Financial Meltdown or Financial Mistake Cleanup?

Time flies, last post was 7th August, it seems like yesterday.

Currently the global financial system is experiencing situations on scale not yet seen all at once.

The fact is that the banks began to "overtrade" trying to grow their sales without due caution for the quality of the sale. Giving out "low" and "no doc" loans just to sell some more money without charging a risk premium to the borrower to compensate for the extra risk involved with the lending arrangement.

There are two main reasons why businesses fail - one is overtrading and the other is undertrading.

The banks have now gone from overtrading to undertrading. Why? Because they no longer trust each other. However, to continue to exist they need to get over these issues and do business - buy and sell money - for a reasonable profit!

Fear is a very powerful mindset that can brutally affect the decisions we are prepared to make. As Roosevelt said though, "the only thing to fear is fear itself".

In Australia the best percentage of us have it very good. For many of us any financial stress has been brought on by our own choices - we can manage our choices.

If you read Saturday morning's Courier Mail one would think that life as we know it was about to end. However, there I was making pancakes, like most Saturday mornings, for my family and watching my 3 beautiful children play and grow. Life goes on, it up to us to make the decisions that propel us forward rather than hold us back.

Get out there and say thanks for the wonderful life we do have. Then look at ways to improve it if you want - don't make the improvements actually cause so much stress that they are negatives and detract from life.

Regards

Damian Ebzery B.Bus M.Bus(Prof Acc) AFPA ASA

Surviving in a Capitalist Society

Living in a capitalist society is an interesting experience. Within your network of family, friends and acquaintences you come across so many different perceptions of reality. Each persons little world is their own reality.How do we determine our reality- it is based on our experiences from the day we are born with some input from our inate senses along the way.

Why does capitalism exist? I believe it is due to the humans desire to have some sort of measurable guidelines that show one has "succeeded". This is then compounded by the need that humans have to continually achieve. Therefore the bar keeps getting raised.

How often is it that the first question you get asked when meeting someone is "how are you going?". The you think "how am I going - compared to what!".Money and material wealth is a means to an end - not an end itself. Unfortunately too many look as the magic million dollars as some sort of nirvana. Of course if they reach it then they have to work out how to maintain it. Often the puchasing power of the money is decoupled from the amount of money.

If you consider Malsow's Hierarchy of Needs, many in "developed" parts of the world have conquered the first 2 needs of sustainence and safety/security - to many this is an expectation of what is owed to them. The next few levels become more touchy feelly and less directly measurable. Hence the direction towards material wealth as a substitute measurement for success.

Human psychology is a challenging thing to keep control of.Why is one family of five with a 2 bedroom house happier than a one child family with a five bedroom house? What is happening around the world in many of the developed countries is that the material wealth that people have accumulated is not "Net Wealth" but "borrowed wealth", then thay have realised the challenge of maintaining this "wealth" and decided that it isn't as important as they originally thought so they bail out and down comes the "valuations" of these wealth measurements. (recessions and depressions)

Working with people in wealth protection and wealth accumulation is an interesting journey - the first step is to try to find out what "wealth" means to them!

Wealth and prosperity is different to money.

Keeping up the motivation

It's not just about the money.

Leading a fulfilling life is about much more than making money. Money is a means to an end. The challenge for many is deciding what the "ends" are.

I often get goals like "be financially secure", "be financially independant" etc.

Goal setting is about determining measurable targets that meet the overall objective. Therefore, what does financially secure mean to you - being able to pay the bills comfortably or is it more than that.

I often discuss the concept of Maslow's Heirarchy of needs with my clients.

It is bascially this, most important needs to most preferred needs:

Physiological needs - Hunger, Thirst
Safety Needs - Security and Protection
Social Needs - Sense of Belonging, the need to be needed, contributing to society and Love
Esteem Needs - Self Esteem, Recognition and Status
Self Actualisation - Self Fulfillment, inner peace etc

The issue for many in Australia is that the first and second level are covered at basic levels, therefore then it gets into the more "touchy / feelly" areas of life that aren't as easy to quantify. There's the keeping up with the Jones's which doesn't necessarily bring you happiness it might just load on added pressure to overwork and underplay.

I challenge you to take a contemplative hour and consider what is really important to you, try to quantify it and then determine a pathway to achieving it.

Regards

Damian Ebzery B.Bus M.Bus (Prof Acc) AFPA ASA

The shame file

In speaking to a number of financial planning clients lately I have found that one of their biggests issues on entering into an advice relationship is laying out their financial and related situation for us to assess and make recommendations on.

What we find is that most people seek advice when they are in some sort of bind, rarely just because they want to do better and achieve more. Therefore, this generally means that they are "owning up" to their situation there are pride and related pshychological issues to be dealt with.

I implore potential advice seekers to not be ashamed or afraid of being honest and saying "we want to do better". Whether in business, at work or personally our egos can often hinder us reaching our true potential in life. We can always learn something new to assist us in doing better.

The only dumb question is the one not asked.

Seize the day, achieve more out of life.

Regards

Damian Ebzery B,Bus M.Bus (Prof Acc) AFPA ASA

The financial planning process

In talking to some colleagues and clients I have been told that one of the complaints people they know have is that financial planners only talk about insurance and shares. These products make about PART of the tool kit that provides for both wealth protection and wealth accumulation.

Why do I provide risk management advice as part of my advice process? Because I have seen situations where a good wealth accumulation strategy has been working well only to be torpedoed by something happening to the client, ceasing their income and causing wealth accumulation strategy to fall in a heap as they no longer and feed the investments to help them grow.

Why do we cover all types of investments in our advice? There are two main ways to accumulate wealth sustainably. They are, investing in shares and investing in property whether directly or through some sort of managed fund or property trust. The aim being to build an investment portfolio that can at some stage replace your personal exertion income with income from the investments. Many don't have a portfolio of sufficient size to produce sufficient income, therefore they have to sell down their investments to help fund the shortfall. If you just have a direct property portfolio it means that you have to sell a whole property, often trigerring significant capital gains tax in one hit. With the flexibility of other investment options including property via property trusts you can sell down part at a time only freeing up the amount of money you need not a lot more than you need.

That is why when we structure portfolios we look at how we can achieve the wealth accumulation goals but provide enough felxibility for different stages of life as well.

Seeking advice from a suitable professional adviser will enable you to make informed and educated decisions about your financial future.

Regards


Damian Ebzery B,Bus M.Bus AFPA ASA

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