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Making interest free deals work for you

All / 14.02.2019

They have been around for decades but interest-free deals can still be confusing and costly when not managed correctly.

Excitable advertising can make these offers almost too good to refuse, particularly with longer terms applying to higher levels of finance. For example, to get five years’ interest-free on purchases from some retailers, the minimum spend is $1,000. This simple condition could turn a necessary purchase of say, a new fridge, into a multiple purchase prompted by the seemingly innocent question, “do you need to upgrade your TV?”.

Five years up your sleeve to pay off a larger purchase may sound too tempting to pass up but never forget the age-tested maxim “buyer beware”. In the case of interest-free it’s not always as simple as it sounds.

How do these deals make money?

Not to be confused with the newer “buy now, pay later” products where no interest is ever charged, interest-free deals simply defer the interest to the end of the promotional period and then it appears with guns blazing! Interest will be charged on any outstanding amount at ridiculously high levels, often close to 30% per annum.

For instance, if you had a loan of $3,000, how would you feel about paying an extra $1,000 interest per year? That’s not smart buying.

Although some do, the credit provider is not obligated to warn that the interest-free period is ending. It’s up to you to calculate the monthly repayments to clear the debt during the interest-free period and pay that amount – or more if you can.

It’s not just interest

It may seem attractive, but having a longer period to pay off a purchase will cost you more, particularly when it’s for a relatively inexpensive item, eg. a $1,000 TV. The monthly account-keeping fee will add up considerably over a longer period. Five years (60 months) at $5.95 is an extra $357 in fees. Reducing the period of the loan will save you money on these fees. There are also late payment fees if you miss the monthly due date.

As part of the deal, you will usually be provided with a store card or another credit card for this purchase. The card credit limit may be much higher than your initial purchase as a way to encourage you to spend more, so if you don’t need the extra credit ask for the card limit to match the full purchase price when completing the application. The salesman may explain that you might not be able to increase it later, but take control and stick to your decision.

The card could also have an annual fee so if you repay the total balance within the first 12 months and don’t plan to use it for another purchase make a note to cancel it before the provider charges another annual fee.

Buying smart

If you intend to buy using an interest-free offer, check your budget and make sure you can repay the entire purchase price (plus fees) before the expiry of the interest-free period. Managed well, interest will be your friend. If not, it will be a very expensive enemy.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.
Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
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5 common financial mistakes people make in their 40s

All / 14.02.2019

The 40s are, for many people, a critical decade for building wealth. Income is usually on the rise, but so are expenses such as mortgages and school fees. Juggling priorities can be a real challenge, and mistakes made in this stage of life can have a large bearing on the size of your future fortune.

Forewarned is forearmed, so if you’re entering or already amidst this decade of life, here are a few classic mistakes you don’t want to make.

  1. Not paying attention to superannuation

Retirement is decades away, so why pay attention to super at this time of life? Because putting that time to use can generate big rewards.

Take Jo. On turning 40 she decides to contribute an additional $5,000 per year, after tax, to her super fund. There it earns 7% per annum after fees and tax. By the time she turns 50, Jo’s super balance will potentially be $69,000 higher than if she hadn’t made the additional contributions. By age 65, the extra contributions made during her 40s could potentially add $316,000 more to Jo’s super fund!

Depending on individual circumstances, strategies involving salary sacrifice, spouse contributions and government co-contributions could further boost your super.

  1. Buying the biggest house in the best street

It may seem sensible to buy an expensive home if it is going to appreciate in value. However, the bigger the mortgage the greater the risk of experiencing financial stress and of reaching retirement with a substantial home loan still hanging over your head.

Life is more enjoyable (and isn’t that what it’s really all about?) if your budget makes room for some good times now rather than saddling yourself with major debt that requires gratification to be constantly delayed.

  1. Spending money you don’t have on a car you don’t need to impress people you don’t like

Much as you may love that new-car leather-seat smell, borrowing money to buy an expensive new car is a classic way of eroding wealth. New cars shed value faster than a moulting moggie sheds hair, leaving you paying interest on a loan that can quickly exceed the value of the car. And expensive cars usually come with higher running costs.

An enduring piece of wealth creation advice is to drive the cheapest car your ego will allow. Prudent car buying can add hundreds of thousands of dollars to your future wealth.

  1. The wrong insurance mix

If you’re like most Australians, your personal and property insurance coverage is probably inadequate.

Yes, insurance premiums can be expensive, but the consequences of inadequate insurance can be financially (and emotionally) devastating. While it may be a straightforward exercise to work out how much insurance you need on your home, contents and car, your needs for personal insurances (life and disability cover) differ. Expert advice will help you decide on the most appropriate cover.

Also, check you’re not paying for ‘junk’ insurance. Accident cover is a common example. It might be cheap, but only because it provides very limited protection.

  1. Feeling immortal

Okay, the likelihood that you will die or become severely disabled during your 40s may be fairly small, but accidents can and do happen.

Do you have a Will and have you given someone your power of attorney (PoA)? Are both current? Your Will and PoA are important documents, and should be reviewed regularly.

Make the most of your 40s

All these mistakes can be avoided with some planning and expert advice, so talk to your financial adviser about how to make the most of your 40s. Avoiding just some of these pitfalls could really boost your future fortune.

 

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
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Do you have $220,000 in a lost super account?

All / 24.01.2019

Yes, that sounds incredible but the Australian Tax Office announced in November 2008 that there is an unclaimed (lost) superannuation account holding $220,000! That’s enough to make you find out if it could be yours – or a family member’s?

Anyone who has changed their name, address or job (that accounts for a few of us!) could have some money sitting in a super fund and totally forgotten about it. It might not be $220,000 but you never know what you might find.

It’s worth taking a few minutes to look. Start here: https://www.ato.gov.au/Individuals/Super/Growing-your-super/Keeping-track-of-your-super/.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
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When scammers come back for more!

All / 24.01.2019

Most victims of scams can never recover their lost money, but by taking immediate action it’s possible to reduce the damage and avoid yet another danger – the follow-up scam.

Despite public awareness of scams, the perpetrators’ methods are becoming increasingly sophisticated and otherwise savvy people are falling victim.

It’s almost impossible for victims to get their money back because most of the fraudulent companies are international, placing them outside of Australian Government jurisdiction.

However, the following steps may help to minimise the financial loss, and make it harder for these criminals.

  1. Contact your bank.

Do this as soon as you become aware of being scammed; quick action may be able to stop money transfers. At the least your bank will be able to close your account or cancel your card so that the scammers won’t have further access.

  1. Report the scam.

It’s very important to stop the scam from spreading by identifying the scammers and warning other potential victims. On the Australian Competition & Consumer Commission’s (ACCC) website www.scamwatch.gov.au there is an online form and phone number to report scams.

  1. Beware of follow-up scams.

Follow-up scams focus on people who have already been scam victims because the perpetrators see them as an easy target. Look out for the following clues:

  • You receive an offer to swap your investment for another one in order to recover your losses.
  • You receive an offer to buy your shares at a premium provided you pay a fee to have “restrictions” on the shares lifted.
  • Someone offers you assistance to locate the person that originally scammed you but you must pay travel and accommodation costs.
  • Anyone claiming assistance recovering your losses for a fee. Often they’ll explain this fee is a tax, deposit or a refundable insurance bond.

If you have become a victim of a scam and are subsequently contacted for these or any other reason you feel is suspicious, you should immediately cease any discussion with the person and report the call or email.

With so many scams in operation and growing on a daily basis, it pays to stay informed. The www.scamwatch.gov.au website is continually updated and is a good place to visit regularly. Improving education and awareness is the best way to beat this scourge.

 

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
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10 Common Financial Mistakes Before Retirement

All / 24.01.2019

Many of us would like to think that ‘older’ means ‘wiser’, but when it comes to money that isn’t always the case. The complexity of Australia’s superannuation and pension systems doesn’t help. The upshot is that there are a number of common mistakes that retiring and retired Australians make.

What are those mistakes and how might you avoid them?

 

  1. Underestimating how much you need

The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard calculates that a “comfortable” retirement for a couple costs $60,604 per year. For singles the figure is $42,953 per year. To fund these levels of income, the ASFA calculates that a couple will need a nest egg of $640,000, and a single $545,000 at retirement[1]. Less than that and retirees become increasingly reliant on the age pension.

In 2015-2016, the average total superannuation balance for households headed by someone aged 60-64 was around $337,100 – well short of enough to fund a “comfortable” retirement.

  1. Retiring too early.

Australians retiring today can expect to live until their mid-80s. For retirees in their mid-50s, that means finding a way to pay for a further 30 years of life.

The obvious solution to retiring too soon is to work longer. This provides a double benefit: it extends the savings period allowing a greater sum to be saved, and delays the point where withdrawals start to eat into accumulated funds.

Many people may also overlook the social benefits of work. They end up

bored, and then could face the challenges of trying to re-enter the workforce as an older worker, or taking an extra risk by starting a business.

  1. Not topping up super.

Making additional contributions into the tax-favoured superannuation environment can really boost super savings. Strategies involving salary sacrifice, spouse contributions and government co-contributions should all be in play well before retirement. Within the allowable limits of course.

  1. Investing too conservatively.

A common view is that retirees should dial back on their investment risk by allocating more of their savings to cash and fixed interest, and less to shares and property. However, even 10 years is a long-term investment horizon, let alone 20 or 30. Cutting too far back on growth assets early in retirement may see savings dwindle too quickly.

  1. Withdrawing super as a lump sum.

Superannuation can be withdrawn as a lump sum after retirement, and if you are over 60 it’s all tax-free.

But what then?

Common choices are to take that big trip or renovate the home.

Of course you’ll want to celebrate your retirement, but if you’re thinking of dipping into your savings in a big way, make sure you understand the potential implications for your future lifestyle.

Another option is to invest outside of super. This may be entirely appropriate. However, don’t forget that if you are over 60 and your super is in the pension phase, earnings and capital growth will be tax-free. Investing outside of super may see you paying more tax than you need to.

  1. Expecting too much age pension.

Just because you’ve decided to retire doesn’t mean the government is ready to give you an age pension. To begin with you need to reach pension age, which is between 65 and 67 depending on your date of birth. If you haven’t yet reached your pension age, you’ll need to fund your lifestyle until you do.

Then there is an assets test and an income test. Too many assets (not including the family home) or too much income and the amount of pension you can receive will start to fall, eventually to nothing. It’s important to remember that these tests apply to the combined assets and income of a couple. If your partner is still working you may receive little or no pension.

  1. Forgetting to plan your estate.

If you don’t have a current Will, haven’t granted someone you trust an enduring power of attorney, or made a binding death benefit nomination for your superannuation, you’re likely to leave a big headache for whoever will manage your affairs if you become incapacitated or die. The solution? Talk to a lawyer who specialises in estate planning matters sooner rather than later.

  1. Overlooking preservation age and conditions of release.

You can retire any time you like. You may even be able to access some of your super if you have an unrestricted, non-preserved component. Otherwise you need to meet a condition of release. This usually requires reaching preservation age, which is between 55 and 60, again depending on date of birth. If you’re under the age of 60 it also means ceasing gainful employment with no intention to being gainfully employed again. Between 60 and 65 it is sufficient just to cease an employment arrangement. All funds can be accessed from age 65, regardless of employment status.

One way to access super after reaching preservation age but without retiring is to start a Transition to Retirement pension. However, this must be paid as an income stream. Lump sum withdrawals are not allowed.

  1. Carrying debt into retirement.

It can be hard enough keeping up mortgage, car finance or credit card interest payments even when you’re working. It can become a real burden in retirement.

Where possible, do your best to pay down debt. It may help to consolidate debts and pay off one loan at the lowest possible interest rate. Downsizing your home may also allow you to start retirement debt-free.

  1. Paying for unnecessary insurance.

Free of debt and without financial dependants, you may not need to maintain the same level of life and disability insurance you once required. Also, premiums can become expensive as you get older. The run up to retirement is an ideal time to review your insurances, a task best done under the guidance of your financial adviser.

Invaluable advice.

While the expectation may be that life should get less complicated as you get older, this short list reveals that’s not always the case. Many of these mistakes come with a high price tag but can be avoided by seeking professional advice.

Your financial planner will be able to assess your specific circumstances and help you develop a plan for your retirement. But don’t wait until you actually retire. As you can see, it’s never too early to start planning.

 

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.
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Infographic – Work-Life Balance

All / 17.01.2019

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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Infographic – 10 Tips to Have a debt free holiday

All / 14.01.2019

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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Managing CGT in a Self-Managed Super Fund

All / 19.12.2018

When you dispose of an asset and make a capital gain, you may be liable for extra tax. There is no separate tax rate for capital gains. Instead, some or all of the capital gain is added to your assessable income and taxed along with your other income at your marginal tax rate.

Capital Gains Tax (CGT) – generally speaking

The CGT system is very complex but in general terms, for individuals, the capital gain can be discounted by 50% if the asset is held for at least a year. This means the effective tax rate is 23.5% for those on the highest tax rate. There is no discount for assets held less than one year. For companies, there is no discount and the full capital gain is taxed up to the maximum company tax rate of 30%.

Tax on superannuation funds works in the same way as that applying to individuals. However, when a super fund disposes of an asset, it qualifies for a one-third discount if the asset was held for at least a year. Super funds are taxed at a flat rate of 15%, so this means the effective tax rate is 10%.

Minimising CGT

There are extra advantages in a Self-Managed Super Fund (SMSF).

The major benefit is that you can plan when to dispose of an asset taking into account the effective tax rate. This may mean, for example, that if you have invested in a share that has appreciated rapidly, you may hold it longer to qualify for the one-third discount.

Another advantage is that you can control the amount of capital gain made in a year and match it against capital losses to minimise the net capital gain.

The lower tax rates in super mean there is a lower “tax cost” of selling before a year has passed. The maximum tax rate will be 15% rather than 47% if the asset was held as an individual or 30% in a company.

Trustees of many SMSFs find that the lower tax rate in super helps them to focus on buying quality assets rather than worrying about how much tax may be payable.

Eliminating CGT

As stated, superannuation funds pay tax at 15%, however, once a super fund starts paying a pension or other income stream, the assets are not taxed at all. All income and capital gains are exempt from tax.

If your fund holds a large asset like a property, the capital gain may be significant and the potential tax cost could deter you from selling. In a SMSF, you control when you dispose of the asset. For example, disposal of the asset once a pension has started can eliminate capital gains tax.

Of course, tax is not the only issue when making investments but it can “add cream to the cake” if it can be reduced or legally eliminated. If appropriate to your personal circumstances, a SMSF may provide excellent opportunities to do just that.

The rules governing SMSFs are very strict, so always seek professional advice to determine if you might benefit from these or other opportunities within those rules.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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Ensuring your voice is heard

All / 19.12.2018

When you’re here to supervise your worldly affairs, your voice, which reflects your current views, is heard, and more often than not, heeded. But when you’re not here, what voice will be heard? Will it be your most recent voice; an old voice from several years ago; or the voice of government legislation? Unfortunately, all too often, it is voice number two, or worse, three.

 

If your Will and other estate arrangements have not recently been reviewed, you risk your voice not being heard. If you have overlooked making a Will, the government decides how your estate is to be distributed. This reinforces the importance of keeping all of your estate arrangements current.

That said, even with the best of intentions the most up-to-date Will in the world can be challenged. There have been countless real-life court dramas involving high profile public figures engaging in claims and counter-claims following the death of a wealthy relative. Some of us have experienced similar emotional intensity, anguish, and even bitterness. We must always remember that people change, form new relationships, and take advice from different sources whose motives may not always be pure.

In ensuring your voice from the other side will be heard and heeded, the Will remains the centrepiece of estate planning, but with life insurance and binding nominations for superannuation, there are additional tools you may not have thought of.

The insurance option

A policy taken out by a person on their own life and owned by that person forms part of their estate to be distributed in accordance with their Will, and thus subject to challenge. But, and here is the feature which can make insurance such an important part of sound estate planning. A policy which nominates someone other than the life insured as the beneficiary does not form part of the estate and is quite separate from the Will – and not subject to challenge.

What this means is that if there is even the smallest possibility that your wishes may not be carried out after you’re gone, it might be a good idea to seek professional advice about the value of a life insurance policy.

The super solution

It is widely believed that superannuation is included in an estate and dealt with through a Will. Not so. The trustee of your superannuation fund determines how your super is paid upon your death. You may identify a “preferred beneficiary” however the fund trustee can override this decision at its discretion. If you don’t want this to occur, you should complete a ‘Binding Death Benefit Nomination’.

Binding Death Benefit Nominations

Superannuation legislation allows you to specifically nominate, with certainty, who will receive your super following your death.

These nominations must be in writing and clearly state the names of beneficiaries and any split details between multi-beneficiaries. Some funds offer non-lapsing binding nominations however, many binding nominations must be renewed every three years and are only valid if you nominate a dependant, eg. your current spouse (including de facto), or your child of any age, or a person financially dependent upon you at the time of death. You may also nominate your estate.

Binding nominations are still relevant if you have a self-managed super fund. Even though you have the final decision on how your super is managed whilst you are alive, it is crucial to ensure your trustee/s (who may also be family) continues to fulfil your wishes after you die.

To ensure it’s your own voice that takes final control of what you have worked hard for in this lifetime, consult an estate planning specialist or talk to your financial adviser.

 

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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Does the value of the Aussie dollar affect you?

All / 18.12.2018

You might think that only importers and exporters pay attention to the value of the Aussie dollar, but movements in the exchange rate affect us all.

After peaking at US$0.81 in late January 2018 the Australian dollar fell as low as US$0.70 in October. It also fell against a number of other currencies.

A falling Aussie dollar makes it more costly to travel overseas and increases the local cost of imported goods. On the upside, it makes many of our exports less expensive for foreign buyers, giving a boost to our farmers and other exporters.

The reverse applies in the case of a rising dollar, but movements in exchange rates don’t just influence our living costs. Most people with superannuation will have a portion invested in overseas assets, and changes in currency values can also influence the performance of retirement savings – a lower dollar boosts the local value of our overseas investments while a higher dollar has the reverse effect.

So what are the main influences on exchange rates? Ultimately it comes down to supply and demand, and that can be determined by a number of things:

  1. Interest rates. Imagine an Australian investor earning 1% interest on her money. She looks across the Pacific and sees that she can earn 2% in the USA. Here’s an opportunity to double her income! To do so she needs to buy US dollars, increasing demand for the greenback and thus increasing its value against the Australian dollar. Exchange rates respond very quickly to both actual changes in official interest rates, and to expectations of where interest rates in different countries are heading.
  2. Commodity prices. From wheat and wool, to iron ore and natural gas, Australia produces a wealth of commodities. When demand for materials falls less money flows into Australia, and with decreased demand our dollar falls in value.
  3. The economy. If the economy is doing it tough the Reserve Bank of Australia may drop interest rates to encourage borrowing and stimulate investment. This takes us back to item 1. A weak economy relative to other countries attracts less overseas investment, causing the local currency to fall.
  4. Elections and referenda can create a climate of economic uncertainty that investors, on the whole, don’t like. However, if the market thinks that a more business-friendly government is likely to be elected, this could boost the value of our dollar.
  5. In times of market volatility and global political upheaval, investors flock to the US dollar as a ‘safe haven’ currency. Most other currencies, including ours, usually fall relative to the US currency.

But it’s not that simple

Other things can influence currency values, such as speculation or central bank intervention. There’s also a lot of interaction between the influences outlined above. For example, strong commodity prices may give a boost to the economy, which leads to higher interest rates. Throw in some political uncertainty add a touch of speculation and things quickly become very complicated.

Armies of analysts are employed to sift through massive amounts of data in their attempts to figure out where different currencies are headed. However, given all the complexities it is perhaps no surprise that they often arrive at very different conclusions.

So will the Aussie dollar rise or continue to fall? History suggests flipping a coin may provide as useful an answer as following the opinions of ‘experts’.

For more information or to speak to one of our Financial Advisers please contact TNR Wealth Management on 02 6621 8544.

 

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances.

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