Borrowing capacity has probably never been tighter in the 20 years since I started ProSolution! This is delaying investment plans for some clients. However, my expectation is that this is temporary and an easing in borrowing capacity might not be too far away. How borrowing capacity rules have changed over recent years In 2019, the banking regulator, APRA told banks to include a ‘serviceability buffer’ of at least 2.5% above the actual interest rate to test borrowing capacity. In October 2021, i...
Oct 11, 2022•16 min•Ep. 230
One of the most interesting things I do is meet many investors every week (i.e., prospective clients). It is something that I have been doing regularly for almost 20 years, so I’ve literally spoken to thousands of investors. It is interesting because it provides me with the opportunity to reflect on peoples past investment decisions with the benefit of hindsight. There are some common themes. People tend to make one of a handful of mistakes. I think past mistakes provide very valuable learnings....
Oct 04, 2022•17 min•Ep. 229
An investment property’s total investment return will consist of rental income plus capital growth. I have written about the importance of maximising capital growth many times. However, often investors are tempted to focus attention on income (when selecting an investment property) too, as they seek to minimise the cash flow cost of holding the investment property. I propose that this is a mistake with a high opportunity cost. The reason investors make this mistake could be due to (1) not fully ...
Sep 27, 2022•13 min•Ep. 228
Often people wonder whether they should be doing more with their cash savings other than leaving them in a savings account. This blog discusses some options and highlights some considerations with each option. Of course, the information contained in this blog is not personalised advice as it cannot consider your unique situation and goals. As such, you should always consider obtaining personal independent financial advice before making any financial decisions. Maintain a buffer equal to 6 to 12 ...
Sep 20, 2022•16 min•Ep. 227
I wrote a blog in May warning investors to prepare for lots of bad news, uncertainty and market volatility. My thesis was that rising inflation, supply chain issues and rising rates would cause economic pain. Unfortunately, my prediction was correct, and we should expect the volatility to continue for many more months to come. It is possible that all you may see are risks and problems at the moment. But in 5 years from now, it is likely you’ll look back and see lots of (missed) opportunities bec...
Sep 13, 2022•14 min•Ep. 226
A Goldilocks investment strategy means that you are making the most of your financial opportunities without overdoing it and taking unnecessary risk. That is, your level of investing is exactly right (i.e., perfectly balanced). Underinvesting means that you risk not having enough investment assets to enjoy a comfortable retirement. Overinvesting means that you have taken unacceptable risks which may compromise your ability to achieve a comfortable retirement. The goal is to achieve a perfect bal...
Sep 06, 2022•11 min•Ep. 225
Commentators often refer to the price of property in Australia relative to household incomes. They highlight that property prices have risen two to three times faster than household incomes. They conclude that property growth cannot exceed income growth perpetually. Obviously, this is unsustainable at a macro level. I’ve written about the factors that contributed to property price growth over the past few decades here . But many of these factors won’t repeat themselves over future decades. Howev...
Aug 30, 2022•10 min•Ep. 224
I believe that most people have a very similar tolerance for investment risk. Most people are comfortable achieving a long-term annual return of 7% to 10% if the risk of losing money is very low. In short, I think most people have a low appetite for risk – they prefer to take as little risk as possible and invest in a “sure thing” if the return will be enough for them to meet their goals. What is a risk profile Risk is the probability of not achieving your targeted investment returns. This might...
Aug 23, 2022•14 min•Ep. 223
Most people would say that finding a good financial advisor has always been a difficult task. Ten years ago, most financial planners received commissions for remuneration, so clients had to navigate endless conflicts of interest. Thankfully, investment commissions no longer exist. The challenge is now finding an advisor with well-rounded experience. Commissions are banned – it's more about experience and scope Financial advisors use to receive commissions from managed fund providers which create...
Aug 16, 2022•20 min•Ep. 222
If Australia slips into a recession, it will mostly likely be the RBA’s fault. They have completely botched the management of interest rates to the detriment of borrowers, the economy, and the bond market. Here’s why… In its defence Firstly, in the RBA’s defence, is has been navigating uncharted territory over the past 2.5 years. There was a lot of uncertainty about what damage a once-in-a-lifetime global pandemic could cause. At the beginning, no one knew how long lockdowns would last for or wh...
Aug 09, 2022•18 min•Ep. 221
Queensland announced changes to land tax in its state budget in February 2022. On 12 July 2022, it released more detail regarding how these changes will be implemented (see here ). Queensland land tax to rise substantially for interstate investors Essentially, when determining an investors land tax liability, the Queensland government will consider the value of landholdings in Australia (excluding principal residence), not just Queensland, and apportion the land tax liability accordingly. This i...
Aug 03, 2022•8 min•Ep. 220
Superannuation returns for the 2021/22 financial year were mostly negative. However, we shouldn’t forget that the previous 18-month period (i.e., mid-2020 to the end of calendar year 2021) was stellar, so we must keep a longer-term perspective. And the winner is… The table below sets out investment returns for the largest 8 industry funds based on a Balanced investment option (data provided by research house, Lonsec). The table is sorted by 1-year returns, highest to lowest for the financial yea...
Aug 02, 2022•19 min•Ep. 219
In mid-2021, I wrote this blog: “Don’t buy a property in this market…” because, at that time, many property buyers were over-paying for property just to get into the market. I call it the FOMO premium , for lack of a better term (more about this below). My thesis was that since it’s never wise to allow fear (e.g., FOMO) to influence financial decision making, it was better to not buy property in 2021 if it meant having to overpay. We all know that the market has cooled somewhat this year. It is ...
Jul 26, 2022•17 min•Ep. 218
You must invest in residential property primarily to benefit from the power of compounding capital growth. Any tax benefits (negative gearing) are merely a positive consequence of this investment, not the reason for it. That said, of course it makes sense to maximise your taxation deductions wherever possible. Make it easy for yourself Maintaining accurate and complete taxation records is necessary to ensure all tax deductions are captured and treated correctly. I encourage my clients to utilise...
Jul 19, 2022•15 min•Ep. 217
It’s been well documented that property prices rose significantly over the course of 2020 and 2021. According to the Real Estate Institute of Australia, median house prices in eastern capital cities rose between 30% to 40% over those 2 years. However, unfortunately apartments underperformed compared to houses in a big way. I wanted to discuss why this occurred and consider what growth prospects apartments might provide in the future. Apartment prices are low relative to houses The chart below co...
Jul 12, 2022•15 min•Ep. 216
Banks will usually offer higher interest rate discounts to new customers to win their business. But, of course, the banks never offer these higher discounts to existing customers, unless they ask for them. Whilst this has always been the case, it is noteworthy that interest rate discounts have increased substantially over the past 10 years. This means the gap between what interest rates existing and new customers are being charged has also widened to the extent that it is becoming more important...
Jul 05, 2022•13 min•Ep. 215
An understanding of basic economic principles will set you in good stead to understand financial commentary, political rhetoric and make your own assessment of economic risks and opportunities. That is not to suggest you need to become an economic expert but understanding some basic principles will go a long way. The foundation of economics: the law of supply and demand The law of supply and demand is the cornerstone of economic theory. The law of demand states that as the price of a product or ...
Jun 28, 2022•19 min•Ep. 214
Many investors consider future trends when making investment decisions. Popular examples of investable trends include the growing demand for green energy, mainstream adoption of electric vehicles and cybersecurity. The thesis is that if you can correctly spot/predict a trend in the early stages, then you can invest in the companies and sectors that are best positioned to benefit economically. This is called thematic investing. What is thematic investing? Thematic investing is an approach that se...
Jun 21, 2022•17 min•Ep. 213
Some investors have been spooked by the RBA hiking interest rates by 0.75% over the past two months, particularly since it has spent the past two years telling us that rates would not rise until 2024. Higher interest rates at the same time as rising prices (inflation) are a two-fold blow for household budgets.Where are interest rates heading?The banks predict that the cash rate will rise by a further 1.40% to 1.50% by March 2023. Money markets have priced in a cash rate that is more than 2.60% h...
Jun 14, 2022•16 min
Our goal is to inspire our people to adopt a holistic approach when making financial decisions. That's because financial decisions often include several interrelated considerations and consequences, including financial planning, cash flow, taxation, borrowing and so on. Also, taking a holistic approach ensures no opportunities or risks slip between the gaps.Often, the best way to make a point is to tell relatable, real-life stories. Therefore, to demonstrate how valuable a holistic approach is, ...
Jun 07, 2022•23 min
Most people are familiar with the saying that “time in the market is more important than timing the market”. It is very true that holding a quality investment for many decades will mask imperfect timing. However, for some asset classes/investments, timing can be very important. Most markets move in cyclesMost people understand that markets move in cycles . To generalise, an asset class can be over-valued (particularly during a boom cycle), under-valued (after a bust cycle) or fairly valued. If y...
May 31, 2022•16 min•Season 1Ep. 210
I think we need to be prepared for the possibility that the next couple of years might be a bumpy ride in terms of the economy, financial markets, interest rates and so forth. The media thrives on higher levels of uncertainty, so be prepared for plenty of doomsday predictions and lots of negativity. The silver lining is that negative sentiment almost always creates attractive long term investment opportunities, but you must be on the lookout for them. Inflation is not demand drivenIt has been we...
May 24, 2022•19 min•Season 1Ep. 209
A lot has been written about the good fortune of baby-boomers in that, overall, they have enjoyed a long period of economic, share market and property market prosperity. Whilst they haven’t enjoyed the full benefit of compulsory super (which only began in 1992), other assets such as property has certainly compensated for that. This means an inheritance tsunami will hit the next generation over the next two decades. Baby Boomers are expected to bequeath $224 billion each year in inheritance by 20...
May 17, 2022•16 min•Season 1Ep. 208
I find it ironic that the two common financial mistakes that people make are (1) not investing i.e., procrastination or (2) doing too much i.e., turning over investments, changing their mind and so on. Of course, not doing anything is an obviously bad thing as nothing comes from nothing. I wrote about this in March . But, sometimes reacting, changing, tinkering, selling, buying and so on can be equally as bad. The truth is that investing requires a lot of patience. The quote below from Warren Bu...
May 03, 2022•15 min•Season 1Ep. 207
When it comes to building wealth, the truth is that unremarkable actions completed consistently for many years (decades) produce remarkable results. But because these actions appear unremarkable, people tend to overlook their importance. Also, sometimes, people are tempted to undertake intense and often risky “investments” as a shortcut to make up for past inaction. Unfortunately, this approach rarely pays off. Consistency beats intensity.This blog sets out the top 4 unremarkable actions that ge...
Apr 19, 2022•18 min•Season 1Ep. 206
A common property investing rule-of-thumb is that you should “buy property and never sell”. That’s because prices always trend higher over time which means you benefit from compounding capital growth . Of course, the rule-of-thumb should be adjusted to include “buy quality property and never sell” to ensure you maximise investment returns. But the reality is, that sometimes the smartest thing to do, is to sell a property, even if it is a quality asset, if it helps you move forward towards achiev...
Apr 12, 2022•18 min•Season 1Ep. 205
A few weeks ago I wrote a blog about the one thing that stops most people from making the most of their financial opportunities including making regular investments. It was my thesis that a lack of context is the main cause. Having a long-term plan provides you with the context required to make mistake-free financial decisions. It is difficult to work out what investments to make (and when) if you don’t know where you are heading and how your will get there. A financial plan will give you suffic...
Apr 05, 2022•21 min•Season 1Ep. 204
This blog summarises the initiative contained in the 2022 Federal Budget announced on 29 March 2022. Budget initiatives that might affect youExtended the home loan guarantee schemeThe First Home Loan Deposit Scheme (FHLDS) allows borrowers to borrow more than 80% of a property’s value whilst avoiding the cost of lenders mortgage insurance (LMI), because the government guarantees part of the loan. The government has announced it will increase the number of places from 20,000 to 50,000 per year. 1...
Mar 29, 2022•12 min•Season 1Ep. 203
It is very common for people to make an initial investment e.g., buy a parcel of shares or an investment property, but fail to make any further investments for many years or decades. Why does this happen? What is paralysing their ability to make investment decisions? Perhaps you don’t have enough timeWe use lack of time as an excuse for not doing many things. But if we are honest with ourselves, if the matter was important to us, we’d make time. It’s easy to let our time get absorbed by the matt...
Mar 22, 2022•10 min•Season 1Ep. 202
Even though its compulsory to invest money in superannuation, many people do not understand their options once they retire. This blog provides a summary. However, of course, everyone’s situation is different. Some super funds have different rules and there may be exceptions to some rules, so it’s important you receive personalised advice from an independent financial advisor. When can you access your super?The rules that govern when you can access super are contained in the SIS Act and they are ...
Mar 15, 2022•19 min•Season 1Ep. 201
