Connect August 2014
Financial news for tomorrow’s lifestyle
TAKE A GLOBAL OUTLOOK WITH INVESTING
It’s interesting many investors in Australia will not consider investing outside of Australia. This is probably due to global uncertainty. Also if they are looking for high-yielding stocks offering franking credit opportunities, the Australian share market is the place to be.
The problem with this line of thinking is our market is very limited. Two thirds of our market is in mining and financials. You need to consider what markets you are missing out on. When you consider the Australian economy is possibly facing a downturn, many local stocks are too expensive and the Aussie dollar too high. You need to ask yourself is it time to be considering a more global outlook on investing and consider offshore opportunities.
We are very limited in the local market in some areas like technology companies and even health care. When you consider some of the big name companies like Microsoft and Google you would have to include some exposure to international investments.
A good place to start with international investments is through managed funds or exchange traded funds. It’s probably a safer way to go internationally rather than try and pick international stocks yourself. You will get more diversification through a fund and less risk. Many of these international global funds have been outperforming Australian stocks and funds, offering greater returns over the last twelve months. We are, however, able to offer direct International shares.
Investing in overseas investments gives investors access to different economic cycles from the Australian market. Besides getting access to stocks which are not represented to any great degree in Australia, it also provides currency diversification.
Investors will find that managed funds on the international market have a broader focus across international markets. It is safer to select funds that have a broad focus across all markets rather than one that focuses on one specific country or region.
Hedged or Unhedged?
This depends very much on the individual and where you think the Australian dollar is going over the next year or two and long term. Over the longer term an unhedged investment can work better for you.
Let’s face it, you are not investing because you think the dollar is going to fall substantially in coming months or years, you are investing for the opportunities on international markets and the benefits of diversifying. For more advice on investing internationally call Albert Lee on 02 9970 3111.
WILL IT PAY TO REFINANCE YOUR MORTGAGE?
While the thought of moving your home loan may seem a little daunting with banks and lenders offering the lowest rates we have seen for decades, you have the opportunity to get a better deal. The banks and lenders are hungry and keen to win more customers.
To start with most customers have no idea what interest rate they are paying. It is quite possible you are paying well over the current rate. These days with the Internet and Google, you can easily do comparisons of banks and lenders.
By shopping around there could be substantial savings for you. If you have large credit card bills and personal loans paying high interest rates, now may be the time to consolidate these loans into your mortgage. Continue then to pay the same outgoings on all your loans you are paying now but on a much reduced interest rate.
For some, it could pay to fix your interest rate over two to five years. If you choose to fix the interest rate over a number of years be sure you are not going to break that loan before the term is complete or there could be penalties involved.
It is important to check the upfront and ongoing costs the banks and lenders are charging. The cheapest interest rate may be there to entice you but may not be the cheapest loan overall because of the upfront and ongoing costs. Check the ongoing fees and what it will cost you over a lifetime. When you add the ongoing and administration fees onto the interest you are paying, you may find the rate is not so competitive after all.
Just a small rate difference from 5.5% to 4.84% could mean the saving of over $120 per month and tens of thousands over the lifetime of the loan. If you have consolidated some of those nasty rates on credit cards and personal loans the savings could be substantially higher, giving you the opportunity to get out of the debt quicker.
WHAT COSTS DO I NEED TO BE AWARE OF WHEN REFINANCING?
In refinancing your home loan you need to do your homework and seek professional advice. The cheapest rate may not be the cheapest home loan. There could be a number of hidden costs in making the move to another lender. Below are things you need to consider.
Are there exit fees and break costs?
Check first with your current lender before you refinance whether there are any deferred establishment fees that you are going to be hit with if you choose to pay out your loan earlier. These can be substantial if you pay out a fixed rate loan early. Exist fees were banned recently on all loans taken out after 1st July, 2011, but could still apply to loans prior to that date. Exist fees however do apply to break costs if you come out of a fixed rate loan early.
What are the upfront and ongoing costs?
While the interest rate being offered may be appealing, your new lender may be charging a range of other fees, such as a loan
application fee, valuation fee or a settlement fee. Furthermore there could be a monthly or annual fee. When you add these fees back into the interest rate you are being offered the rate may not be so attractive after all.
Is my new lender going to charge mortgage insurance?
It is worth noting that mortgage insurance is not transferrable. You may have taken out mortgage insurance on your previous loan but you are now going to possibly have to pay it again if you still owe more than 80% of the property’s value. Some property values in some areas have dropped. You may find now that you owe more than 80% of the property’s value and will be required to take out mortgage insurance.
Will I have to pay stamp duty?
When refinancing your home loan you increase the size of the loan, you could be up for stamp duty. Further you could be required to pay a mortgage registration fee. For advice, speak to one of our Finance Managers.
What loan features should I look for in refinancing?
A redraw facility will allow you to access a further drawdown on your loan if you have been paying extra payments along the way. Check if fees apply.
Additional Repayments Facility
It is important to be able to make extra repayments and be able to pay your mortgage on a more regular basis such as weekly or fortnightly. Also you can make lump sum payments at various times during the year. You may receive a bonus during the year and wish to apply it to your loan.
Mortgage portability may allow you to transfer your loan from your current property to a different property. While this reduces fees and costs to establish a new loan be aware of the ATO rules. You cannot move your home loan onto an investment property and then declare it as an investment loan and claim the interest. Nice try but it won’t work.
THE IMPACT OF RISING RATES ON GLOBAL ASSETS
by Albert Lee
An issue that has been affecting our asset allocation recently has been what impact rising interest rates may have on fixed income and equities. While the current historical low levels of interest rates are likely to remain low for some time, it is widely believed that the next two years could provide some risks to asset prices if and when the United States begin to move rates upwards. Bond prices react inversely when rates rise while the impact on equities tend to also be negative if rates climb more than expected.
With most major economies around the World improving, the risks of rising rates will increase over the next year. Admittedly, different nations are in different stages of their economic recovery. Regions like Europe and Japan will need several more years before interest rate rises are on the cards. However, the key point is that the current strengthening US economy is likely to mean tighter monetary policy by the US Federal Reserve. This points to a likely higher US interest rates sometime within the next 12 to 18 months. With US interest rates being the global benchmark, Australian investors will also need to be prepared for asset price re-adjustments in both bonds and equities.
Though we don’t believe interest rates will rise rapidly, it is still an important factor to consider when constructing each component of your portfolio. At OYA Financial Decisions we are increasingly concerned by the current low rates, low volatility environment for almost all asset sectors causing assets to be quite fully valued.
These longer term probabilities have provided a lot of food for thought in setting an asset allocation that is appropriate for the current market environment. In the fixed interest sector for example, we have been making moves to shorten the time horizon (duration) of our fixed interest assets by selecting managers with a similar approach thereby aiming to better ‘protect’ the capital value of the fund.
In the equity sector, we continue to be focused on managers with a strong quality and value bias, again aiming to better protect your capital in the event that equity markets have a larger decline. While we are optimistic on the longer term, there are several factors such as interest rates, that causes us to seek a balance in the current environment between the type of assets and managers we choose in order to balance the risk and reward we are prepared to take on behalf of our clients.
HAVE YOU LOOKED AT YOUR HOME LOAN LATELY?
Life is full of change, and that applies to home loans as much as it does to anything else. In many cases, the home loan that was right for you when you first bought your property may no longer suit your situation. That’s why, as your financial situation changes, as interest rates increase or decrease, or simply as time passes, it’s important to review your home loan.
If you’ve purchased your home a while ago, you’ve probably built up some equity – either by repaying some of your loan, an
increase in the value of your property, or a combination of both.
You may be able to use this increased level of equity for a variety of purposes. In today’s market, many home owners are using the equity in their homes to either renovate or fund the deposit on an investment property.
The good thing about equity is you aren’t limited to using it in the property market. If you always wanted to renovate your home or fund a non property asset in shares, you can use the equity in your home.
To discuss your home finance options or to have a free home finance assessment, call (02) 9970 3111.
OYA FINANCIAL DECISIONS STAFF CONFERENCE
Our annual staff conference for 2014 was timely named the Coming Together Conference and was held at the Potters Brewery Hunter Valley. Running for two days and one night, it was great for staff members from all our five offices to come together and catch up in person.
How we can improve on our service offerings to you and strategies to help implement these were the main topics of discussion.
Redefining our Value Proposition was also a key focal point. Identifying our “point of difference” compared with other financial services companies is something we are extremely proud of.
OYA Financial Decisions Value Proposition
- We are an independently owned, self licensed boutique business
- We are a full service financial services firm
- We develop trusted and lasting relationships
- We are not influenced by banks and large institutions
- We have an in-house investment team
And on a more casual note, team building exercises of laughing, eating, drinking and lots and lots of chit chat was paramount!!