Market Wrap
It’s been a month since our last show and inflation continues to be a big issue. However, there has been a halt to rising interest rates for now.
Freight cost has also continued to drop and remain low and building companies are struggling under the huge increase in wage costs. Materials have stabilised but wages are now an issue; we have seen lumber back down to 387 after a spike to 1,500, which means we’re finally back to pre-2021 prices.
Governments are still trying to either stop or slow spending, or increase taxes. In Australia they will cease the rebate for incomes up to $120,000.
Most commodities have decreased in the last 12 months and we believe that mortgage stress in Australia could be on its way once we see many households coming off fixed rates towards the end of the year.
See below for further market commentary and graphs.
Travel
When, where and for how long?
When thinking about travelling in retirement, it is important to know exactly what you can afford and how often you can afford to go.
When we build a retirement strategy with our clients, we try to identify their ideal lifestyle in retirement; some people want to head off in the van and others want to go overseas.
There are some important points to consider, such as:
- Pets! They are good companions but hard to place when you go away for a longer period of time.
- Your house. What to do with it? You can leave it vacant and hope for the best, but unfortunately security cameras and close neighbours don’t necessarily mean smooth sailing. There are options you can talk about with your adviser; they will likely know of many scenarios and have a suggestion that’s right for you. You also need to consider whether you are still going to be covered for insurance if you’re planning on being away for a long period of time.
- You could have house sitters, do a house swap, Airbnb or sell up to fund your travel.
- We recommend against buying a holiday destination while you are away. We’ve seen from experience that day-to-day living is different than being on holidays.
- Cruises are popular and the more you do the more discounts you tend to get.
- If you pick a hotel chain to stay in, you will find you may get better deals and upgrades over time as well. Make yourself known and join loyalty clubs if you can.
- A long trip versus several smaller trips? We find we have a mixture of these preferences amongst clients. Some people prefer a longer trip and buy a van, selling it when they return. Others prefer smaller trips and opt for renting a vehicle and/or accommodation.
- Have a good discussion about the places you really want to go and see. Having an adviser and even a travel agent to talk with can be very beneficial.
Ultimately you need to know how much you have to spend.
Why does an advice firm offer this advice to their clients?
We have these conversations every day and have the knowledge to share. We do what we do every day because we love seeing clients achieve their dreams, so we’re here to help in every way possible. Pre-retirees have dreams of travel, but they tend to need more focus on how much these dreams will really cost and whether they are achievable. We then build a plan to achieve these within a desired and realistic timeframe.
Some people may want to do big-ticket trips while they are still working. You may feel more comfortable spending when you know you are still earning and that’s something we will work to achieve whilst ensuring you’re on track for your retirement goals as well.
Once you have peace of mind with a plan to cover these costs, travel is a much easier and enjoyable experience both before and during retirement – sustainability is key. We provide this peace of mind for clients each and every day, and that’s what keeps our office “Dream Board” full.
How do you fund it?
Booking through a travel agent can be more costly as they do need their commissions. This is something to keep in mind. The benefit is the certainty about the affordability of the trip, and you can also take your itinerary to different companies and shop around for the best price.
You need to have food and cost of living covered while you are home or away, but you also need to fund your home costs while you are away too. Thorough pre-planning is key, and with the help of your travel agent or the good old internet, you should be able to compose a summary of costs and ensure you’re prepared.
We like to use an approach with our clients to make sure they can travel even when investment markets are not being kind.
In simple terms:
- Secure yourself with one year’s worth of funds, in cash.
- Another year stashed away as security because you never know what life can throw at you.
- Then the remainder in a balanced approach and ideally separate income from the growth in the portfolio.
What to do with your home when you are away for a long time…
There are many different options and here are some considerations for each:
Leave vacant
Many folks will worry too much about leaving the home vacant, which will impede on your travel experience. You can install security cameras, but will this help protect the home in all circumstances? It won’t take long for the lawns to overgrow and for people to notice nobody is home! Garden care, incoming mail, pool upkeep are all things to consider.
House sitters
A credible sitter can live in your house and look after everything for you…indoor plants, pool, gardens and so on. This provides a sense of security for some, but for others the thought of having a stranger in their home is too much. We’ve heard stories on both ends of the spectrum, and if a credible website is used it’s quite easy to fund a reputable and caring house sitter.
Renting out your House
This can be a great option which provides additional income for your trips. Things to consider are; do I rent it furnished? Do I need to factor in storage fees for my belongings? Which real estate agent or property manager will be the best fit for me? Also consider the possibility of a trip cut short, and unexpected circumstances that require you to be back home such as poor health or family responsibilities. If you have permanent tenants, things will be a bit more tricky if you don’t have a backup option.
Sell the Home
Personally, I am not a great fan of people being out of the housing market for a long period of time and then needing to buy back in. This will either work for you or against you – it’s a strategy that can work well or terribly depending on the timing and there are large transaction costs involved too. If you were wanting to downsize or move at some stage, then this would not be as big a risk and something to consider.
You don’t want to take large risks with property proceeds because you will need these to buy again upon your return. Investment markets can fluctuate in the shorter term so this can work for or against you and this is a risk that must be carefully considered.
We prefer our clients to see their investment funds in this instance as two distinct buckets.
- Hold the proceeds that will be needed for the eventual home purchase in cash/term deposits.
- Investment Funds. These are invested in a balanced profile to provide a return over time.
House Swap
Swapping houses with people on the other side of the world is a pretty fun concept (have you seen the movie ‘The Holiday’?). This option can help reduce the cost of accommodation and you can do this with people all over the world time and time again. This will not appeal to everyone, but I have seen clients that really love this approach.
The Big Debate…….
Van versus motorhome.
We don’t like seeing our clients waste hard-earned money on something that is not fit for purpose. A 4WD and caravan work well in Australia as you can park the caravan and then you have the car to drive around.
Buy a caravan that you can handle though. We see a lot of people buy the big flash van and then when they return, they sell this and buy a smaller one that is easier to handle. This is an avoidable mistake if you speak to the right people for advice.
There is quite a bit of caravan and 4WD envy that can go on with some retirees so we would recommend that you do your research…talk to other van owners, make a budget and stick to it. We are finding that when retirees are ready to sell their van, they do tend to hold their value pretty well.
Some prefer a motorhome as they can generally pull up anywhere and make a coffee immediately. You are a little limited in the fact that if you need to go to the shops to buy groceries you will have to pack everything up, unless you want to/can ride bikes or ensure you’re within walking distance to everything you may need or want to see.
Travelling Overseas
Here are some of our tips that might help with planning your dream overseas trip:
- Try and avoid school holiday periods as the cost will be higher.
- Do your research on Trip Adviser or other apps before you allocate time to each place. There is a wealth of information on these sites that can provide so many useful reviews and tips of where to stay, what to see and what to avoid!
- Try and stay at least three nights as that will give you two full days in that location.
- Look for a credit card that has low currency conversion costs and minimal international fees.
- Check with your phone provider for a good plan for overseas (make sure you know how to turn off roaming data).
- Check the flight costs by adjusting a day or two either side as it can save a lot!
- Check the Australian Government travel warnings in case there are places best to avoid.
- Set up a WhatsApp with the family to stay in touch for free.
- Take your own chargers and avoid using airports or public charging stations.
- Avoid public WIFI where possible unless you’re particularly tech-savvy!
- Do not use an ATM in a non-public area that looks unsafe.
- Do not walk like a tourist if you can avoid it. Get to a mall or in a shop to check a map and then walk with some purpose. You are less likely to be a target.
- Ask the hotel where the nearest supermarket etc is. They will point you in the correct direction versus a cab driver that could run up the meter… I have experienced the pain of this firsthand.
- Take it all in and enjoy the adventure.
Market Wrap
There is a lot of debate over the current interest rate cycles. Chris Joye always has an interesting opinion as per below:
When you look at history, is this the last hike by the Fed? Charlie Bilello from Creative Planning has some great graphs which you can access HERE: As always, if you would like any further information or an initial consultation with me, don’t hesitate to get in contact via the contact form below or call our office.
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