Investment Solutions

Transcription

1 C Investment Solutions In this issue Winter 2005 Plan for the best, prepare for the worst 2 Market commentary 3 Planning your estate it s more than just a Will 5 About SECURITOR 6 More information? For further information on any issue here, or any financial matter, please contact your financial adviser.

2 Plan for the best prepare for the worst Many people purchase home and contents, car and health insurance as a matter of course, but it s widely known that the majority of Australians are uninsured or underinsured for events such as death or disablement. Personal insurance is an effective way of protecting your family s lifestyle and the assets you ve worked hard for if something happens to you. The problem with the statement it will never happen to me is that no one really knows serious accident and illness are often unexpected and unsuspected.you can put in place a contingent plan to minimise the financial implications of unfortunate events such as death or serious sickness/injury which may jeopardise your ability to earn income.this helps to remove uncertainty from otherwise sound financial plans. Protecting your life Life insurance pays your beneficiaries a lump sum in the event of your death.while you won't be around to enjoy any benefits, your family will and this is why it's important to have some kind of cover. And life insurance isn t just for the main salary earner either the person who takes care of the home and children is also providing a very valuable service which would be costly to replace, so life insurance can be invaluable for both partners in a relationship. The main type of life insurance is term life, which provides a cash lump sum in the event of your death. It is probably the most economical form of life insurance and you can usually renew it for as long as you like, up to age 99.Term life insurance usually requires you to provide medical information without undergoing a medical examination. The question of how much life insurance you need depends on your own circumstances and should be considered with the aid of your financial adviser.the premiums for life insurance policies are usually determined according to the benefits and features the plan provides, as well as a number of other factors including whether you smoke, your gender and your occupation.these factors represent the risk to the life insurance company, for example, if the person is a smoker or pursues hazardous leisure activities, the higher the risk and the higher the premium. Premiums for life insurance are generally lowest when you re youngest and rise gradually with age. Life insurance can be taken up through super, where the premiums may be tax deductible. Premiums for life insurance taken up outside of super are generally not tax deductible, and any policy proceeds are generally not taxable. Protecting your income For most people, it s likely that their most valuable asset is their ability to earn an income. While life cover will look after your family if you die, what will happen if you can t work because of illness or an accident and it s going to take months to recover, or, maybe you can never work again, and there are school fees to pay, food to buy and mortgage repayments to make? Income protection insurance, also known as disability insurance, provides for the continuation of income for a specified period (for example, up to age 65) in the event of you being unable to work due to injury or illness. Under most income protection policies, you can insure up to 75% of your earned income and business owners can also cover business overheads that still have to be paid while you are out of action. Generally, premiums are determined by your age, health and gender, whether you smoke, your occupation, and how long you re prepared to wait for your first payment (Waiting Period). If you choose a longer waiting period, for example, 90 days instead of 30 days, your premiums will be lower. Another determinant of premiums is how long you want the benefit to last (Benefit Period). A policy that pays you out until you are 65 will cost a lot more in premiums than one that just pays you for two or five years.the premiums you pay for income protection insurance are generally tax deductible, but this means that any claims you make will be taxed as income. When choosing an income protection policy, it s best to speak to your financial adviser about which one suits your needs, as most insurers have several products on offer and income protection policies can carry a range of definitions continued on page 6 SECURITOR Investment Solutions 2

3 Market commentary Over the March 2005 quarter, the key drivers for investment markets were increases in official cash rates in the United States and Australia as well as strong labour markets in those countries, a resurgence of inflationary fears, and rises in bond yields, crude oil prices and commodity prices. Asset class performance update Global Equity markets provided low returns to investors over the March quarter.the continued rise in the price of crude oil and commodity prices, the tightening in the US labour market, and higher than expected levels of economic activity during the first quarter of the year kept bond yields higher and unnerved equity markets from a valuation and earnings standpoint. The MSCI World Accumulation Index weakened returning 0.6% in local currency terms and 0.3% in Australian dollar terms. Australian equities returned 2.4% over the quarter with the All Ordinaries Index reaching record highs and outperforming the MSCI World Indices. The strength in the Australian market was attributed to higher earnings expectations, a cooling residential property market, a buoyant global economy assisted by strong activity in China, and strong demand for commodities leading to strong demand for resource stocks. Fixed interest markets provided a small positive return over the quarter despite bond yields moving higher in the US and Australia. European bond markets remained relativity stable whilst bond yields in Japan fell during this period. Inflationary concerns in the US were the main driving force for the US and Australian markets, whilst softer economic data out of Europe and Japan were the catalysts to softer bond yields. The performance over the quarter of the UBS Warburg Composite Bond Index was steady at 0.0% while the JP Morgan Global Government Bond Index returned 0.7% in local currency terms. The Listed Property Trust sector weakened over the quarter, with the S&P/ASX 200 Property Trust Accumulation Index returning negative 3.2%. The sector appeared to have peaked in January and has now gathered downward momentum in tandem with rising bond yields. Despite the sector s yield distribution remaining attractive, any further upward movements in bond yields is likely to cause further weakness in the sector. Asset class returns to 31 March 2005 Global Equities (Local currency) Global Equities (Unhedged, A$) Australian Equities Listed Property International Bonds (Local currency) Australian Bonds A$/US$ Cash Source: Datastream & St.George Investment Solutions % change Economic and market outlook 1st Quarter 2005 Rolling 12 month Performance Oil prices and commodity indices set new records during the March 2005 quarter and bond yields rose significantly. In the industrialised world, the solid US expansion contrasts with modest prospects in the Euro area and Japan. While solid gains in US household incomes continue to underpin consumption growth, the US Federal Reserve is gradually reducing unnecessary stimulus and is likely to take the funds rate towards 4% by calendar year-end.the European Central Bank statements point to higher rates this year, though the prospective rate cycle over several years is likely to be mild. During the second half of calendar 2005, Japanese authorities are likely to commence a gradual reduction of the excess liquidity that has been left in the banking system as a precursor to a change in the zero interest rate policy regime. Economic growth remains robust in China. However, authorities are likely to further introduce market-based measures to slow growth from a reported 9.5% GDP in 2004 to around an 8% level, via modest interest rate increases and a modest widening of the exchange rate band. The Reserve Bank of Australia (RBA) is likely to take its time to assess the impact of rising oil prices, moderating economic data and also get a better handle on the fiscal SECURITOR Investment Solutions 3

4 policy outlook before moving rates higher. We believe that the RBA will eventually raise the cash rate to 5.75%. We expect global growth to average around 3.8% in 2005, from its estimated 4.8% in 2004, if prevailing favourable financial market conditions support consumer and investment-driven growth. The outlook for growth in Australia continues to be positive, despite a slowdown in residential housing activity. We believe the Australian economy will eventually regain a better balance with the moderation of the overheated housing sector and nonresidential construction and export sectors supporting economic growth momentum. Growth in 2005 should be around 3.0% to 3.5%. Outlook for investment markets Aggregate indicators of global equity markets suggest that the profit cycle in the industrial world is maturing. Profit growth is likely to slow markedly in the US, reflecting the limited scope for wider margins, while corporate profit expansion should continue at a modest pace in Japan. A continued asset allocation into the Japanese stock market by overseas investors and the likelihood that domestic investors will also allocate funds towards equities bodes well for Japanese equities. Slowing labour costs help the profit and earnings outlook for the Euro area, but rising materials costs and sluggish consumer demand is likely to have a negative impact. returns than global equities given our currency outlook. We believe that any modest rise in official interest rates, should it occur, will not have any major impact on the profit outlook for the banking sector while exporters will continue to benefit from strong demand for resource and agricultural commodities from the Asian region. Global bond markets appear vulnerable to gradually rising price pressures because global monetary authorities are keen to neutralise the ultra-stimulatory regimes that have been in place.the US bond market, in particular, is vulnerable to rising yields when business investment eventually outpaces cash flow. We anticipate the Bellwether US 10 year note rising towards the 4.90% level over the near term and towards 5.50% in one year s time. All global bond yields are likely to follow this pattern. We anticipate the Australian 10 year yield moving towards the 6.00% level over the near term and towards 6.25% to 6.50% within twelve months. We also expect the RBA to raise official rates from the present 5.50% to 5.75% during the next few months. The Listed Property Trust sector has recently weakened as global and domestic bond yields begin to exert their valuation influence. Providing support to the sector is its relatively attractive yield and the influence of corporate activity. We have a more bullish view on the Asian region because of its growth prospects, high dividend yields and a positive outlook for Asian currencies. Investors are likely to be rewarded with superior returns on a long-term basis. We believe that the requirement of Australian investors to hedge their currency risk has diminished over the recent period because the anticipated depreciation of the US Dollar has largely occurred over the past quarter. Australia s deteriorating current account deficit will exert downward pressure on the Australian dollar, which will improve the return on unhedged international shares investments. The Australian equity market has performed well over the past year, though present valuations appear quite stretched. Australian equities are unlikely to deliver relatively better Risks to outlook The main risks to global financial asset markets are a sharp spike in crude oil prices due to supply disruptions, a hard landing in China caused by a policy error and a sharp fall in the US Dollar. Note: All performance information quoted is provided by Datastream and St.George Investment Solutions. SECURITOR Investment Solutions 4

5 Planning your estate it s more than just a Will Estate planning is about more than just preparing a valid Will. It s about making sure your family is provided for and that your assets go where you want them to after you die. Estate planning is an important part of your overall financial plan and it shouldn t be left until it is too late. A good estate plan will: ensure that the ownership and control of your assets passes to your intended beneficiaries in the correct proportions; and that this happens in a way that results in the least amount of income tax being imposed on the income and capital gains earned on those assets, and which protects those assets should a beneficiary be involved in any legal difficulties, for example, bankruptcy or divorce. Essentially, a good estate plan can provide you with peace of mind and minimise potential complications for your beneficiaries. Working out what you need Have you considered whether you have sufficient assets accumulated to provide for your family and pay off any debts in the event of your death? What about if you are injured and unable to control your investments have you chosen someone to manage your affairs for you whilst you are recuperating? Even if you already have a Will, a simple Will which leaves your assets to various people may not be the best option for your particular circumstances, particularly if you have children from a previous marriage or your own relationships have changed. When looking at your estate planning needs, you need to consider who will inherit your assets, which assets they ll inherit and in what proportions. Your estate planning needs should be reviewed on a regular basis, and particularly when an important event occurs, such as: Marriage or divorce Change of employment or retirement The birth of a child or the death of a relative that you have provided for. Each of these events can be a life-changing experience for you and your family and should trigger a consideration of your estate planning needs and objectives. An estate planning checklist Take a moment to consider the following questions: Do you have a valid Will? Has it been reviewed/updated since the last significant event in your life? Does your Will provide adequate protection to ensure your assets are not inappropriately diminished? Do you know how much money your family would need if you were to die today? Do you have personal insurance in place (life cover, T&PD, income protection, trauma insurance)? Do you know how much cover you have under your personal insurance policies? Is this cover sufficient? Have you appointed someone to look after your affairs if you die or become incapacitated? If you are a business owner, have you considered exit strategies from your business? If you are a business owner, have you planned for the future of your business after you pass away? If the answer to any of the above questions is No, then it s possible that you have a gap in your true estate planning needs. Ask your financial adviser Your financial adviser can assist you in identifying gaps in your insurance and estate planning needs and can recommend solutions to address them. If you need specialist advice, we can refer you to the appropriate professionals. Please contact your financial adviser if you have any questions in relation to your estate planning needs. SECURITOR Investment Solutions 5

6 Plan for the best prepare for the worst continued from page 2 when it comes to your ability to work. Some definitions are duties-based, for example, a claim will be paid as long as the policy holder is unable to do one of the important duties of their occupation necessary to producing an income, and some are income-based, for example, where a claim will be paid if the policy holder is unable to produce at least 80% of their previous income through their usual occupation as a result of sickness or accident. Critical illness/injury cover This is commonly known as Trauma insurance or Living Insurance. Unlike income protection insurance, which is dependent on your inability to work, trauma insurance is generally paid out on the diagnosis of a pre-defined critical illness/injury, regardless of your working status. Instead of receiving a monthly income stream, you are paid a lump sum that you can spend on whatever you like medical bills, your mortgage, even an overseas trip. The insurance company makes no demands on how you spend the money. Policies include specific criteria on major illnesses which can include heart attack, stroke, malignant cancer, chronic kidney About SECURITOR SECURITOR financial advisers offer you a complete financial planning package including investment, superannuation, retirement, insurance and banking solutions. Using a combination of the right technical advice and the right investment strategies, SECURITOR financial advisers can add significant value to your financial affairs over the long-term. Disclaimer This publication has been compiled by SECURITOR Financial Group Ltd ABN Australian Financial Services Licence number (SECURITOR). Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of SECURITOR that this publication be used as the primary source of readers information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and neither SECURITOR nor its related companies, employees or officers will be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).this publication has been prepared without taking account of your objectives, financial situation or needs, and because of that you should, before acting on anything in this publication, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. Past performance is not indicative of future performance. For taxation and superannuation matters, we recommend you seek advice from a suitably qualified professional. failure and specified organ transplant. The key benefit of trauma insurance is that it gives you a financial buffer so you have time to recover from an illness. After all, if you're trying to recover from a major illness, the fewer financial worries you have, the easier it will be. Premiums for trauma insurance vary according to your own circumstances and while premiums are generally not tax deductible, any policy proceeds you receive are generally not taxable. Be prepared for future uncertainty Life insurance, income protection and trauma cover are just three types of personal insurance others include total and permanent disablement insurance, business expense insurance, key person insurance and buy/sell insurance, the latter three applicable to business operators. If you have questions about personal insurance or if your financial plan doesn t prepare you for the worst, or perhaps isn t as sound as it could be, contact your financial adviser who can answer your questions and assist you in determining which insurance is appropriate for you and the level of cover that you need. SECURITOR is one of Australia s largest dealer groups with 430 Authorised Representatives located throughout Australia, managing more than $6 billion for over 50,000 clients. SECURITOR is supported by SEALCORP, one of Australia's largest suppliers of financial products and services to financial advisers. SEALCORP is part of the St.George group. Disclosure SECURITOR is a wholly owned subsidiary of SEALCORP Holdings Limited ABN (SEALCORP), which is in turn a wholly owned subsidiary of St.George Bank Limited ABN Australian Financial Services Licence Number SEALCORP owns ASGARD Capital Management Ltd ABN SECURITOR is an Australian Financial Services Licensee. SECURITOR. 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