Diamond Blue Financial Services

2017 April Newsletter

by Diamond Blue Financial Services | April 5, 2017

Queenslanders are clearing up after the devastation of Cyclone Debbie which damaged homes, businesses and agricultural, Our thoughts and best wishes go out to all those affected. Cyclone Debbie hit our shores just as the Australian farm sector had been enjoying the best conditions for decades. In early March, farm cash incomes were tipped to rise by 11 per cent this financial year before falling to more ‘normal’ levels in 2017-18, according to the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES).

On the global economic front, the big news in March was the US Federal Reserve’s decision to lift interest rates by 0.25 basis points to between 0.75 per cent and 1 per cent. This is the second rise in three months, with two more expected this year. The immediate effect is a rise in the cost of funds for anyone borrowing in the US. Australia’s big four banks, which get 40 percent of their funding overseas, lifted home loan interest rates for owner occupiers and investors.

Elsewhere the French election could certainly undermine the EU but it is unlikely to lead into a ‘Frexit’. The 24th April vote resulted in Macron as the favourite going into a head to head election on the 7th of May with the far right Le Pen. Frexit would probably require a victory for Marine Le Pen and opinion polls are currently indicating that her National Front party will lose out to Macron’s En Marche! party in the second round of voting.

Australia still punching above its weight

Australia, take a bow. We are on the brink of overtaking the Netherlands’ record for the longest period without a recession and very close to pulling off an even greater feat. Not only have we survived the end of an extraordinary mining boom without going bust, but the economy is showing signs of renewed growth.

Many economic commentators feared the worst when Australia’s economic growth went backwards by 0.5 per cent in the 2016 September quarter. But as the latest Bureau of Statistics national accounts show, the economy rebounded by 1.1 per cent in the December quarter, taking the annual rate of GDP growth to 2.4 per cent. 

You could almost hear the sighs of relief from economic commentators, as two negative quarters are the technical definition of recession. Australia has navigated 102 quarters – or 25 and a half years - without recession and it’s highly likely we’ll beat the Netherlands’ record of 103 quarters this financial year. 

Not only are we breathing down the neck of the Dutch, but we’ve avoided the worst effects of the so-called “Dutch disease” where a boom in one part of the economy results in terminal decline in other sectors. 

How did we pull it off?

There are several reasons growth rebounded so convincingly in 2016, that augur well for the future. 

After falling off a cliff since their peak in 2011, prices of some of our major commodity exports such as coal and iron ore rose sharply last year. Export volumes are also on the rise as resource projects are completed and the lower dollar fuels overseas demand for our services such as education and tourism. 

This resulted in a striking improvement in our terms of trade - the prices we receive for our exports compared with the prices we pay for imports - which improved by 9 per cent in the December quarter and almost 16 per cent for the year. 

Wages growth has fallen too, which is good for the corporate sector because it helps improve our international competitiveness, but not so good for consumers. Company profits as a share of GDP rose 16.5 per cent in the December quarter, while wages’ share of GDP fell by 0.5 per cent. 

There was more good news in the form of new business investment spending which grew by almost 2 per cent in the December quarter. While mining investment continues to decline, non-mining business investment is showing positive signs of taking up the slack. 

Buoyant company profits

The positive economic report card owes a lot to our healthy corporate sector. The December half reporting season revealed that 69 per cent of companies increased profits, well above the norm, with a median increase of 4 per cent year on year.

While that’s good news for the economy, the focus on dividends also gave investors plenty to smile about. Close to 90 per cent of companies paid a dividend and 82 per cent of those lifted or maintained their payout. Over the next few months, more than $22 billion in dividends will be paid to shareholders. 

It’s not just direct share investors who benefit; the millions of Mums and Dads who are members of superannuation funds will receive a boost in annual returns. The dividend yield on Australian shares is currently around 4 per cent, well above inflation of 1.5 per cent and the interest rates available on bank deposits. 

Building on the boom

On balance, Australia has more reason than most nations to feel upbeat. The unwinding of the mining investment boom is almost over and the surge in resource exports is beginning to pay dividends. Non-mining investment and public spending on infrastructure are finally gaining momentum. And economic growth is on track to return to 3 per cent this year, as we edge towards 26 years without recession. 

If you would like to discuss the contents of this article in relation to your investment strategy, don’t hesitate to give us a call. 

i Dividends start flowing’, CommSec, 13 March 2017 https://www.commsec.com.au/content/dam/EN/ReportingSeason/February2017/Eco_insight.13.03.2017dividends-start-flowing.pdf

Greater choice in home care

When loved ones become frail and elderly, families may feel that moving them into a retirement home is their only option. But that’s no longer the case. Recent changes to home care provision funding now give older people more choice and control over the type of assistance they can receive if they want to keep living at home. 

As of February 28, you can stipulate the type of service you want and choose a care provider who is sympathetic and culturally appropriate for your lifestyle. It’s your choice. This consumer directed approach is aimed at allowing people to age well in their own home. 

The types of services include the regular things such as help getting dressed, meal preparation and transport to hospital appointments. In addition, you can now use the funds to pay for outings to cultural groups or even visits to the golf club.

Qualifying for help

To qualify for at-home care, you need to have an Aged Care Assessment Team (ACAT) assessment. There are four levels of assistance: basic care needs, low level care needs, intermediate care needs, and high level care needs. The amount of government subsidy you receive depends on the level at which you have been assessed. The higher the care needed, the higher the subsidy. 

In the past, the services offered were not as flexible. Under the new system, you have much more freedom to fine tune the services you receive and control your aged care package. 

Central waiting list

The new legislation also means that the waiting list system has changed. Now, once you have received your ACAT assessment, you go directly onto a central waiting list.i Your place on the list will depend on your immediate needs and circumstances as well as the time you have been waiting for care. Once you reach the front of the queue you will be assigned a home care package that you can use to receive care from a provider of your choice. 

It’s a good idea to use your time on the waiting list to investigate what provider is best for you, both geographically and in terms of the services they can deliver. 

My Aged Care will help you choose a suitable provider but you can also check out the possibilities by visiting the My Aged Care website. On the website, you will see the providers available in your area and their specialities in terms of culture, religion and language. 

Additional contributions

It may be that you have to contribute to the cost of your care as the subsidy is means tested. The threshold for additional contributions is an income $25,792 a year for those who are single. 

If you already receive subsidised care, you will automatically be assigned a home care package under the new regime. And if you had been receiving a lower level of care than your ACAT assessment, then you will automatically move up to your correct level. 

Switch providers

If for some reason you have been unhappy with your current service provider, then you can now switch providers. The funds that have been allocated to you to pay for your services will move with you. But be aware that there may be exit fees associated with switching from one provider to another. It’s expected that the ability to switch will deliver a higher standard of service as providers compete to get your business. 

Any unspent funds must be rolled over from month to month and year to year for as long as you remain in the package. When you die or enter a nursing home, these unspent funds will be returned to you or your estate. 

While the old system had some choice insofar as you could discuss what your needs were, the new rules are much more flexible. They also offer families the peace of mind that comes from knowing your loved ones can continue to live well in familiar surroundings. 

i Increasing choices in home care Questions and Answers, 20 May 2016, p10, https://agedcare.health.gov.au/sites/g/files/net1426/f/documents/05_2016/increasing_choice_in_home_care_-_qas_-_20_may_2016.pdf

Delayed gratification: are you too soft on yourself?

When was the last time you had to wait for something you really, really wanted? Not just your morning coffee, or your favourite tipple at the end of a long day – something seriously important? 

Now think, when was the last time you could have had something, but put it off? If you can’t think of an answer to either, you’re not alone. People in general just aren’t that good at waiting for things any more. But it might be time to have a think about why that is; after all, blaming easy credit and same-day delivery only gets you so far. 

What the science says

Back in the ‘60s, researchers at Stanford University in the US ran a historical experiment, now nicknamed ‘the marshmallow experiment’. i Psychologists tested the ability of children (aged 4 to 6) to delay gratification. They did this by offering them a treat immediately, but telling them that if they were able to wait 15 minutes, they could have two treats. The findings were revealing: only around a third of the children could wait for the second treat. When the researchers followed up with the parents several years later down the track, they found that the kids who’d managed to hold off had done better in life generally, including getting better grades. 

Why waiting is good

Every day we face circumstances where putting off something nice can lead to something even better. Battling to stay on track with healthy eating? That’s just one example. There’s saving up for something instead of putting it on credit, making things from scratch, and studying for a new qualification. Chances are you’ve encountered at least one. Just about everyone can benefit from sharpening up their self discipline. 

In the years following that marshmallow experiment, researchers continued to study the finer points of delayed gratification. They tested which techniques were most successful in helping people hold out longer. Perhaps most importantly, they tested whether delayed gratification can be learned and cultivated. Good news – it can. 

Master your ‘must-have-it-now’ instincts

The same researchers from the marshmallow experiment theorised that successful exertion of willpower comes down to a kind of internal ‘hot and cool’ system. It’s been likened to the old cartoon devil and angel on your shoulders. The devil/hot side is your emotions and impulses. The angel/cool side is cognitive – it’s all about thinking things through. 

A popular technique to help you to master your impulses is to remind yourself why you’re delaying gratification. This could be as simple as a mental picture of what you’re aiming for. If you find that that isn’t strong enough, you might try carrying an actual picture in your wallet to remind you every time you make a spending decision. 

Removing yourself from the presence of whatever is tempting you off course is an obvious technique. However, depending on what you’re avoiding, this can be tough; there is a reason why supermarket checkouts are stacked with little treats. This is where it’s important to be self-aware. Recognise when you’re particularly susceptible to make decisions you otherwise wouldn’t, and avoid those circumstances where possible. 

Having trouble temporarily letting go of a few little pleasures so you can reach a financial goal? Remember, we’re here to help. 

Flex Your Willpower

    1. Remind yourself why.
    2. Reinforce with a mental or physical image of your goal.
    3. Remove yourself from temptation.

i https://www.ncbi.nlm.nih.gov/pubmed/5010404

Please note this information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial advisor, whether the information is appropriate in light of your particular needs and circumstances.

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