Investopoly

You would be excused for thinking that developed economies all over the world are gradually making their way to a zero interest rate environment.Long term fixed mortgage rates in the United States are less than 3% p.a. In the UK, rates are under 2% and even lower in Europe (circa 0.50% p.a. in France for example). In Australian this week, 5-year fixed home loan rate fell below 3% p.a. And in Demark the other week, Jyske Bank announced it would pay borrowers 0.50% p.a. to take out a mortgage! Anyone that had a mortgage in the early 1990's would regard today's interest rates as almost unfathomable.What does this mean for investor, especially those that borrow to invest in property?Interest rates lower for longer?The market is predicting that the RBA will cut rates by 0.50% by mid-2020. If this turns out to be correct, Australian mortgage rates could fall even further.In July, RBA Governor, Phillip Lowe said "Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates." Many commentators have suggested that interest rates may not increase materially for a decade or longer. Japan, for instance, has been stuck on zero interest rates for 20 years.But the banks need to charge at least 2%A measure called the 'net interest margin' is the gross profit a bank makes from lending money to its customers. The net interest margin must cover all the banks costs and still deliver a healthy net profit. In Australia, the major banks net interest margin is approximately 2%.Therefore, even if Australia's cash rate fell to zero, it is unlikely that variable mortgage rates would fall below 2%, as the banks would seek to maintain their profit margins. Of course, a negative RBA cash rate, which exists in some countries in Europe, could push variable mortgage rates below 2%.Bye, bye negative gearing tax benefits for property investorsThe most obvious consequence of low interest rates for property investors is that it significantly reduces negative gearing tax benefits. When interest rates were 7% p.a., property investors where crystallising large income losses. That is because the interest costs and property expenses were a lot more than the property's rental income. The investor could offset this loss against employment income and enjoy a sizable tax refund (which is referred to as negative gearing).According to CoreLogic, Australia's gross rental yield is 4.1% p.a. Compare that to the current interest only investment mortgage rate of circa 4.5% p.a. and you will see why an investment property's income loss today is only 40% what it was when interest rates were much higher. As a result, taxation benefits derived from borrowing to invest in property are consequently 60% lower.In a low interest rate environment, saving tax is no longer a big draw card for prospective property investors. This is a good thing as you should never invest predominantly to generate tax benefits. However, if you were banking on your property investments helping you reduce your tax liabilities, think again.Don't use your own moneyIn a low interest rate environment, using your own cash carries with it a higher opportunity cost. That is, you must consider what investment returns you can generate by investing your cash elsewhere (and using borrowed funds instead). If you believe you can achieve an investment...

How to get more control over how your super is invested and the fees you pay (and lower fees)Accountants often recommend establishing a Self Managed Super Funds (SMSF) as the best way to gain full control over how your super is invested. But most people don't want the responsibility and compliance headaches that a SMSF can create.A wrap platform is an excellent alternative to a SMSF. In fact, they are simpler, don't come with any compliance obligations and are often lower cost. But they still give investors a lot of control over where and how their super is invested.Steer clear of retail super fundsIn my 17 years of experience in reviewing super funds, I have found that retail funds (e.g. AMP, BT, Colonial, MLC, etc.) invariably charge high fees and deliver very poor investment returns. This was confirmed by the Productivity Commission's recent report into super. Therefore, if you are in a retail super fund, it's almost certain that you would be better off switching (but you must consider any ancillary benefits and/or insurance before you do).Concerns with industry super fundsI have written about my concerns with industry super funds in the past. I summarise my main concerns below:§ Firstly, trade unions have a lot of control over the industry super funds, how they are operated and ultimately their lack of productivity. This 'influence' was highlighted during The Royal Commission into Trade Union Governance and Corruption.§ Secondly, I am concern but the amount of money paid to trade unions and I am concerned that there aren't enough checks-and-balances. A report in 2017 highlighted that trade unions received over $18 million from industry super funds over a 4 year period. Here's another article from January this year stating that KPMG calculated that Cbus paid over $7 million to unions over a four year period ending in 2014. The operation of (1) trade unions and (2) investing people's retirement savings are two separate activities and should be completely independent.§ Thirdly, they lack a lot of transparency and accountability with respect to investment performance as I have written about here.§ And finally, given their scale, they should be reducing fees, not increasing them - a point which the Productivity Commission has made in its recent investigation.Having said all that, industry funds are much better than retail funds. And if you are not going to use a wrap account (or SMSF), then they are the best solution for your super. Hostplus, Cbus and AustralianSuper tend to be the best performers in terms of investment returns. AustralianSuper has the lowest fees out of the three (by a reasonable margin) so its typically my preferred option.What is a wrap platform?A wrap platform is a portal (super account) that helps you invest your super. It provides you with access to...

It feels like there is more global uncertainty at the moment. Things such as a global or domestic economic recession, US/China trade war tensions, Brexit, Trump's rhetoric, the prospect of zero (or negative) interest rates, what property prices might do here, all seem to dominate the news. You may find these matters confusing and they can create inertia.So, how do you navigate these seemingly turbulent times?Consider issues in a long-term contextLast week, the Australian share market fell 3.7% between Tuesday and Thursday. These types of dramatic movements attract alarmist headlines. The reality is that despite this drop, the market is still up 10.1% over the past 12 months, which is much better than other developed markets.The volatility (VIX) index is the most common measure for the level of volatility in the US market and is charted below for the past 20 years. The VIX index averaged only 13.2 throughout calendar years 2016 and 2017, which is well below the long-term mean of 18.3. Since the beginning of 2018, the VIX has averaged 16.6, which is 25% higher than 2016 and 2017, but still below the long-term mean.https://www.prosolution.com.au/wp-content/uploads/2019/10/VIX.png?6bfec1&6bfec1Perhaps this puts recent share market volatility in context. Whilst the market is more volatile than it has been in recent times, in context of longer-term data, it is actually not all that volatile. For example, there was almost twice as much volatility between 2008 and 2011.I share this with you to make the point that it is important to focus on the data and facts rather than how markets feel.Most of these issues are short termThe best way to deal with these often-exaggerated topics (as listed in the headline) that the media, in particular, love to talk about is to ask yourself whether these are likely to have had an impact 20 years from now. Mostly, the answer is no. Many of these "issues" are short-term in nature and really won't have any impact on long term investment returns.Markets and economies move in cycles, so recessions aren't a new phenomenon for long-term investors. Government trade terms and strategies change, but markets and business always adapt. Perhaps the only factor that might have an impact in the long run is interest rates, particularly if they are lower for longer. But that impact is likely to be positive for astute investors.In short, what I am saying is; "play the long game". Focus on long term outcomes. If you do that, you don't need to worry about getting distracted by all the short-term noise and as such, it is less likely you will make a decision that you may regret in the future (or regret not making any decisions).Short term thinking creates unnecessary and unhelpful anxiety. You end up focusing on whatever dominates the news - there is always something to worry about. To avoid this ask yourself, what can you do today that is likely to strengthen your financial position 20 years from now. Forget about what might happen over the next 20 days or 20 months.Focus on quality, methodology and valuationIf you are investing in shares, you must focus on ensuring you adopt the correct methodology and skew your investments away from over-priced markets. If you are investing in property, focus all your energy on quality only. Doing this is the best way to ensure your investments are strong enough to weather any storms that might be coming our way. I explain these two factors below:§ Quality and methodology - ensure you have a sound methodology for...

The ALP's proposed ban on negative gearing has been well publicised and debated. However, its proposed changes to Capital Gains Tax (CGT) have received far less attention. I suspect that this is because investors tend to overestimate short-term consequences and underestimate more significant long-term outcomes. But, since most of us are long-term investors, I'd suggest that we should adopt a more balanced view.How does capital gain tax currently work?At the moment, only 50% of the net capital gain is included with your other taxable income (except for companies which are not entitled to the 50% discount) if you have owned the asset for more than 12 months. The net capital gain (or loss) is calculated as follows:Net sale proceeds - being sale price less any selling costs including agent fees and so on.LessWritten-down acquisition cost - including purchase price, stamp duty, buyers' agent fees, legal fees, inspection fees and so on; less any depreciation claimed in prior years.EqualsNet gross capital gain (or loss). This amount is discounted by 50%. The discounted amount is then added to your income and taxed according to individual marginal rates.What has the ALP proposed to change?The ALP has announced that if it wins the election on 18 May, it will halve the CGT discount from 50% to 25%. This effectively increases that amount of tax you'll pay by 50%.For example, under current arrangements, only $50 of a $100 capital gain would be added to your taxable income. If you are on the highest marginal tax rate of 47%, you would pay $23.50 in tax. However, under the ALP's proposed arrangement, $75 would be added to your taxable income and your tax payable would increase to $35.25 - an additional $11.75 or 50%.These CGT changes apply to investments, including property and shares, purchased on or after 1 January 2020 (for property, this is likely to be based on contract date, not settlement date). All investments made prior to 1 January 2020 will be fully grandfathered and entitled to continue to claim the 50% CGT discount.High growth assets will be impacted the mostUnlike the changes to negative gearing, these changes to CGT will impact property and share investors to a similar extent.And investments that provide the majority of their total return in capital growth rather than income will be impacted the most by these changes. The two most popular (common) major asset classes are:Direct propertyAccording to REIA data, the average compounding capital growth rate of Australia's five largest capital cities since 1980 is 7.2% p.a. Investment-grade properties should generate a higher growth rate (than the median).However, property tends to generate only a small amount of income. Whilst gross rental yields can range from 2% and 5% p.a., after an investor pays for expenses such as management fees, maintenance, insurance, water and so on, the net rental yield is a lot lower - probably under 2% p.a. in most circumstances. In summary, property typically provides circa 80% of its total return in capital appreciate and 20% in income.International sharesInternational equities also provide most of its return in capital growth. The MSCI World Index has appreciated in value by 7.83% between December 1987 when it began and March 2019. The average annual dividend yield of this index is currently only slightly above 2%. So, international investments also provide 80% of total return in growth and 20% in income.It is interesting to note however that Australian shares generate a lot more income. Almost 50% of their total...

For many Australian's, their home loan is their largest expense. And property investors should seek to minimise their borrowing costs (interest) as it's one of the top three factors that directly impacts investment success as outlined in this blog. With this in mind, I thought it was timely to look at the current opportunities in the mortgage/interest rate market.What the "market" is expectingAs the chart below illustrates, the implied yield on 30-day cash rate futures suggests that the market expects the cash rate to be 0.25% lower in the second half of 2019. These future contracts are used primarily by large institutions and banks and essentially represent the consensus view on the direction of interest rates in the short term (i.e. next 18 months). Of course, the market is not always right - it's only one indicator.https://www.prosolution.com.au/wp-content/uploads/2019/03/cash-rate-futuresv2.jpgEconomist predictionsBill Evans, the Chief Economist for Westpac, was the first to predict that the RBA will cut its cash rate twice in 2019 (0.25% in August and then again in November). Since making this prediction on 20 February 2019, many other economists have joined him. Mr Evans was the first economist to correctly predict the start of the RBA's easing cycle in 2011 - so he has good form.Mr Evans cited weaker than expected GDP growth, the "wealth effect"[1] associated with a softer property market and an expected increase in our savings rate as the main reasons for forming his view.What would have to happen for the RBA to cutThe RBA has previously said on a number of occasions that it is not concerned by the falling house prices. This commentary has never made sense to me because a falling property market definitely impacts on consumer confidence - look at what happened in the USA when the GCF hit. Perhaps the RBA was hoping its positive rhetoric would persuade Australian's to ignore the wealth effect. However, in the last few weeks the RBA has changed its tune and acknowledge the risk that a soft property market might have on the wider economy.Also, the RBA has downgraded its GDP growth forecast. I think the RBA would need to see an increase in the unemployment rate before it would be willing to cut the cash rate. Australia's unemployment rate is still relatively low at 5.1% as illustrated in the chart below.https://www.prosolution.com.au/wp-content/uploads/2019/03/unemployment-rate.pngWill the banks pass it on?Of course, if the RBA does cut the cash rate below its current level of 1.5% p.a., the big question is; will the banks pass all of the reduction onto borrowers?On one hand, given the scrutiny and negative publicity generated by the recent Royal Commission, you would think they would have to be very brave (read stupid or arrogant) to not pass it all on.That said, a few small lenders have increased variable rates this year (e.g. ING) which suggest funding costs have been on the rise. Perhaps the banks will use this opportunity to improve their...

Australian's have a well-documented love affair with property. Many people pursue the "great Australian dream" of owning their own home and over 2.1 million taxpayers invest in property. Most Australian's also invest in the share market too, via their superannuation.However, one of the decisions that many people struggle with is whether to invest in property, shares or both. And if the answer is to invest in both, how much do you invest in each and is it wise to do one before the other?Like with many things in life, moderation is the keyAll things being equal, diversification is typically the wisest approach. Spreading your money across various asset classes helps you reduce your investment risks. Property and share investment returns are not correlated, so by investing both, hopefully the 'good' years in property will randomly offset the 'bad' years in shares (and vice-versa). That is less important in the long run, but in the short run, diversification smooths investment returns, which makes the road less bumpy and less stressful.Don't invest if you are uncomfortableWhilst you should always aim to never let your emotions guide financial decisions (as discussed here), sometimes people are very uncomfortable with investing in either property or shares.I believe that you should never invest in anything unless you are 100% comfortable. Therefore, if your risk tolerance drives you to invest in one asset class only (i.e. property or shares), then that is okay as long as you use the correct investment methodologies. At the end of the day, the quality of your investments is more important than your level of diversification, especially in the long run.You probably don't need to invest in more than two investment-grade propertiesSome businesses and articles online promote the benefits of acquiring a large property portfolio. Whilst this might be realistic for some, it's completely unnecessary for most people. Of all the financial plans that I formulate, I rarely recommend my clients invest in more than three properties. In fact, most plans involve investing in one or two.There are two reason for this. Firstly, quality trumps quantity every day of the week! It is much better to put all your money in one high-quality property than spread your monies across several "average" quality properties.Secondly, limiting the amount you invest in property leaves room for you to invest in other assets such as shares, thereby achieving better diversification. However, if you max-out your borrowings (through investing in property), you will probably find that you do not have any capacity to invest in other asset classes.Beware of anyone that suggests you can and should invest in lots of properties. Your ego must not determine your investment strategy. That is often difficult to do without having to make significant and ultimately costly compromises on the quality of the properties you invest in (unless you have a significant income).Most pros and cons balance themselves out at a portfolio levelThe shares versus property debate has raged on for many years. People in each camp will highlight the pros and cons in each. For example, shares are more liquid, you can invest in shares in smaller amounts, you don't have to worry about dodgy tenants and so forth. Whereas, for property, people are attracted to the tangible nature of the asset and you can borrow more (at lower rates) to invest in property. These are just some of the pros and cons that are often mentioned.Most of the pros and cons regularly mentioned are technically correct....

If you are contemplating investing in property, should you buy now or wait? What if prices fall further this year? Maybe you would be better off waiting?As my analysis below reveals, buying for less than market value or at the bottom of the market (i.e. buying well), has very little impact. The price we pay for a property has little impact on success as investors. So, the desire to buy below market is probably driven more by ego more than fundamentals.Timing the market is a flawed strategyNo one in the world has developed a reliable system for predicting how asset classes will change in the short term. As Mr Buffett says; "forecasters will fill your ears but never your pockets". Therefore, if you think you can implement a strategy that involves picking the bottom of the market, think again! Not only is it impossible to do, but many of the indicators used to measure the health of the property market are lag indicators. That is, by the time the indicators change, prices would have already rebounded somewhat.How important is it to buy well?This is a good question and one that I have spent a lot of time analysing. I financially modelled a $750,000 property investment and measured the sensitivity to the following factors/assumptions: •Capital growth - this is the average rate of appreciation in value over the next 20 years. My base case assumption is a nominal rate of 7% p.a. (assuming an inflation rate of 2.5% p.a.). The range I used was 4% (being only 1.5% above inflation) and 10% (which I have observed in blue-chip locations over the past 30 years). •Buying above or under fair market value - I measured the impact of buying 10% below market value versus over-paying by 10%. •Capital gains tax (CGT) - I measured the impact of paying no CGT (e.g. owning in a SMSF) versus paying the maximum CGT (e.g. the ALP's policy is to halve the CGT discount). The midpoint I assumed is based on current laws at a tax rate of 39% p.a. •Interest rates - my midpoint is 6% but I sensitised using a range of 4% to 8% p.a. •Rental yield - this is the amount of gross rental income you will receive compared to the properties value (expressed as a percentage). I have assumed a normalised mid-point of 3% but then also tested a range of 2% to 5%. •Rental growth rate - this is how much the rent will increase by on average each year. I have used a growth rate range of 3% - being slightly above CPI and 7% - which is relatively high. •Negative gearing - as has been well publicised, the ALP will ban negative gearing on existing properties (if you own existing investments, these are excluded, so you won't be impacted). As such, I sensitised the impact of negative gearing on an investment. I compared no negative gearing versus maximal benefit at tax rate of 47%. The midpoint was 39%.What I did is held all factors that same (i.e. at the midpoint/base case) and changed one variable from high to low to measure the impact on after tax cash (assuming you hold the investment property for 20 years and then sell it). This included the cash flow cost plus the after-tax sale proceeds.And the winner is...As the chart below illustrates, buying under fair market value has very little impact on the success of your investment. A property's capital growth rate is by far the most important factor. A distant second is capital gains tax, then interest rate and finally rental income.Download chart here: https://www.prosolution.com.au/wp-content/uploads/2019/02/market-timing.pngWhat steps should you take as a result of this?If you are investing in property, forget...

The ALP announced on Friday (29/3/19) that it will ban negative gearing from 1 January 2020 if it wins the election next month. I wrote an article for The Australian newspaper over the weekend which addresses the steps property investors can take to fortify their investments (which I list below). A number of people have asked me whether they should invest in property prior to 1 January 2020. I discuss this too.We still have a long way to goOf course, the ALP has to win the election before it can ban negative gearing. I acknowledge that virtually every poll predicts an ALP victory. But John Howard didn't poll very well leading up to his 1996 election win. And who would have thought Mr Trump would become President of the USA! So, anything can happen.Secondly, it will depend on how strong their win is and whether they have a large majority or not. If it's a tight win, they may have to negotiate with minor parties to get its law enacted and, as a result, water down its change to negative gearing e.g. limit it rather than an outright ban.And finally, we have not seen the draft legislation yet. All the ALP has said is they will be negative gearing if people invest in established property or shares after 1 January 2020. Back in 1985 when the Hawke government banned negative gearing, people used unit trusts to invest in property. They borrowed to buy the units and as such were able to continue to negatively gear the property. So, there could be workarounds.What should (existing) property investors consider doing?There is a risk that the ban on negative gearing will put further downward pressure on property values in 2020. Owning an investment property in a falling market can be a double-whammy. Not only is your asset value falling, but you have to put your hand in your pocket each month to contribute towards the holding costs (if the net rental income isn't enough to meet the loan repayments). Here are some of the steps you can consider taking:1. Reduce holding costs - fix your interest rateMany lenders are offering 3 years fixed rates at levels below variable interest rates, particularly if your loan repayments are structured as interest only. This may help reduce the monthly holding costs and you could still be better off on a fixed rate because, even if the RBA does cut rates this year, there's no guarantees the banks will pass it on. See more from my blog a few week's ago.2. Make any changes to mortgages prior to 2020If values do fall further as predicted, now might be a good time to lock in access to available equity. This involves increasing your loan's credit limit to up to 80 percent of the current value of your investment property. This will give you access to additional credit for emergencies (i.e. a financial buffer) or future investment purposes. This equity may not be available in the future if bank valuations fall after 1 January 2020.3. Divest of underperforming properties in 2019I expect that some property types and locations will be more exposed to changes in negative gearing. For example, locations or buildings that are dominated by investor-owners could be at greater risk compared to locations with a more normalised number of owner-occupiers. In addition, the types of properties that have historically been marketed to investors primarily because of the tax benefits they generate (such as depreciation and negative gearing) will almost certainly be negatively impacted.If you own a property...

I'm a huge fan of Seth Godin's work. He's a presenter, author and entrepreneur and if you have any interest in marketing or business, you must subscribe to his daily blog. Anyway, his recent blog about the difference between an amateur and professional got me thinking. I think many of us could benefit from approaching our finances more professionally.The different between a professional and amateurOften, a professional investor such as a fund manager approaches investing a lot differently than an amateur investor. I have listed some of these differences below to highlight this point.Professional- Understands that making investment decisions requires experience, education and understanding the market- Seeks out experts in their field and is willing to pay a fair fee for their advice- Will have a methodology for hiring and firing advice professionals - a clear list of things they want and want to avoid, thorough methodology, etc.- Will hold their advisors accountable for producing results- Won't try and take on a task that is outside their sphere of experience- They make investment decisions on a daily basis- Will take almost any steps to ensure the risk of losing capital is low or non-existent.Amateur- Has no metric or methodology for measuring the value of advice- Asks friends or colleagues for advice- Is prepared to have a go at trying to do it themselves before asking for help- Considers it a saving if he works it all out himself and therefore don't need to pay anyone for advice- To some extent, is guided by emotions e.g. it feels right, falls in love with the potential returns, etc.- Gets seduced by investment returns and doesn't adequately consider (and mitigate) investment risks- Doesn't realise the danger of their lack of experience- Makes a handful (or less) of investment decisions over their lifetime.- Its prepared to make a mistake i.e. learn through trial and error.But we don't compromise on some things...Imagine how you would react if your friend told you that he did his spouses dentistry work. Or wrote their own will. Almost all of us understand the perils (stupidity) of this and wouldn't even consider trying. Instead, we find a professional than we respect and trust because we have what phycologists refer to as conscious incompetence. That is, we know that we have a deficit of knowledge and experience to do it ourselves.Your responsibility is to manage the people that manage the moneyJust because you can do your own financial planning, taxation, loan structuring - it doesn't mean you should. More importantly, maybe you have misunderstood your role. Your role is to not figure it all out yourself. That is potentially way too costly in the long run. Instead, your role is to hire the best people you can afford to help you make the smartest possible decisions. It's what we all do in other areas of our life. It's what successful professional investors do too.Use a professional lends when selecting the right people to have on your teamIn order to do this successfully, you have to have a robust methodology for selecting the right professionals. Here are some of the things I consider when selecting other professionals that help my clients.1. How do they make money?It's important that I work with...

Understanding how property growth behaves is critical when making buy, hold or sell investment decisions. Unfortunately, I have seen lots of people make terrible decisions based on misinformation or misunderstanding. Therefore, if you are a property investor, you must understand this concept. And if you are an investor with a low asset base, you can use this knowledge to your advantage.History always leaves cluesI'm a big proponent of evidence-based investing because it removes a lot of risk. Evidenced-based investing involves only adopting methodologies, approaches or investing in assets where there is overwhelming evidence that demonstrates it works. No throwing darts. Only invest in sure-things.Below I have set out a few examples of property growth both for individual properties and markets.Individual examples of property growthThe chart below (click to enlarge) sets out the sales of an apartment in Richmond, Victoria between 1985 and 2019. As you can see, there was very little growth between 1985 and 1997 and very strong growth between 1997 and 2010. The average growth over the whole 25 years period averages out at over 8.8% p.a. - which is pretty respectable. This is a very good example of how property behaves i.e. it grows in cycles lasting 5 to 10 years followed by a flat cycle. Click here for an example of a house in Carlton that I cited in another blog that also illustrated this concept.<< Chart - click here >>I appreciate that this data isn't statistically significant, because it's only a couple of properties. However, after 17 years of looking at property growth on almost a daily basis, I can assure you that this growth is indicative of how the vast majority of investment-grade property behaves over long period of time.Example of state-based growthThe chart below (click to enlarge) sets out the distribution of median house price growth since 1980. You will notice that a growth cycle typically lasts 7 to 10 years. And a growth phase is typically followed by a period of (7-10 years) of little growth. The average growth rate over the past 38 years of each capital city ranges between 7.30% and 7.96% p.a. That is, in the long-run, there is not a large variation.<< Chart - click here >>Understanding the market and its performanceWhen assessing an investment property's historical performance, it is important to ascertain whether it is due to asset-specific or market-wide influences. For example, I know that investment-grade apartments in Melbourne have not performed well over the past 7 to 10 years - as perfectly depicted by the Leslie Street chart above. Therefore, investors must consider this when assessing the performance of their assets. For example, if you purchased a quality apartment in Melbourne 5 years ago and haven't enjoyed much capital growth, it is possible that you have a perfect (investment-grade) asset, but you just haven't held it long enough yet. That is, no growth is a market-wide phenomenon, not asset-specific.But you can't have blind faith in the headline numbers. You must understand what has driven performance. Using investment-grade apartments in Melbourne as an example, these are some of the things I would consider when looking at recent growth and forming a view ...

Different professionals are able to give advice about a specific field - but who's taking responsibility for looking at the big picture? How do you know if opportunities are slipping between the gaps? What if you have an issue/problem/question that bleeds over a few different fields?Firstly, it is important to understand the what different professionals can and cannot talk about (by law).Mortgage adviceTo give advice about a mortgage, borrowing capacity, interest rates, products and so on the professional must hold an Australian Credit License (or be an authorised representative of an ACL holder). You can search ASIC's register of credit representatives here.Tax adviceAnyone that provides tax agent services (tax advice, lodge tax returns, etc.) for a fee must be registered with the Tax Practitioners Board. You might find that some well-meaning professionals (such as mortgage brokers or buyer's agents) offer you tax advice or express an opinion about how an item should be treated for taxation purposes, but you should always confirm this advice with a Registered Tax Agent. You can search the Tax Agents register here.Financial adviceTo be able to provide financial advice, you must hold an Australia Financial Services License (AFSL) or be an authorised representative of a holder. Financial advice includes cash flow management/budgeting, investing in shares, superannuation, retirement planning, estate planning, risk management and so on. I have written previously about the importance of selecting a truly independent advisor. You can search the AFSL register here.Property adviceA person cannot recommend and help you purchase a property unless they are a licensed real estate agent. Licensing is State based and this page provides a good summary including links to registers. General property investment advice is completely unregulated and I have written about why this is a problem in The Australian here. Therefore, if you are paying for property advice, be very careful.Insurance adviceMany financial advisors also provide insurance advice. However, sometimes professionals are insurance advisors only i.e. they have a limited AFSL.What can and cannot be covered...Therefore, mortgage brokers can only give advice about credit (mortgage) products, not cash flow or taxation matters.Tax agents can only give you tax advice and cannot comment on cash flow, investments, mortgages, superannuation and so on.A financial planner can't talk about tax consequences or give you borrowing advice unless they hold the appropriate licenses.The problem is many financial decisions are interrelatedMany financial decisions cross over multiple fields and require input from various professionals to ensure you arrive at a thoroughly well-considered conclusion. Take the decision to upgrade or downsize your family home for instance. Whether to do this and at what budget would include borrowing considerations (mortgage broker), cash flow and retirement planning (financial...

CBA Economics stated last week that property price declines are "inevitable". It has forecast that prices will fall by circa 10% in Melbourne and Sydney over the next 6 months. It cited many reasons for this forecast including higher unemployment, lower economic activity, lower mortgage volumes, falling rents and fewer overseas buyers.I wanted to take some time to look at this forecast and provide my commentary. This exercise serves as reminder that all forecasts are inherently uncertain and tend to have limited application for investment decisions.Relationship with unemployment and property growthSimple logic would suggest that if less people are employed, fewer people will be able to purchase a property and some may need to sell their properties. As such, if demand for property falls, prices may follow. That's the basic laws of supply and demand.However, the chart below doesn't support this hypothesise. We should see the green line (average house price growth for subsequent 3-year period) increase when the blue line (unemployment) falls. That is not always the case. In fact, the data suggests there's a very weak relationship between property growth and unemployment.CWhat happened during the last recession?Let's look at Australia's last recession as an example (i.e. the "recession we had to have"). Between 1990 and 1992, unemployment rose from 5.85% to 11.2%. During this period, the subsequent rolling 3-year annual property growth ranged between 1.1% p.a. and 3.4% p.a. Inflation was circa 1.5% p.a. during this period, so in real terms, property prices were flat.What happened was there was very strong price growth between 1985 and 1988 (i.e. over 20% p.a.) and property prices started falling from early 1989. Unemployment started to rise in early 1990. Therefore, property price falls actually proceeded a rise in unemployment, not the other way around.Why might there be a weak link between unemployment and price growth?I can't offer a definitive answer, of course. But I think a large part of the answer lies in two factors being (1) the fact we all need somewhere to live and (2) the housing market is close to equilibrium in terms of demand and supply i.e. most Australian's have somewhere to live.For there to be large falls in prices, there needs to be more sellers than buyers i.e. mass selling. That can happen in the share market (and other asset classes) with limited practical consequences. However, that is more difficult to do with property, because we all need somewhere to live. Of course, investors and holiday homeowners have the discretion to sell, but in the main, these people tend to have a stronger financial position than the average Australian.And the average unemployment period will likely be shortThe important distinction that makes this situation unique is this current recession was caused by a contraction in supply, not a fall in demand. Normally, an economic slowdown is caused by a fall in consumer spending (demand for goods and services) and that can take longer to recover. Today, most consumers are happy to spend (a visit to Bunnings will prove that). It's just we are not allowed to venture outside our homes to do so (and otherwise viable businesses have been forced to cease trading). Once restrictions have been lifted, demand will likely return at a faster rate compared to a demand-driven recession.Westpac projects that unemployment will peak at 9% this year but reduce to 5.6% by the end of 2021 (i.e. only slightly above what it was at the beginning of this year). Most of the...

If there is one certainty in life, it's that there's always going to be some uncertainty.Of course, there are times in our lives where there's higher levels of uncertainty, which can be very stressful. But, to a degree, we all have to become comfortable with some level of 'uncertainty' and learn how to dance with it.This is especially true with financial decisions. Markets never exhibit zero risk (i.e. no uncertainty). This blog considers how to financially navigate uncertain times, much like we are experiencing today.Uncertainty can exist in three ways being (1) personal circumstances, (2) domestic uncertainty and (3) global uncertainty. Each is different and requires a different approach.Personal uncertaintyPersonal uncertainly relates to your personal financial position. This can include things such as the risk of a change in your income, losing your job, unexpected bills, relationships and so on.How to deal with personal uncertaintyWhen it comes to personal uncertainty, the best thing is to put all material financial decision making on hold. Typically, the uncertainty resolves itself within a few months or possibly a year. That is, your fears are either realised, or the risk evaporates. Either way, it is likely that sometime in the near future you will be able to resume normal decision making (management).Remember, investing and building wealth is a marathon, not a sprint. There's no need to put yourself under any undue time pressure. Instead, you must make deliberate and well thought out decisions - there's no need to rush. However, of course, at the same time, you must consciously avoid unnecessarily procrastinating too.It is possible (although rare), that the passage of time does not in fact eliminate the uncertainty. An example of this is when one of my clients was facing the prospect of his employer cancelling his project (i.e. redundancy) for many years. In this situation, we just had to accept this higher risk and proceed with implementing his financial plan. We held larger than usual cash buffers to mitigate some of these risks. In the end, the redundancy did eventuate, but not for many years.Domestic uncertaintyDomestic uncertainty relates to matters that are unique to Australia. These can include things such as changes to taxation rules or economic health. A recent example of domestic uncertainty arose during last year's Federal election campaign where the Labor government proposed making changes to negative gearing and capital gain tax. Remember that? That was less than a year ago!How to deal with domestic uncertaintyTax and superannuation rules are everchanging. Economies move in cycles (although it has been almost 29 years since Australia's last recession - although we have almost certainly broken that streak already). Most of these risks (or uncertainties) are cyclical and will continue to be present for the foreseeable future.The best way to deal with domestic uncertainties is through your investment strategy formulation. For example, you must have sufficient diversification in regard to items such as investable asset classes and ownership structures so that you are not 'single point sensitive' to a change in tax law. You must ensure your property investments are of a sufficiently high quality, so they are able to absorb the impact of a tax hike and still remain viable.Put differently, your investment strategy shouldn't fail just because of a change in law or the end of an economic cycle. For long term investors, these events should not be unexcepted.Another approach is to price the risk into the transaction you are contemplating. For example,...

Given many people are worried about the unknown consequences of the Coronavirus, I thought it was timely for me to share my thoughts and advice. Like in all 'crises', it is important to not let emotion or fear drive your responses. 'A steady hand on the tiller' is the best approach when navigating any storm.I acknowledge that the Coronavirus may have caused significant emotional and heath distress to people around the world. I fully empathise and understand this situation and do not seek to downplay its impact. But it is important for me to stipulate that my comments below are only about the financial impacts and considerations, not any health concerns.We've heard it all before! Don't get sucked in.Financial markets are closed.All banks are going bust.The way we conduct global business has changed forever and will never be the same again.Property markets will take decades to recover.I heard all of the above statements during 2008 and 2009 when I was glued to the TV late at night throughout the GFC. They are all alarmist predictions and have all been proven to be wrong.The human race (and economy) is incredibly resilient and innovative. We have faced many challenges and prevailed. This will be no different. In respect to the financial impact on the vast majority of people in the long run, just like with the GFC, I suspect it won't be that significant.Once the coronavirus risk passes, I'm sure Australian's will start spending again to get the economy back to its normal level. I anticipate that our spending decisions will be directed towards the most effected industries such as hospitality and tourism, with the same community mindedness that was evident during the recent bushfires.Our lives are filled with predictions and usually most extreme ones get the most airtime. Try not to get sucked in. The best approach is to carefully avoid the mainstream media. Worrying has never made any problem better.Short term thinking creates anxietyWhen it comes to money and investing, short term thinking has always created anxiety. This is even more true when markets are volatile. Short term thinking does not serve you well. It promotes you to either be too greedy (when markets are high) or too fearful (when markets are low).Instead, a far superior and more comfortable approach is to play the long game. Consider what actions you can take today so that you will be better off in 5, 10 and 15 years. That puts things in perspective and helps you avoid many of the common financial mistakes that people make. And realise that sometimes the most intelligent thing to do is nothing.The impact of coronavirus on the economy and share markets is temporary, not permanent. Whether it takes 6 months, 1 year or up to 2 years to recover, only time will tell. However, history tells us that its impact will not impact on investment returns over the long run. Your decisions and actions will.Supermarkets are a perfect reflection of share marketA walk down the aisle of your local supermarket is a sobering indication of the level of hysteria impacting the Australian and international share markets. As I write this blog, the Australian market has fallen 27% since 21 February 2020 and international and US markets have fallen by circa 20%.But that doesn't really tell the full story because it's the level of volatility that has been causing the most newspaper headlines. The Australian volatility index (A-VIX) has ranged between 10% and 20% over the past decade. This week it has peaked at 55%, which is similar levels to the...

Over the last few weeks, lenders have aggressively cut fixed rates, particularly for investors that borrow on an interest only basis. Three and five year fixed rates now range between 3.18% and 3.40% p.a. This means the cost to hold an investment property is as low as it's ever been.This doesn't mean we all should run out and buy an investment property.The cost to hold a median propertyThe graph below charts the annual after-tax holding cost of a median value house (average of Melbourne & Sydney) expressed in today's dollars. As you can see, a property's after-tax holding costs have typically ranged between $10,000 and $30,000 per annum over the past 40 years.https://www.prosolution.com.au/wp-content/uploads/2020/02/holding-costs.png?189b78&189b78The red line is the estimated annual after-tax holding costs based on current fixed rates.A $800k apartment will cost $500 per month to holdLet's look at the cost to hold an $800,000 investment property (apartment) using actual data as an example.https://www.prosolution.com.au/investment-property-holding-costs/Therefore, this property, for example will cost you circa $505 per month (after-tax) to hold.Low rates will likely inflate property valuesIt is a commonly accepted economic principal that lower interest rates typically lead to an increase in asset values (i.e. the value of equities and property rise). The reason being is that the lower cost of debt means higher profits to owners which means assets are worth more.The graph below charts three variables:§ The rolling average capital growth rate over 20 years for median houses in Melbourne and Sydney; and§ The cost to hold an investment property (as charted above). This is calculated as the annual after-tax holding cost of a median house based on prevailing interest rates at that time, expressed in today's dollars; and§ The average rolling 20 year growth rate between 2000 and end of 2019.https://www.prosolution.com.au/wp-content/uploads/2020/02/cash-flow-and-growth.png?189b78&189b78This chart demonstrates that periods of higher capital growth have tended to follow periods of time where holding costs were below average.It may cost you less cash flow to generate similar capital growth ratesAs you can see from the chart above, the rolling 20 year capital growth rates have ranged between 4% p.a. and 9% p.a. It's a big range because of the particular periods of time. For example, the low growth in 2009 measures how property values changed just prior to the early 1990's recession and during the midst of the GFC - two unfortunate points in history. Similarly, the peak in 2003 measures growth from the early 1980's when property boomed.Perhaps the best long-term indicator is the average rate of 7% p.a. The average inflation rate since year 2000 is circa 2.5% p.a., so the real growth rate (i.e. excluding inflation) has been 4.5% p.a. In today's terms, that equates to a growth rate of circa 6% p.a., assuming inflation will continue to hover at around 1.5% p.a.Investing in an asset that generates a growth rate of 6% p.a. that only costs $500 per month to hold could produce tremendous financial outcomes.§ Cost flow cost in today's dollars over 20 years =...

An independent financial advisor does a lot more than just tell you how to invest your money. In fact, a lot of the work they do is 'behind the scenes' so I thought it was a good idea to share this information in a blog. This will give you a better idea of what a financial advisor does, and therefore whether you might benefit from having one.Develop a long-term strategy for youOne of the predominant reasons people engage a financial advisor is to help them map out a long-term investment strategy to work out how they will achieve their financial and lifestyles goals. This includes what to invest in, how and how much, also when and similar considerations. I believe that adopting a holistic approach will reveal the most efficient and effective strategy because it considers all facets including super, property and shares, tax minimization and so on.A long-term strategy must be robust enough to accommodate expected market and situational changes. However, it may be necessary to make small changes to the strategy as time elapses.Engaging the services of a professional advisor to help you with this will yield numerous benefits including reassuring you that you are taking the right approach, ensuring you don't waste time and money pursuing the wrong strategy, making sure that you have considered various strategies (e.g. an advisor might recommend an approach you have never thought of).Research investment options and strategiesThe financial services industry is very dynamic and always changing. Fund managers are busily working hard to find an edge, a strategy that will help them produces better returns. Also, academic and peer research is published at an increasing rate - again, trying to identify the factors and market forces that will drive future returns.All advisors must keep on top of these new advances. More importantly, an advisor must work diligently to separate fundamentally sound strategies and products from "marketing". A fund managers job is to develop products to attract investors' funds. Sometimes, they pursue this goal at the cost of quality i.e. develop products that sound sexy but lack fundamentals and substance. Such products must be given a wide berth.I guestimate that I probably only use 1 out of every 50 to 100 products or strategies that I investigate. There's a lot of rubbish out there so 'buyer beware' is a good mantra to live by.Keep up to date with all changesIt's not news to anyone that tax, super and compliance laws are constantly changing. So, it is very important that an advisor keeps on top of all these changes. For example, every month I spend 2 hours in a classroom learning about all the recent tax changes (I must admit, it's not the highlight of my month!). In addition, I attend numerous half and full-day events to keep on top of markets, products, strategies, credit policies, superannuation and so on. This is in addition to regular one-on-one meetings with fund managers and reading lots of blogs and listening to podcasts.If you don't use the services of an advisor, you must consider the opportunity cost of doing so, what are you missing out on?Make sure you don't make any mistakesOften, investing is very simple, but it's not always easy. The best evidence of this is that most Australians fail to accumulate enough wealth to enjoy a (self-funded) comfortable retirement.It is easy to get distracted by shiny objects. Or react to fear (tons of negative newspaper articles or hysterical predictions). And it's often tempting to try and take short cuts.But none of these actions will produce wealth in the long run. In fact, the best case is that will waste time. Worse case is...

Personal insurances such as Income Protection, Life insurance and Total and Permanent Disability (TPD) are becoming impossible to get unless you are in perfect health. This change has occurred gradually over the past few years but has now reached the point that it's become a real concern. This has a number of consequences which I discuss below.Insurers have a bad nameWe heard some shocking stories last year via the Banking Royal Commission about insurance companies including questionable and even unethical sales tactics, unreasonably denying paying claims and so on. I'm not sticking up for the insurance companies. Their tactics are boarding on criminal. However, also, a big contributor towards these problems is that people don't understand what they are buying.When it comes to insurance cover, the advantage of "no questions asked" might seem convenient, but it just isn't in your favour. You want to ensure the insurer comprehensively underwrites your cover before they put the cover into force. This includes asking you questions, undertaking medical checks, reviewing medical history and so on. Doing so leaves them less room to use the excuse of a "pre-existing condition" to deny any future claim.Also, it's important to understand the quality of the policy. Quality refers to the terms and conditions and definitions within a policy document. These all impact how comprehensive the cover is. If you get these two things right (i.e. quality and underwriting), you are much less likely to experience problems or nasty surprises down the track.What has changed?It is the underwriting and assessment process that has changed over the past few years. Insurers are, in our opinion, being over-stringent.Normally, if an insurer believes that you have a pre-existing health condition, they can take one of four actions:1. Approve the cover anyway (this is very unlikely); or2. Add an exclusion on the policy (meaning that you are not covered if that health concern causes you problems); or3. Add a loading onto the premium (i.e. charge a higher premium); or4. Decline the cover.A policy exclusion or outright decline are the most common outcomes - even for minor, inconsequential, asymptomatic health conditions! Lately, it seems that unless you are in absolutely perfect health, it is difficult to obtain exclusion-free insurance cover.Do health concerns have to be major?In short, no. This is what is so frustrating i.e. getting a decline or exclusion for a minor past medical condition. Some examples include:§ A back exclusion for a client that liked to get relaxation massages spasmodically.§ An elbow exclusion because a client had a once-off tennis elbow injury caused by a lot of typing during an intense study period. The jury was not ongoing, and clients was symptom free.§ Spine exclusion based on regular chiropractic visits for preventative reasons only (client plays a lot of sport) - no injury treatment.§ An insurer limited the clients benefit period to 5 years (period usually expires at age 65) plus added a 75% premium loading because the client worked long hours and had a high cholesterol reading.Mental health has become a 'challenge'In Australian, mental health conditions are the third most common cause of TPD claims, and the second most common cause of income protection claims. As such, insurers are becoming more conscious of these risks and mental health exclusions (and even declines) are becoming more common.We have had situations where a client has...

With the 2019 calendar year quickly drawing to a close, I thought it would be good to have a look at what next year might bring in terms of investment risks and opportunities.Over the years, I found that its best to form opinions on the economy by reading analysis/insights and attending economic briefings, whilst being careful to not overindulge. Too many opinions and viewpoints can confuse and sometimes send you down a rabbit hole. This should be complimented with real-world observation such as taking notice of retail traffic conditions, anecdotal discussions with businesspeople and so on. This approach has served me pretty well over the past few decades.The economy and the risk of recessionThere has been a bit of press lately about the risk of Australia and other developed economies (including the US) slipping into a recession.Australia is now in its 28th year of uninterrupted economic expansion - which is a world record for a developed economy. But all records must end someday. That said, population growth and raw-material (iron ore) exports have been big contributors to our economy over recent decades. I don't see that changing anytime soon. However, some sectors of the economy have been really struggling. For example, retail trade has been flat in the year to September 2019. Retail weakness has mainly manifested in household goods (probably impacted by the property market slowdown) and department store sales (thanks to online competition). Wage inflation has also been low with the Wage Price Index recently coming in at 2.2%. Prior to early 2013, the index used to always be above 3% (and peaked at 4% just prior to the GFC). But this phenomenon isn't unique to Australia - all developed economies around the world are struggling to generate wage inflation.In terms of globally, the US deserves the most attention because it's the largest developed economy by far. The Fed Reserve has been cutting rates to keep the economy growing. President Trump has called for more rate cuts (even negative rates) and for them to recommence quantitative easing. Lower rates in the US are expected to depreciate the US dollar which should add some more fuel for the economy.On the whole, I think a recession in Australia or in the US is unlikely in 2020. Of course, both economies are getting closer to an economic slowdown as each month passes. Barring any unforeseen circumstances, I think these economies will keep ticking along albeit at a slower rate.Interest ratesInterestingly, in a speech on Tuesday night (26/11/19), the Reserve Bank Governor suggested that it would prefer to cut rates two more times before implementing quantitative easing, which I was personally pleased to hear.I normally defer to Westpac's chief economist Bill Evens for interest rate forecasts, as I have found he's been consistently the most accurate over the years. Bill is forecasting only one more rate cut which is predicted to occur in the first quarter of 2020. But the big question is how much will the banks pass on? I suspect that they will continue with what they have done the last few times i.e. pass on circa 0.15% of the cut onto most borrowers but the full 0.25% for interest only investment loans.After the interest rate cutting has finished, it will then be up to the government to loosen fiscal policy and increase its spending to further stimulate growth. Thankfully, Australia's low debt levels relative to other developed countries...

According to global bank Standard Chartered, the Chinese and Indian economies are expected to more than triple between 2017 and 2030. In fact, China's Gross Domestic Product (a measure of a country's economic output) is predicted to be more than double the USA. This is because the International Monetary Fund predicts that emerging economy growth rates will be nearly three times higher than developed economies. However, investing in emerging markets is not for the fainthearted.Developed versus emerging marketsStock markets are typically classified as either developed or emerging markets. Developed markets have a robust and reliable financial system. The country must be open to foreign ownership, ease of capital movement, and efficiency of market institutions. As such, the governments disclosure and regulatory regime is aimed at providing investors with reliable and trustworthy information. The largest developed economies include USA (accounts for 62.8% of all developed markets), Japan (8.4%), UK (5.5%), France (3.8%) and 19 other smaller countries including Australia.However, emerging markets are less developed. Their financial systems do not have the same level of transparency, accountability and regulatory oversight. The largest emerging markets include China (33%), Korea (13%), Taiwan (11.4%) and India (9%) plus 22 additional countries.Indexing doesn't work as well If you have been a reader of this blog for some time, you would be well aware by now that I'm a strong believer in passive (index) investing. Passive investing is low-cost, very diversified way of investing in a particular market or asset class. It only employs rules-based methodologies - meaning that you don't pay for expensive fund managers and we can back-test results (i.e. work out what the results would have been if you employed the same rules-based approach over the past 20 years for example). There's overwhelming evidence that confirms passive investing produces higher returns in the long run. For example, based on data prepared by S&P Dow Jones Indices, only 16% of active fund managers have beaten the Australian index (ASX200) and less than 11% have beaten the US index (S&P500) over the past 15 years. But this data is a bit deceptive, because its not the same fund managers for the whole period. In fact, any out-performance rarely persists for more than a couple of years - which means you need a crystal ball to work out which active fund manager to switch to every few years. This is a flawed strategy in my opinion - which is why rules-based, passive investing is superior.However, when it comes to investing in emerging markets, indexing doesn't always perform as well as it does in developed markets.When investing in developed markets, many studies show that the key is to diversify your portfolio as much as possible. Of course, you should employ various value-based indexing strategies, particularly in this market. Lack of diversification is the number one cause of poor returns. So, a blanket-based approach works best.However, when investing in emerging markets, the key is to avoid the poor-quality companies and over-valued companies. Yo...

I have written about cash flow management a couple of times previously (here and here) because it is the most important thing to master in order to build wealth. It is also the reason that most people fail to build wealth. In fact, I have never met a wealthy person that doesn't have good cash flow management. That is not to say they don't spend money on luxury items. They only spend on luxury items that matter to them.The purpose of this blog is to show you how to master cash flow management in a very simple, easy to follow way. You don't have to become super-tight or track every cent you spend. You just need to become a 'conscious spender'.Money just goes... if you let itThere's a saying that "a vacuum always fills" and this applies to cash flow too. I notice that with most people, living expenses rise in line with income increases. And most people spend whatever they earn. There is always something to spend money on. A better home, better clothes, better schools, better holidays, better restaurants - and the list goes on! Our ego wants us to spend all our money on "better stuff". We tell ourselves we are worth it. We've worked hard so we deserve these "better things". But don't let the ego win! Ego really is the enemy of successful wealth accumulation.The difference between people that have successfully built wealth and those that have not is that wealthy people are very deliberate about their expenditure. They don't waste money. They think about everything they spend money on and if it's something that is not important to them, they will find the cheapest option or eliminate the expenditure in full. It's all about value for money. Very few things are purchased on impulse. If it's something that is important to them, they are happy to pay a premium (luxury price). However, in reality, there are few items that meet this definition. In short, wealthy people are smart with their money. It is not smart to buy something you aren't going to care about in a few weeks' or months' time - irrespective of whether you have the money or not.Rich people know they can buy everything they wantSometimes people spend money on items to make themselves feel special, successful or even rich. For example, only a small percentage of the population can spend $700 on a pair of shoes, so "I must be rich" they tell themselves.However, rich people tend to operate differently. Rich people want to feel smart about their spending. They know they can buy all the brand names they want - there are few limits. So, its not about whether they can afford it. Therefore, it tends to come down to only two questions; (1) do I really need or want this item and (2) is it good value-for-money? Rich people know that's what sets them apart from the vast majority of people i.e. they know how to be smart with their money. It has nothing to do with proving they are rich (by buying more stuff).Therefore, change the story in your head. Tell yourself that you are rich. That you can afford to buy whatever you want if you really wanted to. But the desire to feel smart with money is stronger than the desire to feel rich.Why is a cash flow surplus so important?If we spend all our income, we will have nothing left over to save for tomorrow (retirement). However, if we save a bit and spend a bit, we can enjoy life today and feel comfortable that we're building wealth for tomorrow. In essence, you need to spend less than you earn and invest the difference on a regular and consistent basis. If you can't achieve that, it's very...