Don’t Judge a Stock by its Share Price

Don’t Judge a Stock by its Share Price

Don’t Judge a Stock by its Share Price

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Some people incorrectly assume that a stock with a low dollar price is cheap, while another one with a higher price is expensive. In fact, a stock’s price says very little about the stock’s value. Even more important, it says nothing at all about whether that stock is headed, higher or lower.

For example, Company A has a $100 billion market capitalization and has 10 billion shares, while Company B has a $1 billion market capitalization and 100 million shares, both companies will have a share price of $10. But company A is worth 100 times more than Company B.

A stock with a $100 share price may seem very expensive when compared to a stock with a $5 trading price. Some might think that the $5 stock has a better chance of doubling than the $100 stock does. However, the $5 stock could be considered overvalued, and the $100 stock could be undervalued. The opposite also could be true as well, but the share price alone is no sign of value.

Below is an example; CSL and ResMed are both Australian listed companies traded on the ASX, both offering exposure to Healthcare.

In early June, CSL was trading at $288.76 per share, and RMD was trading at $23.59 per share, therefore, RMD may seem like a better share based on its price and that you would get more quantity for your purchase.

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As can be seen in the above table, CSL may look like the “expensive stock” based on the share price only. But when looking at the company’s fundamentals, both stocks have performed very similar over this period.

The main take away here is to not make the mistake of looking at the share price only, it is important to understand the company itself and what you are buying into, what are the companies goals, fundamentals, intrinsic value, to name a few. As Warren Buffett famously said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

We are always available to discuss your investment queries, options and ideas. Feel free to contact our office on 03 58 333 000.

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6 Ways To Reduce Financial Stress During COVID-19

6 Ways To Reduce Financial Stress During COVID-19

6 Ways To Reduce Financial Stress During COVID-19

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While there are many lessons we can learn from the current crisis we find ourselves in with COVID-19, one sure lesson we can take away is the importance of being on top of our finances.

The news has been filled with many Australians losing their jobs, incomes decreasing and more and more people becoming reliant on the Government to help assist them to live in this terrible time.

According to a recent survey by the J.D Power Banking Industry, the panic created by COVID-19 has caused a great deal of financial stress among Australians.

According to the survey

  • 72% of those surveyed said the coronavirus crisis has negatively impacted their finances;
  • 39% are feeling worried or anxious often;
  • 37% are losing sleep;
  • 10% are unable to afford enough food to eat

So, what are some quick and easy ways we can reduce our financial stress during the pandemic?

1. Review Your Emergency Fund

Ideally, it is a good idea to have at least six months of your living expenses saved up so if something were to happen to your job you would be comfortable and able to ride out at least six months of having no income.

Unfortunately, it is not an ideal world and saving this amount of money is difficult. Therefore, even having three months or one month of expenses is better than none.

If you don’t have an Emergency Fund, now is as good a time as any to make one.

This account should be set up and only accessed in an emergency. Once you have put away a set amount that you think will cover you, leave the money there and hopefully you’ll never need to dip into it.

Just knowing that you have that money sitting there is a great way to reduce your financial stress by simply knowing you have a backup plan.

2. Insurance Review – Part 1

Boring? Yes. Important? Absolutely.

We have insurances for so many things. Our home, car, contents, health, life, income, phone. the list goes on.

It is easy to lose track of what we are paying for each of these, and the cost can easily add up. When was the last time you reviewed what you are paying and if there is a better deal available? Have you ever?

Aim to review one type of cover at a time. This way, it is not too overwhelming. If you can find a better deal, great. If you can’t, even better!

Imagine how much money you can save by getting better deals on all of your insurances.

3. Insurance Review – Part 2

While you are reviewing the costs of your insurances, also take the time to ensure you are covered correctly.

  • Is your cover sufficient for your current situation?
  • Do you have too much or too little?

Would you and your family be provided for and financially comfortable if something unexpected happened?

While thinking of a worst-case scenario can be daunting, picturing what would happen if something were to go wrong is crucial in determining if you are covered correctly.

While you are at it, also check your Will and superannuation beneficiaries and ensure these are up to date and accurately reflect your wishes.

4. Negotiate A Lower Rate

Interest rates are at record lows.

If you are paying down a home loan or have a personal loan, now is literally the best time in history to ensure you are getting a good deal.

Check your current rate. How does this compare to the rest of the market?

There are loads of comparison sites to compare the rates of all the different lenders.

If your current rate is much higher than those in the market, give your lender a call and see what they can do. If they won’t budge, consider changing lenders.

If you borrowed through a broker, give them a call and see if they can help you negotiate a better deal.

Loyalty doesn’t pay when it comes to borrowed money.

5. Track Your Spending

Saving is way more fun than spending. Said no one. Ever.

While it may not be fun, saving is an area which has one of the largest impacts on whether or not we get ahead or fall behind and how quickly this happens.

You will be surprised just how much money you spend on little things which all adds up.

A simple way to track your spending is by putting everything into a spreadsheet.

You don’t need to give up all of your little luxuries, but simply knowing where your money is going each week, month, quarter and year can have a profound impact on your overall financial health.

6. Set Up An Investment Account

If you have set up an emergency fund, reviewed your insurances, know where your money is going and negotiated a great rate for your home loan, well done. You should already feel a lot less financially stressed.

So, what’s next?

Perhaps you should set up an investment account.

Investment markets are currently down due to COVID-19 and there are plenty of opportunities to buy shares in some high-quality companies at discounted prices.

The younger you start investing, the better, as your wealth has more time to grow.

A common mistake is that people think they need thousands of dollars to start investing. There are now so many options to choose from where you can start with as little as $50 and some companies even allow you to invest your spare change.

Next Step

Doing these little things adds up. By being smart with your money and making a conscious effort to get on top of things, you can do wonders for your financial health and reduce stress.

All of this doesn’t require much effort, but it does require action. Don’t let procrastination get in the way of making sound money decisions today. Your future self will thank you for it.

The Plus1 Financial Planning team are always up for a chat. Feel free to give us a call on (03) 5833 3000 or send us an email at wealthadvisors@plus1group.com.au

Need more help or information?

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Should We Fear Bear Markets?

Should We Fear Bear Markets?

Should We Fear Bear Markets?

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A bear market occurs when a market drops by 20% or more and is perhaps an investor’s worst nightmare. A 20% drop in assets is enough to worry even the most experienced of investors, but is this fear justified?

Bear markets are a part of investing. While it is has been quite easy to lose sight of this due to the rise and rise of share markets over the last decade, the past month has been a wakeup call to some that market downturns and corrections are part of the cycle.

The below chart shows bull and bear markets throughout history.


As the chart makes clear, investors who have stuck out bear markets have been rewarded for their persistence with returns during bull markets that can more than make up for the losses.

Seeing your assets drop in such a considerable way in such a short space of time can be troubling for anyone. We spend years building up our assets and it can be taken away in a matter of weeks. Being scared is a very natural response to this.

Investing can bring up some strong emotions. In the face of a market fall, investors may find themselves making impulsive decisions which they otherwise would not have made. Often, these decisions are made without logic and considered thinking. 

Remaining disciplined and maintaining perspective can help us ensure we remain committed to our investment goals and long term strategy.

No one knows what the market is going to do in the future, but having a good understanding of how the market has behaved during and after past bear markets can help us avoid making brash, impulsive decisions that may cause far more harm than good to your portfolio’s long-term value.

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Should You Be Moving Your Super To Cash?

Should You Be Moving Your Super To Cash?

Should You Be Moving Your Super To Cash?

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Amid all this world uncertainty and market volatility, should you be moving your funds into cash and get out of these markets?

If, for whatever reason, you moved your funds into cash in January, well done. However for those who remained invested in the markets, you would have likely seen a significant drop in your super balance over the last month.

You may be asking yourself – should I get out now or play the long game?

According to a report in the Sydney Morning Herald, many older members have been moving their funds to cash over the last few weeks with the average age of switchers being 49 years of age.

For most people, this switch would be a mistake. By making this switch, you are locking in the losses you have incurred in the last month. While the market may keep falling in the short term and justify your decision, history has shown us that markets do recover and by being invested in cash, you will miss out on this recovery.

Further, with cash rates at all-time lows, the returns received on cash are not enough to keep up with rising prices and as such, you are increasing your exposure to longevity risk – the risk that you will outlive your money.

Now this is not to say that there isn’t a place for switching to a lower risk investment option for those approaching retirement. However, these switches should be discussed with a trusted financial adviser with a long term view, and rather than a panicked reaction to the financial markets.

If you have moved your money to cash with the intention of ‘buying the bottom’, while your intentions may be good, executing this ‘plan’ is much harder said than done.

No one knows where the bottom is. If you buy too early and the market continues to fall, do you panic sell again and lock in more losses? Alternatively, if you buy too late, you may have missed the upside from buying the bottom and don’t recover the losses you initially locked in when you moved to cash.

Investing, whether in super or not is a long term thing. Trying to play the market in times like this is extremely difficult and adds unnecessary risk.

Instead of moving to cash, locking in losses and trying to buy the bottom, perhaps use this recent downturn as an opportunity to add more to your investment and buy shares while they are cheaper and continue to invest for the long term.

If you would like to discuss your own personal investments, please feel free to call our Financial Planning team on (03) 5833 3000.

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First Home Loan Deposit Scheme

First Home Loan Deposit Scheme

First Home Loan Deposit Scheme

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What is the First Home Loan Deposit Scheme?

The First Home Loan Deposit Scheme is a new Australian Government initiative to help eligible first home buyers get into the property market sooner.

The Scheme does this by providing a guarantee that allows First Home Buyers to purchase a home with a deposit as little as 5%, without the requirement to pay for lenders mortgage insurance (LMI).

Usually, first home buyers have to either save up a deposit of at least 20%, or pay LMI (which can cost thousands of dollars!).

When does the First Home Loan Deposit Scheme begin?

The Scheme commenced on the 1st January 2020 and will support up to 10,000 loans per financial year.

What type of property can be bought under the Scheme?

The property must be ‘residential’. Eligible residential properties include

  • An existing house, townhouse or apartment
  • A house and land package
  • Land together with a separate contract to build a home
  • An off the plan apartment of townhouse

Are you eligible for the Scheme?

To be eligible for the Scheme, you must meet the following criteria:

  • Australian citizen and at least 18 years of age
  • Have a taxable income of up to $125,000 per year (single) or $200,000 (couple)
  • Only those who are married or in a de-facto relationship count as a couple (no siblings, parent and child, etc.)
  • Have a deposit of at least 5%, but no more than 20%
  • Intend to move into and live in the property as your principal place of residence, typically within six months of settlement (owner-occupiers, not investors). They must also continue to live in the property for as long as their loan “has a guarantee under the Scheme”
  • Must be a first home buyer who has not previously owned or had an interest in a residential property, either on their own or jointly with someone else.

How much can you spend on a home under the Scheme?

The Scheme intends to only be available to purchase a ‘modest home’ and so price caps do apply and these caps differ depending on your location.

Region Price Cap ($AUD)
NSW – Sydney and regional centres $700,000
NSW – Other $450,000
VIC – Melbourne and regional centres $600,000
VIC – Other $375,000
QLD – Brisbane and regional centres $475,000
QLD – Other $400,000
WA – Perth $400,000
WA – Other $300,000
SA – Adelaide $400,000
SA – Other $250,000
TAS – Hobart $400,000
TAS – Other $300,000
ACT $500,000
NT $375,000

Important things to consider before taking up the Scheme

There are risks which need to be weighed up prior to applying for a home loan with a smaller deposit such as:

  • A smaller deposit may mean you take on more debt than you can afford and financially overcommit.
  • While you are able to potentially purchase a home much earlier, you are borrowing more money and therefore you could pay significantly more interest over the life of the loan.
  • Having a lower amount of equity in your home could make it difficult to refinance to a new lender in the short term
  • If home prices fall, as you have less equity in the home, you are at greater risk of going into negative equity. This means you owe more than your home is actually worth.
  • A smaller deposit may limit the lenders and loans you are eligible for and you could miss out on some of the more competitive rates available to borrowers with larger deposits

For further information on the Scheme and details on how to apply, please visit https://www.nhfic.gov.au/what-we-do/fhlds/

IMPORTANT: The guarantee is not a cash payment or a deposit for your home loan

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Are you paying too much for your Mortgage?

Are you paying too much for your Mortgage?

Are You Paying Too Much For Your Mortgage?

On the first Tuesday of October, the Reserve Bank of Australia officially announced another rate cut, taking the official cash rate to a record low 0.75%.

Great news for those who have borrowed money, not so good for savers.

Let’s take a look at two different mortgages and the impact of a slight change in interest rates.

Luke has a mortgage of $400,000 with a 25-year term. He has negotiated an interest rate of 4.00% with his bank that he has banked with for his entire life as he is a loyal customer.

Luke’s mortgage looks like the following:

If Luke does nothing and just continues to make the minimum repayments, he will pay over $230,000 in interest over the life of the loan.

Luke sees on the news that interest rates have been going lower, but his mortgage rate has stayed the same. He calls his lender to ask for a reduction in his rate. Luke’s lender grants him his wish and cuts his rate to a much more competitive 3.50%.

Luke’s new mortgage now looks like this:

Luke’s ten-minute phone call has saved him more than $30,000 over the life of the loan.

Luke decides to go one step further. Before his interest rate was reduced, Luke was accustomed to paying $2,111 every month, so he decides that he will keep his repayments at the higher rate even though the minimum amount is less. Luke’s mortgage now looks like the following:

Therefore, by calling his bank and lowering his rate, and keeping his repayments the same, Luke now saves $50,000 over the life of the loan and the loan is repaid nearly two years faster.

For those who still have an outstanding mortgage, it is worth taking the time to take a look at the rate you are paying and see if you can do better. If your rate is above 4.00%, you are probably paying too much. A quick phone call to your lender may make a massive difference as you can see from Luke’s example above.

You may ask yourself “Why would the bank lower my rate when they can keep it higher and earn more money?”

The answer to this is that it is much easier to keep an existing customer than to get a new one.

Your bank will not want to lose you as a customer as they will lose all those interest payments you will pay over the next 20 or more years. They would much rather lower your rate and sacrifice a little to gain a lot.

Further, with more and more lenders coming into the market, competition for home loans has never been more competitive. This works in the borrowers’ favour.

So, what if your bank doesn’t lower your rate?

If you bank refuses to reduce your rate and you think it is too high, it may pay to move lenders.

Sometimes the threat of moving to another lender forces your bank to lower your rate. Remember, they don’t want to see you go, you have the power.

Finally, remember, it doesn’t pay to be loyal to your bank.

If you would like to discuss your interest rates and see if you are paying too much, please contact our Financial Planning team.

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Monday to Friday
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If you need to get us documents quickly, access remote support, or the MYOB Portal click the button above.

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T: (03) 5833 3000
F: (03) 5831 2988
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