How Safe is a Bridging Loan?

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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

Share Market Volatility - Podcast

The volatility of the Share Markets has been well documented recently with millions of investors all over the world feeling the effects. One of the question’s we get a lot on our national radio show “Money Matters” is “The Share market has dropped, we’re losing money, should we sell?”

This weeks Ask Josie Kay Podcast is taken from a radio interview Josie did with Nerissa Pace on her night time talk back show “Talking Back the Night” and looks at the Share Market.

As usual Josie’s advice flies by at a great rate of knots, so make sure you grab yourself a pen so you don’t miss any of her excellent advice…where else will you get this kind of advice free?

(Podcast on next page)

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

Please tell me when the share market started to decline

Q. I listen to the show every week. Could you please tell me with reasonable accuracy when the share market started to decline. Thanks Robyn

Josie’s answer: Hi Robyn. Thanks for your question and I am crossing my fingers that your investments have not suffered too much with the recent volatility.

I am assuming you are referring to the All Ordinaries Index, which represents the top 500 stocks listed on the Australian Share Market.

This index appears to have peaked on 1st November 2007 at 6853. As at today’s date (2nd April 2008), the index closed at 5544, which means it has dropped approximately 19% since that date (as you would know it has been lower!).

To get back to its peak, the market now needs to increase by nearly 24%. Who knows when it will reach its peak again, but historically speaking it is not unusual to see it exceed its previous high within 5 months. Read more

Currency fluctuations and investing

Q. I have some money invested in international shares. How does the fluctuations in the $A affect my return?

Josie’s Answer - Once a decision has been made to invest in a security of another country, it automatically involves an investment in that currency.

An investment in an American share will mean that the return will be affected by any movement in the US Dollar relative to the Australian dollar. If the US Dollar strengthens, then the value of an investment in a US share will also strengthen.

So depreciation of the Australian dollar adds value to an overseas investment, and an appreciation of the A$ means that it will detract from returns. If you are invested in a managed fund (and you probably are through your super), some fund managers have the option to employ hedging strategies or active management of currency.

Hedging is a tool employed as insurance, to protect a portfolio from future exchange rate variations. If you fund states it is ‘unhedged’ it means that it will benefit from a depreciating $A, but the return will reduce by an appreciating $A. Read more

What Risks Should I Be Aware Of When Investing?

Q. Hi Josie, my question Is about Investing and in particular the different types of risks when it comes to investing?

Josie’s Answer -There are lots of things that can affect the performance of your investment. These include business risk and market risk.

Business risk is where we might be disappointed by a company’s investment results which can be caused by inefficient management, competitors beating them at their game, changes to the industry etc. It makes sense to diversify a portfolio across different company’s shares and share markets (Australia and overseas). Read more

What is Investment Risk?

Q. Hi Josie. The Share market has had more ups and downs over the past few months than a yo yo competition….One term I hear a lot of financial commentators and even work mates use is “Investment Risk” What do you mean by investment risk?

Josie’s Answer – Thanks for you Question…another interesting and quite topical at the moment. Investment Risk for most investors means the risk of losing capital.

Losing capital is never pleasant, but risk can only mean not receiving an appropriate level of income, or the risk of not achieving a desired level of growth. Read more

Margin loans - A Friend Of Mine Says They’re The Way To Go, Why?

Q. A friend of mine has a margin loan. Why would he have one?

Josie’s answer - There has been lots of bad press lately about margin loans (you may recall Eddie Groves from ABC Learning is now in deep financial trouble because of them).

Margin lending is a higher-risk strategy. Your investment, for example, the shares you bought, is the security for the margin loan and its value varies on a daily basis.

If the share market takes a nosedive you might suddenly no longer have enough security for your loan. Read more

Accountant or Financial Planner - Which is best for me?

Q. I am confused as to whether I need to seek advice from a financial planner or accountant in relation to my investments?

Josie’s Answer - Your accountant is a great help to get through your personal finance maze.

Technically they are really good on tax matters e.g. which work expenses you can claim on your tax, but personal finance is about a lot more than tax. If an accountant does not have an Australian Financial Services License or is one of its authorized representatives, they are not licensed to provide advice on financial products. Read more

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