Maximising opportunity in a skittish economy

BY Anthony McDonald

There’s nothing like the end of the financial year to focus the mind on personal finance and investment matters. This year’s tough federal budget has added even more urgency. Australians have been given the blunt message that they will have to work longer and invest smarter if they are to ensure the best financial outcomes for themselves and their families.

As June 30 fast approaches, here is a quick check list of issues you should be thinking about.

• Whether it’s to maximise your personal finances, your investment property, or if you are considering buying an investment property for the first time, you will no doubt be paying attention to what’s happening to interest rates.
• Economists have cooled on the idea of one more interest rate cut for 2014. Consensus is growing that rates will remain on hold for the rest of the year. As to when rates will start to rise, agreement is harder to find. Views range from late 2014 to early 2016. Much will depend on Australia’s skittish economy.
• Uncertainty about interest rates makes it more difficult to gauge what’s going to happen to property values in the short and longer term. That’s not a reason not to invest – opportunities continue to abound – but it does heighten the importance of research, a strategic approach and professional advice.
• In the meantime, it’s a good time for mortgage holders to consider stepping up payments into your offset account to build wealth, reducing interest on your home loan and placing a tidy nest egg at your disposal should an investment opportunity or special need arise.
• Paying down your mortgage is a smart investment option, reducing your interest bill, building greater equity in your home, and using that equity to increase your investment options.
• For property investors, particularly first-time investors, doing your homework has never been more important. Huge population growth, urban expansion and an uneven economy that favours some areas and regions over others means investors need to consider not only the overall health of the property market, but also pinpoint those suburbs and regions, and types of housing, that offer the most investment potential.
• If you’re a property owner, consider strategies for reducing your personal taxable income, such as expenses that can be paid in advance and claimed as a tax deduction. Pre-payment of interest is one option. Expenses towards repairs and maintenance before the end of the financial year may be another legitimate route to minimising your tax bill.

In these especially fraught economic conditions, which make predicting the future so much more difficult, seeking the right advice, whether from your accountant, financial adviser or property specialist, is critical – and a wise investment.

Happy new financial year!

Anthony McDonald is a principal of Port Finance Group in Melbourne. He has been a financial professional since 2000 when he started Demon Home Loans during his playing career with the Melbourne Football Club, where he played 104 games.