How To Invest 10k in Australia – 3 Steps to Success (2020)

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Huge Australian Household Debt Threatens to Worsen Recession


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Thuy Pham has run two jobs for much of her working life, and a little over two years ago all that effort paid off when she realized a dream of buying her own home. As the coronavirus shutdowns have deepened, that’s started to unravel: first she was stood down from one job, then the other, and now she’s registering for welfare to help meet mortgage payments.

“I’m scared,” said Pham, who found out she was among the rapidly swelling ranks of unemployed people on the very day she was due to meet her mortgage broker to take advantage of lower interest rates. “Everyone is saying it’ll be six months, but it could actually be longer. I never thought I’d ever be on Centrelink. I’ve always worked my guts out.”

Like many in the workforce, Pham has never really experienced recession due to Australia’s enviable record of almost 30 years without one. But that has come with a less desirable record of highly indebted households and sky-high property prices. This raises the risk that the recovery could taker longer and could increase financial stability concerns if people can’t cover their loans.

Household debt is almost double disposable income, twice the level of the U.S., and well over a year’s annual output. Mainstream economists and the central bank have long argued that while people have jobs and can service those loans, the risk of a hard landing is slim.

Leverage Risks

Household debt in Australia among the world’s highest

Bank of International Settlements

As at September quarter 2020

Centrelink, which manages welfare payments for the unemployed, has seen queues snaking down streets in recent weeks as tens of thousands people seek support, while others are heading out to the bush in the hope of finding work on farms. It’s reminiscent of 1930, but it’s 2020, and a phenomenon being replicated worldwide.

Australia’s central bank governor is warning of a “very large economic contraction” and unemployment increasing “to its highest level for many years,” an unusually blunt assessment from typically optimistic Philip Lowe.

Job Destruction

“There’s no doubt that we’re going into the greatest job destruction period ever,” said Bob Gregory, a professor at Australian National University in Canberra who specializes in the labor market and has studied the economy for more than half a century. “This looks like the most serious recession-depression we’ve had since the 1930s, and there’s going to be a big income loss in the next six months.”

This is why Australia, together with other high household-debt economies like Denmark, the U.K. and Canada, is offering subsidies to ensure workers have an income and keep them connected to firms. Banks Down Under are offering repayment holidays to help tide homeowners over.

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The government last week pledged A $130 billion ( $80 billion ) in a rescue plan that will subsidize workers’ pay to about 70% of the median wage. While this is positive and important for firms and workers, at about A $1,500 a fortnight, it isn’t going to go a long way in major metropolises like Sydney and Melbourne.

No Panic

Shad Hassen, a 25-year veteran of Sydney real estate, said the government plans have prevented housing spiraling into the chaos of panic selling.

“There’s definitely been a drop in terms of inquiry, and a drop in activity,” said Hassen, a co-founder of The Agency, who sells in Sydney’s inner west. “But without panic selling, prices aren’t going to drop significantly in the very near-term. What happens after COVID, from an economy perspective, that we simply don’t know.”

The unemployment outlook is a center of conjecture. The government’s aim to keep employees tied to their firms, even if they’re not working, will help to suppress the official unemployment number. Still, a number of economists are predicting the rate will surge beyond 10%; more worryingly, few expect a rapid rebound.

Those most directly impacted by a lack of tourists, empty beaches and no activity on the streets are waiters, bar staff, baristas and so forth. While many in such professions are young and probably without mortgages, those that do have loans will probably have little in the way of buffers.

Not Working From Home

Lowest paid workers hit from initial job loses

Australian Bureau of Statistics

Average of 2020 data, full-time ordinary earnings

Analysis from the RBA found around two-thirds of home-owner debt is held by the top 40% of income earners. Yet, if the downturn is prolonged and there is a broadening of job losses across other sectors, this would have larger impacts on the housing market.

“Australia’s high household debt was never going to be a cause of a recession, but it would quite possibly magnify the impact of anything else that caused a recession,” said Saul Eslake, an independent economist who has analyzed the Australian economy for 40 years.

“The risk isn’t so much to the financial system that there will be a wave of defaults,” he said. “But rather the risk was to the economy arising from what highly indebted households would do to avoid defaulting, which is substantially cut back their spending.”

And while Australia’s banks are allowing some to defer repayments, most aren’t actually foregoing interest during the period. So it will be added to a borrower’s outstanding principal, which will then require either higher repayments or a longer repayment term by the mortgagee.

Central Bank Review

The RBA, in its semi-annual Financial Stability Review released in Sydney Thursday, referenced high household debt as a “longstanding” risk and acknowledged that “many households will find their finances under strain” during the efforts to contain the virus. Yet, it said tighter lending standards in recent years had improved the quality of debt.

The review cited data showing most households have enough liquid assets — cash, equity investments, mortgage prepayments — to cover living expenses for three months. But there are “some pockets of vulnerability,” it said, with the same data indicating about one-in-five households only have enough liquid assets to get from one pay period to the next.

For those with mortgages,“just under one-third of mortgages have less than one month of prepayments, and about half of these appear particularly vulnerable to a sharp decline in income,” the bank said.

The threat of unemployment to people’s ability to meet their debts is key. RBA analysis of loan-level data and historical relationships show that for every one percentage point increase in unemployment, the mortgage arrears rate increases by about 0.8 percentage point.

“The expected rise in unemployment will lower households’ ability to service their debts, but government transfers to directly affected households and wage subsidies for affected employees will mitigate this to some extent,” it said.

No Sub-prime

The nation’s prudential regulator recently conducted a stress test on banks based on a scenario of unemployment reaching 11%. Under this, lenders incurred significant losses and a substantial reduction in capital, but the latter was sufficient to remain above the regulatory minimum.

On top of that, last year’s Royal Commission into misconduct in the banking system didn’t uncover widespread lax lending, easing concerns Australia would be at risk of a U.S.-style sub-prime crisis.

Indeed, two-thirds of Australian mortgagees are also ahead of repayments, as many people kept handing over the same amount even as interest rates fell sharply in recent years.

Slow Recovery

Still, Gregory and Eslake see little chance of a V-shaped recovery. Both expect higher unemployment to persist and key industries like international tourism and education — accounting for 5% of GDP — taking time to return to previous levels, if they ever do.

Paul Parks, owner and co-founder of The Bondi Brewing Co., a craft brewer, says the ban on social gatherings and shuttering of venues have brought keg sales “to a complete halt.” Loyal customers have been still been buying his beer at bottleshops and he’s taken to doing deliveries himself.

“Everyone will be doing it tough until they find their own groove and settle into this new way of life,” he said. “So drink local and support local businesses!”

— With assistance by Sybilla Gross

How to Invest in Gold

Allyson Brooks
Contributor, Benzinga

Investors always try to diversify their investments and lower their risk. They especially look for so-called safe haven investments that perform better when the rest of the market down.

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Of these safe-haven investments – treasury bills, francs, and others, investors consider gold to be the best. That’s why you’ll find that investors often include some gold in their portfolios.

Table of contents [ Hide ]

Gold as a Commodity

Like any other commodity, the price of gold is determined by supply and demand. The most of the world’s gold comes from the hard rock mining, but it can also be produced using placer mining methods or as a by-product from copper mining. China, Australia, and Russia are the largest producers of gold in the world. When it comes to demand, gold’s main use is for jewelry production. But, it’s also used in the aerospace industry, medicine, dentistry, and electronics. Governments and central banks are buyers of gold.

Currently, the U.S. is the largest gold holder, while Germany comes second and the International Monetary Fund is in the third place. Private investors are also interested in buying gold and they treat the purchase of gold as an investment.

Why are Private Investors Investing in Gold?

Instead of holding a cash position, investors may buy gold when they expect a recession, geopolitical uncertainty, inflation or a depreciation of a currency. Sometimes they hold it as an insurance from the market decline. You can’t always forecast unwanted events, so it makes sense to hold assets that do well as protection from a market decline. In the last 40 years, gold recorded significant gains from 1978 to 1980 and from 1999 to 2020. It struggled during the 90s and after 2020. Fears of inflation and recession led gold to its 1980 highs, while several events caused gold to trade higher after 1999. The September 11 attacks and the war in Iraq held the price higher until 2003.

Insurance buying was behind gold’s move higher going into the 2007 recession. It continued its uptrend as the market traded lower, with economic uncertainty as its main theme. Problems in Europe, weaker U.S. dollar, concerns over economic recovery kept the gold price high until 2020. Gold is not always performing well. It has struggled during the 90s due to growing U.S. GDP, interest rate hikes in 1995, and a tight fiscal policy. After 2020, the strength of the US dollar and the US economy hurt gold. The stock market broke out of a downtrend and turned in the uptrend and investors were not as interested in owning gold as an insurance.

Now you know a little more about gold and why people may invest in it. Here’s how you can start investing in gold.

1. Buy physical gold

If you want to get exposure to gold, one way to do it is by purchasing gold jewelry, coins or bullion. Gold bullion trades very close to the price of gold and it can refer to gold bullion bars or gold bullion coins.

Bullion doesn’t have any artistic value, which makes it different from jewelry or numismatic coins. To buy gold bullion you have to pay a premium over the gold price which can be in a range from 3 to 10 percent. You will also have to use a vault or a bank deposit box to store it. You can buy physical gold online, in a jewelry store, or another gold storefront.

Before you purchase, make sure the price is fair, the gold is real and tested, and that you aren’t paying a higher premium for collectors coins if you’re just looking for pure gold. Be prepared to walk away if these standards cannot be met, especially if an online store or storefront feels shady.

One trusted online store with a 4.9 rating on google store is Silver Gold Bull, who not only allow you to buy gold, but will also store it, and buy it back should you chose to sell it for a profit.

Once you buy gold, you have to store it properly. You could store it at home, but some security issues could arise from this approach. If you decide to purchase and keep it at home, make sure you have a proper safe and take the necessary measures to protect your assets.

2. Buy gold futures

Futures contracts are standardized contracts that trade on organized exchanges. They allow a holder to buy or sell an underlying at a specified time in future and at the price from the futures contract. First, you’ll need to open a brokerage account. Check out Benzinga’s Best Futures Brokers rankings to start trading. Here’s how it works.

Gold futures contract at Chicago Mercantile Exchange covers 100 troy ounces. To trade it, you need to deposit an initial margin, which is a minimal amount necessary to open a position. Every day your position is going to be marked-to-market. This means that if the price goes in your direction, you’ll make a profit, but if it goes against you, you’ll lose money.

If your account drops below maintenance margin, you will have to transfer money to your account to meet the amount of initial margin. Futures contracts are leveraged instruments. You need to only need your account balance to be equal to the initial margin, which is lower than the value of the whole contract. Most brokers do not have the delivery option, so the contract is settled in cash when it expires. The expiry is also standardized feature of the gold futures contract and investors can choose their time horizon while keeping standard expiration in mind. Later expiry contracts prices can be higher than the spot price and earlier expiry futures. When this is the case, we say that the market is in a contango.

On the other hand, when the spot price or the price of early expiring contracts are higher than the price of later expiring futures contracts, we are in a backwardation. If you are buying gold when the market is in a contango, you will also have to pay a premium for later expiry contracts.


Seven Steps to Success

Discipline yourself to do what you know you need to do to be the very best in your field.

Perhaps the best definition of self discipline is this: “Self discipline is the ability to make yourself do what you should do when you should do it, whether you feel like it or not.” It is easy to do something when you feel like it. It’s when you don’t feel like it and you force yourself to do it anyway that you move your life and career onto the fast track.

What decisions do you need to make today in order to start moving toward the top of your field? Whatever it is, either to get in or get out, make a decision today and then get started. This single act alone can change the whole direction of your life.

Seven Steps to Success
There is a powerful seven step formula that you can use to set and achieve your goals for the rest of your life. Every single successful person uses this formula or some variation of this formula to achieve vastly more than the average person. And so can you. Here it is:

Decide What You Want
Step number one, decide exactly what it is you want in each part of your life. Become a “meaningful specific” rather than a “wandering generality.”

Write it Down
Second, write it down, clearly and in detail. Always think on paper. A goal that is not in writing is not a goal at all. It is merely a wish and it has no energy behind it.

Set a Deadline
Third, set a deadline for your goal. A deadline acts as a “forcing system” in your subconscious mind. It motivates you to do the things necessary to make your goal come true. If it is a big enough goal, set sub-deadlines as well. Don’t leave this to chance.

Make a List
Fourth, make a list of everything that you can think of that you are going to have to do to achieve your goal. When you think of new tasks and activities, write them on your list until your list is complete.

Organize Your List
Fifth, organize your list into a plan. Decide what you will have to do first and what you will have to do second. Decide what is more important and what is less important. And then write out your plan on paper, the same way you would develop a blueprint to build your dream house.

Take Action
The sixth step is for you to take action on your plan. Do something. Do anything. But get busy. Get going.

Do Something Every Day
Do something every single day that moves you in the direction of your most important goal at the moment. Develop the discipline of doing something 365 days each year that is moving you forward. You will be absolutely astonished at how much you accomplish when you utilize this formula in your life every single day.

Action Exercises
Here are two things you can do to put these ideas into action immediately.

First, decide exactly what you want, write it down with a deadline, make a plan and take action – on at least one goal – today!

Second, determine the price you will have to pay to achieve this goal and then get busy paying that price – whatever it is.

“How to Get Everything You Want Faster Than You Ever Thought Possible”

Make NOW the best time of your life by learning simple and proven ways to achieve your goals and dreams in record time!

Join me LIVE for 1-hour as I share solid goal-setting techniques that have made me — and thousands of other self-made millionaires and entrepreneurs — incredibly wealthy and successful.

To learn more about how to achieve optimum success, take a look at my recent post How To Be Successful In Life.

See Also

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10 Steps to Successful Income Investing for Beginners

Income Investing Could Help You Pay the Bills

Do you need to build a portfolio that will generate cash? Are you more concerned with paying your bills and having enough income than growing richer? If so, you should consider using an older investing technique—income investing.

This long-lost practice used to be popular before the great twenty-year bull market taught everyone to believe that the only good investment was one that you bought for $10 and sold for $20. Although income investing went out of style with the general public, the discipline is still quietly practiced throughout the mahogany-paneled offices of the most respected wealth management firms in the world.

Income investing is the practice of designing a portfolio of diversified investments to achieve a passive income to live on. These investments can include real estate, stocks, mutual funds, and bonds. It is important to consider which types of assets might be most valuable to someone who wanted to follow an income investing philosophy and understand the most common dangers that can affect an income investing portfolio

Income Investing Defined

The art of good income investing is putting together a collection of assets such as stocks, bonds, mutual funds, and real estate that will generate the highest possible annual income at the lowest possible risk. Most of this income is paid out to the investor so they can use it in their everyday lives to buy clothes, pay bills, take vacations, or whatever else they would like to do.

How the Social Unrest of the 20th Century Gave Birth to Income Investing

Despite some nostalgia for the 19th and early 20th centuries, society was quite messy. The mess was not from the lack of instant news, video chats, music-on-demand, 24-hour stores, and cars that could drive further than ten miles per gallon.

In that time-frame, if you were Jewish or Irish, most companies wouldn’t hire you. If you were gay or lesbian, you were prescribed electroshock therapy; black men and women dealt with the constant threat of mob lynching and rape.

If you were a woman, you couldn’t get a job doing anything more than typing, for which you would be paid a fraction of the amount offered to a man for similar work. Add in the fact that there weren’t any social security or company pension plans, resulting in most elderly people living in abject poverty.

What does all this have to do with income investing? Everything. These are the circumstances that caused the rise in income investing—when you peel back the layers, it’s not difficult to understand how.

The Rise of Income Investing

For everyone except for well-connected white men, the decent-paying labor markets were effectively closed. One notable exception: If you owned stocks and bonds of companies such as Coca-Cola or PepsiCo, these investments had no idea if you were black, white, male, female, young, elderly, educated, employed, attractive, short, tall, thin, fat—it didn’t matter.

You were sent dividends and interest throughout the year based on the total size of your investment and how well the company did. That’s why it became a near-ironclad rule that once you had money, you saved it and the only acceptable investing philosophy was income investing.

The idea of trading stocks would have been anathema (and nearly impossible because commissions could run you as high as $200 or $300 per trade in the 1950s—the equivalent of $2,000 to $3,000 in 2020).

The Widow’s Portfolio Bursts Onto the Scene

These social realities meant that women, in particular, were regarded by society as helpless without a man. Up until the 1980s, you would often hear people discussing a portfolio designed for income investing as a “widow’s portfolio.”

This was because it was a fairly routine job for officers in the trust department of community banks to take the life insurance money a widow received following her husband’s death and put together a collection of stocks, bonds, and other assets.

These investments would generate enough monthly income for her to pay the bills, keep the house, and raise the children without a breadwinner in the home. Her goal, in other words, was not to get rich but to do everything possible to maintain a certain level of income that must be kept safe.

Today, we live in a world where women are just as likely to have a career as men, possibly making more money. If your husband died in the 1950s, however, you had almost no chance of replacing the full value of his income for your family.

That’s why income investing was such an important discipline that every trust officer, bank employee, and stockbroker needed to understand. No one refers to AT&T stocks as “a widow’s stock” anymore, which should have been its second name a generation or two ago.

Today, with pension systems going the way of the dinosaur, and wildly fluctuating 401(k) balances plaguing most of the nation’s working class, there has been a resurgence of interest in income investing.

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