When we rang in the New Year, no doubtmost of us were hoping that we had leftthe uncertainties of 2020 behind us. Whilstthis was not to be, with the first of thevaccines rolling out in late February, comeshope.For many, the uncertainties of last yearhave caused a shift in priorities, and thelure of escaping the cities for more idylliccountry lifestyle is tempting. In this editionwe take a look at some key considerationswhen contemplating a tree change.When making these decisions, it isimportant to consider the impact of lifechanges on your financial future, and thelegacy you are creating. This brings us tothe question what happens to the legacyyou leave behind. How can you ensureyour voice is heard in relation to yourestate? It's important to understand a Willmay be contested. What additional toolscan you consider to ensure your voice isheard?Talking about changes, the government hasannounced the first CPI indexation changeto a number of superannuation caps,including the Transfer Balance Cap. Wetake a look at what these changes maymean for you.We need to remember uncertainty andchange can create opportunity, and as thelast year has shown, having a financialplanner by your side, can give you moreconfidence in your financial future.YOUR PERSONALWEALTHA U T U M N 2 0 2 1CONTINUED ON PAGE 2WELCOME TO THEAUTUMN EDITIONINSIDE OUR AUTUMN EDITION Lending finance at an all time high 2Ensuring your voice is heard 3VACCINEROLLOUTACCELERATESAS BONDYIELDS SPIKE We talked previously about equity markets rallying inanticipation of the vaccine rollout and the positive impact of thegradual reopening of economies. The global vaccine rollout isnow well underway. The one concern is that the new COVID-19variants (UK, South African) will require updated vaccines.In Australia, the recovery from COVID-19 is well underway andthe economy is not as bad as initially feared. In August, the RBAforecast unemployment to be around 10% by the end of 2020,and still be above 7% by the end of 2021. Unemploymentpeaked at 7.5% in July 2020 and fell to 6.6% in December.According to Dr. Stewart Lowe (RBA Governor), the main tworeasons for this being: Our success in containing the virus which limited the extentof lockdowns. Government fiscal policy support has been bigger thanexpected, at around 15% of GDP.The massive Quantitative Easing (QE) program continues in theUS, while in Australia, the RBA doubled its QE program to $200billion. The program is due to run until September, but there is astrong possibility it will be ongoing.Vaccine rollout accelerates as bond yields spike 1Could a tree change work for you? 3CAP THAT! Impact of indexation on the Transfer Balance Cap 4OUTLOOK AND MARKETSGDP Forecast Unemployment Inflation3.5% to grow at theabove-trend rate6% by end of theyear18 zero economic growthmonths 18 to fall to 5.25%months 1.4% underlyinginflation grew2-3% RBAs target range
Dr. Lowe said the board was notexpecting to increase the cash ratefor "at least three years “, whilethe US Fed sees no materialmovement in US interest ratesuntil 2023. They do not expect thejobs market to deliver strongwages growth to Australianworkers until at least 2024.equities (ASX 200) trading at a PE(price-to-earnings ratio) of 19.5x at31 December 2020 are nowtrading at over 20 times Juneearnings. The US (S&P 500) iscurrently trading around 22.5x,well above long term averagelevels of around 17 times. Very lowinterest rates and stronglyrebounding economies (e.g. USforecast growth around 6% in2021) are the main justification forcurrent valuations.The major issue in markets rightnow is the sharp rise in long-termbond yields, signalling thatmarkets are worried about futureinflation. Higher growth can alsolead to higher interest rates.Whatever the reason, higher bondyields normally result in lower PEmultiples for stocks.The US 10-year bond yield hasincreased from around 0.8% in lateOctober 2020 to over 1.3%, whichis about its pre-COVID-19 level.The move in Australia’s 10-yearbond yield has been even moredramatic, rising from around 0.8%to 1.68%. The spike in yields hasled to underperformance in highPE tech stocks (growth stocks inA U T U M N 2 0 2 1CONTINUED FROM PAGE 1general) and prompted a moveinto more cyclical oreconomically sensitive stocks,such as financials and resources.This should be positive forAustralian equities relative toglobal equities given theproportion of cyclical stocks inour market. One ‘downside’ tothis cyclical recovery has beenthe strength of the Australiandollar which impacts foreignearnings and is a drag ondomestic economic growth andemployment growth. One of themajor reasons for the QEprogram by the RBA is to limitthe rise in the Australian dollar,a battle it is currently losing.We will be maintaining ourstrategic weighting to growthassets but we would be cautiousin the short-term. It is naturalfor bond yields to rise as growthpicks up, but we are closelywatching the current move. Weare still not at a level of interestrates which would significantlyimpact the broader market, butwe would certainly like to seethe trajectory of this rise start toflatten out.Chart 1: Investment Returns to 31 January 2021 (% p.a.)Asset Class 1 month 1 Year 3 Years 5 YearsAustralian SharesGlobal SharesListed PropertyFixed Interest 0.31 11.89 -3.11 7.00 10.03 0.12 7.10 2.11 8.86 11.73 -4.06 9.10 -13.96 5.14 5.88-0.42 -0.80 1.68 5.36 4.223 months In December 2020, the ABSreported that new loancommitments continued tosoar and break records,driven by owner-occupierhome loans, and first homebuyers.Source: Australian Bureau of Statistics LENDING FINANCE AT ALL TIME HIGH 9.3% first home buyer loans17.1% construction loans8.6% housing 26 total value ofnew loans for housingbillion The implication isextremely low yields infixed interest for the nextfew years. These settingsstrongly favour GrowthAssets in terms of yieldand total return.Company earnings are on the upEconomies and companies arerebounding. Brokers areforecasting Australian June 30earnings to get back to pre-pandemic levels. According to UBS,with around 40% of the ASX 100having reported, earnings pershare growth estimates for the2021 financial year have beenrevised up 2.1% to 28.8%.However, valuation is an issue,particularly in the US. Australian Asset Class 3-month return to 31 January 21Australian large cap equitiesAustralian small cap equitiesDeveloped market global equitiesEmerging market equitiesAustralian listed propertyAustralian fixed interestCash11.9%11.0%7.1%10.7%9.1%-0.80%0.01%
A U T U M N 2 0 2 1COULD A TREE-CHANGE WORK FOR YOU?City living is not called the rat-racefor nothing. While many thrive inthe big smoke, many are optingout, choosing to raise theirfamilies in the country instead.Cleaner air, less traffic, openspaces, lower cost of living… didwe mention less traffic? There areany number of reasons toconsider a tree change, but ifyou’re serious, better do yourhomework first.Housing affordabilityBuying or renting a home is moreaffordable in the country. In ruralWodonga you can rent a 4-bedroom, modern family home foraround $390 per week. A similarhome in Glen Waverley would rentfor around $610. You could buy asimilar home in Orange for justover $500,000, where in Hornsby,it could cost over $1 million.While property is generallycheaper to rent or buy in thecountry, you’ll need to consider other factors. Some ruralmunicipalities cover large areas.Higher maintenance costs andfewer residents can mean counciland water rates are moreexpensive. Another point to thinkabout is bushfire zoning. If you’rein a high-risk area, insurancepremiums can be higher. Buildingin a bushfire-prone area mayrequire more expensivemodifications to meet the firerating. Make sure you do your sums. Talkto local councils about rates andlevies. If buying land, read yourSection 32 carefully and be awareof all zoning requirements.WorkGovernment incentives encourageindustries and businesses tomove to regional areas. Asemployment opportunities inregional areas grows, so too doesthe economic well-being of itstowns. All of this activity provides awide range of employment.SchoolsMedical facilitiesCommunity infrastructure andactivities.It's a good idea to check the job-market in the area, and if possible,have a job lined up before youmake any final decisions.Could you make it work?Holidaying and living are twoseparate things. Try not to makethe mistake of assuming an idyllicgetaway will be your perfectpermanent tree-change.On holiday you’re relaxed; you’renot a taxi for your kids’ weekendactivities, you’re not harried byhousework, school and workpressures.If you’re serious about moving tothe country and you’ve alocation in mind, do your duediligence. Include researching:If you’re dreaming of a treechange, do your research anddraw up a plan to make it reality.CONTINUED ON PAGE 4ENSURE YOUR VOICE IS HEARDchallenged. There have beencountless court dramas over Willsinvolving claims and counter-claims. It's important to rememberpeople can change, form newrelationships, and take advice fromdifferent sources.While the Will remains thecentrepiece of estate planning,there are additional tools you maynot be aware of.The insurance optionAn insurance policy taken out byyou on your own life and owned byyou forms part of your estate, to bedistributed in accordance with yourWill, and is subject to challenge.However, if your life insurancepolicy nominates someone otherthan you as the beneficiary, itdoesn't form part of the estate. It'sseparate from the Will, and not When you’re here to supervise yourworldly affairs, you can ensure yourvoice and current wishes are heardand heeded. But what happenswhen you’re no longer here? Whatvoice will be heard? Will it be yourmost recent voice; an old voicefrom several years ago; or the voiceof government legislation?Unfortunately, it's often voicenumber two, or worse, three.If your Will and other estatearrangements have not recentlybeen reviewed, you risk yourcurrent voice not being heard. If youhave overlooked making a Willaltogether, the government decideshow your estate is to be distributed.This reinforces the importance ofkeeping all of your estatearrangements current. That said,even with the best of intentions, themost up-to-date Will can be subject to challenge. This featurecan make insurance an importantpart of sound estate planning. Ifthere's any possibility yourwishes may not be carried outafter you’re gone, it might beuseful to seek professional adviceabout the value of a lifeinsurance policy.The super solutionYou may think super is includedin your estate and dealt withthrough a Will. Not so. Thetrustee of your superannuationfund determines how your superis paid upon your death. You mayidentify a ‘preferred beneficiary’,however, the fund trustee canoverride this decision. If youdon’t want this to occur, youshould complete a Binding DeathBenefit Nomination, and ensurethis is kept current.
AFSL 229892 ABN 23 065 921 735 lifespanfp.com.auLevel 23, 25 Bligh Street, Sydney, NSW, 2000Tel. 02 9252 2000 Email: firstname.lastname@example.orgYour financial planner is an AR or CAR of Lifespan Financial Planning Disclaimer: The articles in this newsletter are of a general nature only and are not to be taken as recommendations as they might be unsuited to your specificcircumstances. The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as thebasis for making any financial or other decisions. Your Lifespan adviser or other professional advisers should be consulted prior to acting on this information. Thisdisclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.A U T U M N 2 0 2 1CAP THAT! IMPACT OF INDEXATIONON THE TRANSFERBALANCE CAPHow might this increase impact you?If you have any questions about changes to thesecaps, or believe you may be impacted by thesechanges, please call me to discuss.Individuals may be able to benefit from thisCPI increase if they have started using theirretirement income stream, but have not fullyutilised their current TBC by 1 July 2021.Individuals who may be considering startingtheir retirement income stream soon may bebetter off deferring starting this incomestream until after 1 July 2021.Individuals wanting to make Non-concessional contributions to superannuationwill have an increased cap to determine theireligibility to make these contributions.Individuals wanting to access Government co-contribution or Spouse tax offset governmentbenefits will have an increased cap todetermine their eligibility.The government introduced a Transfer Balance Cap(TBC) in July 2017, which effectively limits the totalamount of super able to be transferred into a tax-free retirement phase pension. 1 July 2021 will bethe first time this cap has been increased, in linewith CPI, so the threshold will increase from itscurrent level of $1.6 million, up to $1.7 million.Depending on personal circumstances, everyindividual will have their own TBC, between $1.6million to $1.7 million. An individuals’ TBC is equalto the general TBC at the time of commencing asuperannuation income stream. If an individualuses a proportion of their TBC, their personal TBC iscalculated to proportional indexation in line withthe CPI increases to the general TBC. Details of thelevel of an individual’s TBC will be available throughtheir myGov account.Other changes to capsIndexation of the general TBC will also change thecap that applies to eligibility criteria to makeNon-concessional contributions and to access theGovernment co-contribution and the Spouse taxoffset. Commencing 1 July 2021, the new cap forthese arrangements will also be $1.7 million(currently $1.6 million). For capped defined benefitincome streams, the cap will increase to $106,250(currently $100,000).CONTINUED FROM PAGE 3Binding Death BenefitNominationsSuperannuation legislation allowsyou to specifically nominate, withcertainty, who will receive yoursuper following your death. Thesenominations must be in writingand clearly state the names ofbeneficiaries and any split details To ensure it’s your voice thattakes final control of what youhave worked hard for, it’simportant to seek professionaladvice, which may includeconsulting an estate planningspecialist. If you have anyquestions, give us a call and we’llbe able to point you in the rightdirection.between multi-beneficiaries.Some funds offer non-lapsingbinding nominations. However,many binding nominations mustbe renewed every three years andare only valid if you nominate adependant. You may alsonominate your estate. Bindingnominations are still relevant ifyou have an SMSF.