Sunday Territorian 20 Feb 2022
Sunday Territorian; NewspaperNT
Community newspapers -- Northern Territory -- Darwin.; Australian newspapers -- Northern Territory -- Darwin.
News Corp Australia
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News Corp Australia
42 BUSINESS Sunday February 20 2022 NTNE01Z01MA - V1 financial advisory system with a range of well-meaning but totally ineffective compliance measures. The high cost of advice has led to many retirees doing their own research on the internet. While this may be useful in certain specific cases it also leaves them open to bad decisions and even worse to becoming the victims of scams. Just last week I received an email from a bloke telling me Try to win lotto or make your own luck Anthony Keane He doesnt buy craft beers. She sips Nescaf Blend 43 from a tin. They live in a feral sharehouse, all so they can save $623 a week to put towards their house deposit. And heres the kicker. While they scrimp and save the prices of properties around them are going up $1990 a week. Do you see whats happening? Despite all their hard work and sacrifice theyre going backwards. Theres no celebratory champagne after winning the auction. Just second-rate slurps from a dirty teacup in a sharehouse and the sinking feeling theyll NEVER crack the market. And then, in their darkest hour, there is hope. A few weeks ago there was a spot on the nightly news that talked about a brand new product called OwnHome (backed by CommBank), which promises to save for your dream home, while you live in it, meaning you can kiss the renters life goodbye. Understandably, it caused my inbox to light up like a kid on Coco Pops. Heres the guts of how OwnHome works. OwnHome buys your dream home and then rents it to you for three to seven years. The rent is expensive. On a $1m home, youd pay $70,500 a year. A large part of that rent goes to OwnHome, while a smaller part goes to building up equity in the property. You agree to buy the property from OwnHome in, say, five years for $1.2m. (Because OneHome sets the price, youll pay for the home at the start of the contract; currently they increase it by 3.8 per cent a year). And, if youd done this deal five years ago, youd be well ahead. So is this really a breakthrough product? Not really. Despite OwnHomes fintech vibes, and the fact it was on the news, this is not a new strategy. Its called rent to buy and its been around long before Billy Ray had an achy breaky heart. Straight up: Im not a fan (of Billy Ray, or rent to buy). Why? Let me count the reasons. First, because theres a power imbalance The sellers (such as OwnHome) are generally savvy investors who can set the terms of the deal in their favour. Whereas the renters are making an emotional decision which is often driven by FOMO (Fear Of Missing Out). Second, because theres a chance the renters could lose everything Over the years I (like many other financial counsellors) have helped renters who got an achy breaky heart on these deals. How does that happen, Billy Ray? Well, if interest rates go up you risk not being able to afford (or being able to qualify for) a home loan to buy it. (OwnHome is not a lender.) And if house prices go down, you risk overpaying for a home thats dropped in value since you agreed to buy it. And heres the stinger: if you walk away from the house, you also walk away from all the dough youve put towards it. In the example I used above, that would translate to around $165,000. In other words, the $165,000 youve put towards the home would be goneski, and you wouldnt be able to use it to purchase another, cheaper home. Third, because youre probably better off renting and saving Get this: OwnHome itself admits that in many situations using OwnHome is slightly more expensive on a monthly basis than renting and saving. Or, in other words, dont believe everything you see on the nightly news! Tread Your Own Path! Im a Grown Man, and Im Scared Hi Barefoot, Im worried about what to do with my superannuation. I want to retire in the next 12 months as I turn 66 in July. But Im scared that if Russia or China invade, this would have an impact on the share market, which will directly impact my super fund. What do you think? Bill Scott Pape Want weekly step-by-step challenges to improve your finances? Sign up to news.com.aus Cashed Up money challenge today Buy to rent no magic shortcut Super a safer bet than online bond blarney There is no question that interest rates are on the way up. But the most realistic estimates are a maximum rise of 1.5 per cent over the next two years, which does little to assist retirees who are unwilling or unable to take advantage of the returns offered by superannuation. Even with interest rates rising, returns from cash and term deposits will probably remain well below historical levels for several years. The obvious solution for retirees is to seek expert advice to improve their situation. However, the sad reality is that the federal government has effectively neutered the that he had sold a property and been searching the web to find ways to invest the money. He was attracted by an investment in commonwealth bonds, maturing next year, offering 5.5 per cent, and was emailing me for my opinion. My response was: That sounds too good to be true, but tell me more if thats available I wouldnt mind some for myself. He sent me the email he had received from a company he had found on the internet that gave details of the alleged investment. I checked with a friend, who really knows his bonds. He pointed out that the two bonds in question were old commonwealth bonds that were nearing the end of their life, hence maturing next year. Their respective rates were 5.5 per cent and 4.75 per cent, reflecting the high interest states that were current when they were issued. But even though the maturity value of a bond is fixed, the daily value varies in line with prevailing interest rates. My enquirer would need to pay $108 for a $100 bond paying 5.5 per cent and redeemable next year. The other bond had a coupon rate of 4.75 per cent and was redeemable in 2027. The current price of that was $116 for the $100 bond. By investing in these bonds he would receive the full coupon amounts of $100 on maturity but would be faced with a capital loss of between 8 per cent and 16 per cent because of the premium he would have paid to buy these products. There is no such thing as a free lunch: the market had priced them to yield 1 per cent for the 2023 bond, and around 1.5 per cent for the 2027 bond. I pointed out to him that his safe investment in government bonds would give him a guaranteed capital loss, and an overall return no better than he was getting at the bank. Given his age and investment goals, superannuation would be a much more effective investment for him, with all the decisions made by experts and not by somebody inexperienced researching the web to see what they could find. Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: NOEL@NOELWHITTAKER.COM.AU Noel Whittaker ONE fortunate Aussie could become $120m richer this week, thanks to the nations second-biggest Powerball jackpot. The odds of winning Powerballs division one is 135 million to one, according to the Lott website. So why do so many of us throw money at lotteries? Gambling experts suggest it flows from an inability to comprehend large numbers and insane odds, plus our tendency to overestimate chances of success. Another way to receive big bucks by making your own luck, but this can often take several decades and a pile of patience. Many investments have delivered lotto-like results for long-term backers. Some seem like a crazy gamble, while others have proven themselves over many decades. Here are some examples. CRYPTO: If you had the foresight to buy $100 of bitcoin in 2011, today it would be worth more than $4m. Cryptocurrencies are booming but their volatility remains scary. The biggest crypto, bitcoin, has doubled but then halved twice in the past 12 months. FORTESCUE SHARES: Billionaire Andrew Forrests Fortescue Metals Group has delivered the most spectacular long-term gains of any major Aussie company. Since it was founded in 2003, the iron ore companys share price has climbed from 3c to $20.50. APPLE SHARES: Several US tech giants have delivered massive returns. A $2000 investment in Apple in 2000 is today worth more than $1.2m. HOUSE PRICES: Brisbanes median house price rose from $34,500 in 1980 to $810,000, and Sydney from $65,000 to almost $1.4m.