Beware of Junk Insurance Policies

Beware their are a new range of junk insurance policies being sold. Income Protection / Disability policies that only cover you for 1 year on claim, non renewable after 5 years in place (drop out generally when you need them most, are older and may hae some health issues affecting your ability to get a new policy) and have a very limited definition of disablement. The premiums are only slightly less than a quality policy to pays you to age 65, is guaranteed renewable (as long as you pay the premiums the policies will be in place till age 65) and have much better definitions of disablement and can also pay a partial claim as top up income.

The devil is in the detail.

Don't pay good money for half baked protection.

Regards


Damian Ebzery B.Bus M.Bus AFPA ASA

Investing for the Future

Finally the Australian Securities and Investment Commission is looking into the possible cases relating to "market manipulation".

Market manipulation is when somebody leaks information that causes investors to make significant buying or selling decisions. It also can be brought on by large investors making signficant sell orders or buy orders thereby affecting the up or down movement in a share price then cancelling these orders once they have had the desired affect on the sharemarket traders.

It is frustrating for the standard "long" investor who buys and holds but may rely on the valuations of the share portfolio to support a prudent margin lending position.

Our view is to try to see through the current volatility in the sharemarket any to continue making long term investments. The truth is, when building a long term investment portfolio you want the share prices to stay low whilst you are accumulating more shares as you can buy more - it is about buying income earning potential to provide an income stream in the future to replace your personal exertion income or to assist in paying down debt positions.

Invest - don't speculate - you might as well go to the races if you want to do that.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Beware of Insurance Traps

I often have people ask me about this insurance they have been offered by their bank - it is called accidental injury insurance or accidental death insurance. The premiums are often very low.

The problem is that these insurances only cover you when you are injured or die due to an accident. The truth is that most successful insurance claims come about through a medical illness rather than an injury from an accident.

There is no use paying insurance premiums for something that will only payout in very limited circumstances.

Personal insurance can be a minefield - seek advice from somebody who can compare what is available and what you need.

Remember, your ability to earn income is one of your most important assets - insure it properly.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Use your income wisely

To often we see good money wasted by people that do not understand the concept of investing out of gross income. There are two main ways this can be achieved:

1. Salary Sacrifice contributions to superannuation
2. An interest only investment loan where your employer pays the interest for you as a salary sacrifice out of gross income (you get the tax deduction now rather than at the end of the year).

The benefit of doing this is that you are saving the tax that would have been payable on this gross income. EG: An investor says they can afford $1000 per week out of cashflow to invest. If that comes out of after tax income (assumed 46.5% tax rate) they have earned $1869 to invest $1000. Therefore if they invested $1000 of pretax income they would benefit by $869 before they had even received an investment return.

Our research shows that over a 5 year period an investor (based on the same investment return etc) will be better off borrowing to invest in the above mentioned situation by about 300% or 3 times the net position they would have been by using after tax income.

Investing is about sourcing investment return form sources other than your personal exertion. It takes time and effort to build an investment portfolio that will replace your personal exertion income, but when it does you won't know yourself.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

When is the best time to invest?

The best time to invest is continually. Market timing is high risk and often detrimental to long term wealth creation. Often the biggest gains on the sharemarket are in one day. If you miss out by not being invested on that one day you can miss a lot of investment return.

I use the term INVEST. Speculating is a different thing altogether. Day Traders punt on movements in the stockmarket related to their gut feel on how an individual stock will move on any given day - don't forget the transaction costs of getting in and out. You might as well go to the races - at least you can have a drink and relax there.

Prudent investment will provide a combination of income and capital gains over time. Continually investing smooths out the spikes in prices and allows you to build an investment portfolio that will provide investment returns as long as the businesses you invest in continue to operate profitably.

When investing in property it is generally about supply and demand, and what rental income or capital gain a property may provide now and in the future. A property is not a trading business so the investment performance is generally related to how many properties of a similar type are available, where the property is located and whether good tenants can be found to provide the rental income and how much money the investor can afford to spend on it. There is more potential for emotional issues to affect property prices - whether someone likes the "look" of a property - not necessarily whether the investment return stacks up or not. Timing in property purchases can be like the sharemarket - unpredictable and risky.

You must always factor the opportunity cost of not being invested, particularly when borrowing to invest. Tax planning considerations can come into the overall decision process.

ONE IMPORTANT THING TO REMEMBER IS THAT NO ONE GETS WEALTHY AND STAYS WEALTHY BY NOT INVESTING. IF YOU SPEND EVERYTHING YOU EARN YOU WILL NEVER IMPROVE YOUR ABILITY TO LIVE WITHOUT WORKING FOR YOUR INCOME.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

Keeping a roof over your head

It always surprises me when I ask people if they have insured their most valuable asset. Most say, yes we have insured our home.

The truth is for most people their most valuable asset is their ability to earn income. What is it worth? Take your annual gross income and multiply it by the number of years to normal retirement age.

EG: A 35 year old on $60,000 per annum. $60,000 times 30 years equals $1,800,000.

If your income stopped tommorrow many would suffer from financial difficulty by the end of two weeks. This could mean that the family home might have to be sold if the illness/injury causes you to be of work for more than two weeks.

Their are two types of insurance that can cover personal income - Income protection and Salary Continuance. The better quality policies are Income Protection policies and should provide cover on an "own occupation" basis if you were on claim up to age 65.

There are numerous income earners that think they are covered adequately by their income protection available through their superannuation fund. These often have a waiting period up to 90 days and will only cover you for 2 years maximum on claim.

These are some of the issues to consider:

• Own vs Any Occupation definition of disability
• Waiting period before claim can be made - needs to align with your financial situation
• Period the policy will pay out whilst on claim
• Guaranteed renewability - as long as you pay the premiums the policy remains in place regardless of changing health
• Guaranteed Insurability - ability to increase cover by up to 15% without further medical requirements
• CPI Indexed cover prior to claim - cover indexed each year
• CPI indexation of benefit whilst on claim
• Does the policy cover both employed and self employed income including income derived that may be split with a spouse

You should check if you have this in place and if so how good the policy is.

Premiums on Income Protection are tax deductible.

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA

You can start small when investing

You do not have to have a lot of money to start investing, with a managed fund portfolio you can start with as little as $1,000 - how to get this - you can even take a cash advance on a credit card and pay it off later - tax deductible interest!

Real life examples:

A client invested $2,000 in July 2000 in a managed share fund 100% Australian Shares Fund.

The client has reinvested all the distributions.

The portfolio is now worth $3,600 (albeit a little less than it was in November 2007).

That makes an average investment return of 11% per annum. Not bad for making the investment, putting "it in the bottom drawer" and going on living life!

A client invested $1,000 in July 2000 in a managed share fund 100% Australian Smaller Companies Shares Fund.

The client has reinvested all the distributions.

The portfolio is now worth $2,073 (albeit a little less than it was in November 2007).

That makes an average investment return of 14% per annum.

Prudent investment provides returns - even with share market ups and downs.

Seize the day!

Regards

Damian Ebzery B.Bus M.Bus AFPA ASA