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Heading into Christmas, people will be lured into retailers with the promise of discounts or price reductions. Most people can’t resist the potential for a bargain – a sign promising 30% off is simply too good to ignore!

Often, these people are giving in to a cognitive bias called anchoring. Anchoring is where people take an initial piece of information and use it as the foundation (or the anchor) against which they assess all future information. People can’t get the first piece of information out of their head. This is why retailers publish an initial higher price before offering a ‘discount.’ The discount looks like a significant reduction in the price, and tricks a purchaser into thinking that they have bought something cheaply.

So, if an article was ‘originally’ advertised at $100, but you bought it for $70, you walk out of the shop thinking that you have saved $30. You haven’t. You have just spent $70. But the retailer anchored you at a higher price.

Auctions

We see anchors at work in investment markets as well. Auctioneers are notorious for it. “This property is easily worth $1 million. But we will open the bidding at $650,000. Can I have an offer of $50,000 above this?” And on it goes, with the auctioneer seeking to anchor and re-anchor people’s bidding as the auction progresses.

Stock market

We also see this in the Stock market. Most people anchor their thoughts about Stock market investments to the purchase price paid for that investment. So, if shares are purchased for $10, this becomes the anchor for all future decisions about that share. This can become the issue. For example, if the value of the shares falls to $8 while you are holding it, then the fact that you bought it for $10 is now irrelevant. You need to make your decisions based on whether it is worth selling the share for $8. But most people will find it hard to ignore that selling the share for $8 will crystallise a loss of $2. Their thoughts are anchored on the $10 purchase price. Lots of people hang on to a share until they ‘get their money back.’ Unfortunately, sometimes this becomes a long wait.

This is actually another cognitive bias – loss aversion. It causes many people to hang on to shares that have fallen in value. What’s more, we often see people sell shares that have risen in value. If the $10 share rises in value to $12, then the investor can be tempted to sell and realise a $2 gain. What the investor needs to do is decide whether the share is now worth more than $12 if they keep it.

The point is the same: people need to re-anchor their thoughts about a share’s value every day they hold that share. But most people anchor a first time and leave it at that. That’s why history shows that people tend to be too keen to sell shares that have risen in value and keep shares that have fallen in value.

So, how do you overcome anchoring? Simple: remind yourself – there is no such thing as a discount. There is just the price that you agree to pay.

And when it comes to investing: yesterday’s losses and gains are immaterial. Today, we just have the current price and an investment’s future prospects. Assess everything against that.

If you’re unsure about if your investments are working for you, make an appointment with us, or give us a call and we can go through your options.

If you would like more information contact MartinCo Today

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A super fund member cannot just sign a will and assume that their super benefits will automatically be paid in the way set out in their will. The super fund trustees are not bound by the deceased member’s will and may pay the benefits to either the deceased member’s estate or to appropriate dependants as they see fit.

In most cases problems will not arise. But problems can arise, for example, in same sex relationships, with “hidden” or multiple relationships, with “warring” children, and so on. Moral and legal factors which may influence a super trustee’s discretion to pay a benefit to a person include:

• the relationship between that person and the deceased member;
• the person’s age and ability to look after themselves financially;
• the extent of the person’s dependency; the person’s financial circumstances;
• the history of the person’s relationship with the deceased member;
• and the strength of any other claims made by other people.

There is a further general restriction, and this is the trustees can only pay the benefits to certain persons, being a person who is a “super dependant” of the deceased member. This means a person who is:

• a spouse, a child (of any age);
• or a person who was financially dependent on the member at the time of death;
• or the estate of the deceased member.

Binding death benefit nominations

Clients can override the trustees’ discretion by signing a ‘binding death benefit nomination’ (BDBN). A BDBN directs the trustee to pay the death benefits to a particular person. It allows the client to control the trustees’ discretion as to who gets the benefits on the client’s death. The trustee must pay the death benefit in accordance with the BDBN. A BDBN may be used in conjunction with a so called “super will” to coordinate the payment of the deceased member’s super benefits with their other estate planning strategies.

A BDBN usually cannot be contested by an aggrieved person unless for some reason it is not valid. Possible reasons for a BDBN not being valid include:

• the fund’s trust deed does not allow BDBNs;
• the BDBN was not signed properly;
• the client was not of sound mind when the BDBN was executed;
• the BDBN is the result of a fraud or emotional or physical duress;
• and the BDBN is more than three years old.

What other issues impact the decision to pay benefits from a super fund?

Some common problems for self-managed super in particular

The ongoing control of a SMSF will be held by the remaining individual trustees or the shareholders of a corporate trustee.

One common problem arises where only one of several children is a member and trustee of a SMSF. That that child will control the SMSF on the death of both parents and may exercise his or her power as a trustee to the detriment of the other children.

Another common problem arises where the client wishes to leave their super benefits to a person such as a parent, sibling or a friend who is not a super dependant, as that term is defined. Such a person cannot receive a death benefit directly from the fund. One option is a binding death benefit nomination in favour of the estate, coupled with a will which specifically gives an amount equal to the super benefits to that person. Another option may be to leave non-super assets to that person and to only pay super benefits to dependants.

Either way, the situation calls for intelligent and informed estate planning. Please do not hesitate to contact us if you or someone you know needs assistance in managing the connection between their super and their estate planning.

If you would like more information on payroll tax contact MartinCo Today

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In our own experience, and in our observations of other business owners, a number of particular attitudes need to change if we are to succeed at – and enjoy! – running our own business.

The main change in attitude is to ‘let go’ of the relationship between time and reward. If you are an employee, you make a basic deal with your employer. You sell them your time. They use that time to get the work done. But if the work cannot be completed in the time allotted, the employee does not have to do it. Yes, if a conscientious employee will usually be happy to work extra time, or extra hard, to get the job done. But, if the work is too much to be completed in the time available, then some of it remains incomplete. The employee can go home.

This is not what happens in your own business! Pretty much everyone who starts or buys their own business works longer hours, at least in the early days. We are sorry if that is bad news – but the business that you can run working four hours a week is elusive (and it certainly will not be the first business that you run). Most businesses need active management, especially in the early days. So, if you are a new business owner, be prepared to work longer hours. No one is buying your time any more. You simply have to do what needs to be done.

The other major mental adjustment can sound a little contrary to this advice. As employees, we tend to learn to measure our output by the amount of time it took. So, if one week we find that we have worked 50 hours, not 40, we tend to think we must have done more work. And if we are being paid by the hour, that makes sense.

But in business, time is not the most important measure. Quality is much more important. A lot of new business owners spend a lot of time on things that don’t need to be done. They are still using time as an indicator of performance. This can be a real trap.

Let us give you an example. A common mistake business owners make – still! – is to do their banking manually. A common method is to allow customers to pay by cash or cheque, and then drive to the bank two or three times a week, stand in the queue, fill out the deposit slip and hand over the cheques.

That’s why direct debit was created! Using direct debit, or Paypal, or some other form of electronic payment, means you need merely to ‘log on’ to your internet banking site to confirm if customers have paid. Indeed, modern accounting software can basically do that for you, too.

Paying by direct debit is usually easier for customers too – they too can just log on to their banking site and, with a few clicks, no postage and no trip to the post office, pay their bills and create their own record of payment. That is why the Reserve Bank has just announced that paying electronically has become much more popular than using cash.

The point is that physically going to the bank does not change the quality of your money management process: the money still ends up in the same bank account.

Spending time doing anything that does not improve quality is a waste of time. If you run your own business, time is your scarcest resource. You need to manage it accordingly. So, measure your business effort by how much you get done, not by how long your spent doing it. That is the best way to make your business fly.

If you would like more information on payroll tax contact MartinCo Today

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These policies take into account the difficulty that first home buyers face in entering the market, the state’s growing population and the need to ensure that development occurs close to essential infrastructure such as roads, railway lines and schools.

The NSW Government’s comprehensive package to improve housing affordability is focused on helping first home buyers, who often face stiff competition from investors.

For first home buyers, this comprehensive package will:

• Abolish stamp duty on all homes up to $650,000
• Give stamp duty relief for homes up to $800,000
• Provide a $10,000 grant for builders of new homes up to $750,000 and purchasers of new homes up to $600,000
• Abolish insurance duty on lenders’ mortgage insurance
• Ensure foreign investors pay higher duties and land taxes
• No longer allow investors to defer paying stamp duty on off-the-plan purchases.

Stamp duty relief

The duty paid when buying residential property can be an obstacle for first home buyers. For those entering the market, the NSW Government is abolishing this duty on new and existing homes worth up to $650,000.

For properties valued at between $650,000 and $800,000, the duty concession will be gradually reduced.

Concessions on vacant land will remain unchanged.

*Total of stamp duty exemptions plus first home owners grant plus savings from LMI duty abolition (Genworth LMI Premium Estimator based on a first home buyer with a $50,000 deposit).**Does not include additional land tax surcharge.

When do these stamp duty savings begin?

This change will take effect from 1 July 2017.

Contracts dated prior to the commencement of these reforms will continue to be eligible for the same grants, concessions, and conditions for which they would have been eligible had these changes not occurred.

First Home Owners Grant (New Homes)

First home buyers building a new property will be entitled to a $10,000 grant on homes worth up to $750,000.

First home buyers purchasing a new property worth up to $600,000 will be entitled to a $10,000 grant.

This policy aims to provide assistance to first home buyers and stimulate the construction of new dwellings.

The $5,000 New Home Grant Scheme, which was available to other buyers including investors, will be closed.

Insurance duty on lenders’ mortgage insurance abolished

Insurance duty on lenders’ mortgage insurance is imposed at a rate of nine per cent of the premium. The removal of this duty will save all home buyers (first home buyers or not) money if they need lenders’ mortgage insurance.

This policy will take effect from 1 July 2017.

For example, on a home valued at $800,000, a buyer with a deposit of $50,000 who needs lenders’ mortgage insurance, could save about $2,900.

Foreign investors to pay higher duties

Foreign investors will pay higher surcharges when they purchase residential real estate. The surcharge on stamp duty paid on new purchases by foreign investors will double from four per cent to eight per cent, and the surcharge on land tax will rise from 0.75 per cent to two per cent. Foreign developers will be exempt from the increased surcharges.

No more stamp duty deferral for investors

First home buyers often face strong competition for properties from investors. To help counter this, the NSW Government is abolishing the 12-month deferral of duty for residential off-the-plan purchases by investors.

Buyers who are purchasing a home they plan to live in off-the-plan (regardless of whether they are first home buyers or not) will still be entitled to a 12-month delay in the payment of stamp duty, deferring payment from 3 to 15 months after settlement. But this concession will be closed to investors.

This policy will take effect from 1 July.

For more information on stamp duty and buying you first home contact MartinCo Today

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Around Australia, house prices have risen by more than 500% in the last 20 years. How will your kids be able to buy their home?

What’s more, the world of work is changing, and it’s not a good idea to assume your children will enjoy safe employment with just one or two employers during their working lives.

More probably, as the sociologists tell us, they will have a “patchwork” of part-time and casual engagements, with nothing like the secure tenure that typified their fathers’ and mothers’ employment experiences.

I am sure your kids are bright, and bright people tend to do well financially. But it is still not a safe bet that they will blitz their way in and out of university or trade school and then into the top echelons of the work-force. The competition is tough, and is going to get tougher.

What’s more, the competition is not just here in Australia. The global economy means our kids are competing against the brightest minds from anywhere in the world.

Given all this, you can understand why children stay home well into their mid-twenties. They have no choice: they cannot afford to leave. The entry price in the most popular suburbs in all our major cities is becoming too high for most people under age 40. And even then, you would be amazed how often the new home is only afforded with a bit of discrete help from grandma and grandpa. It’s just not possible otherwise, particular if there are kids in the kitchen or on the horizon.

What can you do to help? Here is one simple solution. “Buy” your child a home now. It does not have to be something they will live in when they are 50. But it should be in a part of the world that has good growth prospects. Buying another home in effect insulates your family against future home price increases – and helps to protect the next generation against the risk of home prices running away even further.

If your own home is paid off or nearly paid off, and you are still earning at a reasonable clip, most of the banks will lend you a similar amount at home loan rates without too much fuss or bother. Make sure the interest rate is the same as the home loan rate: the banks will often try to squeeze an extra percentage point or two here, and have been known to tell clients that they have no choice but to charge that bit extra. “It’s the ‘investment loan rate,’” they say.

Space does not allow us to explain the tax maths of all this. But we will explain it in our next ebook The User’s Guide to Negative Gearing, which will be published in March. The ebook will show that a relatively small after tax cost to mum and dad in the early years spares your child a large before tax cost in the later years. This gives your child a real economic head start in life and, with a bit of luck, the child’s own efforts will amplify this head start many times over.

The bottom line is that, for higher income earners, it’s almost cash-flow neutral to 100% gear a rental property if the interest rate is 5%, the rental yield is 3.5% and depreciation can be thrown in as well. The tenant (with a little help from the tax office) basically pays the place off for you.

Sometimes, the second and subsequent homes are owned through a family trust and the children just live in them later on while saving for their own homes and investments. This has the added advantage of protecting the children against the risk of losing assets in divorce or a bad business experience. Residential property can be a great investment for a trust (and everyone else for that matter).

This strategy works with one, two or even three children. Maybe the maths become a bit daunting with four or more children, but the idea can of course be modified by buying the homes a few years apart or buying lower priced homes and letting the children up-grade them later under their own steam.

Or maybe just aim for half a home for each child.

Call us old-fashioned, but we think this concept is even more important for your daughters. It might be 100 years since the suffragettes, but women still do not have equal incomes or workplace opportunities. Most women have less than $40,000 in superannuation when they retire. That won’t go far.

Virginia Woolf thought it took a room of one’s own to achieve gender equality. We’d change that to a home of her own – for each of your daughters.

There is a saying in business that the best time to plant a tree was always ten years ago. But there is an even better saying in philosophy: the meaning of life is to plant trees that someone else will sit under in the future.

These sayings are relevant here. This strategy was a great one to implement ten years ago. The return on residential property was 8% per year for the ten years to December 2015 (source: ASX/Russell Long Term Investing Report. You can read this report here).

An investment returning 8% per annum for ten years provides a total return of 116% for the period. A $400,000 home purchased in 2005 was worth $864,000 in 2015 (including the rent received). If only you had read this in 2007, you would now be sitting pretty!

But ten years ago was ten years ago. The key is to not be having the same regret in 2027. So, get in touch with us now and let us talk you through how you too can help your kids have a home of their own.

If you would like more information on home loans contact MartinCo today >

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