We also offer you two great deals as part of the Fair Go Members Benefits program and examine how different asset classes have performed over the past quarter.
Welcome to 2006! If you made any New Year's resolutions over the festive season about saving more or improving your financial position, here are some steps to help you achieve them.
Working out a realistic budget will identify what capacity you have to improve your financial position by saving or investing. However, your budget must be realistic. If it's too difficult to achieve, you will probably end up resenting it or discarding it.
Careful use of debt - such as buying a house - can help you build up your wealth, but poor use of debt and spiralling interest charges will quickly erode your wealth. The interest you pay on debt is money that cannot be saved or invested - it's just gone!
Now is also a good time to review your home loan. Can you increase your payments to save interest? Are you still happy with the conditions of your loan? Should you fix the interest rate on a portion of your loan? Are the interest rates and charges competitive or could you do better?
Chifley Home Loans can help you with these questions. For information on Chifley Home Loans' highly competitive offering click here or call 1800 800 002 to speak to one of the team.
You won't be able to get to a destination, if you don't know where it is. And, once you do know where it is, you'll need some kind of plan on how to get there.
If you need help in setting investment and savings goals, book a place at one of our free wealth creation seminars. Click here to view a schedule of these seminars or call 1800 067 059 to find out dates or book your place.
There are many ways that you can improve your tax effectiveness, depending on how you structure your investments and whether you take advantage of some of the opportunities the Government has made available to you. Here are some examples of the strategies available:
Way of investing
Each type of investment you make has different tax implications. For example, investing directly in property will have different tax implications to investing in shares. In addition, if you choose to save through super, you will enjoy some tax benefits. Both your contributions and earnings will incur a 15% tax, which is far lower than if you saved outside the super system.
To assess whether you are using the most tax effective investment and savings strategies, you can speak to one of Chifley's financial planners, without cost or obligation. To talk to a financial planner, please call 1800 800 002.
Fair Go car hire special
Rent a car and choose your upgrade on us!
As a Fair Go member, if you rent an Avis full size car (Group E - e.g. Holden Commodore) for three days or more between 1 January and 31 March 2006, you can choose your upgrade to one of the following vehicles:
Holden Calais (Group G)
Holden Statesman (Group H)
Holden Commodore with Satellite Navigation (Group P)
To take advantage of this great offer, you MUST call Avis Reservations on 136 333 and quote coupon number UPWA024 to receive your upgrade and AWD discount number P805900 for your discounted rate.
Terms and Conditions
Cars and upgrade are subject to vehicle availability at time of rental. Minimum rental period is 3 days. An advance reservation is required. Offer cannot be used in conjunction with any other offer, coupon or discount promotion or redeemed for cash. Offer does not include additional costs such as fuel, one way rental fees if applicable, stamp duties, GST, airport concession recovery fee if applicable, vehicle registration fees, excess kilometres, optional insurances and other miscellaneous charges and GST on these items. Avis standard, age, credit and driver requirements apply. Subject to the terms and conditions of the Avis Rental Agreement at time of rental. Offer available at all participating Avis corporate and licensee locations in Australia.
To read the full Fair Go terms and conditions click here.
Coming in 2006
Following recent changes to the law, super funds are now able to allow their members to split their super with their spouses and to ease into retirement by investing in a non-commutable income stream.
Super splitting
Super splitting, which particularly benefits non-working spouses, allows spouses to transfer money from their super accounts into their spouse's super accounts. As a result, couples can now plan for their retirement together and take advantage of tax benefits that result from them having access to two tax-free thresholds and two reasonable benefit limits on retirement.
Whilst the details are still being finalised, this initiative will be provided to many members by your Fund.
Non-commutable allocated pension
The new 'transition to retirement' legislation allows you to now ease into retirement. The Government's intention is to encourage people who are approaching retirement to continue participating in the workforce by scaling down their workload and then enabling them to access part of their super.
In the past, if you wanted to access your super, you had to retire at some point after you reached your preservation age (currently age 55). The other choice was to continue working without relying on any income from your super. The new laws, however, allow you to access some of your preserved super benefits without "retiring" by taking a non-commutable income stream.
We will communicate full details once finalised.
Is your Will up-to-date?
Life is full of changes! Our own circumstances alter. Our parents pass on. Our children get married or divorced. And, they have their own children. You've spent a lifetime and a lot of hard work building up your assets and it's likely that you have clear ideas on how these should be distributed.
To ensure your assets are distributed in the way you want after you have passed on, you need to regularly review your Will so that it keeps up with the changes in your life and those of your loved ones.
If you haven't reviewed your Will recently, we can help you in two ways.
- Through a consultation with a financial planner, without cost or obligation to you. Just phone
1800 800 002.
- Through the Fair Go Will Service, which allows you to create or update your Will online - for as little as $20*! For more information click here
*Price refers to a DIY Will for a single person
The Myths of Financial Planning
In this day of financial information overload, it's often difficult to discern fact from fiction. For this reason, in each issue of Your Financial Future, we expose another Financial Planning myth to help guide you through the maze of information out there in the marketplace.
Myth: I can't lose money in fixed interest investments
Investors are often attracted to fixed interest investments because these are perceived as safe. But a closer look shows that, for a number of reasons, there are limits to the security of fixed interest investments.
When you invest in fixed interest investments, such as bonds, you are basically lending money to a company or a government at a set interest rate. Returns come from interest paid on this 'loan' and these returns will rise and fall in line with changing interest rates.
Fixed interest investments guarantee to repay the capital at a pre-determined date in the future (maturity date), as well as a fixed rate of interest (coupon rate or price) during the life of the bond (term). Like shares, bonds can also be traded on the secondary market before they mature. Bond prices on the secondary market are not fixed but are instead influenced by changes in interest rates.
But fixed interest, as an investment class, does come with risks.
Firstly, there's risk of making a loss because of adverse movements in interest rates.
If interest rates rise above the original coupon price, then the capital value of the bond has to fall in order to attract buyers (otherwise buyers would simply purchase the new bonds available with the same capital value and high coupon rate.) In this scenario, the seller makes a capital loss because they have sold the bond at a lower price than they paid in order to compensate the buyer for the higher interest rates presently available.
In the past, fixed income investments were mainly in government bonds and their major risk was changing interest rates. These days, however, fixed income investments have become more complex and can be exposed to other risks. Corporate bonds, for example, generate returns by taking on credit risk. Convertible bonds are exposed to credit and equity risk. The returns from these investments can be higher than government bonds, but the risks are also higher.
Also, while there is a capital guarantee on fixed interest investments, this can only be redeemed when the security matures. Thus, if the investor sells the security before maturity, the price will be affected by market movements, which could affect returns. Also the guarantee is only as good as the organisation giving it - it's no problem for government bonds, but it could be an issue for some corporate bonds if the issuing company gets into trouble.
Another risk with fixed interest investments is that their returns are often not sufficient to combat inflation and tax, and therefore rarely provide long-term growth.
Because their value fluctuates, fixed interest investments are more volatile than cash, but not as volatile as shares or property. While they do have risks, fixed interest investments tend to provide returns that are better than cash, but lower than property and shares over the longer term.
Because most investments come with risks, the best way to protect yourself from these is to diversify your investments. This means spreading your risks across different assets rather than keeping all your eggs in one basket. The hope is that if one asset class makes a loss, this will be countered by a profit in another asset class, thus easing the volatility of your investment portfolio.
To discuss your investments with a financial planner, at no additional cost to you, and without obligation, call 1800 800 002.
Chifley Home Loans wins prestigious award
Chifley Home Loans has won a Bronze award in Money magazine's Best of the Best 2006 Awards in the Best Five-year Fixed Interest Loan category.
According to Money magazine, the Best of the Best awards, now in their fifth year, reward the best and most innovative products by giving them the recognition they deserve. The magazine uses a range of Australian experts to cut through the hype surrounding thousands of individual products to come up with its winners list.
The award is, however, just another sign of the increasing attention that Chifley Home Loans is attracting for its low interest rates and competitive service. Earlier last year, its Money Plus Loan, which offers a revolving line of credit facility, was rated second in the Money section of the Sydney Morning Herald.
Although Chifley Home Loans is not a bank, it has a free re-draw facility and the ability to access your loan accounts through the internet or phone. It has the full range of home loan products - loans for owner occupied properties, investment properties, Lines of Credit and land and construction loans.
We also have experienced and helpful staff members who can advise you on any aspect of home loan lending - with no obligation.
If you'd like to find out more about our highly competitive home loans, phone Adrian Watts or Dianne Hawker on 1800 800 002. There's no obligation to proceed with a loan and no costs to pay if you have a loan approved in principle by us. So, if you have had a loan application forwarded to you and haven't completed it, get cracking and send it in - it only takes a few days to process.
Financial Planner profile: meet Andrew Wells
"Financial planning is not about transactions. It's about getting to know people," notes Andrew Wells, a Certified Financial Planner with Chifley.
Andrew started out studying to be a vet, but moved into the financial services sector 15 years ago. "I quickly realised I preferred working with people to wearing a white lab coat and tending to cats and dogs," he says of the move.
It was during his first two finance jobs that Andrew encountered the world of financial planning. The first job was to market group life insurance benefits to planners and the second was to provide superannuation strategies to planners and accountants. However, things seemed to go the other way. "I got to appreciate what makes good client advice and what the qualities are of a great planner." He was soon sold on financial planning.
"With my foundation technical skills set and a preference for one-on-one interaction with clients, I took the leap and began planning in 1997 and started providing direct advice to clients," he says. And, he hasn't looked back since!
Of his move to Chifley Financial Services in 2004, Andrew says: "Importantly, this organisation is client-focused and has a more ethical focus on meeting the full financial service needs of individuals. We don't charge commissions, there is no plan writing fee for members and our costs are lower because we benefit from the scale of being part of an $11 billion superannuation grouping."
"My clients share their lives and emotions with me. Giving sound advice means I need to be able to go home and sleep well at night, and then come back the next day knowing that I am going to be doing the best for my clients' wealth, rather than maximising profit for a shareholder."
So what gives Andrew the most satisfaction in his job?
"Meeting new clients outside our own Fund membership through referrals. It's always a nice way of working, especially if they are friends or family of existing clients," he says.
"I also enjoy reviewing clients' portfolios to see how they have progressed since the last review. There's so much more people can get out of a super fund than just super. I like working through different real life scenarios with clients - for example, should they renovate a home or relocate - and helping them develop peace of mind and enhance their careers and lifestyles."
About your fund managers
One of the managers carefully selected to manage your investments is PIMCO, which ranks among the largest managers of fixed income assets in the world with over half a trillion dollars in funds under management.
In Australia, PIMCO manages over $12 billion in fixed-interest securities by providing a broad range of products customised for local conditions.
However, PIMCO wasn't chosen to manage your money because of its size or solely because of its solid track record in fixed interest. It was also selected because of the way it blends with other our fixed interest managers in our portfolio, such as Loomis, Sayles & Company.
In recent editions, we've highlighted how the Fund Trustee adopts a multi-manager investment approach to manage Australian shares. The same approach is used for fixed interest too.
This approach is based on the old adage that you shouldn't put all your eggs into one basket. It uses the specialist skills of several carefully selected managers and ensures that these managers are combined together in a portfolio in a way that ensures that your investment portfolio is not biased in any direction because of the manager's style. This is because different manager styles perform better at different times of the investment cycle.
PIMCO's investment approach emphasises active management (where it aims to achieve a better result than the index), wide diversification and conservative risk-taking. Its aim is to maximise total return while moderating volatility in a portfolio.
PIMCO achieves low volatility by diversifying across bond market sectors, issuers, industries and countries within global markets. It concentrates on top-down economic research to identify those factors likely to affect the levels of worldwide interest rates, and bottom-up credit analysis of individual bonds and issuers to identify the best values within and between sectors.
Loomis, Sayles & Company, on the other hand, concentrates on the basic financial strength of each share it includes in its portfolio, examining aspects such as its cash flow projections, market position, management strength and company and industry developments and trends that could affect its future.
Free seminars
Are you looking to set aside some money for a house, a holiday or perhaps for your children's education? Would you like to know more about investment options, risk and return and managed funds? Are you wondering whether you will have enough money to retire on?
You could get the answers to these questions, and more, by attending one of the free wealth creation or pre-retirement planning seminars we are running at a venue close to you. To find out more, click here, or contact Member Services on 1800 067 059.
Investment and market commentary
Do you know what happened in investment markets during the past quarter?
Australian shares
The big story over the last quarter of 2005 - and indeed the whole year - has been strong commodity prices, fuelled by strong economic growth in the US and China, and a turnaround in Japan.
Australian shares enjoyed a strong three months, turning in a solid return of 3.6% (S&P/ASX200) - and hitting record highs in December - on the back of a resources boom. This growth came in spite of a market dip in October when investors worried about ongoing US interest rate rises and a weakness in oil prices.
After three buoyant years, the Australian equity market has returned about 70% for shareholders since its slump in March 2003.
International shares
Most of the major global share markets posted positive returns for the December quarter, as well as for the full year, thanks to a surge in metal prices. The Japanese market was the standout with a 16.5% rise as signs emerged that its economy was bouncing back from a lengthy recession.
However, despite healthy corporate profits, US equity returns have been sluggish, after a rush of hurricanes battered the country's shores and because of growing concerns about economic growth, high oil prices and rising interest rates.
Listed Property Trust
The Australian Listed Property Trust (LPT) sector returned 6.8% for the quarter, despite a slump in October. Like the broader Australian share market, the LPT sector witnessed high volumes of capital raisings throughout the three months, although much of this was focused on markets outside Australia, especially those in Europe.
Australian bonds
In Australia, the Reserve Bank left rates unchanged throughout the quarter. The 10-year bond yield fell from 5.36% to 5.20% over the period. However, spreads in credit markets did not change much despite active ratings activity.
Australian bonds returned 1.9% during the quarter, as measured by the UBS Warburg Australian Composite Bond Index.
International bonds
World bond markets were heavily influenced by the activity of major central banks during the quarter. In December, the US Federal Reserve raised rates for the 13th consecutive time while the European Central Bank also announced a hike.
US 10 year bond yields jumped around during the quarter and as a result, only enjoyed a marginal rise over the period.
International bonds provided investors with a 2.1% gain over the period (JP Morgan World ex-Australia Government Bond Index).
Cash and currencies
The Australian dollar ended the year buying 0.7325 US dollars. The currency surged early in December on weakness in the US dollar and rising gold prices. It later fell to its lowest level in over a year after the US dollar strengthened and Australian consumer confidence softened.
According to the UBS Warburg Australian Bank Bill Index, cash returned 1.4% for the quarter.
Chifley Financial Services Limited
Ground Floor
28 Margaret Street
Sydney, NSW 2000
Member Services
T: 1800 067 059
F: (02) 9273 0033
Financial Planning
T: 1800 800 002
This document was prepared for the exclusive use of members of FuturePlus Super by Chifley Financial Services Limited (ABN 75 053 704 06) as the Approved Trustee of FuturePlus Super and an Australian Financial Services Licensee (AFSL 231148).
Please note that the information contained herein is of a general nature only. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs. You should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. Before making an investment decision, you should seek the assistance of a professional adviser.
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