Our first Speaker is Lyndall from ING. Lyndall is presenting us with an Economic Update.
- Economies drive growth!
GDP = Gross Domestic Product - The total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. The GDP report is released at 8:30 am EST on the last day of each quarter and reflects the previous quarter.
Economies drive markets and investment returns - GDP
The growth engine
Consumer Spending +
Exports +
Imports -
Government spending
Business Investment
The Resources boom in Australia has helped the GDP
Economy Overview – Where are we now?
USA
- Financial markets have been preoccupied with Sovereign stress
- China tightening monetary policy
- Financial sector taxes and re-regulation
- But overall data reading overall positive
- US Economy has moved out of recession:
- GDP at 5.9%
- Manufacturing Index in expansion level for the 6th straight month
- Retail sales are higher – but off as lower base
- Challenges:
- Housing market still weak
- Inflation numbers indicate a weak economy
- Biggest challenge to sustainable growth is high unemployment rate – will weigh on consumer spending
- Fiscal fade – no more government handouts
Europe
- Eurozone economy has weakened, GDP expanded only 0.1%
- France was the strongest, up 0.6%
- Germany, the largest economy in Europe, has stalled
- Manufacturing overall remains weak
- Unemployment rate now at 10% - highest since late 1990’s
- Inflation has eased rapidly – economic growth stagnant
- Banking System is weak – high debt and rising defaults
- P.I.I.G.S – (Portugal, Italy, Ireland, Greece & Spain)
- US $1.3 trillion in debt
- Highly risky if contagion occurs
- Will drag on European economic recovery
China
- GDP very strong – 11.9%
- Underpinned by domestic demand (consumer spending, housing construction)
- Investment growth has been robust
- Export growth now rising 40% pa above consensus expectations of 30% pa
- Fiscal stimulus of over a trillion CNY has lifted the economy
- But now scaling back due to concerns about excessive growth and inflationary pressures
- People’s Bank of China has put in place more restrictive lending
- Measured approach should ensure economy is not at risk of ‘policy over-kill’
Australia - Australia has avoided a recession
- Government fiscal stimulus (infrastructure spending, housing and consumer grants) has supported Australia through the financial crisis
- Asian growth has ensured demand for commodities remains strong
- Exports and imports have been strong
- Stronger AUD and high interest rates (relative to other countries) has attracted investment into Australia
- Unemployment peaked at 5.8% - currently at 5.3%
- House prices are now higher – boosting confidence through wealth effect
- Inflation remains tame for now
- But conditions are changing
- Fiscal fade is beginning to be seen
- Monetary policy tightening continues in 2010-05-12
- RBA has implemented it 4th rate rise in 6th months
- Official cash rate now stands at 4.25%
- High debt a concern as interest rates rise:
- Debt has rocketed to above 150% of disposable household income
- Interest paid is - 11% of disposal income and is expected to increase further
Economic Summary
- Large debt economies will continue to hurt for some time
- Economies continue to present us with risks
- Sovereign risk – government debt blow-outs, P.I.I.G.S
- China tightening - doesn’t want inflation problems down the track
- Balance sheets still fragile with lending to companies still tight
- The realty of debt:
- High debt economies mean low growth
- Low debt economies means high growth
How does this outlook affect you?
- Why do economics matter?
- Economies drive investment markets
- Investment markets drive investment returns
- Investment returns provide income for future needs
- Investment markets are:
- Volatile – so a long term strategy is needed to accumulate wealth
- Forward Looking – you cant make investment decisions based on historical returns (e.g. 2008 v 2009)
- Risky – economic recoveries and growth don’t occur in a straight line – expect some turbulence
How can you safeguard your future income in turbulent markets?
- Market Volatility
- Not a concern if you have a long term investment horizon – because returns average out over time
Critical if you are about to retire soon and need to protect your savings.
Thanks Lyndall, a very informative presentation.
Our next presentation is from Michael Bonnet from MLC on Insurance and protecting your family.
- What is Wealth Creation?
Family business
Commodities
Bonds
Shares
Property
Investment policies
Low risk investments - What is Wealth Protection?
Health Cover
Salary Protection
Car Insurance
House & Contents Insurance
Business Protection
Savings Accounts
Family Protection
Emergency funds
Long term savings – Superannuation
- Victorian Fires -
How many people had there homes insured?
How many people had there life insured? - Home Fires –
For every home lost to fire
There is 3 homes lost through death
And 48 homes lost through disablement - Case Study – a few years ago now, Michael’s friend was 16 yrs old, with dreams of going to uni to be an engineer. At the age of 16 his father died and he quit school to provide for his mother and 2 sisters. Mother went back to work part time, but due to not speaking much English, and older generation, she is in a low paying job, hard manual labour and can only work part time. She is not well herself. He has one sister in Uni and the other sister in High School. They lost their family home, and now rent. Michael’s friend is still labouring in his 20s now, and still at home supporting his mother and sisters as the main bread winner.
- Would you like your children to go out to work for you to pay the bills, the mortgage? Or would you rather have them study and get the best out of life.
- Salary Protection – also known as Income Protection or Salary Continuance
- Many people insure these assets, yet, all too often they don’t adequately protect what is potentially their greatest asset – their ability to earn an income.
- Take a moment to consider what could happen to your lifestyle if you were unable to work for an extended period due to illness or injury. Your expenses could quickly run down your savings. You may even need to sell your investments to make ends meet.
- By taking out income protection insurance you can protect your greatest asset and avoid putting your family’s lifestyle at risk.
- If you suffer an illness or injury and are unable to work, income protection insurance can pay you a monthly benefit (usually 75% of your pre-tax income) to replace lost earnings. You can generally claim these premiums as a tax deduction.
- You can choose a range of benefit payment periods, with maximum cover usually up to age 65. You can also choose a range of waiting periods normally between 14 days and 2 years.
You can also have insurance linked through your superannuation to save you extra premiums
- If you didn’t have an income how would you pay your bills (mortgage, schooling, rates, electricity, food)
- Sick leave with work
- Holiday pay at work
- Workers compensation – waiting times for payouts and sometimes part payments
- Centrelink benefits – sickness benefits – if approved.
- Selling personal items – jewelry, furniture, garage sales.
- Critical Illness pays a lump sum for certain medical illnesses. For example – stroke, heart attack and stroke. (conditions apply)
For more information please contact your financial planner or have a look at the MLC website - www.mlc.com.au
Thanks Michael, very informative and interactive.
Our last presentation for the night is from Angela Anthony of Anthony and Associates, Erina on Estate Planning.
- Estate planning is the process of planning for after death
- It is putting the right funds to the right hands at the right time
- Planning of your estates future
- Will - where your affairs go
- Power of Attorney – Act on your decisions
- Guardianship – act for you medically
- Wills – are where you put can request certain items to go to family.
- Need to review your will and estate, especially if blended families, divorced, second and third marriages and children – including adopted, step and half siblings
- If you have a business – you need to state what is to happen
- Understand and know of anyone you may think they can challenge your estate
- Executor – some one who distributes your estate – make sure it is someone you can trust
- Make decisions sooner than later. When older health and mental status can change or decline
- Testamentary Trusts – for children so that funds can be managed for them – whether under 18, disabled, addictions, etc.
- Wills are set and forget
- Change your will when getting married, having children, divorce
- Make sure the right funds go to the right people
- Update your beneficiaries on your bank accounts, Superannuation and insurance policies
- If you have no will, the husbands estate passes to the wife
- If both pass and no will, then you die “instate” and then the government steps in and sets an executor who will distribute the estate
- Involve your financial planner, and accountant
- Discuss with your family
- Make sure you do binding nominations with your superannuation and update every 3 years
- Think about heirlooms – jewellery, stamps, collections, assets that you wish to leave to a certain person
- Enduring Power of Attorneys – someone who is able to make financial and legal decisions for you
- Enduring Medical Guardianship – someone who is able to make medical decisions for you
- Where don’t you want your assets and money to go to?
- Update your will if you get married or divorced or have children
- Not all assets will become part of your will. Example – property as joint tenants go to the surviving partners
- If you complete a will kit, get a solicitor to check over it. And have it witnessed correctly
- Downside of doing your own – no legal advice
- When you complete a will with a solicitor you get advice and assistance with the decisions and wording.
Open discussion was held with questions and answer session for everyone.
Thanks Angela that was lovely,
Thank you to everyone who came along. Hope to see you all at our next event.
Disclaimer: The contents of this publication are of a general nature only and have not been prepared to take into account any particular investor’s objectives, financial situation or particular needs. Where this publication refers to a particular financial product, you should obtain a Product Disclosure Statement (PDS) relating to that product and consider the PDS before making any decision about whether to acquire the product. We also recommend that you seek professional advice from a financial adviser before making any decision to purchase any financial product referred to in this publication. While the sources for the material are considered reliable, responsibility is not accepted for any inaccuracies, errors or omissions.
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