In the Zone - October 2021
Economic Update: July - September 2021
COVID here to stay
The third quarter of the calendar year brought with it the third and by far the biggest wave in COVID-19 infections. Largely restricted to NSW and Victoria the outbreak was driven by the highly infectious Delta variant. Such was its speed of spread it forced a change in strategy from one of elimination to learning to live with the virus, supported by a massive vaccination campaign. By quarter’s end vaccination rates were closing in on key targets that will allow a slow and selective lifting of the severe lockdown conditions that have prevailed for months. This may lead to a slower economic recovery than occurred after previous waves.
Is a property chill on the horizon?
You know Australia has a housing problem when the head of one of the big banks, in this case Matt Comyn at CBA, calls for action “sooner rather than later” to stop the property market overheating. This was on the back of CoreLogic data showing house prices in Melbourne and Sydney rose 15.6% and 26% respectively over the 12 months to August. The International Monetary Fund (IMF) also called on Australian regulators to cool the market. Don’t expect this to happen through the usual instrument of increased interest rates. Rather, look for reduced lending in specific sectors, such as investors, higher deposit requirements, or testing loan serviceability at higher interest rates.
Iron ore goes pop!
Iron ore’s price bubble eventually popped as China instructed its steelmakers to cut back on production. The main reason given was to reduce emissions, and perhaps to help clear the skies in the run up to the winter Olympics. Over the quarter the ore price fell 45%, with major miners taking an equivalent hit. BHP, Rio and Fortescue saw their shares tumble 33%, 26% and 44% respectively.
Hot topic - Tougher restrictions on home loan applications
The banking regulator APRA has announced tougher serviceability tests for home loans, which will make it harder for some borrowers to get a mortgage. This means that, from November, banks will have to test whether new borrowers can still afford their mortgage repayments if home loan interest rates rose to be 3 percentage points above their current rate.
APRA is concerned about the number of buyers borrowing over six times their pre-tax income and this move will restrict that. In other words, if you applied for a mortgage with an interest rate of 2 per cent on November 1, the bank would be testing to see if you can afford to make repayments with a 5 per cent interest rate. If you could not, the loan application would be denied.
Shares and the Dollar
Equity markets experienced a bit of a rollercoaster ride over the quarter. All the major indices posted record highs, but most ended up within 1% of where they started.
The Aussie dollar also had a volatile quarter, trading between 71 and 75.4 US cents and finishing at 72 cents. It was a similar story against the other major currencies. In both cases the late-quarter sell-offs were blamed on expectations of higher US interest rates.
On the radar
Many of the world’s leaders will come together in Glasgow at the end of October for the 26th UN Climate Change Conference (COP26). If they heed the warning from the IPCC, and if they agree to take the necessary steps to limit warming to 2°C (and preferably 1.5°C), it will set the scene for a dramatic economic transformation, with huge opportunities for those who can sort the winners from the losers.
Of more immediate concern, Chinese property company China Evergrande appears to be on the brink of collapse. Heavily indebted to the tune of US$300 billion, if it is allowed to fail it is likely to have global ramifications, not the least for Australia. For one thing China’s construction boom has been a huge driver of demand for our iron ore.
Protect your Estate from these mistakes
It’s a sad but unavoidable fact: one day we are all going to pass away. You will most likely have clear ideas as to how you would like your hard-earned wealth – your ‘estate’ – to be divided amongst your loved ones or other beneficiaries.
However, estate planning is a complex area of law and basic mistakes can see Wills declared invalid, money end up with unintended recipients, or benefits reduced by avoidable tax bills. So how can you avoid making some of these mistakes?
Make a Will
Only around half of Australian adults have a valid Will. If you don’t have one, make one. Otherwise, your estate will be distributed according to a government formula, and if no beneficiaries can be identified your life’s savings will end up in state government coffers. If you do have a Will make sure you review it regularly and update as required. Just a few of the key events for revising your Will include entering or leaving a marriage or de facto relationship, starting a family, establishing investment vehicles such as companies or trusts, changes to the financial or health status of adult beneficiaries or to add gifts to charities.
Appoint an appropriate executer
Administering an estate can be a major undertaking. Ideally you will want an executor who is competent, organised, honest and unbiased. Often this will be a spouse who is also the sole beneficiary, and administration of the estate may be relatively straightforward. But it’s common to also nominate an alternative executor should your spouse die before you. This may be an adult child or other close relative, and not necessarily a beneficiary. Whoever you nominate make sure you tell them that they are a (potential) executor and to provide them with important information such as the location of the original Will, and contact details for your lawyer, accountant and financial planner.
Identify assets that may not be dealt with by your Will
Any assets that you jointly own automatically pass to the surviving owner(s) on your death. They are not subject to your Will.
If you have provided your super fund with a binding death benefit nomination your death benefit will be paid to the nominated beneficiary. This can be anyone, and not necessarily a beneficiary of your Will. If you nominate your ‘personal legal representative’ (ie. your executor), the death benefit will be paid to the estate and dealt with according to your Will. If you don’t make a binding nomination the trustees of your super fund are obliged to pay the benefit to your dependents, as defined by superannuation law. This may not coincide with your wishes.
If someone has reasonable grounds to believe they should receive something from your estate but you have not provided for them in your Will, then they may be able to legally challenge your Will. Legal fees may be paid by the estate, eroding its value, so you’ll want to minimise the chances of the Will being contested.
Also be wary of ‘ruling from the grave’, for example by making any gifts dependent on a beneficiary either doing something (marrying a specific person, say), or not doing something.
Get expert advice
Estate planning throws up many other traps for the unwary, from paying too much tax on a superannuation death benefit to not making provision for beneficiaries who are unable to adequately manage their own affairs. With so much at stake, it pays to consult a specialist estate planning lawyer.
Staff Profile - Amber Simpson
Amber, our newest Financial Planner who commenced in December 2020 has certainly been gaining momentum. She has a passion for helping people grow and protect their wealth.
Amber fell into the industry as a 19-year-old Mortgage Broker, providing debt reduction advice. Shortly after, she crossed paths with a Financial Planner, and knew that was what she wanted to do for her career. She completed her studies and started as a Paraplanner (the technical nerd) in 2008. In 2016 Amber was granted a licence to provide Financial Advice and has been a practicing Financial Adviser ever since!
Amber’s experiences resonate with many of her clients. She walks the walk, with personal life experience in many of the challenges people face – marriage, divorce, moving interstate, having children & step-children, blended families and she is also a defence force spouse. She also loves Matthew Reilly books, Geocaching and the true crime genre.
After countless hours of study, life experience and hard work in the industry, she has remained steadfast to achieving her goals and is living her dream!
Here she is in action at a few recent Guest Speaking functions.
Rock the Bay - Did you go along?
Rock the Bay recently hit Wynnum, bringing music royalty and rising stars together in a first for Brisbane’s bayside.
We would love your review!
As a service provider, word of mouth referrals are our best compliment! So if you've had a positive experience with us, we would love your feedback. You can post a review directly to our profile.
Want to speak to our Financial Planning team?
The information in this communication has been prepared on a general advice basis only. The advice has been prepared without taking account of your specific objectives, financial situation or needs. Accordingly, you should, before acting on the advice, consider the appropriateness of the advice having regard to your objectives, financial situation, and needs. In cases where the advice relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure Statement (or other relevant information statements) and consider such document before you make any decision about whether or not to acquire the product. For these reasons, it is imperative that you seek advice from your financial adviser before making any investment decisions. Investment Zone Pty Ltd (ABN 18 104 622 611) provides financial services as a Corporate Authorised Representative no. 296974 of Financial Force Pty Ltd ABN 42 091 425 464, AFSL no. 238337