Tag Archives: financial life

Are we headed for a global recession?

Global-Business-BackgroundThe term to describe “higher-for-longer” commodity prices was based largely on ever-climbing demand from the Chinese as the country industrialised. Amid the excitement, commodity prices soared by more than six-fold from 2004 to 2011, as measured by the Reserve Bank of Australia’s commodity price index.[1] That index has collapsed by 63% over the past four years as Chinese demand fell and supply increased after an investment frenzy to build more projects and the revolution in shale. (A high US dollar hurts too because it boosts prices in local currencies, thus curbing demand.)

The collapse of the commodities bubble – for that’s what it was in hindsight – is buffeting emerging countries (such as Brazil, Chile, Colombia, Russia and Venezuela) that rely on material exports. And plunging commodities is only one of their problems. The prospect of higher interest rates in the US is sucking capital from emerging countries by boosting repayments on the US$4.5 trillion (A$6.3 billion) of US-dollar-denominated debt that these countries owe. Political uncertainty is dogging Brazil, South Africa, Turkey and Malaysia.

The trials of China and other emerging countries on top of the unresolved eurozone debt crisis, Japan’s inability to revive itself and the Federal Reserve’s likely imminent rate increase are fanning talk[2] the world economy is headed for recession. The underlying concern is that policymakers can’t combat any slump as high government debt hampers fiscal stimulus and interest rates are already at record lows. While no one can rule out a global recession because events somewhere could surprise much like the so-called Arab Spring did in 2010, the world economy probably has enough going for it to avoid such a gloomy outcome. Its key advantages are that the US is prospering while China is only slowing, not shrinking.

On the other hand ,with emerging markets ex-China, which comprise about 19% of the world economy, many of them are expanding robustly enough. Emerging Asia, for instance, is in much better shape than it was before the collapse of the baht in 1997 triggered the Asia financial crisis. Back then, emerging Asia was full of foreign debt, had unsupportable fixed exchange rates and was dogged by wonky financial and property sectors. Today, even as currencies drop from India to Korea, emerging Asian countries have sounder financial systems, freer exchange rates, tame inflation, current-account surpluses, large forex holdings and sturdier government finances. While these neighbours face losing export sales to China and currencies are falling accordingly, it’s more the emerging world outside east Asia that’s a bigger problem; namely, much of Latin America, the oil exporters, Russia, South Africa and Turkey.

Still, considering emerging countries as a group, when you allow for their young and growing populations and expanding middle classes driving consumption, their resources, pro-business governments (to generalise), infrastructure needs and low labour costs, the IMF’s forecast of 4.2% growth for 2015 (including China) looks reasonable.

China, as 13% of the world economy, deserves separate analysis. No one denies that China confronts challenges as it shifts from an investment- and export-led economic model to one driven by consumption.

Admittedly, slabs of the advanced world are struggling. The eurozone, which covers 17% of the world’s economy (to outsize China), is yet to regain its pre-crisis size. So it can be classed as in a depression. But the deflation-prone euro area is eking out growth (0.3% expansion in the second quarter) as low interest rates, falling commodity prices, an improving labour market and higher wages are aiding consumer demand. The Greek saga is a threat, for sure. But what Athens’ recent near-default and near-exit from the euro showed is that the Balkan country’s troubles appear to do little immediate economic damage to neighbours.

Luckily for the world, the rest of the advanced world is thriving, especially the US, which grew at a vibrant 3.7% annualised pace in the June quarter. Retail sales are buoyant, consumer confidence is touching eight-year highs and the jobless rate is at a seven-year low of 5.1%. Housing is humming. Business investment is climbing and the government is injecting stimulus. Exports play a relatively minor role in driving US growth (at just 13% of GDP compared with 50% for Germany) so the country is insulated from miseries abroad. While wages are stagnant, productivity sluggish and there is some hidden unemployment, at least no hooligans in Washington are threatening showdowns over raising the country’s debt limit – at least, not before next year’s congressional and presidential elections. All said, consumer spending is expected to help the US maintain its 3% annual pace of growth into 2016 and beyond.

Advanced economies less the US, the eurozone and Japan amount to 23% of the global economy. The IMF predicts 2.2% growth this year for advanced economies overall. That appears a reasonable outlook for countries including Switzerland and the UK, for most of them will benefit from lower commodity prices – even if they are not so good for Australia (1.9% of world GDP) and Canada.

All up, economist might be prudent to trim their global growth forecasts for the next 12 months. But they shouldn’t go too much below the 3.3% the IMF in July forecast for 2015 or the 3.8% it predicted for 2016.[3]

The article is by Michael Collins, Investment Commentator at Fidelity,September 2015

Country and regional percentages of world output come from the World Bank’s database and measure gross domestic product for 2014.http://databank.worldbank.org/data/download/GDP.pdf. IMF growth forecasts are estimates taken from the World Economic Outlook – July 2015, Table 1 (Overview of the World Economic Outlook projections) on page 4 that give estimates for 2015 and 2016 rather than the upcoming 12 months. Other financial information comes from Bloomberg unless stated otherwise.

[1] Reserve Bank of Australia. Commodity price index. In SDR terms, the index rose from 24.4 in January 2004 to a peak of 162.2 in May 2011 before falling to 60.0 in July 2015. http://www.rba.gov.au/statistics/frequency/commodity-prices/2015/icp-0715.html. By way of comparison, the Bloomberg Commodity Index shows an increase of 140% from 1999 to 2011 and a 52% tumble since then.
[2] Bloomberg News. “China will respond too late to avoid a recession, Citigroup says.” 28 August 2015.http://www.bloomberg.com/news/articles/2015-08-27/china-will-respond-too-late-to-avoid-recession-citigroup-says
[3] IMF. World Economic Outlook Update release. “Slower growth in emerging markets, a gradual pickup in advanced economies.” 9 July 2015. http://www.imf.org/external/pubs/ft/weo/2015/update/02/pdf/0715.pdf

Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

Powerful Ways to Getting Your Financial House In Order

Unfortunately, not only you, many of us spent more than what we could afford financially over the recent holiday season. And now, focusing on paying for those bills might be too stressful.

However, as your 2015 New Year’s resolution, you can stop this uncomfortable experience becoming your perpetual habit by getting your financial house in order.get your financial house in order

Here are some simple but powerful strategies to think on;
Strategy 1:
Behavioral researcher and strategist Dan Gregory says spending is just like any other method people use to fill an emotional gap in their lives. And I strongly believe this is a short term fix to a long term problem.

The first step to eliminate poor financial decisions and making smart ones is to find out your emotions that might have been sabotaging your financial life.

Strategy 2:
To help you, although many people dislike hearing, I would say “develop a realistic budget/cash flow“. It is the best way to reduce unnecessary expenses. As it provides you with a snapshot of how much money comes in and goes out, and what all these spending are for.

Strategy 3:
Accessing information, comparing products or their prices within our high tech environment is only a click away. Rather than setting and forgetting, gaining the habit of shopping around for a better deal on your credit card, phone and internet, and other utility bills even on your home loan can pay off surprisingly well. To reduce time and energy while doing it, as a first step start asking your current service providers for a beter deal.

Strategy 4:
Making extra loan repayments as much as you can may potentially save you thousands of dollars in interest. And never get into your comfort zone again when interest rates fall, instead maintaining repayments during this period can reduce your debt or help you get out of it as quickly as possible.

Strategy 5:
Never underestimate the power of consistently saving certain amount, regardless of how big or small. Pay yourself first. Put some money that you are comfortable with aside and watch them grow over time. Savings to good use in the future is a kind of stress release method.

Strategy 6:
No one wants to hear about “tax“. There is an old saying “you cannot escape from two things in life; one is death, and the another one is tax.” However, you can legally use strategies to minimize your tax. Ask for an advice from your accountant or a qualified financial adviser about it.

Strategy 7:
For peace of mind, review your personal and asset protection plans/insurances if your circumstances have changed – for instance if your loan amount has increased, have recently got married, or your income has increased or you have changed your employment etc. – and make sure they are still enough to eliminate any financial burden to your loved ones if you were no longer able to earn an income.

Strategy 8:
Look after your long term investment – your super fund -. If you have multiple super funds, think about merging them into one so you can reduce the paper work hassle, and potentially save on fees while monitoring it with much ease.

For sure, your best chance of reducing money related stresses comes from developing a financial plan that is specifically tailored for your circumstances and goals. And when things do not go as planned, have the discipline to readjust and flow through again.

Should you want to review your financial plan, or have friends, family members who are worried about their financial health get in touch with your financial planner/adviser.

Halle Yilmaz is a financial adviser and business consultant. As a financial adviser, she gives solid advice that can create rapid and lasting results for her clients. Sign up for her free E-Book and download “7 Steps to Healthy Wealth Management.” Follow Halle on Twitter @halleyilmaz

NDIS is not replacement of your personal insurance.

Many people get confused with National Disability Insurance Scheme (NDIS) and life insurance or other personal insurance policies.

The disability insurance scheme covers only the basic costs of care for those disabled from birth or as a result of an accident and the condition significantly affects their communication, mobility, self-care or self-management.

It does not cover the cost of daily living expenses and will not provide a support that consists of income replacement. This is not a criticism of Disability Care, which is a massive step forward that will assist many Australians. But it will not provide a substitute income for those left unable to work.

On the other side, Total and Permanent Disability insurance pays a lump sum if you become totally and permanently disabled and cannot work rest of your life again. In 2008, the Australian Institute of Superannuation trustees found that about 71per cent of its superannuation fund members had TPD cover. However, the level of coverage is too low to meet ordinary wage earners’ daily expenses. In general, your employer on behalf of you sets up the insured amount without taking into consideration your personal and financial commitments. Moreover, the total and permanent disability insurance option under your superannuation fund is any occupation not own occupation. Some of the insurance covers under superannuation environment are reduced each year, as you get older.

We all know that an accident, sickness or death of a working age parent will usually have a significant impact on the financial circumstances of the family. Despite this, Rice Warner Actuaries calculate that over 95 per cent of families do not have adequate insurance in Australia. Based on current median levels of cover for total and permanent disability, the level of underinsurance is an extraordinary $8 trillion nationally and, for income protection alone, $600 billion.

Income protection insurance provides a replacement income for those who are temporarily or permanently unable to work due to illness or injury. The replacement income can be up to 75 – 80 percent of your current gross income and can be for short or long periods, generally after a preselected waiting period. And the premiums you pay are tax deductible.

The 2008 Household Income and Labour Dynamics Australia Survey found that more than 235,000 working-age people, living as members of a couple with dependent children, had suffered a serious injury or illness in the previous 12 months. The same survey found that more than 17,000 employed people who were living, as members of a couple with children were unable to continue working due to illness, disability or injury over the previous year.

By taking out income protection, life insurance or other personal insurance covers – total and permanent disability, trauma – you are ensuring that if your income stops, your lifestyle does not. In case you stop working due to illness or accident, or pass away, your family can continue with financial support to live the life you have worked so hard to provide them with.

Let’s be in control of our financial life.

Is Financial Planning really for wealthier?

Some people have misconception that financial advice is only for wealthy people. They feel that there is no need for them to consult a financial adviser.

However, we know that we all need shelter, butter and bread on the table and much more; we all have dreams and goals. We also know that there is scarcity with financial resources. It means we must use our resources more effectively and efficiently by employing appropriate strategies and monitoring their performance to make sure that results match our plans.

It is true that financially wealthy people have financial advisers as they have the mindset to clearly define set of goals and act upon them. They value the professional advice and guidance in order to achieve their goals more effectively.

Failing to plan is the same as planning to fail. Unfortunately, many individuals do not plan. Rather, they just let their financial life happen to them.

Although it is very crucial to step back periodically and set realistic goals for how we want to manage our money and resources, most do not take the time to look ahead and make plans for the future. As a result, we focus on paying monthly bills, rather than planning to achieve a desired goal.

There might be lots of reason behind this attitude, and I believe the most important one is our mindset.

People in general have

  • Fear of making wrong decision. This shows up especially if we do not have enough information or lack of understanding of something in order to make informative decisions.
  • Fear of something being sold to us that we might not need it at all
  • Fear of changing existing habit over a new one and not sure if the new one is good for us.

All is coming from lack of clarity, understanding and therefore of low self-esteem.

However, we all know that

  • economic environment continuously changes
  • our age, social status and life cycle change
  • regulations in each industry , country and at global level change
  • our goals and dreams change
  • the risk tolerance level of each of us changes

In this continuously changing social -economic environment if we want to improve and sustain our financial lives we need to keep ourselves up to date, and if necessary make some adjustments with our options.

No matter what the size of the problem or issue is, consulting to a competent and trustworthy adviser or expert saves you time, money and improve your financial situation significantly. Even if you don’t need an ongoing relationship with an adviser or consultant, there are times when you have financial questions or just want someone you trust to assure you that you’re on the right track is priceless experience .