Nan has her arm in a sling.

When walking home last week we observed a lady with her arm in a sling.

 Our take on that it was a fall of some sort & when you are in your eighties[ our guess] then there is every change that it could be a break. This then sets up a common process of more breaks, falls & hence needing more care & attention. From our observations over the last 10 years there is no husband for this lady. 

Maybe there is family but they always have their own challenges.

Nan & her family, like our parents, would usually prefer to remain in their own home. 

Hence there are Home Care Packages which include

• ·         Personal care such as showering, mobility & meals
• ·         Support services  such as washing, house cleaning, basic home maintenance & transport for doctors or social activities
• ·         Clinical care such as nursing & other health services

What are the Home care costs?

1.      All pay a basic care fee which is set @ 17.5% of the basic single aged pension.   This today for Nan would be 133.96 p.f. & would increase every 6 months with the CPI & the pension.
2.     Then there is an income tested fee which is 50% of income above a threshold but is subject to a lifetime aged care cap  of 60,000.

This fee means that if Nan is on the full pension only she does not pay any more.

If Nan has a single income between 24,835.20 and  47,985.60 then Nan would pay  the lower of

•    The cost of the package or Basic Subsidy amount.
•   50% of  [assessable income -47,985.60] + 5,000
•   10,000

This means that part pensioners & self funded retirees with income less than the upper limit have income tested fee capped at 5,000 which is 13.74 p.d.  [ 5,000/ 364].

Self funded retirees above the limit have fees capped at 10,000p.a or 27.47p.d.

If Pop is around then the threshold for couples is 19,172.40 each.

As you can imagine government known as Department of Human Services needs to know & assess Nan quarterly. She needs that stress. Not.

Nan then might need to take the next step in the process which is into Residential Care.

 That step from our observations happens when either Nan is physically too weak to care for herself & becomes too hard or when those mental marbles fail to register. We have our very good friend in that situation & he was only in early 70’s when he moved into Low care. You just never know.

The costs & terms for Residential Care  are worth another thought bubble next time.

It might be called ‘the 80 / 40 rule’.

 I.e. when your parents are eighty & you are in your forties then a family conference discussing if & when & how & where  would reduce the stress all round.

Preparation prevents poor results.

Nan & her family will have her assets & income assessed which then determine Nan’s ongoing fees. Hence optimising assets & income to maximise pension & minimise ongoing fees reminds us of teaching Grade 11 & 12 calculus.

Remember money in the bank, perhaps from selling the house, is taxed & deemed & may reduce the pension available.

If we were to sit down in three years time & looked back what do we need to do today so that you are financially & personally better off & happier.

Our role is to maximise the probability of you achieving your financial objectives

John McAuliffe

Prospect theory & a very good reason NOT for SMSF

An article admittedly from a large fund manager that we just read that we hope you may find interesting.

Behavioural investing series #5

Prospect theory suggests that humans are non-rational decision-makers, and that losses carry a greater emotional impact than gains. It also explains a key reason for inertia in investment decision-making.

Prospect theory is an explanation of human decision-making under conditions where the outcome is uncertain. It can be applied to situations ranging from life decisions, such as whether to switch careers or relocate overseas, through to financial choices such as selecting an investment fund or deciding whether to purchase insurance.

Prospect theory was first defined 35 years ago by psychologists Daniel Kahneman and Amos Tversky^[1], who were subsequently awarded the 2002 Nobel Prize in Economics for their research in the field of behavioural economics. Also known as ‘loss aversion theory’, prospect theory suggests that humans are non-rational decision-makers, and that losses carry a greater emotional impact than gains, even where there is no difference in the end result.

For example, most people experience the pain associated with losing $100 more intensely than the pleasure associated with winning $100. Research indicates that the emotional impact associated with a loss is around twice that associated with a gain, meaning that a $200 prize would be required to entice the average person to enter into a 50:50 wager of losing $100.

When it comes to investing, one way to avoid the common pitfalls associated with prospect theory is to invest in a professionally-managed investment fund. Experienced fund managers typically have a disciplined investment process and so are less susceptible to emotional decisions than investors who hold shares directly.

Evolutionary origins

Although prospect theory was defined relatively recently, psychologists believe that the risk aversion associated with the behaviour was developed as an evolutionary survival mechanism. Longevity was maximised by adopting a cautious approach, for example when deciding whether to challenge a neighbouring tribe or expand into unfamiliar territory.

Non-rational decision-making

In addition to highlighting the importance of risk-aversion, prospect theory introduces other concepts that help to explain decision-making:

Reference point is the state of affairs (usually the status quo) that possible outcomes are evaluated in relation to. Investors usually compare the respective gain and loss outcomes separately, rather than considering the final absolute result. This explains the widespread use of rebates and short-term bonus offers, as consumers tend to value these ‘extras’ more highly than identical benefits incorporated in the overall offering.

Decision weight refers to the human bias that distorts probability-based decision-making. For example, we tend to overweight the likelihood of small probabilities (hence the popularity of lotteries) and don’t place enough value on medium to high probability events.

Impact on investment decisions

The biased decision-making associated with prospect theory has a significant impact on investment decisions; yet most of us are unaware that our judgement is clouded.

Consider the following example. Jane must choose between two possible investment outcomes:

A)   A guaranteed gain of $250

B)   A 25% chance of gaining $1,000 and a 75% chance of gaining nothing

Jane opts for outcome A as she prefers the pleasure of a certain gain over the possibility of receiving nothing.

Market conditions alter, and three months later the two possible outcomes confronting Jane are as follows:

A)   A guaranteed loss of $250

B)   A 25% chance of losing $1,000 and a 75% chance of losing nothing

Faced with these alternatives, prospect theory suggests Jane is likely to choose option B as she prefers to risk the possibility of a large loss rather than experience the unpleasantness of crystallising a certain loss.

This example illustrates prospect theory’s link to the disposition effect, or the tendency to sell investments that have risen in value, and hold on to investments that have fallen in value.

Successful investors are in fact more likely to do the opposite – hold on to appreciating investments while selling their loss-makers.

Prospect theory also explains a key reason for inertia in investment decision-making. Investors considering a change in investment strategy or a restructure of their stock portfolio are likely to overweight the risks and potential losses associated with the change, and thus opt for the status quo even in situations where the current situation is no longer optimal.

Awareness of prospect theory and its influence on decision-making is the first step in avoiding an investment approach clouded by an emotional aversion to losses. However even armed with knowledge of risk-aversion prejudices, investors can struggle to override these ingrained behavioural biases. A professional investment manager offers a range of products managed according to disciplined investment processes which can help eliminate bias associated with assessment of upside and downside risks.

 As we studied Statistics to 301 at Uni over 40 years ago this is possibly its best applied use.

It is a reason why we who have been in financial services for 30 years DON’T run our own SMSF.

We could provide you with other reasons such as we don’t want to be a trustee, the costs of doing so & paying the accountants & auditors fees, keeping up with the ATO daily rules changes or making such investment decisions. Let alone winding it up when a partner expires or is tired of all the above.

An analysis of the average SMSF with a large % in term deposit & a large % in the top 7 Australian companies reinforces this paper.

Our role is to maximise the probability of you achieving your financial objectives

Call today to your financial adviser John McAuliffe on 07 3848 1088 or email if you have any questions about prospect theory.

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[1] Kahneman, D. and Tversky, A. (1979). Prospect Theory: An analysis of decisions under risk. Econometrica, 47, 263 – 291.

What makes him happy or what he wanted from life?

What makes him happy or what he wanted from life?

Reading an article from another source we read this & hence this summarises what we do.

We think or at least hope to.

However for many people (not everyone), it’s not the money itself that really matters. It’s the psychological and emotional freedom it provides to enable people live life the way they choose, that makes them happy. However, the amount of money people feel they need to reach this state is vastly different. Knowing the relationship and attitude you have towards money, and the underlying reasons what they want it for is the ‘gold you need to mine’.

 This is what drives peoples need for financial advice.

what the best advisers, who are at the top of their game, do differently from the rest.

In answering this question, he shared his own experience. For decades he had many advisers, solicitors, accountants, bankers etc. on his team giving him personal, financial and business advice. 

Regardless of their speciality, he commented that in all his years working with these professionals, never did anyone ask him what makes him happy or what he wanted from life.  They did a splendid job of advising and guiding him, however they never took the conversations any deeper or explored the real reasons why he wanted greater wealth or financial security.

He was smart enough to work out that money is merely an enabler to provide him the freedom to choose to live the way he wanted, and to do the things that mattered to him. It was never about the money itself. It is a conversation around this that should have been driving the relationship with his advisers, and it should have continued through to the very end.

That’s what he said the best advisers do differently. They get that advice is not about the money. It’s about what the money can do for their clients’ lives, their sanity and their overall happiness. The money is just the means to the end.

the best in their field are those that dig deep, get personal and find out the real reasons why clients want advice. No one really wants a mortgage, insurance or investments. 

What they want is what these things allow them to do.

Our question to you today is this

If we are to sit down in three years time & you looked back over those three years  what do we need to do today so that you have personally & financially happier with your progress?

As others do call us on 07 3848 1088 or email us or visit our website

John McAuliffe

What did we learn at her funeral?

Yes there have been billions of words written & spoken on this subject but last week we attended a celebration of a good lady’s life.

What did we learn from that?

Our take at this moment is that it is a time of reflection for ourselves.

Yes we did attend along with a packed church to celebrate her good life.

As one speaker said her life was like ‘the rippling on the pond’ or the ‘butterfly in the jungle’ her influence will go on for eternity.

We heard on the school run this morning the word ‘legacy’  & it is not in the use of the word meaning a lump sum of money.

It is  more like Leonardo Da Vinci who wanted & left a body of work to be remembered for ever.

If it was our turn today then would we be remembered?

Would our family manage without us?

Has our will been made?

Would the mortgage be paid off & the family continue to have the same lifestyle?

Have we hugged our spouse & family today & everyday?

Have we done our best?

Daddy does point out that your best isn’t good enough some of the time. 

It is up to us to justify ourselves daily.

And a very interesting one ‘how many would turn up?

Yes we do see in nursing homes that scary reality of life.

We attended the funeral also to show our support for those who are left behind.

Many photos we saw there was an arm around her. There should be more of that.

There is family & nine grandchildren to help our team mate.

We looked at our team & have we aged as much as them?

Surely Clive would give up smoking now & William told us he would not run to the car these days.

Lindsay is away travelling on the Rhone & the Rhine & Beryl herself had just returned from travelling. Robert is skiing this week.

Something to look forward to & reflect later on.

NVR STOP  was a number plate we noticed today & yes maximise the Moment today. 

This event happens every moment.

We are all touched by events around the world.

At the newsagent on Saturday as we were in fact there for a sympathy card a lady was off travelling & wondering about what might happen.

She wondered ‘Would she get shot down?

We personally had contacts who were on MH70.

We had contempories who were on MH17.

Our neighbour had a cousin on MH17.

We hear that another contemporary David  is speaking this Thursday on how & why he organised life insurance for 32 million on an Australian.

Yes do you have enough so the family can manage on their own?

There is an online campaign offering life insurance for about 30% less premium than what we are allowed to recommend.

Why is this so?

Simply because the cover expires at age 85 & 50% of us will live past that. 

Hence that cover is no use for the 50% who live longer’.

Our  friend’s  mother passed away on Friday & she was 92.

She & he is definitely in a better place because for the last few years she didn’t know where she was. He is a Saint who cared for her at home for many years.

After the funeral we did not contribute to the cancer collection as we have a very different health viewpoint & which Gerald a radiographer said’ if everyone was on these he would be out of a job’.

We also just could not be bothered to do busy work or write on aged care or Krap that compliance would insist we do.

So we spoke to Maria who commented that she had seen so many workers’ compensation claims turned down & declined. She wondered ‘how would they survive?

When we suggested that there were other alternatives then but that is so expensive.

Why is that so?

Because there are so many lifestyle claims including 25% for mental illness.

That is either because of insufficient hugs or maybe it is financial stress.

We read today an estimated 300,000 domestic violence incidents in the state every year, & suggest much of that could be due to either of these.

If it is financial then as Ken & Tom & others did this week call us on 07 3848 1088 or email us or visit our website.

If we were in your position what would we do so that you are better off in three years time?

Our role is to maximise the probability of you achieving your financial objectives.

John McAuliffe