The Greek Debt Crisis- History Repeats Itself

Greece has dominated the news headlines in recent times for all the wrong reasons as it sits at the centre of the sovereign debt crisis that is worrying many global investors.  However, many may be surprised to learn that this is not a new phenomenon.

Investopedia records that the first default in Greece’s history occurred in the fourth century B.C., when 13 Greek city states borrowed funds from the Temple of Delos. Investors took an 80% loss on their investments when most of the borrowers never paid the money back.
 
Greece has defaulted on its external sovereign debt obligations at least five times in the modern era (1826, 1843, 1860, 1894 and 1932).  The first occurred in the early days of Greece’s war of independence and the last was during the Great Depression in the early 1930’s.

Looking at their most recent default, it is fair to say that many countries defaulted on their debt obligations in the early 1930s.  This occurred as the world economy contracted and entered the Great Depression.  Greece imposed a moratorium on paying its outstanding foreign debt in 1932.  This default actually lasted until 1964, the longest of any of the country’s five defaults.

It would appear that the sixth default for Greece is just a matter of time.  A European Financial Stability Fund is in the process of being increased to prepare for and deal with the likely default of Greece.  It is likely that the EFSF will be used to prop up the German and French banks most exposed to the E280 billion of Greece debt held outside the country.

As a result financial markets have adjusted the prices of tradeable assets such as shares by 10-20% over the past quarter.  The effects have been felt in Australia along with the rest of the globe.  However, a lot of the bad news is already priced into markets and if the EFSF is made large enough to deal with the crises then there could be a solid rally leading into 2012.

Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.

HKS Financial Planning as an Authorised Representative of Guardianfp Ltd trading as Guardian Financial Planning. ABN 40 003 677 334 AFSL 237641. Guardian Financial Planning is a part of the Suncorp Group.

Trauma Insurance Fills the Gaps

According to an Australian Bureau of Statistics 2011 report, heart disease and stroke continue to remain the biggest causes of death in Australia accounting for over 33,000 fatalities in 2009. Incredibly, thousands of Australians are under insured or have no insurance in place to cover the expenses incurred by such illnesses. The grief experienced by family for loved ones suffering is often compounded by the costs associated with treatments prompting some to even sell the family home to pay for extra time.

If you were one of these statistics, what value would you place on having access to the best available treatment to help you in beating a potentially fatal disease?
Think about how important it would be to take as much time off work as you needed to recover and not having to worry about having enough money to pay the bills.

The role of trauma insurance
Trauma insurance provides a lump sum payment in the event that you are diagnosed with, or suffer one of a range of traumatic conditions such as cancer, heart attack and stroke.
Medical advances have meant that our chances of surviving traumatic events are much better than they were in the past, however, the cost of treatment can sometimes be beyond your normal means. Without trauma cover, you may need to dip into your children's education fund or your retirement savings, or you might even have to increase your mortgage to pay for expensive treatment.

A trauma payment is not dependent on you being unfit to work (unlike income protection, where you need a doctor to certify your ongoing ill health). The diagnosis of a traumatic condition might mean that you physically could go to work, but would prefer to spend time with your family and reduce any work-related stress while you recover and consider how your future will be affected.
Trauma insurance can provide the financial support to allow this flexibility with your work arrangements.

Never say it will never happen to you..
The types of events that trauma insurance covers are often unforeseeable and the statistics speak for themselves. To make sure you don't increase these statistics, carefully compare the many variations of trauma policies available. There are significant differences in the features between policies such as the number and type of events covered, premium options and ancillary benefits payable. 

If you require assistance please contact us to help you obtain the most appropriate policy for your circumstances.  

Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.

HKS Financial Planning as an Authorised Representative of Guardianfp Ltd trading as Guardian Financial Planning. ABN 40 003 677 334 AFSL 237641. Guardian Financial Planning is a part of the Suncorp Group.

Steering Your Super and Investments Through Stormy Investment Markets

What causes share prices to fall?
In essence, a share market is just the collective listing of the individual share prices of many different companies. As investors buy and sell the share in those companies, their prices fluctuate, and so does the index that represents that share market as a whole (e.g. the All Ordinaries Index or the S&P 500). Share markets are highly sensitive to investor confidence. If many investors are selling their shares, the price of those shares will fall.

What's behind the recent share market turmoil?
There are two recent international events which have conspired to tip investor confidence and cause international share markets to fall.

• Government debt problems (sometimes called 'sovereign debt' problems) have been troubling several smaller European countries for months, but have recently spread to Italy- prompting a fresh wave of investor concern. 

• Ratings agency Standard & Poor's has downgraded the United States Government's credit rating. This has never happened before- prompting sharp selling by investors in this market, driving share prices down. 

What have Europe's or America's economic problems got to do with your super?
Australia does not exist in a bubble. The global economic pessimism is bound to have some impact in Australia, resulting in a market downturn in our own share market. Secondly, depending which invest option(s) your super is invested in, it is likely that some of your money is invested, via various fund managers, in international shares. Movements in international share markets can therefore affect your super balance.

What's the state of Australia's Economy?
In Australia, people are saving more and spending less. Many of us are more concerned for our future financial security- particularly after seeing our own share market fall. And yet, the Australian economy remains relatively well placed compared to the likes of the United States and Europe and should continue to benefit from robust demand for our raw materials from China. Unemployment remains low and leading indicators suggest further, albeit slower, growth ahead.

How should you react to this market volatility?
This is a question that only you and your financial planner can answer. But in general terms, you might broadly consider the following:

If you're a long-term investor
The passage of time should eventually smooth out the current downturn in investment markets. Your super is with you all of your working life (and beyond), not just two or three months. It can be frustrating and worrying to lose money on investments. It is important to stick to a long-term plan, and not overreact to short-term distractions and media noise.
At times like these, you should speak to your financial adviser regularly, to make sure your plans remain on track through the inevitable ups and downs of investment markets.

If you're a short-term investor
The important thing is not to panic and rush into any decisions. However, you may naturally want to understand what impact the downturn is having on your savings and what, if anything, you should do. This is why it is very important to get professional financial advice before acting.

Should you change your investment strategy?
Again, only your financial planner can help answer this question for you. It may also depend on whether you're a long-term or short-term investor.
Surely, when things are looking uncertain, it can be tempting to switch your super into a less volatile and more secure investment option; but this strategy may have an adverse effect on your long-term savings, because:

• Conservative investments (like cash or term deposits) are only likely to produce modest growth over the long term. This might be good for certainty, but it may not be so good for your lifestyle in retirement.

• If you take your money out of investment markets during a downturn, you're effectively selling your assets for a lower price. It also means you're locking in any losses that would otherwise only exist on paper. You can't benefit from a market recovery if you're not invested.  

Many people actually choose to buy assets or top-up their super when markets are down- knowing they're getting more for their money, and will benefit when the market recovers.

For more information on how you can steer your super and investments in the right direction contact our office on 07 3397 7315. 

Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.

HKS Financial Planning as an Authorised Representative of Guardianfp Ltd trading as Guardian Financial Planning. ABN 40 003 677 334 AFSL 237641. Guardian Financial Planning is a part of the Suncorp Group. 

Aged Care- What are your options?

Currently up to 10% of older Australians are in a hostel or nursing home and this number is expected to increase over the next 30 years as the baby boomers reach their early 80s. John Spooner delves into a complex area and uncovers some strategies to help through the minefield of options.

One area that seems to bewilder clients more than any other is Aged Care. Often this is a decision that is rushed as a result of a sudden deterioration of health. Rushing these decisions often leads to a poor outcome for everyone involved. It pays to start the planning for aged care early and it pays to get the right advice. It is important to understand the fees and charges and how they can be reduced - at the end of this article is a case study comparing outcomes for an individual.

1. Aged Care Assessment Teams (ACATs)
Prior to entering an aged care facility, a persons physical and mental health must be assessed by a member of an Aged Care Assessment Team (ACAT) to determine the level of care required (nursing home or hostel). A person cannot enter a facility without a referral from an ACAT member.

The best way to contact an ACAT is through a family doctor, local hospital or community health care.

2. Hostels and nursing homes
Hostel (or low level) care facilities provide personal care accommodation and some level of nursing care.
Nursing Homes (high level) care facilities provide 24 hour nursing care and accommodation.
The fees and charges associated with hostels and nursing homes also differ slightly and can be quite costly. Here is a summary:

Cost of care in hostels
a. Basic Daily fee – The basic daily fee is paid by all residents as a contribution towards the costs of daily living such as meals, cleaning, laundry and heating.
The general rule is that the basic daily fee is 84% of the basic single Age Pension. This is currently $40.25. This means that all self funded retirees and some part pensioners pay a lower basic daily fee amount.

b. Income Tested Fee – residents may be asked to pay an income tested fee in addition to the basic daily fee. The amount they pay depends on their income and the level of care they need. The fee is paid directly to the aged care provider as part of their overall fees.
All income received by the resident counts in calculating the income tested fee. The formula for calculating the income tested fee is:
(Total assessable income – Total assessable income free area) x 5/12
Where:

“total assessable income" includes

* Income calculated by Centrelink for the income test
* Pension income

Total assessable income free area is generally $847.90 for singles and $1,659.80 for couples, per fortnight.

The maximum income tested fee is $64.69 per day.

It is important to note that there are strategies that can be implemented to reduce the income tested fee. This involves using investments that are treated favourably under the income test such as annuities with term of greater than 5 years and no Residual Capital Value.

Accommodation bonds
This is an amount that a person entering a hostel may be asked to pay as a charge for accommodation. Each bond is negotiated individually taking into account the person’s assets at the time of entry. Note: there is no limit on the amount of the bond but the individual must be left with $39,000 in assets after paying the bond. A person’s assets are generally assessed in the same way as for Centrelink and DVA pensions.
TIP: It is not compulsory to have an asset assessment unless a person wants to find out if they are eligible for Government assistance with their accommodation costs. Some clients may feel they can negotiate a lower bond amount if the facility is not aware of their total assets.

Payment options

The bond may be paid as-

- lump sum
- periodic payments
- a combination of lump sum and periodic payments

The lump sum bond is held by the facility throughout the time the individual is a resident and they may deduct up to a maximum of $3,816 per annum for up to 5 years.

If the periodic payment option is chosen, the facility will charge interest based on the fact that they are not able to earn interest on the lump sum amount. The Department of Health and Ageing sets the percentage interest that a facility can charge; this is currently 9%.

Note the bond balance is exempt from Centrelink and DVA Assets Test and is not subject to deeming.

Residents who pay at least part of their bond via periodic payment are able to rent out their home and their home can remain exempt from the Assets test. In addition the rental income will not count towards the income test.

Cost of care in a nursing home
Daily Care fees – calculated in the same way as for hostels (above)
Accommodation Charge – Nursing homes generally charge an accommodation charge as opposed to a bond, to cover the cost of accommodation. Like the bond each charge is negotiated individually and the person must have assets of more than $39,000 in order to pay the charge.This means that someone with assets below this amount is not subject to the charge.
The current maximum rate of $32.38 per day applies. The accommodation charge is set upon entry into the nursing home and will not change as a result of a change in a residents level of assets

The number one question that we get asked is ‘What happens to the primary residence when a person enters an aged car facility?’



If both spouses enter a facility or the resident is a single pensioner, Centrelink will continue to treat the home as the principal place of residence for two years from the date the last spouse leaves the home. This means that all residents that keep their family home have at least a two year exemption from the Assets test.

This period may be increased for residents who meet the following criteria:

i. Residents entering a nursing home who are paying or accruing a liability to pay an accommodation charge and renting their former home.

ii. Residents entering a hostel who pay some or all of their bond by periodical payments and are renting their former home.

TIP: Clients can pay the majority of the bond by lump sum where it is exempt from the Assets Test and pay the remaining amount via periodic payments. So long as they are renting out the home, it will also remain exempt.

TRAP: If a person moves into a hostel and pays the accommodation bond in full the rental income will count towards the income test and the home will count as an asset two years after the last member of the couple moves into an aged care facility.

While the home is exempt the resident is subject to ‘homeowner’ Asset Test thresholds. This provides a great benefit for residents on Centrelink. The option of keeping the family home should always be explored first!

CASE STUDY – HOSTEL FACILITY (LOW LEVEL CARE)

* Mavis is an elderly widow (aged 80) who has been assessed into low level hostel care
* Mavis is currently in her home worth $350,000
* Mavis has the following assets apart from her home:

• Contents $5,000
• Investments $250,000

          Total $255,000

* Mavis receives a UK pension of $5,000 per annum
* Mavis receives a Centrelink pension of $13,121 per annum

The Hostel has asked for an accommodation bond of $200,000

Should she keep or sell the family home?
Should she pay the bond in a lump sum, periodic payment or a combination of both?
Option 1 – Keep and rent out the home, pay the bond as a lump sum from her investments

If Mavis keeps the home it will remain exempt from the Assets test for two years. The rental income will count towards the Income Test and the income tested fee as she is not paying any of the bond as a periodic payment.

Result:
Age Pension entitlement $12,955 per annum
Basic daily care fee $13,990 per annum ($38.33 per day)
Income tested Fee $3,082 per annum ($8.44 per day)
Total Fees $17,072 per annum

Option 2 – Keep and rent out the house, pay $190,000 of the bond as a lump sum and $10,000 periodically

This option takes advantage of having both the bond and the house exempt from the Assets and Income Tests. Even though only part of the bond is paid via periodic payments, this is enough to provide an indefinite exemption on her former home so long as it is rented.
Result:
Age Pension entitlement $17,396 per annum
Basic daily care fee $14,691 per annum ($40.25 per day)
Income tested Fee $652 per annum ($1.79 per day)
Periodic Payments $900 per annum ($2.47 per day)
Total Fees $16,243 per annum
Option 3 – Sell the home and pay $200,000 bond from the proceeds
The proceeds from the sale of the house minus the bond amount of $200,000 count as an asset and is deemed under the income test. Although Mavis is now counted as a non-homeowner her pension is reduced significantly under the income test.

Result:
Age Pension entitlement $9,746 per annum
Basic daily care fee $13,990 per annum ($38.33 per day)
Income tested Fee $4,420 per annum ($12.11 per day)
Total Fees $18,410 per annum

SUMMARY
Clearly, option 2 is the preferred option in this case as Mavis maximises her age pension, reduces her fees and maintains her house. Note that each client has a different set of goals and objectives and the right solution will vary accordingly. It is important to seek advice to ensure you take the right decision before entering aged care facilities.

Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.

HKS Financial Planning as an Authorised Representative of Guardianfp Ltd trading as Guardian Financial Planning. ABN 40 003 677 334 AFSL 237641. Guardian Financial Planning is a part of the Suncorp Group.

Spring 2011 Economic Snapshot- Volatility.. Opportunities

July 1 - October 7
ASX 200	(down) 9.73%
Dow Jones	(down) 11.75%
German Dax	(down) 23.50%
Greece	(down) 41.80%
AUD/USD	(down)  8.64%

The best word to describe the recent share market action is VOLATILE!. This reflects developments both globally and domestically; particularly the US recovery stuttering, the European Sovereign debt resolution being drawn out and the two speed economy.

Whilst volatility can be off putting, the focus must be on the longer term value. The worlds greatest investor, Warren Buffet, puts it admirably. "I buy on the assumption that they could close the market the next day and not reopen it for five years". This quote is telling you to ignore trading, because trading is for gamblers. Investing involves buying quality companies and holding them for the long run.

Despite the recent volatile period on the Australian market, we have seen the recent profit reporting season feature reasonably solid dividend growth. This reflected improved profits but also strong corporate balance sheets. Companies not paying much in interest leaves more for shareholders!

We expect that dividends will be a significant proportion of investors return on shares as the world economy experiences lower growth as both household and government sectors deleverage.

Here are the estimated dividend yields on 10 of the biggest Australian companies for 2011/12:

Gross Dividends
BHP	4.85%
ANZ	9.57%
CBA	10.00%
NAB	10.00%
WBC	10.00%
RIO	2.57%
WPL	4.57%
WOW	7.28%
TLS	13.00%
WES	9.00%

Source: morningstar.com.au

In Australia, three of the big four banks will report their earnings and pay their dividends this quarter. This will provide a friendly reminder to 'investors' of the value of income in their portfolios.
In other areas of the Australian economy, house prices continue to fall across the nation, driven by fresh ten and a half year lows on home sales in July. The weakness in the housing sectors added to a continuing weak situation in retail. This has lead to most believing that the next move from the Reserve Bank will be a rate cut. Many economists are predicting 0.25% rate cuts in both November and December to provide maximum impact to the Christmas retail period.

If you would like to discuss how these issues will impact on you, please do not hesitate to call HKS Financial Planning on 07 33977315.

Information contained in this blog is of general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you always obtain professional insurance, investment and taxation advice specific to your objectives, needs and financial situation before making any investment decisions or acting on any information contained in this article or on this blog.

HKS Financial Planning as an Authorised Representative of Guardianfp Ltd trading as Guardian Financial Planning. ABN 40 003 677 334 AFSL 237641. Guardian Financial Planning is a part of the Suncorp Group.

Millionaire's Pension- The aged pension is on the rise.

As of next week, a retired couple who are the owners of their primary residence and have $1M in other assets will now be eligible to receive a part-pension. The asset threshold will be raised by Centrelink for home-owning couples by $20,000, to $1.018M, allowing millionaires to be eligible for the aged pension.

The income threshold for the aged pension will also rise to more than $2,500 a fortnight. From Tuesday, the full fortnightly rate for an age pension will be $1,129 a couple and $748.80 a single.

To read the full article in the Courier Mail click on: Millionaire's to Receive Pension

For more information on this article or if you would like to set up an appointment with one of our financial planners, call us on (07) 3397 7315.

Changes to Government Deposit Guarantee- A Permanent Cap For Deposit Accounts

Over the weekend Treasurer Wayne Swan announced changes to the guarantee on savings deposits with authorised deposit-taking institutions (ADIs) to be introduced as at 1 February 2012. The Government created this scheme in October 2008 to protect depositors in ADIs from loss on their deposits if their institutions went bust as concerns about credit markets were at their peak during the GFC; a cap of $1 Million was introduced to provide protection for the industry. This cap had been under review since May this year.

Under the new regulation, the guarantee threshold will be $250,000 per entity, per institution (reduced from $1 Million), and will remain a permanent protection for all deposits at ADIs. In the words of Wayne Swan the introduction of the new cap will "ensure that we continue to have one of the most generous and secure deposit insurance schemes in the world, and builds on the Government's record of ensuring our financial system remains among the strongest in the world."

As mentioned, the new cap will take effect 1 February 2012, however for existing deposits, or those taken out from 10 September 2011 and before 1 February 2012, the following transition arrangements are in place:

- Existing deposits continue to be covered at the current level ($1M) from 11 September 2011 until 31 December 2012, or until the maturity date- whichever occurs sooner, after which the new cap will apply;

- For deposits entered into between 11 September 2011 and 31 January 2012 inclusive, will be covered at the current level of $1M until 1 February 2012, at which point the new cap of $250,000 will apply;

- If an existing deposit at 10 September 2011 matures before 1 February 2012 and rolls over, the new deposit will be covered at $1M until 1 February 2012, at which point the new cap of $250,000 will apply;

- Similarly, if an existing deposit at 10 September 2011 matures after 1 February 2012 and before 31 December 2012, and is rolled over, the new cap of $250,000 will apply from the rollover date.

The full media release from Treasurer Wayne Swan can be read at: Press Release: New Permanent Financial Claims Scheme Cap

If you have any questions please do not hesitate to call our office and speak to one of our financial planners on (07) 3397 7315.

Super Made Simple

Make no mistake, when it comes to investments and tax minimisation, superannuation is a vehicle, which offers significant benefits for many people. What other investment vehicle allows you to invest with pre-tax money, pay tax at the lowest marginal rate on the earnings of the investment and have potentially no CGT consequences on withdrawals?  And as an added bonus- superannuation may provide considerable protection for investments within the fund.

The misconceptions that surround superannuation often lead it to being down the list in terms of preference for investors. As a result of this misunderstanding, we often come across people who claim not to trust superannuation for fear that they could “lose everything”.

Superannuation is not an asset such as cash or shares; it is merely a structure that owns these assets. It is the careful selection and monitoring of the assets in your superannuation fund, such as shares, property and cash, which will help protect your money.

Think about superannuation as an empty car shell. Without an engine you will see no performance. However, the empty car shell still exists. To get the performance you then insert an engine, which in the case of superannuation, is represented by the assets within the fund.

Cash is akin to the scooter engine, low and steady performance, cheap to maintain but it’s not going to get you anywhere in a hurry. Shares on the other hand are more akin to a V8 engine, powerful performance that is likely to lead to getting you to your destination quicker; however there may be bumps along the way because of the complexities involved.

As Financial Planners, our role is to provide a tailor made “engine” that suits who you are as an investor and also provide you with the opportunity to achieve your goals.

If you would like to give your “engine” a tune up to ensure you are on the right track with your superannuation, please contact our office on (07) 3397 7315. 

Interest Rates- Where to from here?

After yesterday’s announcement from the RBA many people are asking in which direction are interest rates heading? After months of continuous speculation about interest rates moving up, the most common view is that rates are now firmly on hold with only a slight chance of a movement in either direction.

The 90 bank swap rate is quite often a very good indicator of where rates are heading. For the best part of 2 years the swap rate has been hovering above the RBA’s cash rate which indicates that rates are likely to be moving up. In recent weeks however the swap rates have fallen and now sit in line with the RBA’s cash rate at 4.75%, indicating a period of stability for interest rates.

Whilst the RBA’s stance on interest rates is likely to remain stable for the short term, our medium to long term view is that rates will continue to rise as we see the effects from the mining boom begin to filter out into other parts of the economy.

In the interim though there is some form of relief for households with banks now furiously fighting for consumers as the mortgage market  continues to show signs of coming to a standstill. Fixed rates over a 3 year period have come down to as low as 6.39% for three years fixed and variable rate as low as 7.05% meaning some of the RBA’s work has been done for them and allows Glen Stevens more time to sit on the fence and ponder his next move.