If you are like millions of other people facing tough times from a financial perspective, you are likely feeling the crunch of having a heavy debt load. Credit cards, mortgage, car loans, department store credit accounts – you name it, it can all be painful. By themselves, each credit instrument may not seem to be so intimidating. But, if you take the time to add up how much you owe in total (and the insane amount you are paying in monthly interest payments), you may feel more than a little bit overwhelmed by your debt. That is where debt consolidation loans start looking like a smart option.
What is a debt consolidation loan? It is simply a way to roll most or all of your high-interest debt, such as credit card debt, into one, single loan. There are a number of benefits of this type of loan. Here are 5 advantages of debt consolidation loans:
1. When you have multiple credit cards, debt can get out of control fast
If you are like many people, your debt lies in the form of multiple different credit cards and other types of loans such as a mortgage and car payments. When you look at each credit card statement individually, it may seem like you have a manageable amount of debt. However, when you actually add things up, you suddenly realize that you may be in a mountain of trouble. By the time you get to this point, you are paying so much in interest payments each month that are not able to pay down the principal very much at all. Being heavily in debt is a vicious cycle.
2. A consolidation loan is a legitimate, safe option
Consolidation loans are offered every day by the largest banks and lenders in the world. In other words, these are not back-alley financial instruments promoted by the equivalent of loan sharks or other shady characters. Rather, these types of loans are totally legitimate and in fact are recommended by top financial advisors who are counseling people on how to get out of debt.
3. Consolidation loans make payments easy to manage
A great feature of setting up these loans is that by applying for one you can stop juggling multiple credit card bills that are currently being sent to you at different times of the month by different lenders. Instead, you have a single “target” that you need to pay off each month. As a condition for getting approved for such a loan, your lender may ask you to pay off your other debt and/or close some of those accounts.
4. These loans usually allow you to get a lower overall interest rate
The best part of this type of loan is that you will be eligible for a much lower interest rate than what you are paying on average across your existing credit card loans. For example, by paying only 8% instead of 15% or 20%, you could save thousands of dollars per year in interest payments (depending upon the total amount of your debt). That means you can put the “extra” money you save back toward your loan principal.
5. Loans help you pay down your debt because the payoff period is limited
Credit card debt can seem to last forever. This is because they are open-ended financial instruments and there is no “final” payment in site. Theoretically, you could keep making your monthly credit card payments throughout your entire life without every paying it down! On the other hand, with consolidation loans, you will have a pre-determined loan period. This means that after a period of 3, 5, 7 years (or whatever the terms of your loan), you will be completely debt free. This is something that is very hard for people with a lot of credit card debt to accomplish.
Instead of just taking a grin-and-bear-it approach toward your existing credit card debt burden, consider smart alternatives that can make your financial life more manageable and get you out of debt more quickly.
Source: http://www.nurido.at/news/debt-consolidation-loans-with-poor-credit-5-advantages-122221.html
Friday, May 29, 2009
Mortgage Delinquency Reaches Record High
Rising unemployment levels helped push record numbers of homeowners into delinquency or foreclosure during the first quarter, according to industry data released yesterday.
Government efforts to cut foreclosure rates have not been enough to offset the impact of the recession on struggling borrowers, the data from the Mortgage Bankers Association showed. And borrowers once considered reliable are now helping drive the foreclosure crisis, which looks likely to extend into next year.
About 12.07 percent of mortgage loans were delinquent or in the foreclosure process during the quarter, according to a survey by the industry group. That is the highest level ever recorded by the survey, which has been conducted since 1972. It is up from about 8 percent during the first quarter of 2008.
"The increase in the foreclosure number is sobering but not unexpected," said Jay Brinkmann, the group's chief economist.
Lenders who held off while the Obama administration unveiled its foreclosure prevention program earlier this year are now working their way through a backlog of troubled loans, economists said. And the recession has become a major factor in the foreclosure crisis. For example, for the first time, prime loans, which are traditionally considered safer, represented the largest share of foreclosures during the first quarter, according to the data.
Of the loans in foreclosure during the first quarter, 49.8 percent were prime loans and 43.2 percent were subprime.
"More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults," Brinkmann said. "Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve."
And it may be months before the impact of the Obama administration foreclosure prevention plan, Making Home Affordable, becomes clear, said John Taylor, president of the National Community Reinvestment Coalition. Early intervention in the housing crisis could have forestalled some of the current problems, he said. But "the problem has deepened so badly since then and become compounded by rising unemployment." .
The majority of the foreclosure problems remain centered in four states: California, Nevada, Arizona and Florida, where home prices spiked the highest and are now in freefall. They account for 56 percent of the increase in foreclosure starts.
Delinquency rates in the Washington region have also risen. In the District, 5.07 percent of loans included in the survey were seriously delinquent or in foreclosure, compared with 2.39 percent a year ago.
Locally, the rate was lowest in Virginia where 4.41 percent of loans were in trouble, up from 2.52 percent last year. It was highest in Maryland where 6.49 percent of loans were seriously delinquent or in foreclosure, up from 3.02 percent in the first quarter of 2008.
Meanwhile, the market for new homes remains weak. In April, new-home sales were flat, up 0.3 percent compared with March, to an annualized rate of 352,000 sales, according to a Commerce Department report released yesterday. But sales were down 34 percent compared with April 2008.
The market is weakest in the West, where sales fell 3.8 percent last month. Sales were unchanged in the Midwest and Northeast. In the South, the region that includes the Washington metro area, sales increased 1.9 percent.
As builders compete against a backlog of foreclosed properties on the market, median new home prices fell to $209,700 in April, compared with $246,400 a year ago.
It would take 10.1 months to sell all the homes on the market at the current rate, according to the Commerce Department figures. But that is a slight improvement, said David Crowe, chief economist for the National Association of Home Builders. The backlog has been falling as builders curtail production and there are now fewer than 300,000 new homes on the market, the smallest inventory since 2001, said Crowe.
The market should begin to show improvement soon, he said. "It won't be a significant, rapid rise, but it will be an increase, which right now, is a whole lot better than a decrease," Crowe said.
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/28/AR2009052801712.html?hpid=sec-business
Government efforts to cut foreclosure rates have not been enough to offset the impact of the recession on struggling borrowers, the data from the Mortgage Bankers Association showed. And borrowers once considered reliable are now helping drive the foreclosure crisis, which looks likely to extend into next year.
About 12.07 percent of mortgage loans were delinquent or in the foreclosure process during the quarter, according to a survey by the industry group. That is the highest level ever recorded by the survey, which has been conducted since 1972. It is up from about 8 percent during the first quarter of 2008.
"The increase in the foreclosure number is sobering but not unexpected," said Jay Brinkmann, the group's chief economist.
Lenders who held off while the Obama administration unveiled its foreclosure prevention program earlier this year are now working their way through a backlog of troubled loans, economists said. And the recession has become a major factor in the foreclosure crisis. For example, for the first time, prime loans, which are traditionally considered safer, represented the largest share of foreclosures during the first quarter, according to the data.
Of the loans in foreclosure during the first quarter, 49.8 percent were prime loans and 43.2 percent were subprime.
"More than anything else, this points to the impact of the recession and drops in employment on mortgage defaults," Brinkmann said. "Looking forward, it does not appear the level of mortgage defaults will begin to fall until after the employment situation begins to improve."
And it may be months before the impact of the Obama administration foreclosure prevention plan, Making Home Affordable, becomes clear, said John Taylor, president of the National Community Reinvestment Coalition. Early intervention in the housing crisis could have forestalled some of the current problems, he said. But "the problem has deepened so badly since then and become compounded by rising unemployment." .
The majority of the foreclosure problems remain centered in four states: California, Nevada, Arizona and Florida, where home prices spiked the highest and are now in freefall. They account for 56 percent of the increase in foreclosure starts.
Delinquency rates in the Washington region have also risen. In the District, 5.07 percent of loans included in the survey were seriously delinquent or in foreclosure, compared with 2.39 percent a year ago.
Locally, the rate was lowest in Virginia where 4.41 percent of loans were in trouble, up from 2.52 percent last year. It was highest in Maryland where 6.49 percent of loans were seriously delinquent or in foreclosure, up from 3.02 percent in the first quarter of 2008.
Meanwhile, the market for new homes remains weak. In April, new-home sales were flat, up 0.3 percent compared with March, to an annualized rate of 352,000 sales, according to a Commerce Department report released yesterday. But sales were down 34 percent compared with April 2008.
The market is weakest in the West, where sales fell 3.8 percent last month. Sales were unchanged in the Midwest and Northeast. In the South, the region that includes the Washington metro area, sales increased 1.9 percent.
As builders compete against a backlog of foreclosed properties on the market, median new home prices fell to $209,700 in April, compared with $246,400 a year ago.
It would take 10.1 months to sell all the homes on the market at the current rate, according to the Commerce Department figures. But that is a slight improvement, said David Crowe, chief economist for the National Association of Home Builders. The backlog has been falling as builders curtail production and there are now fewer than 300,000 new homes on the market, the smallest inventory since 2001, said Crowe.
The market should begin to show improvement soon, he said. "It won't be a significant, rapid rise, but it will be an increase, which right now, is a whole lot better than a decrease," Crowe said.
http://www.washingtonpost.com/wp-dyn/content/article/2009/05/28/AR2009052801712.html?hpid=sec-business
British expatriate arrested in million-dollar investment scam
A man previously convicted of deception, forgery and theft in the United Kingdom has been arrested on federal fraud and tax charges for an investment scam that swindled investors of more than $7 million, U.S. Attorney's Office officials said Wednesday.
Robert Tringham, 64, of Diamond Bar, was arrested Tuesday after being named in an 11-count indictment by a federal grand jury in Los Angeles on May 20, said U.S. Attorney's Office spokesman Thom Mrozek.
He is being held without bail until a detention hearing Friday. He will be arraigned Monday in U.S. District Court.
"I don't think the defendants think about the end game (in these schemes)," said Executive Assistant U.S. Attorney Stephanie Yonekura McCaffrey.
Tringham, a British expatriate, set up a Rancho Cucamonga-based First National Bancorp and solicited investors across the country to send him money to use as funds to leverage bonds, Mrozek said.
Tringham was then supposed to use the leverage to purchase bonds at discounted rates, providing investors with high rates of return when the bonds were sold, Mrozek said. Tringham was supposed to keep the money in separate accounts with a registered broker-dealer, Mrozek said.
Instead he transferred millions to himself and never sold the bonds, according to the indictment. He used the money to finance a Diamond Bar home and purchase a Land Rover, according to the indictment.
Tringham's attorney did not immediately return phone calls.
Tringham is suspected of taking more than $7 million from more than a dozen investors during 2005 and 2006.
He is charged with four counts of wire fraud, three counts of mail fraud, and single counts of tax evasion, obstruction of justice, making false statement to federal investigators and criminal forfeiture.
He faces a maximum sentence of 170 years in federal prison if convicted.
Source: http://www.sgvtribune.com/news/ci_12462390
Robert Tringham, 64, of Diamond Bar, was arrested Tuesday after being named in an 11-count indictment by a federal grand jury in Los Angeles on May 20, said U.S. Attorney's Office spokesman Thom Mrozek.
He is being held without bail until a detention hearing Friday. He will be arraigned Monday in U.S. District Court.
"I don't think the defendants think about the end game (in these schemes)," said Executive Assistant U.S. Attorney Stephanie Yonekura McCaffrey.
Tringham, a British expatriate, set up a Rancho Cucamonga-based First National Bancorp and solicited investors across the country to send him money to use as funds to leverage bonds, Mrozek said.
Tringham was then supposed to use the leverage to purchase bonds at discounted rates, providing investors with high rates of return when the bonds were sold, Mrozek said. Tringham was supposed to keep the money in separate accounts with a registered broker-dealer, Mrozek said.
Instead he transferred millions to himself and never sold the bonds, according to the indictment. He used the money to finance a Diamond Bar home and purchase a Land Rover, according to the indictment.
Tringham's attorney did not immediately return phone calls.
Tringham is suspected of taking more than $7 million from more than a dozen investors during 2005 and 2006.
He is charged with four counts of wire fraud, three counts of mail fraud, and single counts of tax evasion, obstruction of justice, making false statement to federal investigators and criminal forfeiture.
He faces a maximum sentence of 170 years in federal prison if convicted.
Source: http://www.sgvtribune.com/news/ci_12462390
Friday, August 22, 2008
Unsecured Loans: Collateral No Longer Needed
The term unsecured loans means that loans are given without the borrower having to pledge anything as collateral. In most of the loans the borrower asks the borrower to give a property or asset as a guarantee of repayment of the loan however if the borrower fails to repay then the lender can take possession of his asset. But now the borrower need not worry about this huge risk, he can take a loan without giving collateral.
Earlier tenants could not take loans as they needed to give a property as collateral to the lender, which they did not have. Now as unsecured loans are available even tenants can take loans.
Since the lender does not ask for any security he sees if the borrower qualifies in certain things. The borrower must be at least 18 years, he should have a bank account, and he should have a savings account in which he should be making regular payments. Moreover the lender sees the financial standing of the borrower and whether he has fixed monthly income or not.
Once unsecured loans are approved the money is electronically transferred to the account of the borrower. The credit rating of the borrower does not have much of an effect on the loan but if the borrower repays on time then his credit rating improves. Hence these loans give people with bad credit, an opportunity to improve their credit ratings. One can find unsecured loans on the internet as well as by going to any loan company office physically. One can get good deals on the net if one searches properly.
Shain Johnson is a regular contributor to finance related websites, which provides information and advice on any type of loan like unsecured tenant loans, bad credit Unsecured loans , loans for tenant. For more information log on http://www.unsecuredloansuk.org.uk
Consolidation Debt Programs For Those In Debt
by Lee A. Beattie
Whether we are or are not in a commercialized recession is for the bureaucrats in Washington to argue about, those of us in the real world acknowledge that even if we are not technically in a recession affairs out here are challenging. In fact many of us hard working Americans are having troubles paying our bills because the cost of gas and food are demanding more and more out of our pay check. If you are in this spot you should know that a consolidation debt program may be precisely what you require.
These types of services aid you with debt consolidation. They will act on your behalf to consolidate your credit card debt and help reduce your monthly payments. This is a crucial time to do this as many lenders are too feeling the squeezes of this economy and they are more than prepared to reduce their fees and interest rates as credit card debt is fundamentally an unsecured debt so in that respect is no collateral for them to take back. This grants you more such leverage and makes them more prepared to negotiate as they are starting to see that getting some of their money is better than acquiring none of it.
Before you phone any debt consolidation programs you want to have every last of your financial information together. This takes on your standard household expenses like your mortgage payments and your utilities. Then gather your other debt such as credit cards, car loans and any other types of payments you have each month. Make A Point you have the most recent statements. You will also want to possess your income information such as how much income you receive coming into your household each month and you can either use a recent pay check stub or leave them a copy of your most up-to-date federal tax return.
Once they take this information the consolidation debt program you have picked out will present to you the choices that will work best for you. Several may qualify for a debt consolidation loan others may be past that point and may want to look at filing for bankruptcy. Then others nevertheless will be able to reach a debt settlement with the lenders. This entails that many a companies will stop charging you high interest rates and late fees as long as you agree to a payment schedule. Make sure that the payments you agree to are going to be able to be made each month and make it on time. Virtually all companies will merely hand you one opportunity for this type of relief.
This type of help can make a huge difference for you equally it will lower your monthly payments and help you to pay the debt off much more speedily as more of your payment will actually go toward the principle of what you owe and not be “eaten” up by interest and penalties. If you are having trouble making ends meet you should look into a consolidation debt program and discover what type of relief they can offer you.
About the Author:
Maybe those of you should like more information on this subject and how to repair credit or if those of you are in need debt relief, Beatlands Credit Repair has many credit repair subjects and tips.
http://www.3x24.com/consolidation-debt-programs-for-those-in-debt/80595
Whether we are or are not in a commercialized recession is for the bureaucrats in Washington to argue about, those of us in the real world acknowledge that even if we are not technically in a recession affairs out here are challenging. In fact many of us hard working Americans are having troubles paying our bills because the cost of gas and food are demanding more and more out of our pay check. If you are in this spot you should know that a consolidation debt program may be precisely what you require.
These types of services aid you with debt consolidation. They will act on your behalf to consolidate your credit card debt and help reduce your monthly payments. This is a crucial time to do this as many lenders are too feeling the squeezes of this economy and they are more than prepared to reduce their fees and interest rates as credit card debt is fundamentally an unsecured debt so in that respect is no collateral for them to take back. This grants you more such leverage and makes them more prepared to negotiate as they are starting to see that getting some of their money is better than acquiring none of it.
Before you phone any debt consolidation programs you want to have every last of your financial information together. This takes on your standard household expenses like your mortgage payments and your utilities. Then gather your other debt such as credit cards, car loans and any other types of payments you have each month. Make A Point you have the most recent statements. You will also want to possess your income information such as how much income you receive coming into your household each month and you can either use a recent pay check stub or leave them a copy of your most up-to-date federal tax return.
Once they take this information the consolidation debt program you have picked out will present to you the choices that will work best for you. Several may qualify for a debt consolidation loan others may be past that point and may want to look at filing for bankruptcy. Then others nevertheless will be able to reach a debt settlement with the lenders. This entails that many a companies will stop charging you high interest rates and late fees as long as you agree to a payment schedule. Make sure that the payments you agree to are going to be able to be made each month and make it on time. Virtually all companies will merely hand you one opportunity for this type of relief.
This type of help can make a huge difference for you equally it will lower your monthly payments and help you to pay the debt off much more speedily as more of your payment will actually go toward the principle of what you owe and not be “eaten” up by interest and penalties. If you are having trouble making ends meet you should look into a consolidation debt program and discover what type of relief they can offer you.
About the Author:
Maybe those of you should like more information on this subject and how to repair credit or if those of you are in need debt relief, Beatlands Credit Repair has many credit repair subjects and tips.
http://www.3x24.com/consolidation-debt-programs-for-those-in-debt/80595
Monday, August 18, 2008
Investment tips for every age
From Money Magazine, February 2005
There are sensible investing strategies for any age, as Peter Freeman reports.
The Twenties
These are the early years when many people are relatively new to the workforce and are still renters. While some have formed a permanent relationship, many don't have children. Home ownership and family are still in the future.
For this group the main financial focus is usually on saving a deposit for a home, an investment that has particular appeal due to its lifestyle benefits and capital gains tax-free status.
The first step for many will be to get their credit card debt under control and then eliminate it. Only then will they be in a position to start building wealth rather than simply paying for past consumption.
With interest rates having stabilised at relatively low levels and property prices still slipping, this age group stands to gain by saving for a deposit for a home so as to be able to buy when the market is weak.
Their main challenge will be to decide whether or not to try to supercharge their savings growth by diverting funds into a regular savings plan that invests in equity funds.
Callinan says building a deposit through investing in equity funds is a good strategy, but only if you can accept the risk that there could be a few years of flat returns.
"You also have to have a time horizon of at least five years, to give the investments time to perform," she adds.
The Thirties
By their 30s, most people are in a permanent relationship, many have children and most have bought a home. The focus is usually on reducing their mortgage, possibly renovating and, where possible, attempting to upgrade to a better property.
Nash of Tynan Mackenzie says people in this situation should consider taking out income insurance, especially given the increased tendency of companies to respond to setbacks by downsizing.
At the very least they should be careful not to over-extend themselves financially, instead keeping money available for emergencies.
This may well involve delaying renovations. Alternatively, they should ensure their mortgage facility allows them to draw down more money quickly if they need funds in a hurry.
Of course, some people in their 30s will still be both mortgage and family free. This group may decide to try to catch up for lost time by aggressive investing, such as using geared share funds or by taking out a margin loan to finance a portfolio of direct share investments.
A small group will go so far as to use even more aggressive investments such as futures contracts, trading warrants and contracts for difference.
Nash stresses, however, that these should be approached with a great deal of care since, if handled badly, they can generate heavy losses.
The Forties
Your financial comfort in your 40s largely depends on how much spending restraint you showed during the previous decade. If you were reasonably disciplined, there is a good chance you will be able to upgrade to a bigger home or, alternatively, carry out the renovations you deferred in order to finance investments.
However, the 40s is sometimes a financially difficult time for people who have children since they are now costing more than ever, especially if they are at private schools. This group needs to budget carefully. In contrast, those with relatively high incomes, or with few or no family responsibilities, should have the capacity to continue to use gearing to expand their investment portfolio.
The alternative will be to divert more money into superannuation. Unfortunately, while very tax-effective, money invested in super is locked up until you satisfy the various preservation rules.
These mean you can't get your super before you are at least 55 and also retired. Super savings really only equate to financial freedom for people who are already in their early 50s.
The Fifties
This is a time for more sustained wealth creation due to higher salaries and fewer family costs (many children by now will be financially independent). Nash argues that the tax breaks offered by superannuation, plus the fact super savings will be more accessible, make this the preferred investment vehicle.
The other opportunity that often arises in your 50s is the chance to take more control over your life by establishing your own business, perhaps by getting a significant redundancy payment.
Even if the redundancy wasn't voluntary, it can provide a valuable chance to build a new, financially viable life outside the 9 to 5 standard working day. But Nash warns it is particularly important to think very carefully before you use your family home as security for a business loan. "A debt-free home is usually crucial for any sort of financial freedom and should not be put at risk without a lot of thought," he says.
The Sixties and later
For many people in their 60s the main financial challenge is to invest their savings to generate a retirement income, and maximise their age pension. In most cases investments are built around some form of allocated or complying pension, in the process maximising tax and social security efficiency.
James of Investec says that, while there is a tendency for older investors to be extremely conservative, especially when the economic outlook is uncertain, higher life expectancy means a very defensive approach probably will result in your money running out.
This means investors should usually opt for an allocated pension that includes a reasonable exposure to both local and offshore shares, rather than a pension with a very high level of capital security.
While a conservative allocated pension carries less risk of suffering a sudden setback, it can also result in a low annual income and so increasing dependence on the aged pension.
Rules for us all
But whether you are in this, the fifth age of investing, or any of the other ages, all of us have to deal with the same economic and investment climate. We have to make the same range of crucial financial decisions, based on our assessment of the risks and opportunities that exist.
James says all investors need to guard against assuming the next five years will generate the same sort of returns as the last. "Expecting the second half of the decade to be just as good as the first half would be naive," she says. "It may be, but there are plenty of reasons to think overall returns won't be as strong."
Among these facts are:
As noted, the main implications of the shift to an era of lower investment returns is the way that making quick gains from the sharemarket or property is likely to be more difficult than in the previous five years.
One thing that won't change, however, is the need for most people to adopt a suitable investment strategy and then resist the temptation to chop and change when a particular investment sector generates disappointing returns.
As already stressed, it is also crucial to avoid thinking you will be able to make big gains quickly. "Everyone wants to be rich tomorrow, but the risks aren't worth it," says Thornhill of Motivated Money. Impatience is our biggest barrier to serous and sustainable wealth creation."
Stick with a strategy
Callinan of Tandem stresses that, while a few investors make a lot of money by timing markets, they are the exception. She points out that even the professional managers who handle the investments for Australia's huge superannuation funds often struggle to add value through timing.
Instead, they develop strict investment strategies and stick with them. "If you give yourself plenty of time and patiently stick with a well-designed investment strategy, you will almost certainly be a lot better off in 10 years time than those who don't," she says.
For the complete story see Money Magazine's February 2005 issue
http://money.ninemsn.com.au/article.aspx?id=100342
There are sensible investing strategies for any age, as Peter Freeman reports.
The Twenties
These are the early years when many people are relatively new to the workforce and are still renters. While some have formed a permanent relationship, many don't have children. Home ownership and family are still in the future.
For this group the main financial focus is usually on saving a deposit for a home, an investment that has particular appeal due to its lifestyle benefits and capital gains tax-free status.
The first step for many will be to get their credit card debt under control and then eliminate it. Only then will they be in a position to start building wealth rather than simply paying for past consumption.
With interest rates having stabilised at relatively low levels and property prices still slipping, this age group stands to gain by saving for a deposit for a home so as to be able to buy when the market is weak.
Their main challenge will be to decide whether or not to try to supercharge their savings growth by diverting funds into a regular savings plan that invests in equity funds.
Callinan says building a deposit through investing in equity funds is a good strategy, but only if you can accept the risk that there could be a few years of flat returns.
"You also have to have a time horizon of at least five years, to give the investments time to perform," she adds.
The Thirties
By their 30s, most people are in a permanent relationship, many have children and most have bought a home. The focus is usually on reducing their mortgage, possibly renovating and, where possible, attempting to upgrade to a better property.
Nash of Tynan Mackenzie says people in this situation should consider taking out income insurance, especially given the increased tendency of companies to respond to setbacks by downsizing.
At the very least they should be careful not to over-extend themselves financially, instead keeping money available for emergencies.
This may well involve delaying renovations. Alternatively, they should ensure their mortgage facility allows them to draw down more money quickly if they need funds in a hurry.
Of course, some people in their 30s will still be both mortgage and family free. This group may decide to try to catch up for lost time by aggressive investing, such as using geared share funds or by taking out a margin loan to finance a portfolio of direct share investments.
A small group will go so far as to use even more aggressive investments such as futures contracts, trading warrants and contracts for difference.
Nash stresses, however, that these should be approached with a great deal of care since, if handled badly, they can generate heavy losses.
The Forties
Your financial comfort in your 40s largely depends on how much spending restraint you showed during the previous decade. If you were reasonably disciplined, there is a good chance you will be able to upgrade to a bigger home or, alternatively, carry out the renovations you deferred in order to finance investments.
However, the 40s is sometimes a financially difficult time for people who have children since they are now costing more than ever, especially if they are at private schools. This group needs to budget carefully. In contrast, those with relatively high incomes, or with few or no family responsibilities, should have the capacity to continue to use gearing to expand their investment portfolio.
The alternative will be to divert more money into superannuation. Unfortunately, while very tax-effective, money invested in super is locked up until you satisfy the various preservation rules.
These mean you can't get your super before you are at least 55 and also retired. Super savings really only equate to financial freedom for people who are already in their early 50s.
The Fifties
This is a time for more sustained wealth creation due to higher salaries and fewer family costs (many children by now will be financially independent). Nash argues that the tax breaks offered by superannuation, plus the fact super savings will be more accessible, make this the preferred investment vehicle.
The other opportunity that often arises in your 50s is the chance to take more control over your life by establishing your own business, perhaps by getting a significant redundancy payment.
Even if the redundancy wasn't voluntary, it can provide a valuable chance to build a new, financially viable life outside the 9 to 5 standard working day. But Nash warns it is particularly important to think very carefully before you use your family home as security for a business loan. "A debt-free home is usually crucial for any sort of financial freedom and should not be put at risk without a lot of thought," he says.
The Sixties and later
For many people in their 60s the main financial challenge is to invest their savings to generate a retirement income, and maximise their age pension. In most cases investments are built around some form of allocated or complying pension, in the process maximising tax and social security efficiency.
James of Investec says that, while there is a tendency for older investors to be extremely conservative, especially when the economic outlook is uncertain, higher life expectancy means a very defensive approach probably will result in your money running out.
This means investors should usually opt for an allocated pension that includes a reasonable exposure to both local and offshore shares, rather than a pension with a very high level of capital security.
While a conservative allocated pension carries less risk of suffering a sudden setback, it can also result in a low annual income and so increasing dependence on the aged pension.
Rules for us all
But whether you are in this, the fifth age of investing, or any of the other ages, all of us have to deal with the same economic and investment climate. We have to make the same range of crucial financial decisions, based on our assessment of the risks and opportunities that exist.
James says all investors need to guard against assuming the next five years will generate the same sort of returns as the last. "Expecting the second half of the decade to be just as good as the first half would be naive," she says. "It may be, but there are plenty of reasons to think overall returns won't be as strong."
Among these facts are:
- Returns over the previous five years or so from Australian shares have been so strong that, as has already happened with real estate, some correction at some stage is virtually inevitable.
- There is no guarantee that one of the main drivers of local sharemarket confidence — the strong Chinese economy — won't hit some adjustment problems, in the process dragging down local stocks.
- The surge in oil prices could continue, squeezing consumers and slowing economic growth.
- The $A could well remain at around current levels, rather than the much lower exchange rate that applied at the start of the decade, in the process maintaining the pressure on exporters.
As noted, the main implications of the shift to an era of lower investment returns is the way that making quick gains from the sharemarket or property is likely to be more difficult than in the previous five years.
One thing that won't change, however, is the need for most people to adopt a suitable investment strategy and then resist the temptation to chop and change when a particular investment sector generates disappointing returns.
As already stressed, it is also crucial to avoid thinking you will be able to make big gains quickly. "Everyone wants to be rich tomorrow, but the risks aren't worth it," says Thornhill of Motivated Money. Impatience is our biggest barrier to serous and sustainable wealth creation."
Stick with a strategy
Callinan of Tandem stresses that, while a few investors make a lot of money by timing markets, they are the exception. She points out that even the professional managers who handle the investments for Australia's huge superannuation funds often struggle to add value through timing.
Instead, they develop strict investment strategies and stick with them. "If you give yourself plenty of time and patiently stick with a well-designed investment strategy, you will almost certainly be a lot better off in 10 years time than those who don't," she says.
For the complete story see Money Magazine's February 2005 issue
http://money.ninemsn.com.au/article.aspx?id=100342
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