News - MG Financial Planning Gippsland's leading financial planners & accountants

July Newsletter 2010

Thu, 29 Jul 2010 00:00:00 -1000

The headlines - what is the purpose?

The recent stress testing of the European Banks captured headlines due to the 7 failures. What about the 84 that passed? Many of us would be happy with a score of 84 out of 91. What was expected? Surely not 100%, otherwise why were the tests necessary?

As always you need to look deeper. 5 of the failures were Spanish savings Banks. If you recall last month's article this will not surprise you and I am sure it didn't really surprise the Bankers in Europe and around the world.

The stress test was considered a little lenient and unlikely to ever produce a result that would cause panic. However it is something constructive and has set targets that have helped to soothe the market a little. It has also added a level of transparency which is crucial.

The risk of a double dip recession

There is still a risk but you should keep in mind that double dips are very rare. Over the last 85 years the only double dip was at the start of the 1980's. Those currently with their hands on the levers for the economy will have learnt from that and will be doing their best to avoid a repeat.

Also whilst much of the economic news is moderating it is still positive. China is a very good example with growth slowing to 10.3% for the year ended June 30^th down from 11.9% for the year ended 31^st March 2010.

Interest rates are very accommodating at the moment (Australia is an exception) with most the world enjoying low interest rates which provide a good opportunity for investment and growth. It is higher rates that put the brakes on the economy.

The Emerging economies will continue to be a major contributor to world economic growth. Ideally this will be sufficient to offset weaknesses in developed markets and create an overall benefit.

Inflation & interest rates

The inflation rate for the June quarter was 0.6%, giving an annual rate of 3.1%. The RBA preferred range over the medium term is 2-3%. Whilst the recent figure is slightly outside the range, it appears that an increase in interest rates in August is unlikely.

Expectations

Many commentators expect to see the Australian sharemarket higher by the end of the financial year and improving more by mid 2011. This will not be a smooth ride as there is likely to be some volatility.

Some see the recent falls as a buying opportunity that could be well rewarded.

The chart below shows the opinion of stockbrokers RBS Morgans.

This doesn't mean that we should invest heavily in our sharemarket now. It means that those salary sacrificing should continue and those currently invested should remain in the markets. If you have funds to invest, it is an opportune time to talk with us and determine how best to use your assets to help you achieve your goals.

Don't follow the herd - stick to your plan

Information moves fast these days and is so prominent in our lives via papers, TV, radio and the internet. If you miss all that I am sure someone will send you an email or a text.

Competition is strong for your attention so the information needs to encourage you to use a particular service.

Additionally there is plenty to report on the financial markets; the GFC, Greece, Spain and the rest of the European economies, European Banks, the so called ‘fat finger' trade, China slowing its growth, our Resources tax, our election, inflation numbers, interest rates, economic growth and recessions.

The big players move large amounts of money over very short periods based firstly on their fundamental economic views and also based on their sentiment at the time. This can cause large fluctuations in the markets. The average investor cannot keep up. Importantly, nor should you try. Excessive trading will not enable you to beat the market on a consistent basis.

Often the events of the markets are an overreaction to the real world events. Many investors tend to view uncertainty as a negative and react accordingly.

The worst thing you can do is to sell at a bad time and then nervously wait on the sideline for the right time to buy. The reality is that the best time to buy is when things look their absolute worst.

You need to tune out from much of the hype that currently surrounds the financial markets. Taking the long term view is not exciting but it is the key thing you can do to give yourself the best opportunity to achieve your goals.

As always we are happy to meet with you to discuss this and any other issue.

June Newsletter 2010

Fri, 25 Jun 2010 00:00:00 -1000

Debt still looms as the big issue

In particular the debt problems in Europe are causing much uncertainty which is leading to very high levels of volatility in the sharemarkets. The process has now moved to massive savings measures and budget cuts being implemented to reduce debt. The downside of such measures is that reductions in spending can reduce economic growth and a healthy growing economy is usually a necessary element for companies and sharemarkets to grow.

The other big problem is that to firstly meet the interest bill and then hopefully to reduce the debt, a country needs a certain amount of economic growth. As interest rates rise, the interest bill goes up and growth usually slows, it is the wrong combination to reduce debt.

This is one reason why interest rates are still so low in the US.

This means that for those countries burdened with debt, they are likely to have many years of slower economic growth as they grapple with the problems caused by excessive borrowing.

Property never goes down in value

This myth about residential property has just taken another hit. We know that property has fallen in countries such as Japan and more recently in the US and UK. Now we are seeing European values fall. In particular the case of Spain is quite dramatic. A recent article in the Financial Times reported that a Spanish bank is selling 1,000 properties at a discount of up to 70%.

This occurred because at the peak of the housing bubble Spain, with a population of 45 million, was building more houses than Germany, France and Italy combined that have a total population of around 200 million.

Whilst this process created plenty of jobs, it also created too much debt on incomplete and unsold properties.

Official statistics show that property values are down by only 16% from peak to trough, but like some property statistics this is unreliable as many properties are held by the banks and may not have been revalued... yet.

What about Australia?

Our property market continues to be resilient. We are still seeing prices rise, albeit at a slower rate, but prices and debt levels are very high by most measures. No-one really knows how our market will fare in coming years. To avoid a fall will be a remarkable outcome. It is possible but it will be challenging.

Sharemarkets - what can we expect?

To understand the current situation we need to understand the prior bull market in global shares which occurred from the early 1980s. This was most clearly evident in the US share market, as seen in the chart.

It is acknowledged that this section is based on material from Shane Oliver, Chief Economist, AMP

The bull market from the early 1980s was driven by a combination of falling inflation (which allowed shares to rise faster than earnings), de-regulation and smaller government (which helped boost productivity and profits), easy credit, globalisation (which helped keep inflation down and boosted trade), the Information Technology revolution and favourable demographics.

Since the turn of the century and increasingly through the last decade, many of these favourable themes have faded or gone into reverse. In particular:

The benefit to shares from the shift to low inflation over the last 25 years has run its course;
The global financial crisis will likely ensure a tighter credit environment for the next decade or so.
High public debt levels are impacting as discussed above;
Monetary policy in many countries has been forced into extreme swings;
Government policy is moving back to re-regulation and greater government involvement in the economy. The proposed Resource Super Profits Tax is an example.
Demographic trends are becoming less favourable as the proportion of the population at peak spending age starts to decline and baby boomers retire.; and
To the extent the world is now becoming more dependent on growth in emerging countries, this will also add to economic volatility. This is because emerging countries are traditionally more volatile, reflecting their greater exposure to manufacturing which tends to be more cyclical than the services sector.

The outcome is likely to be lower average returns compared to the last bull market from traditional asset classes and a more volatile economic and investment cycle.

This will make investment management even more important. Our use of carefully selected asset classes along with a variety of quality active managers will provide a sound approach for you.

Portfolio changes

We have again made improvements to our portfolios. You will see these as we complete reviews or rebalancing. We do hold the managers we use accountable to deliver value for the fees they charge. As we are not aligned with any organisation we are able to remove and add managers as we believe doing so will benefit you.

We will continue to commit resources to this aspect of your financial planning.

May Newsletter 2010

Wed, 19 May 2010 00:00:00 -1000

Conflicting news

We currently have news at two very different levels at the moment.

The headlines are consumed with the problems in Europe and a possible slowdown in China. Particularly the Europe issue is having a big impact. Financial markets bounce around each day depending on the direction of the sentiment at the time.

Underneath this there has been some excellent news. The US is continuing to show signs of economic improvement and their company reporting season produced better than expected results.

This is because of how businesses in developed countries managed their way through the global recession. Many businesses were very proactive in cutting costs and adjusting to a difficult environment. Now that the overall economic recovery is underway, companies are enjoying a strong rebound in profits.

Greece still in the headlines

This issue is not going away in a hurry. Greece is in terrible shape. The impact has been remarkable for a country that represents less than half a percent of the world economy. You should also note that Portugal is even smaller.

It is an extreme case in terms of its public finances (refer to the chart), so far despite much fear, there is no sign of any flow-on to the debt of key advanced countries.

European authorities have provided a strong lifeline for troubled European countries. This, along with the stronger state of the global economy today, should help prevent the European public debt crisis from turning into a re-run of the global financial crisis.

While the problems in Europe are negative for the euro and share markets in Greece, Spain and Portugal, the European support package should help contribute to a resumption of the bull market in shares once the dust settles. Shares were due for a correction to some degree after the strength of the recovery. At this stage it's too early to say that the correction is over.

Longer term, public debt problems are likely to remain a concern in the years ahead. At one level there will be concerns such as those that surround Greece and at another level it will be the need to reduce debt and the impact that it has on economic growth.

Reminders

As the end of the financial year approaches there are a few reminders necessary.

Co-contribution. Although this has again been watered down by the Government, it is still an excellent opportunity to add some value. Investing $1,000 of your after tax money can gain you $1,000 in your super from the Government. Of course conditions apply so contact us for guidance.
Super contribution limits. These are very strict and apply to your contributions plus employer compulsory, additional and notional contributions. If in doubt check with us.
Self employed? You should consider making a tax deductible contribution. It can save you tax and with markets undergoing a correction, it is a good time to invest.

Be wary of tax driven schemes

Our website has a blog article about the above. It is the season when these schemes are aggressively promoted. For more information please read the article.

April Newsletter 2010

Wed, 21 Apr 2010 00:00:00 -1000

Investments returns continue to recover

Whilst most of the headlines have focused on the problems with Greece and also China and Australia raising interest rates, the investment markets have been performing very well.

This stage of the recovery is usually pleasing. Sharemarkets again posted a good result in March and the one year figures are as good as we could hope for. There is still a long way to go to reach the previous highs that were set in early November 2007, however we are heading in the right direction and it has been at an excellent rate so far.

Of course returns will slow and normalise in time and there will be challenges. However patience is being rewarded.

Markets still have more to run

The first stage of the recovery in share markets is certainly nearing an end or is possibly over. This involves moving from a position of share prices being sold down excessively and an overly pessimistic view being prominent. As we have seen, the transition from this point has been very strong.

The second stage is where company earnings drive the returns. That is, we see company profits growing and their expectation of future profits to be improving. A good example is the announcement overnight by Apple Inc in the US that their profits for the March quarter this year have risen by 90% compared to last year.

This phase also usually requires better overall economic news for countries and even the world as a whole. All these factors are present despite there being doubts and risks in some areas. We are in the midst of reporting season in the US so sentiment will be driven by the quality of the company reporting. In Australia we have good economic news and improving company results.

The final stage is the one that is the danger zone. It is where investors get too excited and their expectations are unrealistic. They believe that the markets will keep rising. Fundamentals are ignored and share prices continue to be pushed higher, outpacing the growth in company earnings. This is the ‘boom' part of the cycle and we know what follows.

Results like those from Apple are not sustainable and we will most likely see profits grow at a slower rate from here so returns will be more moderate whilst being well supported for growth.

China is still in the news

There is so much going on in and about China that it features very prominently in the general media and regularly in our updates. Last week it was the news of the economy growing at 11.9% in the first quarter 2010 versus 2009.

Some of the detail behind the headlines is amazing. Car sales are up 76% for the quarter compared to the same time last year. Mercedes Benz reported that sales were up 100% from the same period last year. Infrastructure projects are developing at an astonishing level. The International Airport at Chongqing is being quadrupled in size. The local press in Chongqing reported that there are another 323 projects planned. No need to ask if they are busy!

The downside of this is that all the development has to be paid for and much of it is being done with borrowed money. In fact the level of borrowing is raising concerns within China and as a consequence they are tightening lending criteria for these projects. This may mean that the current level of infrastructure investment in China is near a peak.

In addition stricter requirements are being imposed on those borrowing to buy residential properties in China. Under the new rules, purchases of a second property must involve a deposit of at least 50%.

Finally (for now) it does appear that China will allow some appreciation of its currency. Assuming the increase is minor, it will have little real impact around the world. As exports to China will be cheaper, our mining companies should benefit from any change.

Overall there is much happening in China and it appears that the outcome will be that the rate of growth will be more subdued in coming years as authorities there try to avoid a boom/bust scenario. As we said last month China is attempting to apply the brakes and now seems more determined to do so.

Will our home loan rates reach 10%?

This issue was raised around a week ago and at first glance, it appears a little fanciful. Yes rates are rising but the RBA cash rate is still at 4.25%, so it is a long way from 10%. The logic to argument is this. Rates as set by the RBA will continue to rise and possibly reach around 7%. The big banks have actually increased their margin throughout the crisis, so add an extra 3% or so on top of the RBA rate and we are around 10%.

Is this likely? Well the RBA will continue to raise rates. The level is very uncertain and at this stage 7% seems a long way off but if the last few years have taught us anything, it is to expect the unexpected. Will the banks maintain their margins? Most likely. You wouldn't bet much on them reducing the margins.

The consequence for increases in Home loan rates are very serious even if they do not reach the level mentioned. The First Home Buyers Scheme of recent years meant that many people who bought houses with borrowed money and were stretched to do so will find it difficult to meet rising loan repayments. Initially they will reduce spending elsewhere which will have an impact on the growth of our economy.

Our Portfolios continue to add value

As part our work behind the scenes we continually monitor the performance of the funds that we include in your portfolios. We also monitor others that we are considering to use in the future. We are satisfied that the funds we are using are adding value above the indexes and after fees. This means that your portfolios are not only performing well but also outperforming our targets. For those clients who have been investing with us for longer periods we are seeing excellent returns through good and bad markets.

More importantly it is commonplace to see clients coming through the Global Financial Crisis with their retirements plans intact.

March Newsletter 2010

Thu, 18 Mar 2010 00:00:00 -1000

One year on and the recovery is intact

The end of February caps around 12 months of the recovery in financial markets. Our sharemarket reached its low point on March 6 last year and since then the recovery has been as good as we could have hoped for.

The problems in January surrounding Greece have diminished slightly but concerns still do exist. The positive is that the Greek Government and the European Union are working on a solution.

China and the US are trading verbal blows over the value of the Chinese currency and management of their economies. Each is looking to improve their own position. If China is to allow its currency to appreciate, then the price of its exports will increase. Obviously this is not appealing to them.

The current concerns

Economic news continues to be prominent in the media. Keep in mind that a comment like ‘things are going well' is not going to make headlines. To feature, the story needs to be a little out of the ordinary. To use an analogy, no-one in the media will report how many planes landed safely. However a near miss or an accident is out of the ordinary and will be reported.

In relation to financial news, talk of a ‘double dip recession' is seen as newsworthy. Experts love to be the one to predict these events. A double dip simply means that those economies that suffered a recession will again suffer one soon after the original recession. In the case of Australia, we technically didn't have a recession, but a double dip would still see conditions deteriorate.

This is unlikely here as our economic conditions are good and improving. This is why the Reserve Bank has and will continue to raise interest rates. It would take an external shock - problems overseas for our economy to suffer.

Let's look at some of the possible challenges.

Sovereign debt

Greece remains the main issue. The reality is that Greece represents only 3% of the European Union economy and even in the worst case, on its own it is not be a big problem. The real concern is the flow on effect and the question of who is next.

It appears that the problems facing Greece are in the process of a serious attempt at being resolved. However we are not there yet and this is a problem that will not go away with Greece or other bigger countries.

The problem with Sovereign debt is that unless it can be reigned in, it will serve as a significant drag on economic growth. The general view is that if the debt is too high then it will grow at a rate that is faster than it can be repaid. The chart below shows the current and projected position of major overseas countries.

Source: Morgan Stanley, 2008 Data

This is one reason why the US is keen to keep their interest rates low. If rates rise, the cost of the borrowing rises. It will be a very difficult balancing act to keep rates low without letting inflation get out of control. As we know, the main lever to control inflation is to increase interest rates.

If economies aren't growing strongly, it is unlikely that companies will be growing at an exciting rate, so share prices will struggle to add much value. However this scenario does not mean we should not invest in those countries at all. Japan has endured a similar fate to that described above for over a decade, yet one of the key managers that we use, Platinum, has enjoyed much success and part of this has been due to the inclusion of carefully selected Japanese stocks.

Australia's debt is a little higher than we would like but it should reduce next year to an acceptable level. We are well supported by exporting so much to Asia rather than those countries that are struggling under the weight of debt. Our company's profits have recovered well and the outlook is far better now. Overall we are positioned more favourably than many overseas economies. The only concern is housing prices.

Our house prices are very expensive compared to our income and our household debt is also very high compared to our income. Despite this, prices continue to rise. Of course this fuels the myth that property prices, particularly houses never go down. I say myth because it is absolute rubbish. Overseas countries have suffered massive falls in the price of residential housing even to the extent that people walk away and hand the keys back to the bank. We have had periods of falls but it is true that they have not been anywhere near the severity of those overseas.

Despite this our prices do continue to rise and we have very strong demand for housing based on our growing population. Logic says that the price growth cannot continue. Rising interest rates will either dampen demand or restrict household spending or a combination of both.

China applying the brakes

As covered last month, the Chinese Government is attempting to slow the rate of growth of their economy.

This is a good thing as the aim is to avoid the boom/bust cycle and to enjoy a longer period of economic growth, albeit at a lower rate.

Again sensibly, the Chinese are focusing on reducing reliance on exports and more on domestic demand to support their economy.

These measures make sense but do carry risks. If the rate of economic growth slows too much it will be very unsettling for many as there is significant reliance on China as a key driver of the world economy. We only have to look locally to see that Australia has placed many of its eggs in the China and Asia baskets.

What can we expect?

The theme remains that of improving conditions, slow growth in many developing overseas nations, emerging markets leading the way and Australia situated very well. Sharemarket returns will be much harder to come by now that the initial recovery has occurred. Correct positioning into asset classes and sub classes will be more important. Stockpicking and timing will be even more difficult in this environment. Expect bad periods when losses will be suffered, but there will be a recovery from these.

The days of cash being the best place to have money have passed and returns from Bank accounts and many Term Deposits are poor, particularly after tax. Of course if capital preservation is your only priority then cash is the place for you.

There is still value in growth assets despite the risks.

February Newsletter 2010

Mon, 22 Feb 2010 00:00:00 -1000

The recovery hits a rough patch

After a very positive run of around ten months, financial markets posted negative results in January. This was amid problems in Greece, concerns about China and doubts about the strength of the Global Economic recovery.

Despite the returns on portfolios for the year ended 31^st January have been excellent with investors with a growth asset allocation enjoying returns of around 20% for that year. Of course this was much needed after the previous losses.

The question is- was January a reversal of the recent recovery or a merely a break in the trend which will resume? Our view is that it is the latter and the recovery still has plenty of life, despite there being challenges ahead.

Greece & Government debt

The main news headline has been the problems facing Greece which has extended to a much lesser degree to concerns about other European economies.

During the crisis, it was the Private sector that met difficulties and in many cases, private entities failed, or were only saved with Government support. As part of this process much of the problems and debts that were weighing on the private sector were transferred to the Governments or public sector. We now have many countries with much higher debt levels and questions are being asked about the ability of those countries to repay the debts. We even had Barnaby Joyce questioning the ability of Australia to repay its debts in the future. This was a little hysterical to say the least and probably reminded some of us about the banana republic comments by Paul Keating many years ago.

The reality is that debt must be repaid at some point and we have many developed countries labouring under the load of heavy debt. The problem is compounded by aging populations making it more challenging for Governments to generate revenue.

These developed countries include Greece, Iceland, Ireland, Spain, Portugal and Poland, none of which are significant economies individually. It is unlikely they will default on their loan repayments as they will gain support of other European countries (mainly France & Germany) but whilst there is talk of concerns they will still create doubts and impact investor confidence.

The next group is the US & UK who have very large debts and are facing a long period of slow economic growth.

All these countries need their consumers to spend to generate economic growth. The problem is that many consumers are focussed on repaying loans and they are reducing spending and the populations are aging which also leads to less spending and less tax revenue collected.

Our approach

The traditional approach of many Financial Planners is to invest in overseas funds that have exposure to countries based on their size. Place the most money in the biggest (US), then next biggest, etc. We have never subscribed to this view and our choice of managers continues to reflect this. Whilst we have not given up on the major economies as there are still companies in those countries that are worthwhile, we have included exposure to the Emerging Economies. Those that have excellent growth prospect and will dominate the world economy in the future.

China - what's the problem?

The problem is that the Chinese Government was worried that their economy was growing too strongly, something most countries wish they had to contend with at the moment. They have taken measures to slow their growth to a more manageable rate. This will occur periodically in Emerging economies as they endeavour to find the right level of economic growth.

It is still expected that China will grow at around 9-10% this calendar year which is no cause for alarm.

Australia - A developed economy benefiting from the Emerging markets

Australia is one of better functioning developed economies. Our level of Government debt is really quite low by world standards.

We should see strong economic growth this year, unemployment continuing to fall and the ongoing advantage of our relationship with the Asian economies.

This means that the assets within your portfolio that have exposure to Australian assets should perform well.

Working for you behind the scenes

As part of our regular review of the investments that we have approved for use in client portfolios, we have recently made a number of changes to the funds and amount allocated to the various asset classes.

We are not trying to pick sectors or funds; we know that stock picking is not the way to add value on a consistent basis over the long term. Our approach is to make adjustments to the portfolio to ensure it is well positioned for the future. You will see these changes as we conduct your next review.

The US Federal Reserve raises its discount rate.

What is the discount rate? It is the interest rate charged to commercial banks on loans they receive from their regional Federal Reserve Bank's.

This made a good headline as it is a clear step in the unwinding of the massive economic stimulus measures in the US. There will be those who see it as a negative move as it will slow the economy and risk the US falling back into a recession. However we should think about why it is happening. Do we really think the Federal Reserve wants to return to a recession? A more realistic view is that the US economy is strengthening and is it an opportunity to begin to return rates to normal level.

It is true that if rates do rise by large amounts over a short period that it will have a negative impact on sharemarkets. However what we have seen is a 0.25% movement aimed at helping to prevent the economy growing too strongly and returning to the boom-bust cycle.

Summary

We are seeing considerable change and much of it is occurring for positive a reason, that is the outlook is improving. We also should keep in mind that the diabolical predictions of a depression did not eventuate.

It is now about the Governments and Reserve banks around the world managing the recovery.

December Newsletter 2009

Tue, 22 Dec 2009 00:00:00 -1000

You Portfolio continues to recover

November was again a positive month and the figures for the twelve months from 1^st December 2008 to 30^th November 2009 were very good.
Clearly this recovery was necessary and will continue to be so after the previous falls, but we can take considerable comfort from the recovery.
March was seen as the low point in this part of the economic cycle and remaining invested has been worthwhile.
Those who gave up at that point and decided to sell out have paid a high price.

How strong have the last nine months been?

The returns for the period 1 March to 30 November 2009 (9 months) are summarised below.

1.	Australian Small Companies	69.71%
2.	International Property	68.40%
3.	Australia's Top 300 Companies	46.11%
4.	International Large Companies	44.19%
5.	Australian Property	40.16%

This reinforces the argument that returns can be above average after a severe downturn. It also confirms how hard it is to try and pick winners and guess the right time to buy into markets.

The 2010 Outlook

Trying to comment on the future in this business is risky. Opinions are at both extremes at the moment. The range of possible outcomes is as wide as we have seen in recent times. Many are predicting further significant problems and others feel we are looking at far better times. Of course the most common expectation, as is the usual safe route, is for a more settled, lower return year. Those in this corner are the experts that are most often wrong.
There is still much nervousness in the financial markets. The reaction to the recent Dubai problem shows this. As I have said before, there will be tough periods where falls in value will have to be endured.
What we do know is that Cash & Term Deposits are very likely to provide low returns although they will increase. Importantly Emerging economies have much better growth prospects and their Sharemarkets should outperform.
Australia is looking in relatively good shape and should provide good value for those with exposure to our sharemarket.
However as always trying to pick stocks and time the markets is impossible to do successfully on a consistent basis at the best of times. There is still plenty of uncertainty that means we are far from the best of times, making this unrewarding task of stock picking even tougher.
The key challenge is - do Central Banks leave interests rates as they are and risk over stimulating the economy and causing inflation to jump. Or do they risk raising rates to early whilst there are still millions unemployed around the world. It is a very difficult task. Australia has increased rates and the US have chosen to keep them near zero. Contrasting approaches for economies performing at different levels.
We are confident that our approach of diversifying part of your portfolio into sub classes such as small companies, emerging markets, infrastructure will continue be a sound approach. Given the uncertainty we believe that diversification, a well constructed portfolio and managing risk against your tolerance level is as important as ever.

Fund changes

The events of the last 2 years have seen many changes in the industry. One significant change is that BlackRock have taken over Barclays. This means that you will no longer see the name of the Barclays on your Funds and it will be replaced with BlackRock.
The former Barclays Funds involved were Index Funds which are simple low cost funds that do not require decisions by money managers on how to invest.
This means that there is no need to reassess the Funds because of the change, but we will continue to monitor these and all other funds as part of our normal process.

Accident insurance - is it worth it?

These policies pay a benefit for a claim that results from an accident.
Whilst this sounds good, the reality is that the majority of claims are due to illness not accident. This simply means that you are paying for a policy that you are highly unlikely to ever claim on - even in the event of your death.
If you have a policy like this you should talk to us as there will most likely be a better use for your money.
This is not a recommendation to cancel the policy. You should not, as some cover is always better than none, but if you have one of these policies or someone is trying to sell you one, then you should talk to us.

A New Year - A great time to revisit your plan

For many this is the season to reflect on the recent past and look ahead to how you would like things to be.
Our approach is to do more than merely look at your investments, we want to help you organise your financial affairs so that you can achieve your personal and lifestyle goals.
We would like the opportunity to discuss this further with you and ensure that you are doing all you can and that your plan is still consistent with your current circumstances and goals.
If you would like to do this, feel free to arrange a time, otherwise we will address this when we contact you about your next review.
We thank you for your support over the last year and wish you all the best for Christmas and the New Year.

Do You Understand Your Super? Super Fees, Taxes & Service

Mon, 07 Dec 2009 00:00:00 -1000

Like all investments super has been through a difficult period. Some key points in relation to your super are that you:

Remove unnecessary fees
Reduce other fees
Get value for fees
Your fund passes on a lower tax rate to your super account
Take advantage of strategies that are available to you
Focus on your goals - what is important to you?
Ensure your portfolio is well constructed & well diversified across & within asset classes
Have a plan for managing your cash flow, now and in retirement

A Comparison

Below is a comparison between our service and fees with that of a Melbourne based planner trying to service the area.

	Other	MG Financial Planning
Entry Fee on Contributions This is of no value to you and we believe it is inappropriate to charge this fee.	3.0%	Nil
Fee deducted from your salary packaging for each contribution This is of no value to you and we believe it is inappropriate to charge this fee.	$9 per month	Nil
Ongoing Fees The level of fees is important as is the service that comes with the fee.	3.07%	1.5-2.5% and reducing as the balance grows
Service In one example we found that some very obvious advice and strategies should have been recommended by the other planner. We initiate contact and provide recommendations as part of our ongoing service.	Reactive	Proactive

We are a local firm with the experience and the quality and quantity of staff to help you.

Please call Ben Lancaster or Gary Lucas for a second opinion.

MG Continues Charitable Giving

Wed, 25 Nov 2009 00:00:00 -1000

MG Staff member Geoffrey Irving has continued the willingness of MG & its team to contribute to charities.

Geoffrey has joined the Movember campaign, sporting a very impressive and suave moustache. He has already raised $300 and is hoping to increase that amount before the fundraiser closes. Geoffrey commented "I would like to make people aware of depression & cancer and to raise heaps of money to help stamp them out."

If you are able to contribute please follow this link http://au.movember.com/mospace/367306/ and make a donation before 10 December 2009.

Other beneficiaries of the charitable giving by MG and its staff are;

Gippsland Fire Relief from proceeds of a Trivia Night
Five Star Project from proceeds of the second Trivia night
The Warry family of Maffra
Rotary Club $2,500 for specific items for fire victims in Churchill area
Breast Cancer Foundation

Gary Lucas, Director of the firm said that it was great to see the firm and individual team members giving back to community and clients. Some of the events such as Trivia nights have involved a significant time commitment. We have a fantastic group of people and they really do care about those in need and take a lot of pride in helping others

November Newsletter 2009

Tue, 24 Nov 2009 00:00:00 -1000

A negative month but no alarm bells

October saw most asset classes lose value. Continuing the trend, our sharemarket continued to fall in early November.
A fall was expected and to a degree, necessary, as the pace of the recovery in investment markets was, as we have said recently, a little too strong.
A period of consolidation which will have minor falls of say 5-10% or flat returns can be useful to avoid creating an environment of over confidence and inflated values.
There has been talk of a double dip recession in the US which will have an impact around the world. It is common for this fear to exist after recessions however it rarely occurs and seems unlikely again this time. Please do not interpret this to mean that the risks have completely passed. They have not. Indeed very careful management of the world economies are needed now.
We have the US with very high and possibly still rising unemployment. They are talking about keeping rates low as this incredible level of economic stimulation continues.
China is looking at possibly raising interest rates as they try to protect against the creation of asset bubbles.
In Australia we are raising rates and our situation is better than expected. The reason for the different approaches is that each country initially looks at the global situation and then its domestic position before deciding on what to do. Each region has its own challenges.

Returns for the last 9 months

The returns for the period 1^st February to 30th October 2009 (9 months) are summarised below

1.	Australian Small Companies	55.57%
2.	International Property	37.66%
3.	Australian's Top 300 Companies	36.98%
4.	International Large Companies	27.34%
5.	Australan Property	16.11%

This reinforces the argument that returns can be above average after a severe downturn. It also confirms how hard it is to try and pick winners and the right time to buy into markets.

No time for complacency

For some it is easy to forget the events of just over a year ago. It was a frightening period and the consequences are still having an impact. Now is not the time to be thinking that the good times are back and anyone can pick a stock on the market and make money. It is not the time to aggressively borrow personally or for investment.
We are in different times and caution must be exercised. Look at your loans and have a plan to reduce them or at least to be able to fund higher interest rates. Around 80% of the mortgage loans in Australia are variable. As rates rise this will have an impact on our spending and possibly economic growth.

Your Portfolio

Your portfolio must be well constructed and well diversified. Our approach of reducing reliance on the US in favour of emerging markets and non traditional managers is very sound both now and in the long term. Also allocating funds to small companies, if done well can add value.
We are continuing to work for you behind the scenes and regularly monitor the investments we recommend. We are about to add another fund to our portfolios and have others on close watch. Our criteria include ensuring that the funds we use are either low cost and tied to an index or if they charge higher fees, they must deliver value for that fee.
Importantly we will continue to manage more than just the portfolios. Monitoring the progress you are making toward achieving your goals, whether it is a retirement target age, an income level or saving tax, is something that we know is important.

Australia not just a great place to live but also a great place in which to invest.

Asia is fast becoming the engine of the world economy. The growth in that region will continue for a very long time and at an exciting rate. Some points;
- The Financial Times recently reported that China only has 38 million passenger cars whereas the US has 230 million. The Chinese are buying about a million cars a month, yet only 5% of the Chinese population owns a car.
- o By the way the majority of the new cars in China are bought with cash. Interesting concept!
- o China are building roads and railroads at a staggering rate. There is a massive amount of infrastructure being developed.
Other Asian economies are also experiencing demographic change that is contributing to growth.
In Australia we benefit from this. China is our number one export partner and we now export more to India than we do to the US. This helps explain why there was much recent media attention around our Political relationship with the Chinese.
Our relationship with Asian countries clearly protected and limited the damage throughout the recent GFC.
It also underpins our economic growth to a degree. This in turns helps our companies prosper.
Growth plus dividends, plus some tax credits make for a good investment and Australia is very well placed to deliver on all fronts.
There are always risks and high housing prices are a concern, however a growing population is helping in that area. Also, if the RBA overdoes the interest rate increases it could easily create problems and of course the Government has to nurture our relationship with our trading partners.
It is all a balancing act, but I would much rather face these challenges than those of the US and much of Europe.

Self Managed Super funds are becoming more popular

According to the Australian Taxation Office Self Managed Super Funds (SMSFs) are now the largest and fastest growing segment of the super industry.
Our firm combined with our Accounting Practice has all the skills and experience you need in this complex area. We can advise on whether a SMSF is right for you, , set it up, provide investment advice, recommend a stockbroker, provide insurance advice, prepare the Financial statements, Tax Return and the Audit.
We manage around 200 SMSFs
We are currently running free seminars on SMSFs. They will be presented in our Boardroom by the Accountants at MG. For more information please contact shonaanderson@mcmgroup.com.au