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Questions of the Week

Question 1: With the recent steep falls in bank shares following the RBA interest rate hike this week, do you think they are now in buy territory for a medium- to long-term investor?

Answer: I can’t say that I am surprised that the market is now “worried” that interest rate increases may lead to a blowout in bad debts – but I certainly didn’t pick the timing or extent of the sell-off. I have repeatedly said that interest rate increases are good for banks in the short term, but potentially bad in the long term.

It looks like an overreaction to me but it might take a few days to work through the system – sometimes there can be a ‘bandwagon effect’ when these swings in sentiment happen.

Banks are getting back into buy territory but if you already have a market weight exposure, my sense is to be a little patient and let the current “panic” work its way through the system.

Question 2: What other ASX listed infrastructure stocks are available now that it appears that Atlas Arteria (ALX) might go the way of Sydney Airport?

Answer: Not many, the obvious ones are Transurban (TCL), Auckland International Airport (AIA) and APA. There are also two global infrastructure funds that are listed: Argo Global Listed Infrastructure (ALI) and Magellan Infrastructure Fund (MICH).

Question 3: What do you think of Westpac’s new term deposit rate of 2.25%?

Answer: Westpac is offering a rate of 2.25% pa for term deposits with terms from 12 months to 23 months.

While it is good to see a major bank coming to the party (at long last), you can still do a lot better if you shop around and go with one of the minor players. For example, Judo Bank is paying 2.7% for 12 months, AMP Bank is paying 2.9% for 12 months.

Up to $250,000, you really should be indifferent (from a credit perspective) between the banks because they have the same Commonwealth Government guarantee. Of course, it is a hassle to open an account with a new bank – but the reward is there.

Question 4: Do I need to be working to get the government to top up my super through the co-contribution scheme?

Answer: Yes, you need to have recorded some employment income. You don’t have to be working, but you must have some employment income.

There are three tests for eligibility for the government co-contribution, a scheme where the Federal Government kicks in up to $500 into your super fund provided you have made a personal contribution of $1,000 (it matches on a 50% basis, up to an overall maximum of $500).

Your total income must be under $41,112 (it starts to phase out from this level, cutting out completely at $56,112), you must be under 71 at the end of the year, and critically, at least 10% of your income must be earned from an employment source.

While you may not qualify for the co-contribution, this can be a great way to boost a spouse’s super or even an adult child. For example, if your kids or grandkids are university students and doing some part-time work, you could potentially make a personal contribution of $1,000 on their behalf – and the Government will chip in $500!

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.