmark rate steady after delivering a full percentage-point cut in March 2020 amid the start of the coronavirus pandemic.

The Fed has been flagging the start of rate hikes for the last six months and started signalling that the first hike would happen at the March meeting early this year after inflation indicators kept rising. While the conflict in Ukraine added to uncertainty around the move, the 0.25% increase was fully factored into financial markets. In fact, US shares rose on positive Fed comments around employment and economic growth.

The U.S. central bank signals its outlook for the path of interest rates with a “dot plot”, which shows how the Committee Members of the Fed – formally the Federal Open Market Committee (FOMC) - view appropriate monetary policy The Dot Plot below shows officials expect to raise the Fed Funds rate six more times this year, based on median projections.

In the US inflation is at a 40-year high (core inflation is at 6.4% yoy) and the conflict in Ukraine has created additional upward pressure on inflation, particularly by higher energy prices. Nonetheless, the Fed reiterated that some of the inflationary pressures were related to supply and demand imbalances related to the pandemic, and they expected inflation to be at their target rate of around 2% in the longer term.

Against the inflation background, economic activity has recovered and continues to strengthen and the labour market is very tight with unemployment at 3.8%. The Fed also signalled that it will likely start Quantitative Tightening by not replacing the maturing bonds that were bought as part of the Quantitative Easing program.

Implications for global markets.

The fall in stock markets since the start of the year can be attributed to market expectations around future increases in interest rates (linked to the continuing rise in inflation indicators), coupled with the uncertainty caused by the conflict in Ukraine which began in February. As noted above the rise in the stock market after the announcement implies that the market had fully priced in the 0.25% increase, and were buoyed by the Fed’s comments in relation to the health of the economy.

The Dot Plot also reaffirms that the likely path of interest rate rises will still be relatively modest, with the longer-term mean at just under 2.5%. This is consistent with the market expectations. While economic conditions can unexpectantly change, most market participants are not expecting inflation or interest rates to rise dramatically.

While there is little reason to be too concerned by the first US rate hike, there are two main risks to expected returns from the stock market: 1) Inflation pressures are far more significant than anticipated and this may necessitate an even faster tightening in monetary policy than in the past; and 2) The war in Ukraine increase uncertainty and poses a threat of weaker global growth – notably in Europe.

The bond market seems to be looking through the second factor, as there is no sign of a “flight to safety” in long bond yields. Consistent with the Dot Plot, the 10y yields in the US (and Australia) are still under 2.5%.

In summary, while the Fed’s move to raise rates is consistent with volatile and constrained share market returns ahead, it does not imply a bear market as monetary policy is far from tight and unlikely to drive a US recession.

Implications for Australian investors

The RBA will soon follow the Fed in starting to raise interest rates. However, Australian interest rates are likely to rise less than US interest rates reflecting lower inflation in Australia and the start of a downturn in Australian property prices which will dampen the pressure to raise rates much. Underlying inflation is expected to increase in coming quarters to around 3.25%, before declining to around 2.75% in 2023.

The unemployment rate is projected to fall to below 4% later in the year and to stay below 4% in 2023. However, wages growth – an important input into inflation - is expected to stay modest. At the March meeting the Board reiterated that it was prepared to be patient and would not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range.

While a decline in the short-term interest rate gap between Australia and the US normally puts downwards pressure on the value of the $A this is likely to be more than offset by strong commodity prices which is being accentuated by the war in Ukraine. As a result, the negative interest rate differential should not have a material effect on the A$.

What matters for individual investors is whether they are on track to meet their own long-term goals detailed in the plan designed for them. Uncertainties around interest rates, inflation and geopolitical events will cause market volatility, which can be worrisome to investors. The best approach for investors is to accept market volatility and to stay disciplined, diversified, and keep focused on progress to your goals.

General Advice Warning

It isn't easy to talk about money, but this is why you need to.

Wed, 23 Feb 2022 03:23:28 GMT

It isn't easy to talk about money, but this is why you need to.

If one conversation topic is guaranteed to cause an argument, it is about money.

Why is it so difficult?

It’s often because couples have different views on spending, financial goals, and habits. One partner might be a spender, and the other a saver, which can pressure a relationship if there is no communication. It’s one subject that always seems to get everyone on the defensive and brings out lots of emotion.

When a conversation starts about money, we often question ourselves. Why does my partner want to talk about money? Does my partner think I’m spending too much? Why don’t we have more at the end of the month? Where does it all go?

It’s a situation I think everyone can relate to.

The facts are that aside from infidelity, troubles with finances is the most common cause of marital problems and subsequent divorce in this country.

But despite the difficulties and challenges talking about money brings, it’s essential to be on the same page as your partner when it comes to reaching your financial goals.

But how do you start the conversation without it turning into a fight?

Talking about your dreams is a great place to start

To start, look at the bigger picture and agree with your partner to a vision of what your financial future looks like. Have an open and honest conversation and share what financial success looks like to you. Don’t judge, and don’t get bogged down in a discussion about your current finances.

Ask yourself, what would you do if you won a million dollars? Where do you want to be in 5, 10 or 20 years time? What do you want to do when you retire? How often do you want to go on holidays? Where would you like to go? Have some fun with the questions and dare to dream. These types of conversations tend to be positive and open up your mind to the possibilities – and how you might be able to get there together.

As you begin to share these thoughts, start to notice when you have similar goals and write them down. As a couple, you are on this journey together and having completely different financial goals will be a recipe for disaster, so look for some common ground.

Identify your financial values

In life, our values guide many of our decisions. It’s the same with investing.

When you talk about your financial dreams, you begin to understand your beliefs around spending, investing, borrowing and overall money management. These are your financial values.

These values must be in sync with your financial goals and play a big part in deciding your financial plan in the future. Some questions to ask yourself are:

What does financial success mean to you?
What is the purpose of money in your life?
In what ways does money bring you joy?

One of the advantages of knowing your financial values is that it helps when making important decisions. If you consider all financial decisions against these values, you are more likely to feel confident about your chosen path.

How to break the ice and start the conversation

The question now is, how do you start the conversation?

The golden rule here is, don’t start by creating a confrontation. The fact that one of you may have overspent on the credit card last month isn’t a great place to start.

Begin by talking about something positive. Maybe a long-term holiday goal from which you can broaden the topic to more longer-term planning for which you may like to seek some professional advice.

And for that, we are always here to help put you on the right path.

Author: Scott Douglas

Scott is a Director and Wealth Specialist at IMFG. From a very early age, Scott has been passionate about saving and accumulating investments and he uses that knowledge to help his clients create wealth. See his profile here

General Advice Warning

XY Adviser Podcast - Dan Blatch

Wed, 26 Jan 2022 23:32:44 GMT

XY Adviser Podcast - Dan Blatch

Dan Blatch sits down with Andrew Rocks from XY Adviser to discuss his journey from aspiring physiotherapist to landing as a Director and Life Risk Specialist at IMFG

The power of staying the course with investing.

Tue, 18 Jan 2022 02:22:17 GMT

The power of staying the course with investing.

With investing, it’s easy to get distracted by shiny new objects.

In a bull market, it seems everyone has an opinion on stocks and investing.

The thrill of the chase and the promise of quick gains often leads to poor investment decisions. It doesn’t help when financial media is flooded with stories of the latest IPO or that 22-year old who is now worth millions after investing their pocket money in bitcoin.

The truth is, there is only one thing that matters to become a good investor.

Time.

When asked about his investment process, Warren Buffett, a man who knows a thing or two about investing, said,

“Benign neglect, bordering on sloth, remains the hallmark of our investment process.”

The reality is, with investing, there are a few paths you can take. You can take the short-term approach, chasing quick wins, jumping in and out of investments with the hope that you will time the market, or you can stay the course and benefit from the gains you only get from time.

But, how do we know that staying the course is the best strategy?

Let’s look back at the year 2000 and the peak of the dot.com boom. In March 2000, the Nasdaq Composite Stock Market Index rose 400%, with investors, particularly personal investors, desperate to get their hands on any stock with a .com next to its name, at any valuation.

The explosion of interest in dot.com stock was pre-empted by rapid growth in personal computer ownership in the late ’90s and growth in browser technology, giving consumers broader access to the world wide web.

Our good friend, Mr Buffett, famously issued a warning to his stockholders in 2000, saying

“They know that overstaying the festivities—that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future—will eventually bring on pumpkins and mice,”

By October 2002, Warren Buffett’s prediction came true with the market crashing, losing all the gains made during the dot.com bubble and investors losing money as many companies failed and shut down.

What has to be said is that some dot.com companies did survive and thrive. Two of the most famous were Amazon.com and ebay.com who had sound business models and revenue to justify their survival.

And if you invested in those businesses and held onto them, your investment would be well rewarded. Since its IPO, Amazon shares have grown by 40,000%, so a $1000 investment in Amazon shares 20 years ago would now be worth $400,000. An excellent return for long-term investment and a clear example of the benefits of staying the course.

So if you are interested in staying the course, give us a call. We’d love to have a chat.

Author: Angus Dockrill

Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions. See his profile here

General Advice Warning

IMFG Market Update - Q4 2021

Sun, 09 Jan 2022 23:44:43 GMT

IMFG Market Update - Q4 2021

IMFG’s Angus Dockrill and Dr Steve Garth share their insights and highlight the key investment themes for Q4, market performance and how the share and bond markets reacted to the end of 2021.

General Advice Warning

Any advice or information in this publication is of a general nature only and has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your personal objectives, financial situation and needs. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, it is important for you to consider these matters and to seek appropriate advice. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases, the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither we nor our employees give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Identity McIntyre Pty Limited and Specialist Advice Pty Limited are Authorised Representative(s) of IMFG Pty Limited ABN 18646084666, AFSL number 527657, an Australian Financial Services Licensee, Registered office at Level 8, 171 Clarence Street, Sydney NSW 2000.

Dan Blatch awarded Risk Advisor of the Year at IFA Excellence Awards

Thu, 25 Nov 2021 02:40:58 GMT

Dan Blatch awarded Risk Advisor of the Year at IFA Excellence Awards

IMFG are proud to announce that our Director and Life Risk Specialist, Dan Blatch was recognised by his industry peers and awarded the 2021 Risk Advisor of the Year at the IFA Excellence Awards.

The IFA Excellence Awards are one of our industry's most prestigious awards, recognising those that are leading the way in the industry from startup organisations to establised organisations.

Congratulations to Dan. He is a truly deserving recipient of the award.

IMFG Market Update -Q3 2021

Thu, 14 Oct 2021 00:01:49 GMT

IMFG Market Update -Q3 2021

IMFG’s Scott Douglas and Dr Steve Garth share their insights and highlight the key investment themes for Q3, market performance and how the Australian market is faring against international markets in Q3 2021.

General Advice Warning

Penguin Bloom, a Sydney woman’s true, raw story of renewal.

Mon, 06 Sep 2021 02:38:52 GMT

Penguin Bloom, a Sydney woman’s true, raw story of renewal.

As a financial and insurance advisor, I’m well aware that accidents happen. Protecting against the unexpected is the whole point of insurance. Still, I was deeply shocked when I heard about the horrific accident of a client, Sam Bloom, whose brave, brave story is shared in the book and film Penguin Bloom.

I remember Sam and Cameron Bloom, back in 2011. They’d been referred to me by their accountant for insurance advice. An active, outdoorsy couple who’d travelled to adventurous places around the world and were now settled into family life on Sydney’s sunny northern beaches with their three young boys. Life was good.

Fast forward a number of months, and one fateful moment changed everything.

The Blooms were on their first overseas family holiday in Thailand, out and about exploring beautiful beaches and nature. They climbed the stairs to the top of an old building for a better look at the views. Sam leaned against the safety railing, with no way of knowing the wooden support had rotted and was about to give way. Sam fell three storeys onto hard, tiled ground, suffering near-fatal, devastating spinal and head injuries, in full view of her husband and children.

I was shocked to the core when I heard the news.

Of course, my feelings of shock weren’t even a speck in the ocean compared to what Sam must have endured - and still faces on a daily basis.

When something like this happens to somebody you’ve known, though, it seems to strike harder as a reminder of how drastically things can change in the blink of an eye - try as we might to steer our lives safely in the right direction.

For Sam Bloom and her family, life would certainly never be the same again.

The severe spinal injury left her paralysed from the chest down. A cruel blow for anyone, and especially for someone so passionate about surfing and the outdoors, and so actively engaged as a mum, wife and all-round dynamic woman.

It’s astounding that Sam survived. It’s a testament to her incredible bravery, the unerring love of her incredible husband and family, the support of close friends, and to the medical teams who saved and have cared for her over the years.

Sam’s story was captured in the award-winning international bestseller Penguin Bloom written by Bradley Trevor Grieve with exquisite photography by Cameron. The film Penguin Bloom adapted from the book, stars Naomi Watts and Andrew Lincoln, with stunning cinematography and acting performances across the board. It was only after reading and watching both that I could even begin to fathom the physical and emotional agony Sam has experienced, as well as the huge challenges for Cameron and the boys.

Sam suffered unimaginable, relentless physical pain. Heartbreakingly, she had to watch family life ‘from the sidelines’ as Cameron (what an incredible bloke) fully stepped in as an unerringly devoted husband, carer and parent. Darkness and depression threatened to overwhelm as Sam grappled with her new existence, unable to function as she did before as a vibrant, active wife, mother, and independent woman.

For Cameron, there was the constant worry and care for Sam, plus taking over the day-to-day as primary parent, and doing his best to stay positive when ‘every day was like a funeral.’ Not to mention the despair at seeing his beloved wife in such pain and the fear of forever losing her to the darkness. The young children had to carry the burden of having witnessed the accident, as well as watching their mum’s excruciating daily battles.

Amazingly, their story is also rich with hope, compassion and recovery.

In a gorgeous parallel, an injured magpie - who the kids name ‘Penguin’ - enters the Blooms’ lives. Penguin is a cute, cheeky bird who becomes an adored member of the family. Her adorable connection with the Blooms and strength in recovery bring happiness back to the household, lifting Sam’s spirits and helping the whole family heal.

What I can say is that I highly recommend you read the book and watch the film. Both are exquisite.

While I don’t want to add any spoilers about the rest of Sam Bloom’s incredible journey, something in the book really struck me. Sam offers her personal perspective on adjusting and coping, with ‘brutally honest’ advice on the recovery process for anyone who has suffered a serious spinal injury or become paralysed. She also suggests insightful, practical ways to support someone you know with spinal injury or paralysis. I’ve never read anything quite like it, and it’s something I think everyone should read. Brute courage, determination, grace, human kindness and compassion are words that come to mind yet don’t do justice to hers.

As a financial advisor, it’s heartening to think that the protection package I put in place for Sam helped provide relief when her earning capacity was lost. Naturally, no amount of money can make up for the extreme impact of an accident like Sam’s. But having a package of protection does mean one less worry in the event of a disaster and allows fuller focus on recovery and wellbeing. It also helps pay for school books, school fees, uniforms, kids’ sports, food, bills, and rent or mortgage payments. It reminds me of the value of what I do for a living - advising options to shore up your financial future - especially at a time when changes are coming.

Sweeping changes will affect income protection insurance policies from October 2021. Income protection is a type of insurance that pays part of your income if you're unable to work due to an accident or injury - such as severe spinal injury. Under the new system, benefits paid will be measured by actual earnings at the time you became unable to work, and not on a prior agreed amount. It means benefits could be significantly less generous, so it’s imperative to get proper advice to avoid overpaying premiums or not being properly protected. Note - if you are currently considering a package of protection, you’ll be better off locking in a policy before October 2021.

While no insurance payout could ever restore Sam Blooms’ life to what it once was, there is some hope on the horizon for people living with serious spinal injury. She points out that groundbreaking medical research will eventually help restore feeling and function through repair of damaged nerves, spinal cord implants, cell transplant electroacupuncture and epidural spinal stimulators. It’s a matter of when, not if. The challenge is one of fundraising.

A portion of author royalties from book sales - also matched dollar for dollar by the publisher HarperCollins - is donated to SpinalCure Australia. Just another good reason to read Penguin Bloom. If you’d like to donate directly to Sam Bloom’s foundation with SpinalCure Australia, you can do so here . Sam Bloom has also written a follow up to Penguin Bloom, called Sam Bloom Heartache and Birdsong – another remarkable achievement and an uplifting read. While it’s impossible to prevent the unpreventable, we can protect ourselves financially in the event of life-changing circumstances. Be sure to speak to a trusted, experienced professional for advice.”

Helpful Links

Follow Penguin the Magpie on Instagram

Website https://www.penguinthemagpie.com/

Author: John Foley

John is a Partner and Financial Advisor at IMFG. John is an experienced financial services professional with over 25 years of financial markets experience.

General Advice Warning

What effect does a trade war have on the stock market?

Mon, 06 Sep 2021 01:01:27 GMT

What effect does a trade war have on the stock market?

Video Transcript

Scott: Welcome to the IMFG investment update. My name is Scott Douglas. I'm a director at IMFG. I have here with me, Dr. Steve Garth. Steve is on our investment committee. Steve, there's been a lot of talk about trade wars in the media lately and what's been happening. What's going on? What's the impact that this is likely to have on Australia and our economy and our share market?

Steve: Yeah. Thanks, Scott. Well, certainly in the last year, China, in particular, has targeted some of Australia's industries with a sanctions. So for example, the lobster industry, the beef industry, and the wine industry have all been hit by these sanctions from China.

Till recently, China accounted for 96% of export sales of southern rock lobster. So, losing that market has been devastating for business.

Beef was Australia's biggest agricultural export. Last May, China suspended imports from Australia's largest cooperatively owned and abattoir.

And, Scott, an industry close to your heart is wine. China accounted for more than 40% of all Australian wine exports and 50% of red wine exports before the tariffs hit. So that's fallen to near zero now.

Scott: So, Steve, presumably being invested in one of those industries has had an impact if you've been investing in beef, or wine, or the lobster industry. What are we, sort of, seeing having an impact on the individual stocks versus the market itself?

Steve: Yeah. So, that's right, Scott. Obviously, the individual stocks that are associated with those industries are going to get hit. The chart up here shows Treasury Wine Estate. And you can see how that stock has been affected by the announcement that China was potentially going to put tariffs on Australian wine. So, being invested in a single stock has not been so good. And you compare that to the overall market, the overall market seems to be going pretty well. So it really speaks to the fact that, yes, if you're associated with those industries that have been hit or if you're invested in those particular stocks, it's not so good, but it hasn't affected the overall stock market. That seems to be going ahead as if nothing has changed.

Scott: Right. So being invested across the various asset classes and in a diversified portfolio is gonna reduce that risk?

General Advice Warning

What's the story with inflation?

Tue, 24 Aug 2021 15:56:38 GMT

What's the story with inflation?

Video Transcript

Scott: Welcome to the IMFG Investment Update. My name is Scott Douglas. I'm a director at IMFG. Today, I'm here to talk about inflation. Inflation has been a big topic at the moment and I have with me Dr. Steve Garth. Steve sits on our investment committee and is gonna share with you some insights. Steve what, what what's going on with inflation? It's been very popular in the media lately.

Steve: Yeah, that's right Scott, it has. The media, every day, has had a different story about inflation. And there's no question that prices have risen quite a lot in a short period of time. And of course the media are onto this about, look, is inflation going to be really high in the future or will inflation just remain low as it has been?

Scott: So, Steve, what does it all mean? Is inflation good or bad?

Steve: Yeah. So, Scott, as you know, inflation is about the increase in prices over time. And in fact, inflation can be both good or it can be bad. It can be good if inflation increases but modestly. It means if people know that prices are rising, they'll tend to spend earlier and that helps the economy. However, if inflation runs really high, then typically interest rates will rise and then the cost of borrowing becomes higher and that can have quite negative effects on the economy.

Scott: So, Steve, what is inflation gonna look like in the future? Is it gonna be higher or lower?

Steve: Yeah, so the market have been looking at inflation and particularly in the first quarter of this year, Scott, the market thought that inflation was gonna be much higher than what people had originally thought it would be, even taking into account the pandemic. But the Reserve Bank of Australia and other central banks have said, "Wait a minute, these high prices that we're seeing at the moment, they're sort of due to the bottlenecks being caused by COVID." And once we get the vaccines out and we all return to some level of normalcy, that in fact supply and demand will even out and inflation, even though it'd be higher than it is now, it'll just be quite modest. So, the Feds have used the term "transitory," that the high inflation prices at the moment are transitory.

Scott: So, Steve, what have the experts predicted about inflation?

Steve: Yeah, Scott look, one way to look at this is by looking at 10-year bond yields. Now, normally they're about the most interesting part of the financial market, a bond yield. But you can see in the chart here that, in the first quarter, those 10-year yields went from quite low and they've suddenly spiked up. And, again, that's the market thinking that future inflation is gonna be much higher than what they thought in the past. But, if you now look at this quarter, you can see those bond yields coming back down. And so that's the market reassessing what they think future inflation will be. And now the market has, sort of, fallen into line with the RBA's view that, yes, inflation will be higher, but it will be within the band that the RBA would like, which is 2%, 2.5%.

Scott: Steve. So, how good is the market actually at making those predictions and how accurate are they? Can they really see where it's headed?

Steve: Yeah, well, you know Scott, making predictions is really hard, particularly about the future. So all the market can do is pricing all the information they know now. And that's got us [inaudible 00:03:26] prices, both bond yields and stock market prices move every day, because the market's always taking into account new information.

Scott: So, Steve, what would be the best hedge against inflation for investors?

Steve: You know, Scott, the market would try to sell you all sorts of things as hedges against inflation. But you know what the best hedge against inflation is, it's actually just having a diversified investment in stocks and bonds. If you look at the chart here, you can see that the stock market returned more in Australia, you know, 9% to 10% per annum, much higher than the inflation rate. And even the bond market has returned 5% or 6% per annum over the long run. So, if you want to beat inflation, the best thing to do is have a diversified investment in stocks and bonds and talk to your financial advisor about the right mix of stocks and bonds to meet your goals.

Scott: Well, thanks very much Steve. That's been great. And we really appreciate you providing those insights and look forward to talking to you next time.

Steve: Terrific. Thanks, Scott.

Scott: Thank you.

General Advice Warning

Make a list

A great year in the stock market.

Sun, 08 Aug 2021 15:56:38 GMT

A great year in the stock market.

Video Transcript

Scott: Welcome to the IMFG investment update. My name is Scott Douglas, I'm a director at IMFG. Today, I have with me, Dr. Steve Garth. It's been an amazing year in investment markets. And we thought we'd just share some of the insights that Steve has around what's been happening.

Dr. Garth: Well, it has been a fantastic 12 months, Scott, up to the end of the financial year. In fact, it was the best financial year returns we've had in three decades, since 1987.

Now, you can see the long-run I'm showing here from 2009 up to 2021. You can see we're in one of the great boom market of all time. Scott, when we look at other markets around the world, both in the international markets and the emerging markets, they've also returned 27%, 29% respectively. For a hedged investor in international markets, that's a return close to 33%. So really strong returns across the marketplace.

Scott: This has been the shortest, sharpest recovery that we've had.

Dr. Garth: Yeah. That's right, Scott. It's only taken 14 months to recover from the highs just before the pandemic, to get back to those highs. And of course, the market giving you highs on June 30th as well.

For example, the GFC, and here we've got a chart going right back now for 30 years. And, of course, it's really dominated by the GFC that you mentioned. That was the biggest fall in the market since The Great Depression. Now, that took 10 years for an investor, if they had it invested at the peak, it would have taken 10 years before you got back to the peak. So, you can certainly see how quickly markets and economies have recovered. When you look at the long run, Scott, yeah, the GFC was bad. Took 10 years to recover from the very peak till it got back there. But the point is, if you're invested over the whole of that period, in fact, your returns have been 9.5% per annum.

If you think about that, you compound 9% or 10% per year, it leads to an awesome result for you over the long run, despite the trials and tribulations you're going to go through to get there. And it just shows you power of staying disciplined, not reacting to those market movements. Markets go up and markets do go down. Being diversified and being disciplined are the keys to a good investment outcome.

Scott: So those investors who've stuck to the course, who stayed to their investment strategy, focused on what their long-term outcomes were meant to be and didn't make big changes when the dip came through last year. So we've had a great outcome, and I'd like to thank Steve for sharing those insights with us. And, thank you as clients of IMFG for sticking the course and working with us.

General Advice Warning

IMFG Market Update -Q2 2021

Wed, 21 Jul 2021 02:33:18 GMT

IMFG Market Update -Q2 2021

Video Transcription

Scott: Welcome to the IMFG June 2021 quarterly market update. My name is Scott Douglas. I'm a director at IFMG. Today I have here with me, Dr. Steve Garth. Steve is on our investment committee and he's going to provide some insight into what's been going on in the markets. Steve, so what have you seen in the last quarter, and 12 months? What are the things that are coming through?

Steve: I think the big thing for the quarter Scott, is really the fact that the equity market is going along so strongly. It's just hit new highs on June the 30th, and it's fully recovered from the highs just before the pandemic. In fact, it recovered in only 14 months to get back to where it was. The other thing for the quarter has got to do with inflation. It was in the media a lot. If you look at this chart, just showing 10-year bond yields, it's sort of like a fear indicator. It shows those yields going up in the last quarter, where the market has got an expectation that inflation will be higher than they originally thought. But you see the yields now coming down. And if you like, that's the market rethinking its views on inflation, and thinking that, I think inflation is probably going to stick within the RBA's preferred band of two, 2.5%.

Scott: And why do you think we've seen such a sharp recovery when we all thought it was going to pretty much...

Steve: Oh, I think the answer there has just got to do with the government support mechanisms. And, of course, what we're seeing now on the quarter as well this year, is that the vaccines have taken hold, and so there's a lot of optimism out there as well.

Scott: So Steve now, tell me about other markets. What are we seeing in our overseas markets, and the U.S. and the like?

Steve: Well, no surprise with the government stimulus, and the low-interest rates, we've actually seen markets around the world doing really well. If you look at the chart here, there's the return of bonds, which as you would expect is quite low, but in the middle is the return of the Australian, the international and emerging markets, and you can see that they've all returned between 27 and 30%. On the right you'll see the Australian and international REITs, they're the real estate investment trusts and Scott, Australian REITs are the best performing asset class in that chart, they're UP by 33% for the financial year.

Scott: And why would REITs have gone up so much when we're all working from home?

Steve: Yeah, that's a great question. First of all, keep in mind REITs were the hardest hit during the middle of the pandemic in, you know, March last year. So it's no surprise then that they're one of the best performing asset classes, but nonetheless, people are a little bit amazed that they're doing so well when there is a work from a home culture that will certainly continue into the near future as well. But I think you have to keep in mind that when you're talking about real estate investment trust, those big tenants particularly, they sign long leases.

Scott: Right.

Steve: And, of course, Scott, that REITs are just not only commercial property. It's also shopping centers, it's warehouses, it's a whole other supply pool of real estate investments.

Scott: Right, okay. Steve, so with the overseas markets, we've seen a dramatical out-performance of overseas, particularly the U.S. compared to Australia, what have been, like, the key drivers or reasons behind that happening? Is there, I mean, some specific sectors or factors that are [crosstalk 00:03:34]

Steve: Yeah, Scott, good question. If you look at the chart here, it does show the difference between the U.S. market than the Australian market, just in the last 12 months. And you can see the U.S. market's doing better. I think the main reason for this, of course, is that in the U.S., IT and communications, they make up about 40% of the market, where in Australia, our market is made up of financials and resources. Now financials have done well, both here and overseas, but the IT sector continues to do really well. And it's a big part of the U.S. market. And therefore, It's a big part of the global market, to a large extent driving those global returns you've seen.

Scott: What sort of companies are we talking about over there?

Steve: So the IT and communication services companies are sort of collectively known by the acronym FAANGs, which stands for Facebook, Apple, Amazon, Netflix, Google, and there's a few others in there, like, you know, Microsoft and Tesla as well. Now, these companies were doing well before the pandemic, but they've all benefited from the pandemic, particularly with the work from home culture that we're seeing now. So these companies have been doing well, and continue to do really well.

Scott: And in Australia, we just haven't got that same content of organizations?

Steve: That's right. In Australia, the IT sector makes up about 4% of our overall market. Again, our market's driven by mining and banks.

Scott: Right, okay. So Steve, so what we've seen is some great numbers over the last 12 months that we really didn't expect, and the IMFG philosophy has been to have a very well-diversified portfolio across various sectors that is low-cost implemented. And we've also focused on small caps and value stocks. That's our philosophy in the models and the portfolios that we use for our clients. Could you just elaborate a little bit as to how that part of the market, or those sectors have done well and why?

Steve: Yeah, sure Scott. Well, first of all, an investment philosophy that focuses on those small caps, and value stocks are certainly sound, because the empirical evidence shows in the long run, you expect small caps to do better than large caps. And you expect value stocks to do better than growth stocks, although it won't happen in every period you look at. As it so happens Scott, in the last year though, here in Australia, small caps and value stocks have done really well. So the first bar you see there is what's called a small-cap premium, it's small ordinaries against the ASX 200, and there's about a 15% premium for the value stocks leading the growth stocks in the last 12 months. When I look internationally in the small-cap space, we see the same thing, a very strong, small-cap premium. The value premium you don't see there in the last 12 months in the global space. And that's really got to be with those large IT companies from the U.S. we were just talking about

Scott. They tend to be large growth companies, so they're doing better than value companies.

Scott: Okay, great. No, that's excellent. Well, it seems that we've had a tremendous 12 months, and who knows what's going to happen going forward, but if we keep following the approach that we take with our portfolios, we look forward to talking through this again in the next quarter and seeing where we're at, and thanks very much, Steve, really appreciate it.

Steve: Terrific. Thank you, Scott. I look forward to catching up with you again in the next quarter and seeing how markets go then.

Scott: Oh great, thanks, Steve.

Steve: Okay. Bye-bye.

General Advice Warning

The end of the financial year is approaching. What are your options?

Wed, 16 Jun 2021 02:48:12 GMT

The end of the financial year is approaching. What are your options?

With the end of the financial year fast approaching, it can be an excellent time to evaluate your finances and set your goals for the future.

It’s generally a time when we are more aware of our finances and motivated to take some time to review plans from a career, personal finance, health, relationships, passions and causes we care about.

With June 30 under a month away, we’ve set out some options you may consider seeking advice on to set you up for the next financial year and beyond.

Boost your superannuation

1: Add to your super and get a tax deduction

If you are employed, self-employed, or earn taxable income from other sources (such as investments), you could claim a tax deduction by making an after-tax super contribution before June 30.

2: Get more from your salary or bonus

If you are an employee, arrange for your employer to contribute some of your pre-tax salary or a bonus into super as part of a salary sacrifice agreement. This may mean you pay less tax on your salary and increase your retirement savings.

3: Convert your savings into super savings

If you have money outside your super that you’d like to invest for retirement, you could make an after-tax super contribution which may help you pay less tax on investment earnings and increase your retirement savings.

4: Get a super top-up from the government

If you earn less than $54,838 pa from your job or business and make an after-tax super contribution, you are eligible to receive a Government co-contribution of up to $500 which may help increase your retirement savings.

5: Boost your spouse’s super and reduce your tax

If your spouse earns less than $40,000 pa, you may be eligible to make an after-tax contribution into your spouse’s super account. This will increase your spouse’s retirement savings, and you could receive a tax offset of up to $540.

To use any of these strategies, you’ll need to meet certain conditions. Contribution caps and thresholds are also increasing from July 1 2021. This may impact contribution strategies and should be considered when deciding whether to contribute in FY 2020/21. One of our team of financial advisers can assess your eligibility and help you determine which strategies are appropriate for you.

Make donations to Charity

If you want to support a charity and receive a tax deduction for doing so, now is a good time to make your donation to ensure you can claim it as a deduction.

When you donate, make sure you receive your receipt via email as evidence and make your claim in your 2020-2021 tax return.

Bring forward deductions and delay income

End of the financial year is an appropriate time to bring forward tax deductions by spending money before June 30 and delay taxable income after July 1. Delaying income is particularly relevant for self-employed, business owners or investors who may be looking to sell investments for financial gain. It can make sense to defer receipt of this income until the new financial year, depending on your circumstances.

Be prepared for the next financial year

In an ideal world, we would all have our records and reports in order before June 30, but this is often not the case. If you have this in order before June 30, it makes it much easier to begin the process of submitting both business and personal tax returns before other distractions take your focus away.

Any money you are owed is much better in your pocket, so make sure you have your records in order so you can submit your returns quickly and put the money to good use.

General Advice Warning

Why owning less could give you more.

Tue, 15 Jun 2021 15:56:38 GMT

Why owning less could give you more.

Money can buy you happiness.

It is a common saying. We naturally assume that the more money you have, the happier you will be. After all, having more money gives you freedom - the freedom to have more options and the flexibility of choice that you don’t have without money.

But having money doesn’t always deliver freedom. With money often comes responsibilities - both financial and personal. We make decisions based on having more money – a fancier car, a larger house and investment in material objects we believe will make us happier. But according to Dr Thomas Gilovich, a professor of psychology at Cornell University in the United States, one of the enemies of happiness is adaption. Dr Gilovich says, “We buy things to make us happy, and we succeed. But only for a while. New things are exciting to us at first, but then we adapt to them.”

Dr Gilovich has been studying money and happiness for over 20 years, and he concludes that you will get more happiness from spending money on experiences rather than objects. So instead of buying the latest iPhone or buying a new car, he says that you’ll be happier spending your money on travelling (when you can), learning new skills or doing outdoor activities.

Experiences become part of who you are; objects do not.

One of the key findings from research into money and happiness find that money does buy happiness, but only to a certain point.

This research aligns with the Easterlin Paradox, a finding in happiness economics formulated by Richard Easterlin, a professor of economics at the University of Pennsylvania in 1974. While the paradox has been discussed at length since the ’70s with various differing opinions as to its validity, the paradox states that “at a point in time happiness varies directly with income both among and within nations, but over time happiness does not trend upward as income continues to grow”.

Dr Gilovich’s more recent research looks at how adaption affects happiness and measures how people felt about significant material and experiential purchases over time. His studies found that peoples satisfaction with their material purchases went down, but their satisfaction with experiences they spend money on went up.

Interestingly, the fact that a material object is always present works against it and makes it easier to adapt to. But experiences, over time, become an ingrained part of your identity. And because an experience is not ever-present, the memory or skill obtained grows over time and is often enhanced when compared to other experiences.

How often do we look back and reflect on holidays and value those memories? In particular, when we think about past holidays, in the context of not travelling due to the Covid-19 pandemic.

What does observing the world’s billionaires tell us about happiness?

Elon Musk has been quoted as one of the world's wealthiest men, saying, “Possessions kind of weigh you down”. You might be surprised to know that Musk recently sold all seven of his homes and now lives in a tiny home worth US$50,000 near his SpaceX headquarters in Texas.

Jeff Bezos, the richest man in the world, recently travelled to the edge of space with his Blue Origin spacecraft taking his younger brother and two passengers with him. He aims to open space travel to the masses but described his short journey into space as “the best day ever”. An experience he will surely value more as time goes on.

Sir Richard Branson has the same objective as Bezos and travelled into space only a short time before on the 11th of July.

It speaks volumes for the value of experiences when billionaires, for whom money is no object, choose to invest their time and money into these.

How does this research relate to your own financial decisions?

Given that most of us aren’t billionaires, it might be an opportunity to look at material investments under a different lens.

For example, you might be considering an investment in a holiday home. While you may feel excited about having your own “place in paradise”, consider what that will achieve from an experience perspective. Will your family get bored going to the same place year after year? Are you better off renting a holiday house every year in different locations than committing to an area that may or may not achieve strong capital growth?

It might be your dream to own a sports car. But once purchased, will you adapt to owning that car and will your happiness diminish? According to the research, it will. You may be better off hiring one and savouring the experience of driving it and many other cars. You are likely to be happier and more financially better off.

While your perception might be those material possessions will make you happy, the research shows that this may not be the case.

Let’s just hope we can all take a holiday soon, which I’m sure will bring a smile to everyone’s face.

General Advice Warning

Maximising your charitable impact with Invest2Donate.

Tue, 15 Jun 2021 02:48:07 GMT

Maximising your charitable impact with Invest2Donate.

Being able to donate money to a charity is a privileged position to be in – and one that can have a significant impact on those less fortunate. But, of course, with more than 55,000 registered charities and more than 600,000 non-profits, there are many worthy causes to choose from.

Change the way you donate

Requests from charities are hard to ignore. From being approached in the middle of a shopping centre to finding yourself targeted by a Facebook Ad – requests for donations are everywhere.

It’s so hard to say no. We then find ourselves happily reaching into our wallets and departing with our cash, thinking it’s headed to a worthy cause.

It’s a noble thing to do, but not necessarily having the impact you might have hoped.

While the intention is to help those worse off than us, there are plenty of other expenses that chip away at those dollars you donated before it even has a chance to reach its final destination.

According to the PFRA, a professional body representing large charities and fundraising groups, an average of 40% of your donation is going towards covering the cost of their campaign to get you to donate. So the current system is failing both us – the donors – and the charities working so hard to stretch each dollar as far as possible.

If this were a proposed business model in the financial world, it wouldn’t make it far.

At IMFG we fully support helping those in need, and we’re also about making smarter financial decisions. Of course, this extends to donations as well. So, how exactly can you maximise your charitable contributions?

Things to consider when choosing charities

You need to remember that you can’t help everyone. You may want to help that little sick child. You might want to save that starving family. But, despite having the best of intentions, you can’t do it all. Just the same way, you can invest in every business opportunity that comes your way.

While it’s helpful to have a diverse portfolio, if you diversify it too much, then you don’t have a chance to make much of an impact.

The same goes when it comes to giving to charity.

The best advice is to take your emotions out of it and buckle down and do your research. Find a few charities or worthy causes that are of interest to you and focus on them.

Make regular payments

When you’ve decided who you want to support, the next step is to make regular payments to these charities. Decide how much you can offer each month, and set up an automatic payment.

If you have budgeted correctly, you won’t even have to think about it.

Instead of only giving when someone approaches you or LinkedIn catches you in a generous moment, you make a regular contribution to a few charities, which can help you make a more significant difference over time.

Getting something out of it

The final thing to consider is what you’re hoping to get out of your regular donations.

Consider the charities you have chosen. What causes are they helping? Why do they exist?

Once you know this, you’ll be able to focus on your own long-term goal for the charity. So whether you’re hoping your donations go to helping X amount of children each year or towards research to helping cure cancer – this is your long-term goal.

Just as you would never enter into an investment without a long-term goal on hand, you should treat your charitable donations in the same manner.

Getting the right help with Invest2Donate

If you’re looking for help with these key decisions, then consider checking out a new non-profit called Invest2Donate, which has put together a simple tool you can download, where all donations flow through to the charity.

The idea is to cut out that middleman and get rid of that 40% buffer going straight into getting your donations in the first place. It’s ensuring your donation has the biggest impact it possibly can.

Here are some things the tool can help with:

Identifying your giving budget.
Finding top charities in your area.
Setting up regular payments directly to the charity’s own website.

Invest2Donate also puts you in control of changing or stopping regular donations to charities. The tool allows you to contribute regularly which saves the charity the cost of continually asking and receiving predictable donations that allow them to continue their good work.

By investing just a little time to donate, you can get organise and stretch your dollar even further. Instead of waiting to be asked, you can plan ahead.

Want to understand more? Head over to invest2donate.org.au

General Advice Warning

5 smart superannuation strategies for this end of financial year.

Wed, 02 Jun 2021 23:46:05 GMT

5 smart superannuation strategies for this end of financial year.

Strategy 1: Add to your super and claim a tax deduction

If you contribute some of your after-tax income or savings into super, you may be eligible to claim a tax deduction. This means you’ll reduce your taxable income for this financial year – and potentially pay less tax. And at the same time, you’ll be boosting your super balance.

How it works

The contribution is generally taxed at up to 15% in the fund (or up to 30% if you earn $250,000 or more). Depending on your circumstances, this is potentially a lower rate than your marginal tax rate, which could be up to 47% (including the Medicare Levy) – which could save you up to 32%.

Once you’ve contributed to your super, you need to send a valid ‘Notice of Intent’ to your super fund and receive an acknowledgement from them before you complete your tax return, start a pension, or withdraw or rollover the money.

Keep in mind that personal deductible contributions count towards the concessional contribution cap, which is $25,000 for the 2020/21 financial year. However, you may be able to contribute more than that without penalty if you didn’t use the whole $25,000 cap in 2018/19 or 2019/20 and are eligible to make ‘catch-up’ contributions.

Concessional contributions also include all employer contributions, including Superannuation Guarantee and salary sacrifice – speak to your financial adviser to find out more.

Strategy 2: Get more from your salary or a bonus

If you’re an employee, you may be able to arrange for your employer to direct some of your pre-tax salary or a bonus into your super as a ‘salary sacrifice’ contribution. Again, you’ll potentially pay less tax on this money than if you received it as take-home pay – generally 15% for those earning under $250,000 pa, compared with up to 47% (including Medicare Levy).

How it works

Ask your employer if they offer salary sacrifice. If they do, it can be a great way to help grow your super tax effectively because the contributions are made from your pre-tax pay – before you get a chance to spend it on other things.

Remember salary sacrifice contributions count towards your concessional contribution cap, along with any superannuation guarantee contributions from your employer and personal deductible contributions. Also, you may be able to make catch up (extra) contributions if your concessional contributions were less than $25,000 in the last two financial years.

Strategy 3: Convert your savings into super savings

Another way to invest more in your super is with some of your after-tax income or savings by making a personal non-concessional contribution.

Although these contributions don’t reduce your taxable income for the year, you can still benefit from the low tax rate of up to 15% that’s paid in super on investment earnings. This tax rate may be lower than what you’d pay if you held the money in other investments outside super.

How it works

Before you consider this strategy, make sure you’ll stay under the non-concessional contribution (NCC) cap, which in 2020/21 is $100,000 – or up to $300,000 if you meet certain conditions. That’s because after-tax contributions count as non-concessional contributions – and penalties apply if you exceed the cap.

Also, to use this strategy in 2020/21, your total super balance (TSB) must have been under $1.6 million on 30 June 2020.

Importantly, the NCC cap and TSB thresholds are increasing from 1 July 2021. This may impact contribution strategies and should be considered when deciding whether to contribute in 2020/21.

Remember, once you’ve put any money into your super fund, you won’t be able to access it until you reach preservation age or meet other ‘conditions of release’. For more information, visit the ATO website at ato.gov.au.

Strategy 4: Get a super top-up from the Government

If you earn less than $54,838 in the 2020/21 financial year, and at least 10% is from your job or a business, you may want to consider making an after-tax super contribution. If you do, the Government may make a co-contribution of up to $500 into your super account.

How it works

The maximum co-contribution is available if you contribute $1,000 and earn $39,837 pa or less. You may receive a lower amount if you contribute less than $1,000 and/or earn between $39,838 and $54,837 pa. Be aware that earnings include assessable income, reportable fringe benefits and reportable employer super contributions. Other conditions also apply – your financial adviser can run you through them.

Strategy 5: Boost your spouse’s super and reduce your tax

If your spouse is not working or earns a low income, you may want to consider making an after-tax contribution into their super account. This strategy could potentially benefit you both: your spouse’s super account gets a boost, and you may qualify for a tax offset of up to $540.

How it works

You may be able to get the full offset if you contribute $3,000 and your spouse earns $37,000 or less pa (including their assessable income, reportable fringe benefits and reportable employer super contributions). A lower tax offset may be available if you contribute less than $3,000, or your spouse earns between $37,000 and $40,000 pa.

General Advice Warning

Managing the finances of a parent with dementia.

Thu, 20 May 2021 23:51:52 GMT

Managing the finances of a parent with dementia.

Talking about finances is rarely straightforward, particularly with family members, but things become even more complicated when a loved one is suffering from dementia. In 2021, there are an estimated 472,000 Australians living with dementia.

We have put together some advice on how best to handle this delicate situation, but don’t hesitate to get in touch if you’d like further assistance.

Having the conversation

One of the hardest parts about helping a parent with dementia is openly acknowledging their condition. An honest conversation is the first step towards managing the emotional and practical implications of this condition. If you think your parent might be showing symptoms, it’s important to discuss it with them as early as possible, emphasising your support.

Financial considerations

If your parent is experiencing dementia, the financial measures you need to take will depend on how advanced their condition is. If your parent is still in the early stages of their condition, the best thing you can do is work with them to plan ahead.

This might include:

Checking that their will is up to date.
Making aged care plans for the future and allocating savings or resources to ensure they can be paid for.
Looking over your parents’ accounts with them to ensure you have visibility over their savings, investments and debts. Having clarity from the beginning will help if you take on a more active management role in the future.

It is also sensible to consider establishing an enduring power of attorney. In this case, your parent will appoint one or more people to manage their financial affairs in case they lose the capacity to do so themselves. Your parent should trust the person they appoint to act in their best interest, and it is common to consult with a legal adviser before making such an important choice.

Managing the family

Having a parent with dementia can be an emotionally challenging experience for any family. You should be transparent about your parent’s condition, their financial situation and your role in managing it. Coming up with a collaborative approach ensures the responsibility is shared and avoids disputes later down the line. For emotional support, there are organisations that can help, like the National Dementia Helpline on 1800 100 500. If you’d like to know more about some of the financial measures available to you, please contact us today.

General Advice Warning

What to consider when buying a property together

Thu, 06 May 2021 00:03:16 GMT

What to consider when buying a property together

Buying a property together is a major relationship milestone. Whether you’re looking to buy your first home, a holiday house or an investment property – if it’s a purchase you’re making with your partner, you need to be clear about what you both want and the steps you’ll both take to get there.

Here's a guide to getting on the same page and taking the emotion out of purchasing a property together.

Clarify common goals

First, you need to determine the purpose of buying the property. Do you want to live there? Do you want your family to grow up there? Will it serve as a weekend getaway? Or are you hoping it will help fund your future financial dreams? Making the distinction – and agreeing on it – from the outset is important as it helps you decide what kind of property to buy, the size and type of loan you'll apply for, and plan for the tax and budgeting implications of the purchase.

If you're looking at the property as an investment, you may want to consider speaking to a financial adviser about whether the property is a well-suited investment at this age and stage of life.

Determine how costs will be shared

Stamp duty, conveyancing and title transfer fees are just the tip of the iceberg when it comes to the costs associated with the purchase of a property. As time goes on there will inevitably be rates, maintenance and repair costs, insurances, maybe even renovations and body corporate fees. These ongoing costs can add up, so be sure to put a plan in place regarding how you will share them from the outset.

Your plan may involve opening a joint bank account or offset account.

Ownership structure

There are two main ways you can own a property with your partner: tenancy in common or joint tenancy. Tenancy in common essentially allows you to own a defined share of the property and, if you die, bequeath that share according to your will. Joint tenancy, on the other hand, means that if one owner dies, the surviving tenant takes ownership of the property.

Other ways to own property include through a trust, self-managed super fund, or a company. It may be a good idea to seek legal, tax and financial advice on what structure is best for you and your situation.

Co-ownership agreement

It's not particularly rosy or romantic thought, but when you're heading into the purchase of a property with someone else it may be wise to have a lawyer draw up a co-ownership agreement. This agreement can set out who lives at the property, who is responsible for maintenance, what happens if one of you dies or becomes bankrupt, and how the property should be sold if one of you no longer wants your share.

In the case of an investment property or holiday home, the agreement can outline how rent is to be distributed, or when certain people can use the property.

A co-ownership agreement can be particularly useful if you have different interests in the property or mortgage, however, it may not be binding in the event of a marriage or de-facto relationship breakdown if it’s not properly drawn up and made binding, so it is important to always consult a lawyer when setting up this type of agreement.

Safety net

It's important to note that if you take out a joint mortgage on the property you may be held liable for the entire debt. For example, if you apply for a $500,000 loan together, but plan to split the repayment obligations 50/50, under the terms of the loan you may not only be responsible for your $250,000 share but for the whole debt of $500,000.

So if your partner defaults on their payments, lose their job, or becomes ill and cannot work, you could be stuck making up their share of the repayments. And vice versa. As such, it’s important to seek legal and financial advice as to your mortgage repayment obligations, as well as your property ownership rights. It's important then, that you both have a good safety net in place.

Income Protection Insurance, Total Permanent Disability Insurance, Critical IllnessInsurance and Life Insurance covers are designed to help you and your partner meet your financial commitments in the event of the unexpected – an accident, illness or death. A tailored insurance solution may not only help you pay the bills, but it may also allow you to get on with enjoying the life you and your partner had planned.

So if you don’t already have insurance, and you’re looking to buy a property with your partner, reach out to us for help in assessing your personal situation and what life insurance may be relevant to you.

General Advice Warning

To Bit or Not to Bit. What Should Investors Make of Bitcoin Mania?

Mon, 26 Apr 2021 00:40:48 GMT

To Bit or Not to Bit. What Should Investors Make of Bitcoin Mania?

Bitcoin and other cryptocurrencies are receiving intense media coverage, prompting many investors to wonder whether these new types of electronic money deserve a place in their portfolios.

Cryptocurrencies such as bitcoin emerged only in the past decade. Unlike traditional money, no paper notes or metal coins are involved. No central bank issues the currency, and no regulator or nation-state stands behind it.

Instead, cryptocurrencies are a form of code made by computers and stored in a digital wallet. In the case of bitcoin, there is a finite supply of 21 million, ¹ of which more than 18.5 million are in circulation. ² Transactions are recorded on a public ledger called a blockchain.

People can earn bitcoins in several ways, including buying them using traditional fiat currencies ³ or by “mining” them—receiving newly created bitcoins for the service of using powerful computers to compile recent transactions into new blocks of the transaction chain through solving a highly complex mathematical puzzle.

For much of the past decade, cryptocurrencies were the preserve of digital enthusiasts and people who believe the age of fiat currencies is coming to an end. This niche appeal is reflected in their market value. For example, at a market value of $57,000 per bitcoin, ⁴ the total value of bitcoin in circulation is less than half of a percent of the aggregate value of global stocks and bonds. Despite this, the sharp rise in the market value of bitcoins over the past weeks and months has contributed to intense media attention.

What are investors to make of all this media attention? What place, if any, should bitcoin play in a diversified portfolio? Recently, the value of bitcoin has risen sharply, but that is the past. What about its future value?

You can approach these questions in several ways. A good place to begin is by examining the roles that stocks, bonds, and cash play in your portfolio.

Expected Returns

Companies often seek external sources of capital to finance projects they believe will generate profits in the future. When a company issues stock, it offers investors a residual claim on its future profits. When a company issues a bond, it offers investors a promised stream of future cash flows, including the repayment of principal when the bond matures. The price of a stock or bond reflects the return investors demand to exchange their cash today for an uncertain but greater amount of expected cash in the future. One important role these securities play in a portfolio is to provide positive expected returns by allowing investors to share in the future profits earned by corporations globally. By investing in stocks and bonds today, you expect to grow your wealth and enable greater consumption tomorrow.

Government bonds often provide a more certain repayment of promised cash flows than corporate bonds. Thus, besides the potential for providing positive expected returns, another reason to hold government bonds is to reduce the uncertainty of future wealth. And inflation-linked government bonds reduce the uncertainty of future inflation-adjusted wealth.

Holding cash does not provide an expected stream of future cash flow. One US dollar in your wallet today does not entitle you to more dollars in the future. The same logic applies to holding other fiat currencies — and holding bitcoins in a digital wallet. So we should not expect a positive return from holding cash in one or more currencies unless we can predict when one currency will appreciate or depreciate relative to others.

The academic literature overwhelmingly suggests that short-term currency movements are unpredictable, implying there is no reliable and systematic way to earn a positive return just by holding cash, regardless of its currency. So why should investors hold cash in one or more currencies? One reason is that it provides a store of value that can be used to manage near-term known expenditures in those currencies.

With this framework in mind, it might be argued that holding bitcoins is like holding cash; it can be used to pay for some goods and services. However, most goods and services are not priced in bitcoins.

A lot of volatility has occurred in the exchange rates between bitcoins and traditional currencies. That volatility implies uncertainty, even in the near term, in the amount of future goods and services your bitcoins can purchase. This uncertainty, combined with possibly high transaction costs to convert bitcoins into usable currency, suggests that the cryptocurrency currently falls short as a store of value to manage near-term known expenses. Of course, that may change in the future if it becomes common practice to pay for all goods and services using bitcoins.

If bitcoin is not currently practical as a substitute for cash, should we expect its value to appreciate?

Supply and Demand

The price of a bitcoin is tied to supply and demand. Although the supply of bitcoins is slowly rising, it may reach an upper limit, which might imply a limited future supply. The future supply of cryptocurrencies, however, may be very flexible as new types are developed and innovation in technology makes many cryptocurrencies close substitutes for one another, implying the quantity of future supply might be unlimited.

Regarding future demand for bitcoins, there is a non-zero probability5 that nothing will come of it (no future demand) and a non-zero probability that it will be widely adopted (high future demand).

Future regulation adds to this uncertainty. While recent media attention has ensured bitcoin is more widely discussed today than in years past, it is still largely unused by most financial institutions. It has also been the subject of scrutiny by regulators. For example, in a note to investors in 2014, the US Securities and Exchange Commission warned that any new investment appearing to be exciting and cutting-edge has the potential to give rise to fraud and false “guarantees” of high investment returns. ⁶ Other entities around the world have issued similar warnings. It is unclear what impact future laws and regulations may have on bitcoin’s future supply and demand (or even its existence). This uncertainty is common with young investments.

All of these factors suggest that future supply and demand are highly uncertain. But the probabilities of high or low future supply or demand are an input in the price of bitcoins today. That price is fair, in that investors willingly transact at that price. One investor does not have an unfair advantage over another in determining if the true probability of future demand will be different from what is reflected in bitcoin’s price today.

What to Expect

So, should we expect the value of bitcoins to appreciate? Maybe. But just as with traditional currencies, there is no reliable way to predict by how much and when that appreciation will occur. We know, however, that we should not expect to receive more bitcoins in the future just by holding one bitcoin today. They don’t entitle holders to an expected stream of future bitcoins, and they don’t entitle the holder to a residual claim on the future profits of global corporations.

None of this is to deny the exciting potential of the underlying blockchain technology that enables the trading of bitcoins. It is an open, distributed ledger that can record transactions efficiently and in a verifiable and permanent way, which has significant implications for banking and other industries, although these effects may take some years to emerge.

When it comes to designing a portfolio, a good place to begin is with one’s goals. This approach, combined with an understanding of the characteristics of each eligible security type, provides a good framework to decide which securities deserve a place in a portfolio. For the securities that make the cut, their weight in the total market of all investable securities provides a baseline for deciding how much of a portfolio should be allocated to that security.

Unlike stocks or corporate bonds, it is not clear that bitcoins offer investors positive expected returns. Unlike government bonds, they don’t provide clarity about future wealth. And, unlike holding cash in fiat currencies, they don’t provide the means to plan for a wide range of near-term known expenditures. Because bitcoin does not help achieve these investment goals, we believe that it does not warrant a place in a portfolio designed to meet one or more of such goals.

If, however, one has a goal not contemplated herein, and you believe bitcoin is well suited to meet that goal, keep in mind the final piece of our asset allocation framework: What percentage of all eligible investments do the value of all bitcoins represent? When compared to global stocks, bonds, and traditional currency, their market value is tiny. So, if for some reason an investor decides bitcoins are a good investment, we believe their weight in a well-diversified portfolio should generally be tiny. ⁷

Because bitcoin is being sold in some quarters as a paradigm shift in financial markets, this does not mean investors should rush to include it in their portfolios. When digesting the latest article on bitcoin, keep in mind that a goals-based approach based on stocks, bonds, and traditional currencies, as well as sensible and robust dimensions of expected returns, has been helping investors effectively pursue their goals for decades.

FOOTNOTES

Source: Bitcoin.org .
As of March 12, 2021. Source: Coinmarketcap.com .
A currency declared by a government to be legal tender.
Per Bloomberg, the end-of-day market value of bitcoin was $57,624.01 USD on March 11, 2021.
Describes an outcome that is possible (or not impossible) to occur.
“Investor Alert: Bitcoin and Other Virtual Currency-Related Investments,” SEC, 7 May 2014.
Investors should discuss the risks and other attributes of any security or currency with their advisor prior to making any investment.

General Advice Warning

Paying down your mortgage vs adding to your superannuation

Fri, 09 Apr 2021 03:09:09 GMT

Paying down your mortgage vs adding to your superannuation

If you’re lucky enough to have a bit of cash left over at the end of the month, you might be thinking about how to make the most of it. Is it sensible to put it towards reducing your mortgage, or will it work harder as an addition to your super savings?

While they’re both responsible choices, here are a few thoughts that might help you to make a decision.

Mortgage contributions

Paying off your mortgage quickly will reduce the amount of interest you’ll owe over the longer term. With interest rates currently at an all-time low, this benefit may seem less relevant at the moment, however, keep in mind that this won’t be the case forever.

If your mortgage has an offset facility, you can put your money towards paying it off while still being able to draw down cash if you need it down the line.

Consider making weekly or fortnightly payments rather than monthly payments to help pay off your mortgage faster, and don’t forget to check in with your mortgage provider to make sure you’re getting the best interest rates.

Finally, although it’s not an economic benefit, knowing that you’ve paid off your property can be a big stress reliever. So if the pressure of your home loan is weighing on you then don’t underestimate the importance of peace of mind.

Super top up

Super is built on compound interest, so any contributions you’re able to make now are likely to grow by the time you’re in retirement. Canstar’s calculator says that an extra $200 per month contributed to super over 27 years could leave you with $77,113 extra upon your retirement.

Sacrificing extra money into your super can come with tax benefits, since it will be taxed at the concessional rate of 15% rather than your usual marginal rate.

One consideration if you’re thinking of contributing to your super is that you won’t be able to access the cash should you need to in the future.

The right decision for you will depend on a few different factors, like when you’re planning to retire and how long you’ve had your mortgage. If you’d like to chat through your options of course I’d be glad to talk – please reach out.

General Advice Warning

What you need to consider when choosing a Life Insurance beneficiary

Mon, 15 Mar 2021 02:19:34 GMT

What you need to consider when choosing a Life Insurance beneficiary

When taking out a life insurance policy, it’s important to consider who your life insurance beneficiary is and the role they play.

What is a life insurance beneficiary?

A life insurance beneficiary is a person who will receive your life insurance payment should you pass away. When choosing yours, it’s essential to think about who you would want to take care of financially should something happen to you. What happens if you don’t have a beneficiary? If you hold the policy in your name, your benefit will go to your estate and be managed as part of your will. If you have outstanding debts when you pass away, your benefit may be used to pay them before it is distributed to the people named in your will – this means your loved ones could miss out on the payment.

Who can be a beneficiary?

Naming a beneficiary ensures your benefit is not paid to your estate and goes directly to the person you nominate. It’s important to consider that if your beneficiary has any debts, the proceeds might be used to pay them off. As well as this, keep in mind that if you nominate a minor such as your children, they will only receive the total amount once they turn 18.

Who’s eligible to be a life insurance beneficiary?

You can nominate anyone 18 years or above as your life insurance beneficiary. This can be:

A spouse, which includes a person (whether of the same or different sex) with whom you’re in a relationship with
Your child, including adopted child or step-child
Ex-nuptial child or your spouse’s child who is financially dependent on you
A person with whom you have an inter-dependency relationship; either living together, have a close personal relationship or if one or each of you provides the other with financial or domestic support

What’s the difference between a binding and nonbinding beneficiary?

Suppose you have life insurance within your super. In that case, you’ll be asked to nominate a beneficiary – a family member or loved one who will receive the life insurance money if you pass away. You have the choice to make a binding or a non-binding nomination. A binding nomination is a legally binding statement that your insurer will use to know who your money should go to if you pass away. A non-binding nomination is not legally binding. Your insurer will consider your non-binding nomination when making the life insurance payment on your behalf, in addition to other aspects of the law. To ensure your family is looked after when you’re not around, it’s essential to keep your beneficiary details up to date within your super account.

How to keep your beneficiary up to date

You should evaluate your beneficiary and policy at any major life event – for example, purchasing a home, having children, getting married, getting divorced or the death of a loved one. Having life insurance beneficiaries up to date ensures your loved ones are cared for financially if something were to happen to you. If you have any questions concerning beneficiaries, please reach out, and we can assist you.

General Advice Warning

Video - Why FASEA brings opportunity

Thu, 25 Feb 2021 03:39:57 GMT

Why FASEA brings opportunity.

Dan Blatch, Director - Life Risk Specialist discusses the Royal Commission into the Financial Services industry and what impact, if any this has had on IMFG.

Video - How can risk businesses flourish post Royal Commission

Thu, 25 Feb 2021 02:33:19 GMT

How can risk businesses flourish post Royal Commission

Dan Blatch, Director - Life Risk Specialist at IMFG discusses how IMFG uses technology to manage the client relationship.

Video - How can different business structures support successful client outcomes.

Thu, 11 Feb 2021 01:22:22 GMT

How can different business structures support successful client outcomes.

Dan Blatch, Director - Life Risk Specialist at IMFG discusses how IMFG's different advisory structure is supporting better client outcomes.

Socially responsible investing. How to invest with a clear conscience.

Tue, 09 Feb 2021 01:35:09 GMT

Socially responsible investing. How to invest with a clear conscience.

In April 2006 at the New York Stock Exchange, the United Nations launched the six Principles of Responsible Investment. These principles were developed based on the notion that environmental, social and governance issues like climate change and human rights can impact the performance of investment portfolios.

Socially responsible investing is a trend that has been growing in recent years. Many people believe that they can make a difference with their investment dollars by choosing the right companies. It’s important to recognise, it’s still an investment and brings a need to weigh the potential for return on any decisions made. Essentially, it’s a way to make money while feeling good about it. Read on to discover precisely what socially responsible investing is, why you might benefit from it, and the different values you might explore.

What is socially responsible investing?

Socially responsible investing integrates environmental, social and governance factors (ESG) when it comes to the evaluation of investments. It’s quite a broad definition that looks at ethical factors on the whole, which can vary significantly between businesses.

For example, you may choose to invest in one business over another, based on their ethical practices. One company, in particular, has adopted solar panels to power their factories, placing them in line with your values. As a result, you weigh them ahead of another business burning through fossil fuels. You can also eschew investments that go against your values, such as avoiding companies that sell tobacco products.

This style of investing is for those who care where their money is going.

Essentially there are two approaches you can take when it comes to socially responsible investing: choosing companies who you feel have ethical operations that are in line with your values; and then avoiding companies who you don’t think are ethical at all and don’t follow the same values.

There are two inherent goals of socially responsible investing: social impact and financial gain. The social or environmental value needs to be considered along with financial performance. It brings with it both personal and ‘bigger picture’ benefits such as:

Investments are made in line with personal beliefs and values.
Healthy financial gains are returned.
Facilitates social change as businesses alter how they operate to attract your investment.

Six principles for responsible investment

The six principles of investing are based on the notion that environmental, social and governance (ESG) issues can affect the performance of investment portfolios. They were developed following consultation with an investor group of 20 people from institutions in 12 countries supported by a group of 70 experts from the investment industry, intergovernmental organisations and civil society. The six principles provide a global framework for investors to consider when making investment decisions.

The six principles are:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
Principle 6: We will each report on our activities and progress towards implementing the Principles.

How to define your investment values

Before you even begin to explore socially responsible investments, it’s essential to define what your values are. You must have a clear understanding of what’s important to you when it comes to important topics, such as climate change, human rights, fair workplace, product safety standards.

This includes taking a look at:

Corporate governance and business ethics.
Environmental track records and sustainability.
Safety of manufactured products.
International human rights.

It’s worth noting that socially responsible investments have a habit of mimicking the social and political environment at the time of investing. If these values change and fall out of favour, the investment could suffer as a result.

This is why (ESG) plays such an important factor—looking at the environmental, social and governance for investing focuses on a company’s management practices and whether they lean towards sustainability and a community-minded approach. Rather than focusing on particular social values, it’s about exploring the overall running of a business and way they operate to determine if values align in general.

This ensures a long-term investment opportunity that continues to align with your values through changing times.

How can IMFG help you with socially responsible investing?

At IMFG, a key part of developing an investment strategy for our clients is to understand their investment values. We want our clients to be comfortable that their investment portfolios and their values align – and we take the time to ensure that they do.

If you’d like to review your current investments or discuss how we can help with socially responsible investing, contact our team on 02 9002 0570 or email info@imfg.com.au

Author: Angus Dockrill

Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions.

General Advice Warning

Understanding your investment options in 2021.

Wed, 27 Jan 2021 01:50:21 GMT

Understanding your investment options in 2021.

Considering investing? Understand what investment options are available to you in 2021.

If you are new to investing or are considering developing an investment strategy in 2021, it’s essential to understand what investment options are available. Investing your money wisely allows you to protect your assets, and leverage those assets to gain long-term financial benefits, including asset growth and residual income.

One key consideration we also take into account at IMFG is also aligning your investment strategy with your personal values. We’ve found that many of our clients want their investments strategy to reflect these values. This includes investing in assets that are either environmentally friendly, have a clear benefit to society or have a governance bent to them – without compromising investment returns. This is an important consideration when you are considering investing.

Here we give you a general overview of the different investments you can make, to help you understand how they can help you achieve your financial goals.

Types Of Assets

Investments are generally split into two categories: defensive assets and growth assets.

Defensive Assets

Defensive assets are the more stable of the two and often come with less risk. The aim of making a defensive investment is to protect capital and earn an income in the process. They are less likely to lose money, but the returns will be lower.

Defensive investments include cash and fixed interest investments.

Cash: this includes money in bank deposit, high-interest savings accounts and term deposits. This is considered a stable investment and the chance of losing money over a short-term period is minimal. However, returns tend to be one of the lowest of all assets.
Fixed interest: this includes investments such as bonds and debentures. As the investor, you are effectively lending money to a corporation or government. The returns come in the form of interest paid on the ‘loan’. They tend to bring better returns than cash, but still on the lower end.

Growth Assets

Growth assets grow your investment over a long-term period. They are usually higher risk than a defensive asset, but that also comes with a higher potential return. They aim to give capital growth in some cases, also provide an income. Growth investments include shares, property and alternative investments.

Shares: when you buy a share, you buy part of a company. From here, you will receive a dividend payment, where the profits are distributed to shareholders. Shares tend to fluctuate in price, with the highest return earned over the long term.
Property: over the long term, property returns will likely be higher than cash or fixed interest. Rental income is a big component of property returns, which can provide a stable income as well as capital growth that can be achieved when holding a property investment over a long period of time.

What type of investment is right for you?

Any significant financial investment should not be made on a whim. It’s important to do your research thoroughly, considering what your end goals are and how much money you have to spare. Here are some things to look at before committing to an investment:

Your needs and goals: are you looking for a long-term investment or just short term? Are you willing to take a risk, or looking for something more stable?
Your personal values: what is important to you? Does your investment strategy need to align with your personal values?
How the investment works: how much do you need to invest, and how will it earn a return?
Consider how the investment generates a return and what type of return is expected: will you grow your capital gain or are you looking for an income?
The risks involved for the investment: weigh up the risks involved with the expected return to determine if it is right for you.
The fees and charges for buying, holding and selling the investment: if you are investing short term, you want to make sure it is financially worth it when factoring in the fees involved in the process.
Investment length: How long you should invest to receive the expected return.
How hands-on is the investment: depending on the type of investment you choose it can take up a little or your time, or a lot. Factor in whether you have that time to spare before committing.
Legal and tax implications of the investment.
How the investment will contribute to your diversified portfolio.

You can find this information in the product disclosure statement (PDS). It certainly pays to do your research, so you can go into an investment with your eyes wide open and knowing exactly what to expect.

How will you invest?

When it comes to investing you need to decide whether you'll:

do it yourself, or
pay a professional to do it for you

Both options have their benefits — and you can, of course, do both. In fact, spreading your money across different types of investments (ie, some self-managed and other managed for you) diversifies your portfolio and reduces the overall risk involved.

Self-Managed Investments

As a general rule, you can save more money by managing your investments yourself. It puts you in control of all the decisions and is the perfect choice if you are planning on putting your money into an investment for the long term.

The biggest risk is that you may overrate your investing expertise and may not diversify or select the best performing assets for your needs. If you invest directly, it's important to plan and put in the time to research your investments. You should also keep tracks of how they're performing.

Professionally Managed Investments

Hiring a professional can prove very beneficial and is the path we would recommend at IMFG. Professionals have more visibility over the investment options available to you and can help you navigate other aspects of financial planning including tax minimisation strategies and navigate retirement planning. While it costs more than managing your investments yourself, you can consider this cost part of the investment. These fees can include management fees, administration fees and entry and exit fees.

You also have the option to invest in a managed fund, where your money is pooled together with other investors. A fund manager then buys and sells assets on your behalf. You don’t own the investments, but you do own units in the fund. These units will rise and fall with the assets. Some of the managed fund options include:

Single asset managed funds: investing in just one asset.
Mixed asset or multi-sector managed fund: investing in a range of assets.

Investing Through Super

If your goal is to save for retirement, contributing more to super is generally the best way to do this. The options you choose can make a big difference to how your super grows over the years, so once again, it is worth doing your research to decide which choice is right for you.

Looking for a little help when it comes to choosing your investments? Contact the expert team at IMFG today.

Author: Angus Dockrill

Angus is a Director and Wealth Specialist at IMFG. Angus helps people to improve their quality of life and peace of mind by making smarter financial decisions.

General Advice Warning

APRA has imposed changes to Income Protection policies.

Fri, 04 Dec 2020 02:03:36 GMT

APRA has imposed changes to Income Protection policies.

By the 1st of October 2021, Life Insurers in Australia will offer significantly less generous income protection policies to consumers. How are you affected?

Income protection has been available in Australia for over 30 years and grown into a multi-billion dollar industry. Over time, due to the competitive nature of the industry, the features and benefits of income protection policies have grown to a point where claims paid are consistently exceeding premiums received making the industry unsustainable. In fact, income protection departments of Australian Life Insurers have lost approximately 4.3 billion dollars over the last 5 years.

The Australian and Prudential Regulatory Authority (APRA) has stepped in to address the situation and regulate the market to ensure it is sustainable. The measures imposed by APRA will significantly affect income protection policies entered into after the 1st of October 2021.

Importantly, there is no requirement for legislation to pass to implement these changes. APRA already has the power to impose them. APRA has confirmed the start date of 1 October 2021for the specific changes to be implemented.

What are the changes to income protection policies in Australia?

By the 1st of October 2021, Life Insurers in Australia will offer significantly less generous income protection policies to consumers.

The key changes are:

1. The discontinuing of agreed value policies. (effective 31 March 2020)

Previously, consumers could lock away an agreed value of the monthly benefit paid at the signing of the policy. If the policyholder's income changed down the track, they would still receive the agreed amount even though their income may have decreased. Moving forward, the monthly benefit will be based on the policyholder's actual income at the time of claim (or, for some insurers, the best year of earnings in any three years prior) as an agreed value is no longer available.

2. They are ceasing the ability to offer guaranteed renewable policies for the life of the policy with a maximum contract period of 5 years.

From 1 October 2021, Income Protection Policies can only be for a maximum of 5 years. After the 5 year period, a new policy must be entered into that reflects the current market terms and conditions. If a policyholder enters a new contract after the initial 5 years, medical underwriting is not required but any changes to the policyholder's occupation, financial circumstances and dangerous occupations or pursuits or pastimes must be updated and reflected in the new policy. Insurers are also unable to extend a current policy even if the circumstances are the same. A new policy agreement must be entered into.

3. Limitation on the income replacement ratio available.

APRA is concerned that current excessive income replacement ratios and certain product features and benefits (particularly partial disability benefit formulas) can leave claimants in a better position financially than if they returned to full-time work. Not only does this undermine the incentive for the person to return to full-time work, but it may also lead to the individual paying additional premiums for cover that isn't required.

Some examples of these policy terms and product features include:

excessive indexation of the income level covered
non-offset of income received from continued work, and
additional non-income related benefits, such as rehabilitation benefits and transportation benefits.

APRA has announced changes to policy contract terms which mean that from 1 October 2021:

benefits are capped at 90% of earnings at the time of the claim for six months, and 70% after the 6 month period.
indexation at the level of CPI is permitted.
where income at risk excludes superannuation, SGC can be paid in addition to the 90%/70% cap otherwise the cap applies to income inclusive of SGC super.
there is no cap on monthly benefits.

4. Limiting the way in which 'income at the time of claim' is defined

Previously, for agreed value policies, the monthly benefit was based on the agreed value at the time of policy commencement. Moving forward, income at the time of claim will be based on your actual earnings, not agreed earnings.

For policyholders with stable incomes, pre-disability income is to be based upon income at risk at the time of the claim or within the last 12 months. For those with variable incomes, income risk is to be based on average annual earnings over a period of time appropriate for the occupation of the policyholder and reflective of future earnings lost as a result of the disability. It seems that the flexibility would cover people on maternity or unpaid parental leave.

5. The risk associated with long-term benefit periods (such as to age 65) is effectively managed and controlled by insurers.

For policies with long benefit periods, APRA requires stricter disability definitions. Previously, this was defined as being unable to perform your 'normal job'. The expectation from 1 October 2021is that a more explicit definition of disability is established as some policyholders may be able to return to employment even though it may not come under the definition of your 'normal job'. APRA aims to reduce the number of claimants who may be able to return to some paid employment but are not as they qualify for a monthly benefit under their agreed policy. This also presents some concern that policyholders could be forced to return to work before they are ready under stricter disability definitions.

What does this mean for existing and prospective policyholders?

Existing Policyholders are not impacted by these changes. The terms of their current policies will stay as agreed at the signing of the policy.

Prospective Policyholders should consider putting income protection in place prior to 1 October 2021 to ensure their policy falls under the current (more generous) arrangements.

What's next?

As a result of these changes, we recommend that anyone considering putting income protection insurance in place consider getting appropriate cover sooner rather than later. The key benefits include:

Protection of your most valuable asset, your ability to earn an income.
Income protection cover is tax-deductible, which will effectively reduce the total cost of protection.
Your policy can also provide benefits if you are injured and unable to work for short periods providing upfront payments for injuries such as broken bones or if you are diagnosed with a disease or cancer.

If you would like to discuss your situation, get in touch with our life risk specialists at info@imfg.com.au or call (02) 9002 0570 to make an appointment.

Author: Dan Blatch

Dan is a Director and Life Risk Specialist at IMFG. His industry insights provide IMFG clients with peace of mind, knowing their income protection needs are managed by a specialist.

General Advice Warning