Info as at 25 March from my financial planner
With new information coming out every day I want to make sure everyone is up to date. This email today will cover:
* New contact details
* How does Covid-19 affect your insurance cover?
* What to do if you’ve been made redundant?
* Are there any signs of when this might begin to get under control?
* Should you be buying more shares?
I’ll have more to say in the next week regarding the government stimulus package, particularly on the changes to superannuation and pensions.
New Contact Details
Firstly, the staff at Ark Total Wealth have now decided to work from home to do our bit to slow down the spread of Covid-19. I want to stress to you all that it’s business as usual for us aside from the change in location.
Please contact me on the mobile 0413 090 737 or via email with any inquiries, as it may take some time to divert our office phone line.
Due to the sheer amount of calls and emails I’m getting in this difficult time, my response time won’t be as quick as it normally is. I will definitely respond to you all as soon as I can though. If you need to chat (about anything) call me and I will likely pick up or get back to you in the same day.
How does Covid-19 affect your Insurance cover?
Many of you have contacted me wondering how Covid-19 will affect your insurance cover. Two common questions are:
Will my insurance policy pay out if I am diagnosed with Covid-19?
Yes, there is no clause to prevent a payout if you need to make a claim due to Covid-19. Life, Total and Permanent Disability (TPD) and Income Protection will still pay out as normal if you are afflicted by the virus.
Will my Income Protection policy cover me for redundancy?
Unfortunately no, Income Protection policies only cover you if you can’t work due to Illness or Injury. The reasons for this are that redundancy is significantly more common, so the premiums the insurer would need to charge on this would be through the roof. Also, insurers can only provide cover for risk that they can quantify. Redundancy and job loss are impossible for Actuaries to be able to risk assess because there are so many variables at play. Are you a great employee in a bad business – and that’s why you lost your job? Are you a bad employee in a great business – and that’s why you lost your job? It’s impossible for them to measure all of this.
What to do if you’ve been made redundant
Sadly I’ve had a few clients who have been made redundant or stood down in the last week, or own businesses who have effectively shut down.
My thoughts are with you all in this incredibly tough time.
The government has widened access to the Jobseeker Payment (formerly Newstart Allowance) to ensure people still have an income coming in.
You are now eligible for the payment if you are:
* A permanent employee who has been stood down or lost your job
* A sole trader, self-employed, a casual or contract worker whose income has reduced
* Caring for someone who’s affected by the Coronavirus
Normally there are Assets Tests and Waiting Periods that preclude you from receiving this payment, however these have been waived.
There is still an income test, though if your family is earning less than $1,075 per fortnight ($27,950 p.a.) then you should be eligible.
Please do not go and queue at Centrelink to access these. Go to the website and call the hotline.
https://www.servicesaustralia.gov.au/individuals/subjects/affected-coronavirus-covid-19
Applying online looks to be the easiest way to process this, though the website has been crashing due to high demand lately.
Other than this, if you are no longer working I recommend scaling back your expenses as much as possible until you find another job.
First point of call is normally your mortgage repayments. Call your bank and explain the situation, then ask them two questions:
1. What is the lowest interest rate you can get me down to?
2. What can you do to help me out? Banks want your money to be paid back at the end of the day, so are normally willing to defer mortgage payments or waive interest for a period of time. Remember that any payment deferrals will need to be paid back eventually, so are not a long term solution. At this stage most banks are saying they are willing to defer home loan repayments for 6 months if you have been materially financially effected by COVID-19.
If you feel like your bank is not coming to the party then call me and we can look at refinancing. At this point we can access fixed home loan rates for owner occupiers as low as 2.2% pa.
If you are a small business owner or sole-trader there are also stimulus measures that you can access such as a credit for all PAYG withholding tax on wages up to $100,000 (minimum payment $10,000) over the next 6 months. Please contact your accountant (or myself if you do your accounting through Ark Accounting) to discuss this further.
How long will this go on for and is there any guidance as to when this will begin to improve?
This is the magic question, and in short – I don’t really know the answer.
HOWEVER, there are a few reasons to be optimistic with what has been going on in the world.
Most Governments have clearly been working on a suppression strategy which means they introduce very harsh and disruptive lockdown measures which are designed to hit the virus on the head hard, slowing the infection rate to the point where people are able to get better from it at a faster rate than they become infected and fall sick.
There is some expert advice (Nobel Prize winner in Immunology) that suggests that this sort suppression strategy can begin effectively flattening the active case loads of the virus in a matter of WEEKS and not months. Read more here:
If we look at how other countries are faring so far we, can see that strong suppression measures are actually beginning to bring the virus under some sort of control, and doing so in terms of WEEKS.
If you remember my previous email (scroll below) which showed active cases in Republic of Korea beginning to flatten, well this has now turned into a steady and sustained drop as people begin to get better and the rate of new infection begins to slow. Interestingly ROK didn’t even head down the heavy lock-down route to begin with, but instead used a strategy of aggressive and blanket/constant testing as well as targeted quarantining.
The other good news is that even International basket-case ITALY is starting to show slight improvement as their aggressive lockdown strategy begins to take effect. Again it is early days yet and you don’t want to jump to too many conclusions, but their daily new infection numbers are beginning to taper some 3 weeks after they really began to take off. So this is positive signalling.
So the expert advice is that suppression strategies will see good results in a matter of weeks, and the early evidence out there of other countries who have been at the vanguard of this and are suppressing is that we can see positive results in a matter of weeks.
Once infection rates have been brought under control, Governments will begin to loosen restrictions in such a way that they hopefully maintain control over the virus which will buy us more time for the following:
- Improved public education to reduce further likelihood of the spread of infection
- The production and distributions of drugs that are able to cure the virus (there’s a very high chance these already exist)
- The discovery, production and distribution of a Vaccine
In the meantime and over the coming weeks it will be Government’s job to provide stimulus to ensure we get through what is hopefully this limited period of lockdown with the least amount of economic damage sustained as possible.
This is all not to say that there won’t be a lot of pain and heartache ahead, and jobs won’t be lost and businesses won’t fold. They will. But there is a light beginning to form along this tunnel – however faint.
Should you be buying more shares?
This is a question many of you have been asking me over the last few weeks as markets have fallen.
As of today, the Australian stock market (ASX 200) is down about 35% (from it’s peak) so it’s a logical question to ask.
Yes, I think now is a good time to buy shares, with a big caveat. Don’t invest any money you are going to need in the next few years, particularly in the next 18 months.
The simple reason for this is you (nor I) can’t predict the future, and there is a chance that markets will be lower than they are now in a year or two. I think this is a low probability, but it is a risk nonetheless.
If you do have money you don’t need for anything in particular (often within superannuation), then I think this is a great chance to capitalize on large companies trading at a 35% discount to what they were a month ago.
Obviously markets may fall further from here and company earnings will be impacted by the repercussions of this, but it is a truism to say it is hard to go wrong over the long term buying quality assets in times of crisis.
I’m wishing you all the best during this tough time, and please don’t hesitate to give me a call or email if you’re wondering how this applies to you.
Please keep in mind this in General Advice only, for personal advice specific to you please get in touch over the phone or email.
If anyone is feeling like they need to chat or have further questions please contact me on my mobile on 0413 090 737.
Regards,
Chris Magnus
Ark Total Wealth
** PLEASE NOTE WE HAVE MOVED: OUR NEW ADDRESS IS: LEVEL 9, 123 PITT STREETSYDNEY**
Chris Magnus
Partner/Financial Adviser
BCom GDipFP
Financial Planning | Mortgage Broking | Accounting
Level 9, 123 Pitt Street, SYDNEY NSW 2000
P: +61 2 9262 3333
F: +61 2 9262 5788
M: +61 413 090 737
E: chris.magnus@arktotalwealth.com.au
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From: Chris Magnus
Sent: Friday, 13 March 2020 10:46 AM
Subject: COVID-19 – Some Thoughts.
Good Morning!
At the moment we’re obviously seeing the impact of Corona Virus shutting down economic activity across the globe and share markets falling sharply in response. What are we to make of all this and what may occur from here…
Analysis of long term data back to 1835 tells us that EVENT driven bear markets (defined as market drops of 20% or more) last on average for 15 months until full recovery…
Source: Market Watch, Goldman Sachs
Not withstanding the above, COVID-19 would seem to be quite a major event, and future monetary policy in the past has been an effective antidote through the slashing of interest rates to re-stimulate economic activity. Of course today interest rates are currently very low already so there is not a lot further slashing that can occur by Central banks and Goverments will need to shoulder the heavy lifting instead with economic stimulus packages similar to what the Rudd Government did in 2008 (pink batts, school halls, tax cuts etc).
Clearly a key catalyst to any kind of economic recovery will be the restoration of public confidence, and I think in this context that could start occuring when COVID-19 infection rates start peaking and appear to be getting under control. At that point, people will be able to see ‘beyond the event’ and look to resume normal activity which means our economy will hopefully start working normally again. So when could this happen?
If we look at what is going on in China which was the original epicentre of the outbreak with their current infection rates it tells an interesting story. As of yesterday they announced 18 new cases. That’s it.. 18. 2 weeks ago it was 593 cases a day. A month ago they announced 5,090 new cases a day, and a month before that in January COVID-19 was barely on the radar there, with only about 500 cases known about in the country. Daily new cases have dropped dramatically as infection rates seem to have peaked.
Source: worldometers.info/coronavirus
As such, the amount of total cases of 81,000 infected in China is a bit misleading because if you break it down today as to how many people arecurrently sick vs recovered, you notice that the large majority of people who caught it are recovered and there is only something like 17% of those total cases in China still actively sick. This seems to telll us that infections in China have well and truly peaked some 3 months after the virus was first announced. Could this be a relevant template for the rest of the world?
Source: worldometers.info/coronavirus
(Yes we can argue that the China data may not be all that accurate, but we are comparing later Chinese data against earlier Chinese data and looking at the differences, so it should all be relative).
If we wanted to look at more reliable data from somewhere with an advanced health care system , high testing rates and presumably more accurate data that also has the 4th larges amount of diagnosed cases in the world, we can look at Republic of Korea – although be aware the data coming out of ROK is very fresh and early at this stage so it would be a mistake to read too much into it at this point.
Source: worldometers.info/coronavirus
As mentioned above it’s very early days yet for ROK and anything can happen from here, but it would appear on this very recent data there is a bit of a flat line occuring already in terms of total cases and new infection rates. We will see how this plays out and I might report on this again in a future email when a more solid trend line is apparent.
IF this is all the case, then it might suggest that although economic disruption is major and confidence is low during the initial phase, if we can get to a situation where infection rates seen to have peaked and more people are getting better at a faster rate than those falling ill as is the case in China currently, then we could see a move towards restoration of faith in the economy and open a pathway to recovery in the markets.
This is just my opinion, and time of course will tell…
Here is also a couple of other good articles commenting on the recent market movements.
Please do not hesitate to contact me if you have any concerns or wish to chat further.
Regards,
Chris
** PLEASE NOTE WE HAVE MOVED: OUR NEW ADDRESS IS: LEVEL 9, 123 PITT STREETSYDNEY**
Chris Magnus
Partner/Financial Adviser
BCom GDipFP
Financial Planning | Mortgage Broking | Accounting
Level 9, 123 Pitt Street, SYDNEY NSW 2000
GPO Box 4013, SYDNEY NSW 2001
P: +61 2 9262 3333
F: +61 2 9262 5788
M: +61 413 090 737
E: chris.magnus@arktotalwealth.com.au
