{"id":59003,"date":"2021-03-06T04:59:35","date_gmt":"2021-03-06T04:59:35","guid":{"rendered":"https:\/\/websitedesigns.com.au\/elankanew\/?p=59003"},"modified":"2021-03-06T04:59:35","modified_gmt":"2021-03-06T04:59:35","slug":"noel-news-18","status":"publish","type":"post","link":"https:\/\/websitedesigns.com.au\/elankanew\/noel-news-18\/","title":{"rendered":"Noel News"},"content":{"rendered":"

Noel News<\/span><\/h1>\n

\"\"<\/p>\n

We make a living by what we get,<\/em>
\nbut we make a life by what we give.<\/em><\/i><\/span>
\nWINSTON CHURCHILL<\/span><\/p>\n

I started this newsletter in November 1998. I mentioned then that I had received so many letters and emails from readers of my books and columns over the years that many of you feel like family, and having the ability to communicate with you in this way lets me give you information you would not get elsewhere. It\u2019s always been about providing accurate information, because so much stuff in the media is incorrect or is partly true.<\/span><\/p>\n

\"\"<\/p>\n

The newsletter has always been free because I feel that price should not prevent anybody who is keen to learn. Furthermore, I have never accepted sponsorship because I value my independence and want to feel free to make recommendations about products that I think are great, without any obligation to somebody who was paying for it.<\/span>
\n\u00a0<\/span>
\nMy approach has always been holistic \u2013 just recently, when I was doing an interview for a piece in the newspaper, I was asked, \u201cHow come you devoted 50 pages in\u00a0Retirement Made Simple<\/em><\/a>\u00a0to health and well-being?\u201d I responded that when people are retired and are financially challenged there is seldom an easy way out. But our greatest asset is our health, and the good news is that it doesn\u2019t take a fortune to stay in shape. Eating well, and getting regular exercise is not expensive \u2013 it just takes knowledge.<\/span><\/p>\n

\"\"<\/p>\n

In this newsletter, apart from the usual topics, I\u2019m including a podcast from Ashley Owen who spells out investing versus speculating, and gives us some great information on bitcoin \u2013 most of which I didn\u2019t know. Don\u2019t miss it.<\/span><\/p>\n

Interest Rates<\/span><\/h1>\n

The Reserve Bank has just handed down the latest interest-rate decision and, as expected, rates are still on hold. But the big question is where our interest rates going from here. Even though the world is full of good news right now, investors are more confused than ever. The success of the COVID-19 vaccine worldwide gives us cause for optimism, and it also means a new threat: inflation. If business activity picks up again, all that stimulus pouring cash into world markets will start to be eased back. Already, many big investors are dumping sovereign bonds, with the US 10-year yield jumping to near 1.38% and the Australian 10-year yield now over 1.6%.<\/span>
\n\u00a0<\/span>
\nWe currently have huge labour shortages \u2013 workers are not available either because they are too happy on Jobseeker or because they can\u2019t get to Australia \u2013 and material shortages are rampant due to transport delays. The bottom line is that inflation is upon us, and this means interest rates will go up.<\/span><\/p>\n

\"\"<\/p>\n

Now I know that Philip Lowe of the Reserve Bank has told us that there will be no rate rises till 2024, but markets are betting it will be one to two years earlier. My friends in the money market are even betting on the cycle turning before this Christmas, and history tells us that there may well be 10 interest rate rises in the next cycle. If we assume each rise will be 25 basis points, it would not be unrealistic to expect, over time, a 2.5% increase in the cash rate. That would take home mortgage rates to 5% per annum or more.<\/span>
\n\u00a0<\/span>
\nOf course, forecasts are notoriously unreliable, but it seems reasonable to think we are very close to the bottom of the interest rate cycle, even if it doesn\u2019t turn upwards for a year or more.<\/span>
\n\u00a0<\/span>
\nThis is a warning to anybody with any kind of variable rate loan. If you agree with my reasoning, you may wish to think about fixing part of your rate sooner rather than later. But make sure you first understand the comparison rate. Right now on television, for example, Westpac are flogging a fixed rate of 1.99% for four years; but by law they must also mention the comparison rate, which is the effective rate after fees and charges \u2013 that\u2019s a much less attractive 3.29%. Make sure you look at the comparison rate, not just the advertised rate.<\/span><\/p>\n

\"\"<\/p>\n

A great place to start would be one of the comparison websites, where the leading variable and fixed rate loans are listed, with the comparison rate shown clearly as well. Interest rates change all the time, but at date of writing, a three-year fixed loan from U-bank at 1.75% (comparison rate 2.22%) looked to be one of the most attractive. Remember, if you are thinking of switching, you also need to be aware of what other conditions might attach to the loan.<\/span>
\n\u00a0<\/span>
\nYou should also stress test your position, if you have a home loan now. Go to my website and play around with the\u00a0loan calculators<\/a>. You can easily work out what the repayments would be if your interest rate went up to 5%. Once you have done that, you should start to increase your home repayments until you get them to a level where you could cope easily if rates did rise to that extent.<\/span>
\n\u00a0<\/span>
\nI know that the real estate market is rocketing along right now, but if rates start to rise it may well stop dead in its tracks. It\u2019s never been more important, if you\u2019re in the market, to try to get an undervalued property that will hold its value in a slack market. Remember, property values can fall as well as rise.<\/span><\/p>\n

Hands Off Our Super<\/span><\/h2>\n

\"\"<\/p>\n

The amount of money held in superannuation has now topped $3 trillion, making Australia the fourth-largest holder of pension fund assets in the world. Sadly, when this amount of money is mentioned, all the vested interests come out of the woodwork to suggest ways to \u201cimprove the system.\u201d<\/span><\/p>\n

Last month the Association of Super Funds of Australia (ASFA), who represent some of Australia\u2019s biggest funds, made several recommendations. One of them was that if a person had a balance of more than $5 million the surplus should be removed from the superannuation system. Another was that indexation should be abolished for both the non-concessional contribution cap and the transfer balance cap. Both are currently $1.6 million and which, due to indexation, will rise to $1.7 million on 1 July.<\/span><\/p>\n

These recommendations are not unexpected, because ASFA is not a fan of self-managed superannuation funds. But they are unrealistic and unworkable. For starters, less than 1% of self-managed funds have balances of more than $10 million, and the assets of these funds are usually in big, illiquid assets.<\/span><\/p>\n

Let\u2019s work through a hypothetical example to see how it may work.<\/span><\/p>\n

Jack and Jill are both aged 75, and have an SMSF with a balance of $16 million. Apart from some listed shares, the principal asset is a large industrial building from which they have been running their business for more than 30 years, and which is now worth $15 million. Thanks to improvements and renovations over time the cost base is $10 million. ASFA argues that this is not fair, as they are taking advantage of the 15% tax environment, but the bulk of the value is in unrealised capital gain which will contribute nothing to government coffers until the property is sold.<\/span><\/p>\n

Admittedly, when they do dispose of the asset the capital gains will be taxed at 10% instead of the 22.5% that would apply if the asset was held in their own names. But the tax saved is only $625,000.<\/span><\/p>\n

These continual attacks on the relative few with large balances miss a major point: within two decades, almost all these funds will be gone. Jack and Jill, like most trustees of large self-managed funds, are in their senior years \u2013 their life expectancy is likely to be about 15 years. When they die, the most they can leave to a dependent within superannuation would be $1.7 million. Any remaining funds have to be removed from the system. So the bottom line is that within 15\u201320 years almost all the big funds will be a thing of the past.<\/span><\/p>\n

I also fail to see the reasoning in ASFA\u2019s suggestion that indexation of the superannuation caps be abolished. The purpose of indexation is to preserve the status quo in real terms; in a perfect world, income tax rates, payroll tax and stamp duty thresholds would all be indexed. The reality is that governments are quick to index items that produce revenue, such as fines, but slow to use indexation in tax areas, because this would benefit taxpayers and not the government. The classic example in Queensland is the land tax thresholds, which have not been indexed for 13 years. This has hit landlords hard, as land tax bills have been increasing in line with their assessed site value.<\/span><\/p>\n

Superannuation should be the cornerstone of Australia\u2019s retirement system. For God\u2019s sake, leave it alone, and let people accumulate money for a welfare-free future, free from continual tinkering. Continual changes to the system lead to distrust in it. Did I mention that we have the fourth-biggest system in the world? That\u2019s a major achievement!<\/span><\/p>\n

Indexation<\/span><\/h1>\n

Thankfully indexation is still with us and the new numbers that will take affect from 1 July have been announced.<\/span>
\n\u00a0<\/span>
\nThe concessional cap \u2013 which is the amount that is tax deductible \u2013 will go from $25,000 a year to $27,500 a year. This could have implications for anyone who is trying to reduce capital gains tax by making tax-deductible contributions to superannuation. In some cases, the catch up contribution rules could enable a much bigger deductible contribution in the year the capital gain is made. This is an area where expert advice should be taken.<\/span>
\n\u00a0<\/span>
\nThe limit for non-concessional contributions will increase from $100,000 to $110,000 and in addition the maximum amount a member who was under 65 at the start of the year can contribute under the bring forward rules will increase from $300,000 to $330,000 . Also note that the $1.6 million non-concessional threshold is also changing due to the indexation of the general transfer balance cap to $1.7 million. For example, from 1 July a person\u2019s non-concessional cap will be nil if their total super balance on 30 June 2021 was $1.7 million or more.<\/span><\/p>\n

Investing or Speculating or Bitcoin?<\/span><\/h1>\n

\"\"<\/p>\n

It\u2019s great to read stuff, but sometimes you learn better by hearing a good conversation. In this newsletter I\u2019m privileged to include a conversation between Vincent O\u2019Neill \u2013 the CEO of Stanford Brown, a boutique Sydney financial advisory firm, and their chief investment officer Ashley Owen \u2013 who has been a close friend of mine for more than 20 years. His knowledge of financial markets is unique; he is my go to man whenever I have a serious question. The entire podcast was recorded verbatim \u2013 there were no prepared questions.<\/span><\/p>\n

The topics discussed are listed below, but I think the two you really need to focus on our investing versus speculating, and bitcoin. This is a really educational podcast and I know you will benefit greatly from it.<\/span><\/p>\n

The topics include:<\/span><\/p>\n

The Democrat clean sweep in Washington and what it means for global markets<\/span>
\nInflation fears and how they impact share and bond markets<\/span>
\nWhen will the Fed and RBA hike rates?<\/span>
\nHow to tell if you\u2019re an investor or a gambler?<\/span>
\nThe GameStop short squeeze \u2013 what really went on?<\/span>
\nBitcoin \u2013 is it the new \u2018safe haven\u2019 currency?<\/span>
\nOutlook for company profits , dividends and share prices<\/span>
\nWhy they are still relatively bullish on shares<\/span><\/p>\n

🎧 Listen to it here.<\/span><\/p>\n

Aged Care<\/span><\/h1>\n

This week, after more than two years, 10,000 submissions and 600 witnesses, the Aged Care Royal Commission provided its final report titled \u201cRespect, Care and Dignity\u201d. I have asked my business partner Rachel Lane for her comments on what is proving to be a controversial report.<\/span><\/p>\n

\"\"<\/p>\n

Rachel writes:<\/span>
\n\u00a0<\/span>
\nThe report contains 148 recommendations that could revolutionise aged care, including:<\/span><\/p>\n