It’s no secret there are plenty of insurance providers playing in this space at the moment and consumers are responding in droves to their clever marketing campaigns. I say clever because on the whole, consumers think they can now get insurance that is the same as that offered by insurance advisers and financial planners by simply picking up the phone. This, however, could not be further from the truth.

The reality is, buying life insurance (and income protection insurance for that matter) over the phone is fraught with danger unless you understand and accept the conditions of the policy you are buying.

Sure, there are no medicals and paperwork required, but there is a reason for this – the policy is underwritten at claim time. What this means is your eligibility for the insurance is actually determined at the time you claim, not at the time you start paying the premium. In effect, what the insurance company is doing, is asking you to formally apply for the cover you have already been paying them for.

To illustrate, if claiming under an income protection policy, you will firstly need to complete an application form, personal statement and medical and occupational questionnaires. Then, the insurance company may request to see your medical records and put you through a series of medical tests. If, after all of this, they determine you are an ‘insurable risk’ for the policy you have taken out, your claim will be paid. If not, your claim will be rejected. The bottom line? You have no guarantee of insurance upfront.

Furthermore, the claims process often takes time, a number of weeks or even longer. This is important because if, for instance, you have claimed under an income protection policy, it will have been because you can’t work due to an illness or injury, so you’ll be going through the underwriting process at a difficult time and unless you have other financial resources to fall back on, you’ll be without income as well.

With respect to a life insurance claim, the insurer will firstly obtain all of the deceased’s medical records and where necessary, seek medical opinions from specialists and other medical experts. Again, this can take some time which is an important consideration. For example, if the deceased was the sole income earner, and the policy proceeds were needed to pay out the mortgage on the home and provide an income for family, timing becomes very important indeed.

After all enquiries have been made, the insurer will then determine whether the deceased would have been eligible for the policy and decide whether to pay the benefit to the beneficiaries (usually the surviving spouse and children). Additionally, pre-existing medical conditions are often excluded, so if you pass away as a result of a pre-existing condition your claim will usually be denied.

Moving onto cost, many consumers perceive insurance purchased over the phone to be cheaper than engaging an insurance broker or financial planner. Certainly, because of the shortcomings outlined above, this should be the case, but it isn’t. Because you are not underwritten upfront, the insurer has no idea how much risk they are taking on. This means they also have no idea how much they should charge you.

So what do they do?

They assume some applicants will be low risk (healthy) and others will be high risk (overweight with health issues). Low risk applicants are less likely to claim and are therefore a cheaper risk, and high risk applicants are more likely to claim and are therefore a more expensive risk. The insurers then balance this risk by calculating an average premium for everyone. This effectively means that the low risk people are paying a higher premium than the level of risk they represent, and the high risk people are paying a lower premium than the level of risk they represent.

Given this, high risk people are getting a good deal, right? Possibly, but think about this – which people are more likely to have a claim rejected once they have been underwritten?

Advice is the final issue to consider. The consultants you’ll speak to are not trained, and the company itself not licensed, to provide you with advice around what insurance policies and levels of cover you actually need. Additionally, they can only recommend one product, their own!

So what can we conclude from this?

Buying Life and Income Protection insurance over the phone is quite simply, not worth the risk. Afterall, you take out insurance because you want certainty, right?

These insurances play a crucial part in securing your financial future. Life and Income Protection insurance exist purely to eliminate any number of risks that you and your family could face if the unexpected happened. Because of this, it is vital you arrange these insurances in a way that provides as much certainly as possible.

To do this, you must engage an insurance expert. An expert will assess what insurances you need, the levels of cover required, the most suitable policy and insurance company to deal with and ensure you are underwritten upfront to provide certainty. And you’ll be paying a premium that reflects your level of risk.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Financial freedom is like a pot of gold at the end of the rainbow. Ask five wealth creation experts how to find it, and you’ll undoubtedly get five different answers.

In good times, there’s talk of property booms or investing in sure things on the sharemarket. In tough times, some say it’s prudent to spread your risk, or to buy into government bonds, while others reckon it’s better to focus your strategy on saving.

History tells us that the world of wealth creation is all about cycles. So what can we learn from history? Is it worth looking back so we can move forward with our personal finances?

Back to the future

References to financial strategies are peppered through historical texts, including the Bible, says Dr Ciorstan Smark, a senior lecturer in accounting and finance at the University of Wollongong.

“Biblical proverbs such as ‘The rich rules over the poor and the borrower is slave to the lender’ (Proverbs 22:7) and ‘It’s stupid to guarantee someone else’s loan’ (Proverbs 17:18) have been quoted by US commentator Dave Ramsey, radio presenter and the author of Total Money Makeover.

“And the late Larry Burkett, advocated getting out of debt and having a good solid savings account in case of difficult times.

“These commentators are very much about frugality and financial freedom and about not wasting resources or the planet.”

“They may be conservative theories, some may say old fashioned. (However) quite a few Old Testament (thus present in religious traditions of Judaism, Christianity and Islam) are looking pretty good right now!”

Consider the downturn

In good times, she says that people see their neighbours who’ve adopted more risky strategies doing better than they are, “but they don’t take into account the bad times, and the downturn in wealth cycles.”

Cut back to history for some belt-tightening lessons. For example, when Shakespeare had Lord Polonius say to his son Laertes, in Hamlet, “neither a borrower nor a lender be…” it was a classic financial cautionary tale of living within your means.

In books such as George S Clason’s The Richest Man in Babylon, which was first published in 1926, it was suggested that the richest ancient Babylonians lived by the concept of paying yourself first. They believed in putting aside 10 percent of your earnings, which you then invested in safe ways to make your money earn compound interest.

“The very conservative view of wealth creation will give less returns in good times but better than average results in difficult times,” admits Dr Smark.

“The thing about the historically conservative and low-debt strategies, and setting aside a certain portion of your earnings for those rainy days, is that they work in difficult times of high unemployment and uncertainty.

“I don’t think we’ve seen the worst of the global economic fallout yet so having 10 percent of your income set aside every year is a good look.

“People who do their financial planning often believing that everyone’s going to stay employed, no-one’s going to get sick and nothing’s going to go wrong. They are playing a dangerous game.”

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Gold has been with us since time began. For thousands of years it has motivated civilisations and their economies influencing the fate of kings, emperors and their empires.

As a society, our fascination with gold can be epitomised in the 100 year old tale of a man who boarded a ship carrying his entire wealth with him in a large bag of gold coins. Only days into the voyage, a terrible storm prevailed and the alarm was sounded to abandon ship.

Strapping the bag around his waist, the man went up onto the deck, jumped overboard into the ocean and promptly sank to the bottom of the sea. The question asked as he was sinking was: “did he have the gold? Or did the gold have him?”

Click on the link to read more here…

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

THE Reserve Bank has kept interest rates on hold after two consecutive cuts adopting a wait-and-see approach.

Against the backdrop of signs the global economy is in better shape as European officials roll out more measures to tackle the debt crisis, the RBA today decided at its monthly board meeting to keep the cash rate at 4.25 per cent.

Fresh global optimism outweighed the Reserve Bank’s concerns about the strength of the Australian dollar, weak business confidence and struggling retail and construction sectors.

The move did not meet expectations with 13 of 14 economists had tipping the RBA would cut the cash rate as an insurance policy.

The official rate was trimmed at the central bank’s November and December board meetings on fears the eurozone debt crisis was set to drag down global growth.

ANZ was the only major financial institution to predict the RBA would stay on the sidelines but it expects a rate cut in March.

Source: www.news.com.au

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

The most common asset classes represent different types of investment – cash, fixed interest, property and shares. Each asset class has a different level of risk and return, which means they can perform differently over time.

When choosing an asset class for your investment, it’s important to understand how they work, and to be clear about investment timeframes so you’re not setting yourself false expectations of how your money should be tracking over time.

When you focus on structuring your investment portfolio, remember that investments that have provided higher returns over the longer term may produce a wider range of returns over the short term. You should keep this in mind as this may mean that these investments may not help you to meet your short term investment goals. Now let’s look at the different types and the risk level involved.

1. Cash and fixed interest

In a nutshell: defensive assets, such as cash or fixed interest are generally aimed at providing stable more consistent returns.

• Cash

Cash generally refers to bank bills or other similar securities, which generally have a short term investment timeframe and provide more stable returns and a narrower range of returns over the shorter term than some other investments such as shares.

Risk level: Low risk
Minimum suggested timeframe: No minimum

• Fixed interest

These are usually securities such as government and corporate bonds and generally operate in a similar fashion to loans. You can get a regular interest payment from a bond for an agreed period of time and the value can go up and down, depending on changing interest rate levels. You get your initial outlay of cash back when the bond matures. Bonds have historically offered returns that are generally more consistent, but lower, than shares. They still contain some level of risk higher than a cash investment.

Risk level: Low–medium risk
Timeframe: Minimum suggested 3 years

2. Property securities, Australian and international shares

In a nutshell: growth assets focused on capital growth and income.

• Property
  

Property can generally be bought directly or you can buy it indirectly via property securities. Property securities are usually listed on a stock exchange and are traded in a similar way to shares. Depending on the specific security, each property security can represent an investment in a real property in various sectors including retail, industrial and office.

Risk level: Medium–high risk
Timeframe: Minimum suggested 5 years

• Shares

You can buy shares in companies locally and/or internationally, with your money buying you a stake in the company that can be traded on a stock exchange. This can be done directly, or through a managed fund, which will pool your money with other investors to buy shares in various companies.

The value of shares tends to fluctuate and shares are considered to be more risky than other asset classes. However, over the longer term shares have historically tended to outperform other asset classes.

Risk: High risk
Timeframe: Minimum suggested investment 7 years for Australian shares and 7 years for international shares.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

The events of the last few years have shown how even the best laid investment plans can come unstuck when big global forces intervene. And the roller-coaster ride is not over yet.

We’re still in the midst of enormous structural changes in the global economy, with the centre of gravity shifting from the old-world to the dynamic, high-growth economies of China, India and the developing world.

But trends like these are impacting your investments. By creating a truly diversified portfolio with carefully calculated exposure to the large structural forces shaping our economic future, you can potentially hitch a ride on a rising star.

Here are five key themes to keep in mind when you develop your strategy for 2012.

1. Developed economies remain weak

The developed world is expected to remain in a period of lower economic growth, with elevated sovereign debt levels in Europe and the US prompting aggressive austerity programs. This is resulting in weakened economic activity and lower consumer confidence.

Europe appears to have entered a recession in late 2011, driven by peripheral economies like Greece, but also reinforced by a slowdown in Germany and France. In contrast, the US economy has showed some signs of improvement in the second half of 2011. But the US could still be derailed by the situation in Europe and ongoing problems in the global banking sector.

2. The European sovereign debt crisis will weigh on markets

While recent policy announcements in Europe are a further step in the right direction, the measures announced so far are not enough to end financial market volatility or resolve the crisis. Politicians seem unwilling or unable to introduce the large-scale structural reforms necessary to improve the economic outlook.

So where will it end? Right now, we foresee one of two outcomes:

Fiscal union. The most likely outcome is a full fiscal union between the Eurozone countries, with centralised economic decision-making and the introduction of Eurobonds, although this full fiscal union could take years to eventuate

Break-up. A less attractive and less likely alternative would be the break-up of the Eurozone or even the collapse of the Euro. That would be very destructive for the European and global economies, likely leading to the collapse of a number of major banking institutions.

3. The US is set to show its resilience

The US economy has started 2012 in a better position than financial markets and economists generally expected six months ago. Growth expectations for 2012 are around 2% and rising – an improvement on 2011, but still not enough to meaningfully reduce the unemployment rate back to pre-crisis levels.

The positive outlook has been driven by:

• Improved consumer confidence
• Higher consumer spending
• Increased capital expenditure by companies looking to replace outdated equipment
• Strong growth in productivity, with average productivity gains of more than 2% pa over the last decade, compared to just 1.3% pa in Australia.
• A stronger US dollar

But there are still risks. They include the political uncertainty in the lead up to November’s Presidential election and the ongoing fiscal policy debate.

4. Emerging economies should continue to outperform

Over the next two years, emerging economies should continue to outperform developed nations, contributing up to 75% of global economic growth. Yet the breakneck pace of their economic growth is also set to slow.

The Chinese authorities have been working to engineer a soft landing for their economy, with inflation easing in the second half of 2011, along with the economic activity. Consensus growth forecasts for China in 2012 are now closer to 8% than the 9% plus levels we saw in 2011.

At the same time, China and the other developing economies still have scope to stimulate economic activity by easing interest rates or increasing spending if growth falls too far. On average, government debt as a percentage of GDP is 30% among emerging economies, compared to 70% (and rising) in developed countries.

5. Political interference and uncertainty will continue

Political uncertainty will be a key factor in market moves during 2012. Countries to watch include:

• The United States. Presidential elections are due on 6 November 2012, with uncertainty over the country’s economic direction likely to further unsettle markets until then.

• France. Presidential elections are due between late April and early May, with current polls suggesting a close contest between President Nicholas Sarkozy and the Socialist Party leader, Francois Hollande.

• Greece and Italy. Political uncertainty is likely to continue, with newly appointed technocratic governments seeking public support for austerity measures and structural reforms. Social unrest and strikes by unions are likely to increase.

What does it mean for Australian investors?

Global events, particularly in Europe, are likely to continue to dictate investment market performance in Australia in 2012, with many investors still wary of the sharemarket in the wake of recent volatility. Despite this, fundamentals for the equity markets are attractive, based on valuations and yields. Offshore events remain the biggest impediment to encourage investors to return to equity investments.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

1. Confidence in the banking sector by demonstrating that US banks can handle a deep downturn
2. Additional transparency to banks’ capital adequacy

The Fed has requested four scenarios be tested, however the worst-case scenario is akin to economic Armageddon. Those assumptions are outlined below:

• The US unemployment rate rises to 13%
• An 8% drop in US GDP
• A 21% decline in US housing prices
• A 52% plunge in US equity markets by 4Q12

This is a very pessimistic scenario under anyone’s reading, especially in relation to US housing and equity markets. However, the Fed clearly believes it is within the realms of possibility if they are asking banks to model the outcome and prepare themselves for it.

The Fed will publish the results for Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo in Q1 2012.

By preparing for the worst and hoping for the best, at least the US regulators are making a valiant effort to ensure that US banks can survive the kind of shock the deepening European sovereign debt crisis could deliver.  The same point can’t be made about its European brethren, who, after proudly announcing a clean bill of health for Dexia SA in July 2011, had to bail the French-Belgian lender out in October 2011.

Will you be liable for capital gains tax?
If you sell some or all of your fund, you may trigger a capital gains tax event. This also includes switching to another fund.

A capital gains event means you may pay tax on the difference between the original cost and its sale value. This tax is at your marginal tax rate which could be as high as 46.5 per cent. If you have owned the investment for more than 12 months, the tax liability may be cut in half, but it’s still worth checking with your personal adviser to assess any potential tax liability.

Will selling ‘crystallise’ your loss?
Most managed funds fluctuate in value, often sharply. If your investment has gone down in value because of market volatility and you decide to switch or withdraw the possibility of recouping your losses is lost forever. So, it’s important that you weigh up the chances of an investment recovering, and speak to your personal adviser.

Will you miss future growth?
It’s important to consider that you may be withdrawing at a time when markets, and potentially your investment value, are down. This means you risk missing a rebound in markets and any future growth opportunities. Even experienced investors find it almost impossible to successfully predict the movements of investment markets.

If you hold multiple investments and require access to funds, it’s worth talking to your adviser to ensure you withdraw from the right investment to minimise the impact on your investment strategy.

The chart below shows the performance of a $10,000 investment in the ASX 200 over the last 10 years. You can see the difficulty an investor would have, no matter how experienced, successfully picking the tops and bottoms of the market over the long term.

Have you spoken to your personal adviser?

Before you withdraw, make sure you understand the effects this withdrawal may have on your investment strategy. If you have a personal adviser, they can be invaluable in this process as they can review your situation and help you:

• assess the effects of the decision
• explain what may happen and discuss alternative options with you
• assist you in balancing your short-term goals with your long-term needs

The views and opinions contained herein are those of Kym Marriott, and may not necessarily represent views expressed or reflected in other Life Balance Financial Professionals Pty Ltd (LBFP) communications or strategies.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but LBFP does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that LBFP has to its clients under the Financial Services Reform Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

The Australian sharemarket immediately rallied and the currency declined against all of its major peers, as financial markets began to factor in an easing of the RBA’s Target Cash Rate next Tuesday. This move followed statements by RBA officials earlier this month that improved inflation would increase the ability of interest rates being reduced to support demand (should that prove necessary). Today’s result and the RBA’s already flagged downward revisions to near-term economic growth, suggest that they will reduce their inflation forecast in the upcoming Quarterly Statement of Monetary Policy (due out 4th November 2011).

This combination suggests the main concern about the Australian economy is swinging from inflation to growth and this provides the RBA with the ability to cut rates, but not necessarily on Tuesday. The RBA has suggested the key reason for cutting rates would reflect trends in Europe. There would be no point firing its ammunition before the enemy has arrived. The likelihood of a November rate cut from the RBA (next week) has risen significantly, but it might be more prudent for the RBA to wait and see how the rescue package in Europe is received before doing anything. The European deal has looked a bit less certain in recent days and any negative developments in the next few days could push the RBA over the line. But it’s not yet the sure thing that the market thinks.

Article by Matt Sherwood at Perpetual

It basically means that certain parts of the economy, namely mining and agriculture, are enjoying strong prices and strong demand whilst other areas of the economy are in near recession type conditions.

How has this come about?

The strong demand for our exports has meant a very strong Australian dollar. We have experienced 30 year plus highs against the US$ but also strong movements against other currencies as well.

Whilst the strong dollar has negative impacts for our export industries, the high prices and demand has more than offset any negative effects from the appreciating exchange rate. The strength of the dollar has meant that our import-competing industries are a lot less competitive and areas such as tourism and education services have been severely impacted.

In the case of tourism the high AUD$ means that it is more expensive for overseas visitors to come to Australia, whilst for Australians it means it is cheaper to go on overseas holidays and as a result they undertake less domestic holidays. In a similar vein the number of foreign overseas students coming to Australia is down up to 30 per cent as the cost of being educated within Australia increases.

This phenomena of a high domestic currency and its impact on other sections of the economy is known as the ‘Dutch’ disease (after a similar occurrence in the Netherlands with respect to oil and gas exports) or in more academic terms, the Gregory thesis.

What is the answer to this problem?

Over time there is a self-equilibrating mechanism that will tend to limit the extent of any AUD increase, but the end result will be a reallocation of resources to the export-related sectors. The Government can also use fiscal policy to cushion the impact of adjustments, providing necessary assistance where required. As an increasing exchange rate is also a de facto monetary tightening, the central bank can take this into account when setting interest rates.

What has been the impact on the Australian sharemarket?

Whilst the Australian equity market has moved in a sideways pattern for nearly two years now, the stocks in the mining and energy sectors have continued to rally reflecting the strong underlying fundamentals in this sector. If it was not for the mining stocks the Australian equity market would be quite a bit lower from where it currently is.