Jacqueline Barton

One of the most valuable gifts you can give to your child is teaching them about financial literacy. Instilling good habits and education on money management from a young age is a crucial set up in this world for success. So how do we raise financially savvy children?

Start Young

Education to kids around managing finances doesn’t always have to wait, in fact, the earlier the better! Experts report that between the ages of 5 and 14 is when a child starts to form their ‘money mindset’, so we want to encourage healthy family discussions on money. Simple ways to introduce money as a concept and its value is through real coins and notes, along with a piggy bank where they can visually see how to save and spend. Playing games that involve a form of currency where the children have to count money and engage in cash transactions are also a useful education tool to teach the emotions around losing and gaining money.

Lead by Example

For children to develop healthy spending and savings habits, it’s important that the adult figures in their lives demonstrate their own responsible financial habits. Having discussions with children around sharing your own savings goals and budgeting can be a great method in helping them understand the importance of financial literacy.

Instil the importance of Hard Work

The idea that hard work pays off is encouraging when getting children to think about money. Entrepreneurial activities like a lemonade stand or dog walking are not only fun for children, but teach them skills in earning and reinvesting. Creating a household chores chart is also great to instil a good work ethic through children and shows that they will be rewarded for their work through pocket money.

Implementing saving and budgeting

When children reach the age where they are old enough to join the workforce through casual employment, helping them open up their first bank account is a pivotal step in their finance journey. Creating simple budgets from their income and allocating their funds into separate savings and spending categories will aid in teaching them the significance of managing their finances through thoughtful money decisions.

Encourage Smart Spending

Educating teenagers habits on smart spending and being money savvy can guide them to make responsible financial decisions. Teaching them ways around comparison shopping and evaluating the price and quality of goods and services will aid in helping them make smart decisions with their finances. It is also a good idea to educate on the concept of credit and responsible borrowing such as loans so they understand how the idea of debt works. Having this knowledge will be vital in helping them make informed financial decisions.

Summary

Starting early and investing time in your child’s financial literacy helps to build a foundation for their success.  Through guidance, practical experiences, and open and honest conversations, you can aid in the development of skills needed to ensure your child can navigate their finances with confidence.

As the year goes on, the challenges of managing the cost of living are more pressing than ever. Households are facing financial strain with inflation rates and consistent rise of housing costs. With this said, having a plan with your money is vital in staying on top of your bills and expenses, so you can feel empowered by your financial decisions.

Before we delve into some ways to reduce your cost of living, it is important that we understand the current landscape. Firstly, inflation rates have seen to remain elevated during 2024, with data from the Australian Bureau of Statistics stating that in early 2024 the inflation rate has hovered around the 4.2% mark. While this is a slight decline from 2023, this rate is still considered high and impacts everyday Australians.

As for the housing market, it can be said that mortgage rates are seen to be stabilising, however, the price of houses in urban areas remains at a high with median house pricing rising by 6% yearly (National Association of Realtors, 2024). Finally, information from the Australian Energy Market Operator (AEMO) suggests that energy costs, driven by increased demand and supply, are set to rise by another 5%. This will only be combatted by the government subsidies for so long, in turn creating further financial pressure to households.

Strategies to stay ahead

1. Budget wisely: It might sound simple, but sticking to a consistent budget could be your saving grace. All you have to do is create a realistic and detailed budget to keep track of your income and expenditure so you know exactly when and where you are putting your money.
2. Prioritise Needs over Wants: While it might be tempting to buy that luxury item, it is important to focus on your needs as opposed to your wants. Breaking things down into the 50/30/20 rule is an easy way to do this. 50% income for needs (bills, rent, groceries etc), 30% income for wants (eating out, entertainment) and 20% income savings.
3. Practice Smart Shopping: Planning your grocery shop ahead can be a simple but huge help in cutting down those little costs. Whether it’s meal prepping for the week so you’re not tempted to eat out, choosing the less expensive brand on the shelf or buying grocery items in bulk, these are easy ways you can manage your spending.

By taking these tips and strategies into consideration, you will feel more in control of your spending decisions to stay on top of your living expenses in today’s current economic climate.

When it comes to investing, understanding the balance between risk and reward is critical to making informed decisions. Every investment carries some level of risk, and typically, the potential for higher returns increases as the level of risk rises. Managing this balance is essential for aligning your investments with your financial goals.

What is Risk?

In any investment, there’s always an element of unpredictability. Some assets, like shares traded on the ASX, tend to fluctuate in response to market conditions, economic shifts, or company performance. While these swings can be unsettling, they also present the possibility of significant gains over time.

On the other hand, lower-risk investments like government bonds or term deposits offer more stability, but often come with lower returns. While these options carry less risk, they may not keep pace with inflation, potentially reducing their real value over time.

What is Reward?

The reward in investing is what you gain, whether through growth in your investment’s value or steady income streams, like dividends or interest. In Australia, dividend-paying shares may also provide franking credits, which offer tax advantages and can enhance returns.

That said, higher rewards often come with greater volatility. For example, ASX shares may offer attractive returns but are subject to more market ups and downs than conservative investments like fixed interest or cash. Balancing these factors is key to managing your investment strategy.

Balancing Risk and Reward

The key to successful investing is balancing risk and reward in a way that suits your financial goals, risk tolerance, and investment time frame. Below are strategies to help with this:

1. Diversification: Spreading investments across different asset classes (e.g., shares, bonds, property, cash) is a proven way to manage risk.
2. Time Horizon: Your time frame for investing plays a crucial role in determining the level of risk you can take. A young professional with a longer investment horizon can typically take on more risk, as they have time to ride out market fluctuations. In contrast, those closer to retirement may prefer lower-risk investments for stability.
3. Superannuation and Risk: Superannuation is a key long-term investment for Australians. Within super, choosing between growth, balanced, or conservative funds will impact the level of risk and reward. Regularly reviewing your superannuation to ensure it aligns with your risk tolerance and retirement goals is essential.

Staying Calm During Market Fluctuations

Market volatility can trigger emotional reactions, especially when investments lose value. It’s natural to feel uneasy, but understanding that risk is a normal part of investing can help you stay calm during market fluctuations.

A well-diversified portfolio and long-term investment plan often provide reassurance. By spreading investments across various asset classes (e.g., shares, bonds, property, cash), you reduce the impact of poor performance in any single area, helping you stay focused on long-term goals rather than short-term market movements.

Tax Considerations

Taxes also play an important role in your investment returns. Capital gains tax (CGT) applies when assets are sold for a profit, and franking credits from dividend-paying stocks can reduce your tax burden, potentially boosting your overall return.

By understanding the balance between risk and reward, you can build a strong investment strategy. Diversifying your portfolio, considering your time horizon, reviewing your superannuation and factoring in tax implications will help create a plan that aligns with your financial objectives while managing risk effectively.

In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

Key points

• ‘The time has come for interest rate policy to adjust’ Jerome Powell
• Has the Fed managed to steer the US economy to a soft landing?
• RBA governor Michelle bullock rules out an official interest rate cut this year
• More evidence the easing cycle has begun, Bank of England makes first rate cut in four years

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact our team.

The Big Picture

Jerome Powell, the Chairman of the US Federal Reserve (Fed), announced that ‘The time has come for policy to adjust’ at the annual Jackson Hole Symposium for Central Bankers in August.

It was hardly a surprise given that the market had been pricing in cuts but the clarity and simplicity of Powell’s statement was well received by markets. He stressed that the exact timing and extent of the cuts will be determined with reference to the data.

The market has priced in four cuts this year starting on September 18th. Given that there are only three meetings left this year, the implication of four cuts is that at a ‘double cut’ of 0.5% may be announced at one of the Federal Open Markets Committee (FOMC) meetings.

But August wasn’t plain sailing for the Fed or markets. The US jobs data, released on the first Friday of the month, reported that only 114,000 jobs had been created when 185,000 had been expected. The unemployment rate was 4.3% which ‘triggered’ the so-called Sahm Rule for calling a recession. The Sahm Rule is based on the increase in the unemployment rate over a given 12-month period. We do not believe that there has been sufficient experience with this rule since it was created by Claudia Sahm, then a Fed staffer, in 2019 for us to follow it with any conviction. It is a rule that was simply fitted to the data in hindsight. There has been no recession declared since then.

It had previously been stated that a recession might be expected in the ensuing 6 – 24 months after a Sahm signal. Professor Campbell Harvey, who gave us the ‘inverted yield curve trigger’ for recessions disagrees. He said the Sahm rule was a lagging indicator by an average of about four months. You may recall that his trigger gave a false signal of a US recession a few years ago. Perhaps it is a duel between those who ‘own’ a trigger?

Our independent analysis showed that the inverted yield curve trigger produced too many false positives to be reliable. We also found the Sahm Rule to be lacking. However, it is wise to track these popular measures as some market participants believe in them – and therefore markets are affected by them.

It is also important to stress that the US jobs data are based on a small sample of companies and, as a result, data can bounce around quite a lot. Markets have looked past the previous few low jobs numbers! Moreover, illegal immigrants are not included in the unemployment data but they may be counted in the employed ranks!

Following the US jobs data, and a manufacturing expectations index (ISM) showing weakness, markets sold off quite heavily in the first week of August but bounced back a few days later after fresh, more positive data were reported. Markets can be fickle and short termist!

And then the Bureau of Economic analysis (BEA), that publishes the jobs data, revised down the previous years’ worth of data by 68,000 jobs per month or 818,000 in total! That is the biggest of the regular annual revisions since 2009. However, on the economic growth side, the June quarter revision to Gross Domestic Product (GDP), a measure of growth in the economy, came in at 3.0% – up from the initial 2.8% estimate.

We think it is fair to say that most people think the Fed may have pulled off a ‘soft landing’ (meaning a slowdown and end to inflation without a recession). Given the lags in interest rates on the real economy we think it is far too soon to pop the champagne corks. The general thinking is that interest rate cuts take 12 – 18 months to work through – just as interest rate hikes do.

The August season for June quarter US company reports of earnings, revenues and prospects went reasonably well. Virtually the last company to report, Nvidia, was the big one. As the poster child of the ‘Artificial Intelligence (AI) revolution’ it was fortunate that the chip-manufacturer exceeded market expectations on the top (sales) and the bottom line (profit) – and in its prospects going forward (guidance). Clearly the good news was not good enough for everyone as the share price took a bit of a hit in the following trading session.

If a US shallow recession does ensue, we don’t think that will bode particularly badly for markets. And the presidential contest between Harris and Trump culminating with the election in November will keep markets somewhat distracted.

In Australia, the RBA held its scheduled August board meeting and kept interest rates ‘on hold’. After the governor, Michele Bullock, had repeatedly said at the previous media conferences she won’t rule anything in, and she won’t rule anything out, at this meeting she ruled out an interest rate cut for the remainder of 2024! She may well live to regret that, as her predecessor Phil Lowe regretted his ‘no hikes before 2024’ prediction.

The RBA is worried about inflation being too high and not responsive enough to tight monetary policy. However, we argue that the recalcitrant components of the Consumer Price Index (CPI) inflation measure are unlikely to respond to tight monetary policy (higher interest rates). In the latest data release, inflation in tobacco prices was 13.5% for the year – no doubt due to recent increases in government taxes. And rent inflation which happens to be a major component of the CPI, was 6.9%. We have argued that higher interest rates are more likely to raise rents rather than bring them down – for obvious reasons, namely the cost of borrowing to invest in property.

The latest monthly Australian CPI read was buoyed by an improvement to 3.5% p.a. from the previous read of 3.8% p.a. largely due to the government one-off subsidy for electricity consumption. Electricity inflation came in at  5.1% p.a. from +7.5% p.a. the month before. Since the subsidies were equal for each consumer (rather than having changed in the price of a unit of electricity) it was not really a lower inflation read. Rather, it is a statistical jiggle that will work its way out of the calculations as it is not expected to be repeated next year.

A significant part of the market is expecting an interest rate cut by the RBA this year – say, on Melbourne Cup Day. The latest labour market data looked a bit too good to be true with 60,500 full-time jobs added and the unemployment rate being only 4.2%. We expect these data might soften in months to come.

With meaningful caps now being discussed on international student numbers, our population growth might soon better mimic the historical rate rather than the recent 2.5% p.a. plus rate of the post Covid era.

In turn, this reduced immigration might have the effect of converging per capita (household) and aggregate growth data (national level) around the current per capita behaviour. If this occurs then a recession would be unquestionably called in Australia.

The Bank of England (BoE) just cut its interest rate for the first time in four years. The latest British growth rate was 0.6% for the June quarter which follows 0.7% for the March quarter. Since the BoE interest rate cut was based on a 5:4 split vote, they might not cut interest rates again soon.

The Bank of Japan (BoJ) raised rates for a second time after 16 years of a negative rate. As a result, the Japanese yen appreciated against the US dollar and largely ended the ‘carry trade’ – the phenomenon by which investors borrowed in yen at low (or negative) interest rates and invest it elsewhere. It is a bit like the Swiss loans’ case that saw many farmers caught out in the mid to late 1980s in Australia as the Swiss Franc appreciated strongly against the Australian Dollar and borrowers had to pay back significantly greater amount of capital than they borrowed as they invested in Australian dollar assets but had to pay back the loan in Swiss Francs.

In unrelated news, Japan’s prime minister stepped down but some good macro data were recorded. June quarter growth came in at 3.1% p.a. when 2.5% p.a. had been expected. Exports slightly missed expectations at 10.3% p.a. but imports came in at a huge 16.6%p.a.  when only 4.1% p.a. had been expected.

There appears to be a general consensus forming that central banks around the world – except for the BoJ, which is attempting to normalise rates from below neutral, and the RBA, which seems to be confused – are in the process of starting to ease the global monetary policy cycle (reducing interest rates) and a deep recession has largely been averted. Markets can see through any shallow recessions as they are based on expectations rather than published data which are reported with a lag.

And with the AI rally still underway, companies might benefit from producing associated hardware and software as well as from productivity gains from using AI.

Asset Classes

Australian Equities

The ASX 200 was flat over August. IT made strong gains at +7.9% and Energy was the biggest loser at -6.7%.

With much of the latest company reporting season behind us, it is interesting to note that there is no material aggregate change to earnings expectations from our analysis of the London Stock Exchange Group (LSEG) survey of brokers expectations.

Forecast yield from the LSEG database is lower than its long-term average. Yield is expected to be 3.3% over the next 12 months, plus franking credits where relevant. Our analysis of the prospects for capital gains on the broad index over the next 12 months is for a little below the long-run average of 5%.

International Equities

The US S&P 500 Index finished the month strongly with a 1% gain on the last day and +2.3% for the month. Other major market indexes were mixed. Japan’s Nikkei was down -1.2% while China’s Shanghai Composite lost -3.3%. The German DAX was the best of the rest at +2.2%. Emerging markets posted a small gain of 0.2%.

Our analysis of the LSEG data for the S&P 500 point to a continuation of the strong momentum seen so far in 2024.

Bonds and Interest Rates

Every year at about this time, central bankers congregate in the US at a resort in Jackson Hole, Wyoming. The location was chosen because of its proximity to a great fly-fishing spot – the pastime of the then chair of the US Fed!

Often not much happens – at least that filters through to investors. But this year, Powell made a totally clear statement that there are no more ifs and buts – interest rates are on their way down. He did qualify that statement a little by saying that the timing and extent of the interest rate cuts are not set in stone.

The CME Fedwatch tool interprets the new Fed policy stance as follows: one or maybe two cuts in September; another in November and there is a good chance (around 70%) of four cuts by the end of the year. A double cut is on the cards to get Santa starting a Christmas rally in markets.

The prospects for interest rate cuts in 2025 are obviously less clear but CME is pricing in a fair chance of rates being normalised – or nearly so – by the end of 2025. Providing this path is swift enough to avert any more than a shallow recession, markets might thrive.

We don’t expect the Fed to need to go below a neutral rate of 2.5% to 3.0% unless the wheels fall off the economy i.e. growth slows materially.

Most major central banks are guiding their interest rates towards neutral levels – except for Australia. After the last media conference when governor Bullock ‘ruled out’ any cuts before 2025, it seems a bridge too far for her to cut at the September 24th board meeting – not quite a week after the Fed will almost certainly have cut its interest rate. But Melbourne Cup Day could be a goer. Let’s hope so because so many people are struggling with mortgage stress and price inflation of even basic commodities and goods.

Another danger for us is that the RBA hangs on too long to its current interest rate setting while the US interest rates decline putting upward pressure on our dollar. That wouldn’t help our exports including commodities (iron ore), agricultural produce and education.

Other Assets

Iron ore prices dipped below $US100 / tonne during August but finished at $101 with a gain of 0.5%.

Brent crude oil prices fell  2.4% over the month while West Texas Intermediate (WTI) crude oil was down -5.6%. Both prices traded above $80 / barrel earlier in the month but fell well below that mark as tensions in the Middle East dissipated. The oil price spike was likely not enough to flow through into global inflation in any meaningful way.

Copper prices were almost flat for the month but the price of gold surged by 3.4% to close above $US2,500 per ounce.

The Australian dollar appreciated 4.9% against the US dollar. With projected movements in global interest rates, there may be pressure for a further appreciation over the next month or two.

The VIX index, being a proxy for the price of insurance against falls in the S&P 500 share market index, retreated to 15.0 after peaking at 38.6 during the month. While 15.0 is, perhaps, not average, it is close enough to normal levels to declare the early August recession panic is over – for now.

Regional Review

Australia

Employment rose by 58,200 and full-time positions expanded by 60,500 at the expense of a loss of 2,300 part-time jobs. In growth terms, full-time employment expanded by 2.1% which is a little above long-term average population growth. Part-time positions grew by 5.8%. The unemployment rate stood at 4.2%.

We found that US and Australian unemployment data behave quite differently in relation to GDP growth and we think it would be flawed to try and rely on a Sahm-Rule trigger for Australia. The latest unemployment data – using the same (misguided) Sahm-rule calculations – would have triggered a recession call here.

The quarterly wage price index for the June quarter was reported in August. Wages grew by 0.8% for the quarter and 4.1% for the year. When we correct for price inflation, real wages fell by  0.2% over the quarter and grew by +0.2% over the year.

While it might at first seem inflationary to have nominal wages grow by 4.1% it should be noted that wages, after correcting for price inflation, are more than 7% below where they were at the start of the Covid pandemic. Workers need to catch up to reduce the cost-of-living pressures long before wages and prices can start to contribute to a wage-price spiral.

Retail sales for July were flat but up 2.3% on the year. When adjusted for inflation, sales were down -1.2% for the year – the 18th successive negative change.

China

The China Purchasing Managers’ Index (PMI) for manufacturing seems stuck at just below the ‘50’ mark at 49.4 – down from 49.5.

Growth for the first half of 2024 was 5.0% p.a. Retail sales grew at 2.7% and industrial production at 5.1% in July. China CPI inflation was 0.5% p.a.

Imports bounced back to come in at 7.2% against an expected 3.5% but exports missed at 7.0% against an expected 9.7%.

US

The contest between presidential candidates Kamala Harris and Donald Trump is tight in the betting markets. Harris was just ahead but Trump has taken a couple of brief turns in front recently.

While many commentators are trying to distinguish between the candidates with ‘estimates’ of how inflationary their policies would be, we feel much of this part of the discussion as being too heavily influenced by the commentators’ personal preferences for the candidates. The TV debate(s) might wedge some daylight between them!

If it weren’t for the problems with measuring inflation in shelter, US inflation looks very much under control. For the last three months, official CPI-less-shelter inflation has come in at 2.1%, 1.8% and 1.7% all at the bottom end of the 2% p.a. to 3.0 % p.a. inflation target range of the Fed.

Producer Price Index (PPI) inflation, reflecting input cost inflation was +0.2% for the month and +2.9% for the year. Average weekly earnings only grew by 0.2% for the month or 3.6% for the year. There is no price pressure brewing!

The Fed’s preferred Personal Consumption Expenditure (PCE) core inflation measure came in at 0.2% for the month and 2.6% for the year – 0.1% (one notch) below expectations. Given the strength of Powell’s Jackson Hole address, there seems little to stop the Fed from starting its interest rate cutting cycle on September 18th possibly (but not likely) with a double cut of 0.5%.

US retail sales grew by 1.0% for the month or 2.7% for the year; 0.3% was expected for the month. When adjusted for price inflation, real retail sales grew by 0.8% for the month but fell  0.3% for the year. The US economy is no longer strong but it hasn’t yet slipped into recession – if, indeed, it will.

Europe

The UK economy grew by 0.7% and 0.6%, respectively, in the first two quarters of 2024.

European Union (EU) inflation drifted up a notch to 2.6%.

Rest of the World

The big ‘misses’ on Japan imports and exports predictions we reported last month were largely reversed this month with double digit gains on both.

The Middle East conflict is going through some new stages as countries north of Israel are now appear more engaged. Oil prices did spike in line with increased hostilities but that spike has now largely dissipated.

The Ukraine has reportedly attacked inside Russia but there do not (yet) seem to be any major consequences for markets.

The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Interest Rate (OCR) from 5.5% p.a. to 5.25%. p.a. It signalled 4.92% as its end-of-year target so one more cut of 0.25% is to be expected.

We acknowledge the significant contribution of Dr Ron Bewley and Woodhall Investment Research Pty Ltd in the preparation of this report.

Nobody knows what’s around the corner. That’s why the best time to think about planning your estate is right now.

While writing a Will is an essential part of the process, there’s so much more to estate planning that can ensure your wishes will be fulfilled exactly the way you want. A little planning today can make a big difference to your family’s tomorrow.

It’s all about your peace of mind

Estate planning is different for every person, but every plan has the same goal: peace of mind. With a proper estate plan in place, you can be confident that should you die or become unable to manage your affairs, you have everything in order. Your plan may cover your own life care instructions as well as how your assets will be managed and, ultimately, distributed according to your wishes in the most efficient and tax-effective way.

While the structure of an estate plan will vary according to personal circumstances, assets and wishes, the process offers a range of tools to help you manage your affairs. Tools such as Wills, Powers of Attorney, insurance policies and trusts can help ensure your affairs are managed the way you would like.

Make sure your decisions are the ones that count

• Estate planning will ensure you have peace of mind knowing that:
• Your loved ones, including children, are provided for and protected.
• Your children’s inheritance receives increased protection if a relationship breaks down.
• You have received professional advice on how to structure your assets to optimise tax advantages.
• Your wishes are recorded in legally-binding documents, free from ambiguity.
• Your affairs will be managed by someone you trust when you die or are no longer able to legally manage your affairs.

There’s no time like the present

• The best time to think about your estate plan is right now. If something unexpected was to happen to you and you don’t have an estate plan in place, your estate and your loved ones could be faced with legal disadvantages and extra costs. Not to mention added stress at an already difficult time.

You should also keep in mind that your estate plan can keep evolving as your life does. Certain life events such as marriage, divorce or the birth of a child should prompt the need for estate planning advice or a review of your existing plan.

Where there’s a Will…

Generally, your Will forms the basis of your estate plan. This essential document spells out your wishes for the distribution of your assets to your beneficiaries. It also allows you to:

• choose your executor
• appoint a guardian for any minor children
• establish a trust to transfer your assets tax effectively
• make specific gifts to charities
• establish a trust for minor children or another purpose.

Without a legally valid Will, known as “dying intestate”, you risk your estate being distributed according to strict legislative requirements. If you don’t make your wishes clear, a government-appointed executor could be left to decide who benefits from your estate.

An intestate estate is more difficult to administer and will take longer to be finalised, potentially resulting in increased costs and increased stress for your loved ones.

Choosing a trusted executor

An important part of writing your Will is appointing an executor. Your executor is responsible for carrying out your wishes for the entire administration of your estate, from funeral arrangements to the ongoing management of assets until the estate is completed.

Your executor – or executors – can be a family member, a trusted friend or professional, or a nominated trustee company. Their responsibilities may include:

• Confirming your Will is legally valid and, in some States, obtaining a grant of probate.
• Preparing a statement of your assets and liabilities – what you own and what you owe.
• Advising beneficiaries of their entitlements.
• Lodging tax returns, if required.

• Managing and protecting your assets prior to distribution. For example, superannuation, insurance, safekeeping of valuables and re-investment of surplus funds.

Establishing trusts

Making payments or distributing assets to beneficiaries.

Enduring Power of Attorney

Keeping things on track when you can’t

An Enduring Power of Attorney is a key part of your estate planning. If you are no longer able to manage your own affairs due to an accident, illness or the loss of mental capacity, this legal document will ensure that someone you trust can step in when needed. In much the same way as nominating an executor, you can appoint trusted family members, friends or a professional trustee to act as your Attorney.

Prepared by a solicitor, an Enduring power of Attorney can prevent potential government intervention in your personal affairs, management of your assets and even your own medical care.

A trust could help preserve everything you’ve worked for

Apart from distributing assets through your Will, you can also choose to distribute assets via trust. A trust is a legal structure used to hold assets that can be owned in the name of an individual, family or business. Trusts generally exist to protect those assets and minimise tax with specific rules and instructions detailed in a trust deed, which is prepared by your solicitor.

There are several types of trusts that may be a useful vehicle in your estate plan if you want to:

• pass on a family business
• make a gift to charity
• be flexible in distributing your assets for tax purposes
• protect and manage assets until beneficiaries reach a certain age.

To learn more about estate planning, please get in touch with our team today.

Be suspicious of anyone offering you easy money. Scammers are skilled at convincing you that the investment is real, the returns are high and the risks are low. There’s always a catch.

If you think you’ve been targeted by scammers, act quickly. For steps to take and where to report a scam, see what to do if you’ve been scammed.

How investment scams work

There are many ways investment scams may appear. Three main examples are:

– The investment offer is completely fake.
– The scammer is pretending to offer a legitimate investment, but keeps any money given to them.
– The scammer says they work for a well-known company that is offering a legitimate investment – but they’re lying.

In any case, the money you ‘invest’ goes straight into the scammer’s bank account and not towards any real investment. It is extremely hard to recover your money if it goes to a scammer based overseas.

Anyone can be scammed, and every scam is different. Scams are often hard to spot and can feel legitimate in the moment. Scammers can use professional-looking websites, advertisements and apps, and impersonate legitimate companies.

Important

Scammers are using deepfake technology to create fake celebrity videos promoting Quantum AI.

Quantum AI is a fake online investment program. It claims to use artificial intelligence (AI) technology and quantum computing to generate high returns for investors. Fake trading results are displayed on a website manipulated by scammers.

If you see a celebrity spruiking an investment, search online to see if the person has posted warnings about being impersonated.

Spot the signs of a deepfake video:
– The person speaks with unusual pauses, odd pitches or different accents.
– Mouth movements aren’t in time with their speech.
– Facial expressions and movements don’t match the speaking tone.
– The video is low resolution.

Do not click on any links promoting Quantum AI, or similar scams such as Immediate Edge and Quantum Trade Wave. Learn more about this scam.

How scammers contact you

Scammers can come from anywhere. The most common approaches are:

Unexpected contact – they may contact you by phone, social media, email or text message. They might pretend to be someone you know, such as your bank, financial adviser, fund manager, or even a friend. They’ll offer guaranteed or unrealistic high returns on an investment.

Fake investment trading – they use real investment trading platforms to set up fake accounts. Then they will help you trade via an account manager or offer to trade on your behalf. Once you deposit your money it’s gone for good.

Fake investment comparison websites – scammers will get you to enter your personal information into their fake website, then contact you to sell their scam investment.

Websites with fake ASIC endorsements – slick websites with fake investing information and performance figures. They may claim to be endorsed or approved by ASIC, and may show the ASIC logo.

Dating apps – using romance to form a relationship with you, then offering you an ‘investment opportunity’. (This is also known as ‘romance baiting’.)

Paid advertising – scammers often pay big money for advertisements, to appear high in online search results. They also advertise through social media. Advertising a scam is illegal.

Fake news articles – scammers will promote fake articles on social media or news websites, linking to their scam websites.

Deepfake celebrity endorsement videos – scammers use a deepfake celebrity video to promote fake investments.

What scammers may offer you

A scammer may tell you they’re offering:
– guaranteed, quick and easy investment returns and sometimes tax-free benefits
– investments in shares, cryptocurrency, mortgage, real estate or virtual investments, all with ‘high returns’
– a (fake) trading platform to trade foreign currency, gold, options or futures
– commissions for building their client base and getting others to invest
– an opportunity with no risk or low risk, because you will:
– be able to sell anytime
– get a refund for non-performance
– have insured or ‘guaranteed’ transactions
– be able to swap one investment for another
– inside information on initial public offerings or discounts for early bird investors, often falsely impersonating real companies to pitch their offer

How scammers convince you

Scammers will look at the latest market and investment trends for opportunities. They often use well-known company names, platforms, and terms (such as ‘crypto’) to lure investors in and appear credible.

This may include fake:

– crypto (virtual currency) investments
– trading companies, getting you to invest with them through real apps and trading platforms
– offers of inside information on public company floats, often naming ones that have been hyped in the media or on social media
– offers to get your money back from a sharemarket fall or previous scam
– references to well-known Australian companies or regulators, often using the Australian Coat of Arms or Government logos
– offers to keep your money safe in well-known Australian banks

Important

Beware of scammers offering investments or asking for payment using crypto. A legitimate financial services firm is unlikely to ask you for payment in crypto. Crypto-assets (for example, cryptocurrency) are largely unregulated in Australia and are high-risk, volatile investments.

Payments made using crypto are very difficult to trace and recover. To find out more, see cryptocurrencies.

Other tactics used by investment scammers

Operate from overseas

Investing in overseas companies or through brokers based outside Australia can be risky. If you invest and something goes wrong, you may not have access to important consumer rights and protections under Australian laws.

Convincing you not to pull out of the investment

They may try to swap your current investment for another one, convincing you the value will increase, or threaten you with legal action or fees.

A common tactic is to ask for ‘insurance’ or ‘taxes’ before funds invested can be released. This is just another method to extract more money from you.

‘Pump and dump’ scams

Scammers use social media and online forums to create fake news and excitement in listed stocks to increase (or ‘pump’) the share price.

Then they sell (or ‘dump’) their shares and take a profit, leaving the share price to fall. Any other investors are left with low value shares and will lose money. This may be market manipulation which is illegal.

Protect yourself from investment scams

Investment scams can look very convincing. It may be hard to tell if they’re genuine investments or not.

Always use a licensed Australian financial services provider when you invest. Check they are listed on AFCA’s financial firm directory.

This article was sourced from moneysmart.gov.au.

They say there’s no place like home, but as we get older and perhaps face health issues, looking after ourselves and our homes can be stressful – in both practical and financial terms. Your financial adviser can help you navigate the personal and financial decisions ahead to plan a future that works for you and your loved ones.

Planning ahead can reduce the stress

When the time comes that you need a helping hand, your options for aged care help include in home services or residential care. Your GP can help you decide what level of care you may need and is likely to recommend a free assessment with an Aged Care Assessment Team/Service (ACAT or ACAS). This assessment is required before you can access any government-subsidised services, which may include residential care or in-home services such as domestic assistance, personal care, meal services and home nursing.

While you may not need aged care services right now, it’s a good idea to consider your options and discuss your preferences with your family. With an agreed plan in place, you can be confident that the best decisions will be made at the appropriate time. Without some forward planning, fewer options may be available to you when you need them most.

Your financial health is important, too

One of the key considerations of planning ahead for your aged care is looking at financial strategies to ensure you have sufficient cash flow to cover the projected costs. Just some of the important issues that may need to be considered include:

• Should your family home be kept, sold or rented?
• How are your Centrelink or Veterans’ Affairs benefits affected?
• Do you – or could you – qualify for concessions on accommodation or home care services?
• What is the best way to pay for your care?
• What effect may your plans have on your estate?
• How do you best manage any tax implications?

A quick guide to choosing aged care

The costs of aged care can vary widely and that’s why it’s important to consider the care that you might need and what you can actually afford. The amount that you will have to pay may also depend on our assessable assets and income.

A good way to start your search is making a checklist of what’s important to you – location, amenities, medical facilities and nursing care. This can help you narrow your choices and any aged care facility should welcome your enquiry or a visit. You may need to join a waiting list, so applying for more than one service could also be a good idea.

Understanding what’s affordable for you is essential. The government website www.myagedcare.gov.au provides listings of aged care services and accommodation fees in your preferred location.

Searching for services?

myagedcare.gov.au
A comprehensive government resource to help find the care that’s right for you

ACAT/ACAS 1800 200 422
A free aged care assessment is required before you can access government subsidised services

How much will care cost?

Fees for residential care will include accommodation payments, which can be an upfront lump sum, a daily payment or a combination of both:

• Refundable accommodation deposit (RAD) – a lump sum payment that is refunded to you or your estate, unless you ask for other fees to be deducted or have outstanding fees when you leave. RADs vary between different aged care facilities.
• Daily accommodation payments (DAP) – think of this as rent for your accommodation. It can also be used to cover interest on any unpaid RAD.

You will also be asked to pay for:

• Daily care fees – fees towards the cost of your care including nursing, meals, laundry, cleaning and electricity. They are set at 85% of the basic single age pension or a higher means-tested fee if you have income or assets over specified thresholds. This amount is limited by annual and lifetime caps, currently $33,309.29 per annum or $79,942.44 indexed over your lifetime.
• Additional service fees – for extras such as special meals, hairdressing or newspapers, which may be offered as a package or on a user-pays basis. These fees typically range from $10 to $120 or more per day.

Moving in

When you accept a place in an aged care service, a Resident Agreement will detail the services provided and fees payable. While fees may be payable once the place is accepted, you will have 28 days to decide to pay your accommodation as a lump sum (RAD), a daily fee (DAP) or a combination of both. Your assets may need to be rearranged to cover these and future payments. If you receive Centrelink or Veterans’ Affairs payments, they must be notified of the change to your living arrangements as well as any relevant changes to your income and assets.

Covering the costs of your aged care

Your Adviser will discuss different strategies that can help you and your family decide on the best way to ensure you have a reliable and regular cash flow to cover the costs of your care.

While the aim may be to maximise your pension entitlements, minimise fees and generate a good return from your investments – possibly including the family home – these are not independent objectives. Working with an Adviser who is experienced in this area, you will receive the guidance and support to make well-informed choices and take away some of the stress for you and your family.

An essential time to review your estate plan

If your living arrangements are changing, it’s important to consider the impact on your estate plans. A review will make sure that your affairs and your personal care will be managed to your own instructions and wishes.

You should talk to your solicitor and your Adviser about:

• Your Will, which may need to be updated
• An Enduring Power of Attorney, so your affairs can be managed responsibly if you are no longer able to make those decisions yourself.
• Any investments, especially those with ‘death benefit’ nominations.
• An Enduring Guardianship, to cover decisions on your care and living arrangements if you are unable to do so.

As these documents and powers can only be put in place while you are deemed of sound mind, it’s wise to plan ahead.

To start planning your Aged Care options, talk to your adviser today.

In this month’s update, we provide a snapshot of economic occurrences both nationally and from around the globe.

Key points

• Four major developed world central banks have already cut interest rates
• The US Federal Reserve and the Bank of England have all but flagged they are ready to start
• Australia’s RBA will be late to the party as inflation data fails to respond to high interest rates

We hope you find this month’s Economic Update as informative as always. If you have any feedback or would like to discuss any aspect of this report, please contact your Financial Adviser.

The Big Picture

Many central banks are now claiming at least a partial victory over controlling inflation, but it is far from clear by how much inflation would have fallen without rate hikes. Just through the rolling back supply chain blockages caused by the Covid lockdowns; and the war in the Ukraine not continuing to escalate; and oil prices coming back to more reasonable levels – inflation would likely have fallen – the question is by how much?

Indeed, it is apparent that the interest rate increases may have actually caused inflation in some of the Consumer Price Index (CPI) components, in particular shelter costs such as home rentals. That component makes up about 33% of the US CPI and 7% of the Australian CPI.

Inflation in rents and a few services like energy costs and insurance, are not going to come back to more reasonable levels because of interest rates being higher for longer.

The trouble with economics is that it is not possible to do controlled scientific experiments – as is the case for clinical trials of drugs – to determine what our monetary and government spending policies are doing to the economy. Rather, we must rely on ‘rational arguments’ based on economic theories and past experience.

Nevertheless, there is light at the end of the tunnel. Central banks are starting to cut rates and some economies are bouncing back – if only by a little.

The Swiss National Bank (SNB) started the ball rolling with an interest rate cut of 0.25% on 22^nd March this year to a rate of 1.5% p.a. followed by another cut to 1.25% p.a. in June.

The Swedish Riskbank (SR) was the second major central bank to cut its interest rate – on 8^th May by 25 bps to 3.75% p.a.

Then, in quick succession, the Bank of Canada (BoC) and the European Central Bank (ECB) each cut rates by 25 bps in the first week of June – to 4.75% p.a. and 3.75% p.a., respectively.

The Bank of England (BoE) came to a different conclusion in June. Inflation fell from 2.3% to 2.0% but they kept their interest rate on hold. However, the UK had a General Election on July 4^th so the BoE might have not wanted to get involved in politics. It has all but said it will cut its interest rate at its next meeting in August. Interestingly UK retail sales volumes grew at 2.9% p.a. for the year to 30 June, a rate well ahead of the expected 1.5% p.a.

The US Federal Reserve (Fed) took yet a different approach. It too kept rates on hold but Fed Chair Powell spoke at length about the measurement of shelter inflation problems. Two stories on the news wires amplified that view and one of those even mentioned the possible perverse effect that high rates were having on rents.

Powell made it clear that their shelter inflation measurement is a problem and that other methods exist. Indeed, other methods are used by other national statistical agencies. But Powell said he wasn’t going to change what they do (yet?).

Regular readers might recall that we have been running this rent argument for some months. If Powell has only just caught on, he might need a month or two to digest the problem and investigate alternatives. The official US CPI data, less shelter inflation, is below the 2.0% p.a. inflation target, clearly a data point the Fed is aware of.

The market is betting on a Fed rate cut in November and another in December. Another market indicator is pointing to a possible third cut which would see the Fed start to cut interest rates before its November meeting.

That brings us to the Reserve Bank of Australia (RBA) and its June board meeting. They also kept rates on hold saying that decision was based on the ‘stickiness of inflation’. They said they didn’t even consider a cut at the meeting and they wheeled out the old, ‘We can’t rule anything in or out mantra’. This, in our view, was problematic in terms of meaningful guidance.

More importantly Governor Bullock talked about trying to avoid a recession. While it is true that the simplistic definition of a recession is for two consecutive quarters of negative growth in GDP, most professional economists dig deeper into the data before they are prepared to confirm an economic recession.

We believe that Australia has been in a ‘per capita’ recession for nearly 18 months noting negative per capita growth in GDP and negative absolute growth in retail sales volumes (i.e. sales adjusted for inflation). However, the significant population growth due to massive immigration flows has, at the national level, resulted in GDP increasing modestly (the number of households has gone up in percentage terms more than GDP per household has fallen).

Some say the jobs data for Australia are strong. We note full-time jobs grew by only 1.0% over the last twelve months – far below even normal population growth rates. Part-time employment grew by 6.2% over the same period. Since a large proportion of the immigration flow has been comprised of overseas students, it seems reasonable to consider the massive growth in part-time employment is due to foreign students taking part-time employment to supplement their living costs.

We believe that the per capita data is more representative of the economic experience of actual households and as a consequence of the RBA not responding with cuts to interest rates, the risk of Australia entering a more severe recession continues to grow.

Also, because of the well-known lags in monetary policy taking effect, an interest rate cut now would not stop the pipeline of past high interest rates continuing to slow our economy down for some time to come. Hence our concern in relation to the RBA inaction with its monetary policy.

There are nascent signs of broker forecasts of company earnings in Australia slowing down a fraction – but not enough to indicate an imminent downturn. Indeed, we expect average capital gains in FY25.

The US economy is riding high on the AI boom. Nvidia briefly overtook Microsoft in being the biggest listed company on the New York Stock Exchange (NYSE).

Government Bond yields have been reasonably stable for some months with 10-year yields on Australian and US government bonds being above 4.3%. This stability is indicative of a level of indecision on the part of investors identifying that they accept that the interest rate tightening cycle is likely finished but they are not yet prepared to commit capital to a recession and falling interest rate scenario.

China’s economy is also showing renewed signs of life. If it does manage to engineer a revival, it could mean a strong revival in the Australia resource sector and, indeed, various agricultural commodities as the 2022 restrictions on trade have now been relaxed. Only lobsters are still on that restricted list.

The year to 30 June was a very good one for global equities – by and large – and the dip we had into October 2023 was short-lived. Despite some concerns, momentum in equities generally remains positive for the coming months and equity markets are factoring in lower interest rates without economies falling into deep recessions – and in some cases no recession at all.

But there are some key unknowns for the year ahead. Who will win the US election and how will they shape geopolitics and the economic environment? What will happen in the Ukraine in particular, if Donald Trump is elected president?

The Israel-Gaza issue has polarised global views. We do not recall such vocal opposition to Israel’s actions in the past. What are the implications of this and for the region generally?

China continues to pursue its territorial expansion in the South China Sea and in relation to Taiwan how does this play out? And what of the events that are yet to be revealed, will they be positive or negative?

Without evidence to the contrary, we remain cautiously optimistic.

Asset Classes

Australian Equities

The ASX 200 made strong gains (7.8%) over the year to 30 June despite its October setback. The index was up 0.9% over June.

The index didn’t have a big driver in the year just ended like the rise and rise of Artificial Intelligence (AI) in the US or resources in Australia during China’s growth boom.

Our analysis of LSEG broker-forecasts of companies listed in the ASX 200 indicates a possible average year ahead.

International Equities

In the US the S&P 500 gained 22.7% over the year to 30 June on the back of a small number of stocks from the so-called ‘magnificent seven’ predominantly exposed to the AI theme.

While we do not see the AI boom as a bubble, there is no doubt that market expectations can run well ahead of a company’s ability to deliver on such lofty expectations which ultimately leads to a correction. While this can be a painful experience it is how markets work. In our view this boom is so different from the dotcom bubble experienced in the early 2000’s. The latter was largely based on hype and hope. AI is already producing goods and services across a wide range of industries and as such we believe will persist.

It is impossible to say whether AI will play as big a role as the industrial revolution or ‘the invention of the wheel’. At the start of the industrial revolution in the North of England, threatened hand-loom workers (the Luddites) smashed up the new mechanical looms for fear of losing their jobs. Did anyone then predict trains, motor vehicles, planes, computers and space travel would soon be invented while looms were being smashed? We doubt it. But also, we don’t need such a far-reaching vision as we have a wealth of history which has shown that innovation, disruption and change are the norm not the exception. To not participate in this momentum play could bode badly for those who ignore it.

June was mixed for of the other major indexes we follow. Over the year to 30 June all major share indexes, except for the Shanghai Composite, did reasonably well.

Bonds and Interest Rates

Except for Australia, all the major central banks have cut, or are poised to cut, their prime interest rates. The Fed was on hold at a range 5.25% to 5.5%. The dot plot chart displays the forecasts of the 19-member interest rate setting Federal Open Markets Committee. At the end of June, the dot plots median interest rate is for only one rate cut of 25 bps by December. However, if only one member had nominated two rather than one rate cut, the median would have been for two rate cuts. We do not expect the Fed to be overly concerned by the US election later in the year but we are mindful they do not want to be seen to be supporting either side.

With respect to Australia, there is little guidance being provided by the RBA and while we do not anticipate another interest rate increase in Australia, we do not expect that Governor Bullock will cut interest rates ahead of the US Fed. At this point we do not anticipate an interest rate cut here until 2025.

Other Assets

Iron ore prices ranged over $100 to $143 during the year to 30 June. It settled at US$105 per tonne down just under 9% for the month of June.

Brent oil prices also experienced a wide range over year to 30 June – from US$73 to US$97 per barrel – with the year closing out at US$86 per barrel.

Copper prices ranged $7,824 to $10,801 during year to 30 June closing the year at US$9,456.

Gold prices ranged from $1,818 to $2,432 in the year to 30 June closing the year at US$2,326.

The Australian dollar against the US dollar traded between US62.78 cents and US68.89 cents. It finished year to 30 June 24 at very near the same level as it did in June 2023.

Regional Review

Australia

Employment rose by 39,700 and all of that, and more, was from full-time job creation; part-time jobs were lost. The unemployment rate fell a notch from 4.1% to 4.0% in May.

What we find disturbing is that a longer-term view (over 12 months) shows that full-time employment rose by only 1% when long term population growth was more like 1.6%. Total employment rose by 2.5% which is broadly in line with recent population growth (including immigration) but part-time employment rose by 6.2%.

The massive influx of foreign students perhaps got some part-time work to supplement their cost of living. All good in the Australian spirit but it hinders people analysing the true strength of the jobs market. Jobs growth for the longer-term residents is quite weak.

Our quarterly GDP report was weak. Our economy grew by only 0.1% (and ‑0.4% after allowing for population growth) over the quarter or 1.1% over the year (‑1.3% in per capita terms).

Our household savings ratio fell to a worrying low of 0.9% from an historical average of 5% to 6%. Since this ratio includes superannuation guarantee levies, it is particularly low. Australians are suffering in economic terms. They are not dis-saving but neither are they able to build for their futures.

Fair Work Australia awarded minimum wage and award wage workers a 3.75% pay rise. Since (nominal) wages are lagging well behind cumulative price indexes movements, this increase is not inflationary and, indeed, more is needed to redress the losses most experienced during the pandemic.

Australian CPI inflation was a little higher than the RBA felt comfortable with and flirted with an interest rate increase. Our analysis shows that the main drivers – housing (inc. electricity at home), food, transport (inc. auto fuel), and alcohol & tobacco are largely unaffected by interest rate changes, with the possible exception of food.

The food inflation component has halved in its contribution to headline CPI over the past 12 months. Inflation of so-called tradables (goods and services that are or could be traded overseas) has been below 2% for nearly 12 months.

Since the RBA is charged with the dual mandate of full employment and stable prices, we think it has done more than enough on prices and the true employment picture has been disguised by the big immigration flow.

It is almost too late for a single interest rate cut to save the economy from having a more serious recession, particularly as the backlog of the impact of past interest rate increases has not had time to work through to the real economy.

China

China’s exports rose 7.6% against an expected 6%. However, imports rose only 1.8% against an expected 4.2%.

In the previous month, exports and imports reversed their roles: imports were strong and exports were weak. The manufacturing Purchasing Managers Index (PMI), a measure of manufacturers expectations, was weak.

US

US jobs were again strong with a gain of 272,000 jobs against an expected 190,000. The unemployment rate was 4.0% and average hourly earnings only grew by 0.4% for the month or 4.1% for the year. No inflationary pressure from there!

The private jobs survey (from ADP) was less flattering and the number of job openings per unemployed person has fallen from 2:1 recently to 1.2:1 this month. The US also has an immigration problem. We conclude that the US jobs market is less strong than the headline ‘nonfarm payrolls’ data suggest.

US inflation, because of the shelter component, does not look that good. But (official) US CPI-less-shelter inflation stands at 2.1! Producer Price Inflation (PPI), inflation for inputs, was negative for the month (at ‑0.2%). Rents are the only material problem and high interest rates are unlikely to curb that source of inflation in the broader index. Indeed, high interest rates may exacerbate investors willingness to build more supply.

At the end of June, the Fed’s preferred Personal consumption Expenditure (PCE) inflation came in at 0% for the month and 2.6% for the year. The core variant that strips out volatile fuel and food rose 0.1% for the month and 2.6% for the year. We think that this will encourage the Fed into making at least two cuts, but probably after the November 5^th election.

The University of Michigan Consumer Sentiment Index fell again to levels well below normal – but not (yet) at historic lows. US retail sales adjusted for inflation rose 0.1% for the month but ‑0.9% for the year.

The month closed out with the first presidential election debate. Biden performed so poorly that the Democratic Party is reportedly searching for an alternative candidate for the November 5^th election. Trump seemed far more composed and assured but many disagree with his policies.

Europe

The UK economy sprang back to life with a +2.9% increase sales volume for May against an expected 1.5%. Inflation fell to 2.0% from 2.3%

The 14-year-old Conservative government lost the July 4^th election to Labour in a landslide.

Rest of the World

While the big players are questioning first and second decimal points on inflation figures, Turkey just posted a 75% read for inflation to May (up from 69.8%) but only 3.3% for the month!

The Turkey central Bank was on hold at an interest rate of 50% while Mexico was on hold at 11%!

Canada GDP grew by 1.7% and it cut its interest rate!

Japan exports grew by 13.5% against a prior month of 8.3% in April.

We acknowledge the significant contribution of Dr Ron Bewley and Woodhall Investment Research Pty Ltd in the preparation of this report.