Jacqueline Barton

Planning your estate

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Nobody knows what’s around the corner. That’s why the best time to think about planning your estate is right now.

While writing a Will is an essential part of the process, there’s so much more to estate planning that can ensure your wishes will be fulfilled exactly the way you want. A little planning today can make a big difference to your family’s tomorrow.

It’s all about your peace of mind

Estate planning is different for every person, but every plan has the same goal: peace of mind. With a proper estate plan in place, you can be confident that should you die or become unable to manage your affairs, you have everything in order. Your plan may cover your own life care instructions as well as how your assets will be managed and, ultimately, distributed according to your wishes in the most efficient and tax-effective way.

While the structure of an estate plan will vary according to personal circumstances, assets and wishes, the process offers a range of tools to help you manage your affairs. Tools such as Wills, Powers of Attorney, insurance policies and trusts can help ensure your affairs are managed the way you would like.

Make sure your decisions are the ones that count

  • Estate planning will ensure you have peace of mind knowing that:
  • Your loved ones, including children, are provided for and protected.
  • Your children’s inheritance receives increased protection if a relationship breaks down.
  • You have received professional advice on how to structure your assets to optimise tax advantages.
  • Your wishes are recorded in legally-binding documents, free from ambiguity.
  • Your affairs will be managed by someone you trust when you die or are no longer able to legally manage your affairs.

There’s no time like the present

  • The best time to think about your estate plan is right now. If something unexpected was to happen to you and you don’t have an estate plan in place, your estate and your loved ones could be faced with legal disadvantages and extra costs. Not to mention added stress at an already difficult time.

You should also keep in mind that your estate plan can keep evolving as your life does. Certain life events such as marriage, divorce or the birth of a child should prompt the need for estate planning advice or a review of your existing plan.

Where there’s a Will…

Generally, your Will forms the basis of your estate plan. This essential document spells out your wishes for the distribution of your assets to your beneficiaries. It also allows you to:

  • choose your executor
  • appoint a guardian for any minor children
  • establish a trust to transfer your assets tax effectively
  • make specific gifts to charities
  • establish a trust for minor children or another purpose.

 

Without a legally valid Will, known as “dying intestate”, you risk your estate being distributed according to strict legislative requirements. If you don’t make your wishes clear, a government-appointed executor could be left to decide who benefits from your estate.

An intestate estate is more difficult to administer and will take longer to be finalised, potentially resulting in increased costs and increased stress for your loved ones.

Choosing a trusted executor

An important part of writing your Will is appointing an executor. Your executor is responsible for carrying out your wishes for the entire administration of your estate, from funeral arrangements to the ongoing management of assets until the estate is completed.

Your executor – or executors – can be a family member, a trusted friend or professional, or a nominated trustee company. Their responsibilities may include:

  • Confirming your Will is legally valid and, in some States, obtaining a grant of probate.
  • Preparing a statement of your assets and liabilities – what you own and what you owe.
  • Advising beneficiaries of their entitlements.
  • Lodging tax returns, if required.

 

  • Managing and protecting your assets prior to distribution. For example, superannuation, insurance, safekeeping of valuables and re-investment of surplus funds.

Establishing trusts

Making payments or distributing assets to beneficiaries.

Enduring Power of Attorney

Keeping things on track when you can’t

An Enduring Power of Attorney is a key part of your estate planning. If you are no longer able to manage your own affairs due to an accident, illness or the loss of mental capacity, this legal document will ensure that someone you trust can step in when needed. In much the same way as nominating an executor, you can appoint trusted family members, friends or a professional trustee to act as your Attorney.

Prepared by a solicitor, an Enduring power of Attorney can prevent potential government intervention in your personal affairs, management of your assets and even your own medical care.

A trust could help preserve everything you’ve worked for

Apart from distributing assets through your Will, you can also choose to distribute assets via trust. A trust is a legal structure used to hold assets that can be owned in the name of an individual, family or business. Trusts generally exist to protect those assets and minimise tax with specific rules and instructions detailed in a trust deed, which is prepared by your solicitor.

There are several types of trusts that may be a useful vehicle in your estate plan if you want to:

  • pass on a family business
  • make a gift to charity
  • be flexible in distributing your assets for tax purposes
  • protect and manage assets until beneficiaries reach a certain age.

To learn more about estate planning, please get in touch with our team today.

Be aware of investment scams

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Be suspicious of anyone offering you easy money. Scammers are skilled at convincing you that the investment is real, the returns are high and the risks are low. There’s always a catch.

If you think you’ve been targeted by scammers, act quickly. For steps to take and where to report a scam, see what to do if you’ve been scammed.

How investment scams work

There are many ways investment scams may appear. Three main examples are:

– The investment offer is completely fake.
– The scammer is pretending to offer a legitimate investment, but keeps any money given to them.
– The scammer says they work for a well-known company that is offering a legitimate investment – but they’re lying.

In any case, the money you ‘invest’ goes straight into the scammer’s bank account and not towards any real investment. It is extremely hard to recover your money if it goes to a scammer based overseas.

Anyone can be scammed, and every scam is different. Scams are often hard to spot and can feel legitimate in the moment. Scammers can use professional-looking websites, advertisements and apps, and impersonate legitimate companies.

Important

Scammers are using deepfake technology to create fake celebrity videos promoting Quantum AI.

Quantum AI is a fake online investment program. It claims to use artificial intelligence (AI) technology and quantum computing to generate high returns for investors. Fake trading results are displayed on a website manipulated by scammers.

If you see a celebrity spruiking an investment, search online to see if the person has posted warnings about being impersonated.

Spot the signs of a deepfake video:
– The person speaks with unusual pauses, odd pitches or different accents.
– Mouth movements aren’t in time with their speech.
– Facial expressions and movements don’t match the speaking tone.
– The video is low resolution.

Do not click on any links promoting Quantum AI, or similar scams such as Immediate Edge and Quantum Trade Wave. Learn more about this scam.

How scammers contact you

Scammers can come from anywhere. The most common approaches are:

Unexpected contact – they may contact you by phone, social media, email or text message. They might pretend to be someone you know, such as your bank, financial adviser, fund manager, or even a friend. They’ll offer guaranteed or unrealistic high returns on an investment.

Fake investment trading – they use real investment trading platforms to set up fake accounts. Then they will help you trade via an account manager or offer to trade on your behalf. Once you deposit your money it’s gone for good.

Fake investment comparison websites – scammers will get you to enter your personal information into their fake website, then contact you to sell their scam investment.

Websites with fake ASIC endorsements – slick websites with fake investing information and performance figures. They may claim to be endorsed or approved by ASIC, and may show the ASIC logo.

Dating apps – using romance to form a relationship with you, then offering you an ‘investment opportunity’. (This is also known as ‘romance baiting’.)

Paid advertising – scammers often pay big money for advertisements, to appear high in online search results. They also advertise through social media. Advertising a scam is illegal.

Fake news articles – scammers will promote fake articles on social media or news websites, linking to their scam websites.

Deepfake celebrity endorsement videos – scammers use a deepfake celebrity video to promote fake investments.

What scammers may offer you

A scammer may tell you they’re offering:
– guaranteed, quick and easy investment returns and sometimes tax-free benefits
– investments in shares, cryptocurrency, mortgage, real estate or virtual investments, all with ‘high returns’
– a (fake) trading platform to trade foreign currency, gold, options or futures
– commissions for building their client base and getting others to invest
– an opportunity with no risk or low risk, because you will:
– be able to sell anytime
– get a refund for non-performance
– have insured or ‘guaranteed’ transactions
– be able to swap one investment for another
– inside information on initial public offerings or discounts for early bird investors, often falsely impersonating real companies to pitch their offer

How scammers convince you

Scammers will look at the latest market and investment trends for opportunities. They often use well-known company names, platforms, and terms (such as ‘crypto’) to lure investors in and appear credible.

This may include fake:

– crypto (virtual currency) investments
– trading companies, getting you to invest with them through real apps and trading platforms
– offers of inside information on public company floats, often naming ones that have been hyped in the media or on social media
– offers to get your money back from a sharemarket fall or previous scam
– references to well-known Australian companies or regulators, often using the Australian Coat of Arms or Government logos
– offers to keep your money safe in well-known Australian banks

Important

Beware of scammers offering investments or asking for payment using crypto. A legitimate financial services firm is unlikely to ask you for payment in crypto. Crypto-assets (for example, cryptocurrency) are largely unregulated in Australia and are high-risk, volatile investments.

Payments made using crypto are very difficult to trace and recover. To find out more, see cryptocurrencies.

Other tactics used by investment scammers

Operate from overseas

Investing in overseas companies or through brokers based outside Australia can be risky. If you invest and something goes wrong, you may not have access to important consumer rights and protections under Australian laws.

Convincing you not to pull out of the investment

They may try to swap your current investment for another one, convincing you the value will increase, or threaten you with legal action or fees.

A common tactic is to ask for ‘insurance’ or ‘taxes’ before funds invested can be released. This is just another method to extract more money from you.

‘Pump and dump’ scams

Scammers use social media and online forums to create fake news and excitement in listed stocks to increase (or ‘pump’) the share price.

Then they sell (or ‘dump’) their shares and take a profit, leaving the share price to fall. Any other investors are left with low value shares and will lose money. This may be market manipulation which is illegal.

Protect yourself from investment scams

Investment scams can look very convincing. It may be hard to tell if they’re genuine investments or not.

Always use a licensed Australian financial services provider when you invest. Check they are listed on AFCA’s financial firm directory.

This article was sourced from moneysmart.gov.au.

Economic Update: August 2024

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In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

Key points:

  • Has the US and Australia finally reached a turning point in their interest rate cycles?
  • Despite conjecture we think the RBA is done
  • The US Federal Reserve has clearly changed its rates position but no cuts until September
  • Stock markets finish July with a rally

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

So much new macro and company-specific data are released each month, it would be easy to lose sight of the big picture. Many analysts and commentators react on the same day as a data release; and another day’s data arrives before they can properly digest the previous set of numbers.

It is no wonder, therefore, that different analysts and commentators reach different conclusions from the same data. We think it is not possible to provide a balanced view without a very strong background in at least statistics, economics and finance. And then it still takes time to mull over the big issues.

This monthly is our attempt to take a step back and take stock of, not just of this month’s data and central bank comments, but also have a deeper reflection of previous months of such inputs.

And research, as opposed to commentary, often requires new methods and techniques to be developed to challenge the orthodoxy. Just because someone says raising interest rate quells inflation doesn’t mean that statement should be adopted without challenge. And often, qualifiers are needed to express fully how ‘things work’.

Our monthly investment committee is one forum we use to challenge current popular views. This month, we had a particularly lively interaction. This economic update benefits from the result of that interchange.

There is no doubt that the US Federal Reserve (Fed) chair, Jerome Powell, has modified his view on what monetary policy action is currently appropriate. And others from that institution have also recently changed tack.

In last month’s update we reported that Powell had at last acknowledged that there are serious problems in the way the US data agency calculates the rate of inflation in shelter (specifically rent). This component takes up about one third of the index so it is important to get it right. But Powell said he isn’t currently interested in changing his metrics. But he must now consider that the number he has been fed might be misleading! The official inflation rate prints are severely biased upwards and Powell acknowledged that similar agencies in other countries do a better job.

Next, Powell acknowledged the so-called “Sahm rule”, named after a former Fed economist, Dr Claudia Sahm, which is used to call an impending recession. The rule came close to triggering such a call at the start of July.

The rule is a simple. It measures the increase in unemployment over a year in a particular manner. The media has also picked on this rule and we all await a recession signal (and a recession?) following the August 2nd jobs data.

This indicator was not conceived until 2019 and it didn’t attract any significant attention until December last year. Sahm’s claim is that a recession followed every time the signal called one. While that analysis appears to be correct, it is only based on correlations and not causation – and it has not been tested on a new recession [what we call out-of-sample-testing in econometrics]. The 2022 splutter in the global economy was not a recession in the usual sense as it was caused by lock-downs in the face of the pandemic.

Interestingly, two members of our investment committee independently came up with a similar set of criticisms of the Sahm rule. One of the fundamental problems is that the nature of work has changed since the pandemic arrived. People now often work from home – or in hybrid form – and the proliferation of travel and delivery options from the likes of Uber means that it is so much easier to get part-time work now – even if it is only a temporary solution to pay bills and put food on the table. During the post-Federal Open Markets Committee (FOMC) media conference, at the end of July, Bloomberg reported that Sahm is aware of this issue.

We have no evidence that the Sahm rule will work this time if, indeed, it is triggered. But we agree we would be foolish to ignore it. The media thrives on simple rules, whether they make economic sense or not. If the market reacts to a signal that doesn’t have a strong academic pedigree, others still need to be aware of it. We only have to think back a few years to the false-positive from the inverted yield curve to amplify this point.

If the US unemployment rate goes up one 0.1% point to 4.2% (and there are no revisions to past data) on August 2nd (or later) many people will expect an impending recession (in 6 – 24 months) in the US – and that group looks like including current Fed chair Jerome Powell. We will watch from the side-lines not sure whether the rule needs some tweaking for the new economy. If it is triggered that will force Powell to bring it into his thinking.

Indeed, at his last appearance in Congress, he stressed that the Fed has a dual mandate of maximum employment and stable prices. We don’t recall the last time he stressed that by so much.

And, to complete the warning signals, Powell reiterated that there are long and variable lags between monetary policy changes and their effect on the real economy.

Importantly, William Dudley, a former Governor of the New York Federal Reserve, has flipped a 180 degree turn on policy. He had been one of the prominent ‘higher for longer’ advocates. Towards the end of July, he suddenly said that rates should be cut as soon as possible. There was an FOMC rates meeting on the last day of July. Almost everyone thought that was too soon. September looms large. Powell even said that if things go well, “a cut is on the table” for that meeting.

The probability of a US interest rate cut in September has risen to 87.5% for one cut and 100% for two cuts – as measured by the well-respected CME Fedwatch tool.  There is over a 70% chance of two or more cuts by November 7th and a 75% chance of three or four cuts by December 18th.

We think a rate cut would have been good but we didn’t expect one. September 18th is the date of the next FOMC meeting. Importantly, the annual central bank conference at Jackson Hole, Wyoming, is scheduled for August 22nd – 24th. This year’s agenda is titled “Reassessing the Effectiveness and Transmission of Monetary Policy” and it seems like an excellent opportunity to set the stage for a September cut. There are two jobs and two Consumer Price Index (CPI) inflation measure reports due by the September FOMC.

In the last month or so, the Swiss and Canadian central banks have cut interest rates twice and the list of one-cut-banks is long and growing: China, ECB, and Sweden. Britain seems almost set to cut in August.

Japan just made its second hike in this cycle. Japan is struggling to get back to normal behaviour but from a below-normal rate level.

Australia is the stand out. The RBA rate tracker tool on the ASX website puts the price of a rate increase (hike) on August 6th at 25% as recently as two weeks ago. While there are plenty of commentators supporting an interest rate increase because they think that a hike is needed to bring inflation down, we think they are incorrect in their thinking. The RBA at its meeting on August 6th determined to leave its official cash interest rate on hold at 4.35%.

It is a fact that the latest inflation rate (3.8%) is above the target 2% to 3% zone. But there are two well-argued causes of inflation – demand pull and cost push, or demand and supply causes.

All the big problems in the Australian CPI inflation are due to supply-side factors in: rents, insurance, education, electricity and the like.

The Federal Government did act to alleviate some pressure from electricity and rent inflation. Almost everyone expected the high read for Q2 inflation but, looking to Q3, Westpac has calculated that quarterly inflation will fall from 1.0% in Q2 to 0.1% after the government changes take effect. Westpac is not arguing that the fall in inflation is because of interest rates.

We mention in each of our recent monthly updates that Australia has been in a per capita (household) recession for over a year. Quarterly per capita GDP growth is repeatedly negative. Retail sales volumes (price-adjusted but not by population) just posted its 17th successive monthly negative annual growth rate.

But there is new, even more alarming data. ASIC reported that the number of companies going into administration in the 2024 financial year (FY24) was a third more than in the previous year. Indeed, the FY24 number was greater that the sum of the numbers in FY23 and FY22 combined. It has been reported that around a quarter of the companies in trouble are in the construction sector. That won’t help the rental crisis.

Australia is not alone with corporate difficulties. The US just reported that the number of first-half 2024 filings for bankruptcy and related difficulties was the highest half-year number since 2010!

When we were writing about long and variable lags quite a while ago, we suggested that monetary policy takes 12-18 months to work through the economy. That cumulative effect of rate hikes from 0% to 0.25% to the current 5.25% to 5.50% in the US is now taking its toll – and it will get worse. Australia should not ignore these issues. We believe the first interest rate cut in Australia is needed now and 0.5% would be a good start.

Although politics is outside our remit, we cannot ignore some of the events of July. An assassin got very close to killing former president, Donald Trump. Whatever your politics, there is no room for violence on the streets.

Markets did take a bit of a dive a few days after the shooting. Some say it was related but we don’t know. What we do know is that some markets shrugged off ‘these July blues’ and returned to solid gains. US small cap stocks had a brilliant month (over +10%) so it is not a case of analysts being shy of equities – it’s just a rotation from magnificent-7 (Artificial Intelligence and Technology) type stocks into the rest of the market. And the ASX 200 closed the month above 8,000 again.

The calls for President Biden to step aside from his own supporters eventually had the desired effect. Almost too swiftly, nearly all the major Democrat figures threw their weight behind Kamala Harris.

The betting odds (according to sports betting websites) are still firmly in favour of a Trump victory but there are endless media stories about how Harris has closed the gap. We don’t know if this is fact or wishful thinking. We will find out in November.

Providing all the central banks, including our own, start easing interest rates at a reasonable rate, the extent of any recessions might be contained.

There were some very poor company results filed to the US stock market from mega-cap tech-stocks – but also some good ones! What was refreshing is that, in the sell-off of some big names, the Russell 2000 index – representing small cap stocks – made some good gains (11.1%) during July – as did the ASX 200 (4.2%). Perhaps the market is broadening out rather than pausing.

Asset Classes

Australian Equities

The ASX 200 climbed 4.2% during July and closed the month at a record 8,092. The utilities sector was down ‑2.9%; resources and IT were all but flat; there were strong gains across the other seven sectors which included the banks.

International Equities

The S&P 500 was looking at a slightly down month in July but the FOMC-induced last day rally saw the index gain 1.1% over the month. Other markets were mixed and the World Index was flat at 0.1%.

Bonds and Interest Rates

The US Fed did what was expected of it and more at the July 31st FOMC. There was no change in interest rates but there was a distinct dovishness (easier or lower interest rate policy) in the statement and Powell’s media conference. There is a chance that a soft landing will have been engineered but, as Powell pointed out, there is a long and variable lag on the way down for rates too.

The Bank of Canada and the Bank of China cut rates in July. The Monetary Policy Committee of the Bank of England is divided over whether to cut in August or not. The ECB was on hold in July.

The RBA despite remaining on ‘hold’ has not ruled out the notion of hiking rates despite its twin mandate of full employment and price stability.

Since, in our opinion, the RBA is not appearing to heed the guidance being provided in publicly-available data, we find it difficult to predict what they will do. However, we can say that the longer they keep the overnight cash rate at its current (or a higher) level, the worse will be the impact on the Australian economy.

Other Assets

Iron ore prices just held above $US 100 per tonne despite falling 4.5% over the month.

Brent Crude oil prices fell 9% over the month to under $US80 per barrel but, popped to $80.72 on the news that Iran’s leader has pledged retaliation against Israel’s attack.

Copper prices fell 6.5% but the price of gold jumped 4.1% over the month.

The Australian dollar against the US dollar depreciated by 2.0% in July.

The VIX index, being a proxy for the cost of an insurance policy against falls in the S&P 500, climbed from a ‘normal’ 12.4 at the beginning of July to 17.7 at the end of the month.

Regional Review

Australia

Employment rose by 50,200 in the latest report (for June) but in percentage terms, the growth was worrying. The annual growth in full-time employment has been falling over the past year and it is now 1.2% which is less than the natural rate of population growth in this country. However, part-time annual growth in employment has been above 6% for the past year, making total annual employment growth look respectable at 2.8% in June.

It has also been reported that the average working week in Australia is running at just over 32 hours compared with nearly 38 hours for the US and around 35 hours for the UK and Canada, such is our dependence on part-time work.

In a separate report, it has been noted that around half of our part-timers would rather be working full time. The current situation is not one of full employment even though the unemployment rate of 4.1% might seem low by historical standards. The world has changed since the pandemic and the RBA needs to be more cognisant of this.

Retail sales quarterly volume came in at ‑0.3% for the quarter and ‑0.6% for the year. That makes for seven of the last eight quarters being negative! And that does not allow for the effect of the 2.5+% population growth. Aussies are consuming less ‘things’.

The NAB and Westpac business and consumer sentiment indexes are at low levels but above those at the worst points in past economic cycles.

The monthly and quarterly CPI series were updated on the last day of July. As widely predicted, they were not going to be good but the problem is not excess demand – it is all about supply conditions. The RBA should cut interest rates but we don’t think they will in the near term.

China

The China Purchasing Managers’ Index (PMI) for manufacturing was steady at 49.5 at the beginning of July. Below 50 is indicative of a weakening economy.

Imports unexpectedly fell by ‑4.9% but exports rose by 1.5%. Inflation as measured by CPI was 0.2% for the headline rate when 0.4% had been expected. The core inflation read, which strips out volatile items like food and fuel, rose by 0.6% when 0.7% was expected.

Probably because of this weaker data, the People’s Bank of China cut its key lending rate by 0.1% points to 3.35%. We expect further stimulus to follow.

US

The assassination attempt on former president Trump at a Republican rally was fortunately unsuccessful. Since the would-be assassin appears to be a young person who was attached to both the Republican and Democrat parties – and to no known extremist group – there is no reason for us to expect any further fallout. Apparently, the young man’s father (who has 20 guns at home) took him out to a shooting range to practice shortly before the assassination attempt. The US Constitution’s ‘Second Amendment’ (the right to bear arms) has a lot to answer for.

President Biden succumbed to extreme pressure from high-ranking members of his own party to step aside from the nomination for the November presidential election. Biden’s performance in the first presidential debate with Trump was seemingly the catalyst in starting the demand for an alternate nominee.

Perhaps too swiftly, Vice President Kamala Harris was endorsed by just about every major figure in the party. There are conflicting reports about the gap between Harris and Trump in the polls but it is accepted that, despite a strong bias to Trump, the gap (odds on betting sites) has closed since Harris became the Democratic party’s presumptive nominee.

US jobs data deteriorated a little in June. The unemployment rate rose to 4.1% which is just below the 4.2% trigger point for calling a recession under the Sahm rule. We expressed some reservations about using this largely untested rule elsewhere in this update. Since we believe others, possibly including the Fed, are more confident in the rule, it could play a major factor in affecting monetary policy and, as a result, market behaviour.

Economic growth as measured by the change in Gross domestic Product (GDP) jumped out of the blocks at 2.8% (for the year) in the June quarter when a more modest 2.0% had been expected. But retail sales volume over the year came in at ‑0.7%!

Of the many inflation rate indicators published each month, two seem to have given markets and the Fed some optimism. The CPI for the month was ‑0.1% (largely because gasoline price inflation was ‑3.8%); the Personal Consumption Expenditure (PCE) reading at the end of July was 0.1% (or 2.6% for the year).

As we repeatedly state, the shelter component is poorly estimated and distorts the CPI and PCE measures. In our opinion, the inflation rate of ‘everything but shelter’ has been contained for a year and is consistent with the Fed target of 2%. Since Powell clearly stated that he does not have to wait until the aggregate measure is 2%, we think he has opened the door for an imminent interest rate cut.

Europe

The UK economy rebounded with a 0.4% GDP growth rate in May following 0.0% in April and 0.7% for the March quarter. Inflation came in at 2.0% but 1.9% had been expected.

The Bank of England and the European Central Bank (ECB) are behaving cautiously about relaxing monetary policy (reducing interest rates further).

A Labour government took office in the UK in a landslide victory in July. The Tories (Conservative party) had been in office for 14 years!

Rest of the World

Japan missed on both its imports and exports predictions. These data were not enough to cause concern over its economy – but it does make us sit up and wait for the next numbers. The Bank of Japan (BoJ) increased interest rates for the second time in this cycle but only to 0.25%.

Canada’s interest rate cut in July was its second such cut in two months.

The conflicts in the Ukraine and the Middle East show little sign of an imminent resolution.

We acknowledge the significant contribution of Dr Ron Bewley and Woodhall Investment Research Pty Ltd in the preparation of this report

Planning for Aged Care

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They say there’s no place like home, but as we get older and perhaps face health issues, looking after ourselves and our homes can be stressful – in both practical and financial terms. Your financial adviser can help you navigate the personal and financial decisions ahead to plan a future that works for you and your loved ones.

Planning ahead can reduce the stress

When the time comes that you need a helping hand, your options for aged care help include in home services or residential care. Your GP can help you decide what level of care you may need and is likely to recommend a free assessment with an Aged Care Assessment Team/Service (ACAT or ACAS). This assessment is required before you can access any government-subsidised services, which may include residential care or in-home services such as domestic assistance, personal care, meal services and home nursing.

While you may not need aged care services right now, it’s a good idea to consider your options and discuss your preferences with your family. With an agreed plan in place, you can be confident that the best decisions will be made at the appropriate time. Without some forward planning, fewer options may be available to you when you need them most.

Your financial health is important, too

One of the key considerations of planning ahead for your aged care is looking at financial strategies to ensure you have sufficient cash flow to cover the projected costs. Just some of the important issues that may need to be considered include:

  • Should your family home be kept, sold or rented?
  • How are your Centrelink or Veterans’ Affairs benefits affected?
  • Do you – or could you – qualify for concessions on accommodation or home care services?
  • What is the best way to pay for your care?
  • What effect may your plans have on your estate?
  • How do you best manage any tax implications?

A quick guide to choosing aged care

The costs of aged care can vary widely and that’s why it’s important to consider the care that you might need and what you can actually afford. The amount that you will have to pay may also depend on our assessable assets and income.

A good way to start your search is making a checklist of what’s important to you – location, amenities, medical facilities and nursing care. This can help you narrow your choices and any aged care facility should welcome your enquiry or a visit. You may need to join a waiting list, so applying for more than one service could also be a good idea.

Understanding what’s affordable for you is essential. The government website www.myagedcare.gov.au provides listings of aged care services and accommodation fees in your preferred location.

Searching for services?

myagedcare.gov.au
A comprehensive government resource to help find the care that’s right for you

ACAT/ACAS 1800 200 422
A free aged care assessment is required before you can access government subsidised services

How much will care cost?

Fees for residential care will include accommodation payments, which can be an upfront lump sum, a daily payment or a combination of both:

  • Refundable accommodation deposit (RAD) – a lump sum payment that is refunded to you or your estate, unless you ask for other fees to be deducted or have outstanding fees when you leave. RADs vary between different aged care facilities.
  • Daily accommodation payments (DAP) – think of this as rent for your accommodation. It can also be used to cover interest on any unpaid RAD.

You will also be asked to pay for:

  • Daily care fees – fees towards the cost of your care including nursing, meals, laundry, cleaning and electricity. They are set at 85% of the basic single age pension or a higher means-tested fee if you have income or assets over specified thresholds. This amount is limited by annual and lifetime caps, currently $33,309.29 per annum or $79,942.44 indexed over your lifetime.
  • Additional service fees – for extras such as special meals, hairdressing or newspapers, which may be offered as a package or on a user-pays basis. These fees typically range from $10 to $120 or more per day.

Moving in

When you accept a place in an aged care service, a Resident Agreement will detail the services provided and fees payable. While fees may be payable once the place is accepted, you will have 28 days to decide to pay your accommodation as a lump sum (RAD), a daily fee (DAP) or a combination of both. Your assets may need to be rearranged to cover these and future payments. If you receive Centrelink or Veterans’ Affairs payments, they must be notified of the change to your living arrangements as well as any relevant changes to your income and assets.

Covering the costs of your aged care

Your Adviser will discuss different strategies that can help you and your family decide on the best way to ensure you have a reliable and regular cash flow to cover the costs of your care.

While the aim may be to maximise your pension entitlements, minimise fees and generate a good return from your investments – possibly including the family home – these are not independent objectives. Working with an Adviser who is experienced in this area, you will receive the guidance and support to make well-informed choices and take away some of the stress for you and your family.

An essential time to review your estate plan

If your living arrangements are changing, it’s important to consider the impact on your estate plans. A review will make sure that your affairs and your personal care will be managed to your own instructions and wishes.

You should talk to your solicitor and your Adviser about:

  • Your Will, which may need to be updated
  • An Enduring Power of Attorney, so your affairs can be managed responsibly if you are no longer able to make those decisions yourself.
  • Any investments, especially those with ‘death benefit’ nominations.
  • An Enduring Guardianship, to cover decisions on your care and living arrangements if you are unable to do so.

As these documents and powers can only be put in place while you are deemed of sound mind, it’s wise to plan ahead.

To start planning your Aged Care options, talk to your adviser today.

Economic Update: July 2024

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In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

Key points

  • Four major developed world central banks have already cut interest rates
  • The US Federal Reserve and the Bank of England have all but flagged they are ready to start
  • Australia’s RBA will be late to the party as inflation data fails to respond to high interest rates

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

Many central banks are now claiming at least a partial victory over controlling inflation, but it is far from clear by how much inflation would have fallen without rate hikes. Just through the rolling back supply chain blockages caused by the Covid lockdowns; and the war in the Ukraine not continuing to escalate; and oil prices coming back to more reasonable levels – inflation would likely have fallen – the question is by how much?

Indeed, it is apparent that the interest rate increases may have actually caused inflation in some of the Consumer Price Index (CPI) components, in particular shelter costs such as home rentals. That component makes up about 33% of the US CPI and 7% of the Australian CPI.

Inflation in rents and a few services like energy costs and insurance, are not going to come back to more reasonable levels because of interest rates being higher for longer.

The trouble with economics is that it is not possible to do controlled scientific experiments – as is the case for clinical trials of drugs – to determine what our monetary and government spending policies are doing to the economy. Rather, we must rely on ‘rational arguments’ based on economic theories and past experience.

Nevertheless, there is light at the end of the tunnel. Central banks are starting to cut rates and some economies are bouncing back – if only by a little.

The Swiss National Bank (SNB) started the ball rolling with an interest rate cut of 0.25% on 22nd March this year to a rate of 1.5% p.a. followed by another cut to 1.25% p.a. in June.

The Swedish Riskbank (SR) was the second major central bank to cut its interest rate – on 8th May by 25 bps to 3.75% p.a.

Then, in quick succession, the Bank of Canada (BoC) and the European Central Bank (ECB) each cut rates by 25 bps in the first week of June – to 4.75% p.a. and 3.75% p.a., respectively.

The Bank of England (BoE) came to a different conclusion in June. Inflation fell from 2.3% to 2.0% but they kept their interest rate on hold. However, the UK had a General Election on July 4th so the BoE might have not wanted to get involved in politics. It has all but said it will cut its interest rate at its next meeting in August. Interestingly UK retail sales volumes grew at 2.9% p.a. for the year to 30 June, a rate well ahead of the expected 1.5% p.a.

The US Federal Reserve (Fed) took yet a different approach. It too kept rates on hold but Fed Chair Powell spoke at length about the measurement of shelter inflation problems. Two stories on the news wires amplified that view and one of those even mentioned the possible perverse effect that high rates were having on rents.

Powell made it clear that their shelter inflation measurement is a problem and that other methods exist. Indeed, other methods are used by other national statistical agencies. But Powell said he wasn’t going to change what they do (yet?).

Regular readers might recall that we have been running this rent argument for some months. If Powell has only just caught on, he might need a month or two to digest the problem and investigate alternatives. The official US CPI data, less shelter inflation, is below the 2.0% p.a. inflation target, clearly a data point the Fed is aware of.

The market is betting on a Fed rate cut in November and another in December. Another market indicator is pointing to a possible third cut which would see the Fed start to cut interest rates before its November meeting.

That brings us to the Reserve Bank of Australia (RBA) and its June board meeting. They also kept rates on hold saying that decision was based on the ‘stickiness of inflation’. They said they didn’t even consider a cut at the meeting and they wheeled out the old, ‘We can’t rule anything in or out mantra’. This, in our view, was problematic in terms of meaningful guidance.

More importantly Governor Bullock talked about trying to avoid a recession. While it is true that the simplistic definition of a recession is for two consecutive quarters of negative growth in GDP, most professional economists dig deeper into the data before they are prepared to confirm an economic recession.

We believe that Australia has been in a ‘per capita’ recession for nearly 18 months noting negative per capita growth in GDP and negative absolute growth in retail sales volumes (i.e. sales adjusted for inflation). However, the significant population growth due to massive immigration flows has, at the national level, resulted in GDP increasing modestly (the number of households has gone up in percentage terms more than GDP per household has fallen).

Some say the jobs data for Australia are strong. We note full-time jobs grew by only 1.0% over the last twelve months – far below even normal population growth rates. Part-time employment grew by 6.2% over the same period. Since a large proportion of the immigration flow has been comprised of overseas students, it seems reasonable to consider the massive growth in part-time employment is due to foreign students taking part-time employment to supplement their living costs.

We believe that the per capita data is more representative of the economic experience of actual households and as a consequence of the RBA not responding with cuts to interest rates, the risk of Australia entering a more severe recession continues to grow.

Also, because of the well-known lags in monetary policy taking effect, an interest rate cut now would not stop the pipeline of past high interest rates continuing to slow our economy down for some time to come. Hence our concern in relation to the RBA inaction with its monetary policy.

There are nascent signs of broker forecasts of company earnings in Australia slowing down a fraction – but not enough to indicate an imminent downturn. Indeed, we expect average capital gains in FY25.

The US economy is riding high on the AI boom. Nvidia briefly overtook Microsoft in being the biggest listed company on the New York Stock Exchange (NYSE).

Government Bond yields have been reasonably stable for some months with 10-year yields on Australian and US government bonds being above 4.3%. This stability is indicative of a level of indecision on the part of investors identifying that they accept that the interest rate tightening cycle is likely finished but they are not yet prepared to commit capital to a recession and falling interest rate scenario.

China’s economy is also showing renewed signs of life. If it does manage to engineer a revival, it could mean a strong revival in the Australia resource sector and, indeed, various agricultural commodities as the 2022 restrictions on trade have now been relaxed. Only lobsters are still on that restricted list.

The year to 30 June was a very good one for global equities – by and large – and the dip we had into October 2023 was short-lived. Despite some concerns, momentum in equities generally remains positive for the coming months and equity markets are factoring in lower interest rates without economies falling into deep recessions – and in some cases no recession at all.

But there are some key unknowns for the year ahead. Who will win the US election and how will they shape geopolitics and the economic environment? What will happen in the Ukraine in particular, if Donald Trump is elected president?

The Israel-Gaza issue has polarised global views. We do not recall such vocal opposition to Israel’s actions in the past. What are the implications of this and for the region generally?

China continues to pursue its territorial expansion in the South China Sea and in relation to Taiwan how does this play out? And what of the events that are yet to be revealed, will they be positive or negative?

Without evidence to the contrary, we remain cautiously optimistic.

Asset Classes

Australian Equities

The ASX 200 made strong gains (7.8%) over the year to 30 June despite its October setback. The index was up 0.9% over June.

The index didn’t have a big driver in the year just ended like the rise and rise of Artificial Intelligence (AI) in the US or resources in Australia during China’s growth boom.

Our analysis of LSEG broker-forecasts of companies listed in the ASX 200 indicates a possible average year ahead.

International Equities

In the US the S&P 500 gained 22.7% over the year to 30 June on the back of a small number of stocks from the so-called ‘magnificent seven’ predominantly exposed to the AI theme.

While we do not see the AI boom as a bubble, there is no doubt that market expectations can run well ahead of a company’s ability to deliver on such lofty expectations which ultimately leads to a correction. While this can be a painful experience it is how markets work. In our view this boom is so different from the dotcom bubble experienced in the early 2000’s. The latter was largely based on hype and hope. AI is already producing goods and services across a wide range of industries and as such we believe will persist.

It is impossible to say whether AI will play as big a role as the industrial revolution or ‘the invention of the wheel’. At the start of the industrial revolution in the North of England, threatened hand-loom workers (the Luddites) smashed up the new mechanical looms for fear of losing their jobs. Did anyone then predict trains, motor vehicles, planes, computers and space travel would soon be invented while looms were being smashed? We doubt it. But also, we don’t need such a far-reaching vision as we have a wealth of history which has shown that innovation, disruption and change are the norm not the exception. To not participate in this momentum play could bode badly for those who ignore it.

June was mixed for of the other major indexes we follow. Over the year to 30 June all major share indexes, except for the Shanghai Composite, did reasonably well.

Bonds and Interest Rates

Except for Australia, all the major central banks have cut, or are poised to cut, their prime interest rates. The Fed was on hold at a range 5.25% to 5.5%. The dot plot chart displays the forecasts of the 19-member interest rate setting Federal Open Markets Committee. At the end of June, the dot plots median interest rate is for only one rate cut of 25 bps by December. However, if only one member had nominated two rather than one rate cut, the median would have been for two rate cuts. We do not expect the Fed to be overly concerned by the US election later in the year but we are mindful they do not want to be seen to be supporting either side.

With respect to Australia, there is little guidance being provided by the RBA and while we do not anticipate another interest rate increase in Australia, we do not expect that Governor Bullock will cut interest rates ahead of the US Fed. At this point we do not anticipate an interest rate cut here until 2025.

Other Assets

Iron ore prices ranged over $100 to $143 during the year to 30 June. It settled at US$105 per tonne down just under 9% for the month of June.

Brent oil prices also experienced a wide range over year to 30 June – from US$73 to US$97 per barrel – with the year closing out at US$86 per barrel.

Copper prices ranged $7,824 to $10,801 during year to 30 June closing the year at US$9,456.

Gold prices ranged from $1,818 to $2,432 in the year to 30 June closing the year at US$2,326.

The Australian dollar against the US dollar traded between US62.78 cents and US68.89 cents. It finished year to 30 June 24 at very near the same level as it did in June 2023.

Regional Review

Australia

Employment rose by 39,700 and all of that, and more, was from full-time job creation; part-time jobs were lost. The unemployment rate fell a notch from 4.1% to 4.0% in May.

What we find disturbing is that a longer-term view (over 12 months) shows that full-time employment rose by only 1% when long term population growth was more like 1.6%. Total employment rose by 2.5% which is broadly in line with recent population growth (including immigration) but part-time employment rose by 6.2%.

The massive influx of foreign students perhaps got some part-time work to supplement their cost of living. All good in the Australian spirit but it hinders people analysing the true strength of the jobs market. Jobs growth for the longer-term residents is quite weak.

Our quarterly GDP report was weak. Our economy grew by only 0.1% (and ‑0.4% after allowing for population growth) over the quarter or 1.1% over the year (‑1.3% in per capita terms).

Our household savings ratio fell to a worrying low of 0.9% from an historical average of 5% to 6%. Since this ratio includes superannuation guarantee levies, it is particularly low. Australians are suffering in economic terms. They are not dis-saving but neither are they able to build for their futures.

Fair Work Australia awarded minimum wage and award wage workers a 3.75% pay rise. Since (nominal) wages are lagging well behind cumulative price indexes movements, this increase is not inflationary and, indeed, more is needed to redress the losses most experienced during the pandemic.

Australian CPI inflation was a little higher than the RBA felt comfortable with and flirted with an interest rate increase. Our analysis shows that the main drivers – housing (inc. electricity at home), food, transport (inc. auto fuel), and alcohol & tobacco are largely unaffected by interest rate changes, with the possible exception of food.

The food inflation component has halved in its contribution to headline CPI over the past 12 months. Inflation of so-called tradables (goods and services that are or could be traded overseas) has been below 2% for nearly 12 months.

Since the RBA is charged with the dual mandate of full employment and stable prices, we think it has done more than enough on prices and the true employment picture has been disguised by the big immigration flow.

It is almost too late for a single interest rate cut to save the economy from having a more serious recession, particularly as the backlog of the impact of past interest rate increases has not had time to work through to the real economy.

China

China’s exports rose 7.6% against an expected 6%. However, imports rose only 1.8% against an expected 4.2%.

In the previous month, exports and imports reversed their roles: imports were strong and exports were weak. The manufacturing Purchasing Managers Index (PMI), a measure of manufacturers expectations, was weak.

US

US jobs were again strong with a gain of 272,000 jobs against an expected 190,000. The unemployment rate was 4.0% and average hourly earnings only grew by 0.4% for the month or 4.1% for the year. No inflationary pressure from there!

The private jobs survey (from ADP) was less flattering and the number of job openings per unemployed person has fallen from 2:1 recently to 1.2:1 this month. The US also has an immigration problem. We conclude that the US jobs market is less strong than the headline ‘nonfarm payrolls’ data suggest.

US inflation, because of the shelter component, does not look that good. But (official) US CPI-less-shelter inflation stands at 2.1! Producer Price Inflation (PPI), inflation for inputs, was negative for the month (at ‑0.2%). Rents are the only material problem and high interest rates are unlikely to curb that source of inflation in the broader index. Indeed, high interest rates may exacerbate investors willingness to build more supply.

At the end of June, the Fed’s preferred Personal consumption Expenditure (PCE) inflation came in at 0% for the month and 2.6% for the year. The core variant that strips out volatile fuel and food rose 0.1% for the month and 2.6% for the year. We think that this will encourage the Fed into making at least two cuts, but probably after the November 5th election.

The University of Michigan Consumer Sentiment Index fell again to levels well below normal – but not (yet) at historic lows. US retail sales adjusted for inflation rose 0.1% for the month but ‑0.9% for the year.

The month closed out with the first presidential election debate. Biden performed so poorly that the Democratic Party is reportedly searching for an alternative candidate for the November 5th election. Trump seemed far more composed and assured but many disagree with his policies.

Europe

The UK economy sprang back to life with a +2.9% increase sales volume for May against an expected 1.5%. Inflation fell to 2.0% from 2.3%

The 14-year-old Conservative government lost the July 4th election to Labour in a landslide.

Rest of the World

While the big players are questioning first and second decimal points on inflation figures, Turkey just posted a 75% read for inflation to May (up from 69.8%) but only 3.3% for the month!

The Turkey central Bank was on hold at an interest rate of 50% while Mexico was on hold at 11%!

Canada GDP grew by 1.7% and it cut its interest rate!

Japan exports grew by 13.5% against a prior month of 8.3% in April.

We acknowledge the significant contribution of Dr Ron Bewley and Woodhall Investment Research Pty Ltd in the preparation of this report.