2012 is the Chinese year of the dragon.  It is said to be a year full of promise and change!  A great time for business and moneymaking!

With this in mind, here are a few tips to help you get ahead this year.

Set Your Goals

One of the most common (and commonly broken) New Year’s resolutions is to save more money.  But nobody saves money for the love of saving money.  To make this resolution stick you need to first know what you’re saving for and how it is tied to your values in life!  Money on it’s own is just a means to an end, not the end itself.

Set some measurable and meaningful goals with deadlines and remind yourself regularly of what you’re really working towards.

Your Cash Flow Matters

Often people who earn good money complain that they don’t know where all their money goes.  In order to have money, you need to know what you’re spending.

Determine how much income is coming in, how much is being spent, where it goes and how frequently. Then work out how much you need to achieve your goals.  The key is to ensure your cash flow plan is both realistic and sustainable. Give yourself a little room to still enjoy life and remember to reward yourself when your goals have been achieved (without breaking the bank of course!)

Get the Best Deal

One of the simplest ways to make more money is to always get the best deal.

Review your mortgage and check the interest rate you’re paying. The Reserve Bank has been decreasing rates lately to help reduce any negative effects of the European debt crisis.

Are you getting the best deal? Compare interest rates and the mortgage features that are important to you, and don’t forget about the exit fees. While you’re at it, shop around for the best deal on your electricity, gas, mobile, internet and insurance.  Check out www.privatehealth.gov.au for a free comparator to your health insurances!

Are you protected? Do you have a back up plan?

Speaking of insurance – do you have enough?

Life inevitably changes and your level of insurance may no longer be adequate for your circumstances. Income protection is often the most overlooked type of insurance but it covers you if you’re sick or injured and temporarily unable to work. It can ensure your living expenses such as rent, mortgage, household and medical bills can still be met and what’s more, it’s completely tax deductible. Review your insurance today and get the right level of cover.

Check your Super

If you have multiple super accounts, you’re probably paying multiple fees. Consolidate your super and check that you haven’t exceeded the $25,000 cap on super contributions for people under 50. You don’t want to be slapped additional tax after all that super saving!  From 1 July 2012 the contribution limits will change for those over 50 so watch this space to ensure you are within the limits.

Get Empowered

Make 2012 a year for more education and greater understanding around your money.  Whether it’s reading some finance blogs, subscribing to one of the consumer finance magazines (www.moneysmart.gov.au), doing a short course to increase your financial IQ or coming to see us regularly – the more informed you are, the better your decisions will be.

For more information and specific advice for your needs please contact us.

I found this today during my facebook and twitter readings and just had to share it – these are not my words but WOW!!

- Scott 18 January 2012

By Bronnie Ware
For many years I worked in palliative care. My patients were those who had gone home to die. Some incredibly special times were shared. I was with them for the last three to twelve weeks of their lives. People grow a lot when they are faced with their own mortality.

I learnt never to underestimate someone’s capacity for growth. Some changes were phenomenal. Each experienced a variety of emotions, as expected, denial, fear, anger, remorse, more denial and eventually acceptance. Every single patient found their peace before they departed though, every one of them.

When questioned about any regrets they had or anything they would do differently, common themes surfaced again and again. Here are the most common five:

1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
This was the most common regret of all. When people realize that their life is almost over and look back clearly on it, it is easy to see how many dreams have gone unfulfilled. Most people had not honoured even a half of their dreams and had to die knowing that it was due to choices they had made, or not made.

It is very important to try and honour at least some of your dreams along the way. From the moment that you lose your health, it is too late. Health brings a freedom very few realise, until they no longer have it.

2. I wish I didn’t work so hard.
This came from every male patient that I nursed. They missed their children’s youth and their partner’s companionship. Women also spoke of this regret. But as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence.

By simplifying your lifestyle and making conscious choices along the way, it is possible to not need the income that you think you do. And by creating more space in your life, you become happier and more open to new opportunities, ones more suited to your new lifestyle.

3. I wish I’d had the courage to express my feelings.
Many people suppressed their feelings in order to keep peace with others. As a result, they settled for a mediocre existence and never
became who they were truly capable of becoming. Many developed illnesses relating to the bitterness and resentment they carried as a
result.

We cannot control the reactions of others. However, although people may initially react when you change the way you are by speaking honestly, in the end it raises the relationship to a whole new and healthier level. Either that or it releases the unhealthy relationship from your life. Either way, you win.

4. I wish I had stayed in touch with my friends.
Often they would not truly realise the full benefits of old friends until their dying weeks and it was not always possible to track them down. Many had become so caught up in their own lives that they had let golden friendships slip by over the years. There were many deep regrets about not giving friendships the time and effort that they deserved. Everyone misses their friends when they are dying.

It is common for anyone in a busy lifestyle to let friendships slip. But when you are faced with your approaching death, the physical
details of life fall away. People do want to get their financial affairs in order if possible. But it is not money or status that holds the true importance for them. They want to get things in order more for the benefit of those they love. Usually though, they are too ill and weary to ever manage this task. It is all comes down to love and relationships in the end.
That is all that remains in the final weeks, love and relationships.

5. I wish that I had let myself be happier.
This is a surprisingly common one. Many did not realise until the end that happiness is a choice. They had stayed stuck in old patterns and habits. The so-called ‘comfort’ of familiarity overflowed into their emotions, as well as their physical lives. Fear of change had them pretending to others, and to their selves, that they were content. When deep within, they longed to laugh properly and have silliness in their life again. When you are on your deathbed, what  others think of you is a long way from your mind. How wonderful to be able to let go and smile again, long before you are dying.

Life is a choice. It is YOUR life. Choose consciously, choose wisely, choose honestly. Choose happiness.

Source :http://www.ariseindiaforum.org/nurse-reveals-the-top-5-regrets-people-make-on-their-deathbed/

A good overview on the Aussie Dollar, Share Market and Property markets.

Any questions with regards to your current setup and arrangements contact our office today 1300 772 643.

In October we saw a rebound in share markets driven by a combination of improved economic data out of the US and signs Europe is heading towards a “comprehensive” response to its sovereign debt crisis.

Saving the Eurozone

After some delay, Europe has finally announced a range of measures.  The downside with most policy is that much of the detail is yet to be worked out so it looks more like a work in progress than the final solution.  Keep in mind that this is the third attempt by Europe to get its debt problems under control so continue to watch this space as we are not out of the woods yet but things are starting to look a little better.

So what are the measure that have been agreed by the Eurozone?

• A 50% reduction for private investors in Greek bonds.

• A program to recapitalise banks thought to require around €106 
billion, with banks given till mid-2012 to get core capital ratios up to 9% (after writing sovereign bond holdings down to market levels), after which they have to rely on their governments or lastly the European Financial Stability Facility (EFSF) for funding.

• A scaling up in the firepower of the remaining funds in the EFSF (of around €200 billion) to around €1 trillion, by using it to provide first loss insurance on sovereign bonds and associating it with a special purpose investment vehicle which would buy bonds issued by struggling countries such as Spain and Italy, with funding hopefully coming from non-European sovereign wealth funds, the International Monetary Fund (IMF) and private investors.

Measures ‘to further integrate fiscal policy’

The latest set of measures goes further than those before and should help to head off a near-term meltdown. Europe has accepted the reality that Greece is insolvent (with its debt to gross domestic product (GDP) ratio projected to grow to 180% of GDP next year), 
so it has moved to further reduce Greece’s debt burden and protect banks as well as other countries in the process. 
  However, just like with financial planning, having a plan is one thing, but implementation is another.

The powers that be in Europe haven’t done too well on this front over the last 18 months and it is no guarantee this will end of the European debt crisis.

Where to From Here?

We are at least starting to move in the right direction.  US economic data has picked up some pace recently, consistent with growth of around 2-2.5%.  This is not great, but is also not recession territory, which was feared a month ago.

Overall, the economist around are becoming more confident that the global recovery will continue with around 3% global growth next year, with 1% in advanced countries and 5% in the emerging world. This is sub-par but not in recession territory which is comforting.

Since early October share markets are up by around 10 – 12%.
A further bout of short-term weakness cannot be ruled out and the ride is likely to remain volatile.

There is value in the share markets (particularly in Australian shares) with grossed up franking credits, dividend yields still high at 6-7%.  For financials and blue chip stocks, dividend yields are even higher than this up to 8 -9%.  This is well above bank term deposit rates and means share values only need to rise by 3% per annum or so to provide pretty attractive returns for long term investors.

This added to the interest rate cut today to 4.5% and income producing shares with the right time frame view can be an attractive strategy for long term income needs.

US economic data has improved with solid September quarter profit results.  
Europe is far from out of the woods, but is moving to substantially reduce the risk.  After the September quarter, which is normally the weakest quarter of the year, October often marks an important turning point ahead of some strengthening into year–end. So far, it looks to be the same this year.

My advice still stands for clients to follow a goals based investment approach and ensure they have clarity around their timeframes and need for income and or growth based investment returns.

There are opportunities around at the moment but we will continue to see this volatility.

If you need assistance in exploring these further talk to a professional but most importantly start your journey to being free around your money and creating wealth with understanding.

Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs.  Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs. 

Follow these tips to emerge in the new year debt free.

Set a cash flow plan

First take some time out to review your current finances.  Determine how much you can realistically afford to spend without going into debt for it!  Remember to include gifts and entertainment as well as all the small things that come with the season like cards, stamps, decorations, food and travel.  Next make a list of everyone you plan on giving a gift to and decide how much you want to spend on each person.  Finally check that the total figure you want to spend is not beyond your means.  You may need to reduce the amount you’re able to spend on each person or reassess the number of people on your list.  Or some more creative gifts to give that don’t cost you money…

Start early

Before you know it, Christmas will be upon us. In fact, most of the shopping centers have already started spruiking their Christmas wares.  By shopping early, you can look out for sales and great deals for later in the year.  You also have time to comparison shop rather than last-minute shop; where your panic to pick up something (anything) will usually mean spending more.  Also check out the online stores that may require some delivery time but will get you a great discount!

Look for savings and incentives

If you choose to use your credit card, look for any rewards or discounts that may be available through your credit provider.  Also try to shop online first as you’re less likely to impulse shop and can easily compare prices across various websites. There are plenty of online retailers that offer savings across a number of product categories such as fashion, skincare, make up, fragrances, books and electrical appliances. You can also find discounts through online community classifieds, auctions and daily deal sites.

Remember who you’re shopping for

When you’re shopping for family and friends, it’s very easy to find things that will be just perfect for yourself. This is a very common mistake that is sure to break your budget. Christmas shopping isn’t a ‘one for you, one for me’ deal. Don’t buy it. If you really need to have it, wait until after the holidays when it’s more likely to be on sale.   Or do what a few of my clients do and shop for next Christmas during the post Christmas sales!

Stick to your plan

Remember that a deal is not a deal if you can’t afford it. Once you reach your budget limit, stop.

Save early

Get off the overspending merry-go-round by saving early for next year. As soon as the holiday season is over, determine next year’s Christmas spend and set up automatic direct debits into a dedicated Christmas savings account. You’ll be all set by the time the department stores bring out their tinsel again.

If you need assistance on how to manage debt and build a savings plan, talk to a professional but most importantly start your journey to being free around your money and creating wealth with understanding.

Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs.  Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs. 

This Stanford graduation speech Steve presented in 2005 resonates with the financial life planning approach we use with clients and some perspective on life – well worth the 14 minutes – RIP Steve Jobs.

So many have heard about the happenings in the financial markets over the last few months from the news reporting but here is a quick recap:

• Equity markets have fallen
• Risk related currencies such as the Australian Dollar have weakened
• Corporate bond spreads have generally widened
• Market Interest Rates have fallen (bond prices have risen)
• Official Interest Rates are expected to fall (by some market participants)
• Safe-heaven assets have appreciated, e.g. Gold

This recent volatility was caused by a number of factors. The major concern is growth in the US has stalled. This may give way to a recession, which would then have spill on effects for the rest of the world. The US’s economic leadership has been undermined by a lack of political unity over the debt ceiling and the S&P credit downgrade. In addition, the European debt saga has shaken confidence in the foundations of the European Monetary Union and its political leadership.

However, there is some good news. Chinese inflation fears have receded with most economist of the view that inflation has peaked. The Australian dollar (AUD) has come off its dizzying heights, which should ease the pressure off non-mining related industries. The Reserve Bank of Australia has halted its tightening cycle while it seeks further clarity of the global economic situation. This is another positive.

Our view going forward …

Our expectation in the medium term remains as a trend for global growth. This is driven increasingly by emerging markets which are not weighed down by debt and benefit from healthy demographics and growing industrialisation/urbanisation. Therefore, we view falls in equity prices as buying opportunities in the medium term.

Investor psychology

The market moves in cycles; share prices move through periods of boom and bust, of calm and volatility and of fear and greed. The diagram below represents the cycle of share prices and investor sentiment which typically accompanies it along that path

As markets near peak or trough, fundamentals such as earnings and employment growth are usually changing more dramatically than sentiment is changing. As markets peak or trough, sentiment is slow to adjust to the new changed reality. For example the bounce in global share markets in mid-2009 was greeted with scepticism, even as green shoots were appearing in the economy.

What should I do?

Do not panic – If you are a growth investor now is not the time cash out as many did in 2008, with terrible results in the ensuring recovery.  If you are unsure about things please give us a call.

Remember, that the market moves in cycles – Currently, global shares prices are off 20% from their post Financial Crisis highs, but still 60% from their crisis lows. Meanwhile, fundamentals such as earnings and employment are slowly moving higher and markets have shown signs of improvement.

If you ensure you put your short term needs into accessable assets, your medium and longer term needs into more growth assets you time will smooth out volatility.

Quick fix for the long term
After weeks of uncertainty surrounding whether the US government would find a way to raise the debt ceiling and reduce the budget deficit in future years, a deal was negotiated. The debt limit was raised by $US2.1 trillion and agreement was made to reduce debt by $2.4 trillion over 10 years.
It was expected (as they had little other choice) that this action would be taken, however there are likely to be some longer term impacts as we have seen with last week’s downgrade of their long standing AAA credit rating to AA+ by Standard & Poors (S&P) as well as a slowing of their economic growth. This is only one ratings agency however with both Moody’s and Fitch affirming the AAA rating post the increase in the debt ceiling.

How much trouble is the US economy in?

The agreed budget cuts are a step in the right direction, and the raising of the debt ceiling has removed the immediate risk of default, however the US economy still faces a number of headwinds.
Recent economic data confirmed that the US economy is struggling to recover further, with the pace of economic growth coming in at a modest 1.3 per cent in the second quarter of this year. Weak consumer spending, slower manufacturing activity and a general lack of confidence have seen growth prospects weaken.

Since the announcement of the debt ceiling increase, there has been concern that the US economy will grow at a pace slower than that assumed in the budget forecasts and that the spending cuts in the budget could further slow the pace of economic growth in the years ahead.

How will this affect Australia?

The US economy and sharemarket continues to be the key barometer for global confidence and a winding back of growth expectations has already had an impact on markets around the world.
Although the Australian economy is still in a better position than most other developed economies, financial markets in Australia and around the world are likely to remain volatile in the near term. It appears that investors are beginning to reassess expectations for global growth in the current environment and as emotions run high, volatility is an inherent result.

Falls in recent weeks have been severe with investors becoming concerned we could be entering another global financial crisis.  Markets have begun to react by moving out of risk assets.  Importantly to date there has not been a freezing up in credit and bank funding markets as was the case during the global financial crisis – this will be important to watch going forward, especially given financial markets are now operating in unprecedented times post the downgrade by S&P to the US AAA credit rating.

From an Australian corporate profitability factor as we enter the Australian earnings season this week.  Amongst companies listed to report on Monday are Bendigo and Adelaide Bank, JB Hi-Fi and PrimeAg. On Tuesday CBA, Bradken and Cochlear are amongst those to issue earnings with Flexigroup and Stockland slated for Wednesday. Alumina, News Corp, Telstra, SingTel and Webjet are on the earnings list for Thursday with Billabong and Harvey Norman expected to report results on Friday.  NAB has a trading update for the market on Tuesday.  We would expect in this climate as the capital return in the markets comes down the strength in dividend and profitability in the Australian Company sector will remain in the resources, banks, and less discretionary retail sector.

Is this another global financial crisis?

One important factor to remember is that financial market participants (including central banks and bank regulators) are much more prepared for financial market dislocation compared to the depths of the GFC. Lessons have been learnt although it is impossible to say another crisis won’t happen.

It is clear from market volatility seen in the last few weeks that financial markets are lowering their growth expectations for the global economy. For the US, challenges still lie ahead. But if the political will increases, there is hope the US could change its ways, refocus on lowering government debt and build confidence back into the US economy (and financial markets).
If you have any concerns about this recent market volatility and the impact it may have on your investment, please do not hesitate in contacting our office 1300 772 643.

Optimism of the prospects for global recovery boosted growth assets in the first half of the year, only to be replaced by questions of its durability in the second half.  In the last two months of the year, this sentiment was intensified and has continued into the start of the new financial year, principally by the Greek and wider Eurozone debt problems, but also by fears of slower than anticipated global growth. As shares suffered there was a rush for the perceived safety of high-quality government bonds.

Movements in currency was the story throughout the year, the Australian Dollar (AUD) hit a historical high against the US in April. The strong AUD rally left investors with any unhedged overseas returns hurting. A comparison between hedged and unhedged overseas equity returns illustrates this point. For example over the year, the difference between hedged and unhedged returns for the MSCI World and MSCI Emerging Markets Index was 18.85 per cent and 15.96 per cent respectively.

Despite the volatility throughout the year, equity markets performed well. The top 300 companies on the ASX returned almost 12 per cent and the US and European markets did much better in local currency terms (S&P500 +28.1 per cent, Euro Stoxx 50 +10.7 per cent) Likewise, emerging markets performed well in the first half of the year but gave up some returns in the second half on inflation worries (MSCI EM Asia +17.6 per cent in local currency).

Uncertainty over Eurozone problems could continue to persist for some time, but worries about the global economic outlook appear alarmist. Some of the recent flight from equities to bonds may reverse as economic activity picks up again later this year and into 2012. The local economic outlook remains strong on the back of high export prices and continuing rapid growth in Asian markets.

At the asset class level:

Cash

Short-term interest rates were relatively steady for the year with the RBA raising rates just once in November from 4.50 per cent to 4.75 per cent. Short term rates peaked around February in the expectation of another tightening. However, dramatic events, beginning with the conflict in Libya, have subdued expectations of further rises and the 90 day bank bill continues to yield just under five per cent. This was reflected in the Reserve Bank of Australia’s decision on 7 June to hold the cash rate at 4.75 per cent.

Australian fixed interest

Despite a rising domestic interest rate environment, the Australian bond market has been a steady contributor to portfolio returns, serving its role in the defensive portion of the portfolio by counter-balancing weakness in equity markets. Bond prices and their corollary, longer term yields followed overseas trends, roughly in line with expectations for global growth throughout the year.

10-year government bond yields edged down in the first half of the year to a low of 4.80 percent in October. Yields peaked in February at 5.70 per cent in line with higher yields overseas, but then dropped in the wake of the Japanese disaster news. Recently, yields have been edging down over the month from 5.35 per cent to a touch under 5.10 per cent, much of this decline took place as anxieties over Greece’s debt intensified. Other longer-term funding rates followed suit, the 10-year swap rate dropping from 5.85 to 5.65 per cent.

Within sector strategies, investment grade credit and asset back debt have been positive. Credit spreads narrowed throughout the year providing capital growth and they also enjoyed a comfortable yield advantage relative to Treasuries.

Global fixed interest

The European Central Bank raised its key lending rate by 0.25 per cent to 1.25 per cent in April, making it the first major overseas central bank to start reining in previously ultra-supportive monetary policy. In its June meeting, it left the rate unchanged. Otherwise, the year was punctuated by extremely low short term interest rates in the developed world as governments elected to support their economy with loose monetary policy. The story was the opposite for major developing economies, as China began tightening monetary policy in November and hiked four times in the year, taking the one-year benchmark lending rate to 6.31 per cent. It also raised banks’ reserve requirements nine times in 50bp increments to 21.5 per cent for major banks.

In the second half the year, bond markets were the mirror image of the share markets. Demand for bonds increased as investors became more worried about financial instability and the global economic outlook, which meant bond prices rose and yields fell. Yields for global bonds as a whole are now down to 2.70 per cent (on the Barclays Aggregate Index), government bonds yielding 2.20 per cent and corporates 3.80 per cent.

The capital gains from these higher prices have provided an effective hedge against share market volatility. For example, over the year to date the Barclays Aggregate Index has provided a total return of 4.50 per cent in $US terms. None of this applies to the in trouble peripheral Euro countries. Their bond yields have continued to rise as investors increasingly expect default or some form of restructuring. Greece’s 10-year yield has risen to a little over 18.0 per cent, but yields on shorter maturities have risen more sharply, the two-year yield shooting up from 24.20 to 27.30 per cent over the past month. Irish and Portuguese yields have also been on the rise, although less dramatically.

Australian and global listed property securities

The S&P/ASX200 A-REIT Index was down 1.50 per cent for the past month, but this headline result reflects day-to-day volatility more than anything of substance. Measurement on another day might well have shown the truer picture, which is that the sector went sideways for the month and provided some defensive value against the weakness of the wider Australian share market. The sector has traded sideways since late 2009, with 1 year returns of 5.87per cent.

Global listed property, on the other hand, followed the broader global share markets downwards over the past month, the UBS Global Investors Real Estate Index producing a 2.41 per cent decline. Many of the major markets were relatively resilient, the UK up marginally, France and Germany each down 0.70 per cent, and the US down 1.10 per cent (all in local currency terms). The weakness came predominantly from Asia, which was down 5.40 per cent, with Japan and Hong Kong each down 6.90 per cent, and from the smaller European markets, for example, Portugal was down four per cent. For the year, Global listed property has been the best performing asset class, with the index performing almost 25 per cent beating the broad market index which delivered 2.97 per cent.

Australian shares

Australian shares have been trading in a relatively narrow range for the financial year, the All Ordinaries bottomed at 4356 on 25 August and hit its high at a touch above 5064 in April. Despite fairly range-bound if an investor had bought in July 2010, the All Ordinaries would have delivered a respectable 12.17 per cent return.

For the most part, the Australian share market marched to an overseas tune over the past year, a period which saw global investors’ see-saw between worries and optimism of a global recovery. The year began positively with the number of companies beating earnings per share (EPS) expectations outnumbering misses by a factor of 1.2 to 1. Combined with guarded FY11 guidance and soft US conditions, the market steady climbed the wall of worry roughly in line with global markets. Heavy rainfall in Queensland, northern NSW and Victoria combined with a mixed January/February reporting season saw the market track sideways for the next couple months.

In March, Japan’s devastating earthquake and tsunami triggered fears of a nuclear catastrophe and had ramifications for a number of Australian stocks in sectors such as insurance, energy and uranium. As fears of nuclear fallout receded, markets rallied and in April, the Australian Dollar (AUD) hit a record high against the Greenback at $1.097. As concerns rose about the global economic outlook, commodity price bubbles and the impending Eurozone debt issues, local indices sagged given Australia’s leverage to the global economic cycle.

The financial year ended with weakness as investors became more concerned about global growth and Europe’s sovereign crisis. Australian shares took their cue from the weak state of world share markets, and Australian equities lost ground over June, the All Ordinaries was down 4.78 per cent for the quarter. There was little to choose between the sub-sectors, industrials stocks down 4.70 per cent, resources down 4.80 per cent and financials down 5.50 per cent.

During the year, QR National was Australia’s largest IPO since the privatisation of Telstra. Demergers were completed by Foster’s (wine) and Tabcorp (casinos) and acquired companies included AXA, AWB and Centennial Coal.

Global shares

In the end it turned out to be a good year for global shares, although it started badly, world markets weakening in August 2010 and many exchanges recording cyclical low points in the last week of that month. The MSCI World Index hit a temporary low on 26 August, many investors increasingly concerned about the possibility of economic squalls ahead, and in particular worrying about a ‘double dip’ recession in the US. From then onwards, however, markets performed much better, the MSCI World rising sharply, peaking in May 2011, before losing ground due to fears, once again of a slowdown in growth – namely sovereign debt concerns in Europe, stalled growth in the US and a ‘hard landing’ in China.

The rise in investor anxiety can be seen particularly clearly in the VIX measure of expected volatility in US share prices. It was steady in May and the early part of June, but has risen sharply in more recent days as the Greek crisis intensified. Investors are nowhere near as worried as they were when the Eurozone debt crisis first hit the headlines in the first half of last year, and a long way from being as alarmed as they were in the depths of the global financial crisis in 2008/09, but they are clearly more concerned than they were earlier this year.

Over the course of the year, the MSCI World Index was up 21.82 per cent in local currency terms. For Australian investors, however, this was counterbalanced almost exactly by the surging AUD, meaning that for unhedged investors, the strong overseas gains translated into little or no gain in the hand. Yearly returns from the index in AUD terms yielded a mere 2.97 per cent in comparison.

Emerging markets experienced similar gains, with the MSCI Emerging Markets Index gaining strongly in the first half of the year. China was especially strong, with a 14.90 per cent rise in the Shanghai Composite Index in the three months leading to the end of October. From that point on, Asian returns were held back by China as the Central Bank started raising rates to fight inflation and the market subsequently became skittish on worries of tighter monetary policy and the risks around an officially engineered slowdown. Events in Greece and the AUD strength fuelled the sectors underperformance against broader equity benchmarks in the last few months of the year. The unhedged MSCI Emerging Market Index finished the June quarter down 4.51 per cent and finished the year flat at 0.83 per cent. In comparison, the hedged version of the index performed 16.79 per cent for the year.

Source: Morningstar/IOOF

The carbon tax will be payable by around 500 of the biggest polluters in Australia. To assist households with price impacts there will be tax cuts and increases in pensions, allowances and benefits.

A significant tax reform will mean that over 1 million individuals will no longer need to file a tax return.

After the Federal Budget announcement in May 2011 I mentioned it was the first time in 9 years we had not seen any tax cuts, but it seem the Government was keeping these in their back pocket to help smooth over the introduction of the Carbon Tax.

The Government has fixed the carbon tax price at $23 a tonne for the first three years after which it will then be determined by the market.

The carbon tax will be introduced on 1 July 2012.

The Government has announced that the average household increase in living will be $9.90 per week but through the compensation package they will receive an average of $10.10 per week, so that they are $0.20 per week better off. The compensation package for Australian consumers will include:

• pensioners and self-funded retirees will get up to $338 extra per year if they are single and up to $510 per year for couples (combined);
• families receiving Family Tax Benefit Part A will get up to an extra $110 per child per year ;
• eligible families will get up to an extra $69 in Family Tax Benefit Part B per year ;
• allowance recipients will get up to $218 extra per year for singles, $234 per year for single parents and $390 per year for couples combined;
• taxpayers with annual income of under $80,000 will all get a tax cut, with most receiving at least $300 per year ;
• the tax-free threshold will increase from $6,000 to $18,200 which will also include an increase from 15% to 19%, and the next tax bracket from 30 to 33% ;
• the Low Income Tax Offset (LITO) will reduce from $1,500 to $445 ; and
• the new effective tax free threshold will rise from $16,000 to $20,542.

To find out more about the Government’s carbon tax, please click on the link below to the Clean Energy Future website

Impact to your current strategies

As the Government has announced changes to the low to medium income brackets, this may affect some of your planning strategies.

Below is a general outline on some of these changes:

• If you are salary sacrificing into superannuation, down to taxable income of $20,542, but make sure you stay within your individual concessional contributions cap. Currently the ’salary sacrifice to super’ rule of thumb to minimise taxation is to salary sacrifice down to taxable income of $30,000, to maximise the Low Income Tax Offset (LITO). The main reason for the reduction in the taxable income level is because of the increase in the first marginal tax rate from 15% to 19% and the reduction in the Low Income Tax Offset.

• Consider reviewing your salary packaging setup and structure as these changes may increase the benefit to package a concessional benefit, such as car, especially after the changes announced in the 2011 Federal Budget to car fringe benefits.

• If you earn over $37,000 per year you will now be paying a higher rate of tax of 32.5% for 2012/13 and the 33% from 2015-16 income year. However, the company and an investment bond rates remain at a flat 30% (29% for companies if other tax reforms eventuate).

MM Comment:  These are the initial announcements made by the Government on Sunday and still have to be passed through parliament so they may change slightly.  Once finalised it would be a good time to review strategies before the start of the 2012- 2013 income year – we still have time on our side for that one!

Scott Malcolm (scott@money-mechanics.com.au) is Director of Money Mechanics (ph: 6257 5557) a fee for service advice firm who are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.

The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs.  Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.