Ridgeback Financial Planning

08/12/2024

Painting the wall and look out to see the biggest stick insect I have ever seen. Gold Coast hinterland. Queensland.

19/11/2024

You can never spend too much time with grandad, or Taid as they say in Welsh.

16/11/2024

Stradbroke Island oysters and champers. Can’t beat it.

16/11/2024

A swim followed by a bath provided by nature. Stradbroke island.

07/02/2023

First safari

27/10/2021

It is in our nature to be optimistic and never consider something bad may happen to us. It is always someone else who gets sick or passes away. Never us. Why would I insure myself and/or my family against something that probably won’t happen? Besides I already have car insurance, house & contents insurance. I’ve even insured Daisy the family Rottweiler, I can’t afford any more.
Fair point, our bank insists that our house is insured. And the government has legislated that all drivers hold third party personal insurance. Besides if something were to happen to Daisy and you couldn’t afford the vet bills and had to put Daisy down, the kids would go nuts: not worth the headache.
But, how do you pay your mortgage repayments, the petrol for your car and buy kibble for Daisy. How do you pay for food for the kids, their school fees, the internet connection and Foxtel? For most of us it’s with our working income! Ask yourself what would happen if you couldn’t work for 6 months or ever again? What would happen if you passed away or suffered a critical illness? How would you and your family pay the mortgage? Would your family be able to keep the house?
If you run through various scenarios for yourself and your spouse and don’t like the consequences of death, disability or illness, then ask yourself what would you want to have happen? Would you like your income replaced for a period of time? Would you like your mortgage paid out? Would you like some extra money for the surviving spouse and your family so they can focus on grieving and be financially secure?
If the outcome of the discussion is that you have enough wealth already, then maybe you don’t require personal insurance. You may be able to use your savings, sell some shares or the investment property. But if you are like most people you haven’t saved enough to self-insure against financial distress.
Personal insurance is about accepting that there are risks in life, that there are financial consequences associated with life’s risks and you want to pass on those financial consequences to someone else: namely the insurance company. In return for insuring you and family against financial shocks you pay premium to them on a periodical basis in return.
There are four main types of personal insurance: Life, Total and Permanent Disability, Critical Illness and Income Protection. The first three represent lump sum payments should you suffer an insurable event. The fourth is a regular payment replacing your income. Each protects you and your family a different way. Income protection insurance is tax deductible.
You may also have some insurance held inside your super fund. Quite often this is low cost cover designed to provide you with base level of financial protection. You may also be able to amend this cover to suit your own personal needs.
Ultimately, your need for personal insurance will not only be influenced by your financial position, levels of debt or the number of children you have, but also by how much you want to pay. It is important to be sufficiently insured. But it is also important not to be over insured, as the cost may impact other aspects of your finances.
Take the time to review your personal insurance needs, for most of us we cannot afford not to!

27/10/2021

Australia recently reached a pivotal point in our approach to foreign affairs and trade. The decision to go with nuclear powered submarines and a security agreement called AUKUS revealed to all that we are prioritising our security over our economic relationship with China. The AUKUS security partnership between the UK, Australia and the US is in addition to the QUAD, another security relationship between Australia, Japan, India and the US. No longer on the sidelines, we have now chosen a side as China attempts to assert its authority with veiled threats of military action against Taiwan and other neighbouring nations.
The Chinese Communist party recently cracked down on private entrepreneurs such as Jack Ma, put in place restrictions on sectors of the economy such as education and technology in order to reduce the profits of those companies for the benefit the general public who use those services. The Party is seeking common prosperity for the citizens of China at the expense of shareholder returns.
The Chinese Communist Party have also curtailed activity in the property sector to firstly control the speculative debt levels driving up property prices and also reduce demand for steel. Steel production represents one of the largest polluters in China today. A by-product of this has been the Evergrande debacle: a very large Chinese property development company being pushed to the brink of bankruptcy.
In addition to this Australia has seen its exports to China also curtailed with bans on items such as coal and wine imposed as a punitive punishment for speaking out about topics China deems sensitive (the source of the COVID-19 outbreak). Iron Ore our biggest export, has been exempt for the time being.
So why is China important to us, because iron ore represents over 15% of our nation’s exports and Australia generates over 50% of the world’s iron ore exports. Australia is the only country in the world with demonstrated ability to bring large high quality reserves to exportable amounts consistently. Our iron ore (and coal for that matter) are world-class resources. In turn China demands 75% of the worlds iron ore supply in order to feed its economic growth. Australia has managed to find other markets for wine and coal, but with regard to iron ore there is no substitute to replace China.
A well-known fund manager called Cathie Wood who manages the American based Ark Invest Fund has pulled almost all of the fund’s investments out of China.
The combination of poor rule of law, legal attacks on company executives, government policy designed to curtail company profits and distribute more wealth to citizens has her spooked. Cathie further references an aging population as a result of the one child policy and parents favouring boys over girls as damaging to the countries economic growth.
So what of the future? It is unlikely that the US and China will go to war. Trade between the two countries is worth hundreds of billions of dollars and creates a financial inter-dependency. The loss of that trade would be very detrimental to both countries. The US runs huge government deficits, which are in turn funded by China who buys US government bonds. There are over 230 Chinese companies listed on the US stock markets and are collectively also worth hundreds of billions of dollars. A cold war stand off is more likely. Australia is unfortunately getting caught in the cross fire between our strongest ally (the US) and our largest trading partner (China).
As investors we need to decide whether the potential rewards of investing directly in China are worth the increased risk. And most certainly there is more risk present from investing in China when compared to Europe, North America and other developed nations who possess a good rule of law, solid corporate governance, mature markets and experienced investors. Just because China is currently growing faster than most other developed countries does not mean you as an investor are going to be rewarded with higher returns.
The golden rule of investing is diversification. Diversify yourself across different asset classes such as shares, property, infrastructure, bonds. Diversify yourself outside of Australia’s small resource driven economy. If you have the capacity to take on risk then you may be able to retain an exposure to developing countries. But if you are not able to withstand the rollercoaster that is a share market in developing countries such as China, then you may need to review your portfolio and minimise exposure to those markets.
A large exposure to Chinese companies is not for the faint hearted. Caveat Emptor.

27/10/2021

What we have witnessed in Australia with regard to property prices this year has been profound. Industry participants who have been involved in property for over 30 years have not previously witnessed what they are witnessing now. Nationally, property prices have risen on average 18.8% from June 2020 to June 2021.
Price rises of over 35% have been recorded for some suburbs in just 12 months. For South East Queensland interstate migration, government incentives and very low interest rates have all combined to drive up demand far in excess of supply. Programmes like JobKeeper flushed the economy with money and kept it going whilst at the same time people put on pause their plans to buy a home due to COVID, until now.
To make matters worse the supply of houses has fallen. In August 2018 there were 153,803 detached houses for sale nationally. In August 2021 there were 88,872 houses for sale nationally: a 42% drop. Who wants to sell their house with a back yard and downsize when in a COVID-19 lockdown?
So where did the money come from to allow people to pay more for a property?
Low interest rates have allowed people to service larger loans. With that extra debt households have competed with each other and bid up the prices paid for properties on the market.
As long as people have jobs and can pay back this debt, and as long as property prices remain where they are, households can remain financially solvent. What really concerns regulators is what will happen when interest rates eventually go up. And eventually they will! It’s just that no one knows when and by how much.
So what can you do to plan around interest rate rises? Well you can stress test yourself. Use a loan calculator such as “AMP Rapid Pay” and start off by increasing the interest rate 1% several times until you reach around 6%. Look at what happens to your loan repayment amount each time. This will allow you to see the impact of rate rises and budget for these increases. By planning for the rate rises now, you can better position yourself to deal with the inevitable impact on you.

22/09/2021

Being a conservative retiree in a low interest rate environment!

The interest rate in Australia was 17.50% in January 1990: a wonderful time for retirees who kept their savings in cash, but an unpleasant time for mortgage holders. More recently the interest rate has dropped from the average since 1990 of 4.01% down to 0.10% in November 2020: a record low where it has remained ever since. Whilst this benefits existing homeowners by pushing property prices up and existing mortgage holders by making finance cheap, for conservative investors or retirees needing an income from savings you may very well be going backwards.

The RBA has stated that it will not increase interest rates until the inflation rate is back up above it’s target of 2% to 3%. And that this inflation rate that is real i.e. not caused by temporary supply bottlenecks due to COVID restrictions.

So as a conservative retiree you are faced with an increasing cost of living but also the fact that the interest you receive from your term deposits may never go back to what you were used to in your lifetime.

So what is the solution? Well, a lot of conservative investors have decided they are not conservative any more and invested more in shares. They are seeking dividends and franking credits aplenty.
The first problem with that is that companies don’t have to pay dividends. They can stop or reduce them.

The second problem is that you will most likely be investing in Australian shares. (Overseas dividends are generally much lower and there are no franking credits). What is the problem with that you say? Well after BHP sort out the changes to their corporate structure, over half the Australian stock market will be made up of just banking & finance companies plus companies that dig stuff out of the ground. Do you remember what happed when the last commodity boom ended? Dividends fell and so to did share prices!

As conservative investors your objective is to not only generate an income from your savings, it is to also protect your savings. But if you earn 2% pa from your savings and the cost of living increases by 3% pa, then your savings are slowly being depleted in real terms. Further, if you spend 5% of your wealth every year living life and earn only 2% pa then you are consuming your savings. Your attempt to preserve your wealth is actually resulting in a depletion of your wealth.

There are options available to conservative investors to increase the returns achieved from portfolios that do not involve investing more in shares.

The warning here is that there is a distinct relationship between risk and return and if you want to boost returns you will need to increase the risk in your portfolio.

But there are asset classes that you can invest in that do not expose you to the ups and downs of the share market.
If you want to discuss the options available, and the pros and cons of each option, then an appointment with an independent adviser is the way forward.

Remember, the golden rule of investing: many eggs in many baskets. Always remain diversified.

22/09/2021

Crypto Currency - a path to riches or ruin?

It is almost guaranteed that this weekend, at a BBQ somewhere in Australia, a conversation will start about crypto currencies like Bitcoin. Have you got any? My brother’s son’s best mate made a killing last year on Bitcoin! I’m thinking of buying some!

Bitcoin like other crypto currencies, was originally designed as a virtual currency that allowed the purchase of goods using an ‘untraceable’ medium of exchange not in the control of any government. It could also be argued that it was also designed to be a store of wealth, just like government-backed currencies. Since its invention, Bitcoin has transformed into something other than a currency, it has transformed into a speculative investment.

A currency needs 6 key attributes to be successful: Scarcity, Divisibility, Utility, Portability, Durability and being difficult to Counterfeit. By having these attributes, a currency can evolve into a medium of exchange and a store of value. US dollars are an example here. Some third world countries use USD as legal tender rather than having a currency of their own. US Dollars are stable, readily accepted and backed by the government of the largest economy in the world.

Bitcoin does well on 4 of the above 6 attributes; however it is not well accepted as a form of payment. And storing crypto currency can be problematic if data is corrupted or lost.

People are buying Bitcoin mainly to speculate. In doing so the value of Bitcoin fluctuates wildly from day to day or month to month. It cannot therefore be a good store of value nor medium of exchange: these being the primary purpose of money. People don’t want to spend their Bitcoins as money because their Bitcoins might go up after they have spent it. But at the same time people don’t want to hold onto Bitcoin if their sole purpose is to use them to buy something they need, as they might go down in value.

In May 2010 one Bitcoin was worth less than 1 US cent, today it is worth over US$50,000. Bitcoin only goes up because people think it will, so they buy. Should people’s perception change or governments ban or limit access to Bitcoin, then demand may fall along with the value of Bitcoin, and rapidly. China has already started cracking down on crypto currency use and production.

Bitcoin is not an investable asset. It is speculative only. If you are still determined to buy some, only use money you can afford to lose. Why because Bitcoin’s value is driven by emotion and irrational thought. Bitcoin has no intrinsic value, it will never pay you a dividend or interest.

We have been here before: Tulip Mania. Click on the link to review:

Tulip mania (Dutch: tulpenmanie) was a period during the Dutch Golden Age when contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels, and then dramatically collapsed in February 1637.[2] It is generally considered to have been the first r...