Welcome to our April newsletter which we bring to you at a time of enormous economic uncertainty. At times like these it’s important to have someone to talk to, so we urge you to contact us if you have concerns about your finances.
The health and economic impacts of the coronavirus increased exponentially in March, as did the response of national governments and central banks. As part of a suite of emergency measures, the Reserve Bank of Australia (RBA) cut the official cash rate twice – first to 0.5 per cent and then to 0.25 per cent – as official rates in the US and Europe were cut to near zero. The RBA also began buying government bonds to bring yields down in line with the cash rate, as well as offering a term facility to banks so they can supply credit to small and medium businesses.
It’s too soon to know if these emergency measures will stave off recession (technically two consecutive quarters of negative growth), but Australia was better placed than many countries heading into the crisis. The Australian economy grew 0.5 per cent in the December quarter, up 2.2 per cent over the year, while company profits rose 8.1 per cent in calendar 2019 to record highs.
Global markets remain extremely volatile. Australian shares fell around 17 per cent in March while US shares fell around 15 per cent. Crude oil prices fell more than 56 per cent as a production agreement between OPEC and other oil-producing nations broke down. Australian wholesale petrol prices fell to a 16-year low, while the national average price of unleaded petrol fell to a 13-month low of 127.6c a litre. The Aussie dollar fell about 5 per cent over the month to just below US62c, after briefly dipping below US56c.
Coronavirus safety net – update – JobKeeper Payment
COVID-19 update: JobKeeper Payment
Yesterday, the Government released details of their third economic package entailing a $130 billion JobKeeper Payment.
The JobKeeper Payment is a temporary scheme open to businesses impacted by the Coronavirus aimed at supporting employers to maintain their connection to their employees. The JobKeeper Payment will also be available to the self-employed. The Government will provide $1,500 per fortnight (before-tax) per employee for up to 6 months.
The JobKeeper Payment will provide vital support to small business owners.
The subsidy will start on 30 March 2020, with the first payments to be received by employers in the first week of May. Businesses will be able to register their interest in participating in the Payment from 30 March 2020 on the ATO website here.
Previously announced stimulus
Between the first $17.6 billion package announced on March 12, and this latest $66.1 billion package, the emphasis has shifted from stimulus aimed at keeping businesses up and running, to support for individuals to get them through the crisis.
Importantly, casuals and sole traders along with employees who lose work due to the coronavirus shutdown will receive help.
Retirees affected by falling superannuation balances and deeming rates out of line with historically low interest rates have also been offered some reprieve.
Minimum pension drawdowns halved
Self-funded retirees will be relieved the Government has moved quickly to temporarily reduce the minimum drawdown rates for superannuation pensions.
Similar to the response in the wake of the Global Financial Crisis, minimum drawdown rates for account-based pensions and similar products will be halved for the 2020 and 2021 financial years.
This means retirees will be under less pressure to sell shares or other pension assets in a falling market to meet the minimum payments they are required to withdraw each financial year.
Deeming rates cut again
In addition to the cut in pension deeming rates announced in the first stimulus package, the Government has cut deeming rates by a further 0.25 percentage points. This reflects the Reserve Banks latest cut in official interest rates to a new low of 0.25 per cent.
Deeming rates are the amount the Government ‘deems’ pensioners earn on their investments to determine eligibility for the Age Pension and other entitlements, even if that rate is lower than they actually earn.
This move will bring deeming rates closer in line with the interest rates pensioners are receiving on their bank deposits, especially those with lower balances.
From 1 May 2020, deeming rates will fall to 0.25 per cent on investments up to $51,800 for singles and $86,200 for couples. A rate of 2.25 per cent will apply to amounts above these thresholds.
Early access to super
More controversially, the Government has also announced it will allow anyone made redundant because of the coronavirus, or had their hours cut by more than 20 per cent, to withdraw up to $10,000 from their super this financial year and a further $10,000 in 2020-21.
Sole traders who lose 20 per cent or more of their revenue due to the coronavirus will also be eligible.
The Treasurer said the process is designed to be frictionless, with eligible individuals able to apply online through MyGov rather than going to their super fund.
While this provides an additional safety net for individuals and families who face the loss of a job or a significant fall in income, we do urge our clients to consider accessing their super as a last resort.
Taking a chunk out of your retirement savings now, after a big market fall, would not only crystallise your recent losses but it also means you would have less money working for you when markets recover.
So before you do anything, speak to us and look at other income support measures.
Relief for those out of work
All workers, including casuals and sole traders, who lose their job or are stood down due to the coronavirus shutdown, will be eligible for a temporary expansion of Newstart (now called JobSeeker) payments to new and existing recipients.
Individuals who meet the income test will receive a coronavirus supplement of $550 a fortnight on top of their existing payment for the next six months. This means anyone eligible for JobSeeker payments will receive approximately $1100 a fortnight, effectively doubling the allowance.
This measure includes people on Youth Allowance, Parenting Payment, Farm Household Allowance and Special Benefit.
Importantly, the extra $550 will go to all recipients, including those who get much less than current maximum fortnightly payment because they have assets or have found a few hours of part-time work.
Support for pensioners
Pensioners have also received additional support. On top of the $750 payment announced on March 12, an additional $750 will be paid to any eligible recipients, as at 10 July 2020, receiving the Age Pension, Veterans Pension or eligible concession card holders.
More support to come
This latest support package is unlikely to be the last as the Government responds to a rapidly evolving health crisis and progressive shutdown of all but essential economic activity.
If you have any questions about your investment strategy or entitlements to government payments, please don’t hesitate to call.
Information in this article has been sourced from https://treasury.gov.au/coronavirus/households
Making peace with the unknown
Life constantly challenges us with unknowns, yet some of these hit closer to home and harder than others in their impact.
The coronavirus is unprecedented in our lifetimes, so we are charting new territory in the world’s response to this crisis. The uncertainty around its far-reaching impact is creating fear for many around the globe, as governments act to minimise the spread of the virus.
Due to the fast changing nature of the government response to this momentous challenge, there are significant unknowns. There are short term unknowns around the government’s evolving response to the crisis and you could be concerned about the stability of your work situation. And longer term about how will this impact you into the future? Perhaps you’re wondering when you will be able to retire as your super balance takes a dive? Will the economy and businesses survive the disruption? How will you be supported through this period?
You are not alone in experiencing these fears. As humans we like to deal with ‘knowns’ and plan accordingly, rather than be at the mercy of uncertainty and instability. Whether it’s something as big as the coronavirus or a smaller unknown, there are however ways we can become more comfortable with uncertainty.
Planning for the unknowns
Planning for the unknowns sounds like a contradiction. After all, if we don’t know how, when and if we will be impacted, how can we plan for it? Yet planning for potential outcomes can help us feel more in control and be one less worry to deal with.
You don’t need to think of every possible eventuality, but given the challenges society is facing, consider what the implications mean for you and your family. What can you do to minimise the impact?
Then the next, possibly more challenging thing to do, is to accept that you can’t plan for all eventualities and acknowledge that there may be some things out of your control. Focus your attention on what you are able to have some control over and then look at narrowing the list down to what really matters most to you, letting the rest of the ‘noise’ dissipate.
Stay positive and engender connection
The situation is changing rapidly and it’s tempting to constantly monitor news feeds, as it can feel more empowering to feel like you know what is going on. Just be mindful of taking breaks from the updates if they are fuelling feelings of uncertainty. Step outside and enjoy a little fresh air, call a friend or just do something small that gives you a bit of a breather and a little perspective.
The societal impact of the coronavirus is huge and is having a significant impact effect on many of our lives. It’s important to remember that these changes aren’t necessarily permanent and that we are all in this together.
Connection is important in helping us feel grounded and supported during a period of uncertainty. This crisis is first and foremost a health and human crisis, so we need to be respectful of not only our own health, but those of others. We can help those who are more vulnerable. There are many good news stories arising of people assisting and connecting with their neighbours and those in need.
Understanding the impact on the markets
Markets have experienced a significant downward trend as the impact of the coronavirus continues to develop across the globe. This has had a significant impact on investments and more broadly on superannuation account balances.
While it is understandable to feel unsettled, consider your long term financial goals. Avoid making rash decisions based on fear, as this can crystallise your losses and put you on the sidelines for when the market recovers and as history shows, it always does.
Especially during this period of uncertainty, I hope you are keeping well and looking after yourself. We are here for you every step of the way. Don’t hesitate to get in touch if you need assistance.
Hold on… volatility ahead
After period of optimism, global investment markets have hit the panic button on fears about the possible economic impact of the coronavirus (COVID-19). We are seeing significant falls as well as rallies as the markets react to what measures policy makers are taking to provide economic support and soften the impact of the coronavirus.
Markets move in cycles, at times like this it’s good to get some perspective.
Australian shares rose 24 per cent last year, touching record highs, and 10 per cent a year over the past seven years. Global shares rose 28 per cent last year and 17 per cent over the past seven years.i After such a good run, many observers have been saying shares were looking fully valued and that a correction was likely.
The thing with market corrections is that it is impossible to predict what will trigger them or how long and severe they will be.
Avoid knee-jerk reactions
At this point, markets are responding to uncertainty. Nobody knows what the extent of the economic fallout will be, so the temptation is to bail out of shares and put your cash in the bank. Or jump ship and switch to a ‘safer’, more conservative option in your superannuation fund.
While the urge to act and protect your savings is understandable, knee-jerk reactions can be a mistake.
It’s near impossible to time the market, particularly at the present moment with a volatile market that is responding to a situation that is changing on a daily basis. Not only do you risk selling when prices are near rock-bottom, but you also risk sitting on the sidelines as the market recovers. As history tells us it always does.
In an ever-changing world, the basics of investing stay the same. By sticking to some timeless rules it’s much easier to resist making fear-based decisions and focus on your investment horizon.
Have a plan
Investing is a lifelong journey and like all journeys you are more likely to reach your destination if you plan your route. Without a plan, it’s easy to knee-jerk into decisions that may not be the best in the longer term.
Your plan needs to take into consideration your unique situation, financial goals and your comfort with risk.
Low risk comes with lower returns
Many people are wary of investing in shares because of the risks of the kind of market event we are currently experiencing. Growth assets such as shares and property do entail higher risk but they also deliver higher returns in the long run than cash in the bank.
While domestic and international shares produced stellar returns last year, cash returned just 1.5 per cent which was below the level inflation. Cash returns were not much better over the past seven years, averaging 2.2 per cent a year.
Spread your risk
Shares, property, bonds and cash all have good years and bad. While shares and property tend to provide the highest growth over time, there will be years when prices fall or go sideways. In some years, bonds and even cash produce the best returns.
A good way to reduce volatility and enjoy smoother returns over time is to diversify your investments across and within asset classes. That way, one bad investment or difficult year won’t sink your ship.
The most appropriate mix will depend on your age, the timing of your goals and your risk tolerance.
A disciplined approach
Rather than sell shares in quality companies in a panic, continue to collect your share dividends which may be more attractive at present than the returns available from cash and some fixed interest investments. It may even be worth considering reinvesting dividends in more shares or other quality assets. This way, you avoid crystallising short-term paper losses and benefit from the inevitable market recovery.
When fear is driving markets, it’s important to get back to basics and think long term. If you would like to discuss or review your overall investment strategy, don’t hesitate to get in touch.
Retirement Planning Partners Pty Ltd is a Corporate Authorised Representative of Madison Financial Group Pty Ltd Australian Financial Services Licence No. 246679. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information. Investment Performance: Past performance is not a reliable guide to future returns as future returns may differ from and be more or less volatile than past returns.