Ask Noel

Sydney Morning Herald

Wednesday December 17, 2008

Noel Whittaker is a director of Whittaker Macnaught, a licensed dealer in securities.

I've been watching my super balance fall $1000 a day and switched to cash, where it started to grow slightly. Everyone said switching to cash was the worst thing to do as it meant I'd miss the gains when the markets recover, so I switched back to the balanced growth option. Now the balance is falling again. Is there ever a time to switch to cash? If the markets are close to the bottom, is this option still better than cash?

Trying to switch your portfolio to beat market movements is futile. You need to choose an asset allocation in consultation with your adviser and stick with it for the long term. Markets are exhibiting unprecedented volatility and daily movements of 5 per cent are not uncommon. All we can do is wait for the inevitable upturn.

I have 100 per cent equity in my house and have an investment property that is positively geared and paying for itself. I also have savings of $100,000 in a term deposit. I'm considering using half of the money as a deposit to buy another investment property. Is this a sound idea?

There is an old saying: "It is never a bad time to make a good investment." There is no reason why you should not buy an investment property if you can find a bargain. Keep in mind borrowing magnifies both profits and losses so I suggest you use a home-equity loan to borrow as large a proportion of the investment property as your budget can handle. It will maximise your tax benefits and also increase your gearing. If appropriate, the money in cash could be invested in super.

Every time my husband and I dine out with a certain relative, she scoops up the receipt for the entire bill, even though my husband and I paid our portion in cash, explaining she can "claim it as an entertainment expense" because she works for a public hospital. Is this legitimate?

Employees of many not-for-profit organisations are entitled to tax breaks, such as the one you mention, that are not available to ordinary wage earners. The alleged purpose of these concessions is to compensate the employees for working in what is traditionally a lower-income area. It appears your relative is eligible to salary sacrifice part of her wage for expenses such as home-loan repayments and dining out and is acting within the law.

I have a fixed-rate home loan and when I listed my house earlier in the year the bank quoted termination fees of about $10,000. I now have a contract on my house with settlement due in a fortnight and the bank says the fees will be about $30,000.

Is there any way to avoid it?

The essence of a fixed-rate loan is the bank promises you the interest rate will not increase during the term of the loan. Therefore, if you decide to quit in a period of falling rates, the bank is entitled to charge you a fee to compensate for the income it will lose because it will no longer have a loan paying it a high rate. If your loan is portable and you are buying another house, it may be possible to transfer the existing loan to the new property. There should be no break fees as you will be continuing to pay the rates you locked in when you chose the fixed rate. See the Financial Ombudsman Service at www.fos.org.au for more detailed information under Latest Publications.

This article is general in nature. Readers should always seek further advice before making financial decisions.

To ask a question, write to Ask Noel, Money, GPO Box 2571, Qld, 4000, or see moneymanager.smh.com.au/sitewide/askanexpert.html.

© 2008 Sydney Morning Herald

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