So began our drive to an almost cashless society and an era when the only cheques I write are for my nonogenerian Mother's bills, and I am visiting ATMs less often.  It is interesting then to read of David Sirota's experiences of a year without cash when conducting financial transactions which he recounts in his book "The end of money".

Sirota found that not having any cash only caused a few hiccoughs, some which were embarrassing (trying to buy a train ticket on board a New Jersey train heading for New York), some comical, and some downright mean (not able to buy school lunches and inexpensive items made and served by children).  Interestingly for us travellers, we would agree with his finding that cash was an absolute necessity in developing countries.

The concerns of many people using cash only are the privacy issues and the monitoring of their spending activities, however we have already relinquished so much of our anonymity and financial lives to the banks as well as companies and governments that Sirota  considers the tension between privacy and civil liberties becomes clouded.

Sirota believes we are close to being a cashless society and that if people consider this issue they will be more demanding of the banks and mobile phone services demanding better services and lower fees.  This being the case, when did you last use an ATM?

Speak with your Newcastle financial advisor today.

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Our financial planners in Newcastle are often asked what you need to retire in comfort.  If you want to retire in comfort, you may need more money according to the latest figures released in the Association of Superannuation Funds of Australia (ASFA) Retirement Standard.

A couple looking to achieve a comfortable retirement will need $55,316 a year to meet their needs, whilst those seeking a 'modest' retirement lifestyle will require $31,767 a year.  These retirement figures for the September 2011 quarter have increased by 0.7% over the June 2011.
 

Whilst there was a slight decrease in cost of food in the September 2011 quarter, there was an overall increase of 6.4% for the year to September 2011.

Budgets for various households and living standards (September quarter 2011)

Source: ASFA Retirement Standard, September 2011

If you're looking to plan for your retirement it's important to have good financial advice, with the variety of options available in superannuation from self managed super funds, industry funds and the like through to property investment, stocks and shares it's sometimes hard to plan accordingly and particularly to assess the risks and opportunities.   Our financial advisors at Leenane Templeton help to identify the right strategy for you and your family according to your attitudes and stage in life. Call our team today on 02 4926 2300.

To plan your retirement speak to our award winning financial planner in Newcastle  Andrew Frith

Don't forget to ask about our SMSF solutions for your retirement, particularly as the change to superannuation laws now allow self-managed superannuation funds to borrow within a SMSF.

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The Financial Planning Association of Australia  (FPA) was pleased to announce today that Andrew Frith of Leenane Templeton Wealth Management, based in Newcastle NSW,  is the inaugural winner of the Newcastle Chapter Associate Financial Planner Best Practice Awards 2011.

Replacing the previous Value of Advice Awards, the FPA’s Best Practice Awards recognise the superior outcomes for clients when professional financial planning expertise is provided in line with the FPA Code of Professional Practice and Code of Ethics.

For the first time, to recognise achievements at the grass-roots level, submissions for the Best Practice Awards have been awarded at Chapter level with Andrew Frith of Leenane Templeton winning the FPA Associate Financial Planner Best Practice Award.

"This award demonstrates our high standards of professionalism and commitment to providing valuable advice and service to our clients, we believe in placing the clients interests first rather than our own" said Andrew Frith of Leenane Templeton Wealth Management Pty Ltd.

Andrew, a Chartered Accountant and specialist in self-managed superannuation, has also been recognised in the past as one of the top 10 financial planners in Australia awarded by AFR Smart Investor.   For further details email wealth@leenanetempleton.com.au

for more details visit our website at http://financialplanner-newcastle.com.au 

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The world has changed immeasurably in the past 30 years. The next three decades seem likely to yield even more drama as significant themes exert their influence on a more connected world.

Change is upon us. Investors must either embrace change or risk missing out on some of the biggest investment themes in a generation. But what are the investment implications? This article discusses how investors can position themselves.

Remember, though, that making predictions is fraught. It is virtual guesswork to say what level the Dow Jones Industrial Average will be in five years time. However, when it comes to the big, secular themes that are influencing economies and financial markets, there is more scope to be forthright and more reason for investors to take action.

Most of the themes that appear set to be prominent in the 21st century – the rise of the east, growing consumption and urbanisation in emerging markets, the changing demographics and ageing of the world population, the challenge of feeding and powering the world, technological and climate change, the rise of Africa – are visible and investible, or will be soon enough.

Attaching relative weights to a group of highly interconnected themes is tricky, however. Intuitively, the epochal power-shift from west to east and the emergence of China and India must surely be given most weight. It is the underlying dominant theme which recurs, or acts as a catalyst, in many of the others.

Beyond this, it becomes more difficult to attach weightings. Is finding a solution to our energy needs more important than alleviating pressure over food and water? In truth, they are related, not least because bio-fuels are
reducing the amount of arable land for food.

This is where technological progress is crucial. Encouragement can be taken from the fact that every time the world has pushed up against resource limits in the past, mankind has overcome the situation. This time is different. This time we have even more brains from around the world, tackling the problems in energy, food and water, providing incremental advances and occasional step-changes that sum over time to extraordinary technological progress. It is technological progress that powers economic growth over the very long run.

Seven things for investors to consider

Here then are seven key things long term investors might want to consider if they want to tap into the rewards on offer from the 21st century investment themes:

1. Invest more in emerging markets, beware of home bias. Investors need to ensure they have enough exposure to emerging markets but many remain under-invested for two reasons. First, although allocations have picked up from negligible levels, they still do not reflect the significant and growing share of global GDP attributable to these economies. The other is that investors tend to be over-exposed to their home markets.

2. Take a long term view. Investors must step back from the occasional hyperbole that crops up about emerging market bubbles and remember that the long term outlook is compelling. There will be blips, on an upward sloping curve, but they should not stop investors. Remember that industrialising economies such as China can sustain much faster annual growth rates as they are emerging from a low base.

3. Include frontier markets such as those in Africa. Incredible as the growth of China is, don’t just bet on one emerging country. An allocation to emerging markets should include a range of economies at various stages of development. If you have China covered, then consider frontier markets in sub-Saharan Africa, for example, which have vast mineral wealth and huge consumption potential. Or Indonesia, Nigeria, Mexico, and Turkey. These countries have large populations and fast growing economies and are mooted as next big things.

4. Invest in real assets. Some economists argue that we are entering an inflationary age. Moderate inflation is not bad for equity markets. But, some doom mongers are predicting a worse outcome due to the alleged inflationary effects of central bank asset buying programs combined with higher commodity prices (particularly food and energy). It seems sensible for investors to include inflation protection, such as inflation linked bonds, in their portfolios. However, other economists are more sanguine, given spare capacity in western economies. Meanwhile, emerging economies are in the midst of an urbanising age; one that requires infrastructure build and raw materials. An optimal strategy, therefore, may be to remain in equities but tilt the bias of investments towards real assets whose prices rise with inflation. By investing in companies that have pricing power such as miners of industrial and precious metals, investors can participate in corporate growth and generally beat inflation. Given constraints on supply, these companies tend to benefit disproportionately from higher global growth.

5. Remember to add food and water. Fertiliser and agricultural companies stand to benefit from growing demand for food and changing diets in developing countries. Similarly, companies that build desalination and water management infrastructure and that can provide access to clean water should have full order books as demand for water intensifies across the world.

6. Consider consumption. As emerging economies grow and become wealthier, the global middle class will expand rapidly and consumption will soar, particularly in the discretionary segment where branding is key. Beneficiaries will be based in western and emerging markets.

7. Do not ignore pharmaceuticals. Pharmaceuticals have been overlooked even though their industry outlook appears bright. A massive expansion in middle class consumer populations in emerging markets, combined with people living longer, particularly in developed economies, paints a rosy picture for global healthcare spending. There is scope for the best generic and branded names to benefit.

Important information Investments in small and emerging markets can be more volatile than in more developed markets. Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment.

Always speak with your financial planner when making investment decisions.

Source: Fidelity Australia, June 2011

Provided by Leenane Templeton Chartered Accountants and Leenane Templeton Wealth Management Pty Ltd.

Newcastle Financial Planning

Helping Investors

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Starting young also lets you start small as over the long term, your investment grows in response to market cycles and the principle of compounding returns.

You don’t need lots of money to invest

Young people are often discouraged from investing because they mistakenly believe that investing requires lots of money. In today’s investment markets, it is not necessary to have a large lump sum to start investing. Many accounts can be opened with relatively small amounts and there are also regular savings plans available. Savings plans are an affordable option as they enable you to invest a small amount of money on a regular basis, often with as little as $100 per month or per quarter.

Compounding your way to a larger investment

When you start to invest, you begin to see the powerful way in which compounding enhances returns. Compounding occurs when the return earned in one period is added to the principle (reinvested),
increasing the size of the investment that is available to earn a return in the next period.

A simple example is to take an investment of $1000 that earns 10% per annum, by the end of the first year it will have accumulated $100 in interest. So the balance will rise to $1100. In the second year, at 10% per annum interest it will earn $110 in interest as the principle is $100 higher. So the balance will rise to $1210. With compounding, the dollar amount of interest earned increases every year because reinvestment of previous returns increases the size of the underlying investment.

Regular saving enhances the power of compounding

The chart over page illustrates how a savings plan can grow your investment over the long term. The red line assumes $1000 was invested in the Australian sharemarket in December 2000 with a regular quarterly saving contribution of $100. Over the next 10 years the value of this savings plan grows to $8284. By contrast, the orange line represents a $1000 investment in the same index with no savings plan. The value of this investment only grows to $2241 over the same period. Regular small contributions increase the size of your underlying investment and this enables compounding to work harder for you.

Starting early enhances the power of compounding

The earlier you start to invest, combined with the power of compounding, the greater your long term investment will be. Take two investors who each start with $1,000 and an annual return of 5% on their investment. The first investor starts investing in year one and invests $100 per month for the first five years and then stops the regular savings plan and lets the investment grow over time for twenty years. The second investor starts to invest in year ten and starts a savings plan of $100 per month for the next ten years. By the end of the twenty year time period both investments are roughly equal, but ignoring the impact of inflation, the first investor has invested $7,000 of their own money, whilst the second investor has invested $13,000 of their own money. That is almost twice the amount of the first investor, showing how starting earlier can enhance the longer term rewards.

Keys to successful investing

Three of the most important rules of successful investing are to diversify your portfolio, to invest for the long term and to understand the relationship between risk and return. Diversification involves spreading your investments across different asset classes, sectors, industries and companies in order to lower your risk. Diversification is necessary because different investments will perform well in different market conditions.

If your portfolio contains only one investment and it performs poorly, your entire portfolio will be impacted. By contrast, a portfolio that contains investments in several asset classes or a variety of shares is less risky and is not subject to the fortunes of just one investment. So it should have more stable returns. This occurs because investments in your portfolio that perform poorly will likely be offset by others that perform well.

Chart 1: The Power of a savings plan
Having a long term horizon is also important as it enables you to better manage investment cycles. Investment markets tend to follow cycles – periods of strength followed by periods of weakness. These cycles can vary in length but it is the weaker periods that tend to unnerve investors. By taking a long term view of your investments, it is easier to look through periods of weakness and view them as temporary.

Taking a short term view and selling your investments when markets fall can often result in you missing out when markets start to recover. A degree of risk is inherent in all investments. Higher risk investments, such as shares, usually have the potential to generate higher returns, but the risk of loss is also greater over the shorter term. By contrast, low risk investments, such as cash, tend to have lower returns but a much lower chance of loss. Short term volatility is high for shares.

Short term volatility can be thought of as an investor’s trade off for higher long term returns. Generally speaking, growth assets like shares will experience greater short term volatility, yet commonly provide higher long term returns than defensive assets, like cash and bonds. It could be expected that an investment in the equity market will provide a negative return once every four years or so, and only once every seven to eight years for fixed interest. When investing, you need to be aware of the risks you are taking and make sure they are within your level of risk tolerance.

So how do you start investing?

Starting small and adding to your investment regularly is a great way for a young person to begin their investment journey. As a parent or grandparent, you can also start an investment plan as a gift for a young person – a gift that teaches them the benefits of regular saving and gives them the opportunity to learn about investment markets.

Source: Aviva Investors, February 2011

For more information about financial planning, investing or superannuation contact our Newcastle Head Office on 02 4926 2300 or visit our websites for Chartered Accountants, self managed super funds, financial advisors in Newcastle

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1. Personal Expenses
Be careful and ensure that any claims or interest on borrowing for investment are separated from interest on borrowing of a personal nature.

2. Substantiate Your Claim
Keep all receipts to prove any deductions and be able to show why the expense was incurred to derive assessable income.

3. SMSFs And Property
Consider moving Business Real Property into a SMSF. This is a good way to free up some cash coming into tax time.

4. Renovations By Previous Property Owner
If the renovations are identifiable and itemized in a depreciation schedule, then it is possible to be eligible for a deduction for depreciation on the cost of improvements by a previous property owner.

5. Capital Gains Tax
Ensure any capital gains on the sale of property are properly recorded. The ATO are keeping an eye out for any undisclosed capital gains from disposing of assets to invest in superannuation.

6. Fixtures And Fittings
If fixtures and fitting cost less than $300, it may be possible to claim a tax deduction.

7. Self-Education Expenses
Keep all receipts and documentation relating to self-education, such as seminars and investment related books and magazines, in order to qualify for tax deduction.

8. Use A Quantity Surveyor
There are benefits to having a depreciation schedule prepared by a qualified quantity surveyor. They could help gain a significant tax deduction for depreciation. The cost of employing such a surveyor is tax deductible and will help back up a capital allowance claim.

9. Pre-Pay Interest
Depending on the lender, it is possible to pre-pay interest to defer the payment of tax. This is dependant on possible future income, interest rates and cash flow impact.

10. Repairs To Property
Be aware that although the cost of initial repairs at the time of purchase is not deductible, expenses for repairs further down the track are. They must relate, however, to wear and tear or other damage incurred as a result of earning rental income.

11. Short Term Holdings
If a property has been renovated with the aim of selling it at a profit in the short term, the ATO may tax it as if it were a ‘profit making scheme’. If this occurs, it is not possible to take advantage of CGT concessions.

For more information about year end strategies please contact our Newcastle Financial Advisors on 02 4926 2300

This information is of a general nature only. It is not intended as personal advice or as investment recommendation, and does not take into account the particular investment objectives, financial situation and needs of a particular investor. Before making an investment decision you should read the product disclosure statement of any financial product referred to in this newsletter and speak with your financial planner to assess whether the advice is appropriate to your particular investment objectives. financial situation and needs. See our disclaimer for full details.

For other resources visit:

Newcastle Accountants Leenane Templeton

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Newcastle Accountants

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In the 1980s the average Australian household had debts totalling about 40% of their disposable income.  In 2006 this ratio had increased to 158% with the costs of housing being the major factor.  Over the past decade income growth has failed to keep up with property prices, with many of the increases in prices driven by government incentives for first home buyers.

Whilst the GFC saw households attempt to reduce their debt levels, rising property prices mean that home buyers are taking on bigger loans than ever before, with mortgage payments thereby taking a larger percentage of disposable income.  According to the Reserve Bank of Australia total mortgage debt in 2010 was 38.2% larger than national household income, with the figure up from 33% in 2009.

Additionally, a recent report from the Melbourne Institute indicated that in the 2010 June quarter, 36.6% of Australians had credit card debt, overhauling the figure of 33.9% for mortgage debt as the most common debt for Australian households..

With this level of debt and a low level of savings, Australian's historical dream of a debt-free home and retirement savings is becoming less of a reality.

To ensure you have a strong savings plan, are debt-free to achieve your dreams of a comfortable life in retirement talk to Andrew Frith, Leenane Templeton's award winning investment advisor.  He is here to assist you in making your dreams reality.  For further information please contact your Newcastle Financial Advisor

For business accounting information contact Newcastle Business Accountant

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For long-term holders, Australian shares remain a good investment and buyers will find value in further market weakness.

Keeping an eye on the following indicators should assist in your assessment of markets.

• Australian interest rates – if they rise the Reserve Bank of Australia (RBA) thinks the economy is still growing.  If they fall the RBA consider we are heading into a period of deflation.

• Commodity prices – if they fall Australia will suffer (as will other countries such as Brazil)

• US interest rates – if they rise this will hurt US borrowers and the banks will suffer as defaults increase.

• Credit – if the costs of credit increase it becomes more expensive to borrow and thereby feeding economic problems.

As the sharemarket is a leading indicator of economic health, and Australia is in a fortunate position at the moment on a global basis with our economic situation largely positive, it is important to understand the pressures on the sharemarket.  Staying calm and making sure your investments are sound, offer a good yield and are the best value you can find.

Always remember that your specialist investment advisor Andrew Frith is available to assist you with any queries about your investments.

For more information visit www.financialplanner-newcastle.com.au

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Did you realise that some unfortunate super fund members face a 93 percent tax rate on certain super contributions? 

This breathtaking rate is triggered when fund members exceed the annual caps on both concessional and non-concessional contributions. 

Super Contributions that exceed the cap on concessional contributions count towards the cap on non-concessional contributions – and could push a member’s non-concessional contributions over the limit. 

Here’s how that hefty tax figure is calculated:

• Super Contributions that overshoot the concessional cap are taxed at 31.5 percent, in addition to the 15 percent standard contributions tax – bringing the tax take, so far, to 46.5 percent.
• Super Contributions that overshoot the non-concessional cap are taxed at 46.5 percent, bringing the possible tax total to 93 percent.

Excess contributions are, of course, highly topical at this time with many taxpayers now completing their 2009-10 tax returns, the Government’s halving of the cap on concessional contributions from 2009-10, and with the tax office’s recent updating of its online information regarding excess contributions. ¹

The tax office can, in “special circumstances”, disregard excess contributions or reallocate them to another financial year. But the ATO warns: “It isn’t enough that your circumstances were unusual for you.”

And the ATO explains that unintentionally exceeding the caps, misunderstanding the law or facts, or being given incorrect information does not “amount to special circumstances on their own”. 

Particularly as the amounts involved in excess contributions tax are potentially so large, any members who have overshot their caps might well consider gaining specialist professional advice. 

Come and talk with Leenane Templeton Chartered Accountants & Financial planners call 02 4926 230

Newcastle Financial Planner

Newcastle Chartered Accountant

Self Managed Super Fund

PLEASE READ OUR FULL  DISCLAIMER

Source:  Robin Bowerman, Head of Retail, Vanguard Investments Australia (September 2010)

¹ http://www.ato.gov.au/individuals/content.asp?doc=/content/00119316.htm

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Whilst each generation has very different needs and priorities when it comes to managing their money and their finances, an increasing number of cases are arising where the decision of one generation is having a detrimental effect over the financial stability of other generations. Perhaps the most common example of this is adult children seeking large sums of financial assistance from their aging parents. This is due to a range of reasons, most of which could be avoided if they had were more prepared. 

Whilst pre-retirees and retirees are focusing on the growth and longevity of their nest egg, their children are more focused on education, buying their first homes and starting a family. We are often so focused on our own financial goals, that we don’t consider how our family’s decisions and experiences can have an effect on those around us.

If a child finds themselves in financial difficulty due to factors such as redundancy, illness or debt, most parents first instinct will no doubt be to help their children by providing financial support. This, however, can have a significant impact on the parents’ superannuation nest egg, value of their estate and their quality of life during retirement.

Take Sally and Mark, for example.

Sally and Mark had just retired, and were looking forward to their upcoming golden years, spending quality time with their children and grandchildren and travelling around Australia as they had always planned to do.

Unfortunately, only 6 months into their retirement they had a devastating call advising that their son, Michael, had suffered a heart attack and passed away.

Because he was a fit, healthy man in his late thirties, Michael had not seen the need for any life insurance and for this reason his wife, who was a stay at home mum, was now left to manage their two children and mortgage on her own.

As most parents or grandparents would do, Sally and Mark welcomed their daughter in law and grandchildren into their family home.

The financial impact on Sally and Mark’s retirement plans was enormous. In order to support their daughter in law and grandchildren meant that their retirement plans were no longer what they had originally intended, and Sally and Mark would now need to live a very modest lifestyle in order to make ends meet.

*This case study is for illustrative purposes only.  

It is important to encourage discussions with your children from an early age, and ensure they are educated around their finances in order to avoid these situations. Arming your family with as much information as possible will assist you in helping each other for the long term.

By planning together and communicating, all generations can enjoy a better financial future.

Have you considered how the following issues may impact members of your family? What are some of the solutions to consider to address these issues?

For 20 somethings:

29% of Gen Y are “financially unfit” – high debt, no insurance, few savings and expensive accommodation.¹

–          Struggling to manage credit card debt

–          Low income

–          Paying off HECS debt

–          Increasing rental costs

–          Relative lack of awareness regarding finances

–          Living costs (many holding a live now, pay later mentality)

Things to think about:

–          Consider avoiding a credit card

–          Budget wisely

–          Educate yourself about your finances

–          Start planning for your future now – start a savings plan now- linked high interest account “pay yourself”

–          Live according to your income

For 30 somethings:

Only 53% of 30year olds believe they could survive longer than a month if they were unable to work.

–          Job stability and salary packages hit by financial crisis

–          Increasing property costs

–          Mortgage stress

–          Young families to support

Things to think about:

–          Speak with your Financial Planner about Risk Cover

–          Consider debt consolidation

–          Ensure you don’t overextend yourself when purchasing a property

–          Budget wisely

–          Don’t forget to think about your super

–     Consider some salary protection, life trauma insurance

For Pre-Retirees & Retirees:

It costs around $350 per week to support an adult child. That’s money many pre-retirees and retirees desperately need to build – or rebuild – into their retirement next egg.²

Around 22,500 Australian grandparents are looking after their grandchildren.³

–          young adult children living at home

–          lending money to children for major life expenses – i.e.: first home.

–          supporting children who are not coping with financial debt

–          instability of markets and the GFC shrinking super accounts

Its not too late to discuss these issues with your financial planner to learn about how they can help your family better plan for its collective future.

Visit:

www.financialplanner-newcastle.com.au

www.selfmanagedsuperfundstrategies.com

www.leenanetempleton.com.au

www.newcastle-accountant.com.au

Source: Lonsdale Financial Group

¹  Bankwest, Social Indicator Series, as sourced by BT Financial Group

²  What price the clever country? The costs of tertiary education in Australia, AMP. NATESM income and Wealth Report, 21 November 2008 and Honey, I calculated the kids… it’s $537,000, AMP. NATSEM Income and Wealth Report Issue 18 December 2007 as sourced by BT Financial Group Limited.

³  ABS: Family Characteristics, Australia, 2003 as sourced by MLC Insurance

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