HENRY FINANCIAL GROUP INVESTMENT UPDATE

Valued HFG Clients

Welcome Spring! We hope the first day of the season finds you well.

I am delighted to share with you that we have recently celebrated my first anniversary as Managing Director of Henry Financial Group. It has been an amazing year. Thank you for being part of our Group.

Client Survey

I have never been more excited about the business and the outlook for our client service. Our clients are our business and we would be really grateful if you would take five minutes to complete the online survey by clicking here Click here for Survey. Our tailored advice approach is what drives me and my team.

We would really appreciate if you would let us know how we are going and/or how we could improve. Your response will be anonymous unless you indicate otherwise.

Save the Date

Youre Invited! Please join us for afternoon drinks and nibbles and an array of speakers on Thursday 3 November 2016. More details to follow.

Staff News

We are having a baby! Min Chen, paraplanner, is expecting a new baby later in the year. Congratulations Min!

Jo Conolly has returned to the HFG team as a paraplanner.

Ed Little, one of Phils lads, is supporting the team with client review work.

New Website

We have recently launched our new website, please take a look via the following link: https://www.henryfinancialgroup.com.au/

ATO Scam

Be aware of fraudulent emails from the ATO. For more information please check ATO website and if in doubt, please contact us.

Office Vignette

Our resident artist, Marketing Manager Richard Douglas has produced a beautiful collection of south-east Queensland landscape paintings which appear in our meeting room at our new offices. Please take a look when next you visit.

Market Update

I recently read the following article about the perception of daily stock market fluctuations. I found this image very enticing, especially when considering client perspective. I hope you enjoy the article. Please email or call me if you would like to have a chat about it!

Richards, Carl (2016, June 27). No, Really: Just Ignore Day-to-Day Stock Market Fluctuations. The New York Times. Retrieved from http://www.nytimes.com 

We hope you and your loved ones are well and hope to see you on 3 November if not before.

Best regards

Sarah and the team

Transparency and choice are emerging as the key benefits from the new aged care funding arrangements under the Governments Living Longer, Living Better reform program.

From 1 July 2014, all residents who can afford to will have the choice of paying for their accommodation in three ways:

• through a fully refundable lump sum;
• a rental style periodic payment;
• or a combination of both.

The so-called Refundable Accommodation Deposits is similar to the current accommodation bond for low level care (hostel) and extra services high care (nursing home) and will be paid by residents going into residential accommodation. Residents entering a care facility will be able to choose how they wish to pay for their accommodation rather than facilities dictating how the fees must be paid.

Indeed, going forward there will no longer be a distinction between high and low care accommodation. Favourably, where a resident pays a refundable accommodation deposit, a facility will no longer be allowed to deduct amounts referred to as the retention amount “ currently $331 per month for a maximum period of 5 years. Instead, unless the resident chooses for daily payments to be deducted from the refundable accommodation deposit, the resident or their estate will receive the full amount of the deposit back.

Better transparency

Unlike the current accommodation bond amount, which could be arbitrarily set by a provider and negotiated with the incoming resident, a maximum level of Refundable Accommodation Deposit has been set by the new Aged Care Financing Authority (ACFA) for certain facilities and anything over this must be applied for and approved in accordance with specified guidelines.

To further help consumers make an informed decision, each aged care provider will be required to make its accommodation fee schedule available on its website and published in written materials to anyone that requests it. The information will also be published on the My Aged Care website.

Providers will not be allowed to choose between people on the basis of how that person intends to pay for their accommodation and residents will not need to decide how they will pay until they have entered care.

The ACFA, already in operation and whose primary role will be to advise the Government on pricing and financing issues in aged care, must also approve the periodic payments to be charged by a facility.

Periodic payment equivalents of a Refundable Accommodation Deposit charged by a facility must also be advertised, and various examples given so that consumers understand the options in terms of how they pay for aged care. These will be known as Daily Accommodation Deposits and like the Refundable Accommodation Deposit, will be based on the value of the accommodation services being offered.

Similar to the way periodic payments are currently made, a Daily Accommodation Payment is a product of paying the maximum permissible rate of interest “ a rate set by the Government each quarter “ on a Refundable Accommodation Deposit.

So for example, a Daily Accommodation Payment on a $300,000 Refundable Accommodation Deposit at the interest rate of 6.6 per cent would be about $54 a day.

More choice for consumers

Deciding whether to pay a Refundable Accommodation Deposit or Daily Accommodation Payment is one of the many important financial decisions an individual or their family members may have to make and one where professional financial advice is strongly recommended. Choosing whether the accommodation payment is paid as a lump sum or periodically may impact Centrelink assessment of the former home so it is crucial to seek advice.

While the new Coalition Government has indicated its commitment to the implementation of the Living Longer Living Better reform program introduced by the previous Government, it is widely anticipated within the industry that there will be further changes to proposed pricing models.

Under the current proposed plan, the maximum an aged care provider will be able to charge is $455,000. Where a facility wants to charge more than $455,000, the prices must be justified against agreed criteria and approved individually by the Pricing Commissioner.

How much a prospective resident pays will largely be dependent on what beds and prices are available at their residence of choice as well as their assessable assets.

Facilities will be able to offer prospective residents different rates depending on ˜approved individual pricing of rooms. The big difference is that the charges will be more transparent to prospective residents with higher Refundable Accommodation Deposits being approved by ACFA.

These changes should allow residents to get better value

An important change under the new regime is that a Means Tested Fee (to replace the Income Tested Fee) will include the Refundable Accommodation Deposit as an asset. This amount is to be capped at $25,000 (indexed) a year with a lifetime cap of $60,000 (indexed).

As is the case now, the provider must leave anyone paying an agreed Refundable Accommodation Deposit with a minimum of $44,000. For the purposes of paying a Refundable Accommodation Deposit or Daily Accommodation payment, the full value of the home is included as an asset, unless an eligible person remains in the home. However, for means tested care fee purposes, the assessable value of the home is capped “ up to a maximum of $144,500 (indexed to approximately $153,905 in July 2014)

The likely impact of this broader means testing is that more people will be co-contributing to their care than may have been previously, which is a specific goal of the Government in order to help deliver an affordable aged care system for all.

Advice is critical!

On top of the Refundable Accommodation Deposit (or Daily Accommodation Payment) and asset and income tested care fee, there will be a Basic Daily Fee, which is the equivalent to 85 per cent of the Basic Age Pension. Whether someone needs care in an aged care facility or at home, the decisions around where to go and how to pay for it remain complex, are open to change and generally require specialist financial advice.

Source: Genesys Wealth Advisers as at June 2014.

In July this year, for the first time in five years, the cap on concessional super contributions will rise. This means that those under 50 to boost their super savings by an extra $5,000 per year.

Concessional contributions include contributions made from pre-tax income and are made either by yourself or your employer. They include:

Concessional contributions attract a contributions tax of 15% as they enter the fund ” as opposed to your marginal rate of tax which could be as high as 46.5% ” hence the term ˜concessional.

There is a limit on the amount of concessional contributions you can make per year and this cap will rise from $25,000 to $30,000 from 1 July 2014, while the cap for those aged 50 to 59 will increase to $35,000, bringing it in line with the cap for over 60s.

What happens if you exceed your cap?

Contributions you make over the concessional cap are taxed at 31.5%, when 15% contribution tax has already been applied and a hefty 46.5% for excessive non-concessional or after tax contributions. That means youll lose close to half of what you contributed in penalties if you exceed your cap!

Non-concessional contributions cap

Non-concessional contributions include personal contributions for which you do not claim an income tax deduction.

For the 2014/15 year, the non-concessional contributions cap has increased to $180,000 “ up from $150,000.

Non-concessional bring-forward cap

People aged less than 65 years on 1 July in a financial year may be able to make non-concessional contributions of up to three times their non-concessional contributions cap over a three year period “ this is known as the ˜bring forward rule. The bring-forward non-concessional cap has increased to $540,000, up from $450,000.

The bring-forward cap is three times the non-concessional contributions cap of the first year. If you brought forward your contributions in 2014/15, it would be 3 x $180,000 = $540,000.

This consequential change to the non-concessional contributions cap means you can put more into super.

To maximise non-concessional contributions you may consider the strategy of making $150,000 contributions in 2013/14 and $540,000 of contributions after 1 July 2014. Care should be taken however, to ensure that the $150,000 cap in this financial year is not accidentally exceeded, triggering the ˜bring forward provisions as the consequences can be serious.

Increases to the concessional contributions cap and the non-concessional contributions cap from 1 July 2014 are a welcome development. You may wish to consider increasing salary sacrifice arrangements for 2014/15 to take advantage of the newly indexed $30,000 concessional contributions cap ($35,000 for those now aged 49 and above).

What are the caps going forward?

Concessional Contributions Caps

Non-Concessional Contributions Caps

Each quarter the Association of Superannuation Funds of Australia (ASFA) publishes an estimate of annual retirement costs. Last week they advised that a single person needs an annual income of $42,158 and a couple, $57,665 per annum just to be comfortable.

So what is ˜comfortable?

According to ASFA, a œcomfortable retirement is one that allows a retiree to œbe involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally (budget) international holiday travel.

So comfortable? Yes. But thats all.

There is also a measure of a ˜modest retirement lifestyle. It is considered better than the Age Pension, but still only able to afford fairly basic activities. The latest figures are $23,175 p.a for a single person and $33,358 p.a for a couple if they are to have a ˜modest retirement lifestyle.

The difference between the two budgets mainly relates to the extra items included in the comfortable budget. These include items such as being able to update the kitchen or bathroom at some stage, some wine, eating out from time to time, being able to entertain family or friends at home, private health insurance at the top rate, purchasing magazines and CDs, an economy overseas holiday and being able to afford additional alcohol, purchase tobacco or make gifts.

The full study is available here

There is a conversation you may need to have with your son or daughter. Its not about the birds and the bees, but it could be just as confronting.

If you have grandchildren chances are you play an active role in their life. You give emotionally and financially to help their development “ just as you did with your own children. But just think about something for a second. What degree of emotional and financial support would be required of you if something were to happen to your grandchilds primary care givers?

We pose this question to you because we see our role as helping you identify any issue which may potentially impact your retirement plan. Everyones situation is different and if this issue is not a concern for you, were pleased. But if it is, were here to help.

What you can do

How we can help

Important information: Any information in this article is general in nature and does not take into consideration the readers personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon as a substitute for receiving financial advice suitable for your circumstances.

Baby Boomer John, 65, looks back on a lifetime of financial decisions to provide some valuable tips to future generations.

Remember when you spent a small fortune on that trip to Hobart after the Wrest Point Casino opened? The holiday pay lasted barely one hour on those roulette tables! Four decades on and Im pleased to report that trip didnt set you on a path to financial ruin.

Without completely giving the game away, let me share some of whats happened to our world over the past 40 years. Firstly, you survived! Those teenage years didnt cause any irreparable damage although your knees and hips are paying the price for your Kamikaze approach to footy.

Our country has flourished “ almost twice as many people call Australia home today than in 1973, most people earn in a month what you earnt in a year, and the average price of a house and land package in the early 70s (approximately $20,000) wouldnt cover the deposit of an average home loan.

Many of the headlines you read in the morning paper in 1973 are just as relevant today “ œCrisis in the Middle East, œPrime Minister Under Pressure and œPetrol Prices Soar.

Its a similar story when it comes to finances. The fundamentals of 1973 remain the same today, but as you think about the future, let me share some of the wisdom Ive gathered over the past 40 years:

Live within your means:

This seems fairly obvious but credit facilities will become easier to access as you enter your 30s. Even your grandkids have credit cards! Cleaning up the mess of easy credit debt can put your long-term plans back many years.

Minimise debt:

The loan from your father to buy that mint-condition Ford Falcon GTHO may have made sense at the time but it would drag on for years before you paid it off. And lets not even start on the financial commitment to purchase that first colour TV in 1977! Keep your debt to a minimum and make paying it off a priority.

Develop a savings plan:

Remember the old State Bank savings book for which Nanna would give you 20¢ to deposit each week? It was the one successful financial decision made for you in the first 20 years of your life. Consider the money that goes into a savings account an essential part of your budget. Therell be plenty of rainy days, and any leftover will provide a solid foundation for that retirement nest egg.

Start investing:

Dont expect me to share the previous 40 winners of the Melbourne Cup or share tips that could make you a billionaire. Start to think about how best to invest those savings “ the earlier you start, the more youll have when you retire. Dont forget to manage the risk too. Its ok to put some in shares, but also look to spread it around via term deposits, property or managed funds.

Protect whats most important:

œLife insurance? What do I need life insurance for? It may seem far-fetched now but insurance will pay for itself many times over. Hospital expenses, the odd minor car crash and a couple of ˜life episodes are sure to arise; when they do the peace of mind provided by insurance is invaluable. Speaking of health, stay out of the sun and watch that expanding waistline and try to lay off the bacon and eggs once in a while!

Establish credit:

It is vitally important to start establishing credit while in your 20s. A clean credit report will make life much easier in the future, especially when your partner starts dropping hints that shed much prefer to send Junior 1 and Junior 2 to the local Grammar School and youll need a loan to get started. And lets not even start on Junior 3, 4, 5 etc ¦ just kidding!

Choose your life partner carefully:

Yes, youll meet a nice girl or boy and settle down, but itll be touch and go there for a while. For plenty of the boys from your school years, things wont end quite as happily. While you dont have to see eye to eye on every financial issue, someone with similar goals and values as you will make life much easier. If you plan on combining your finances with your spouse, communication and honesty are especially important.

One last tip “ enjoy life!

Money is supposed to be used, in part, for your enjoyment. Travel, entertain, take some regular golf trips, splurge here and there; you can do it all. But dont wait. Life is here and now, and youll be amazed how quickly the next 40 years will fly by.

Good luck!

Common sense may say that the time to invest is when markets are down, but the reality is that most investors wait until markets are running hot before they get on board.

The psychology of an investor plays a significant role in what drives financial markets and explains in part why the prices of many assets, including property and shares, go through booms and busts.

Two common characteristics of human behaviour that tend to play havoc with many investors decision making and investment markets are fear and greed.

Fear may prevent you from buying something when it appears to be out of favour because of the possibility of losing money. Greed may encourage you to aggressively chase returns into investment opportunities beyond your normal comfort level.

Rational investors may be less worried about the risk of losing money in the short term. They are more focused on the possibility of long-term gains based on their view of the company and broader economic conditions. This person may invest regardless of what the market is doing. The same investor might prudently rebalance their portfolio back to a desired asset allocation using an objective rationale.

Rather than make decisions rationally based on available information, most investors left to their own accord are much more likely to let their emotions drive at least part of the process.

It is because of emotion that most investors sell when markets are close to their bottom and buy when markets are nearing their peak.

Loyalty doesnt always pay

Feeling loyal towards an underperforming company just because you have held the shares for a long time is no reason to keep them. Nor is buying shares in a company just because you are envious of others having them.
There are numerous investor behaviours that may be hard to identify and control. It may be dwelling on what has happened in the past as an indication of what may happen in the future or getting carried away and making over-zealous decisions when markets are running hot.

Reactions such as these can be common, particularly when markets are going through periods of boom and bust. It is important to understand that investment markets are driven by more than just fundamentals and that investor psychology plays a significant role.

Just by understanding emotion and logic, this can play a vital role in the decision making process and can go a long way in helping you make rational decisions.

Common biases

There are several common biases that have been identified by psychologists as influencing investor behaviour; once recognised these biases may be resolved:

1. Herding:

2. Familiarity:

3. Anchoring:

Nobody likes to think they have made a bad investment decision, but it doesnt always pay to get set on something like a share price or old information. A company whose shares suddenly drop from $20 to $10 isnt necessarily going to get back to $20 just because it was there once.

4. Loss Aversion:

Source: ˜Three behavioural biases that can affect your investment performance, CFA Institute, 2011, viewed 26 March 2013.

The highly successful US investor Warren Buffett turned the phrase œbe fearful when others are greedy and greedy when others are fearful knowing that investors dont always act rationally and when money is involved, emotions can run high.