Download Welcome! Property: open for inspection

AUTUMN 05
Your newsletter from Aon Wealth Management Limited / Chris Jensen, representative of Jensen Financial Planning Pty Ltd
Welcome!
Having recharged the batteries over the
Christmas and New Year’s break we are
back into another year.
In February this year Aon, our licensed dealer
group, held its national awards night on the
Gold Coast. With more than 190 advisers
nationally, we were delighted to win the
Bronze Individual Planners Award for 2004.
On the business front we have just
revamped our website ‘www.jensenfp.com.au’. The site will
become a valuable tool in keeping you
informed on what’s happening in the
market place, as well as upcoming events.
Your feedback is welcome, so please
log-on and let us know your thoughts.
If you have any queries please contact
our office on [email protected] or
phone 1300 722 711.
Chris Jensen
DipFP, CFP, Managing Director
Jensen Financial Planning
Property: open for inspection
by Paul Clitheroe
If there is an asset close to the heart of Australians, it’s residential property. And this year there
are plenty of extra reasons to take an interest (so to speak) given the potential for a rise in rates,
the differing opinions on the direction of property prices and the new phenomenon of using the
equity in the home.
Let’s look at interest rates first. The
Governor of the Reserve Bank, Ian
Macfarlane, has warned that rates are
likely to rise and, with lenders reporting
record levels of personal debt, even a
small rate hike can cause a real squeeze.
But there are ways to protect yourself or
to help family members guard against
rising interest rates.
The obvious option is to pay off the
home loan as quickly as possible.
Infochoice.com.au calculates paying just
an extra $50 a month into a $100,000
mortgage charging interest at 7.25 per
cent will trim almost four years off the
25-year term and save roughly $21,500
in interest.
Another tip is for those making monthly
repayments to consider paying fortnightly.
Instead of making 12 monthly
repayments each year, paying every
fortnight means making the equivalent
of 13 monthly instalments annually as
there are 26 fortnights in a year. This
extra month’s repayment annually really
makes a difference.
While the consensus seems to be that
interest rates are on the way up, there
are varied views on where property
prices are headed.
One thing is for sure; most experts who
don’t have a vested interest in selling
property see prices going down. I recently
read an article written by the economics
editor of The Economist magazine that
said property prices in Australia would fall
between 20-30 per cent in 2005 to
2007. Their analysis indicated property
was still significantly overvalued and
suggested that investors were ignoring the
link between yields and prices.
The yield is the income the property
generates and rents have been falling
steadily. In this environment, investors
are relying on capital gains to make the
investment worthwhile. But with prices
going nowhere, something The Economist
says could be the case for the next
decade, investors may not be willing to
tough it out particularly if they are heavily
committed. This would create an
additional supply of properties putting
downward pressure on prices.
Speaking of pressure, the rise in the use
of home equity loans has alarm bells
ringing for the Reserve Bank of Australia
who have commissioned research to
investigate how consumers are using this
new lending phenomenon. Put simply,
they want to find out if these loans are
being used for good or for evil.
There’s no question that accessing the
equity in your home has its advantages.
Many investors have used home equity
loans to build a nest egg that is separate
continued on back page
The Ghan - from working class to first class
With its working class origins, The Ghan, has a special place in Australia’s history. Its name is
taken from the Afghan cameleers who blazed a trail through Central Australia, delivering general
supplies, as well as pianos, motors and furniture to outback towns in the Northern Territory.
In 1929 a railway track took over the
cameleers route from Adelaide to Alice
Springs, though the tracks were prone to
flooding and the train often ran weeks (or
months) late. A new track was established
in 1980 with termite proof sleepers. In
2004, the track was extended from Alice
Springs to Darwin.
Restaurant, themed around the gold
mining town of Tarcoola and the
Melbourne Cup winner of the same name.
Guests can also take optional side trips,
Tony Braxton-Smith says Katherine Gorge
and Alice Springs are very popular. “Many
choose to take a helicopter trip over
Katherine Gorge so they can take in the full
grandeur of the 25 million year old sandstone canyons, while others prefer to enjoy
the sights by boat. In Alice Springs, guests
can go on a locally guided tour of the
Desert Park where they can get up close
to the plants and animals of the outback.”
Today guests making the 2979 kilometre
trip can expect to travel more comfortably
than the cameleers did.
On its first trip from Adelaide to Darwin
the on-board catering team brought
with them 75 kilograms of barramundi,
62 kilograms of gourmet cheese,
45 kilograms of beef, 240 portions of
pate and 1440 bottles of fine wine. More
than 8000 meals were served on board
freshly prepared by eight chefs.
Tony Braxton-Smith, Chief Executive
Officer of Great Southern Railway said
that more than 70,000 guests have taken
the epic journey in its first year of
service to Darwin. “People are drawn
to The Ghan as it offers the trip of a
lifetime. You can sit back, enjoy a
drink as you watch the passing
landscapes - the rusty reds of the
MacDonnell Ranges and Ayers
Rock, and then to Tennant Creek,
Katherine and the tropical splender
of Darwin.”
Once on-board, the Gold Kangaroo
Service offers guests twin or single
sleeper cabins with a lounge during
the day that converts to a comfortable bed at night. Twin cabins
have their own ensuite including a
shower, and are serviced daily.
Restaurant cars each have a
historic theme inspired by the
outback, including the Tarcoola
There’s also Stuart Restaurant (as a tribute
to the explorer Stuart) plus the Cooper
Pedy Lounge and Dreamtime Lounge.
Quick facts
Above: The legendary Ghan
Below: Menu - Gold Glass Service
~ The extended service from Adelaide
to Darwin cost $A1.3 billion to
build. The construction of the new
line involved 120 bridges,
2.3 million sleepers and 143,000
tonnes of steel for the track.
~ Since its inception, ticket sales have
surpassed $A15 million.
~ The railway is still an important
trade route with defence equipment,
motor vehicles and raw materials
being transported.
Other classic train journeys
The Orient Express - destinations include Paris,
Venice, Rome, Budapest, Prague and Istanbul
The Trans Siberian Railway - Moscow to Beijing
The Blue Train - Cape Town to Pretoria, Africa
Eastern & Oriental Express - Bangkok to
Singapore
The Deerstalker Express - London to the West
Highlands in Scotland
The Canadian - Toronto to Vancouver, Canada
Indian Pacific - Sydney to Perth, Australia
Rising dragon
The Chinese economy is growing at around 8-9 per cent per year. We asked Mark Dutton, ipac’s
Chief Investment Officer, if there are any opportunities for Australian based investors to benefit
from this surging economy.
Dutton says direct investment in the
Chinese share market is difficult, given it
operates very differently to Western share
markets and with only a small portion open
to foreigners. “Investing directly in the
Chinese stock market may not be the best
way to benefit from the growth in China.
South East Asian countries geographically
close to China have benefited from
improved trading conditions.”
“Many of these developing countries are
included in the Global Emerging Markets
index, so investors with exposure to
emerging markets could potentially benefit
from growth within the region,” he said.
Dutton says that with a population of
1.25 billion, many Western companies are
keen to get access to millions of potential
Chinese customers. “Companies selling
everything from fast food to consumer
products to financial services are all vying
for a slice of the action. Many of these
companies have been building a presence
in China over the last decade or so.”
Well-known companies like KFC,
McDonalds, Avon, BP and Volkswagon are
amongst the Western companies treading a
well-worn path to China. Dutton suggests
investors look closely at the companies
already in their investment portfolio, as
they may own shares in companies already
in China or the surrounding region.
“ Well-known companies like KFC, McDonalds, Avon, BP and
Volkswagon are amongst the Western companies treading a
well-worn path to China.”
Dutton says that Australian resources companies have also benefited from increased
demand from China. “The Chinese
economy accounts for about three per cent
of the world economy, but in recent years
China has consumed a larger proportion of
the world’s resources and commodities - up
to 20 or 30 per cent of the world’s supply
of iron ore, steel, cement and copper.”
“Local exporters have benefited from the
higher demand, and share investors have
already seen a solid performance in the
resources sector over the last couple of
years. The question is how long will
the resources rally last? With demand
continuing the rally could last for a
while yet,” Mark said.
“It’s worth remembering that despite all
the talk, the Chinese economy accounts
for just three or four per cent of the world
economy. So yes, it’s growing strongly
and there may be opportunities for
investors, but this should be balanced
against basic investment principles like
diversification and avoiding all the
speculative hype,” he said.
The following graph demonstrates the out-performance of the Resources index against
the Industrials index over the last five years.
Industrials: S&P/ASX 300 All Industrials Accumulation Index
Resources: S&P/ASX 300 All Resources Accumulation Index
240
220
200
180
160
Investing in global share markets like the
United States is another option. “Many
companies are already out-sourcing production to China - as they did with India
over the last few years. Examples include
carmakers, computer manufacturers and
telecommunications companies. In reducing
their costs they can improve their profit
margins, leading to higher dividends and
share prices,” he said.
140
120
100
80
Jan
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Source: IRESS
May
00
Sep
00
Jan
01
May
01
Sep
01
Jan
02
May
02
Sep
02
Jan
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May
03
Sep
03
Jan
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Jan
05
continued from front page
to the home by investing in other assets
like shares. They have been attracted by
the cheaper cost of finance.
Unfortunately, things go horribly wrong
when people see home equity loans as
simply a slush fund to spend on
depreciating assets.
Sure if you have always wanted a boat
and think you will put it to good use then
a home equity loan is a reasonable source
of finance. But, to state the obvious, you
have to pay the money back. My advice
on home equity loans is to use them to
buy appreciating assets, or if used to buy
lifestyle toys then crank up your
repayments. Toys won’t last, debt will.
Paul Clitheroe is a founding director of financial
planning firm ipac, host of Channel Nine’s
‘Money’ reports and chief commentator for
Money Magazine.
Smart money management
Often people think about contacting a financial adviser when there has
been a change in their circumstances. Retirement may be on the horizon,
or a change in their employment situation. Sometimes the death of a loved
one triggers a phone call to an adviser. Asking a professional adviser for
assistance during these times makes sense, as they can help you through the raft
of rules and advise on the available choices.
However, good financial advice can also
help you to be smart with your money
each week, which is fundamental to when
you achieve your lifestyle goals. So here’s
our guide to smarter money management.
1. What are your expenses?
If you know where your money is going
each week then you can take control. Over
the last decade or so, changes to technology have impacted on household expenses.
For example, 10 years ago, video rentals or
a trip to the movies may have been regular
expenses. Today, you may be spending
money on DVD rentals, mobile phones,
internet connections, home theatre and perhaps x-box games for kids or grandchildren.
maintenance, fees and levies all impact
on your cash flow.
2. Tax is an expense
A professional adviser will treat your tax as
an expense, and by advising you on smart
ways to structure your finances, you could
reduce your yearly tax bill. At the very
least, your adviser can explore opportunities
to better structure your financial affairs.
3. Smart strategies for success
Once you know where your money is
going each week, your adviser can help
you make the most of any surplus. If you
have a deficit (your expenses are greater
than your earnings) your adviser can also
assist with debt consolidation or debt
reduction. These strategies can have a
real impact on the amount you have left
over each week to fund your lifestyle goals.
What Generation X (25 to 45 years) and Generation Y (18 to 24 years)
are saying about money
~ 59% have experienced a “bad debt”
~ 21% of Generation Y have mobile phone debts
Create two lists for all the expenses that
you have on a weekly (or monthly) basis.
The first is for ‘regular’ expenses like
utilities, cost of running vehicles, food.
While the second is for ‘discretionary
expenses’ such as holidays, gifts, clothes
and entertainment.
~ 4 in 10 believe home ownership is not achievable
People with investment properties should
also record these expenses. Repairs,
Source: CPA Australia survey by Newton Wayman Chong, 2004.
~ 64% have a credit card debt
~ One third feel over committed on the amount of their debt
~ 75% believe they will have to fund their retirement and not rely on a
government pension
Aon Wealth Management Limited
Jensen Financial Planning Pty Ltd
Chris Jensen Dip FP, CFP
ABN 14 003 344 232 Australian Financial Services Licence No. 239187 Life Insurance Broker
ABN 49 097 063 922 Corporate Authorised Representative No 253416
Authorised Representative No. 273571
Level 11 / 440 Collins Street Melbourne VIC 3000
Phone 1300 722 711 or 03 9211 3611 Fax 03 9211 3601 Email [email protected]
Important Information: This publication has been prepared to provide you with general information only. It is not intended to take the place of professional
advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the
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