Stepping stones to reach your goals

Stepping stones to reach your goals

The calendar turns over to a fresh, brand new year, full of promise, so how do we keep these promises we make to ourselves and get to the end of the year with our resolutions intact and goals realised?

We all start out with good intentions when we set our objectives for the year to come, but motivation notoriously wanes with time and has the potential to sabotage our chances of achieving our dreams.

While many studies reinforce the notion that willpower struggles after only one month, a study tracking respondents over the course of a full year suggested that at around the three month mark half of resolutions fall over, increasing to a failure rate of around 82% by years end.i

Monthly micro goals

One way to deal with our waning motivation, instead of setting one daunting goal to be achieved over the period of a whole year, is to come up with a series of monthly, smaller goals. That will give you 12 ‘mini goals’ which ideally need to be achievable on a daily basis. The theory is that if you follow the same pattern for around 30 days, you’ll be establishing this pattern as a habit that you are likely to continue into the future. Each successive month will see you build on that success.

Working towards an end goal

Part of the key to making this approach work, is to ensure that all your monthly micro goals are working towards an overarching end goal. Your micro goals need to follow a theme.

This is where you can come back to your New Year’s resolution and base your theme on what you want to achieve for the year. Say your theme for the year is around career aspirations – for example achieving that promotion. Your first month could simply be setting aside some time each day to network and meet people within the organisation – improving your interpersonal skills. The next month might be focused on exploring tools to improve your productivity…and so on as you work your way through each successive month.

If your priority is to work on your health and wellbeing, and end the year capable of running ten kilometres, it’s also important to set some micro goals that get you there. Again, you can start small - a way of working incrementally towards your goal might be to start by drinking more water, then a month dedicated to getting more incidental exercise in your day, then a month focused on improving your diet and losing a little weight, working slowly up to lacing up your boots, hitting the track and increasing your endurance.

Smaller goals add up with time

We are calling them micro goals for a reason, it’s important to not bite off more than you can chew. The key is how they add up. Viewed alone these smaller goals may not seem like a lot, but the shorter duration makes it a lot more likely you’ll stick at them, developing good habits that will hopefully accrue, rather than fade over time. The fact that you are in effect starting afresh every month also gives you a much better chance of success.

Add some support into your plan

Don’t be afraid to put in some processes to help you get there – it can be a good idea to use online apps to aid or track your progress. It can also help to dangle the carrot and build in some rewards for when you get to the end of each month successfully. Tell friends and family what you are working on and celebrate your successes with them.

By the end of the year, you can look back with satisfaction at each little milestone as a personal win and you’ll have stepped towards, and finally reached an overall goal that may have seemed intimidating unless broken down into manageable chunks.

So what are you waiting for? Get out that calendar and pencil in a goal a month to reach your dreams this year.

i http://www.richardwiseman.com/quirkology/new/USA/Experiment_resolution.shtml

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tips to help you achieve your professional goals in 2022

Tips to help you achieve your professional goals in 2022

As we ring in the New Year, you’ve probably set yourself a few personal new year resolutions. What is the likelihood of you sticking to them long-term? Interestingly, most of us will have failed to achieve these resolutions within a few months (if not sooner).

They’ve either become so onerous that we don’t care anymore, or we simply don’t have the time – life and work often get in the way.

How about professional targets, do you set yourself professional goals as well as personal? Do you consider how you’re going to work smarter this year, is work-life balance something you want to improve upon in 2022, or is your objective to spend more time focussing on your clients and less time doing admin?

Goal setting to achieve an objective

To be successful at setting goals and actually achieving them, you must be clear on what your objective is. Goals cannot be put in place until you’ve set your objective. Once this has been decided, only then can you put steps in place to achieve it.

For example, your main objective for 2022 might be to spend more face-to-face time with clients. Ask yourself the right questions – how you currently spend your day versus how you would like to spend your day. Look at areas where you could potentially create efficiencies within the business to free up your time.

Are you spending more time managing the business's finances or working on the administration side of things as well as trying to market to your existing clients or reach potential clients each month?

That is a lot to juggle on any given day, so you should consider whether any of these tasks could be outsourced to people who can do it in half the time. Obviously, there will be costs associated with outsourcing these jobs, but you must weigh up the benefit to the business as well as your clients.

How to set attainable goals

The key to success here is to break down your goals so they are achievable. You could begin with a monthly goal, which is broken down to a weekly target and then into a daily task – what individual steps do you need to take to achieve your overall goal.

By breaking it down into individual tasks, you’ll take the pressure off, especially if you don’t manage to tick something off your daily ‘to do’ list. You can just move it to the following day.

Tips for success in 2022

  • Understand your overall objective (what does success look like?)
  • Develop a strategy
  • What tasks can be outsourced/delegated/or automated
  • Create a monthly and weekly schedule
  • Break it down and create a daily ‘To Do’ list
  • Stop multi-tasking – pay full attention to the task at hand
  • Exercise and a good night’s sleep are also important!!

Another strategy you could implement is the SMART strategy. You must ensure the goals you set are specific, measurable, attainable, relevant, and timely.

Accomplishment

Imagine finishing your workday with a sense of accomplishment, knowing that you’ve been productive and ticked everything off your ‘to do’ list as well as continually working towards your main goal.

There will be occasions where something unexpected will pop up and interfere with your day, so you must allocate time in your day to be able to deal with these situations.

Here are some useful productivity apps to help with your ‘to do’ list:

  • Trello: Collaborate and manage projects in a very visual way.
  • Evernote: Record and remember everything to tackle projects with your notes, tasks and schedule all in one place.
  • Friday: Plan your day, communicate as a team and to keep all your most important work together in one place.

We can help

If your objective is to work smarter this year, then we’re here to help. One of our objectives is to help our clients with their finances so they’re able to continue to do what they do best. Call us today to see if we can free up some of your time and assist you in achieving your goals in 2022.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


2021 Year in Review

2021 Year in Review

Two steps forward, one step back: For the second year running, the pandemic was the focus for policy makers, markets, businesses, and individuals alike.

The year began with hopes that the rollout of vaccines would stem the spread of COVID-19 and allow economies to reopen. Instead, most countries were hit by wave after wave of the virus, periodic lockdowns, and ongoing disruption to lives and livelihoods.

Yet there were also positives. Australia’s vaccination rate exceeded all expectations while property and share markets soared. Investors who stayed the course enjoyed double digit returns from their superannuation, with the median growth fund tipped to return more than 12 per cent for the year.i

The big picture

If the pandemic has taught us anything, it is to expect the unexpected as new variants of the coronavirus - first Delta and now Omicron – hampered plans to return to a 'new normal'.

Yet through it all, the global economy picked up steam. In the year to September the two global powerhouses the US and China grew at an annual rate of 4.9 per cent, while the Australian economy grew by 3.9 per cent.

The Australian economy is estimated to have grown by more than 4 per cent in 2021, with unemployment falling to 4.6 per cent ahead of the Christmas rush.

But challenges remain. As global demand for goods and services picked up, ongoing shutdowns disrupted manufacturing and supply chains. The result was higher prices and emerging inflation.

Inflation and interest rates

Australia’s inflation rate jumped from less than one per cent to 3 per cent in 2021. This is lower than the US, where inflation hit 6.8 per cent, but it still led to speculation about interest rate hikes.

The Reserve Bank insists it won’t lift rates until inflation is sustainably between 2-3 per cent, unemployment is closer to 4 per cent and wages growth near 3 per cent. (Wages were up 2.2 per cent in the year to September.) The Reserve doesn’t expect to meet all these conditions until 2023 at the earliest, but many economists think it could be sooner.

While Australia’s cash rate remains at an historic low of 0.1 per cent, bond yields point to higher rates ahead. Australia’s 10-year government bond yields rose from 0.98 per cent to 1.67 per cent in 2021.

Shares continue to shine

Global sharemarkets made some big gains in 2021 on the back of economic recovery and strong corporate profits. The US market led the way, with the S&P500 index up 27 per cent to finish at near record highs.

European stocks also performed well while the Chinese market suffered from the government’s regulatory crackdown and the Evergrande property crisis.

In the middle of the pack, the Australian market rose a solid 13.5 per cent in 2021. The picture is even rosier when dividends are added, taking the total return to 17.7 per cent.ii

Volatile commodity prices

As the global economy geared up, so did demand for raw materials. Commodity prices were generally higher but with some wild swings along the way.

Oil prices rose around 53 per cent, thermal coal prices soared 111 per cent and coking coal rose 37 per cent. Australia’s biggest export, iron ore, fell 25 per cent but only after hitting a record high in May.

Despite demand for our raw materials and a sound economy, the Aussie dollar fell from US77c at the start of the year to finish at US72.5c, providing a welcome boost for Australian exporters.

Property boom

Australia’s residential property market had another bumper year, although the pace of growth shows signs of slowing. National home prices rose 22.1 per cent in 2021, according to CoreLogic. When rental income is included the total return from property was 25.7 per cent.iii

Regional areas (up 25.9 per cent) outpaced capital cities (up 21.0 per cent), as people fled to the perceived safety and affordability of the country during the pandemic. Even so, prices were up in all major cities.

Looking ahead

The pandemic is likely to continue to dominate economic developments in 2022. Much will depend on the supply and efficacy of vaccines to protect against Omicron and any future variants of the coronavirus.

Financial markets will also keenly watch for signs of inflation and rising interest rate. In Australia, inflation is unlikely to be constrained while wages growth remains low, and the Reserve Bank keeps rates on hold.

The wild card is the looming federal election which must be held by May. Until the outcome is known, uncertainty may weigh on markets, households, and business.

i https://www.chantwest.com.au/resources/remarkable-a-10th-consecutive-positive-year

ii https://www.commsec.com.au/content/dam/EN/Campaigns_Native/yearahead/CommSec-Year-In-Review-2022-Report.pdf

iii https://www.corelogic.com.au/news/housing-values-end-year-221-higher-pace-gains-continuing-soften-multi-speed-conditions-emerge

Unless otherwise stated, figures were sourced from Trading Economics on 31/12/21

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Investing on facts not FOMO

Investing on facts not FOMO

Prices for property, cryptocurrencies and shares have all hit records recently. While great news for investors, there’s always a risk that some people will jump into the market because they are afraid of missing out on easy money.

FOMO, or the fear of missing out, has always been around on financial markets, but social media and reality television have taken it to a whole new level.

In the lead-up to the 1929 Wall Street Crash, the saying was that when the shoeshine boy or taxi drivers started giving you share tips, it was a sure sign the market was running ahead of itself. Rather than a signal to buy, it was probably time to bail out or bide your time.

These days, social media has become the new shoeshine boy.

A long history

This fear of missing out goes back even further to the mid-1600s Dutch tulip market bubble. At its height, the cost of the rarest tulip bulb was the equivalent of six times the average wage. People rushed to buy tulips on credit for fear of missing out. Inevitably, the tulip bubble burst, devastating investors and the Dutch economy.

A much more recent example of a market getting overheated was the dotcom boom at the turn of the century when people paid top dollar for shares in companies with no history of profits.

Two decades later, and there are concerns that FOMO may be a factor in the rise of property, shares and cryptocurrencies. Over the past year, Australian house prices have jumped 22 per cent on average and more in some parts of the country.i People are scared that if they don’t get in now, then they will never get a foot on the property ladder.

Global share price to earnings (PE) ratios are also at high levels. Some argue that high prices are justified by low interest rates while others worry that some companies may be valued on an overly optimistic view of future earnings.ii

Cryptocurrencies are complex

But it’s the focus on cryptocurrencies that has some market veterans concerned, not least because these are complex new instruments that are not well understood.

At the end of the day, you should always understand where you are putting your money and how it fits your investment objectives and risk profile. If a big drop in price would keep you awake at night, then crypto may not be for you.

In its typically understated style, the Reserve Bank has warned that “the current speculative demand for cryptocurrencies and their surge in value is likely to reverse”.iii

Meme stocks are also an area of concern. These are companies made popular with retail investors through social media sites like Reddit. Examples include AMC and Gamestop.

They are what used to be called pump-and-dump stocks, popularised in the movie The Wolf of Wall St. The only investors to really benefit are those who got in at the beginning and sold in time to realise their gains; not the ones who bought at the peak of the frenzy.

Think long term

Investments should always reflect your long-term objectives. Jumping from one investment to another just because somebody says it’s a good thing can be dangerous.

In the words of Warren Buffett, it pays to be counterintuitive with the market. Rather than follow the crowd “be fearful when others are greedy and greedy when others are fearful”.

But humans being human, tend to do the opposite and pay the price. It’s an age-old maxim that in the long run, growth assets like shares and property tend to outperform other asset classes. You won’t enjoy those long-term gains if you are buying and selling in reaction to short-term market moves.

That’s not to say you should set and forget your investments. For instance, when the market is booming, it may present an opportunity to realise some of your gains, sell any duds, and reinvest the proceeds when bargains emerge.

If you are considering an investment but unsure about its worth or where it might sit within your overall portfolio, give us a call.

i https://www.corelogic.com.au/sites/default/files/2021-10/211101_CoreLogic_Oct_homevalueindex_Nov1_2021_FINAL.pdf

ii https://www.forbes.com/sites/bradmcmillan/2021/09/20/how-can-we-tell-if-the-market-is-overvalued

iii smh.com.au

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tax deductions for your home-based business

Tax deductions for your home-based business

Using your home as the base for your business is increasingly popular, particularly due to COVID-19, with many of Australia’s 2.1 million enterprises with four or less employees now based at home.

As a result, the ATO is busy revisiting the rules on the tax deductions you can claim for a home-based business. Your claimable expenses will depend on how you operate your business, so it’s worth checking the current rules to ensure you know what’s what.

Your business structure matters

The structure (sole trader, partnership, trust or company) you use to operate your business affects your entitlements and obligations when claiming expense deductions.

Sole traders and partnerships can claim a deduction for the costs of running their business from home. What you can deduct is governed by whether or not you have an area of your home set aside as a ‘place of business’.

Trusts and companies, however, must have a genuine market-rate rental contract or agreement in place with the property owner covering which expenses the business is responsible for paying.

Different types of expenses

For home-based sole traders and partnerships, there are two main types of claimable expense.

Running expenses are the increased costs from using your home’s facilities for your business, such as heating, cooling, cleaning, landline phone and internet, equipment and furniture depreciation, and equipment repairs.

These can be claimed if you have a separate study or desk in a lounge room, even if the area doesn’t have the character of a place of business.

You can only claim deductions for the portion of your expenses related to running your business. Any part of an expense related to personal use cannot be claimed.

You may also be able to claim motor vehicle expenses between your home and other locations if the travel is for business purposes.

Claiming your business costs

When you calculate your running costs, you can choose the actual cost, fixed rate or temporary shortcut method. Each one is acceptable provided it’s reasonable for your circumstances, excludes your private living costs and there are appropriate records for your calculations.

With the actual cost method you use the real cost of the expense, while the fixed rate uses a set cost of 52 cents for each hour you operate your business. This covers heating, cooling, lighting, cleaning and depreciation. Other expenses need to be worked out separately.

The temporary shortcut method (available until 30 June 2022), is an 80 cents per hour rate covering all your expenses.

Occupancy expenses can’t always be claimed

Your business can claim occupancy expenses (such as mortgage interest, council rates, and home and contents insurance) if the area in your house set aside for your business has the character of a place of business (even if most of your business is conducted online).

Indicators of a place of business include identification (such as an external sign) it’s a place of business, the area is not easily adaptable for domestic use and is almost exclusively used for your business, or you receive regular client visits.

If you are eligible to claim occupancy expenses, they must be apportioned based on the share of the year your home is used for business and the portion of the floor plan.

Recordkeeping is essential

The ATO expects you to keep records for at least five years to show your business actually incurred the claimed expenses.

You must be able to substantiate your claims with written evidence or receipts for all running costs. If you claim occupancy expenses, you need to substantiate your mortgage interest, insurance, council rates and rental agreement with the homeowner.

The ATO also requires you to demonstrate how you calculated your expense claims and separated them into business and private use.

Capital gains implications

A word of warning though. If you claim deductions for the cost of using your home as your main place of business, there may be capital gains tax (CGT) implications when you sell.

If you claim occupancy expenses, the usual main residence exemption may not apply to the proportion of your home and the periods you used it for your business.

If you have recently started working from home or plan to do so, we can help you work out the best method of claiming deductions for your home-based business.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Employers: What you should know about the new rules for Single Touch Payroll (STP)

Employers: What you should know about the new rules for Single Touch Payroll (STP)

Are you ready for the new Single Touch Payroll (STP) requirements? With Phase 2 of STP now just weeks away, there are some key changes that all employers need to be aware of. Keep reading for a summary of what you need to know.

So, what will the changes mean for your small business?

STP reporting to expand

Under the current STP rules, employers are required to report payroll information to the ATO each time they pay an employee salary or wages, pay-as-you-go (PAYG) withholding or superannuation.

In the 2019-20 Federal Budget, the government announced an expansion of the data it collected through the STP system starting from 1 January 2022.

The change is called STP Phase 2 and under the new rules, employers will be required to report additional information on or before each pay day.

According to the government, the aim of STP Phase 2 is to “reduce the reporting burden for employers who need to report information about their employees to multiple government agencies”.

The additional data collected from 1 January 2022 will also be used in the administration of the social security system.

New STP Phase 2 requirements

The key changes in your reporting include providing extra information on the employment basis for each of your employees (full-time, part-time or casual).

You will also need to provide information on the tax treatment of their salary. This is to help the ATO identify the factors influencing how you calculated your employee’s PAYG withholding. For instance, where your employee has notified you that they have a Study Training Support Loan.

When an employee ceases employment, you will now need to provide information on the reason, for example, voluntary separation, redundancy or due to illness. This will remove the need for you to provide former employees with separation certificates.

Phase 2 also gives you the option to include child support garnishees and child support deductions in your STP report, reducing the requirement to provide a separate remittance advice report to the Child Support Registrar.

More detailed information

Reporting of income types and country codes is also being introduced with STP Phase 2 to help the ATO identify employee payments with specific tax consequences. The government believes this will allow your employees to complete their personal tax returns more easily.

A significant change with Phase 2 will be the new requirement to separately itemise the components of any gross payment amounts such as bonuses and commissions, directors’ fees, paid leave, salary sacrifice, overtime and allowances.

Allowances will need to be reported separately, not just expense allowances that may be deductible for your employees. Any lump sum payments you make to employees need to be reported under new labels.

Although you need to provide additional information in your STP reports, the way you submit the report, due dates and types of payments covered in your reports will stay the same. Your tax and super obligations and the requirements for end of year finalisation will also stay the same.

Benefits from the STP expansion

The government claims employers will receive a number of benefits from the introduction of STP Phase 2.

A key one is a reduction in the duplicate information you are required to provide to different government agencies, reducing unnecessary interactions with these departments.

You will also no longer be required to send tax file number (TFN) and withholding declaration information to the ATO, as this will be captured in the employment conditions section of your STP report.

By more clearly defining the components making up an employee’s gross income, the government says it will be easier for employers to understand their various obligations.

Assistance with new reporting requirements

The government is working closely with digital service providers to ensure they update their software, so it is ready to commence collecting the additional information from 1 January 2022.

The specific information your business needs to provide for STP Phase 2 depends on the particular software product you use, and how you manage your payroll.

Contact us if you would like more information or help transitioning your business to the new STP requirements.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


3 Ways to Achieve Your Financial Goals in 2022

3 Ways to Achieve Your Financial Goals in 2022

In the wake of the pandemic, many Australians are reassessing their approach to money. Regardless, with the Christmas / New Year break less almost on us, we all have a chance to take a bit of time to reflect on the last year and set some financial goals.

This year more than most, many of us may feel that our personal and financial priorities have shifted depending on our experience of the pandemic.

So now that vaccination levels are rising, borders are reopening and we can all plan with a little more certainty, why not take this opportunity for a financial reset in 2022.

Regrets, we have a few

While many people’s lives were turned upside down by lockdowns, not everyone suffered financially.

If you kept your job or were able to access COVID disaster payments, you may have saved money. Holiday plans were scrapped and restaurants, theatres and leisure activities were shut down.

In a recent survey of 2,000 Australians by the Australian Financial Planning Association of Australia (FPA), 11 per cent said their financial position had strengthened over the past 12 months while a further 46 per cent said nothing much had changed. But 17 per cent said their position had worsened and nearly one in four reported being stressed by their financial position.i

Worryingly, the survey found one in five Australians didn’t have enough savings to get through the crisis and 23 per cent felt stressed about their finances. Their biggest regrets were not saving enough, spending too much on take-aways and non-essential items and not paying off debt quickly.

While many of us learned some painful lessons during the pandemic, that may be an opportunity to reset our priorities and do better in future.

Lessons learned

The enforced lockdowns made us value simple things like the importance of family and community. But uncertainty about the economy, jobs and our personal finances also encouraged many of us to reassess our approach to money.

According to the FPA survey, 45 per cent of Australians say the pandemic has made them more frugal. Large numbers also say they have increased savings (44 per cent), paid down debt (41 per cent) and created a budget (39 per cent).

Smaller but still significant numbers responded to the pandemic by topping up their super, investing more outside super or increasing health insurance.

The big question now is, can we stick to these good habits and build on them in the year ahead.

Goal setting

When it comes to goals for the next 12 months, the FPA survey found people were split between hitting a savings goal (52 per cent) and going on holiday (44 per cent) as their top priority. Paying off the mortgage and reducing credit card debt were also popular.

Given the recent strong performance of shares and residential property, starting an investment plan is also high on the list of priorities. This is especially so among younger people who are using new digital platforms to take greater control of their investments, in and out of super.ii

As restrictions ease and the economy recovers, hopefully we can all manage to have a bit more fun next year but get our finances in good shape at the same time.

To get the balance right, it’s important to give your personal and financial goals the attention they deserve and draw up a plan to help you achieve them.

3 tips to help reach your goals

A financial plan doesn’t have to rely on complex financial products or strategies. In fact, getting the simple things right is often best.

  • Build a cash buffer to tide you over in an emergency. This was one of the biggest lessons of the pandemic. It’s generally recommended that you have around three months’ living expenses at call. This might be in a savings account or in a mortgage redraw facility.
  • Manage your cash flow. Even high-income earners can fall into the trap of spending more than they earn. So, take a financial snapshot, noting your monthly income from all sources and the balances on your savings accounts. Then subtract your monthly expenses, including debt repayments. If there’s a shortfall, look for cost savings.
  • Draw up a financial plan. We are here to help you set short and long-term goals, develop strategies to achieve them and provide support to keep you on track.
    If you would like us to help you kick some goals in 2022, don’t hesitate to get in touch.

i All statistics in this article (unless otherwise stated) are from the FPA Money & Life Tracker Freedom Edition 2021: A snapshot of how 2,000 Australians have fared since COVID-19, https://fpa.com.au/wp-content/uploads/2021/10/2021_FPA_Money_and_Life_Tracker_Freedom_Edition.pdf

ii https://www.morningstar.com.au/smsf/article/millennials-are-making-the-switch-to-smsfs/216142

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Investing in Australia amidst rising inflation rates

Investing in Australia Amidst Rising Inflation Rates

The Australian economy is heating up, with inflation on the rise. This offers opportunities for investors who understand how to capitalize on this trend. Here's what you need to know.

With rising inflation comes upward pressure on interest rates. This shift impacts how investors should think about their portfolios, especially when it comes to bonds and cash. Also, with regards the good opportunities it creates.

In the September quarter, the consumer price index (CPI) rose 3 per cent year on year, a level previously not forecast to be reached until 2023. The underlying rate of inflation, which removes extreme price changes and is generally considered a more accurate reflection of what is happening on the ground, increased 2.1 per cent on an annual basis.

Now the Reserve Bank of Australia (RBA) is looking at bringing forward interest rate rises in the wake of this growing inflation rate. When it does, it will be the first time in 11 years that the bank has raised interest rates.

This development is highlighted by the RBA’s relaxing and then abandoning its target for the 3-year government bond rate (the benchmark) which it had originally set at 0.10 per cent. By the start of November, the market had pushed this rate above 1 per cent, 10 times the RBA’s original target, effectively forcing its hand.i

The RBA’s stated aim is to keep the inflation rate within its 2-3 per cent target range. But some seasoned market observers are forecasting the rate could get as high as 3 to 5 per cent by 2023, and perhaps a touch higher.ii

So why is this happening now?

Factors behind the rise

There has been a combination of factors leading to the uptick in inflation, mostly resulting from events stemming from the COVID-19 pandemic and the prospect of a recession fading fast.

These influences include cost pressures from global and local supply chain bottlenecks along with higher energy prices, an uptick in rents and rising insurance costs.

A shortage of labour, partly on the back of the absence of migration and casual overseas workers throughout the pandemic, is now also putting pressure on wages.

For some months, there has been debate over whether inflation was just a transitory event in the wake of COVID, but it is beginning to look more permanent as the months go by.

Opportunities for investors

Inflation is not all bad news for investors, but it may change the way you think about your investments.

The low interest rate regime that led to soaring property prices has left many investors with healthy gains in asset prices, adding to their wealth. While the move to higher interest rates may make borrowing money harder and take some of the boom out of the housing market, it is worth remembering the gains made to date are unlikely to be completely wiped out.

But it’s not just property; all major asset classes are highly valued at present.

Rising inflation traditionally erodes the value of bonds and cash. As interest rates move north, the appeal of those bonds offering the current low rates will fall and in turn so will the price.

As a result, it may be worth assessing whether your asset allocation to bonds is still appropriate for your circumstance and long-term goals, as floating rate bonds or inflation linked bonds may be more appropriate.

Quality stocks still attractive

The reduced appeal of longer-term bonds traditionally increases the appeal of equities as a better hedge against rising inflation.

Also, with a once-feared double dip recession now looking unlikely in North America, Europe, China and Japan, many companies are expected to enjoy continued growth in what is still a low interest rate environment.

While sharemarket returns may be more modest than in recent times, many companies still offer potential. Quality companies offering a high return on earnings, a lowly geared balance sheet and the ability to set prices, will continue to provide attractive investment options.

Inflation and interest rates

The challenge with a higher inflation rate is that it could outpace any growth in interest rates, leaving those weighted towards long-term fixed interest investments in a situation where their money is being eroded over time. As the global economy begins to shift gears, now may be the time to consider reviewing your portfolio to reflect the changing conditions.

If you would like to know more about whether your current investment mix is appropriate for your circumstances and the times, please give us a call to discuss.

i https://www.rba.gov.au/media-releases/2021/mr-21-24.html

ii https://theconversation.com/australias-reserve-bank-signals-the-end-of-ultra-cheap-money-heres-what-it-will-mean-170928

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Australian road trip anyone? Now might be the perfect time.

Australian road trip anyone? Now might be the perfect time.

If you’re looking for an unforgettable and affordable holiday experience, consider a road trip around Australia. We have some of the most scenic drives in the world, and by travelling to regional areas, you’ll not only see amazing landscapes, but boost the local economy too.

In fact, now may be the perfect time to bump an Aussie road trip to the top of your list of holiday choices. Much of the country is opening up as the COVID-19 restrictions ease, whereas international travel is still difficult and unpredictable. As such, road trips are a popular choice with people of all ages right now.

Better still, if you’re able to work flexibly, you may be able to extend that holiday a little longer or work each day whilst you’re on the road.

You may think caravanning was just for the ‘grey nomad community’ or ‘we’re too young to be travelling in a caravan’ but times have certainly changed. Due to our international borders being closed for so long, road trips are becoming increasingly more popular and so is the mode of transport we use to get around.

Thor Industries, owners of Jayco and Airstream, began seeing a marked increase in sales back in May and June 2020, and sales are continuing to grow. So much so, they now have a backlog on orders well into 2022.i

If you are thinking of taking a road trip, there are a number of considerations when choosing the type of caravan or RV for you and your family. You may want a caravan or trailer that is smaller and easier to tow on the back of your car or 4WD, or a large and luxurious RV may be more your style, where you are able to tow a small SUV at the back for off-roading.

Why choose a road trip?

When it comes to road trip destinations in Australia, we are totally spoilt for choice and Mother Nature offers some spectacular scenery along the way. Whether you prefer hugging the magnificent coastline, exploring the lush tropical north, or heading inland and going bush, there is something special for everyone.

While a road trip provides the opportunity to experience some of Australia’s beautiful landscapes, studies have found that being amongst nature also helps alleviate stress and anxiety, improves our physical health and can also boost our mood.ii

There are many other benefits to leaving the big smoke behind and travelling to regional areas to see and experience new and exciting things. You’ll no doubt spend money in most of the towns that you stop in on your journey, boosting the local economy when buying locally made arts and crafts, local produce, or perhaps you’ll book a tour if they are available.

Where to go - that is the big question...

Australia is made for a road trip and there are plenty of Instagram worthy photo opportunities to take advantage of too, so whether it be long or short, here are some of the most scenic drives in our country:

Cairns to Cape York (QLD): Cape York Peninsula (northernmost point in Australia), Mossman Gorge

Great Ocean Road (VIC): The Grotto, Loch Ard Gorge, 12 Apostles

NT - Nature’s Way (NT): Kakadu National Park, Katherine Gorge, Litchfield National Park

Perth to Albany and return (WA): Silo trail, Stirling Range National Park

Waterfall way (NSW): Bellingen, Dorigo National Park, Ebor Falls,

West Coast Wilderness (TAS): Cradle Mountain, Lake St Clair, Pencil Pine Falls

The Epicurean Way (SA): Fleurieu Peninsula, McLaren Vale, Adelaide Hills and Barossa wine regions

Plan ahead

You may be a seasoned caravanner or a first timer, but here are some travel tips to help you and your family on your next adventure:

Ensure everything is mechanically sound before you head off. Check if are there any weight limits along the way, what are the roads like – are all the roads sealed or will there be dirt tracks or rivers you may need to cross? Check the weather forecast. Pack essential items like medical kits, physical road maps as there may not be phone reception in some areas and if necessary, pre-book accommodation sites.

If you’re travelling with children, you may need to stop more frequently, so you must factor in the additional time it will take to reach your destination – timing is everything.

All in all, remember to appreciate what we have in this big, beautiful country, it truly is one of a kind. As the saying goes - ‘take only photos and leave only footprints’ and prepare yourself for what could be the holiday of a lifetime.

i https://www.businessinsider.com.au/rv-thor-industries-has-14-billion-order-backlog-inventory-2021-6

ii https://www.stress.org/how-being-outdoors-and-getting-active-impacts-stress-management

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


The gift of giving this Christmas

The gift of giving this Christmas

Christmas is a time when we come together to celebrate with our family and friends. And, for those who haven’t been able to see friends and family due to border closures, it will be an even more joyous occasion this year.

Gift-giving is typically a big part of celebrating Christmas and provides a great opportunity to reach out to support those who have done it tough this year.

Charity is not just about money

There are so many ways you can give back to the community. It’s not always about making a monetary contribution – giving your time is just as valuable. Volunteering at the local soup kitchen on Christmas Day or helping at your local Foodbank or food rescue service like OzHarvest can be just as valuable. Donating clothes, blankets or any other household items that will help those less fortunate or vulnerable is always welcome, especially at shelters for both men and women.

In recent years, gift bags or hampers are becoming increasingly popular too. It’s as simple as buying non-perishable food items or toiletries from the supermarket and creating a food hamper or gift bag.

Every Christmas, Kmart has the Wishing Tree Appeal whereby you can purchase a gift for a child and leave it under the tree in the store.

If you’re unable to donate cash or volunteer your time, a blood donation at the Australian Red Cross is another option. They are always in desperate need of donors. And when you donate, you’ll not only get to enjoy a little snack afterward, but you’ll receive a text message a few days later telling you exactly where your donation went.

Donating regularly

During the pandemic, there was a significant decrease in the number of donations made to charities across the country, and unfortunately, the amount of money we donated declined as well. People were unsure about job security, whilst others had chosen to donate specifically to the Bushfire Appeal early in 2020.i

Now we are coming out the other side of the pandemic economically, reports show donations are rebounding and are on the rise again. Those who donate, do so regularly and they usually have specific charities that they donate to. This may be due to personal circumstances or to support something they are passionate about.

If you’re considering donating to a charity this Christmas, you may want to do a little research first to find out exactly how your money is being distributed. How much goes directly to those in need and how much is being spent on admin and running costs. This is an important factor for many and may impact your decision in terms of which charity you choose to support.

The positive effects of donating or volunteering

Donating - whether it’s our time or money - will always make us feel good, but it shouldn’t be the key driver. Think about the impact your donation or time will have on those who are on the receiving end.

Donating will not only have a positive effect on the recipient, but it can also be beneficial to your children. You can teach them from a young age that giving back to the community can be very rewarding for many reasons.

Maximising your donation

There are so many charities to choose from in Australia, but it’s also worth considering international organisations as well. You may prefer to donate locally, but if you decide to choose an international charity, your dollar will more than likely go a lot further. Especially in developing countries, where they may need clean water, medical supplies, or even infrastructure to build schools for young children.

Remember, if you donate $2 or more, you may also be able to make a claim on your donation at tax time.

So, whether you’re volunteering at a homeless shelter or soup kitchen or giving a monetary donation – helping others who are less fortunate could be the best gift of all this Christmas.

To find out more about volunteering or donating in your local city go to - Christmas In Australia

i JBWere and NAB Charitable Giving Index

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.