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Retirement is a period of life that many people spend years dreaming about: the chance to finally leave work behind and enjoy much-needed time with family and friends. While it’s natural to be excited about retirement, it’s worth getting all your ducks in a row before you say goodbye to work – and a regular income – forever. If you’re edging towards retirement age, here are eight signs that you might not be ready to sail off into the sunset just yet. You don’t have a clear idea of your personal finances You wouldn’t venture into an unknown city without a map and expect to have control over where you end up. When it comes to your retirement plan, you shouldn’t be navigating without direction either. Areas that are good to understand in detail include a well-rounded view of your super – how it’s invested, the fee structure and how well it’s performing. It can also be helpful to have an idea of how much super you’ll need for retirement and what you expect your living expenses to be over the next 30 years or so. You haven’t worked out your new retirement income One of the key factors in weighing up your financial situation at retirement is understanding what your new retirement income will be and whether you’re financially ready to take this next big step. Without the regular pay cheque from your job, you may have to allocate yourself an amount you can comfortably live on for decades to come. To figure out this amount, take time to assess how much money you’ll need to retire comfortably. It can also be useful to work through a detailed budget to ensure the projected amount can go the distance. You haven’t tried living on your retirement income ‘Try before you buy’ is an age-old adage for a reason, and it’s especially relevant when it comes to your retirement. You don’t want to run out of money before you’ve made it to your golden years. You have too much debt Your retirement strategy could include debt reduction as a key area, including paying off a mortgage or credit card debt. Taking a mortgage with you into retirement can affect you in a number of ways, so if you can, it’s optimal to pay out this debt before retiring from work. This calculator can help you understand the long-term impact of paying your loan down now in smaller chunks. You haven’t maximised your super So, do you have enough retirement savings? Speak to your financial adviser about the possibility of further super contributions and what might be a realistic amount for you to contribute. You haven’t considered how your needs might change The transition to retirement often mirrors your journey into old age, which is why it’s important to factor additional healthcare needs into your retirement plan. Life is unpredictable at the best of times, but a financial buffer can take the sting out of any unexpected shifts, especially where your health is concerned. Consider how your healthcare needs might change over the course of your retirement, including factors such as preventative care and health insurance. You haven’t emotionally prepared for retirement There’s more to retirement planning than just your finances. Retirement is a huge transition, separating you from the work you’ve spent the better part of your life involved in. For some retirees, it can be a big adjustment. Even if you’re elated at leaving your working life behind, your plans for the future may have lost their sheen due to changes in the global environment. For this reason, ensuring that you’re emotionally ready for retirement should also factor into your strategy. You haven’t spoken to your family about your plans It may be your retirement but your choice to finally wind down your working life can have implications for more than just you and your partner. Expectations can be a tricky thing to anticipate but they can, to some extent, be managed, especially with clear communication.   Source: AMP

3 out of 4 households in Australia have debt, and of those, 30% have accumulated debt more than 3 times their annual disposable income. It can be really challenging to get on top of debt and to find ways to pay it down, especially when interest rates are rising. However, a financial adviser can help. We can help you to make the most of your financial resources and develop strategies to help you pay down debt sooner.

Key points Share markets have fallen sharply in recent weeks continuing the plunge that started early this year due to worries about inflation, monetary tightening, recession and geopolitical issues including the invasion of Ukraine. It’s still too early to say markets have bottomed. This will weigh on super returns for this financial year. Selling shares after a fall locks in a loss. Introduction Usually share markets are relatively calm and so don’t generate a lot of attention. But periodically they tumble and generate headlines like “billions wiped off share market” and “biggest share plunge since…” Sometimes it ends quickly and the market heads back up again and is forgotten about. But once every so often share markets keep falling for a while. Sometimes the falls are foreseeable (usually after a run of strong gains), but rarely are they forecastable. From their all-time highs to their lows in the past week US shares have now fallen 24%, global shares have fallen 21%, and Australian shares have fallen 16%. What’s driving the plunge in share markets The key drivers of the fall in shares remain: Shares had very strong gains from their March 2020 lows and speculative froth had become evident in tech stocks, meme stocks and crypto, and this left them vulnerable. High and still rising inflation flowing from pandemic distortions made worse by the war in Ukraine and Chinese lockdowns. US inflation rose further in May to 8.6%, its over 8% in Europe and looks to be on its way to 7% or so in Australia (not helped by our own electricity crisis and floods). The ongoing upside surprises on inflation have seen central banks become more aggressively focussed on pulling it back down and so stepping up the pace of rate hikes with the US hiking by 0.75% last week; Canada, NZ and the UK all continuing to raise interest rates; the ECB moving towards rate hikes from July; and the RBA hiking rates by 0.5%. The increasing aggressiveness of central banks in the face of higher inflation is in turn raising the risk of triggering a recession, which could depress company profits. Rising bond yields in response to rising inflation and central bank tightening is adding to the pressure on share markets by making them look relatively less attractive which is driving lower price to earnings multiples. The ongoing war in Ukraine along with tensions with China are adding to the risks. As always, the most speculative “assets” are getting hit the hardest including the pandemic winners of tech stocks (with Nasdaq having fallen 34%) and crypto currencies (with Bitcoin down 70% from its high last year). Crypto currencies surged with semi religious fervour around the claimed marvels of blockchain, decentralised finance, NFTs, freedom from government, an inflation hedge, etc, only to become a speculative bandwagon fuelled by easy money and low interest rates. Trying to disentangle its true fundamental value from the speculative mania became next to impossible. And now the easy money and low rates are reversing, pulling the rug out from under the mania and driving mishaps along the way (eg, Terra, Celsius Network and Babel Finance). Fortunately, the exposure of major banks and mainstream investors to crypto is still relatively low so this is unlikely to be another GFC moment. Reflecting the sharp falls in share markets and in fixed interest investments (which suffer a capital loss as bond yields rise) balanced growth superannuation funds are down by 5% or so for this financial year to date and are on track for their first financial year loss since 2019-20 (due to the pandemic) and their worst financial year loss since the GFC. Key things for investors to bear in mind Sharp market falls are stressful for investors as no one likes to see their investments (including their super) fall in value. But there are some key things investors should keep in mind: First, while they unfold differently, periodic share market corrections and occasional bear markets (which are usually defined as falls greater than 20%) are a normal part of investing in shares. For example, the last decade regularly saw major pullbacks and rolling 12 month returns from shares have regularly gone through negative periods.   While falls can be painful, they are healthy as they help limit excessive risk taking. Related to this, shares climb a wall of worry over many years with numerous events dragging them down periodically, but with the long-term trend ultimately up and providing higher returns than other more stable assets. Second, historically, the main driver of whether we see a correction (a fall of say 5% to 15%) or even a mild bear market (with say a 20% or so decline that turns around relatively quickly like we saw in 2015-2016 in Australia – which may be called a “gummy bear market”) as opposed to a major (“grizzly”) bear market (like that seen in the mid-1970s or the global financial crisis when shares fell by around 55%) is whether we see a recession or not – notably in the US, as the US share market tends to lead most major global markets. We remain of the view that a global recession can be avoided – if inflation starts to slow later this year or early next (as supply improves) taking pressure off central banks and in Australia as growth initially cools faster than expected (as the plunge in consumer confidence suggest that it will) putting a cap on how much the RBA needs to hike interest rates allowing it to avoid triggering a recession. But with inflation still surprising on the upside and central banks hiking rates aggressively the risks have increased to the point that its now a very close call. Either way it’s still too early to say that shares have bottomed. Of course, short-term forecasting is fraught with difficulty and should not be the basis for a long-term investment strategy, so it’s better to stick to long term investment principles. Third, selling shares or switching … Read more

Picture the scene. You’ve found your dream home—a short stroll to the local schools, close to a leafy park to walk the dog and on a quiet residential street with the best coffee in town right on the corner. You’ve agreed a price with the seller. You’ve organised your deposit. And you’ve arranged a building and pest inspection. You’re on your way to the bank to finalise the paperwork for your loan approval when you get a call from the real estate agent. What’s that? The seller has decided to go with a higher offer. ‘But…but…how is this even possible?’ you think as your dream home slowly fades before your eyes. You’ve just been gazumped and unless you have deep pockets to make a counter offer, there’s not much you can do except lick your wounds and start looking all over again…and possibly with less money in the kitty after incurring expenses. With the property market going gangbusters over the past couple of years (although likely to slow down, gazumping is something you might want to take steps to avoid. What is gazumping? gazump /ɡəˈzʌmp/ verb: To make a higher offer for a house than (someone whose offer has already been accepted by the seller) and thus succeed in acquiring the property. The practice of gazumping—being outbid by a higher offer even after you’ve agreed a price—may not seem entirely ethical or fair but it is legal in most parts of Australia. A property sale isn’t final until both parties have signed and exchanged contracts. In most suburbs of Sydney and Melbourne this tends to happen at an auction so gazumping isn’t as much of an issue. But in other parts of Australia where private sales are more common, there’s more chance of an unwelcome surprise. This period between agreeing a sale and exchanging contracts is a bit of a legal grey area but the main thing to remember is the sale isn’t legally binding (in most parts of Australia) until both parties have signed on the dotted line. It doesn’t matter whether the offer is verbal or written…it’s still just an offer and without a signed contract the seller can legally walk away (regulations do vary across Australia so it’s worth checking with your solicitor or conveyancer about how things works in your home state or territory). Real estate agents are legally required to let the seller know about any offer. So unfortunately if another buyer pops up with deeper pockets, the agent needs to inform the seller, who’s then under no obligation to stick to your agreement without a signed contract. Six ways to avoid being gazumped The key to avoid being gazumped is preparation. If you can get as many of your ducks in a row as possible beforehand, you can move quickly and reduce your chances of an unexpected phone call. Look for properties that are being sold at auction- there’s usually no cooling-off period and you’re locked in. The seller can’t back out…but nor can the buyer. At an auction you sign a contract on the day so you can’t be gazumped. The buyer signs, the seller signs and you exchange contracts. Job done. Obtain pre-approval for your home loan and make sure you have your deposit available to avoid delays. Get your building and pest inspections done quickly. Work with your solicitor or conveyancer to expedite the contracts. The sooner you get them signed, the less chance of a higher offer coming in. Arrange an exclusivity arrangement with your solicitor to take the house off the market—you’ll pay a bit extra but it could give you peace of mind. And if all else fails and another buyer swoops…increase your offer. At the end of the day, money talks.   Source: AMP

Scamwatch is warning people to be aware of uninvited offers of help to recover money for an up-front payment, following a spike in reports of money recovery scams. These scams target people who have already lost money to a previous scam by promising to help victims recover their losses after paying a fee in advance. Australians have lost over $270,000 to these scams so far this year, an increase of 301 per cent. “Scammers will ask for money and personal information before offering to ‘help’ the victim and will then disappear and stop all contact,” ACCC Deputy Chair Delia Rickard said. “Money recovery scams are particularly nasty as they target scam victims again. These scams can lead to significant psychological distress as many of the people have already lost money or identity information.” This year Scamwatch has received 66 reports of money recovery scams, a 725 per cent increase compared to the same period in 2021. Scammers target previous scam victims, contacting them out of the blue, and pose as a trusted organisation such as a law firm, fraud taskforce or government agency. They may have official looking websites and use fake testimonials from other victims they have ‘helped’. As well as an up-front payment they often ask victims to fill out fake paperwork or provide identity documents. Scammers may request remote access to computers or smart phones, enabling them to scam their unsuspecting victims. Another tactic scammers use is to contact people by phone or email who haven’t actually been a victim of a scam and convince them that they’ve unknowingly been involved in one and are entitled to a settlement refund. “If you get contacted out of the blue by someone offering to help recover scam losses for a fee, it is a scam. Hang up the phone, delete the email and ignore any further contacts,” Ms Rickard said. “Don’t give financial details or copies of identity documents to anyone who you’ve never met in person and never give strangers remote access to your devices.” “Scammers can be very convincing and one way to spot them is to search online for the name of the organisation who contacted you with words like ‘complaint’, ‘scam’ or ‘review’,” Ms Rickard said. People who have lost money to a scam should contact their bank or financial institution as soon as possible. If they are not happy with the financial institutions response, victims can make a complaint to the Australian Financial Complaints Authority which is a free and independent dispute resolution service. Financial institutions may be able to find where the money was sent, block the scam accounts and help others to avoid sending money to scammers. For more advice on how to avoid scams and what to do if you or someone you know is a victim of a scam, visit the Scamwatch website (www.scamwatch.gov.au).   Source: Australian Competition and Consumer Commission (ACCC).

Do you find yourself drowning in random receipts when EOFY comes around? Learn to lodge your tax return the easy way with these last-minute and longer-term tax hacks. Tax paperwork is something few of us take in our stride. In fact, the majority of people hand over much of this responsibility to someone more qualified. But even your accountant can’t do it all for you. Gathering together receipts and records you need to pass along can become a headache when you leave it all to the last minute. Maximise deductions Depending on your situation – married or single, salaried employee or sole trader for example – there are all sorts of legitimate expenses you can claim against your income to lighten your tax burden. A good accountant can certainly advise on which types of deductions you could potentially include in your return. But whether you’re lodging through an agent or doing your tax return DIY-style, knowing what expenses to record can help you keep receipts organised throughout the financial year. A visit to the ATO website (www.ato.gov.au) can keep you in the know about eligible deductions in the current financial year. There are also a host of other apps available for keeping track of your spending, and not just the tax-deductible kind. Expensify has been popular for a few years now. Not only does it scan and store receipts, it pulls information including date, time, amount and merchant, into a CSV file ready for your accountant at tax time. There’s also a more concierge-style solution called Squirrel Street available here in Australia. For a monthly subscription you can mail your receipts to be scanned, uploaded and categorised on your behalf. If you’re eligible to claim some of your car expenses as a deduction, there’s also a nifty app to make this easier too. Providing you’re following the logbook method for calculating vehicle usage, Vehicle Logbook is an ATO compliant app that gives you an easy way to capture and collate all that essential journey info. Be super savvy Depending on your working arrangements, you may have already contributed to your superannuation in this financial year, either through the Super Guarantee or voluntary personal contributions. By making extra contributions into super, you’re saving more for retirement and may be eligible for tax concessions too. This will depend on your marginal tax rate and how much you’ve already paid into super. Know your offsets Making extra super contributions, for yourself and on behalf of your spouse, could also see you qualify for tax offsets. Under current Federal Government legislation, tax offsets are available to lower income earners, and for contributions made on behalf of your spouse if they’re on a low income. Investment costs Just like money you earn from working, income from investments is liable for tax. Whether that’s rent from a property or dividends from shares, there may be deductions you can claim against these investment earnings. While an accountant can certainly offer guidance on these deductions, a Financial Planner can advise you on the overall costs and benefits of your investments. Tax is just one of the costs you need to keep in mind when exploring investment options and coming up with an investment strategy to meet your financial goals. Tidy-up for next time By knowing what deductions and offsets you can legitimately claim, and keeping on top of record-keeping, you could be boosting your chances of getting a tax windfall after lodging your return. But if your overall finances are in a bit of muddle, there may be just as much value in doing a spot of financial housekeeping and decluttering your finances to get all your money matters in the best of shape for the future. Source: FPA Money and Life

For anyone hoping to buy their first home the challenge can be daunting. Saving for a first home deposit can take many months or years, and often coincides with many other competing demands for your money in the form of rent, car repayments, bills, and other living expenses.  If children are part of your plans, the financial pressure is even greater. This is where financial advice from a qualified professional can help. We help individuals, couples, and families from all walks of life to manage their financial affairs better. This involves reviewing and structuring your finances in an efficient way, so that you can make the most of your money. With a sound financial plan in place, you will be in a stronger position to reach your goals sooner.  It will not only give you a clearer understanding of where your money is going, but also give you greater confidence in your financial future. To find out more, please contact us.

Billions of dollars in super contributions go unpaid every year. Here’s how you can find out if you’re getting paid what you’re owed and what you can do if you’re not. A while back, a mate of mine posted on social media that she was owed over $10,000 in super from a former employer, who had since shut up shop (money she may never see when she does eventually retire). Responses from friends revealed she wasn’t alone, with one person commenting that, like her, they still hadn’t received their unpaid super money, with employers who go out of business sometimes harder to chase up. The good news, according to the ATO’s last count, is that around 95% of super contributions were being paid by employers, but on the flipside that did leave around $2.5 billion in unpaid super. If you’re not sure if you’re getting paid what you’re owed, here’s what you need to know and what you can do if something doesn’t look right (keeping in mind, the sooner you act, the better). Who’s most at risk? In the past, the ATO has indicated that about 50% of super debts it deals with relate to insolvency (in other words, companies that don’t have the cash to meet their obligations). On top of that, data from ASIC indicated non-payment of super was more likely to happen in certain industries – hospitality, construction and retail to name a few. What should your employer be paying you? Generally, if you’re earning over $450 (before tax) a month, no less than 10% of your before-tax salary should be going into your super under the Superannuation Guarantee. It’s also important to note that from 1 July 2022, changes to super will see more people become eligible for contributions from their employer, as the minimum income threshold of $450 per month will be removed. Meanwhile, if you’d like an estimate of how much super your employer should have paid into your super account, try the ATO’s estimate my super tool. How can you check if you’re getting paid the right super? Start by looking at your payslips and know that while super contributions may be listed on your payslip, this doesn’t always mean money has been deposited into your super account. With that in mind, you’ll want to check your super statements, call your super fund, or log into your super account online to see exactly what you’ve been paid. Another thing to be aware of is even if your wages are paid weekly, fortnightly or monthly, super contributions only need to be paid into your fund four times a year (at a minimum) on dates determined by the ATO. What should you do if something doesn’t look right? If it looks like you haven’t been paid what you should’ve, speak to the person who handles the payroll at your work, as there may be a simple explanation. If you’re not satisfied with what they tell you, you can lodge an unpaid super enquiry with the ATO. You’ll need to give your personal details, including your tax file number, the period relating to your enquiry and your employer’s details. You can also call the ATO on 13 10 20. It’s worth contacting your super fund too, as your employer may have a contractual arrangement with your super fund, which means your super fund may be able to follow up any unpaid super on your behalf. Source: AMP

After a lifetime of hard work, it’s important you maximise your entitlements in retirement. So you need to structure your finances carefully to make sure you don’t lose your age pension. After all, you’ve earned it. Here are some common traps to be aware of. Helping loved ones out It’s only natural to want to help younger family members get a leg up financially. But if you’re nearing or already in retirement, you need to be careful how you go about this, as you could inadvertently affect your age pension entitlements. If you’re thinking of giving money, the rules are you can gift $10,000 per financial year, and no more than $30,000 over a five-year period. Any excess amount is counted as an asset, and deemed to earn income, for a full five-year period from the date of the gift. Buying property With house prices so high and home ownership getting out of reach for younger Australians, it’s no surprise that many parents want to help their kids get a foot on the property ladder. But with property you need to be extra careful in how you set things up. Let’s look at an example. A couple aged 55 want to help their daughter buy her first home. Without taking advice they buy a 50% share of a house worth $500,000 so she can obtain a loan. Fast forward 12 years and the house is now worth $1,000,000, of which their half share is $500,000. Their other financial assets are worth $700,000 so they believed they would be eligible for a part age pension. To their dismay they discover their equity in their daughter’s home has taken them over the assets test cut-off point, meaning they won’t be getting any age pension from the Government. So what can they do? If they transfer their ownership share to their daughter the capital gains would be as high as $125,000 after the 50 per cent tax discount, on which capital gains tax could be as much as $50,000. And they would have to wait five years to qualify for the pension because Centrelink would treat the $500,000 as a deprived asset. The total value of the capital gains tax and the lost pension could be as much as $150,000! If they’d been aware of the trap, or taken advice, they could have gone guarantor for their daughter, possibly putting up their own home as part security, and this would have had no effect on their future pension eligibility. Alternately, they could have transferred their ownership to their daughter at least 5 years before they became eligible for the age pension. They still would have had a capital gains tax liability, but at least the 5-year period for counting the gift would have elapsed by the time they applied for the age pension. Borrowing against the family home to invest If you’re already, or about to be, on the age pension, purchasing an investment property with the loan secured against your family home (primary residence) can be a trap. Normally, the debt against an investment asset—for example, an investment property—is deducted from the asset value when working out whether you’re eligible for an age pension. But if the mortgage is secured against another asset like the family home, then the gross amount is counted. So this may affect your age pension as the full value of the investment is counted as an asset. A way to avoid this could be to secure the asset against the investment instead. Downsizing the family home If you’re thinking of selling your family home and buying a smaller place, there’s an added incentive as the Government is allowing downsizer contributions into super for eligible Australians of up to $300,000. But there could be a Centrelink sting in the tail, as you’re converting an exempt asset (the family home) into a counted asset (money left over) that could affect your eligibility for the age pension. Let’s look at an example. Ray (70) and Gina (67) receive close to the full age pension, based on their assets and income. They want to downsize their family home, which they could sell for $2.5 million. They’d prefer to buy an apartment closer to their kids for around $1.5 million. If they go ahead, they’d have surplus assets of up to $1 million, which will either considerably reduce their age pension, or cut it off altogether. By consulting their financial adviser, Ray and Gina could decide either to proceed as planned, or perhaps buy a more expensive replacement property and have less surplus capital, with less of an impact on their age pension. And their adviser could help to invest the surplus capital to generate an income—for example, by making downsizer contributions into super and starting an account-based pension. There’s plenty to think about if you’re looking at downsizing, so you might want to get some advice. Leaving a bequest in your will Many retired couples leave all their assets to each other in their wills if they pass away. While this is perfectly understandable, it could cause grief to the surviving partner if their age pension is reduced or lost altogether. The asset cut-off points for singles and couples are quite different—$595,750 for a single person and $901,500 for a couple. Let’s look at an example. Jack and Jenny have assessable assets of $740,000 and are getting around $11,800 a year in age pension payments. Jack dies suddenly and leaves all his assets to Jenny, taking her over the assets test limit for a single person and she loses the pension entirely. Unfortunately, Jenny can’t get around this by passing the assets on to their children. If you’re a named as a beneficiary in someone’s will, and you gift it away to, say, your children, it’s still counted as part of your assets and subject to the income test for the next five years. If Jack and Jenny had consulted a financial adviser, one solution could have been to leave specific assets to their children and bypass the surviving … Read more

It’s an important question as prices rise around the world fuelled by soaring energy and commodity costs, supply chain constraints and a geopolitical retreat from globalisation. In Australia, headline inflation is expected to reach 5 per cent by the end of the year. And while that’s still low from an historical perspective, it is above the Reserve Bank of Australia’s (RBA) target range and could likely trigger a lift in the cash rate to 0.75 per cent. Both of these factors are in our view negative for investors. Inflation eats away at the value of money and higher interest rates directly lift financing costs, so in our view it is critical that investors find a way to protect the value of their investments. Is infrastructure the asset class that can provide the hedge that investors are looking for? The broad answer is yes — but the devil is in the detail. Infrastructure is not a homogenous asset class. Assets that look similar on the surface can have very different drivers of risk and return and it is important that investors consider each individual asset’s specific characteristics. At a high level, infrastructure assets can be grouped into three categories. Each has a slightly different and nuanced relationship with inflation, and each provides investors with a different level of protection from price rises. Let’s look at each in turn. Growth-linked assets Growth linked assets are infrastructure assets where revenue is linked in some way to the health of the economy — like airports, ports and toll roads. In some way, each of these businesses enjoys revenue linked to economic growth and this is the core of how in our view growth-linked assets can provide inflation protection: rising prices tend to be a result of strong economic growth which brings rising employment. Australia’s real GDP is forecast to grow 4.5 per cent this year, while nominal GDP growth will come in around 9.5 per cent. This kind of economic growth lifts the usage of many infrastructure assets. Typically in a stronger economy, more people fly, more goods are imported, and more cars and trucks are on the move. This can result in rising revenues for these growth-linked infrastructure assets. In addition, these types of businesses can often lift their prices to keep pace with inflation. Airports may have escalation factors built into their agreements with airlines that provide for annual price increases, while their retail tenants are under individual tenancy agreements that often come with regular rental reviews. Similarly, toll road concessions usually provide for annual price rises. And while agreements to lift prices are not always directly linked to inflation, they are usually in our experience set at a point that reflects inflation expectations, meaning they offer protection in rising price environments and can even help drive earnings when actual inflation undershoots. Still, there are downsides for these businesses. Operating costs often rise as input prices escalate which can impact earnings. And higher interest rates as central banks respond to inflation can make debt servicing costs rise, although this can be mitigated through hedging. Regulated assets Regulated assets are the infrastructure associated with essential services like water and electricity. Demand for essential services also rises as an economy expands and more people are employed, but generally in our view it does so to a lesser extent than for a growth-linked asset like an airport. Importantly, these assets operate under regulated pricing models where their revenue is determined under a regulatory framework. In many jurisdictions these revenues are in most cases explicitly linked to inflation. Again, there are downsides. Operating costs often rise in an inflationary environment for an essential utility just like they do for other businesses, which can put pressure on earnings. And they also face the challenge of higher interest rates which may need to be mitigated through hedging. Public Private Partnerships (PPPs) The third group are PPPs, a category that includes assets like schools and hospitals built and owned by the private sector and provided for use by the public sector. These types of assets usually have fixed, availability-based revenues. This means that as long as the asset is available for use, the owner gets paid — regardless of how many people actually use the asset. This provides a high level of certainty and consistency around the cash flows the asset generates but comes with less scope to increase revenues. From an inflation perspective, these types of assets often benefit from the ability to pass through costs as incurred to the end user, insulating the asset owner from input price rises. Another positive is that the revenues are often explicitly linked to inflation, but with little scope to lift prices, the inflation protection is generally limited to the extent of this inflation-linkage. As the world is seemingly heading into a new bout of inflation, in our view investors need to seek out assets that can protect their savings from rising prices. In many cases, infrastructure assets can provide this hedge through a combination of mechanisms. But with a wide variety of different types of infrastructure assets available for investors, each with its own unique characteristics, we believe that taking an asset-by-asset approach is important to understanding how effectively the sector may provide a hedge against inflation. Source: AMP Capital