What is the Rule of 72?

Q. Someone mentioned the Rule of 72. What does it mean?

Josie’s answer - I love the rule of 72 which is a very handy to remember.

It is known as the rule of 72 because it can give you a quick answer as to how quickly your investment can grow by re-investing your investment’s earnings. It tells you how many years (give or take a month) it will take to double your money at a given rate of return.

You need to start with the number ‘72’. You then determine what rate of return you expect to get on your investment. By dividing this return into 72 you will know for how many years you need to invest to double your money. Read more

My Financial Planner wants me to take out a margin loan?

 

 

 

Q. My financial planner has suggested I take out a margin loan to buy into Australian shares via a managed fund. Is this is a good idea?

Josie’s answer: Margin lending is not for everyone, you need to be a savvy investor and happy to take risks.

Before committing yourself to a margin loan, make sure you have extra income to cover the interest payments, even if the interest rate suddenly goes up or your investment makes a loss.

Most importantly, you must be committed to investing for the long term and emotionally be able to cope with making a loss.
Read more

Is Topping up margin loans risky?

Q. I’ve heard of people who have a margin loan being asked to top up their geared investment at a moments notice. Sounds risky?

Josie’s answer: If your investment loses money, not only is the loss magnified as well, but you still have to pay back the loan. With a margin loan, your lender will ask you to repay part of your loan or top up your account with some other security, such as other shares you may have. If you can’t do this, you might be forced to sell part of your investment.

It is all to do with the debt to equity ratio. If you keep this at a reasonable level, around 50% equity/50% debt, normally things are OK, but there are never any guarantees.

Read more

I think I have lost a bank account. Where do I go?

Q. I was listening to your radio show and missed the name of the website for lost bank accounts. I’ve changed addresses a few times and positive I have some money sitting somewhere!

Josie’s answer: The website I was referring to is www.fido.gov.au. To make it easier, the following link gets you straight there - Read more

How Do I Minimise Capital Gains Tax?

Q. In August 2004 I bought an investment house with the plan to live in it when I retire. (I’m 55 yrs old in August 2008).

I own my existing home and the investment house has been rented since the day I bought it. My plans have since changed and I wish to sell the investment house to fund other activities in my retirement.

I was planning to sell my present home around Christmas 2008, then live in the investment house until I sell it around July/August 2009.

Is there some strategy I could put in place to minimise Capital Gains Tax when I sell the investment house?

Josie’s answer: As you would be aware, your family home which is called your main residence in the ATO’s Capital Gains Tax Guide, is exempt from capital gains tax (CGT)

However, it is only possible to nominate one dwelling as your main residence. In your case, the dwelling that you describe as ‘your present home’ will be exempt from CGT when you sell. Unfortunately, a portion of your investment property will be subject to CGT. Read more

How Safe is a Bridging Loan?

Q. How safe is a bridging loan? I have found a property that I would to purchase. I have two other properties that I have on the market now. With the way interest rates are at the moment are bridging loans taboo?

Josie’s Answer: Personally I would not feel comfortable with a bridging loan regardless of whether interest rates are going up and down.

I have heard some horror stories whereby real estate agents have given vendors the impression that their property will sell within a short period of time, only to find that there were no buyers around.

As a result, they are placed under immense financial pressure to pay off, in effect, two home loans. The only way they can relieve the financial burden is to have a fire sale, in other words they were left with no option but to drastically reduce the price of their property.

Of course, I am not familiar with your entire financial situation. If the new property you are purchasing is a great buy a quality investment and if you are financially comfortable, then you may be in a position to easily service both loans. Read more

Investing Internationally - Is it Risky?

Q. My adviser has recommended that I invest some of my money overseas. It sounds a bit risky?

Josie’s Answer - The main reason why you would allocate some of your funds, overseas is for diversification.

For your info, the Australian sharemarket represents around 2.3% of the world’s total sharemarkets, which means that nearly 98% of the world’s shares are not available to you.

A bit of trivia, you will be surprised to know that Australia’s sharemarket is actually smaller than the markets of Switzerland (3.1%)The size of our market is not too dissimilar to some of the world biggest companies. Read more

Sharemarket volatility – friend or foe?

One day it’s up and the next it’s down.  In recent times the share market has experienced a lot of volatility which leads to some very nervous investors. There are a number of reasons why volatility seems to be prevalent. Technology, for one, has advanced enormously. At the push of a button investors can now move money in and out of markets at any given time. These movements affect market values much faster than they used to in the past. Another reason is the actual volume of money that is moved in and out of markets. Currently we have a larger proportion of share market investors who want to maximise investment returns, for example, baby-boomers nearing retirement. It’s wise to note that not only does the share market experience volatility, in fact most investments do, including residential property and fixed interest.

The only reason you don’t notice the ups and downs of residential property valuations is that you don’t have someone knocking on your door everyday giving you a valuation (wouldn’t that be interesting!).

Read more

Excessive exit fees on superannuation products?

Q. Hi. I was listening to your program this morning 06/04/08 re the guy who rang about the 60% termination value on his super.

I have worked in super for 32 years in the private sector ( life offices). I am concerned that this guy may be unaware of termination costs. These were set by the life offices to recoup paid commission to “advisers” before the term of the contract was satisfied.

These terms were for mainly 10 years and were introduced in the late 1980’s early 1990’s. So if this guy has a “termination penalty” of 60% NOW, there is certainly something very wrong with his contract.

I haven’t heard of a penalty of 60% that high. As you know, the life offices were held hostage by the “sales forces” in order to enforce higher commissions from super products.

Hence the now crackdown on these guys having to be licensed to sell all financial products. The life offices were also totally gutless in standing up to these stand over sales forces because of “sales targets”.

I would suggest a segment on your show outlining the consequences of termination penalties and also why they were imposed.

It was not just the life offices saying they wanted more money but also the sales forces saying they wanted their commissions UPFRONT which means the life office had to recoup any overpaid commission if the contract was terminated early within the contract period.

Josie’s answer: Thanks for your comments and totally agree. I have been in this industry for nearly two decades now and started life in the corporate superannuation area……

Read more

What is a Wrap Account?

Q. What is a Wrap Account and what are the advantages of having one?

Josie’s Answer - Sometimes Wrap accounts are also known as master trusts. Basically they are an “administration service” that allows you and other investors to pool your money, so that you can access managed funds at wholesale prices.

For example, the investment management fee for the average retail managed fund is approximately 2%, whereas the average for wrap accounts tends to be 0.5 – 1.5%.

The cost depends on what the fund manager wants to charge (some think they are better than others! But are they?). Read more

Next Page »