Posted by: Maurice Nistico | August 4, 2015

Price versus Value

Many share market investors are almost myopically focussed in the movement of the capital price of their share investments, especially so in times of abnormally high volatility like we are experiencing now.

This focus is encouraged by the availability and transparency provided by the daily trading of shares on public exchanges and the uninformed bleating by media financial experts.

We know the price of everything, but do we understand the value?

Other types of investments, for example, direct property or the ownership of small businesses, provide far less transparency over movements in the underlying investment value. As a result, for these investment types, the investor’s perception of performance is determined more by the profit or income being generated, rather than any short-term movement in the capital or sale value of the investment.

This is where too many share market investors miss the point. In the long term it will normally be the income stream that provides the bulk of return to an investor, not the capital gain.

The reason for the extent to which dividends account for the bulk of investment returns is not intuitively obvious. The distinguishing characteristic of dividend income is that it is expected to increase each period. Ignoring tax, a 5% quoted dividend return is exactly the same a 5% interest bearing return in year one. However, over time the dividend dollar amount gradually increases in size even though the dividend percentage may stay the same. The dividend percentage is payable against the inevitable growth in the value of the share. Simple compounding interest!

Not only does income represent a more important source of return for long-term share investors than capital price movements, it also tends to be a more stable source of return.

Firms tend to maintain dividend payouts even if they experience a temporary decline in profitability. There is evidence of this occurring in the current round of profit reporting, with global and local economic factors impacting on share prices and earnings, but relatively few companies announcing reductions in dividends.

Several Australian blue chip companies are currently priced with fully franked dividends in the 5% range, which may prove to be attractive for those investors willing to focus on income streams and “ignore” the unusually high level of day-to-day volatility in share prices currently being experienced
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This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.

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Posted by: Maurice Nistico | July 30, 2015

Dealing with a Redundancy

The restructure of a business may lead to a reduction in staff numbers and redundancies. If you are effected you may experience a range of emotions from shock and anger to relief and hope.

Whilst a redundancy may provide you with a substantial financial windfall if you have been a long term employee, careful consideration should be given to how best to use the redundancy payments to protect your future.

It is important to understand the payments you are receiving, the tax implications and the choices available to you. Payments received as part of a genuine redundancy program can be concessionally taxed to help your money last longer.

When you cease employment the lump sum paid by your employer may comprise a number of payments. The first step is to identify which parts are included in the definition of an employment termination payment and which are not.

The next step is to calculate the tax on each payment so you can determine the net amount remaining after tax.

If you receive an employer payment under a genuine redundancy or approved early retirement scheme, part of the payment may be tax-free based on the number of years with that employer.

For 2014/15 the tax-free amount is:   $9,514 + [$4,758 x each completed year of employment]

Amounts above this are taxable. For amounts up to $185,000 the tax deducted depends on your age; under preservation age 30% plus medicare levy, over preservation age 15% plus medicare levy.  Amounts over $185,000 are taxed at 47%.

Unused annual leave and long service leave are payable on top of an employment termination payment, but may still receive concessional tax treatment if received due to redundancy or approved early retirement.

The payments are included in your assessable income but the tax is capped at 30% plus medicare. However, as they are included in assessable income they may impact your entitlements to other tax offsets or benefits.

Facing a redundancy is challenging, and it is important to understand your entitlements and get advice on what it means to you and your Family, and to work with your Advisor to consider alternative startegies that suit you best.

This is a specialist area, consult with a Certified Financial Planner who is also a member of the Financial Planning Association.

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 This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.  

Posted by: Maurice Nistico | January 7, 2015

30:30 Hindsight!

30:30 Hindsight!

Today is my 30th Anniversary as a Financial Planner, and this is my 721st Money Matters column for the Trans.

Following is a reprint of the very 1st Money Matters, word for word.

Money Matters no 1

There is nothing so complicated about money that a person of average intelligence should not be able to comprehend. Through this column, I will attempt to explain, in simple terms, some of the realities of money and to dispel some of the myths that surround it.

Money means different things to different people. Unfortunately, high personal tax rates, complicated tax and social security laws, bad experiences with previous investments and advisers, and a fear of inflation combine to confuse and frighten people about their own personal financial planning.

Fear not! If you spend some time to work out exactly what your dreams and goals are, and you know what you want your money to do for you, then with a little help from a competent financial adviser, your dreams and goals can become a reality.

In the next few issues, we will discuss such things as choosing a financial adviser, how taxation, inflation and social security laws affect you, retirement planning, negative gearing, buying real estate, life insurance, unit trusts, shares and a host of other topics that affect our financial well-being. We will not be discussing high finance and complex economics, just simple strategies and ideas about money as it affects everyone in their daily lives.

The Treasurer tells us we are in recession. Now, more than ever, investors must realise their greatest enemy is lack of knowledge and experience. This column is intended to provide both. With the right tools and skills, there is a lot of wealth created in hard economic times! Two of the strongest rises ever in the U.S. sharemarket took place in 1933 and 1935, during the Great Depression, creating huge fortunes for a few ordinary people that had little knowledge and luck and a lot of fortitude.

BY MAURICE NISTICO

Posted by: Maurice Nistico | November 8, 2010

Pay off your Mortgage, Faster

In a moment, some more Money Matters, but first

Balance

In recent times Fil and I have become re-enthused about our vegetable garden.

We have always been keen gardeners but years of low rainfall has been a challenge, and the vegie patch was one of the first casualties in our yard.

Maybe because of the excellent wet winter we have had, or maybe just because the time was ‘right’, we have rebuilt an area that we have cleared, composted and fertilized, sown and is now jam- packed full of food we regularly pick and add to our menu.

It is neither time nor cost efficient doing this compared to buying the food, however it is just so rewarding for my soul.

Perhaps it’s an age thing, but I can’t wait for the weekend to get some dirt under my fingernails!

Do you enjoy gardening?

Best Regards

Maurice

Pay Off Your Mortgage, Faster

For most of us, our biggest debt is our home loan.

And with housing prices having increased dramatically over the last few years, there has been a corresponding increase in the amount that we have to borrow to achieve the Aussie home ownership dream.

Large mortgage repayments often mean there is not much left in the family budget for luxuries or investing.

By paying off your mortgage faster, you can free up some of your family cash flow earlier to enjoy, or invest for your and your Children’s future.

One simple method of paying off your mortgage faster, is to make repayments more often.

Many home loans are repaid progressively over 20 to 25 years, with repayments generally paid monthly.

The term of a housing loan can be significantly reduced by making fortnightly rather than monthly repayments.

For example. Suppose your home loan was $200,000 and the interest rate was 7%. If the loan term is 25 years, the monthly repayment (in arrears) will be $1413. Instead of making the monthly repayment, if you were to make a fortnightly repayment of 1/2 the monthly amount ($706-50), the loan would be paid off in 20.5 years – a saving of 4.5 years.

The savings arise for 2 reasons. Firstly, you are paying off some of the loan 2 weeks earlier and hence saving interest, and secondly because there are 26 fortnight’s in a year, you are actually repaying more annually that you would versus making monthly repayments.

Making repayments more regularly is one strategy you can use to pay off your debts faster. There are others. Talk to your bank or credit union to see how else they can help you become debt free.

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This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.

Posted by: Maurice Nistico | October 22, 2010

Choose the right credit card for your spending

In a moment, some more Money Matters.

But first; Balance

Life is hectic at home with two teenage Kids. There is never enough time to do the things that need to be done, and often our ‘social life’ seems to revolve around Nathan and Emily’s sport.

However, let me be clear – when we are out there watching Nathan play cricket on a nice Saturday afternoon, or Emily playing volleyball, there is no where else we would rather be!

Time with our Kids is precious, the jobs will just need to wait.

What are your thought? Tell me about some special times you have had with your Family.

Best Regards

Maurice


Choose the right credit card for your spending

Do you prefer to pay by cash or by credit card?

Using credit cards rather than cash to buy things can have both its advantages and disadvantages. It is useful not to have to carry cash around with you; however it is also extremely easy to spend more than you should on the plastic.

Sticking to your budget and making a smart choice of credit cards can mean you can enjoy the convenience and added advantages credit cards have to offer.

Credit cards can be divided into two main groups: those that offer interest-free periods and those that don’t. Generally, those that do offer interest-free days (remembering that there are no free lunches!) tend to charge either a higher rate of interest after the interest-free days have expired, or charge an annual fee for the privilege.

There is a third kind, called a debit card. Although it is not strictly speaking a credit card, it is a safe and economical alternative for smart money mangers that only want to use a credit card so that they don’t need to carry cash with them.

To select the card that is best suited to you, evaluate your lifestyle and spending patterns and match it with the correct card type. This is absolutely vital to keeping card costs to a minimum. Not only will it help you control your card credit, but all your personal finances too.

If you must borrow for an extended period from your credit card, go for a card with a low interest rate. (More importantly, make an appointment with a financial adviser to design a plan to get you out of debt.)

If you’re a transactor, and pay each month in full, take the benefit of interest free days and added benefits of rewards programs etc. or use a debit card.

Or, you just may prefer to stick to paying by cash – nothing wrong with that!

This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed


Posted by: Maurice Nistico | September 29, 2010

Need vs Want

Need vs Want

Why is it that some people who are successfully responsible for very large budgets and profit targets for their business or employer are sometimes absolutely hopeless with their own personal finances?

 After years of coaching clients in this predicament, I have found that the main reason is that in business mode, people find it easy to distinguish between a need and a want. In business mode, people aim for a profit target. In business mode, expenses need to be justified against budgets set out in a business plan.

 If this sounds familiar to you, try the following.

 1. Imagine your family is a business, “Your Name Inc”. The total family after tax income coming in is the business’ turnover.

 2. Firstly, set a realistic ‘profit’ figure to aim for – say 10% of your income.

 3. Then, list all of your fixed overheads – whatever you need to spend to live. (Electricity, loan repayments, groceries, phone bills, car, education, insurance, superannuation etc). 

 4. Next, list whatever major things you are planning to buy in the future – next years holiday, a new car or house, kids education, early retirement etc. How much will they cost? When is the money needed by? How much do you need to put away per pay to have that amount of money available when it’s needed?

 5. Is there any money left after subtracting from your income your profit target, fixed overheads, and future plans? If so, this is available to spend on whatever you like – luxuries or extra profit.

 Congratulations you now have a basic Personal Business Plan, complete with a finance plan, profit targets, and future strategy plan. (You have a financial plan, you are paying yourself first, you have a budget, and you are planning for the future)

 Once this is set-up, monitor and fine-tune your plan to make it realistic and workable. Keep records.

 Importantly, when a non-budgeted expense arises, measure it against your business plan. Is it a want or a need? Can you afford it and still achieve your profit target, pay your fixed overheads, and achieve your future goals?

 If not, can you increase your income to cover it? What expenses can be cut?

 If you can afford it – enjoy! Spend the money, buy the item – guilt free because you have a plan, and it fits into your plan.

Balance

Spring is working hard to peek through this long spell of below average temperature and above average rainfall. Gardens are looking great (ignoring the weeds!), and the creeks are flowing in the Flinders Ranges – might go for a drive on the weekend for a look.

How is your garden looking? Do tell.

Regards

Maurice

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 This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.

Posted by: Maurice Nistico | August 30, 2010

Work Life Balance

Australian workers are struggling to strike a balance between work and life, a national survey has found.

The fourth Australian Work Life Index revealed that Australians are increasingly dissatisfied with their work-life balance.

The annual survey of 10,000 workers was conducted by the Centre for Work and Life at the University of South Australia.

Key findings of the 2010 index and its accompanying research include:

  • Sixty per cent of the female workforce and almost 50% of the male workforce consistently feel pressured for time. Women who work full-time and working mothers in particular show signs of increased work-related stress.
  • Managerial and professional workers are particularly working long hours and feeling the stress – a not surprising finding. Professional women especially standout here as being under work pressure.
  • There is not evidence that being self-employed provides a better work-life balance.
  • Most workers, including older workers, are not eager to work more hours. Indeed, older workers for instance are generally working longer hours than they would like.

Around six in ten survey respondents stockpiled their leave and one third of those did so due to work pressures. Their decision to not take a holiday resulted in worse work-life outcomes, particularly among working mothers.

Holidays, however, are still important for working Australians. The survey found that most workers would rather have an extra two weeks holiday than an equivalent pay rise.

Work Life balance is a key objective of proper financial planning.  Planning your future is not about achieving the best return, it is about creating enough cash flow to give you time to do the things you want to do, with those you want to do them with.

What are you planning for?

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 This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.  

Posted by: Maurice Nistico | August 16, 2010

How to Spot a Financial Scam

It’s a sad truth that there are still far too many people who lose their hard earned money to either dubious financial strategies, or financial scams and confidence tricksters.

This happens despite the best endeavors of Government watchdog agencies, increasing financial literacy amongst the investing public and higher Financial Planning professional standards amongst industry participants.

Over borrowing to invest has caused much heartache as evidenced by recent examples such as the Storm Financial collapse.

Ongoing investigations by the Australian Securities and Investments Commission and Australian Prudential Regulation Authority into missing millions invested via collapsed fund manager Astarra/Trio Capital has meant many families have been unable to access their life savings for months.

Some financial scams arrive unsolicited such as the famous Nigerian email.

Disturbingly, failed investment strategies are often recommended by trusted advisers.

It’s your money, remain on alert and remember your Grandparent’s warning that if something seems too good to be true, then it usually is.

The following has been taken directly from the Governments ‘How to Spot a Financial Scam’ alert page at http://www.fido.gov.au

1. It looks real
Scams that catch people often look realistic and are presented professionally. They have attractive documents, a business-like website, and names that sound like reputable companies.

2. Bigger and faster profits than real investments
Scams always offer a higher return than genuine investments. Some offer 20% a year, others go for 300% a year or even more. It’s too good to be true. By comparison, Australian shares are some of the most successful investments, and their value has grown about 7-9% p.a. over the long term.

3. Less risk and less effort than real investments
Most scams say that financial success is easy and risk isn’t a problem. But real wealth demands planning, hard work and guts. Even the best investors make mistakes and have to weather storms like market busts and economic recessions.

4. Something special that genuine investments don’t offer
It could be a ‘secret’ offer, ‘inside information’ or ‘new techniques’ to make you feel like you’ve got an edge over other people. But chances are it’s a fairytale – and it won’t have a happy ending.

5. More urgent than the real thing
Scammers often say ‘don’t miss out’ and ‘act quickly before it’s too late’. They’re really just trying to grab your money before you have a chance to check properly.

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 This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.  

Posted by: Maurice Nistico | August 3, 2010

It’s a thinking thing first

The world’s wealth is not evenly distributed. The vast majority is in the hands of quite a small percentage of people.

 It has been said that if you re-distributed all the wealth in the world evenly amongst every human being, that within 2 years it would have redistributed itself back to its original owners.

 You may know or have heard of wealthy people, who have gone broke and lost everything, only to have started again and become wealthy in a short period of time.

 Or people who suddenly come into money by winning a lottery or getting a redundancy package who seem to lose it all in a short period of time.

 Why is this?

 Especially given the wide and easy availability of investment knowledge via education, financial advisers, the media, books, and magazines.

 It is much easier nowadays to invest than it ever has been before, most Australians own some shares directly, and almost everyone owns shares indirectly via their super or managed funds. Property markets continue to do well, and per head of population, Australians are among the world’s largest property owners.

 The reason is that financially successful people think differently, and act differently.

 Yes financial knowledge is important, but its thinking and acting differently that sets financially successful people apart from the rest.

 And in my experience, it’s a thinking thing first.

 Over the last 25 years I have found is that with the same advice and assistance, same knowledge, some people cruise along to better prosperity, whilst others struggle.

 I have also learnt that there is a common set of principals and beliefs and habits that financially successful people live by.

 These principals, beliefs, and habits mean that they think in a certain way, and act in a certain way, which has led to them being financially successful.

 And if you believe in the law of cause and effect, if you can adopt these same principals, beliefs, and habits, there is no reason why you too cannot also be financially successful.

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 This article is general in nature only and does not constitute or convey specific or professional advice. Formal advice tailored to your specific circumstances should be sought before acting in any of the areas discussed.  

Posted by: Maurice Nistico | July 19, 2010

For Love, or Money?

He say’s “She wastes money on stuff we don’t need – at this rate we will never save anything”

 She say’s “He is stingy, and I feel guilty every time I spend money on myself – it’s not as if we can’t afford it”

 He feels the responsibility of paying the house off, plus the kids future education, plus retirement is all on his shoulders.

 She feels that because she is also working, she wants more control financially but doesn’t feel comfortable and confident exerting it.

 Both of them hate bringing up the subject of money as it always ends in a fight.

 Couples may see eye to eye on most things yet view money matters very differently. Financial roles have changed, and the pressure of living the ‘good life’ often means that couples experience more financial pressure than ever before. Yet even though there are more working couples today, less money is being saved.

 Often, arguments about money are not about a shortage of cash. Some money disputes are really a manifestation of some other problem. For example, an over spender may be trying to tell a partner they want more attention. Some money problems are about control – with one partner wanting to make all of the decisions without compromise.

 Other common areas of conflict between couples include;

–          spending versus savings styles

–          raising children and money issues

–          who controls the purse strings

–          joint accounts versus separate accounts.

 Allowing money disputes to fester unresolved often leads to relatively minor issues getting blown out of all proportion – result; unhappiness.

 It doesn’t have to be that way. The key to resolving money issues in relationships is to be honest about how you feel, to discuss the issues openly, and to understand your differences and plan around them – respecting each others differences instead of judging them- result; happiness.

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