The Volatility Beast Returns in 2018

Well, there it is. The correction that we've been told has been coming every month since January 2017, finally arrived. Over? Probably not, but it was needed.

Needed? Yes needed. Nothing in life comes for free. 2017 was an extremely rare year where the entrants enjoyed a free pass to the park and none of the rides had any bumps, jumps or scares. The biggest decline happened early in 2017 and then equity markets happily chugged upwards. How should you deal with the correction we've had in recent weeks? Ignore it. Like all downward movements, there are the regular tea leaf readings, inferences about past crash behaviour being an indicator of the future, along with the unveiling of scary stats and charts reminding us of uncharted territory. In other words, we're expected to believe it's eerily similar to 1987, 2008 and the great depression, but it has the possibility to be much worse!

The first Friday in February saw the fall on the Dow Jones being 665.75 points. Rounding up it was 666 – the devil's number and apparently to some that were a harbinger of hell about to be unleashed. Unlikely. The Tuesday following's fall was 1175 points and to put the fall in some sort of perspective, the Dow Jones wasn't even worth 1175 points until April 1983. 35 years later the whole weight of that index is a 4.6% daily loss!
Could a correction become a bear market or a crash? This is always possible, however, the time has shown almost no corrections go further to become crashes. Given enough time, most turn into buying opportunities. As one of our favourite charts shows (now updated through to the end of 2017), on average, the ASX portion of a portfolio will get bashed downwards 12% every year, but 75% of the time (since 1985) you're still getting a positive return for the overall year. In addition, you can expect three 5% declines in any one year.

It's usually a recession that sets off serious bad times in equities. So why are sharemarkets tumbling when we have the opposite economic conditions in the world's biggest economy? It's because investors are starting to realize what that growing economy means – inflation and more interest rate hikes.
Rates fell to historic lows in the financial crisis and have only recently started to rebound, although not yet in Australia. Low rates make investors turn away from fixed interest and cash to embrace shares. With rates rising, shares become less attractive. At the same time, an expanding economy means companies can expect greater long-term growth and corporate profits remain robust. While President Trump's giant corporate tax cut hasn't even worked its way into the equation yet.
As usual, if the rough times aren't over, don't sell the good stuff that has served you well in hopes of avoiding the market carnage. If you are inclined to, remember there is no way you'll know when to buy again. Despite a correction often being the best time to buy, most investors don't have the fortitude to don their floaties and enter the choppy water to grab a bargain.
 
As for the headlines, you'll note they still haven't become more inventive: "50 billion wiped off the market". While we're still waiting for "50 billion wiped on the market". And while the market falls led the news earlier this month, during 2017 the US markets had 12 consecutive months of gains and Australia had 10 positive months. Reporting on any of this good stuff was still relegated to the business section. It's partially why we feel the loss more than the gain. Though the downside happens significantly less, it's afforded significantly more attention. Last year was an anomaly with the markets. Now it's normal programming.


Starting a family, whether planned or unexpected is a time of great joy and for most some fear, panic and overwhelm. Bringing children into the world will generally bring with it quite a large change to your existing financial position and presents its own unique set of challenges and considerations.

There are differing figures all over the internet about the cost of raising a child in the Twenty-first century and some of them can be quite daunting. From $233,610 to raise a child born in 2015 to the age of 17, up to $406,000 to raise a child back in 2013. Regardless of the figure, the fact that remains is that having a child and being able to comfortably support them, continue to live your life and ensure that you have adequate protection in place requires planning and consideration. Below are some tips and also some questions you need to ask yourself when starting a family:

1. To start saving for a baby you might need to consider if you need to cut down on some expenses, especially if you don't have much of a budget surplus and savings plan already in place. This will also be good practice if you are going to stop working once your baby is born and particularly if you are going to take unpaid maternity leave for any length of time.

2. Adequately assess what items you may need to buy in advance. This could be things for the baby's nursery through to upsizing your car or making renovations to your home or moving to a bigger home or unit if you rent.

3. Prepare a budget and try to stick to it during the 9-month period. This will ensure that you have enough funds to pay for the extra baby items you'll need when they arrive. Once they arrive it will be important to sit down and review your budget regularly based on their needs and requirements.

4. Research what parental leave you are entitled to with your employer. Ask the questions "how much time do I get off?" and "how much will I be paid and how long for?" This will help you to decide if you need to increase your savings before having a baby. If you decide you don't want to go straight back to work once your paid entitlements end you will need to assess how much you will need for the length of time you take off and then budget and save accordingly.

5. Look at your health insurance, does it cover the birth costs for your baby? Will you be able to have your baby where and how you want to? Will your current health insurance cover your little one when they are born, or do you need to update it?

6. What will happen if something happens to you or your partner at this crucial time? Where will your income come from if you are unable to work and have a new mouth to feed? Make sure that you have adequate protection in place that will give you peace of mind if something did go wrong.

7. If you'd like to send your children to private school, start saving for that straight away. The cost of private schooling can be in the tens of thousands each year, so it's best to start building a nest egg for this cost as soon as the child arrives.

8. Do you need to update your Will? Having a child is one of those life events that require a revision and updating of your Will. You want to ensure that if something happens to you that your estate is in order and the people that need to benefit from it do. And don't forget to nominate a guardian for your child.

And remember, we are only an email or phone call away if you would like to seek advice on how to help plan your families' wealth now and into the future.

Buying a house has become somewhat of a dilemma for our Gen Y's and even potentially some Gen X's due to the increased price of housing, particularly in our Eastern capital cities. When you start thinking about buying a house it is important to be clear on what you can afford and then work backwards from there. 


When deciding on your "first house budget," begin with the facts and look at how much you can afford in terms of mortgage repayments, particularly if the house is going to be your primary place of residence. This will then help you work out how much you can borrow and what your deposit will need to be. There are some great calculators available on bank websites that can help you work this out.
Once you do this you will have a good idea of a purchase price that is affordable for you. The other option here is to go into your bank or give them a call and tell them you want to work out how much you could borrow to purchase a house and what deposit you may need.

Tip – With interest rates at an all-time low be careful not to over-borrow. It is important to think forward and be realistic in terms of what sort of impact an interest rate rise would have on your cash flow if you had a mortgage. Would a 1% rate rise put you under financial stress, could you handle the increase in repayments and still live comfortably?

The next big step is the deposit. Where is it going to come from? Are you going to have to save it or maybe your parents would be willing to gift you the deposit (or loan it to you) or they might offer to go as a guarantor to help you out. If you need to save then the first place to start is creating a budget. You would have received our budget planner last week and we have included it again this week in case you missed it. Using this template you will be able to work out how long it will take you to save your deposit based on your current surplus cash flow. From here it will be best to open a high interest earning account to save your deposit, it may be an idea to shop around and find an account that makes it harder for you to withdraw from whilst encouraging you to save – accounts like ING seem to have good parameters around this. Then it is all about getting into the habit of saving regularly for your deposit which will help you over the long-term as this is the exact same discipline you will need to apply when you're eventually paying down your mortgage. In the May 2017 Budget the Government announced a plan to save for a first home deposit through Superannuation called the 'First Home Super Saver Scheme' which has not been legislated as at January 2018 but it may be worthwhile to keep an eye on this as an option to give your deposit a boost. 

For some of the people reading this item, it may not be the first house you are buying and you may be considering purchasing property as an investment… Our tips here are to look at the rate of return that you would receive from the property. At the moment we are generally seeing around a 2% to 3% income return on residential investment property so unless there is a significant lift in the underlying value of the property, you may want to look at diversifying your investable funds into other asset classes such as shares. Diversification is a word you will hear us talk about regularly. Basically it is spreading your investible funds across different asset classes like shares, property, fixed interest or cash. The allocation that you put toward each of these asset classes comes down to the returns you are seeking and your level of comfort with risk. It is also important to look at the liquidity of your investible assets (how easily you can sell them) and the time frame you want to invest them for.

Tip – If you are looking at property as an investment option and are going to be looking at a buy/sell strategy, make sure you speak to your financial adviser or accountant about taxation issues such as capital gains tax and always take into consideration the fees associated with buying and selling property as this will affect your rate of return.

We hope you have enjoyed this week's "Money in Life" series and remember we are only an email or phone call away if you would like to seek advice on how to help grow your wealth now and into the future.
"A budget is telling your money where to go,
instead of wondering where it went..."
John C. Maxwell

Sometimes it happens at 15, for others, it is 17 or maybe a bit later around 19 or 20. No matter when it happens, it is an exciting, daunting significant milestone. It is your first job! Entering the workforce for the first time is an exciting step for any young person. It brings with it the unmistakable sense of independence – you now have your own money and you can make decisions about what you do with it – and freedom (did someone say shopping?!).



The seduction of money is in the instant gratification of what you can buy with it now. From clothes and accessories to cars and technology… The allure of "things" can be great, and the consideration for long-term wealth is often forgotten with a mantra of "YOLO" (You Only Live Once). However, your first job can also become the foundation of greener pastures and long-term sustainable wealth (someone say, early retirement and travel?). The key to getting ahead is understanding where you are going, how your money can work for you and exactly where your money is going – is it being invested or wasted? The following tips outline the key considerations for anyone new to the workforce (who is keen to get ahead):

1. Get Clear on Your Super
Being from Gen Z (oh to be young again) you may not yet have discovered that it is a legal requirement that your current employer invests a portion of your wages from each pay-check until you reach retirement. This investment is called Superannuation. Over a lifetime in the workforce, your regular instalments of Super can really add up and if planned for effectively and tracked can serve to ensure you enjoy a comfortable and enriching retirement. It is really important to understand what your Super is doing and keep track of it from the beginning. Make sure you've only got one Super fund and that your employer is directing their required payments just into this fund and not another one they've set up for you. Given you'll have a long investment timeframe ahead of you, set your investment choice to a high growth option. This will give you a better chance of getting a higher rate of return on your Super money, and over a 40 year period, an extra percent or two in return makes a huge difference. Put a nominated beneficiary in place on your Super fund. This is nominating where you'd like to direct your Super if you die prematurely, and given there will likely be a life insurance component, there will be a decent amount of money to direct. Supplement your Super personally for a big impact. If you nominate even $20 of your own money each pay-check as a Super Contribution, this amount will compound the effect of your investment and make your returns bigger.

2. Allocate Your Weekly Spending
Now that you're earning more money, you'll also be spending more. Get into the habit early on of splitting up your money into these categories:
Take the time to work out what your weekly allowance will be for those daily expenses that can't be avoided, such as rent, board, groceries, public transport, car costs, fuel etc. (these are your general living costs) and set up a separate bank account for this allowance to go into. Then, set up another different account to receive a nominated personal spending allowance each week. This is the amount you can spend guilt-free on whatever you want – think shoes, clothes, computer games, entertainment (like going out or to the cinema). Lastly, the rest of your money should be allocated to savings and investing and transferred to another account. An aside from this can be an allocated saving into a separate account for bills, but it's vital to be working on your savings from the get-go. Once you have some surplus in this account you can begin to learn about different investment opportunities such as shares – which only need a small amount of capital to start investing. When you start early and take small steps often, you will find that your portfolio will progress quickly set you up early for a prosperous future.

3. Protect Your Income With Income Protection Insurance
Lastly, it is important to understand what protection is available and how it supports you. It won't take long for you to enjoy the benefits of having your own money from your first job, but it's never too early to protect your new found independence in case something happens (accident or illness) and you are not able to work. For a young person, the cost of insurance is relatively low and the benefits in case of emergency are worthwhile, so take the time to research your options and protect your greatest asset – yourself.
If you or someone you know is new to the workforce or would simply like to understand how to use your money to serve you better, contact us today for an obligation-free chat – we'll buy the coffee!

Why You Need a Will as Soon as You Turn 18

When was the last time you sat down and thought about your estate and how it might be distributed (help those you love) when the time comes?


We understand that for many people, thinking about their estate is daunting and emotional. However, it is important to understand and ensure that your assets – the things that you have worked hard to attain – are left to the people you want to have them. It is important that you ensure your legacy is able to be provided efficiently for those that you love and it is important that you understand any tax implications too. Effective planning ensures that you leave your financial house in order and it happens now, today, while you are in a place of wellness and stability. We don't offer legal advice (we do know great lawyers though that can help), we are here to help you understand the impact and importance that your assets (legacy) can have and work with you to make the most of them!

The truth is that life is unpredictable and you do not know when things might change. It is for this reason that we believe it is never too early to plan for a safe tomorrow. The easiest way to do this is with a Will. From the day someone turns 18 having a Will, will ensure that no matter what happens their wishes are heard.

Why 18? Well, chances are an 18-year-old will have a superannuation fund with an amount of life insurance in it, and this will need to be allocated as well as any personal items or sentimental pieces. Regardless of age, we all have items that if the worst was to happen we would want to go to those closest to us. Without a Will, all belongings and possessions including Assets will be distributed by a public trustee – a stranger – who doesn't know you or what you want. Why leave it to chance, when you are only YOUR WILL away from ensuring what you want happens. To ensure you are protected and ready for the future no matter what happens to consider the following and start today:

1. Do you have a valid Will that is regularly reviewed? When making a Will, consider who you would like to act as your Executor. Make sure the person in this role knows something about your financial position and what your wishes are.

2. Do you have children under 18 who need a nominated guardian? Consider who would be best to take care of your children.

3. Do you have children from a previous relationship? In most cases, these children need to be provided for in order to reduce the risk of an estate being contested.

4. Have you considered an enduring Power of Attorney, which lets someone act on your behalf if you lose the ability to make decisions for yourself? If you don't have one in place, in the unfortunate event of not having the "capacity" to maintain your affairs, control of your assets may pass to a government body such as The Office of the Protective Commissioner.

5. And don't forget your Super! Binding nominations are effective choices as to which beneficiaries receive your superannuation entitlements and in what proportions. Please note that if these nominations are not kept up-to-date, you could find your super money is distributed in the way you had not preferred. Your superannuation assets don't always automatically fall into your estate

6. Have you considered Testamentary Trusts? These trusts are formed on the death of a person if they have specified for this to happen in their Will. The main benefits of testamentary trusts are their ability to protect assets and to reduce tax paid by beneficiaries from income earned from the inheritance.

Wills will range from simple in nature to complex, depending on the Asset level and wishes of the individual. Regardless, it is important to take the time to consider what you want, speak with a professional and then plan how you would like your Estate distributed as it represents your lifetime of effort. If you are ready to secure how your future legacy will serve the ones you love, we are happy to help at any time with an obligation free assessment of your Estate and Will. Or if you would just like to chat over a cuppa about the options you have simply call us today or book here!

Hello and welcome to 2018!
Firstly, we would like to wish all our clients and friends at Schuh Group a very happy and prosperous year ahead. We would also like to share with you how we will be focusing on supporting you further this year to ensure that you, your family, employees and friends have the information and resources to take positive action around your finances in life & business.

We are passionate about giving you the right information so that you can make decisions that are right for you and your family now and in the future. As the old proverb says "it's not about your resource it's about your resourcefulness." In 2018, we will be sharing the best information we have around all things Money, Life and Business (and how they work together) to support you at every stage of the game, no matter what you have or where you are starting, we are dedicated to helping you move forward.

So, what that will look like for you is a change to the weekly mail-out we do.

Instead of just sharing the market update and other bits of news, we will provide you education around specific areas such as Superannuation, saving for a first home, how to educate your kids to save and more. We will also cover the basics and go deep on various business focuses such as tax minimisation and structures, and we will ensure that you are always given the latest updates (legislative, tax and alike) to make you compliant. Beyond this we will also provide you will tools and templates to download, that will support you to better manage, think about and share your financial goals and aspirations with others. So if you are a parent wanting to support a child move forward and buy their first home, or you are looking to enter the investment market, need to effectively plan for retirement or want to give your staff the low-down on how Superannuation can benefit them – we have you covered!

It became glaringly apparent to us about twelve months ago, when we welcomed a new addition to the Schuh family (the much loved and darling niece and granddaughter Adella below), that finances is about family and beyond profit and loss, having good financial health is about creating security so that you can enjoy the things that matter. We also realised that true wealth is education and that education begins from the moment a child is born as they watch what you do, why you do it and how you do it. So as we move forward this year, we are excited to further support you and yours on a journey to wealth that provides you with the freedom to enjoy the new additions and sleep soundly at night!

As the New Year is a great opportunity to put new habits in place that will give you the best chance of getting where you'd like to be with your money, right now is also the perfect time to set new goals. So, to kick off our new journey together, we suggest you take some time over the next days to consider the following: 

1. Am I happy with the amount of money I've saved or accumulated in the last three years?

2. What needs to have happened in my financial life over the next three years, for me to feel I've made good progress?

3. What are the obstacles getting in my way and slowing my progress down?

4. Will there be family life events in the future that I need to be planning for now?

The first step to change is having clarity. Taking time to reflect will provide you with the building blocks to move forward and achieve your goals and we are here to provide you with the coaching, strategy, and support along the way! We look forward to seeing and working with you in 2018

Book Your FREE Financial Health Check Now!

Yours in Wealth,
The Schuh Team

We Are Hiring!

January is a great time to buy a car. Car dealers all over the country will be clearing last year's stock at knock-out prices. So if you want to take advantage of the New Year car sales, get ready by talking to us about your finance now.



Why talk to us?
It's important that you get a car loan that's affordable, competitive and tailored to fit your personal financial circumstances and goals. Car dealership finance is not tailored to individuals – it's often locked in to the full price of the car and repayment terms can sometimes be too short for many people to afford.
So to make sure you don't miss out on a great car deal, ask us to help you organise your finance now. We'd love to help make your New Year a happy one.

This week, the share market has edged higher as the property sector was boosted by the $33 billion takeover of Westfield, and the consumer staples sector also rose. The benchmark S&P/ASX200 stock index was up 0.14 per cent at 6,021.8 points at 1630 AEDT, after a session in which the index moved within a narrow range. Shares in Westfield jumped 13.7 per cent to $9.66 after the company agreed on Tuesday to a takeover from Europe's biggest property giant that values its securities at $10.01. The retail sector was mixed, with JB Hi-Fi and Premier Investments posting small gains, and Harvey Norman and Super Retail Group modestly weaker. The Australian dollar is stronger due to improved sentiment in some metals markets, and a fall for the US dollar after the Democrats won the Alabama Senate race, which could have implications for the passage of US President Donald Trump's US tax reforms through Congress.



What this means for you:

The major news in our market this week is the sale of Westfield Corporation which will be taken over by European commercial property company Unibail-Rodamco. Under the deal, shareholders will receive $10.01 per share. They last traded at $9.66 when the market closed on Wednesday. The Westfield name will remain and while Mr. Lowy will step down as chairman, he will still chair an advisory board for the new company. Mr. Lowy and his two sons Steven and Peter will also still keep a $1,323,450,000 investment in the company. Westfield Corporation currently controls 35 shopping malls in the US and the UK. Its Australian centers are managed by Scentre Group, which is separately listed. While one big move by a company will dominate headlines for a few days, don't get caught up in trying to pick and choose the short-term movements of shares. Take a diversified position, and hang on for the long haul. As Warren Buffett has said, if you're not willing to hold an investment for at least 10 years, don't make it in the first place. 

At its final board meeting for 2017, the Reserve Bank Board decided to leave the cash rate unchanged at 1.50 per cent.  Conditions in the global economy have improved over 2017. Labour markets have tightened and further above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy continues to be supported by increased spending on infrastructure and property construction, although financial conditions have tightened somewhat as the authorities address the medium-term risks from high debt levels. Australia's terms of trade are expected to decline in the period ahead but remain at relatively high levels.

Wage growth remains low in most countries, as does core inflation. Equity markets have been strong, credit spreads have narrowed over the course of the year and volatility in financial markets is low. Long-term bond yields remain low, notwithstanding the improvement in the global economy. Recent data suggest that the Australian economy grew at around its trend rate over the year to the September quarter. The central forecast is for GDP growth to average around 3 per cent over the next few years. Business conditions are positive and capacity utilisation has increased. The outlook for non-mining business investment has improved further, with the forward-looking indicators being more positive than they have been for some time. Increased public infrastructure investment is also supporting the economy. One continuing source of uncertainty is the outlook for household consumption. Household incomes are growing slowly and debt levels are high. Employment growth has been strong over 2017 and the unemployment rate has declined. Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. The Bank's central forecast remains for inflation to pick up gradually as the economy strengthens. The Australian dollar remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast. The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.


Behavioural Investing

When it comes to money and investing, we're not always as rational as we think we are – which is why there's a whole field of study that explains our sometimes-strange behaviour. Where do you, as an investor, fit in? Insight into the theory and findings of behavioural finance may help you answer this question. A lot of economic theory is based on the belief that individuals behave in a rational manner and that all existing information is embedded in the investment process. This assumption is the crux of the efficient market hypothesis. But, researchers questioning this assumption have uncovered evidence that rational behaviour is not always as prevalent as we might believe. Behavioural finance attempts to understand and explain how human emotions influence investors in their decision-making process. You'll be surprised at what they have found.

The Facts
In 2016 Dalbar, a financial-services research firm released a study entitled "Quantitative Analysis of Investor Behaviour", which concluded that average investors fail to achieve market-index returns. It found that in2016, the S&P 500 returned an average of 11.96% for the year, while the typical equity investor achieved only 7.26% for the same period – a startling 4.7% difference! Why does this happen? There is a myriad of possible explanations.

Regret Theory
Regret Theory deals with the emotional reaction people experience after realizing they've made an error in judgment. Faced with the prospect of selling a share, investors become emotionally affected by the price at which they purchased the share. So, they avoid selling it as a way to avoid the regret of having made a bad investment, as well as the embarrassment of reporting a loss. We all hate to be wrong, don't we? What investors should really ask themselves when contemplating selling a share is, "What are the consequences of repeating the same purchase if this security were already liquidated and would I invest in it again?" Regret theory can also hold true for investors when they discover that a share they had only considered buying has increased in value. Some investors avoid the possibility of feeling this regret by following the conventional wisdom and buying only shares that everyone else is buying, rationalizing their decision with "everyone else is doing it". Oddly enough, many people feel much less embarrassed about losing money on a popular share that half the world owns than about losing on an unknown or unpopular share.

Mental Accounting
Humans have a tendency to place particular events into mental compartments, and the difference between these compartments sometimes impacts our behaviour more than the events themselves. Say, for example, you aim to catch a show at the local theatre, and tickets are $20 each. When you get there you realize you've lost a $20 note. Do you buy a $20 ticket for the show anyway? Behaviour finance has found that roughly 88% of people in this situation would do so. Now, let's say you paid for the $20 ticket in advance. When you arrive at the door, you realize your ticket is at home. Would you pay $20 to purchase another? Only 40% of respondents would buy another. Notice, however, that in both scenarios you're out $40: different scenarios, same amount of money, different mental compartments. Pretty silly, huh? An investing example of mental accounting is best illustrated by the hesitation to sell an investment that once had monstrous gains and now has a modest gain. During an economic boom and bull market, people get accustomed to healthy, albeit paper, gains. When the market correction deflates investor's net worth, they're more hesitant to sell at the smaller profit margin. They create mental compartments for the gains they once had, causing them to wait for the return of that gainful period.

Prospect/Loss-Aversion Theory
It doesn't take a neurosurgeon to know that people prefer a sure investment return to an uncertain one – we want to get paid for taking on any extra risk. That's pretty reasonable. Here's the strange part. Prospect theory suggests people express a different degree of emotion towards gains than towards losses. Individuals are more stressed by prospective losses than they are happy from equal gains. An investment adviser won't necessarily get flooded with calls from her client when she's reported, say, a $500,000 gain in the client's portfolio. But, you can bet that phone will ring when it posts a $500,000 loss! A loss always appears larger than a gain of equal size – when it goes deep into our pockets, the value of money changes. Prospect theory also explains why investors hold onto losing shares: people often take more risks to avoid losses than to realize gains. For this reason, investors willingly remain in a risky share position, hoping the price will bounce back. Gamblers on a losing streak will behave in a similar fashion, doubling up bets in a bid to recoup what's already been lost. Investors often make the mistake of chasing market action by investing in shares or funds which garner the most attention. Research shows that money flows into high-performance managed funds more rapidly than money flows out of funds that are underperforming.

Over-/Under-Reacting
Investors get optimistic when the market goes up, assuming it will continue to do so. Conversely, investors become extremely pessimistic during downturns. A consequence of anchoring, or placing too much importance on recent events while ignoring historical data, is an over- or under-reaction to market events which results in prices falling too much on bad news and rising too much on the good news. At the peak of optimism, investor greed moves shares beyond their intrinsic values. When did it become a rational decision to invest in shares with zero earnings and thus an infinite price-to-earnings ratio (think dotcom era, circa the year 2000)? Extreme cases of over- or under-reaction to market events may lead to market panics and crashes.

Overconfidence
People generally rate themselves as being above average in their abilities. They also overestimate the precision of their knowledge and their knowledge relative to others. Many investors believe they can consistently time the market. But in reality, there's an overwhelming amount of evidence that proves otherwise. Overconfidence results in excess trades, with trading costs denting profits.

Conclusion
Behavioural finance certainly reflects some of the attitudes embedded in the investment system. Behaviourists will argue that investors often behave irrationally, producing inefficient markets and mispriced securities – not to mention opportunities to make money. That may be true for an instant, but consistently uncovering these inefficiencies is a challenge. Questions remain over whether these behavioural finance theories can be used to manage your money effectively and economically. That said, investors can be their own worst enemies. Trying to out-guess the market doesn't pay off over the long term. In fact, it often results in quirky, irrational behaviour, not to mention a dent in your wealth. Implementing a strategy that is well thought out and sticking to it may help you avoid many of these common investing mistakes.

 

Tis The Season to Make Wrong Forecasts!

The year's winding down, so in the financial world that can only mean one thing – forecasts for next year.

Every mainstream media outlet will be putting them together over the next month because
A. people like lists; and
B. they're easy to string together.

The thing to always keep in mind: they're all worthless. There's no value that could be gleaned from forecasters who don't own working time machines or crystal balls.

The fun part comes from looking back because picks and forecasts are mostly made with impunity. There are so many of them that rarely does anyone ever get held to account. So a few of the clangers should always be highlighted to remind investors not to pay them any attention.

This time last year the Australian Financial Review published a 5000+ word opus: "The Best Choices for 2017: Equities". Surprisingly, despite suggesting it was important to pick carefully in the year ahead, for the most part, the article didn't offer up many picks. It did, however, allow analysts and managers to muse on the general prospects for various sectors in the year ahead: retail, infrastructure, energy, technology, healthcare, agriculture, mining, property, and banks. It named companies expected to do well but mostly stopped short of offering outright recommendations. 

However, in retail, while consensus was the sector would be subdued the suggestion was there would be some winners and losers. Leading to some necks being stuck out with explicit buy and sell calls made by Citigroup and UBS. With those names collected, it's time to see how well they've performed in 2017. The buys were Myer, Harvey Norman, JB HiFi and Super Retail Group. The sells were Woolworths, Metcash. 

So, how'd they fare? As the chart shows, had you done the opposite of all their recommendations you would have enjoyed a much better return than actually doing as they said. The four companies they recommended buys went into the red by a minimum of 16%, while the two sells gave positive returns:


From the buys, Citigroup was mostly positive on Myer, noting "we expect to see better-operating margins and positive sales trends even with the sluggish [consumer spending] backdrop." Yet it was the worst of the bunch, having fallen 47% year to date. The sell on Woolworths from UBS was reliant on the idea that price competition from food retailers may turn into a full-blown price war. In other words, a forecast on a possibility. Not exactly the most robust way to invest. Many of the forecasting articles follow a similar formula. It's always based on a perverted understanding of diversification. Where the investor needs to have a grab bag of shares from various industries. List each sector of the economy and pick the companies 'most likely to succeed' and because you've got a bit of everything, you're diversifying, right?

True diversification spans asset classes and countries. It's not reliant on whether Woolworths gets into a price war with Coles and Aldi, meaning your retail exposure should be elsewhere for that year. It allows you to remove your focus away from your portfolio and onto your life. For the media though, they need your eyes, while the analysts and brokers need you churning for a commission. So what you won't find the best choices for 2018 is the recommendation of a portfolio tailored to your needs with a minimum 10-year horizon.

This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation, and individual needs

Deliverance From Bad Insurance

Gains by the major banks, miners and energy companies have pushed the share market's benchmark index past 6,000 points for second time this month. The benchmark S&P/ASX200 stock index gained 26.8 points, or 0.45 per cent, to 6,011.1 points, as the banking and mining heavyweights took advantage of positive offshore data and a swing in sentiment on the local market. Despite a dip in the price of iron ore, miners also gained ground, with BHP Billiton adding one per cent, Rio Tinto edging 0.2 per cent higher and Fortescue Metals rose 1.3 per cent.The Australian dollar is back below 76 US cents as the US dollar rose due to improved consumer confidence data and comments from US Federal Reserve Chair nominee Jerome Powell that supported expectations of a rate rise in December.

If you've ever seen the classic film Deliverance you'll know it's the ultimate insurance advertisement. The character of Lewis, played by Burt Reynolds, begins the film proudly declaring, "I never been insured in my life. I don't believe in insurance. There's no risk." Movie fate ensures the canoeing trip Lewis and his friends take is beset by disaster. Lewis ends the trip with a compound leg fracture. And for those who haven't seen the film, he's the lucky one! There's probably no worse outcome than being uninsured and struck by some kind of misfortune – unless you're insured and struck by some kind of misfortune and your insurer doesn't come through. What's the likelihood of that happening? According to ASIC's review into life insurance (focusing on 15 companies or 90% of the life insurance industry) which came out in October 2016, 90% of all claims are paid in the first instance. This is an across the board figure combining life, total & permanent disability (TPD), Trauma and Income protection.

But what are the decline rates in each insurance area? 4% of life insurance claims are rejected, 7% of income protection claims are rejected, 14% of trauma insurance claims are rejected and 16% of TPD claims are rejected. While 7% of policies purchased through an adviser were rejected, that figure rose to 12% if the policy was purchased without advice. Which may signal two things: insurance advice comes in handy because an adviser can use their experience to navigate policy selection; and if a claim needs to be made an adviser will be working on behalf of the policyholder for a result.
The rejected trauma claims at 14% and TPD at 16% appear slightly uncomfortable to look at. Depending on the insurer (not specifically named in this section of ASIC's report) these ranged from a low of 6% of declines at one insurer for trauma cover up to 31% for the highest. For TPD the low was 7% at one insurer, while the high was 37% rejected by another insurer. While we don't specifically know the insurers most likely to decline claims, Adviser Research followed up ASIC's report with research of their own. Adviser Research surveyed advisers on their experiences with the 15 insurers featured in ASIC's report.

The best three insurers for claims handling according to advisers? Asteron Life, AIA and TAL. The worst three insurers for claims handling according to advisers? Comminsure, Clearview and Macquarie.
In those categories of trauma and TPD? Asteron were voted the best claims handler in both trauma and TPD, while Real Insurance, Comminsure and Allianz were rated poorly by advisers in trauma and TPD. So Comminsure is living up to its recent media reputation, basically being ranked down with direct insurers such as Real Insurance. Comments from advisers were indicative of the level of distrust, with suggestions that Comminsure had been either implicitly or explicitly removed from their approved list of insurers. As one adviser said in their survey comments, "If the biggest company in Australia has a policy of denying Trauma claims, there is a major risk to consumers".

Something to consider if you're planning a backwoods canoeing trip.

The ATO receives around 20,000 reports each year from people who believe their employer has either not paid or underpaid compulsory superannuation guarantee (SG). In 2015-16 the ATO investigated 21,000 cases raising $670 million in SG and penalties. The ATO's own risk assessments suggest that between 11% and 20% of employers could be non-compliant with their SG obligations and that non-compliance is "endemic, especially in small businesses and industries where a large number of cash transactions and contracting arrangements occur."


Celebrity chefs are the latest in a line of employers to publicly fall foul of the rules - one for allegedly inventing details on employee payslips and another for miscalculating wages. But what happens if your business gets SG compliance wrong? Under the superannuation guarantee legislation, every Australian employer has an obligation to pay 9.5% Superannuation Guarantee Levy for their employees unless the employee falls within a specific exemption. SG is calculated on Ordinary Times Earnings – which is salary and wages including things like commissions, shift loadings, and allowances, but not overtime payments. Employers that fail to make their superannuation guarantee payments on time need to pay the SG charge (SGC) and lodge a Superannuation Guarantee Statement. The SGC applies even if you pay the outstanding SG soon after the deadline.

The SGC is particularly painful for employers because it is comprised of:

1. The employee's superannuation guarantee shortfall amount – so, all of the superannuation guarantee owing
2. Interest of 10% per annum, and
3. An administration fee of $20 for each employee with a shortfall per quarter 

Unlike normal superannuation guarantee contributions, SGC amounts are not deductible, even if you pay the outstanding amount. That is, if you pay SG late, you can no longer deduct the SG amount even if you bring the payment up to date. And, the calculation for SGC is different to how you calculate SG. The SGC is calculated using the employee's salary or wages rather than their ordinary time earnings. An employee's salary and wages may be higher than their ordinary time earnings particularly if you have workers who are paid for overtime.

Under the quarterly superannuation guarantee, the interest component will be calculated on an employer's quarterly shortfall amount from the first day of the relevant quarter to the date when the superannuation guarantee charge would be payable. The penalties imposed on the employer for failing to meet SG obligations on time might seem harsh, but they have been designed that way on purpose. This is really money that belongs to the employee and should be sitting in their superannuation fund earning further income to support the employee in their retirement.

Where attempts have failed to recover superannuation guarantee from the employer, the directors of a company automatically become personally liable for a penalty equal to the unpaid amount.
Directors who receive penalty notices need to take action to deal with this – speaking with a legal adviser or accountant is a good starting point.

If you are uncertain about your SG obligations or would like a compliance audit of this and other key risk areas of your business, give us a call.

What You Need to Let the ATO About Your SMSF

The 1 July 2017 superannuation reforms introduced a new reporting regime for funds. Funds now need to advise the ATO of key events within the fund that impact on retirement income streams (pensions):

1. When you start a pension
2. When you stop a pension or take a lump sum
3. When the fund accepts a structured settlement contribution such as personal injury compensation.

Superannuation funds are also required to report the value of existing superannuation income streams at 30 June 2017. While reporting of these events to the ATO does not formally start until 1 July 2018 for SMSFs, event based reporting still needs to be completed if these events occur from 1 July 2017 – that is, you have a reprieve from the compliance but not the actual reporting.

If we are managing your SMSF's accounting and compliance, we will track most of these events for you electronically where you have enabled us to access feeds from your SMSF's bank accounts. If we see any transactions that could meet the reporting criteria, we will be in touch with you to confirm the nature of these events.Where electronic feeds are not available - if your bank does not support them or where you have opted not to enable the feeds, you will need to let us know about these events at the time they occur. In addition to the new events based reporting regime, SMSFs are also obliged to report any of the following changes to the ATO within 28 days.

1. Fund name
2. Fund address
3. Contact person for the fund
4. Fund membership
5. Fund trustees
6. Directors of the fund's corporate trustee
There is little room for error when it comes to SMSFs, so as always, if you have any questions or concerns, contact us on 5482 2855 and get the correct advice and information for your particular situation.

One of the most gratifying things about doing business in country communities is that we are afforded opportunities to make contributions of all kinds, and (hopefully), leave a positive footprint. Recently, we were thrilled to receive this letter of thanks from the Kingaroy State High School recipient of our Bursary for Volunteering. We view volunteering as a wonderful way to develop compassion and empathy in young people, as well as generally make the community a stronger, kinder, and better place to be. The recipient of the bursary, Breanna Taylor, is already well on the way to developing the attributes that are the foundation of tight knit and caring communities. Congratulations Breanna. It will be wonderful to watch you continue on your educational journey.

When Buying Stocks, Do You Think Small?

Gains in all but one sector of the share market have lifted the All Ordinaries index above 6,000 points for the first time since the global financial crisis. The All Ordinaries index rose 0.5 per cent to 6,005.5 points, its highest level since May 2008, and the benchmark S&P/ASX200 index gained 0.5 per cent to 5,937.8 points. Energy producers set the pace for the market's gains, as oil prices hit 24 month highs. The big four banks also rose, with their gains ranging from National Australia Bank's 0.7 per cent to Commonwealth Bank's 0.05 per cent. The Australian dollar on Wednesday was slightly weaker against the US dollar at 76.62 US cents, from 76.80 US cents on Tuesday after the release of weaker-than-expected Chinese manufacturing data. The spot price of gold in Sydney at 1700 AEDT Wednesday was $US1,272.27 per fine ounce, from $US1,276.24 per fine ounce on Tuesday.

What this means for you:

We see it quoted daily in newspapers, on radio and television, but for many people the All Ordinaries shares index remains a confusing set of numbers. To some people it's those weird finance numbers read out during TV and radio news bulletins. To others, they're an important part of how their investments are performing. Put simply, the All Ords (as it's affectionately known) is a measure of the value of the biggest 500 companies that are listed on the Australian Securities Exchange. When it was established in 1980 the All Ords was given a base value of 500 points reaching a high of 6873 points in 2007.

We would suggest you don't watch the daily movements of the All Ords index, but rather remember that the Australian market has always increased in value over the long term. Daily up and down price movements is a normal way for markets to behave, but it's what happens over 10 years or more that's most important. Every night on the TV finance news, you'll hear about the ups and downs of household name stocks, like the big four banks, Telstra, CSL, Wesfarmers, Woolworths, BHP Billiton and Rio Tinto. But the market is more than that handful of names. There are about 500 stocks in the All Ordinaries index, the indicator often referred to in the media as the benchmark for the Australian share market. The combined market value of all those stocks, as of August 2016, was close to $1.8 trillion. Large-cap stocks, such as the big stocks mentioned above, make up about 80-85% of the total market cap. Currently these are roughly the largest 100 stocks by size. The remaining 15-20% of the market cap is represented by the small company stocks.

So why would you want to include these often obscure companies in your portfolio? Well, there are a couple of reasons. One is that these stocks (known as 'small caps') tend to behave differently to the better known larger names otherwise known as large caps. Sometimes, large caps will be the best performers. Other times, small caps will be in favour. So owning both parts of the market means you are getting a diversification benefit. In other words, some of the volatility of being exposed to just one part of the market is reduced.

A second reason for owning small caps in a diversified portfolio is that they are expected to earn a premium over large company stocks. Research shows this small-cap premium (alongside premiums from low relative price and highly profitable stocks) is persistent across time and pervasive across different markets around the world.
There are a few provisos to this finding. One is that the premiums are not there every day, every month or even every year. While we expect them to be there every day, there are periods when small caps will underperform large caps. This makes sense because if the premium was there all the time, it would be traded away.

A second caution is that within small caps, other premiums are at play. Research shows that among small stocks, those with high relative prices (sometimes known as 'growth' stocks) and lower profitability tend to have significantly lower expected returns than the rest. That means we need to take into account of this difference in expected returns.

Finally, diversification is critical. Over shorter periods, some stocks may do exceptionally well; others exceptionally poorly. It's difficult to identify these stocks in advance. And that's why you need a well-diversified portfolio that can capture the performance of these stocks in a more consistent manner. Diversification also helps control implementation costs which if unmanaged can be quite high for small-cap stocks.

So what's been the long-term evidence of a small cap premium in Australia? Over nearly four decades to the end of 2015, small caps here delivered annualised returns of nearly 14%, beating large caps by around two percentage points per annum on average.

The tricky thing for investors is the "on average" bit. In some years, such as 1989, small caps significantly underperformed large caps. In other years, such as in 1993, small caps shot the lights out, figuratively speaking.
Indeed, over the four-decade period shown in the chart below, you can see that only in four years has the performance of small-cap stocks been within 2% of that average premium. So the small-cap premium (the difference between the performance of large and small cap stocks) can be volatile, which is the price you pay for earning the premium.

In recent years, Australian small company stocks have struggled. In fact, in the four years from 2011-2014 inclusive, the small-cap premium (as shown above) was negative. But does that give us any information about the future performance of small cap stocks or what might drive the performance in the years ahead? In other words, can we time the premiums available from small, low relative price and more profitable stocks? It would be nice, wouldn't it? But rigorous tests show very limited evidence that we could do so reliably. That's the bad news. The good news is you don't need to be a timing wizard to get the benefit of these premiums. We've seen they are there over the long term. And we know that the best way to capture them is to apply a consistent focus within a broadly diversified portfolio.

The nature of the small-cap premium, however, is that when it does kick in, it can do so with a vengeance. And that's precisely what we have seen in the past 12 months to the end of July 2016 as small caps (as measured by the same index as in the above chart) have delivered a return of about 18% in the Australian market, well north of the flat result from large-cap stocks. So the big glamour stocks are not all that there is to our market. Small cap stocks also play an important role in your portfolio. They provide a diversification benefit because they behave differently to those big names. But they also offer an expected premium over time. The trick is riding out the volatility and staying disciplined within the asset allocation your advisor has chosen for you.

It's a small world after all.

Our goal is to work with you to not only maximise your financial viability and opportunity now, as well as to ensure that we provide you with the guidance, advice, and support to plan for security later in life. Today more than ever, with ongoing inflation and rising living costs, it is important that people consider and plan for how they will live post-retirement. This is especially true for Gen X's and later.


In an article published on News.com.au in recent weeks, it was reported that only 19 per cent of us will retire comfortably, and Gen X Aussies will have to save up to $4 million dollars to enjoy their golden years, according to new research. These stats mean that the majority of Australians – over 80 % of us are at risk of "falling short" when it comes to the affordability of comfort in our later years. Furthermore, the article shared research statistics that forecast "anyone born after 1984, will likely need between $2.09 - $3.98 million dollars for a comfortable self-funded retirement in 26 years' time"

Obviously, the idea of comfortable is subjective and can change from person to person, however, according to SuperGuide, they suggest that a couple today can generally enjoy a comfortable retirement on about $60,000/year – which will require a significant lump sum investment, with the aged pension only covering a small percentage of living needs. For the coming generations such as millenials, the reality is much more stark with lump sum figures hitting the millions. The report continued to indicate that there were enormous - around$3.5 trillion dollars – in funds expected to be passed on from Australian Baby Boomers to their children over the next 20 years suggesting that about 75 per cent of all Gen X and Y with surviving parents will inherit an average of $110,000. If invested wisely, these funds could set up their future.

And that is the most important take-out from this discussion – that it is important to use what is available today to start investing for the future. It was also suggested that Australians, in general, have a limited understanding of smart, long-term investment options, which can cause feelings of being overwhelmed and lead to inaction. The key is to start learning now. Regardless of what stage of life you are at it is important to seek out the right advice from trusted sources. It is also important for parents and grandparents to actively work with their children to set up Estates and Investment portfolios that work for the whole family over the very long-term.

Education is key to success when it comes to financial investment and no matter how daunting things may seem, when you are proactive and sensible in your approach anything is possible. If you would like any information or advice regarding your personal estate and retirement planning please contact us today for an obligation-free consultation with our Wealth Advisory team.

When looking at getting a home loan, most people head straight to their bank and this could be a costly mistake! Right now in Australia, there are over 3500 different loan products available for purchasing a house. And on top of that, each different lender has different niches available that make them a better fit for one lender over another. When a person just goes straight to "their" bank to organise a home loan, they are potentially missing out on a product that has better features to fit their needs, cheaper rates and perhaps more flexibility.

Beyond the sheer number of options for lending products then you also have a lot of interest rates, terms, conditions, establishment fees and application criteria to sort through. Then there's fixed rate versus variable rate, interest only versus principal plus interest. This is where knowing and understanding the benefits a broker can provide will ensure that you not only get the best product for you, you will save time and effort in finding and securing the best product too. Below are a few of the top (and most sensible) reasons to use a broker:

1. Choice

Using a mortgage broker offers you the freedom of choice. It is like sitting in front of 15+ banks with hundreds of loan products and all of them offering varying benefits and opportunities. This could also be the difference in finding lower rates, loans with lower fees, or specific loan features to help you pay off your loan faster and in turn, means paying less in the long run!

2. Insider Knowledge

Mortgage Brokers deal with multiple lenders every day and this means that they know what needs to be done to get your application approved by each lender and how to get it done smoothly with no delay. Brokers are keeping up to date with any changes – legislative and lender-orientated and act as your personal advocates with the lenders – so you can trust them to do everything that needs to be done to get you the loan you chose.

3. Time

Brokers do the work for you. Following up the progress of your loan application is time-consuming and can be frustrating. When you use a broker they do all the paperwork and follow up the lender so you don't have to. They will then guide you through each stage of the process and ensure that the lender and you have everything needed at every stage. Ultimately when you use a Mortgage Broker you will save time and money with a faster approval and better chance of getting the right product for your needs. And best of all – Mortgage Brokers have no upfront fees or cost to the client.

If you are searching for a new home, an investment or maybe a second opinion on your current loan, call Schuh Group Finance today and let us get you approved! To register for your free "Home Loan Health Check" please email one of the Schuh Finance team below or call David Schuh directly on 0400 224 615. Email the team today, have a new rate option tomorrow:

David Schuh:     david.schuh@schuhgroup.com.au
Jo Bennet:       jo.bennett@schuhgroup.com.au
Dannii Herron:     dannii.herron@schuhgroup.com.au

The 'How' of Investing is Often Overlooked

The share market's recent run of gains has stalled due to weakness among telcos and miners and heavy falls from Crown Resorts and Lendlease. The benchmark S&P/ASX200 added just 0.02 per cent to 5,890.5 points, after being up to 0.3 per cent higher in the early afternoon.
Rio Tinto dropped 0.8 per cent to $70.92 and BHP Billiton shed 0.5 per cent to $27.17 after posting a three per cent drop in iron ore production in the September quarter. Telstra dropped 1.7 per cent to $3.49. The Australian Dollar was trading at 78.45 US cents at 5pm yesterday, from 78.46 US cents on Tuesday


What this means for you:
Success as an investor starts with the key questions of why, what, where, when and how. Why are you investing? What are your priorities? Where is your destination? When do you hope to get there? But it's the 'how' that's often overlooked.
'How' relates to process. It's not just what you invest in, but the approach you take to investing. This means adopting set guidelines to deal with whatever financial markets, and life generally, might throw at you on the way to where you're going.

The Seven Virtues of Process
Following on from how success as an investor starts with the key questions of why, what, where, when and how in the 'What this means for you section', of this week's Market Update, we are going to look at "process" a little more deeply and what it means in terms of investing. The process is critical when investing for many reasons. Here are seven that we believe are important for any investor:

1. Process means setting pre-agreed rules with your adviser to keep you focused on your goals. Without rules, you may be more likely to act on emotion triggered by the headline of the day or whatever other distraction everyone is talking about.
2. The second advantage of having a process is that it can be tied to broad principles. For instance, agreeing that diversification improves the reliability of outcomes may leave you less prone to chasing the latest hot new share or sector.
3. Having a process keeps you focused on elements within your control – like dividing your wealth between shares, bonds, property, and cash, diversifying within those categories, rebalancing regularly, and watching costs and taxes.
4. Process is repeatable. The focus is on skill and execution, not on luck or providence. Of course, things will always happen that you didn't anticipate. But your reliance on chance is less with a set process than when you are just winging it.
5. A process acts as a yardstick. When news breaks, having a process can give you pause for thought. "This news is interesting and diverting, but is it sufficient to change how you are proceeding?" your adviser may ask. The answer is usually no.
6. A process can be personalised. Each person is unique, with different tastes and preferences and risk appetites. Perhaps you feel more comfortable with a larger cushion of cash that can be replenished at regular intervals. If this process keeps you on track and helps you better live with volatility then it most likely a good process.
7. Finally, a process does not have to be set in stone. Circumstances change. Needs evolve. A single process can never incorporate every eventuality. The key point is that the process can be reviewed and adjusted based on experience and what is happening in each individual's life, not to what is going on externally.

Of course, processes work best when they are integrated. Otherwise, a minor change elsewhere can throw you off track. Think of what happens in a restaurant if attention to the quality of ingredients, menu, and execution in the kitchen is not matched by attention to the quality of service in the dining room. Likewise, an investor who has agreed with her adviser on following strong processes around her individual plan will not be served well if those managing her money are not delivering on what they said they would do. In contrast, integrated processes that share and maintain a single vision tend to reinforce each other. Ultimately, process provides structure for your investment journey. The world will always be complex and uncertain, and there will always be a host of potential distractions. But just having a structure in itself can deliver you a level of reassurance.

With a process, you are less likely to pursue the uncontrollable or un-duplicatable – whether wasting time and money trying to second-guess markets or chasing last year's winners or switching your investment strategy based on whatever is fashionable at any one moment. Instead of trying to ride your luck or intuition, you are methodically and steadily following a repeatable and defensible process that your adviser has designed with your goals, circumstances, and preferences at heart. Ultimately, paying attention to process makes your destination more achievable.

How to Get a Business Loan Quickly

When your business is in its first few years of operation, it can seem hard to get a bank to support your vision. If you're wondering how to get a business loan quickly in Australia, there is a formula you can follow to improve your chance of success and make things faster and easier.

Here's what you need:
Financial Documents + Business Plan = Lending Outcome
First, make sure you've got all your documents in order – as boring as it is, it's actually the most important part. There are two parts to your documentation: your personal information that gives lenders a feel for your personal reliability; and your business information, including projections for the future.

Personal Information:
If you're a director of an Australian company, you'll need the following personal information in order to apply for a business loan in Australia:

? your last 3 years' tax returns (including ATO Portals)
? personal bank account details and statements for the last year
? credit card statements for the last year
? information about any current personal loans
? current assets and liabilities
? where you've worked the last 3 years
? where you've lived the last 3 years

If you have these documents, you'll be well prepared for any applications you want to make. You'll actually also need this information if you're trying to arrange a home loan so it's a good idea to keep the documents up to date. Now, on to the information about your business, you'll need to apply for a business loan.

Business Information:
Maybe you need to purchase inventory, buy equipment or invest in some property. Whatever it is, the formula doesn't change very much, and once you've been through a business loan application process once you'll have most of the information to do it again.

? Certificate of Incorporation
? Banking Statements (for up to 3 years)
? Current Lease Agreement (if any)
? Audited financials (or interim financials if audited accounts aren't available)
? Business Tax Return (if you've been operating for more than a year)

If you have an agreement with the ATO regarding a tax debt, that's fine! We just need to get a letter from your accountant explaining the nature and terms of your agreement with the Australian Tax Office. Understandably, this may impact on the quality of the terms lenders respond with, however, it is still worth evaluating the opportunity to know where you stand.

A recent Business Plan:
Your numbers tell where you've been and who you are. Your business plan shows where you're going. If you haven't completed one, try following the process in our article on preparing a business plan. At a minimum, the Business Plan should explain why you're wanting to do what you're proposing (in the general business, and should highlight where external funding like bank lending fits in), why it's likely to succeed, what success actually looks like and in what timeframe. The important thing is to keep it simple, clear and easily tied to numbers. Banks and lenders will skip over or plain ignore anything that looks like "waffle" or an overly passionate view of the world. They're looking for a rational, clear-headed business owner who knows their numbers, their operation, their industry and the levers that affect everything. When we work with business loan clients, we help them refine their business plan to show the business's plans in a clear, finance-friendly way that makes it easy for banks and other lenders to make a decision on their ability to lend to you.

Lending Outcome:
Now to the most important part: the outcome! If you've been diligent in accurately completing all your information, you're at least on the path to a lending outcome with minimal back and forth for additional information. Hopefully, your chosen bank is satisfied and offers you a workable loan. It's not uncommon to get a few rejections in the early stages of your business. Having a business-savvy commercial finance broker by your side through this stage can reduce stress and confusion, as well as delays that you can face trying to deal with each bank individually. If you'd like to talk about how to get a business loan quickly for your company, we'd welcome the chance to meet with you and see if we can help you realise your business goals. Why not contact our business lending consultants today and let us help you secure the outcome you want.

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