The Reverse Mortgage in action

160516.Reverse Mortgage

Two specific applications of the reverse mortgage are examined …

In last month’s article, “The Reverse Mortgage: an underutilised retirement planning tool?” we explained that a reverse mortgage is a potential solution for retirees who both wish to stay in the family home indefinitely and continue to enjoy a lifestyle beyond what their investment wealth is able to support.

Without access to a reverse mortgage, such retirees would be forced to either downsize to free up capital to live on and/or revise their lifestyle expectations downwards. Neither option may be particularly palatable.

In this article, we examine how a reverse mortgage would work in such a situation. We refer to it as the “Maintain lifestyle” scenario. We also discuss a scenario called “Bring forward inheritance” in which a reverse mortgage is utilised to provide assistance to adult children while retired/near retired parents are alive, rather than delay the children’s access to proceeds of the family home until the parents’ death.

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Index Investing: Naïve or Smart?

Index Investing: Naïve or Smart?

What is index investing?

Many investors shy away from index investing because they deem it to be too naïve for their investment purposes. There’s definitely a higher seduction factor associated with a bottom up, active investment approach. Yet the recent trend has clearly been towards index style investing (due largely to the dissatisfaction with actively managed investment alternatives).

An index is a statistical measure for determining the performance of a portfolio of constituent investments. Charles Dow created the first (“Dow Jones”) index back in 1896 to act as a proxy for the performance of the US stock market as a whole.

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Global Equity Investing

Global Equity Investing
The concept of a single strategic equity asset class

Globalisation has meant that world equity markets are now much easier to access. This is leading to the next stage in investment development – global equity investment mandates that offer access to world equity markets via a single investment exposure.

This differs from the current approach that involves holding a combination of equity investments that include a home country exposure, international developed market exposure (often held at a country or regional level) and international developing market exposure.
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What is “The Value of Financial Planning”?

What is “The Value of Financial Planning”?

Financial planning continues to get a bad rap …

Financial planning continues to get a bad rap. The Global Financial Crisis, poor investment returns, the failure of various financial planning firms and investment schemes, threats of further government regulation of the industry and a media that is all too willing to focus on the negative are contributing factors. As a result, many people that should under no circumstances attempt to look after their personal financial affairs have been convinced that this is the best way to go.

And for those that continue to seek financial advice, too many decisions are being made on the basis of immediate cost rather than an assessment of value. This is often because it is difficult to judge the value ahead of making the decision to appoint a financial planner. But cost may be a very poor guide to quality. And, unfortunately, it will not reflect missed opportunities, mistakes and poor decisions. 

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Is your investment risk strategy paying off?

Is your investment risk strategy paying off?Are you an intelligent risk taker?

Most investors accept the notion that risk and return are related and that those who are prepared to take on more risk will ultimately get rewarded for their risk taking. As we’ve seen with the implosion of some investments during the GFC, increased risk taking does not always guarantee higher returns, it simply exposes you to the opportunity for higher returns.
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Transitioning to your target asset allocation

Transitioning to your target asset allocationHow do you close the gap between your current and target asset allocation?

Our previous article, “Measuring your current asset allocation”, explained how we believe wealth accumulators (those whose after-tax earnings exceed their lifestyle expenditure) should measure their current asset allocation. It requires them to estimate their projected surplus or future capital to add to their Net Investment Wealth, to calculate a measure of total Projected Lifetime Investment Wealth.
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Measuring your current asset allocation

You need to know your current asset allocation

Measuring your current asset allocationIn our last article, “Choosing your target asset allocation”, we discussed the key determinants of the choice of your target asset allocation. But in developing an investment strategy designed to reach your target by retirement it is essential to have a meaningful measure of your current asset allocation.

For those who expect to continue to accumulate wealth from business or employment earnings, the traditional ways of measuring asset allocation are not very helpful. A better approach to asset allocation takes advantage of our “Projected Lifetime Investment Wealth” framework. It takes a much broader view of wealth and provides valuable insights relevant to answering many typical personal finance questions e.g. how much could or should I borrow, how should I build my risky growth asset exposure over time, can I afford a larger home.
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Choosing your target asset allocation

Choosing your target asset allocationThe determinants of your asset allocation choice

In our previous article, “Understanding asset allocation”, we focused on the questions “What is asset allocation?” and “Why is it important?”. In this article, we provide an overview of what is most important when choosing your target asset allocation or investment risk exposure.

At the highest level, we measure risk exposure by how your investment wealth is divided between defensive (low risk) and growth (higher risk) investment assets. In “The asset allocation decision” we explained that your mix between defensive and growth assets should be determined after a careful weighing up of the following sometimes competing considerations:
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Understanding asset allocation

Understanding asset allocationAsset allocation: a measure of your investment risk

Our objective is to help clients become financially well organised and make smart financial choices so they have the best chance of enjoying the financial future they want. A key to achieving this objective is agreeing an appropriate investment risk exposure with each client and carefully managing that exposure over time. For us, this risk exposure is most appropriately measured by the client’s asset allocation.

This is the first in a series of four articles that explain our approach to asset allocation. Most people think they have a pretty good idea of what asset allocation is all about. Our experience suggests they don’t. While we start off pretty basically, we hope that by the final article you will agree that by viewing asset allocation in the lifelong context we advocate some conventional financial planning views are challenged and some smarter ways of thinking about personal finance issues emerge.
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Inheriting substantial wealth

Inheriting substantial wealthSubstantial inherited wealth can be a mixed blessing

Managing wealth can be a challenge, particularly when the wealth is inherited and substantial. The excitement of inheriting life-changing wealth is often short lived. The reality can be a life that is anything but that of your dreams.

To most, inheriting a large amount may seem like a problem worth having. Yet it often presents some unexpected dilemmas for those inheriting the wealth (and for those planning to leave significant wealth to their children). This is particularly the case for wealth recipients who have yet to independently develop their own “money maturity”.
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