If you keep an ear out on the investment world, you will hear a lot said about risk. But many people do not really understand risk, so this week, as something of an antidote to the politics dominating the airwaves, we thought we would spend some time talking about it.
Did you know that there is a kind of tax that is great to pay? It’s called a capital gains tax and it’s great for one simple reason: you only pay it when you make a capital gain! A capital gain means you sold an asset for more than you bought it for. That is always better than the alternative, which is selling an asset for less than you paid yourself.
A driver has two routes to head home after work. Somehow, we know that if the driver takes Route A, he will be in a minor bingle in which two cars are damaged. If the driver takes route B, he will get home safe and sound. You are the Australian Treasurer. Which route do you want the driver to take?
One of the most prominent players in the Australian economy is the Reserve Bank of Australia – or the RBA. The RBA is Australia’s Central Bank. This means that it is the banker for the Commonwealth Government and that it is responsible for management of Australia’s currency.
Last week we discussed how the Governor of the Reserve Bank Phillip Lowe recently recommended that home borrowers ensure that they have a ‘buffer’ against the time when interest rates inevitably rise. Interest rate buffers are not the only type of buffer in good financial planning. Buffers are used in many areas, but the need for buffers always comes from the same source: understanding that the way things are now is not likely to be the way things are in the future.