Tag Archives: Budgetting

Planning, not panic: managing retirement portfolios through the pandemic

By visual /May 13,2020/

Despite the recent wild ride for markets coping with the uncertainty of the coronavirus pandemic, many investors are well-versed in the need to “sit tight”.

They understand that moving out of positions in falling markets risks crystallising losses at the bottom and missing out on the recovery.

For retirees it’s not so simple, where portfolios are particularly vulnerable to sequencing and behavioural risks that are not so apparent for those in the accumulation phase. If investors continue to contribute to their super fund in the current environment, they are potentially buying into the market at bargain prices every time they receive their salary.

Gains might take some time to materialise and losses some time to overcome, but with a long-time horizon there is more opportunity for an investor’s portfolio to recover.

If, on the other hand, investors draw down on their portfolio they may experience the sharp end of sequencing risk. Losses affect the entire nest egg, a proportion of which will be invested in assets acquired at higher points in the market cycle. In our view, most retirees have less of an opportunity to buy back in and take advantage of the future upside to current low prices. Crucially, most also have no choice but to draw-down to fund their costs of living – meaning they have to liquidate positions in a falling market.

Watching the dollar value of their life savings fluctuating over the course of a single day can be gut-wrenching for retirees, and these emotions are compounded by the ongoing health and societal crises raging around us. The fight or flight instinct is very strong in times like these. In our view, it creates a very strong behavioural risk for retirees who may act against their own best interests by switching out of growth assets at the worst possible time to “protect” what remains of their nest egg.

Shoring up your position without selling the silverware

These two risks create a conundrum for the retiree. On one hand, there is an imperative to reduce their exposure to market falls in order to minimise sequencing risk, and on the other hand there also exists a significant behavioural risk in shifting to lower risk asset classes at this point in time. It’s a tough time to make a decision but investors should be aware of the options available to them.

Diversify into other value assets

We believe one way to manage risk and lower an investor’s exposure to falling equity markets is to diversify. The key at the moment is to look to other asset classes where discounted pricing might be available, diversifying into areas such as infrastructure, property, credit and other alternatives.

Use protection

There are a number of funds and products offering forms of protection for capital or income. Investors retain some level of exposure to market gains, but could also be insulated from more significant losses to their portfolio.

Adjust expenditure

Research shows that one of the most powerful tools retirees have to secure the stability and sustainability of retirement income is to know how much they can safely spend. This depends on many variables such as age, health, social security, wealth – to which a financial advisor can guide retirees. It also might surprise retirees that even a large fall in markets may only require a small adjustment in weekly expenditure to ensure their retirement income lasts.

Reconsider what is ‘defensive’

The traditional approach to retirement investing is to move further into traditional ‘defensive’ assets such as cash and bonds. We would like to emphasise that while these assets in the short term have the least likelihood of a negative return and therefore could be considered ‘safe’, the future returns of cash and bonds are relatively low. A large allocation to this group may reduce long term returns and jeopardise the sustainability of a retirement income strategy.

Investors stand to lose when they move a large proportion of their assets to defensive positions such as cash and bonds in the current environment, locking in lower returns for their portfolio. It may feel comfortable in the short term, but over the long run it could seriously jeopardise the longevity of their retirement income.

We believe an investor could improve their retirement strategy over time by considering the steps above and always on the basis of sound financial advice.

Source: AMP

How to reduce spending after a job loss

By Robert Wright /May 08,2020/

How to reduce expenses after a job loss and get back in the driver’s seat of your finances.

With many thousands of Australians experiencing job losses and reduced hours as a result of the COVID-19 (coronavirus) pandemic, many will need to take a look at their expenses to continue living within their means.

The average Australian household spends almost $75,000 each year on living expenses, excluding major expenses such as rent or insurance. That adds up to between $1,100 and $1,700 per household each week that’s spent on personal care, pampering our pets, transport, alcohol, fashion and more.

The good news is that there are some simple ways to cut back on these expenses. Whether you need to slash your costs significantly or simply tighten up your spending after a job loss, here’s where to start.

1. Know where you’re spending money

The first step is to evaluate where your finances stand today. If you already have a working budget, use it as a starting point, but expect that you may need to make some adjustments if your financial circumstances have changed. Itemise your monthly expenses as much as possible and separate out essential needs like housing, food and utilities, versus “wants” like entertainment, takeaway meals or online shopping. This will help you to see where you can realistically cut back, find cheaper alternatives and help save extra money.

2. Cut back housing expenses

When you need to make immediate changes to your budget, starting with the largest targets can have a big impact. For many of us, this means housing costs – either a mortgage or rental payments, as approximately 20% of Australians’ gross household income is spent on housing. If you’re paying off your home, many banks are offering “mortgage holidays” to clients experiencing financial challenges.

If you’re ahead on your repayments, there may be other options, including reducing repayments or using your offset or redraw facilities to get access to additional money. You might also consider temporarily switching from a principal-and-interest mortgage, to one that’s interest-only.

Paying off only the interest will instantly reduce your repayment amount. However, it may also take you longer to pay off the mortgage as a whole. Speak to your financial adviser or lender to discuss which options are right for your circumstances.

If you rent and have been impacted financially you may seek a rental reduction. The Australian government has agreed to a six-month moratorium on at least some evictions. The Tenants’ Union is posting up-to-date information about landlord obligations during this crisis, as well as pointers for how to negotiate with your landlord.

3. Save money on your phone and internet

Next, cast a ruthless eye over regular utilities like phone and internet bills. Many telco companies make it easy to bundle all your devices into a single plan, which can work out cheaper in the long run. If you and your family have separate mobile and data plans with different providers, look at whether consolidating them can help you save.

On the other hand, you might find you’re still paying for old devices that are attached to a bundled plan. Take a close look at all your plan inclusions and get rid of any phones or tablets that are sitting unused in a drawer.

You may also discover that you can get by with less data on certain devices, because you’re using them through your home network rather than being out and about. If you’re out of contract, talk to your telco about how much you can save by cutting back on your wireless data.

4. Trim the costs on food

Until recently, Australians were spending around $11.7 billion a year at restaurants and $10.6 billion on takeaways. While you’re probably not eating out right now, takeaway food can still make a hole in your budget, so use the extra time at home as an opportunity to get into the kitchen.

Take a savvy approach to home cooking by adding more vegetables and legumes to your diet, and staying away from expensive cuts of meat. Avoid shopping at the grocery store when you’re hungry, buy home-brand products where possible and always take a shopping list. Try cooking bigger batches of food so you have enough for a couple of meals, without doubling the cost (and always eat the leftovers). Be mindful of waste at home, the average Australian household throws away almost 300kg of food per person each year.

5. Find value in your lifestyle

Now is an opportunity to consider what you value most. By looking closely at your current spending, you’ll probably find ongoing monthly payments for expenses that are really not important to your household: music lessons for a child who hates the instrument; subscriptions to publications no one’s regularly reading; apps and software that are on auto-renew payment.

More than 14.5 million Australians – that’s over half of us – have at least one pay TV subscription in their home. If you still keep returning to free-to-air, it’s time to reassess. Cutting out things you don’t use or value is painless and gives you extra money that you can better use elsewhere.

There will also be areas where you can get the same value for less money. You hold a gym membership to be healthy, but while they’re no-go zones, freeze your membership payments and look for inexpensive or free at-home workouts instead. The same applies to beauty treatments like hair colouring and manicures, which can be done at home.

6. Forego any guilty pleasures

In tough times, it can be tempting to find solace in an occasional treat or guilty pleasure. But when you look at the expense, those seemingly cheap thrills could be costing you a lot of money. For example, Australians spend $14.9 billion each year on alcohol and $21.5 billion on clothing and shoes.

Be honest about where you’re most likely to splurge and remove any triggers like email newsletters (hit unsubscribe) or social media (unfollow those too-tempting accounts).

 

 

Source: AMP

The value of sound financial advice in these challenging times

By Robert Wright /April 29,2020/

In addition to the terrible health consequences, the coronavirus is having a massive impact on global economies and the way we live, work, and interact with each other.

Loss of income and uncertainty about the future can place a great strain on households, relationships and finances. For those affected, it can be overwhelming.

For those approaching or already in retirement, sharp falls in share markets can lead to sleepless nights about their retirement plans and whether they will have enough income to live comfortably.

In times like these, seeking professional financial advice is essential. We can help you to:

• Assess your current financial situation, review your income and expenses, and develop strategies to manage your cash flow more effectively.
• Make the most of any severance pay or redundancy payment.
• Identify any government support payments you may be entitled to receive and assist you with the application process.
• Assist you with practical strategies to consolidate and eliminate debt.
• Review your circumstances and assess whether early access to your superannuation savings or early retirement may be a suitable option for you.
• Review your retirement strategy to determine whether it continues to meet your near and longer term needs and objectives.
• Develop and implement a detailed financial strategy for your future personal and financial wellbeing.

Avoid making emotional or impulse decisions

It’s natural to feel anxious in turbulent times, however it’s important to make carefully considered decisions when it comes to your finances and investments. An emotional or impulse decision in the short term will rarely benefit your financial wellbeing over the longer term.

Sound financial advice can be life changing

Sound financial advice really can make all the difference. As qualified professionals, we understand the complexities of financial planning, the world of investments and the various support packages available from the government.

We are available to help you, or someone you care for to make the most of a difficult situation and to navigate a path forward.

Now isn’t the time to go it alone.

Make Australia save again

By Robert Wright /September 02,2019/

Are you one of the 20 per cent of Australians with less than $250 in their savings account?

Recent research from AMP Bank has found that one in five Australians isn’t saving any of their monthly income.

And we’re all different when it comes to saving. People in Tasmania and Western Australia have the least amount of savings, while men on average have nearly 20 per cent more money saved than women. Unsurprisingly, young people (those aged 18 to 24 years old) have the lowest savings balances with nearly a third having less than $250 in a savings account.

Why are we saving so little?

With low wage growth and the cost of living increasing, it seems Australians’ savings habits are changing.  AMP Bank’s research found that people’s wages are mostly used for everyday living costs and bills, while other costs such as school and day care fees were also called out as factors preventing people from saving.

Another reason people aren’t saving is that they’re actually paying down debts, such as their home loan, faster, due to our record low interest rates.

But we need to save to make sure our financial wellbeing is taken care of. As AMP Bank CEO Sally Bruce points out, “For most Australians, having a pot of money to use when times are tough or to fund the nicer things in life such as a new home or a holiday can have a huge impact on health and morale as well as your wallet.”

Saving for holidays and rainy days

Saving is an important part of our finances. It gives us a safety net when we need it or allows us to have enough money to afford the big things.

According to the moneysmart website, the top three savings goals of Australians are:

• Holidays. Whether close to home or on the other side of the world, a holiday is what a record 53% of people indicated they are saving for.
• Rainy day fund. 46% of people nominated a rainy day fund, or emergency fund, as their top priority for savings.
• Buy or renovate a home. The dream of owning property is still a goal for most Australians, with 40% of people saving to buy a home or renovate.

So what steps can we take to start saving?

• Find the right savings account to suit your needs. There are many different savings accounts available to you. Online savings accounts and term deposits could offer higher interest rates than a typical transactional account.
• Set a savings goal. Identifying your savings goal is the first step in creating good financial habits, plus you’ll know exactly how much you need and when you need it by so you can commit to reaching your goal.
• Work out where the money will come from. For most people, this might be the money left over from their pay after they’ve covered all their bills and expenses each month. You could also think about getting a side gig for extra income, or cutting back on spending to free up more money.
• Set up a regular savings plan. Once you’ve identified your savings goals, you’ll need to work out the best method of saving for you. The way you save might differ depending on whether your saving goals are long term or short term. For example, a separate savings account where your money is readily accessible might be useful for a short-term goal. A term deposit, where your money is tied up for a set period of time in return for higher interest, might be more suitable for a longer-term goal.

Make sure you’re getting the most out of your savings account

According to the research, more than a quarter (26%) of Australians currently don’t have a savings account. Of those who do, nearly half (43%) don’t know their interest rate.

As Ms Bruce explains, “The more we can encourage Australians to take an interest in interest, the more they will be able to grow their wealth and reduce the impact of unexpected costs or afford the extra things in life they want.”

So, when looking for a savings account, some important features to consider are:

• Does it offer attractive interest rates?
• What fees might I be charged?
• How do I access my money?
• Is there a minimum or maximum amount of funds allowed in the account?
• Will my savings be secure with the financial institution I choose?
• Read more about choosing the right savings account for you.

Saving is an important part of your financial success. Making small changes to build that safety net could help to improve your financial situation.

Source: AMP, June 2019