Financial markets can be like finely tuned racehorses, poised to gallop ahead under ideal conditions but often highly reactive to unexpected events.

It’s often said that the markets love certainty. Investors feel more confident when economic conditions are stable and predictable.

But certainty in financial conditions is never a sure thing. Uncertainty is always just around the corner with the possibility of changes in interest rates, new laws or regulations, upheavals in overseas markets, a breakdown in Australia’s relationship with a major trading partner, and wars and political instability.

As a result, stability and predictability are most often fleeting with peaks and troughs in prices inevitable.

Look at the past few years. Between 2020 and 2022, we were dealing with the side effects of COVID-19 on the economy and markets. Since 2022, interest rate rises, increases in the cost of living and conflicts in Ukraine and the Middle East have caused further market volatility.

This year, global political stability may be affecting markets with almost 50% of the world’s population due to head to the polls to choose new governments including the United States, India, Russia, South Korea and the European Union. Interest rate movements in Australia and overseas are another focus.

In this dynamic environment, investors find themselves grappling with crucial decisions about how to safeguard and optimise their portfolios.

It could be useful to know that making hasty decisions, reacting quickly to the latest event, may not be the best move.

Consider the performance of various assets classes over 24 years. If you had invested $10,000 in a basket of Australian shares on 1 February 2000, for example, your portfolio would have been worth $67,717 at 31 January 2024, delivering a return of 8.3% each year. The same amount invested in international shares over the period would have provided a 5.4% annual return with your portfolio then at $35,373.

US investment advisers Dimensional have calculated the risk to a portfolio of being out of the market for even a short period.

An investment of US$1,000 in 1998 of stocks that make up the Russell 3000 Index, a broad US stock benchmark in 1998, would have turned into U$6356 for the 25 years to 31 December 2022. But if you had decided to sell up during the best week, before later reinvesting, the value would have dropped to $5,304. Miss the three best months, which ended June 22, 2020, and the total return dwindles to $4,480 (source)

In other words, reacting to events by quickly selling up can have an unwelcome effect on your portfolio.

Trying to time the market by identifying the best and worst days to buy and sell is almost impossible. Investing for the long-term in a well-diversified portfolio can better suit some investors.

Historically, long-term investors who have weathered short-term storms have been rewarded. Markets have shown they tend to recover over time, and a diversified portfolio allows investors to capture the upside when conditions improve.

And there’s a bonus. The compounding effect of returns over an extended period can significantly enhance the overall performance of a portfolio if they are reinvested.

Why diversify?

Different asset classes – such as shares, bonds and cash – perform differently at different times.

By diversifying investments across different asset classes, regions and companies, can work towards reducing the effect of a poorly performing asset on the overall portfolio, providing a buffer against volatility and lowering risk.

Appreciating the lessons learned from the past while also understanding that past performance may not predict future performance, is a helpful way of navigating the uncertainties of the global markets.

We can help you stay committed to a robust investment strategy, design a portfolio that meets your objectives and help navigate the complexities of the markets. Reach out to us to help you invest confidently.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone : 03 9723 0522

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. Please consult your adviser, finance specialist, broker, and/or accountant before making decisions using this information.

As the end of financial year gets closer, some investors are thinking about the most effective ways to boost their super balance, particularly with an increase in the caps on contributions from 1 July.

The concessional contributions cap, which is the maximum in before-tax contributions you can add to your super each year without paying extra tax, is increasing to $30,000 from $27,500 in the new financial year.

The cap increases in line with average weekly ordinary earnings (AWOTE).

It is also useful to be aware of payment and reporting timelines. For example, your employer can make super guarantee contributions up until 28 July for the final quarter of the financial year and salary sacrifice contributions up until 30 June.

Any amounts showing on the ATO website for your account are based on when your fund reports to the ATO.

Carry forward unused amounts

If you haven’t made extra contributions in past years, you may have unused concessional cap amounts.

These can be carried forward, allowing you to contribute more as long as your super balance is less than $500,000 at 30 June of the previous financial year.

You can carry forward up to five years of concessional contributions cap amounts.

Getting close to exceeding the cap?

If you’re worried about going over the cap, you may wish to stop any further voluntary contributions based on an assessment of the extra tax you will pay.

For those with two or more employers, you may opt out of receiving the super guarantee from one of the employers.

Meanwhile, if special circumstances have caused you to exceed your cap, it’s possible to apply to the ATO for some or all of the contributions to be disregarded or allocated to the next financial year.

But, if all else fails and you have exceeded the cap, the excess contributions will be included in your assessable income and taxed at your marginal rate less a 15% tax offset. The good news is that you can withdraw up to 85% of the excess contributions from your super fund to pay your tax bill. Any excess contributions left in the fund will be counted towards your non-concessional contributions cap.

Timing is everything

The upcoming Stage 3 tax cuts, which commence on 1 July 2024, may affect the value of your concessional contributions. For some, tax benefits may be greater if contributions are made before the tax cuts begin.

Please check with us about your circumstances to make sure you make the most effective move.

Non-concessional cap also increased

The non-concessional contributions cap is the maximum of after-tax contributions you can make to your super each year without paying extra tax.

The non-concessional cap is exactly four times the amount of the concessional cap so it increases from $110,000 to $120,000.

If you exceed the cap, you may be eligible to use the ‘bring forward rule’, which allows you to use caps from future years and possibly avoid paying extra tax. It means you can make contributions of up to two or three times the annual cap amount in the first year of the bring forward period.

If your total super balance is equal to or more than the general transfer balance cap ($1.9 million from 2023–24 and 2024-25) at the end of the previous financial year, your non-concessional contributions cap is zero for the current financial year.

We’d be happy to help with advice about how the changes in contribution caps might affect you and whether you are eligible for the bring forward rule.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone : 03 9723 0522

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. Please consult your adviser, finance specialist, broker, and/or accountant before making decisions using this information.

Stay up to date with what’s happened in markets and the Australian economy over the past month.

Expectations of interest rate cuts later this year in Australia and the United States fuelled activity in the markets last month.

Australian shares reached a new record high at the end of the month, driven by mining shares with gold, iron ore and lithium all rebounding.

US markets also reached new highs during March, leaving the benchmark index up more than 10 percent so far in 2024.

Click here for our April update video.

Please get in touch on 03 9723 0522 if you’d like assistance with your personal financial situation.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone : 03 9723 0522

Integrity One Facebook

This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. Please consult your adviser, finance specialist, broker, and/or accountant before making decisions using this information.

Managing risk is an essential part of investment strategy to reduce the potential for losses.

Risk is not just associated with investing though – life can throw a curve ball or two and insurance is one way to manage risk in a broader context.

It’s a matter of weighing up your risks and thinking about what you would do if the worst happened. Could you afford to build a new house, buy a new car or support your family if you became too ill to work?

Various insurance products or self-insurance can help to mitigate these types of risks.

Underinsurance

While many Australians have some form of life insurance through their superannuation, the level of cover is rarely sufficient. The standard offering within the super framework is well below what your family need to live comfortably should you die or lose your ability to earn an income.

A Financial Services Council report, estimates that as many as one million Australians are underinsured for death and total permanent disability (TPD) and 3.4 million for income protection.

Rice Warner estimates that insurance cover for a 30-year-old with dependents should equal eight times the annual family income for life insurance, four times the family income for TPD and 85% of the family income for income protection. The default superannuation offering falls well short of this figure.

Home and contents

But it’s not just life insurance. There is also a fair amount of underinsurance in home and contents.

With the growing incidence of bushfires, floods and storms, protecting your home and possessions with insurance is more important than ever.

The biggest mistake is insufficient cover to rebuild your property particularly with the recent surge in building costs. You should also consider the costs associated with demolition and removal of debris, the cost of architects and builders and the need to find alternative accommodation while your home is being rebuilt.

It is important not to head for the cheapest policy as this may well fail to meet your needs. Read the product disclosure statement to make sure the cover delivers exactly what you need.

Health and travel

Health insurance and travel insurance are also important considerations.

You will pay a Medicare Levy surcharge if you do not take out private health insurance and have a taxable income above $93,000 for singles or $186,000 for a family, couple or a single parent (increased by $1,500 for each dependent child after the first child). This starts at 1% of your taxable income and goes up to 2.5%. So, it is worthwhile weighing up whether taking out private health insurance is the better option.

When it comes to travel insurance, if you can’t afford it, you can’t afford to travel overseas, according to the Federal Governments Smart Traveller website. The cost of medical care in other countries can be exorbitant and you may need to be transported back to Australia. The expenses can be enormous.

Of course, travel insurance can also help to compensate for cancelled or delayed trips and lost luggage.

Self-insurance alternative

An alternative to taking out an insurance policy is to self-insure. That means putting money aside regularly to build up a big enough fund to help keep a roof over your head or replace a vehicle.

The upside is that these funds are yours and, properly invested, can grow over time. The downside is that you may not have enough money together when a disaster happens.

Insurance can be the difference between successfully recovering from an event and changing your life forever. If you would like to discuss your insurance needs, call us.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone : 03 9723 0522

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. Please consult your adviser, finance specialist, broker, and/or accountant before making decisions using this information.

Slowly but surely: Home values are on the way up

Home values across the country have largely settled into positive territory despite interest rates remaining elevated. Perhaps it’s the talk of impending rate cuts and easing inflation that has caused prices to inch up in every capital over the quarter, except for Melbourne and Hobart.

Values gaining momentum

In the three months to February 29, CoreLogic’s Home Value Index (HVI) reported national values had risen by 1.3%. Over the same period, the combined capital cities increased by 1.2% and the combined regions were up by 1.3%.

During the quarter, Perth surged ahead jumping 5.2% in three months taking the 12-month hike in the West Australian capital to an incredible 18.3%.

CoreLogic research director Tim Lawless said ongoing financial challenges haven’t overwhelmingly dampened the Australian demand for bricks and mortar.“Housing values have been more than resilient in the face of high interest rates and cost of living pressures,” he said. “The ongoing rise in housing values reflects a persistent imbalance between supply and demand which varies in magnitude across our cities and regions.”

Home values moving forward

Historically, the major capitals of Sydney and Melbourne do a lot of the heavy lifting when it comes to housing values. The HVI demonstrated that Melbourne values had just come out of a “three-month slump” to record a modest 0.1% rise in February and in Sydney values returned to positive territory by February after recording declines late last year.

“Potentially we are seeing some early signs of a boost to housing confidence as inflation eases and expectations for a rate cut, or cuts, later this year firm up,” Mr Lawless added.

However, Mr Lawless said multiple factors are holding the domestic housing market back from a “significant rebound”.“Affordability constraints, rising unemployment, a slowdown in the rate of household savings and a cautious lending environment, are all factors likely to keep a lid on value growth over the near term.”

Eleanor Creagh, senior economist at REA Group’s data business PropTrack, was more optimistic. “Housing demand is being buoyed by population growth, tight rental markets, resilient labour market conditions and recent home equity gains. Meanwhile, the sharp rise in construction costs and labour and materials shortages have slowed the delivery of new builds, hampering the supply of new housing,” she said.

Rents still on the rise

The start of the calendar year has always been a strong period for rental growth and the beginning of 2024 has been no exception. CoreLogic figures show national rental values had risen by 0.9% in February, the highest reading since March 2023. As a result, the rolling quarterly change in rents rose to 2.4%, the highest since May last year.

Dwelling values over the quarter

Melbourne
The Victorian capital has once again recorded a median dwelling value below Brisbane at $778,941 – sitting close to the national median of $765,762. The city saw negative growth across the quarter with a -0.6% change in dwelling values, however, this last month figures moved into positive territory, up 0.1%. The annual increase for Melbourne was 4%.

Sydney
Maintaining its place as the country’s most expensive city, quarterly figures show that the Harbour City had a very subtle movement in dwelling values rising only 0.6% to $1.128 million. The annual figure demonstrates a more impressive number having jumped 10.6% in 12 months.

Brisbane
Brisbane’s median home price is now $805,593 after a quarterly increase of 2.9%, but it is a longer term picture that showcases the Queensland capital’s impressive year in property. During the 12 months to February 29, median dwelling prices jumped 15.6%.

Canberra
Sitting in its relatively new position as Australia’s second priciest city for property, Canberra had a quarterly home price movement of just 0.3% taking the current median to $840,103. Over the past year, the nation’s capital rose by 1.6%.

Perth
Often proving to be a city that dances to the beat of its own drum, Perth has leapt streets ahead over other capitals with an annual home value surge of 18.3% to a median of $687,004. It has also been a strong quarter with a local home value growth of 5.2%.

For more information about how you might be able to purchase a property in the current market, get in touch with us today.

Note: all figures in the city snapshots are sourced from: CoreLogic’s national Home Value Index (March 2024)

If you have any questions or need any information please give us a call on 039723 0522.

Among all the voices analysing the Australian property market, you’ve probably heard many truisms about how to secure a home loan. The real truth is that there are lots of options.

We thought it was time to correct some frequent misconceptions we hear from our clients. Hopefully this will help you identify the path to home ownership that best suits your circumstances.

Beat the deposit treadmill

A common belief is that you need the holy grail of a 20% deposit before the banks will even look at you. It may be their ideal, but they also realise it’s out of reach for many – even with the help of mum and dad. The vast majority of lenders have a variety of deposit options. These include deposits as low as 5% and, if you qualify for a government guarantee, not having to pay mortgage insurance.

Guarantor home loans are becoming more common. These allow you to avoid stumping up a cash deposit by having a guarantor (usually a close relative) pledging their home equity to cover the equivalent of your 20% deposit.

You may also qualify for the Government Equity Scheme where the government pays 50% of your home loan. This lets you to enter the market with less deposit and reduces your repayments. However, it also means the government owns half the equity in your home.

When 30 years is too long

Most people want the longest mortgage possible as it means smaller monthly repayments. Of course, the downside to a 30-year mortgage is paying more interest over the long-term. For some situations, like if you want to increase your equity quickly, it might be better to opt for a shorter term where you pay more interest each month but less over entire the length of the loan. Knowing your timeline and expected cash flow will help decide what’s right for you.

The pros and cons of fixed rates

Now that there’s serious talk of interest rates falling, people are once again seeing the value of not locking in their interest rates for long periods. When deciding on a fixed or fluctuating mortgage you need to think about your long- and short-term financial goals and cash flow.

For example, at the time of choosing your mortgage, the fixed rate is usually higher than the fluctuating rate so you need to ask yourself if you can afford it. Many buyers decide to hedge their bets by splitting between the two. You can also fix rates for different time spans. Again, in general, the longer the ‘fix’, the higher the rate.

When interest-only makes sense

Getting an interest-only loan is often seen as risky and isn’t as popular as it once was. However, some people still find them useful, especially property investors. With an interest-only loan you just pay back the interest on your home loan and not any of the capital. This results in smaller monthly repayments but limits your equity growth in the property. Some people choose to start out interest-only so they can pay for renovations or get on top of their cash flow. They then switch to an interest and principal repayment structure later on.

Pre-approval is no guarantee

Estate agents love you to have ‘pre-approval’ for a home loan. It tells them you are serious about buying and that you know your limit. Pre-approval also speeds up the buying process because some of the basic paperwork has been submitted.

What it doesn’t do is guarantee that you will get the loan. Lenders still need to go through due diligence before approving you. You also need to be aware that pre-approvals last three months. After that, you have to apply to have it renewed.

With all the advice out there, identifying your individual path to home loan approval can appear tricky, but that’s only because you have options. There is no one size fits all. So, why not start the ball rolling by having a chat with us about your goals and options. We can arm you with the facts and help you set off on your property-owning path.