Interest rates are very important for many Australians, and rightly so – after all, whether it’s the returns on savings accounts or mortgage repayments, the rate of the day can have a significant impact on the household budget for millions of Australians. So what influences interest rates, and why are they changed?

Who’s navigating?
One of the many responsibilities and functions of the Reserve Bank of Australia (RBA) is to control domestic official interest rates in order to fulfil their charter, contained in the Reserve Bank Act 1959, which is to best contribute to the:

• stability of the currency of Australia
• maintenance of full employment in Australia
• economic prosperity and welfare of the people of Australia.

As a result of this charter, the RBA has determined that an inflation rate of between two and three per cent per annum is the best way to meet these objectives.

Why do they change?
The RBA lowers official interest rates to make borrowing cheaper, increasing spending (and therefore demand), which in turn increases inflation to the desired range. Increasing rates, on the other hand, discourages borrowing – and spending – easing inflationary pressures.

While fulfilling their charter may be the goal of the RBA, the same may not be said for central banks around the world. Low interest rates are usually associated with a lower dollar as they often mean less foreign investment as global investors look elsewhere for the highest returns for their money. In what sometimes looks like a race to the bottom between nations, a lower dollar makes manufactured goods cheaper for foreign buyers, boosting exports and increasing tourism.

Why is my loan interest higher than the cash rate?
The RBA’s cash rate provides a level of interest rates that affects the rates paid in the wholesale market by the banks. While credit is available to banks in the wholesale market at a rate of, say the current 1.5 per cent, they will add a premium before applying the rate to retail loans and mortgages. The concept is the same as a supermarket buying produce in bulk at a lower price than offered to shoppers. Simply, this margin is how banks make their money.

Winners and losers from lower interest rates

Winners 

• Borrowers: mortgage holders and property investors benefit from lower repayments on loans.
• Investors in overseas markets: international earnings benefit from a lower Aussie dollar.
• Investors in the share market: due to low returns on fixed-interest investments, investors put more money into the share market.

Losers

• First home buyers: lower interest rates contribute to the rise in house prices, meaning buying a first home just got harder.
• Insurance companies: as insurance companies invest your premiums long-term, they are now facing lower returns which can put pressure on premiums.
• Savers: reducing interest rates means lower returns on savings, affecting those who rely on interest for their income.

For the best investment strategy in the current low interest rate environment, talk to us today.

Please contact Integrity One if we can assist you with this or any other financial matter.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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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.

Yes it can, but only in certain situations. While most people try hard to strike a fair balance when
they write their Will, sometimes there may be people who are unhappy with how the estate has been divided and decide to challenge it.

There are two main types of ‘challenges’ in relation to a Will: challenging the validity of the Will itself and claiming for ‘family provision’. A claim for family provision occurs when a challenger believes they should have received money or assets to provide for their ongoing welfare. They can claim at court that a provision should have been made for them. This is the most common type of challenge.

Challenging the validity of a Will
This can occur when:

• the strict legal requirements for the creation of a valid Will have not been followed
• the Will-maker did not have ‘testamentary capacity’, meaning they didn’t have the mental capacity to understand the effect of making a Will, the extent of their assets and an appreciation of who could be possible beneficiaries
• the Will-maker was subject to ‘undue influence’, but this is very hard to prove.

Challenging the lack of family provision
Separate legislation in each State and Territory allows certain family members or eligible persons to make a claim for provision out of your estate.

Can you prevent challenges to your Will?
Not entirely. However, you can certainly take steps to minimise the likelihood of claims being made but to do this you need to use a qualified legal professional.

Some of the ways to reduce the likelihood of your Will being challenged are to:

• ensure your Will complies with the formal requirements of the law, including the correct signing of the Will
• ensure any suggested lack of testamentary capacity is dealt with when the Will is made so there is evidence available, if necessary, that supports your ‘capacity’
• ensure you are freely making your Will, without any undue influence
• consider any possible claim under the family provision legislation and minimise not only the chances of a claim being made, but also the chances of a claim being successful.

We are happy to help with your estate planning matters – just give us a call.

Please contact Integrity One if we can assist you with this or any other financial matter.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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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.

“I buy on the assumption that they could close the market the next day and not reopen it for five years.” – Warren Buffet

Warren Buffet, arguably the world’s most successful investor, has long championed the ‘buy-and-hold’ investment strategy on quality stocks. It’s a philosophy many aspire to, but history has shown that rarely do we have the patience.

Patience – and more specifically the lack of it – like greed, fear and even joy, are the very human emotions that can impact an investor’s ability to make rational investment decisions.

These emotions are particularly apparent in times of high market volatility – but what is volatility and how does it affect the market?

Market volatility and its effect on the market
If you see your share portfolio rise for three days, plunge for two and rally for another five – maybe for no net gain or loss – what you are witnessing is the market’s volatility.

Mathematically, volatility is derived from the fluctuation, (or standard deviations), of a security’s price around its average price over a period of time. Simply put, volatility is a reflection of investor sentiment based on the risk they see in the market.

Studies have shown that periods of high volatility are often associated with falling markets. This is somewhat intuitive as investors often react emotionally, selling their investments when prices fluctuate wildly and downside risk increases. Conversely, periods of low volatility often reflect an increasing market and as fund managers and investors become more content, so too are the risks of a market correction.

What affects market volatility?
Whilst there is often no one cause for volatility over any time frame, there are some conditions which can lead to market volatility, including the likelihood of government influence and intervention, the perception of a market bubble (eg dot com, housing), instability in global affairs and more generally any situation where investors cannot get a reliable picture of the future.

Top tips for living with market volatility

1) No-one can time the market
‘Timing the market’ – that is, consistently selling high and buying low is very difficult. Unfortunately, markets are unpredictable and attempting this can leave investors prone to missing out on relief rallies – not to mention the tax implications on profit-taking.

For that reason, we believe in the old mantra – ‘time in the market is more important than timing’. Investors who stay out of the market, trying to pick the best time to invest, risk missing out on market rebounds.

“Instead of trying to time the market, a more sound investment strategy is to begin now and make regular investments into your portfolio.”

2) Avoid emotion-driven selling
Often in a strong market rally, any downturn can be seen as an opportunity to take profits, while a more prolonged correction can lead to sentiment-driven selling (or jumping between investments).

That is, as one group of investors sell, the next group sell on the market decline, with little consideration for the market fundamentals.

However emotion-driven selling can ultimately lower the long-term returns on your portfolio, as you are then faced with trying to re-enter a rising market. For this reason, there are some important factors you should consider before deciding to sell.

• What is your investment time horizon? If you are more than a few years away from retirement, even a major market correction will seem like just a blip in your investment history in the coming years.
• Are you remaining true to your initial financial objectives?
• Fund managers are more adept at counter-emotional investing, as well as understanding the market fundamentals (however, even the best fund managers have periods of short-term underperformance).

Remember, once you exit the market it can be very hard to emotionally re-establish yourself and go through the cycle of emotions again.

3) Diversification
Trying to predict which asset class – be it shares, cash, fixed interest or even property – will outperform others in any one year can be as difficult as trying to time the market. Over the last 15 years most asset classes have had periods of relative outperformance. Further, those that post the largest gains in good years – such as Australian property – can also be hardest hit when the market turns.

However, if you are sufficiently diversified across the asset classes, your broader investment is hedged against periods of high volatility and portfolio risk is smoothed out.

Over time, the share market has shown itself to be more volatile than other asset classes, however it has also offered the highest returns, and patience in investing to protect against volatility is essential. That’s why investors should always seek professional financial advice and be prepared to invest for the long-term (ie five years or more) to ride out periods of volatility. Investors who remain focused on their investment approach despite periods of volatility, have a greater chance of achieving their goals.

Please contact Integrity One if we can assist you with this or any other financial matter.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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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.

“How much can I borrow?” is a standard question for many prospective residential property purchasers.  The start point should be what repayments can you afford to make?  Banks do not willingly issue loans to clients who cannot afford to repay them, they are under regulatory pressure to lend responsibly, but you should always check your own numbers as well!

The bank term ‘loan serviceability’ refers to their test which largely determines your borrowing capacity.  It is important to note that every bank has different rules and parameters, in fact the same person asking at 20 different banks and financial institutions can receive 20 different answers to how much a bank will lend to them (one advantage of using a broker!)

Every different component of the analysis can vary bank to bank.  For example how long you have worked at your current position matters, even how you earn your income:  Base wages, overtime, penalty rates, commission, independent contractor, self-employed, rents, dividends, child maintenance.

‘Assessment’ rates vary and will not be the same as the actual interest rate payable.  Banks will add a margin when assessing serviceability, to make allowances for future interest rate rises, they will also assess at principle and interest repayments.

Negative gearing allowances also vary bank to bank, having significant impact where investment loans are evident.

Then you need to consider your actual monthly living expenses.  How much of your income do you already spend?  Many banks will look at your last 3-month bank statements and credit cards, that should be where you start too.  You may need to stop spending before you apply for that loan.

Credit card limits are important, banks will allocate repayments based on your card limits whether you have them maxed out or not.

Personal loan and car loan repayments will severely limit your borrowing capacity.  If you are wanting to buy property consider the effect that holiday or car may have on your serviceability before you make the purchase!

Even more important is your credit record.  Pay your bills on time (including that mobile).  If you are unsure of your credit record discuss that with your broker.

Click here to learn more & meet Nic & Tom, our finace and mortgage specialists, or  just give them a call on (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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Nicholas Berry Credit Representative Number 472439 and Thomas Bailey Credit Representative Number 472440 are Credit Representatives of Integrity Finance (Aust) Pty Ltd – Australian Credit Licence 392184.

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. These articles are not owned by Integrity One Planning Services. Please consult your adviser, finance specialist, broker, and/or accountant before making decisions using this information.

Transition into aged care can be an emotional time for all involved.

IntegrityOne have dedicated aged care specialists who will help you navigate your way.

Click here to learn more & meet Catherine, Jenny & Matt, our aged care specialists, or  just give them a call on (03) 9723 0522

Email: integrityone@iplan.com.au

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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 before making decisions using this information.

Well almost new! Welcome back Eliot!

After 3 and a half years away from the group, Eliot has re-joined the Integrity One office.

This time around, she will be assisting Kerrie Knox in the role of Centrelink & Aged Care Consultant. Eliot will be working with us on a Monday, Wednesday, and Thursday and would be happy to assist you with your inquiries.

Eliot is a country girl at heart, she grew up on a farm in Corryong where her love of fishing, fitness and health food began. These passions live on today, when she is not working at Integrity One she can be found either running group fitness sessions in her role as a personal trainer or serving food from her other venture a healthy mobile food van.

Looking after people certainly is a full-time occupation for Eliot!

Please contact Integrity One if we can assist you with this or any other financial matter.

Phone: (03) 9723 0522

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

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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.