Congratulations to our principal financial planner Paul Benson who was today advised that he was amongst the top 50 financial planning professionals in the country who participated in the Australian Financial Review Smart Investor assessment.

Further confirmation that when you seek assistance from the Guidance team, you can be confident of receiving first rate advice.

Following a recent restructure at Guidance Financial Services, our focus on providing financial planning services to the self employed and those running businesses has increased further.

So who are our typical clients, and what is that we do for them?  We don’t work on a “one size fits all” type approach, however there is some commonality amoungst the needs of our clients.

We have several clients who are IT contractors.  Income Protection is typically the foundation stone, with share portfolios, often within a Self Managed Super Fund (SMSF), also common.  Many clients of ours work in the building trade – brick-layers, carpenters, plumbers, electrician.  Income Protection and superannuation advice are the core solutions provided here.

We have draftsman, civil engineers, medical specialists, safety inspectors, dentists, physio’s, osteopaths, myotherapist and many more.

Then we have our business owner clients.  Several are importers, enjoying the current high Australian dollar.  Others are manufacturers of such diverse items as fridge magnets, plastic drink bottles, and marketing banners.  Cafe owners, web site designers, and wholesalers all use Guidance Financial Services for their personal financial planning advice.

Our clients operate diverse and interesting businesses, providing employment for many Australians.  We enjoy getting to know them and their business, and help ensure that their hard work results in some solid assets behind them, and the financial security to have genuine choice about the life they wish to lead.  Key-man insurance and Self Managed Super advice are common examples of where we assist.

Hopefully this gives you a taste for the Guidance Financial Services client.  Perhaps we could help you too?  Why not give us a call on 03 9870 6544?

Paul Benson

Financial Planner – Principal

Glenn Mumford, columnist with the Australian Financial Review wrote an inspiring article this morning.  In it he forecasts growth in US markets of around 30% from current levels, and around 25% for Australia in 2011.

His rationale is a combination of US monetary policy making the holding of cash unattractive, low share price valuations, and solid recent profit results.

With investors having endured a very ordinary past 3 years, lets hope his thinking proves correct.

The Australian Financial Review reports today that “the $18.6billion export education industry is struggling to find new revenue as the rising dollar deters foreign students…”.  Elsewhere it is reported Fosters faces a $30million hit from the strong Australian dollar.  Prepare for plenty more reports along these lines.

A strong dollar is seen by some as a source of national pride, with many in the media portraying our exchange rate as something of a score board – when it goes up we are winners, and down we are losers.  Yet for many in the economy the high Australian dollar is extremely detrimental.

Firstly, lets consider why the value of the Australian dollar has risen compared to the US dollar in particular. In truth this is more a story of USD weakness, although our dollar has also gained against the Euro in recent months.

There is an increasing expectation that the US will work their way out of their economic woes through printing money. By creating inflation, the debt they owe the rest of the world is reduced in value, asset prices such as real estate rise, and consumers are given an incentive to spend now, rather than put things off, because in a world of rising prices, delaying a purchase means paying more.

Of course if you print money, then it means each US dollar is worth a little less compared to other assets, such as gold, where we have seen record prices fetched, and other currencies, such as the Australian dollar.

With one Australian dollar currently buying around 98 US cents, we are a long way for our long term average of around 75 US cents. At this moment however it is difficult to see what will change current sentiment.

So who are the winners from a high dollar?  Well simply, they are the importers.  Imported electrical equipment, cars, industrial machinery, etc.  The high Australian dollar makes buying things overseas cheaper. The airlines for instance have reported that the higher AUD will be very favourable for them, as it reduces their fuel bills, and it encourages Australians to travel overseas.

It follows then that the losers will be our exporters.  It makes it harder for Holden to sell locally produced cars into the US, our agricultural exports become less competitive, and our services businesses, such as IT become more expensive relative to other competing countries.

Whilst both Importing and Exporting industries produce employment and economic wealth for Australia, on balance it is reasonable to assume that our export industries generate a greater benefit to the nation, given the clear link to employment.  So with a higher Australian dollar damaging our exporters, our current strong currency will likely lead to a slow down in Australia’s economic growth over the medium term.  Given the RBA is currently talking about raising interest rates to slow down the economy, perhaps this is no bad thing.  I worry though that some of our exporters will go out of business, and the dollar will remain high for an extended period due to high commodity prices.  Over time our mining sector will tick over nicely, while other industries die.  Then one day, when China doesn’t need so much of our resources, and commodity prices drop back to more normal levels, our economy will look like the Royal Melbourne Show with only one old ride that no one wants to pay for any more.

This startling fact is contained in APRA’s most recent Quarterly Superannuation Performance publication for the June 2010 quarter.

The report also found that Self Managed Super Funds held the largest proportion of superannuation assets, accounting for 31.8% of the total $1.23 trillion retirement savings pool.

The momentum towards SMSF’s continued, with 6,376 new funds established, bringing the total to 428,198 funds now in operation in Australia.

Are you ready to make the move to a Self Managed Super Fund?  Give us a call and we can explain what is involved and explore whether an SMSF is the right solution for your retirement savings needs.

Our attempt to assess the likelihood of a range of economic outcomes with a 3 year view.

If you enjoyed the Rudd Government $900 tax free payment and you thought the First Home Owners Grant (which peaked at $36,500) was generous, then how does a Government tax free payment of $109,228 sound?

Tax Offsets and Tax Free incentive payments estimated at $109,228 per property are now available through the National Rental Affordability Scheme (NRAS) to investors who purchase new investment properties. The incentives have previously been made available to large institutions but are now accessible to individual property investors.

NRAS is set to change the property investment landscape for at least the next 10 years. The incentives will turn many property investments from a negative cashflow position to positive cashflow. As such, there will be many people who will find property investment attractive for the first time, and many existing investors who will want to restructure their property investments.

Have you considered using your super to invest in property?  Via a Self Managed Superannuation Fund, it’s possible.  Learn more with our free ebook SMSF – Australia’s most popular way to save for retirement.

When the NRAS incentives are combined with existing tax deductions the tax savings can be substantial. In one example we’ve seen a 79% tax saving was estimated for a young couple with two children buying their first investment property.

Under NRAS, the Australian Government aims to stimulate the supply of new affordable rental dwellings by up to 50,000 by June 2012 through providing incentives to:

• increase the supply of affordable rental dwellings;
• reduce rental costs for low to moderate income households; and
• encourage large scale investment and innovative delivery of affordable housing.

NRAS investors are eligible to receive a National Rental Incentive for each approved dwelling where it is rented to eligible low and moderate income households at 20% below market rates. According to the most recently available Australian Bureau Statistic figures the average household income of a tenant renting from a private landlord was $78,104. Households earning up to $125,960 are eligible to rent NRAS approved properties so an “average tenant” will most likely be eligible for an NRAS property.

For very many investors giving up the 20% rental income in exchange for tax free incentives will mean turning a negative cashflow investment into a positive cashflow investment. As a result many people who have been unable to enter the property investment market because of the negative cashflow demands of investment property will now become property investors for the first time.

The Scheme offers annual incentives for 10 years. The two key elements of the Incentive are:

• A Commonwealth Government Incentive indexed for 10 years and currently at $6,855 per dwelling per year as a refundable tax offset or payment; and
• A State or Territory Government Tax Free Incentive indexed for 10 years and currently at $2,285 per dwelling per year.

The incentive is indexed annually at the CPI rate for rent which has been an average of 3.9% over the last 10 years. The most recent CPI increase for rent was 5.4%.

The current incentive indexed at 3.9% gives a total 10 year incentive of $109,228.

It is important to note that the Australian Government incentive is a tax offset not a tax deduction. A tax offset is of greater benefit because it is a direct reduction in the tax payable whereas a tax deduction is a reduction in the taxable income which is then taxed. The State Government incentive is also tax free.

This is a genuine win, win, win situation. Investors get real and substantial financial benefits, tenants get more affordable rental properties and the Government achieves its social policy goals without doing the work themselves.

The NRAS package including an on-line choice of properties across many locations throughout Australia is available from Onyx (www.onyx.net.au). Onyx has been providing strategic property and finance advice to property investors across Australia for nearly a decade.

Important Notes

This information has been prepared by Onyx Domain Pty Ltd.  Neither Guidance Financial Services Pty Ltd or Financial Wisdom Ltd recommend or endorse Onyx Domain Pty Ltd and it is essential that any person, corporation or other entity, conducts their own research and due diligence before proceeding to engage their services.

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives and should NOT to be construed as legal, professional or financial product advice. You should obtain a Product Disclosure Statement and consider obtaining personal financial advice from an Australian Financial Services Licensee, or representative thereof before making the decision to acquire, vary or dispose of any financial product.

Whilst all reasonable efforts are made to ensure that the information contained herein is accurate and reliable the parties make no representation or warranty regarding the correctness or reliability of the information provided.

I was asked this question last week and the answer is yes.  The proviso however is that you can’t play it.

A recent report on the superannuation system by Jeremy Cooper proposed that SMSF’s should be banned from holding collectables such as art works.  However after considerable outcry from the the arts community, ministers Bowen and Garret (as minister for the Arts), announced that they would not be adopting the Cooper recommendations.

It is envisaged that there will be a tightening around how an SMSF will manage collectables.  The sole purpose test must always be kept in mind of course – which is why you could own a guitar in your SMSF, but you can’t strum it on a Saturday night for a bit of relaxation.  It is likely rules will be put in place regarding the storage of such items – temperature controlled and such.

As to whether collectible guitars are a sensible way to save for your retirement – well I have no idea.  But it’s interesting to see the broad scope of possibilities that exist within the SMSF environment.

CoreData-brandmanagement recently produced some fascinating research on Australian’s experiences and perceptions of financial planning professionals.  The study obtained surveys from 1,054 respondents.

Some of the results I found interesting were:

• When it comes to trust, specialist doctors were the most highly regarded with a rating of 8 out of 10.  Amongst those respondents who had a relationship with a financial planner, the average trust rating for financial planners was not far behind at 7.5.  Yet for those who don’t have a relationship with a financial planner, the score was only 4.5.  So those who engaged the services of a professional adviser seemingly found the adviser professional and trustworthy, yet those with no experience had a negative perception.  Where has this perception come from and why is the perception so different from the reality of those who use financial planners?

• One might expect that those who chose to use a professional financial planner might do so because they have little knowledge or understanding of financial matters such as superannuation or insurance, whilst those who elected not to engage a professional might do so because they have a good level of knowledge and so don’t need the help.  Yet the research found the opposite was true.  When it came to knowledge of superannuation, only 10.3% of respondents who have a financial planning relationship rated their knowledge as poor or very poor, whilst 28.6% of those without a planner rated themselves as having this low level of understanding.  It seems that a benefit of having a relationship with a financial planner was that the client gained knowledge of the investment landscape and the options available to them.

• Consideration of appropriate personal insurances is an area where financial planners often assist their clients.  One question in the survey asked “how important is ensuring you have sufficient insurance cover for the following”.  Interestingly, Comprehensive Car Insurance ranked around 8 out of 10 varying a little depending on the age of the respondent.  Yet Income Protection Insurance ranked around 6 out of 10 for those still in the work force.If your car was a complete write-off the financial loss might be $20,000 to $50,000 for most people.  Yet for most of us, one year off work would cost us far more than that.  And Income Protection doesn’t just cover for one year off work, but potentially would pay a benefit until you reached aged 65 (some even go to age 70), if you need it.  Think about how many more working years you have left and what you earn per year.  Is your car really more valuable than your earnings capacity?

Most Australians would benefit from having a relationship with a professional financial planner.  If you don’t currently have such a relationship, perhaps it’s time to change.

Paul Benson B.Bus, CFP, SSA

Principal – Guidance Financial Services Pty Ltd

At present we consider the range of market possibilities and their chance of occurring as follows:

· Global economic growth flourishes over the next 3 years, and as a result of low interest rates, significant money flows into share markets, causing prices to rise strongly.  Likelihood we will see this outcome 15-20%.

· Global growth occurs but is fairly anaemic and differs greatly between countries and regions.  Investment caution remains with share prices mirroring the modest profit growth.  Likelihood we will see this outcome 50-70%.

· A “Double Dip’ recession occurs, leading to profit declines and consequent falling share prices.  Likelihood we will see this outcome 5-15%.

· A country defaults on its debt leading to a financial meltdown.  Likelihood we will see this outcome 5%.

We are regularly asked by our clients where we see markets heading.  Our views change as new information is released, and the fact is we don’t have a crystal ball.  As such, the most useful answer we can provide is a range of possibilities, and what we see as the likelihood of them occurring.

The above represents our view as at 30 June 2010.

Paul Benson

Principal – Guidance Financial Services Pty Ltd

Important Notes

This information is of a general nature only and has been prepared without taking into account your particular financial needs, circumstances and objectives and should NOT to be construed as legal, professional or financial product advice. You should obtain a Product Disclosure Statement and consider obtaining personal financial advice from an Australian Financial Services Licensee, or representative thereof before making the decision to acquire, vary or dispose of any financial product.

Whilst all reasonable efforts are made to ensure that the information contained herein is accurate and reliable the parties make no representation or warranty regarding the correctness or reliability of the information provided.

© Guidance Financial Services Pty Ltd