Question 1 (0:16)
Are property prices going to fall?
No one has a crystal ball, but what we can do is study the data available to us and also look at past depressions, recessions and crisis. In the past when the Australian share market has seen dramatic falls, the national house market has remained steady or in some instances prices have risen in excess of 20% in the year to follow.
What we do know is that Interest Rates at record lows and subsequently affordability is the best it’s been in a decade or in some markets ever.
There will however be some markets/locations and some asset types that fare better than others. What we’re seeing on the ground is very low levels of good quality houses while demand for these assets is still relatively high. This will asset in keeping these markets buoyant.
Question 2 (3:00)
Should I buy my home in Melbourne now or wait for prices to fall?
Everyone’s strategy will be different but we are seeing some great off market opportunities at the moment. We do recommend advice is sort out - to co-ordinate buying and selling in the same market and for access to the off markets.
If it’s a long term strategy and you’re not sacrificing on asset quality or location and your plan is for this to be your forever home or for at least the next 10-15 years. Then yes - if you can find the right property for you!
Question 3 (4:31)
If I buy an investment property, what happens if my tenant loses their job?
We’ve got a rent roll of over 1000 across the country and the job keeper allowance has enabled the tenants that did make enquiries to get through this period.
The markets that we are actively buying in for investors all have seriously low vacancy rates, in most instances below 2%.
Question 4 (4:32)
Do I upgrade my home now or buy an investment property?
If you’re income is secure, this will come down to your budget and serviceability talk to your broker to determine your capacity to purchase and understand the debt to income ratio you would be going into. If selling to buy in order to upgrade we do recommend advice is sort out - to co-ordinate buying and selling in the same market and for access to the off markets. If you serviceability will not allow you to upgrade into the asset you are wanting, there are investment opportunities available in markets that were poised for growth before Covid-19 because they were Affordable, Demand exceeded supply another was confidence and as soon as confidence returns in these markets prices should rise again.
Question 5 (6:29)
Are there any advantages to be had utilising the two tax-free Super withdrawal options? To use, for example, to fund a business start-up or pay off a credit card debt?
Answer:
I’m hearing this question a lot at the moment.
The Covid-19 early release of super was designed to help those who either lost their job or whose work hours were significantly reduced due to the pandemic. But it’s interesting to note that over a million Australians have applied for the early release.
Basically, there are a few things to consider, and it’s important not to look at this from only a cost-benefit perspective.
The objective of the scheme was to help people cope with the financial impact Coronavirus has had on job security and business as Australia went into lockdown. Many industries suffered huge losses in revenue and people have lost their jobs, or are living off reduced wages.
The Government’s intention was to release the money to those who were struggling to put food on the table or pay their rent or mortgage. It was not to invest in the business.
It’s vitally important to remember that early release of superannuation may result in less money being available when you reach retirement. Don’t lose sight of this.
The problem with taking money out of your super is that you will lose potential interest and investment gains in the long term.
Bernie Dean, the CEO of Industry Super Australia, says the impact of taking $10,000 to $20,000 out of your super fund now ‘could be as much as six figures’ if you’re near the start of your working life.
‘It could range from $60,000 to $80,000, up to $100,000 that you would have less in your nest egg,’ he says.
Super Consumers Australia, a division of consumer advocacy group Choice, says drawing down the maximum $20,000 over two years, as allowed under new rules introduced by the Morrison government on Sunday, will cost you about $50,000 (about a year’s worth) of retirement income.
Another important consideration is that when you withdraw money from super, you could be selling your super at a lower price due to the recent share market drop. If you sell your shares at the bottom of the market, you will not be making as much money as you would if the market was more stable.
On to credit card debt….
I do like the idea of paying off credit card debt, but, again if only if it is completely necessary. Only if it is to ensure that you’re able to survive during this pandemic.
From a financial point of view, you could be better off by paying off your credit cards, when compared to leaving your money invested in super. This is purely due to the higher interest rate than your credit card provider will be charging you.
For example, your credit card’s interest rate could be between 9.99% p.a. (per annum) to 21.99% p.a. Your current projected long-term returns for a high-growth investor sit around 6% per annum. And that is before superannuation tax rate and fees.
So, you could be better off by 4 - 16% pa by paying off your credit card first. But it’s very important that you don’t then use your credit card and get your debt back up again as this would be highly detrimental and a waste of withdrawing your super funds.
Question 6 (9:53)
Hi, can I be assured that the ones handling my portfolio are on top of things during these difficult times?
Answer:
As financial advisers, it is our commitment to stay current and aware of the changing situations occurring in our dynamic industry.
Our investment philosophy includes diversification, costs control, tax, and liquidity management.
When we design a portfolio, we take into account our client’s
current and future goals and needs
tolerance for risk
requirement for current income or liquidity
special considerations such as income and taxes.
The important thing to remember is that no one can predict the future or make the correct decision all the time.
Having said that, we do believe that applying tested fundamental strategies to investment will help our clients achieve their goals and objectives.
The appropriate allocation of investment assets for your goals and risk tolerance is the most important component in developing an investment portfolio.
A diversified, well-balanced portfolio, combined with long-term strategies, affordability, and patience, increases the likelihood that a client will achieve their long-term financial objectives.
Additional to that, we always stay up to date with the most recent innovations in our industry and assess whether they are appropriate for our clients.
On a personal note, I am constantly educating myself and keeping in touch with what’s happening in the world. For example, every morning I listen to the NAB Morning Call podcast which provides a global snapshot of what happened overnight and an economic update in regard to both Australian and global financial markets.
I listen to and read numerous industry, company, economic and financial planning related webinars and articles daily. I also get daily notifications from fund managers to keep me up to date.
Although there is a high volume of information to absorb, the main point is that we have access to reputable information that is tailored to Financial Planners, which is data and material that an average investor does not receive.
The Australian Financial Planning Association also provides us with valuable tools and resources, to help us navigate our clients’ needs during difficult times.
On top of this is what I believe is the most valuable part of what I do as a financial adviser, I know each of my client’s financial situation, circumstances, goals, and needs in great depth. As a result of this personal knowledge, I am able to provide my clients with timely information, guidance, and recommendations tailored to their specific circumstances.
Sometimes the required strategy is as simple as doing nothing. It can be a valid strategy that minimises a lot of mistakes made by non-advised investors, such as frequent buying and selling of investments, trying to time the market, or buying at a market high and selling at a low.
Question 7 (12:18)
The profitability of all enterprises will be affected by the Coronavirus epidemic, many downwards, some steady, and a few improving. Is TruWealth analysing clients’ portfolios to propose switches to the likely better-performing investments during the period of uncertainty which currently prevails?
Answer:
Choice of investments is an important part of the investment advice process. However, it’s important to note that there are many other components to the construction of a suitable, tailored investment portfolio.
The process includes consideration and balance of:
clients investment goals
return objectives
risk profile
time horizon
liquidity needs
asset class selection and composition
investment preferences
other individual factors
Before we recommend any changes to the portfolio, we always take these components into account.
Yes, it is the case that some investments have fallen in value. Even though we’ve never experienced our current market environment, it is important to remember that share market volatility, fluctuation, and uncertainty is constant. And we must continue to keep a long term view in mind when it comes to investing.
Therefore, there are a set of fundamental investment principles that investors need to take into account:
buy good quality investments
don’t pay too much
diversify (don’t put your eggs in one basket)
allow your investments sufficient time to perform.
Although it may be hard to believe, what we are currently going through is not permanent and many companies that have suffered losses will recover, as long as they have resilient fundamentals such as strong balance sheets, robust business models, and sustained demand beyond COVID-19.
Others may not recover. In this situation, it might be appropriate to cut your losses and switch to other existing investment opportunities.
That being said, we do not suggest that we are always going to get it 100% right, or that the fund managers we choose will always make correct calls. However, we do believe that applying the key fundamentals of investment will help achieve better outcomes for our clients.
Research shows that the key to long-term investment performance is an effective asset allocation. A 2017 study conducted by Vanguard examines the returns of 600 Australian balanced funds across more than 25 years. It found that asset allocation was responsible for 89.3% of a diversified portfolio’s return patterns over time, leaving only 10.7% for factors such as market timing or securities selection.
Put simply, we don’t just recommend to sell investment A and buy investment B, just because Investment A has fallen.
Frequent trading can lead to:
triggering losses on the sale of investments
buying at the high and selling at the low
mis-timing the market
increased transaction costs.
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General Advice Warning: The information in this communication is provided for information purposes and is of a general nature only. It is not intended to be and does not constitute financial advice or any other advice. Further, the information is not based on your personal objectives, financial situation or needs. You are encouraged to consult a financial planner before making any decision as to how appropriate this information is to your objectives, financial situation and needs.