What a Start to 2022! – Russia and Ukraine Tensions

2022 has had a very unpredictable start, one that nobody enjoys. Coming from what was meant to be the end of Covid-19 in 2021, we ‘ve jumped straight into a market correction and geopolitical tensions, specifically between Russia and Ukraine.

Endorphin Wealth works with Oreana our investment specialists, to provide the best investment decisions for our clients. Oreana provide insightful market updates on such topics and how they impact investments.

Below is their latest update regarding Russia and Ukraine:

Russia and Ukraine: an update amidst uncertainty

The Russia and Ukraine conflict is a source of significant uncertainty for markets. The Russian
presence along the border has given way to recognition by Russia of two separatist regions.

Russia has sent military support into the regions under the guise of peacekeeping. The West
has responded with sweeping sanctions. The outcome is exceptionally uncertain. In this
blog, we answer some questions and provide some guidance

What are the potential scenarios?

We believe in recognising the limits of our expertise. There is no clear information on the posturing and machinations behind Russian President Putin’s actions. We have no insights into the response from Washington or Brussels. So, we do not aim to build a “most-likely outcome”. Instead, we recognise our lack of expertise and accept that the range of potential outcomes is extraordinarily wide. They range from extremely bad outcomes (e.g a global hot conflict) to much better outcomes (e.g resumption of diplomatic efforts).

Plausible scenarios in the middle of this range include:

  • Concessions to Russia to allow them to gracefully stand down.
  • Occupation of the separatist regions along the Ukrainian border, with no NATO military involvement.
  • Full scale invasion with no or limited NATO military involvement, but significant economic sanctions from the West.
  • Invasion with NATO military involvement, and significant sanctions from the West.
  • Full scale invasion with NATO military involvement, significant sanctions from the West, and weaponization by Russia of its oil, gas and soft commodity exports.

What are markets pricing in?

Global equity markets have declined almost 8% this year. Over half of that decline has occurred through February. US 10-year Treasury yields are 0.42% higher so far this year. But safe haven flows have knocked that yield 0.11% lower over the past week. Safe-haven flows have also pushed gold higher.

 

Markets have rushed to increase risk premia in equity and bond markets. Risk premia had already widened as the Fed moved to a more aggressive policy tightening stance.

And as uncertainty persists, and until we have clarity around which scenario we are in, we expect more risk premia will be priced in the near-term. That means potentially further near-term declines in equity markets, and declines in sovereign bond yields.

Has the medium-term outlook changed?

We don’t think so yet. The prevailing narrative remains solid economic growth. Temporarily higher inflation. And increasing cash rates in the major developed economy central banks.

Markets have moved to price as many as seven rate hikes from the US Federal Reserve this year. There was a greater than 50% probability priced for a 0.50% rate hike at the March meeting. The Fed has indicated it will engage in significant balance sheet reduction this year.

We expect that would result in an inverted yield curve – an incontrovertibly negative outcome for the economic outlook. We have pushed back against that rate hike consensus, although we have no quarrel with a pathway for higher cash rates over the coming 24 months.

At the margin, the uncertainty allows the Fed to be more circumspect about their pathway to rate normalisation. That should allow the US yield curve to remain positive over the medium-term. We expect that will allow solid economic growth and solid earnings growth to support equity market returns at attractive levels.

What can investors do?

Periods of episodic extreme uncertainty are not times to make knee-jerk reactions. Markets can move non-linearly, in unexpected directions, aggressively and rapidly. Instead, now is the time to rely on your clear investment philosophy and investment process.

For predominately strategic asset allocation (SAA) investors, that means relying on diversification. Exposures to cash, sovereign debt, high quality fixed interest play an important role in SAA portfolios. That role came under serious challenge through January. Longer-dated bond yields surged and drove capital losses in portfolios. The importance of having some downside protection against uncertain outcomes is highlighted by the recent market movements. As is the critical importance of rebalancing portfolios after significant asset moves such as we saw through 2021.

For dynamic asset allocation (DAA) or active investors, the challenge is to push back against the temptation to make short-term portfolio changes. Instead, it is important to rely on process. For us, that means:

  • Review scenarios that could materially change the medium-term outlook.
  • Assess the existing medium-term outlook against those scenarios.
  • Consider whether the portfolio will need adjusting if those scenarios materialise.
  • Adjust the portfolio, if necessary, when we get more clarity about the Russia Ukraine conflict outcome.

Importantly, we recommend being aware of sell-the-rumour, buy-the-fact events. Previous conflicts that have driven episodic widening of risk premia have been followed by rapid narrowing of risk premia after the uncertainty has declined. In other words, as the negative news flow grows, investors may price in ever-more negative outcomes. They may become overly pessimistic. Subsequently, even a relatively bad absolute outcome can be better than market expectations – and result in a perverse increase in equity prices

Contact Endorphin Wealth for more assistance

Your advisor will be able to consider all possible scenarios and factors, all of which should help to ensure that your investment plans have a successful outcome.

For an obligation-free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au.

The team at Endorphin Wealth are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions. So the advice and wealth management we provide is always in our client’s best interests.

We have the advantage of being able to access a range of products from different providers. This means that our advice can be tailored to our client’s goals. We have offices located in Sydney and Melbourne, where you can find a financial advisor that is suitable for you. 

Reach out today to speak to an Advisor who can guide and support you down the right path for success.

Endorphin Wealth Welcomes Carol Robinson

We are pleased to announce the newest addition to our Endorphin Wealth family.

Welcome Carol Robinson!

Carol joined our team in November 2021 with over 20 years’ experience within the financial planning industry. Adding extensive knowledge of wide corporate and boutique environments, Carol aims to create better experiences for our clients and families as our newest Senior Client Services Officer.

“I pride myself on delivering the best service by providing a warm, enthusiastic and genuine care for our clients and my co-workers” – Carol Robinson

In our client services team, Carol will be involved in a wide range of tasks including compliance, implementation of advice documents, and finalizing the advice process. She will be working to ensure the best outcome for each of our clients.

“In my spare time I love to spend time with my family and friends, walk my Golden Retriever, listen to music, travelling and camping.”

We are excited to have Carol on-board and look forward to making great experiences for all! Welcome Carol, great to have you on the team!

 

Upcoming Changes to Superannuation

The Federal Parliament has recently passed the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021.  From 1 July 2022, there are changes coming to the Australian Superannuation system which may impact you.

To keep on top of the changes, it is a good idea to reach out to a trusted Financial Advisor from Endorphin Wealth. You don’t want to miss out on some of these!

What are the changes?

The Federal Government proposed some changes in the May 2021 Federal Budget. Effective from 1 July 2022, legislation will look to implement the following changes:

  1. Partially removing the work test for those aged 67 to 75.
  2. Extending the non-concessional contributions bring-forward age limit to age 75.
  3. Reducing the downsizer contribution eligibility age.
  4. Increasing the maximum First Home Super Saver Scheme withdrawal amount to $50,000.
  5. Removing the monthly minimum threshold for Superannuation Guarantee (SG) Contributions.

Please note that some of these amendments will also require supporting regulations to become effective. These regulations are yet to be introduced.

Partially removing the work test 

The existing work test or the ‘work test exemption for recent retirees’ will no longer be required  for individuals aged 67 to 75. This is for those who make and or receive salary sacrifice or non-concessional contributions (NCCs).

Some rules still apply for certain individuals surrounding work testing. It is important to reach out to a financial advisor to see if this applies to your situation.

Extending the non-concessional contributions bring-forward age limit

The cut-off age for accessing the NCCs bring-forward rule will be increased from 67 to 75 years. Many individuals aged 67 to 74 years who were not previously able to bring forward NCCs cap amounts, could potentially do so in the coming financial year.

Reducing the eligibility age for downsizer contributions 

Individuals aged 60 or older a can now make downsizer contributions from the start of the next financial year.  Other downsizer contribution rules still apply.

Increasing the maximum First Home Super Saver Scheme withdrawal amount 

The maximum FHSSS withdrawal amount will be increased from the current limit of $30,000 to $50,000. This could be a great booster for first home buyers to get their foot into the property market.

Removing the minimum monthly threshold for SG contributions

There will no longer be a minimum monthly threshold for an eligible employee to qualify for SG contributions. Even where an eligible employee earns less than $450 in a calendar month, there is now an obligation for the employer to make SG contributions.

Need More Information?  

As always, it is important to take your personal situation into account. Endorphin Wealth is able to create personalised strategies taking into account your situation and needs.

For an obligation-free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au.

The team at Endorphin Wealth are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions. So the advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers. This means that our advice can be tailored to our client’s goals. We have offices located in Sydney and Melbourne, where you can find a financial advisor that is suitable for you. 

If you want to take advantage of the latest changes to superannuation, reach out to us here at Endorphin Wealth.

Tap into the Amazing Power of Compounding

When you invest over a period of time, compound interest is your best friend. In effect, it means you are earning interest not just on your own capital, but also on the interest you’ve already earned. Over the long term, this might be phrased as “interest on interest on interest on interest on interest …” or more simply, “free money”! So how do you get this free money? Reaching out to a Financial Advisor here at Endorphin Wealth will help you harvest this power. But to get started, here is a short summary…

A Simple Start

Imagine you place $100 in an investment that earns 10% pa. At the end of one year, you’ve earned $10. Then you spend all the interest you receive. At the end of each year, your investment amount is back to $100. That’s simple interest. At the end of 10 years, you will still have your $100, and you will have received a total of $100 in interest.

I = P(1+r)n-P

Don’t worry, we’ll do the maths for you!! This little formula contains a power that Albert Einstein is attributed to labelling “the most powerful force in the universe”. It calculates your net profit when you earn interest on the interest. That’s what compounding is all about.

Going back to our first example – if you re-invest the interest on your original $100, at the end of the first year you will have $110. Leaving it invested at 10% pa, you will earn interest of $11 in the second year, bringing the total in the account to $121. If you keep going for 10 years, your investment will grow to $270.70 – that’s your original $100 plus $170.70 in interest.

Time is Money – Literally

This example may not seem so impressive, but the power of compound interest really shines over the long term. Looking at our simple situation and taking the interest out each year for 30 years, you will earn a total of $300 in interest. But relying only on the compounding of the interest (ie. no other deposits are made), the total interest earned over the same time would be $1,883.74.

A child born today could easily live to 100. Simple interest on a $100 investment would amount to $1,000 over their lifetime. Left to compound untouched at 10%, that same investment would grow to $2,113,241! Even on such a small initial investment, that’s an incredible difference!

The other critical factor is the actual rate of earnings. If the earnings rate dropped just 1% to 9% pa, a one-hundred-year investment would grow to only $783,548.

A Couple of Drags

But don’t forget to take into account tax and inflation. They act as drags on investment performance.

Let’s assume investment earnings remain at 10% pa and are fully taxable. What will your $100 grow to over 30 years at different tax rates?

0% Tax

(Allocated Pension)

15% Tax

(Super Fund)

34.5% Tax

(Average Taxpayer)

47% Tax

(Top Tax Rate)

$1,983.74 $1,269.25 $709.69 $488.66

There are many ways of minimising the effects of tax and inflation. Picking the right tax environment is clearly important. Capital gains are only taxed when an investment is sold, so growth assets have an advantage over those that only produce income. They also cope better with inflation. At Endorphin Wealth, we have many experienced advisors to discuss with you the impact of inflation and tax.

Where to get Started

As always, it is important to take your personal situation into account. Endorphin Wealth is able to create personalised strategies taking into account your situation and needs.  Endorphin Wealth have many experienced financial advisors familiar with ethical investments and the options available.

For an obligation-free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au.

The team at Endorphin Wealth are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions. So the advice and wealth management we provide is always in our client’s best interests. We have the advantage of being able to access a range of products from different providers. This means that our advice can be tailored to our client’s goals. We have offices located in Sydney and Melbourne, where you can find a financial advisor that is suitable for you. 

If you want to take advantage of “the most powerful force in the universe”, reach out to us here at Endorphin Wealth.

 

 

Choosing the Right Investment Options

There are many different types of investment options available. Choosing the right options for you can sometimes be a minefield if you are left to your own devices. You may even find yourself staring at an investment menu for hours, not knowing which path to take.  However, with the support of a Financial Advisor from Endorphin Wealth, you can be provided with clarity as to which options suit your situation.

Let’s first examine the different types of investments available.

DEFENSIVE INVESTMENTS

Defensive investments are deemed to be lower risk investments in that they aim to provide income while protecting the capital invested. Consequently, cash and fixed interest are thought of as defensive investments.

They’re typically used to help meet short-term financial goals (up to two years) and diversify a portfolio.

  • Cash – Includes bank accounts, high interest savings accounts and term deposits. This is used to protect wealth and diversify a portfolio.
  • Fixed Interest – Includes government bonds, corporate bonds and capital notes. This investment option is often used to help earn a steady rate of income, whilst also diversifying a portfolio.

GROWTH INVESTMENTS

Growth investments are generally considered higher risk and offer a higher potential return when compared to defensive investments. As such, they aim to give capital growth and some provide income (for example, dividends for shares or rent for property). However, the price of growth investments can be volatile over short periods of time.

Growth investments are typically used to earn a higher rate of return (though this comes with higher risk) and help meet longer – term financial goals.

Such investment options include shares, property and alternative investments.

  • Shares – if you purchase shares in Australian or international companies, you’re essentially buying a piece of that company, making you a shareholder. The value of your investment can rise or fall, depending on company performance and market conditions. Additionally, you may receive a portion of the company’s profits in the form of dividends.
  • Property – includes investing in residential, commercial and industrial property. This form of investment is used to earn a steady rate of income (rent) plus offer capital growth
  • Alternative Investments – includes private equity, infrastructure, commodities (including precious metals) and other investments that don’t fall into the investment classes above. Most aim to provide capital growth, however, some have the potential for steady income

BEFORE YOU INVEST 

It is very important to consider your personal situation before investing in any of the above investment options. An option which may be appropriate for your neighbor, may not be appropriate for you. At Endorphin Wealth, each advisor carefully considers your personal situation before making any recommendations. They also consider:

  • How the investment works
  • How it generates a return and the type of return expected (capital gain and/or income)
  • The risks involved for the investment
  • The fees and charges for buying, holding and selling the investment
  • How long to invest to receive the expected return
  • Legal and tax implications of the investment
  • How the investment will contribute to your diversified portfolio.

Your adviser will be able to consider all possible scenarios and factors, all of which should help to ensure that your investment plans have a successful outcome.

For an obligation-free conversation about your financial future, please contact us on 03 9190 8964 or at advice@endorphinwealth.com.au.

The team at Endorphin Wealth are passionate about helping people achieve their life goals with great financial planning. We are not licensed or owned by big banks and financial institutions. So the advice and wealth management we provide is always in our client’s best interests.

We have the advantage of being able to access a range of products from different providers. This means that our advice can be tailored to our client’s goals. We have offices located in Sydney and Melbourne, where you can find a financial advisor that is suitable for you. 

Reach out today to speak to an Advisor who can guide and support you down the right path for success.