The Experts

9942_normal
Penny Pryor
Expert
+ About Penny Pryor

Penny Pryor has 15 years experience in writing, reporting and editing financial services publications for both institutional and retail readers.

She is editor of the Switzer Super Report. As owner, editor and writer at Pryor Media Pty Ltd, she writes a fortnightly column in the Money Section of the Sun Herald and The Sunday Age and contributes to MoneyCircle.com, Global Investor and trade publications in the institutional superannuation space. Penny has also contributed to Boss Magazine, the Australian Financial Review and the Sydney Morning Herald.

3 things you need to know about the bank royal commission

Friday, December 01, 2017

Following much pressure from the Opposition (and some from within his own party), the community and the big four banks themselves, yesterday morning Prime Minister Malcolm Turnbull called a bank royal commission. It is estimated to cost $75 million and last 12 months, but what will this Commission be tasked to do? And what will it do to your portfolio?
 
1) The remit

Point 1) of the terms of references states: The Commission must inquire into the following matters;

a) the nature, extent and effect of misconduct by a financial services entity (including by its directors, officers or employees, or by anyone acting on its behalf);

b) any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations;

c) the use by a financial services entity of superannuation members’ retirement savings for any purpose that does not meet community standards and expectations or is otherwise not in the best interest of members
 
Part c) is interesting as it catches up superannuation funds into the whole exercise, something that the Opposition, and industry superannuation funds, are not too happy about. These terms of reference need to be legislated though, so expect a fight from Labor on this one.
 
2) International practice

Moving onto f) the inquiry is also tasked to inquire into the adequacy of:

i.existing laws and policies of the Commonwealth (taking into account law reforms announced by the Government) relating to the provision of financial services;

ii.the internal systems of financial services entities; and

iii.forms of industry self-regulation, including industry codes of conduct;
 
This is further clarified in point 3 which says:
 
3) Inquiring into the matters set out in paragraph (1)(f), the Commission:

a) must have regard to the implications of any changes to laws, that the Commission proposes to recommend, for the economy generally, for access to and the cost of financial services for consumers, for competition in the financial sector, and for financial system stability; and

b) may have regard to comparable international experience, practices and reforms.
 
Does this mean if another country does it then we should be able to do it too? I guess we’ll find out.
  
3) Bank stocks

The four major banks, and other financial institutions, fell sharply on the announcement Thursday morning but have recovered quite a bit since. If the Government can get its terms of reference legislated without many changes, then it shouldn't have too much impact on your portfolio for the time being. There will be some uncertainty, and possibly rising interest rates as Australian banks may find it more difficult to borrow funds offshore, but the biggest impact will depend on what the Commission's report reveals.

 


 

4 investing mistakes (and how to avoid them)

Tuesday, January 05, 2016

By Penny Pryor

It doesn't matter if an investor is trading for the first time or the one-hundredth time, there are certain traps that everyone falls into. Many of us learn not to repeat these mistakes through painful experiences and by trial and error. 

But if you become aware of these issues early, and learn how to avoid them, you can develop much healthier trading habits (and profits!) as a result. 


1) Not planning 

Just like in most things in life, you need a plan to achieve investment success. This plan needs to outline your goals and how you plan to achieve them. You can avoid this mistake by creating an investment strategy. This should include the following

Investment objectives;

  • Desired return and the risks you’re prepared to take to achieve them;
  • Expected investment timeframe; and
  • Diversification.

 

2) Not diversifying enough 

For risk mitigation purposes, it’s very important that investors diversify their equity investments across different sectors. And that they also have enough shares in a portfolio to allow for that diversification. 

Less than 10 stocks may not provide sufficient diversification in a portfolio, while more than 25 may be too hard to monitor. Fifteen to 20 stocks is a good number of stocks for diversification purposes.

As at 30 November 2015 

Source: S&P Dow Jones 


A well-diversified portfolio would have similar weightings to each sector, or at least reasonable weightings to the larger sectors of financials, and smaller investments in such areas as IT and Utilities. But even if an investor favoured the big four banks and Telstra – five holdings commonly found in Australian equity portfolios – it’s important not to ignore the other sectors to diversify risk.

3) Not rebalancing 

An investment strategy, and its asset allocation, is not a set and forget document. It needs to be reviewed regularly, as do the holdings in a portfolio. One way that investors sometimes get caught out is by not rebalancing. They may have a strategy and a sensible asset allocation approach with sufficient diversification but if they forget to review it on a regular basis, it can become quite distorted.

For example, if a shareholder planned to have a benchmark weighting to financials of close to 40% and had invested in the big four banks a few years ago to do that, their allocation to financials could actually be larger than 40% due to the increase in those shares’ value compared to other sectors.

An investor’s needs can also change over time. As they get older, instead of looking for companies with a high growth profile, they may have a bigger need for income. If they don’t rebalance, they could be caught out with riskier stocks in their portfolio when they need them the least.

This mistake is best avoided by conducting a regular yearly or six-monthly review of sector allocations. 

4) Not selling the dogs 

Another big mistake that investors of all levels of experience make is to not sell their poorly performing holdings. The reasons for this can be found in behavioural economics and investor psychology. 

The impacts of emotions on investment are well documented. Investor psychology has shown that investors are more likely to hang on to stocks when they really should sell them. 

This is called loss aversion and is a theory that was developed by behavioural economists and psychologists.

In laymen’s terms, this means investors – particularly new ones - don’t clean out their portfolios as often as they should, in the optimistic hope that those bad stocks will eventually come good. When they don’t, they usually end up selling them at much lower prices than what they would have if they had been able to let go of them earlier.

To avoid this mistake, investors need to set themselves rules, or a trading plan, and stick to them. 

The following is a simple example:

“I will sell a share if it falls more than 20% in a year and does not have improving earnings per share forecasts after two years.”

A trading plan should be part of an investment strategy and should be a document referred to on a regular basis, and particularly when an investor starts to feel like they want to give a company just one last chance.

 

 

 

What to do with a sudden windfall?

Monday, October 12, 2015

By Penny Pryor

One of the questions we often get at our sister publication, the Switzer Super Report, is what to do with an inheritance or a redundancy payment etc. that an investor may have recently come into.

Next week, I’ll report on what a few professional investors and financial types would do if they chanced upon an increase in their asset base, but today I want to let you know what I’d do if I had an extra $10,000, $100,000 and $1 million to invest. Remember, I’m no financial adviser. This is just what I would do.

What to do with an extra $10,000

At my age, and although I still have a mortgage, I’d put this amount into my superannuation. A $10,000 payment onto my mortgage probably wouldn't make that much of a dent, but a payment into my super fund would have 20 years to compound earnings on. It would have to be a non-concessional contribution but my non-concessional limit is $180,000 a year so I have plenty of room to move.

What to do with an extra $100,000

In some instances, you might be better off making extra super contributions than paying off your mortgage. Paul Rickard explained this in an article on the Switzer Super Report (subscribers can read it here) and the Australian Security and Investment Commission’s (ASIC) MoneySmart website also has a calculator that works it out for you here. But I think in my case, I would probably put most of my $100,000 onto my mortgage to get my repayments down and provide a bit of peace of mind. It would help me sleep at night, and even if that is not quantifiable in monetary terms, it still has significant value to me.

What to do with an extra $1 million?

Buy a yacht and sail to France! Just kidding, although it is tempting. If I were fortunate enough to come into this kind of money, I’d pay off my mortgage, put $100,000 into superannuation and then consider an investment unit in one of these areas. The median price of units in Parramatta is around $550,000 and I think I could get a unit in one of the Queensland areas that John McGrath mentions for around $300,000. The rest, which would probably be around $300,000 to $400,000, I’d invest in the share market, buying good quality blue-chip shares on down days and using a small percentage to buy ideas that I like – like smaller companies in healthcare, which I think are going to change the world. Of course, if I were honest with you, I’d probably take about $10,000 from my $1 million for a world trip and a few luxuries – but who wouldn’t?!

Don’t forget, next week I’ll ask some of the professional what they’d do.

 

Why Australia is playing follow the leader

Thursday, October 01, 2015

By Penny Pryor

Although it might seem like it’s always been this way, the Australian market and the US market don’t always move in tandem. In the last three months, as the global economy hung on every comment that US Fed chair Janet Yellen makes about a potential interest rate increase, the correlation between our two markets has grown. But in 2014 the correlation was almost negligible.

The measure of correlation between data, or markets, is called the R-squared ratio and for the US Dow Jones Index and the Australian S&P/ASX 200 index is currently 0.82. The closer the ratio is to 1, the closer the two markets are to moving identically.

The R-squared ratio for the US S&P 500 and the ASX/S&P 200 is currently 0.79, also indicating a strong correlation between the two indices, which is hardly surprising as the major US indices (NASDAQ aside) rarely move in different directions.

This recent strong correlation between Australia and the US is obvious in the below chart. The S&P 500 is blue and the ASX/S&P 200 is purple.


Source: nabtrade

Although the two have been moving closer together since about May, it’s really since the big dip down mid August by the S&P 500 that the correlation has become more pronounced.

“Last year we were more focused on sorting out things at home. We were caught up in the midst of rebalancing of our economy away from the mining sector, to the housing sector,” Peter Switzer says.

“We’d be doing so well for so long, and we were getting excited by the improvement in our residential real estate market, that we didn’t really pay much attention to other global markets.”

It’s when things start to go a little bit pear-shaped that market players hone their attention on all the factors that could be going wrong, or could force markets down further.

This year we had a very solid start, only to be blasted by a near-correction in August and September.

“It’s the typical sell in May and go away. Most of the time people come back to the markets in September but this year, because of anticipation of the Fed raising rates, investors have been more wary and not willing to dip their toes back in.”

“History shows American investors do better - stock market-wise - over October and November than us and September is infamous for stock market slides in the US.”

If the US Fed had increased rates last month, the correlation between our markets would have been a good thing, and we would have seen a bounce that probably translated into a Santa Claus rally, both in the US and Australia.

However as they didn’t, and may not until next year, our outlook is not so rosy, albeit the high correlation is expected to persist.

China will continue to be a focus for the US and Australia, as we wait for good economic news and possible stimulatory measures for China. Volatility will also persist as investors buy-up, and sell off, the market in order to make short-term gains.

“If nothing great comes from China and the Fed delays until 2016 as a consequence then we could miss out on a sumptuous Santa Claus rally; and Christmas for the stock market won’t be hijacked but it could be delayed and so the market’s comeback will also be delayed,” Peter says.

Investors should take some comfort from the fact that the close correlation between the US and Australian markets is not limited to Australia. According to CommSec economist Craig James, over the most recent three-month period, the R-squared ratio between the Dow Jones and Japanese Nikkei was 0.85 and the ratio between the Dow and UK FTSE was 0.87.

All eyes have been focused on the US and when it will raise interest rates. It’s like the ripping off of a Band-Aid, once it’s been done, and markets have reacted – probably negatively in the immediate short-term and positively after that – the market correlations between the US and Australia may move apart again.

“We will need to pay more attention to what’s happening at home when that happens, “ Peter says.

 

5 things you should know about car insurance

Monday, September 28, 2015

By Penny Pryor

Car insurance is like a lot of other insurances in that there seems to be so many companies offering it that we frequently get overwhelmed and keep what we’ve got, unaware of whether it’s really good value or not.

With no claim bonuses, loyalty programs and the myriad of factors – such as age, vehicle use and driving record – that go into working out your premium, it’s no wonder many of us don’t know where to start. Here are five things that might make life easier when you’re working out what to do. 

1) A 'no claims' bonus doesn't work


We don’t hear as much as we used to about this feature – a cheaper premium for not making claims over a longer period – but that’s probably a good thing. A report by the Australian Securities and Investments Commission (ASIC) earlier this year found that these schemes may lead drivers to think that claims history has been separated from other factors that determine premium prices, when this isn’t the case in practice.

It’s a bit complicated but making a claim could affect your premium in some cases, even if it doesn't impact your no-claim status.  For example, if a driver makes a “not-at-fault” claim (particularly if the other driver cannot be identified or located), this could affect the premium but not how the insurer calculates the no-claim status.

2) Loyalty programs can work

In the place of no-claim schemes, more insurers are offering loyalty programs, which offer points for the number of years a driver has been with the insurer. They also may offer points or discounts for the number of policies the person has with the insurer, such as car, home, caravan etc.

3) The average premium in each state differs

With such big discrepancies between policies and premiums, it can be helpful to compare what you’re paying with current averages for your age group and state. Don’t forget the factors that go into calculating these premiums – such as location (city versus country), the type of car and driving record, which may also influence your premium.


Source: Canstar’s Car Insurance report 2015 (Family w. young = Family with young drivers)

4) Driving frequency

There are many factors that make up your premium but one that has been promoted a lot by some big insurers is the frequency with which you drive your vehicle. If you don’t use your car much, it can be well worth exploring these options. But if you’re a heavy user, it’s unlikely this will be to your advantage.

5) Negotiate

And finally, don’t forget that you do have some power as a consumer. Just as for many financial products these days, if you ask for a lower premium, or mention that you could get a lower premium somewhere else, you may just be offered a better deal. So it pays to shop around and work out what’s actually out there for your vehicle. Just make sure that they’re not cutting corners to give you the cheaper price and be clear on what you’re getting for your premium.

 

4 investing mistakes (and how to stop making them)

Monday, September 21, 2015

By Penny Pryor

It doesn't matter if an investor is trading for the first time or the one-hundredth time, there are certain traps that everyone falls into. Many of us learn not to repeat these mistakes through painful experiences and by trial and error.

But if you become aware of these issues early, and learn how to avoid them, you can develop much healthier trading habits (and profits!) as a result.

1) Not planning


Just like in most things in life, you need a plan to achieve investment success. This plan needs to outline your goals and how you plan to achieve them. You can avoid this mistake by creating an investment strategy. This should include the following

  • Investment objectives;
  • Desired return and the risks you’re prepared to take to achieve them;
  • Expected investment timeframe; and
  • Diversification.


2) Not diversifying enough


For risk mitigation purposes, it’s very important that investors diversify their equity investments across different sectors. And that they also have enough shares in a portfolio to allow for that diversification.

Less than 10 stocks may not provide sufficient diversification in a portfolio, while more than 25 may be too hard to monitor. Fifteen to 20 stocks is a good number of stocks for diversification purposes.

The following shows the breakup of the different sectors in the ASX/S&P 200 - the benchmark index for the Australian Stock Exchange (ASX).



As at end August 2015

A well-diversified portfolio would have similar weightings to each sector, or at least reasonable weightings to the larger sectors of financials, and smaller investments in such areas as IT and Utilities. But even if an investor favoured the big four banks and Telstra – five holdings commonly found in Australian equity portfolios – it’s important not to ignore the other sectors to diversify risk.

3) Not rebalancing


An investment strategy, and its asset allocation, is not a set and forget document. It needs to be reviewed regularly, as do the holdings in a portfolio. One way that investors sometimes get caught out is by not rebalancing. They may have a strategy and a sensible asset allocation approach with sufficient diversification but if they forget to review it on a regular basis, it can become quite distorted.

For example, if a shareholder planned to have a benchmark weighting to financials of close to 40% and had invested in the big four banks a few years ago to do that, their allocation to financials could actually be larger than 40% due to the increase in those shares’ value compared to other sectors.

An investor’s needs can also change over time. As they get older, instead of looking for companies with a high growth profile, they may have a bigger need for income. If they don’t rebalance, they could be caught out with riskier stocks in their portfolio when they need them the least.

This mistake is best avoided by conducting a regular yearly or six-monthly review of sector allocations.

4) Not selling the dogs

Another big mistake that investors of all levels of experience make is to not sell their poorly performing holdings. The reasons for this can be found in behavioural economics and investor psychology.

The impacts of emotions on investment are well documented. Investor psychology has shown that investors are more likely to hang on to stocks when they really should sell them.

This is called loss aversion and is a theory that was developed by behavioural economists and psychologists.

In laymen’s terms, this means investors – particularly new ones - don’t clean out their portfolios as often as they should, in the optimistic hope that those bad stocks will eventually come good. When they don’t, they usually end up selling them at much lower prices than what they would have if they had been able to let go of them earlier.

To avoid this mistake, investors need to set themselves rules, or a trading plan, and stick to them.

The following is a simple example:

“I will sell a share if it falls more than 20% in a year and does not have improving earnings per share forecasts after two years.”

A trading plan should be part of an investment strategy and should be a document referred to on a regular basis, and particularly when an investor starts to feel like they want to give a company just one last chance.

 

Why you need to worry about after-tax returns

Monday, September 14, 2015

By Penny Pryor

The benefits of investing in shares are well documented. Returns might be volatile over the short term, but long-term returns of 10% a year on average since 1970 are hard to argue with. That’s when dividends are included of course, and although the accumulation index might have gone backwards by over 7% in August, it’s at times like these you need to think of the long term.

For example, if you’d invested $10,000 in the share market back in 1970, it would be worth over three quarters of a million by now.

The long-term case for shares speaks for itself. But one of the things that investors often forget, or may not be aware of, is that your returns are going to be very different depending on your tax bracket. And superannuation returns are going to be much better because of their lower tax-rate.

Different kinds of assets will also be affected differently by tax. Because of our dividend imputation system, Australian shares are a much more tax-effective investment than international shares.

That’s not to say you shouldn't invest in global equities by any means, there are great diversification benefits from doing so, merely that you need to understand that the tax impact will be different.

This table looks at returns of the different asset classes – gross, in the lowest and highest marginal tax brackets and for superannuation. The lowest and highest marginal tax rates are currently 21% and 49% (that's taking into account the Medicare levy). But the variations in these rates over the past 10 years have been taken into account in the calculations in the table below.

Source: Russell Investments, ASX Long-Term Investing Report 2015

The differences are quite marked. Australian shares are the only asset class for which after tax returns for low marginal or superannuation tax rates are better than gross returns, due to franking credits.  You get the best return on Australian shares via your superannuation.

Residential property also benefits from tax-deductable expenses, which lower its tax rate. Its gross return over the 10 years is pretty much on par with Australian equities: 7% versus 7.1%. But its return in superannuation is quite a bit lower at 6.2% versus 7.6% for Australian shares.

However, there is a bigger negative tax impact on fixed income and cash, as their yields are treated as income and not given any tax concessions. You give up a lot in return for the “security” of this asset class.

The data presents a pretty strong argument for the tax effectiveness of superannuation as an investment vehicle. In all asset classes, superannuation has the best after-tax returns and is even higher than gross returns for Australian equities. 

The after-tax moral of this story is to consider how you invest your spare cash. If you can – i.e. you haven’t breached your contribution limits ($30,000 this financial year if you’re aged under 49 and $35,000 if you’re 49 years or older) - it’s far more beneficial to invest surplus funds in your superannuation, particularly if you fall into one of the higher marginal tax rates.

The return on any investment is always going to be more in superannuation than it will be outside superannuation for high taxpayers.

After-tax performance reporting of returns isn’t wide spread in Australia, and funds don’t report on this basis, but it’s really important to be mindful of the different impact tax will have on investment returns before you invest.

 

It’s times like these you need dollar-cost averaging

Monday, September 07, 2015

By Penny Pryor

After a rough week last week – the ASX/S&P 200 was down 4.2%  –  and a not-so-great jobs report in the US on Friday, prepare for more volatility ahead.

But in the long-run we still have a reasonably solid economy as Peter points out in his article today.

And he’s not the only one – the SMH’s Ross Gittins also wrote on the weekend that the economy isn’t as bad as some wanted to paint it last week when the GDP numbers were released and then he wrote again on Sunday about our “depressed economists".

But either way, it’s hard to invest when, on paper, all you can see is a sea of red. It’s difficult to remember that investing is for the long term and over the very long term – the past four and a bit decades – the average annual return of shares is pretty close to 10%.

Peter Switzer and Paul Rickard have long been promoting the buy on dips strategy – which is like sale shopping, you buy good quality companies at low prices. And this is what the professional fund managers do.

But what if you think stocks are going to fall further and you keep waiting for the next dip?

It’s at times like these you might want to think about dollar-cost averaging. This is the process of spreading out an investment over a period of time. 

Say today you want to buy Company A and it has fallen to what looks like a pretty bargain price of $20. But you’re confident the fundamentals are good and are a long-term investor so you think eventually it will recover.

You’ve got $10,000 to invest.

But instead of investing it all today – and getting 500 shares for your investment (we’re assuming we live in a world without brokerage costs for this example) you decide to spread your investment over the remainder of the year i.e. the next four months.

So you split your $10,000 investment up into four investments of $2500. You buy your first lot today and get 125 shares for your investment. But then by October your shares have dropped to $18 and you get 138 shares for your $2500. In November the shares have recovered to $19 and you get another 131 shares and then by the beginning of December they’ve rallied back to $20 and you get 125 shares for your investment.

Your average price is $10,000 divided by 519 (125 + 138 + 131 + 125) = $19.27.

You’ve managed to get some of the benefits of the company falling to a cheaper price and you were right in your original assessment that it would recover.

This strategy helps alleviate some of the risk of investing a large amount in one go.

It’s also obviously a long-term strategy and for those who are looking ahead for the next 10 to 20 years.

This chart highlights the power of thinking of the next 20 years as opposed to the next 20 days.


Source: Russell Investments, ASX Long-Term Investing Report 2015.

Dollar-cost averaging is particularly useful in markets like we’re in at the moment where we keep on finding new bottoms. So if you’re thinking of investing, give it some thought.

 

3 careers of the future

Monday, August 31, 2015

By Penny Pryor

I’m no Gen Yer but I have already had three careers – travel coordinator, research analyst and journalist. And while I love journalism and writing, I’d be foolish to think that this will be the only career I have now until retirement.

Media is one of the industries to be hit hard by disruption and while a few of us old fogies still like getting the paper in print, its days are obviously numbered.

But it has always intrigued me that journalism is still a popular course at university and it turns out its students aren’t the only ones still chasing career paths that will be radically different in the future. According to a report by the Foundation for Young Australians, called The New Work Order, nearly 70% of young Australians are studying for, and getting, their first job in roles that could be completely lost in the next 10 to 15 years due to automation.

I find that slightly frightening. And wish perhaps that school careers advisers would be slightly more proactive in teaching students how the workplace of the future will look (apologies if they’re already doing this and the kids aren’t listening).

So where will the jobs of the future be? For a start, they won’t be in careers that are easy to automate – like book keeping, cashiers, general office administration and wood machinery, according to a PwC STEM Report. They most likely will be in areas that require social and creative intelligence.

Here are my three picks for careers of the future.

1) Doctors and nurses


The PwC report “A smart move – future proofing Australia's workforce by growing skills in science, technology, engineering and math (STEM)” has three careers that have a less than 1% chance of being automated in the next 20 years. They are medical practitioners, education health and welfare managers and midwives and nurses.

2) Information communication and technology professionals

This is a no brainer. Of course, IT and ICT professionals are going to continue to have jobs in the future. The PWC report says that database and systems administrators and ICT security specialists have just a 3% chance of their jobs being automated over the next three years. ICT managers have just a 3.5% probability of their jobs being automated.

3) Teachers and education professionals

This one surprised me a little bit, but while you can probably get robots that lecture – there is a big difference between lecturing and actual teaching. PwC says education professionals have just a 3.3% chance of being automated, tertiary-level teachers have a 3.6% chance and school teachers have a 4% chance.



The unknown unknowns

There are also the jobs that haven’t even occurred to us yet. Twenty years ago, no one would have considered the position of social media specialist, as social media didn’t exist. And there will be careers in the future that are beyond our comprehension today. But the chances are that the majority of these new careers will revolve around technology, or the application of technology to existing jobs and employment.

For the kids, the key to finding a job, therefore, is not necessarily a crystal ball but an understanding that the world is going to continue to change at a rapid pace and knowledge of science, technology, engineering and maths (STEM) will put you ahead of the curve.

For the rest of us, it involves recognising how technology may change our existing employment and doing all we can to prepare for that, or creating a Plan B in an alternative career.

For me, I’m not considering becoming a teacher just yet, but I will be revisiting my future-proofing plan.

 

3 reasons to take out pet insurance

Monday, August 24, 2015

By Penny Pryor

I don’t have a pet. But I’d like one. And when I get one – a border collie or poodle I’m thinking – I’m pretty sure I’d anthropomorphize them just like most pet owners do these days. That means if they were to get sick or injured, I’d do anything I could to keep them alive, as long as they weren’t in pain.

I know people who have paid thousands of dollars for a dog’s broken leg or an operation for kitty. And before you say “that’s crazy” ask yourself what you would do with your pet in a similar situation?

That’s where pet insurance comes in. Just like any kind of insurance that you take out, it covers you if bad things happen. And with pets outnumbering people in Australia – 22.83 million versus 33 million – there are plenty of good reasons to take it out. Here are three of the best:

1) There are different kinds of cover

Just like most other kinds of health insurance, you can get different levels of pet insurance cover. Comprehensive cover covers most things and includes accident, illness and routine vet care. But you can also chose accident and illness cover and accident only, so depending on the type of pet you have, accident only might be the most appropriate for your breed.

2) It’s not that expensive

The premiums may not be that expensive. According to Canstar, accident and illness cover for a three-year old dog starts at $61 a year per $1000 a year for dogs and $39 for cats. Of course, you probably want to take out more than $1000 in cover but for even if you took out $10,000 in cover for your three-year old dog, the premiums are just over $50 a month. Comprehensive cover averages out at $70 a year per $1,000 of cover for three-year old dogs and $47 for similarly-aged cats, while accident only cover is around $36 per $1000 of cover for dogs and $33 for cats.

Just like life insurance, premiums for pet insurance increase with age. A seven-year old dog will cost, on average, $22 a year more per $1000 in premiums than he would have as a puppy.

3) It depends on the breed

Canstar, which rates the kinds of insurance on offer (see below), found that Bitzers are the most expensive type of dog to insure. Labradors, German Shepherds and Border Collies were the next costliest to insure. But Staffordshire bull terriers, pugs and Maltese terriers were some of the cheaper dogs to insure.

Canstar suggests that the higher cost of Bitzers might be due to the “unknown quantity” and they also point out that while the traditional Bitzer was a bit of an accident, these days your Cavoodles, Goldendoodles and Labrodoodles are also classed as Bitzers. They say: “If you know the types of dogs that have been crossed to produce your pooch, make sure you let the insurance company know. If you mark “unknown” on your application, it may end up costing you more.”

What insurance

And so finally, how do you know what pet insurance to take out? Well, Canstar has done the hard yards for you and worked out which companies offer outstanding value in the three different kinds of insurance on offer. These are their picks for 2015.

Accident only

  • Pet Insurance Australia
  • Prosure
  • Woolworths

Accident and illness

  • AFS –PetMed
  • Pet Insurance Australia
  • Petplan

Comprehensive Insurance

  • AFS-PetMed
  • Pet Insurance Australia

Check out their latest report here.

 

MORE ARTICLES

6 tax deductions you might not know about

5 things to do with your tax refund

Why have banks started to increase interest rates?

A new way to get access to superior market performance

3 reasons to get a property valuation

Small is beautiful - another housing alternative

The insurance you didn't know you had

What would happen if you died intestate today?

Don’t have a good job that pays good money? Then do this

4 reasons to hold health stocks

3 reasons to consider an ETF for cheap market access

2015-16 Budget breakdown

3 ways to keep your money safe online

3 reasons to build a cash buffer

Where to park your cash for the best rates

3 kinds of home loans you need to know about

Are you younger than 45? You could be ready for an SMSF

3 reasons to buy shares

3 reasons why anyone can DIY (and save thousands)

3 reasons women should give a damn about super

Income management – what is it and does it work?

3 reasons to live where you love and buy where you can afford

What makes Domino’s Pizza CEO Don Meij tick?

Guess who's better with credit cards?

3 ways to future-proof yourself

Will you live to 100?

RBA is irresponsibly crazy

7 important lessons from a leadership lunch

Petrol stations get the message on price

What’s the pay gap that Patricia Arquette is talking about?

3 ways to find money for nothing

Share market to break 6,000

3 super reasons to consolidate your super

3 reasons why you don’t need frequent flyer points

4 ways to avoid a payday loan

4 good ways to get travel money

4 money mind games that could save you hundreds

4 New Year finance resolutions

Get out of mortgage debt

Beat the credit card

Sort the super

Protect your home

3 reasons to check your credit report