Knowledge Centre

Monthly Financial Newsletters

Please find our regularly updated newsletters below.

Dear clients,

Following all relevant economic trends can be time consuming as well as frustrating. It is a complex and dynamic field with a plethora of different “players” across the entire globe. At Eclipse Financial Management we want to shed light on some of the most recent economic developments and legislative decisions and explain potential implications to enable you to gain a better overall economic understanding.

If you want to discuss any of the topics further or if you have any other questions, we are happy to answer them via the phone or email!

Helpful Financial Planning Videos

A review of year 2019 on the economy and a look at the outlook for 2020

6th December, 2019

The key points are as follows:

  • 2019 saw economic and profit growth slow, recession fears increase and the US trade wars ramp up, but solid investment returns as monetary policy eased, bond yields fell and demand for unlisted assets remained strong.
  • 2020 is likely to see global growth pick up with monetary policy remaining easy. Expect the RBA to cut the cash rate to 0.25% and to undertake quantitative easing.
  • Against this backdrop, share markets are likely to see reasonable but more constrained & volatile returns, and bond yields are likely to back up resulting in good but more modest returns from a diversified mix of assets.
  • The main things to keep an eye on are: the trade wars; the US election; global growth; Chinese growth; and fiscal versus monetary stimulus in Australia.

Have a read of Review of 2019 and Outlook for 2020 to find out more.

Australian Economy

13th March, 2019

Australian economy following another quarter of very weak growth and what it means for investors.

The key points are as follows:

  • Australian growth slowed even more in the December quarter. Growth may bounce back a bit this year, but the housing downturn will likely constrain it to around 2-2.5%.
  • As a result, unemployment is likely to drift up and wages growth and inflation remain lower for longer.
  • The RBA is on track to cut rates this year and the housing downturn will likely see Australian shares continue to underperform global shares.

Have a read of the Australian Economy Constrained article.

Reserve Bank News

The attached note from Oliver’s Insights, looks at the Reserve Bank of Australia’s decision to cut the official cash rate by 0.25% to a new record low of 1.25%.

The key points are as follows:

  • The RBA’s latest rate cut is aimed at heading off a further slowing in growth which would threaten higher unemployment and lower for longer inflation.
  • Cutting the inflation target would be a big mistake.
  • More rate cuts are likely to be needed ultimately taking the cash rate to a low of 0.5% next year. Ideally this will be combined with more fiscal stimulus.
  • For investors it means low interest rates for even longer.

Housing Prices

Oliver’s Insights – looks at the outlook for house prices and revises our forecasts.  (24/5/19)

The key points are as follows:

  • The combination of the removal of the threat to property tax concessions, earlier interest rate cuts, financial help for first home buyers and APRA relaxing its 7% interest rate test points to house prices bottoming earlier and higher than we have been expecting.
  • As a result, we now expect capital city average house prices to have a top to bottom fall of 12% (of which they have already done 10%) rather than 15% and to bottom later this year.
  • However, given still high house prices and poor affordability, still very high debt levels, tighter lending standards and rising unemployment a quick return to boom time conditions is most unlikely.

Australian house prices back from the abyss – read more from Oliver’s Insights 11/9/2019

Share Market

Oliver’s Insights  – Seasonal patterns in share markets. (6/5/2019)

The key points are as follows:

  • Seasonal patterns typically see shares do well from around November to May and not so well from May to November. This partly reflects a combination of tax loss selling in the US, new year cheer and the pattern of capital raising through the year.
  • While we see shares doing well this year, right now they are vulnerable to a short-term pull back after strong gains since December. Renewed trade fears obviously don’t help.

Diversification

What is Diversification?

Diversification is the practise risk management technique where the overall risk is reduced by investing across a wide variety of investments and asset classes within a portfolio – “not sticking all your eggs in one basket”.  The rationale behind Diversification contends that such portfolio will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Types of Diversification

There are three main ways of diversifying:

  1. Spreading your portfolio across various different asset classes as detailed above
  2. Using fund managers to spread your risk
  3. Investing in Australia, as well as global markets

Asset Classes

What are the five main Asset Classes?

Includes bank deposits,term deposits, savings and cheque accounts and cash management trusts. These short-term investments are suitable to investors who have a low tolerance to risk. Cash provides a stable and low risk income, usually equally in the form of regular interest payments.

Generally refers to government bonds, corporate bonds, mortages and hybrid securities. Fixed-interests can be more volatile than cash

Property is a direct investment in residential, industrial and commercial property and can also include indirect investment in listed property vehicles on the Australian share market. Moderate to high rate of return.

Generally includes shares held in publicly listed companies and listed on the Australian stock exchange. Returns are through dividend distribution and capital growth. These shares may experience volatility over the short to medium term, but the returns may be potentially higher.

Offer increased diversification in a much wider range of companies and countries not limited to listed companies on the ASX. However, investors risk increased volatility due to rises and falls in international share markets and currencies. International shares are generally viewed as a longer term investment and have a high rate of return.

Risk and Return

What is investment risk?

Investment risk can be defined as the probability or likelihood of occurrence of losses relative to the expected return on any particular investment. Stating simply, it is a measure of the level of uncertainty of achieving the returns as per the expectations of the investor. All investments carry some risks due to many factors including inflation, tax and economic downturns.

As a general rule: the larger the potential investment returns, the higher the investment risk.

The risk-return trade off

All investments carry some degree of risk. Higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return. This trade off between risk and return which an investor faces while considering investment decisions, is called the risk return trade off.

The risk-return trade off is the principle that potential return rises with an increase in risk. Low levels of uncertainty or risk are associated with low potential returns, whereas high levels of uncertainty or risk are associated with high potential returns. According to the risk-return trade off, invested money can render higher profits only if the investor is willing to accept the possibility of losses.

Higher risk does not always promise greater return. Rather, it tells us that higher risk gives the possibility but not the guarantee of higher returns.

As your financial planners, we will take to your income, goals, investment horizon and personal situation into account and create a risk profile with that information. It is important to know which level of risk you are prepared to tolerate to provide you the best financial advice as possible.

Useful Links

Use the Insurance Gap Calculator to see how much cover is adequate for you!

Australian Securities and Investments commission (ASIC) is the corporate, markets and financial services regulator.

Federal Budget Summary

Dividends

  • Dividends are great for investors. They augur well for earnings growth, provide a degree of security in uncertain times, are likely to comprise a relatively high proportion of returns going forward and provide a relatively stable source of income.
  • Including reinvested dividends, the Australian share market has surpassed its 2007 record high.
  • It’s important that dividend imputation is not weakened in Australia to ensure dividends are not taxed twice.

Read more about dividends, by clicking on the link.

Intouch Finance Mornington

Peter Ritchie – Intouch Finance Mornington is proud to be part of the national, Intouch Finance Group. As a Mortgage Manager in our own right with access to a number of funders, we have our own first class products; including a Home Loan with a 100% Offset Account with no annual or monthly fees. What sets this product apart is that you deal with us directly, pre & post settlement. If you have a question you ring us, any time. Once the loan has settled we are still your main point of contact. No more ringing 1300 find someone who cares numbers. Within our operations we also have access to Commercial and Business Finance, as well as Equipment Finance. In fact, if you need to borrow money for anything at all, we are the ones to ask first.

Apart from our own Home Loan products, we are also Mortgage Brokers, so if for some reason our product isn’t suitable or you don’t meet our requirements – we can access over 50 lenders through our Brokerage Network. Why deal direct with the lender, when for the same rate as what you will receive from the lender, we can do all the running around for you. Same result, but with a far easier process.

We are available 7 days a week, at any time and we come to you. For more information contact Eclipse Financial

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In fact, a referral from an existing client is the highest compliment our business can receive.”