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Unlocking the mysteries of your super statement

Superannuation statements. Boring, right? But if, like many people, you toss your annual super statement in a drawer or hit delete, you could be depriving yourself of many thousands of dollars just when you need it.

So, it’s worth the small effort to take a closer look at your superannuation statement. A quick check of your statement may reveal some of the common problems that occur with super; and the sooner these are fixed the quicker your savings can increase.

What to look for

The layouts of statements vary between super funds, but there is standard information that must be provided. Some items may appear in summary form, with a detailed breakdown shown elsewhere. Here are the key things to look for:

  • Contributions or funds in
    This will cover employer and personal contributions, government contributions and rebates, plus any rollovers. If you’re an employee earning more than $450 per month, your employer should be paying 10% of your ordinary time earnings to your super fund. Payments can be made either quarterly or monthly.

  • Funds out
    Most commonly this comprises administration and investment management fees, and any insurance premiums. Excessive fees can place a real drag on the performance of your savings, so check that they are competitive with other funds.

  • Investment earnings
    This covers interest and share dividends, along with any capital growth in the value of your investments. Be aware that depending on your specific investment mix and the performance of markets, this figure may sometimes be negative.

  • Insurance cover
    Your super fund may provide death and/or disability insurance. If so, check that it is appropriate and adequate for your needs. Maybe you are paying for insurance cover you don’t need or are inadequately insured.

  • Investment options
    This will show what your money is invested in, and in many cases the performance of each investment. Your investment choices will be one of the main influences on the ultimate value of your retirement savings. Professional advice in this area is strongly recommended.

Other things to check

  • Have you provided your tax file number?
    If not, the fund will be deducting too much tax from your contributions and earnings.

  • Have you made a binding death benefit nomination?
    This allows you to choose, within applicable rules, who your superannuation is paid to upon your death.

  • Is your name and address up to date? Is it possible you have ‘lost super’?
    This occurs when a super fund can no longer contact you. The Australian Tax Office can help you find lost super. Start here https://www.ato.gov.au/forms/searching-for-lost-super/

  • More than one statement?
    Ideally, you should consolidate all your superannuation into one fund. This will avoid duplication of fees and insurance premiums and make your super much easier to manage.

Invaluable advice

Super is one area in life where professional advice can really pay off. If you need help with understanding investment options, consolidating multiple super funds, finding lost super, or ensuring you have the right insurance cover, talk to your financial adviser. The sooner you do, the sooner you’ll be on track to growing your super pot of gold.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Building financial resilience

Resilience is the ability to quickly recover from setbacks, and while setbacks can come in many forms most of them will have a financial component. So what can you do to build financial resilience?

Expect the unexpected

Rarely do we get advance warning that something bad is about to happen to us, so the time to develop your resilience strategy is now. And while we don’t know the specifics, we can anticipate events that would throw our finances into disarray. A house burning down or a car being stolen. Not being able to work due to illness or injury. The death of a breadwinner or caregiver.

With some idea of the type of threat we face we may be able to insure against some of them. If you have taken out any type of insurance policy you’ve already made a start on your resilience plan.

Create buffers

You can’t insure against every possibility, but you can build financial buffers. This might simply be a savings account that you earmark as your emergency fund that you contribute to each payday. If your home loan offers a redraw facility you can also create a buffer by getting ahead on your mortgage repayments.

Buffers can be particularly important for retirees drawing a pension from their super fund. Redeeming growth assets for cash in order to make pension payments during a market downturn can lead to a depletion of capital and reduction in how long the money will last. By maintaining a cash buffer of, say, two year’s worth of pension payments, redemptions of growth assets can be deferred, giving time for the market to recover.

Cut costs

The Internet abounds with tips on how to cut costs and save money. In difficult economic times cost cutting can help you maintain your financial buffers and important insurances. Key to cost cutting is tracking your income and expenditure and yes, that means doing a budget. Find the right budgeting app for you and this chore could actually be fun.

Invest in quality

There are many companies out there that have long track records of consistently pumping out profits and dividends. They may not be as exciting (i.e. volatile) as the latest techno fad stocks but when markets get the jitters these blue chip companies are more likely to maintain their value than the newcomers. This is important. The more volatile a portfolio the more likely an investor is to sell down into a declining market. This turns paper losses into real ones, depriving the investor the opportunity to ride the market back up again.

The other key tool in creating resilient portfolios is diversification. Buying a range of investments both within and across the major asset classes is a fundamental strategy for managing portfolio volatility.

With a well-diversified portfolio of quality assets there is less need to regularly buy and sell individual investments. Unnecessary trading can create ‘tax drag’ where the realisation of even a marginal capital gain triggers a capital gains tax event and consequent reduction in portfolio value.

Take advice

Building financial resilience can be a complicated process requiring an understanding of a range of issues that need to be balanced against one another and prioritised. Your financial planner is ideally placed to assist you in developing your own, personalised plan for financial resilience.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

6 steps to a sustainable Christmas

Just as the Grinch stole Christmas, excess spending can rob us all of yuletide happiness. Seasonal credit card splurges can create ballooning long term debt, while unnecessary consumption inevitably leads to a blow-out in rubbish bin waste.

The Commonwealth Bank of Australia estimates $11 billion is spent on presents each year, including some 20 million unwanted gifts. At the same time, seasonal celebrations boost landfill rubbish by a massive 30 per cent.

So, if you want to max out the ho, ho, ho in Christmas this year, think of applying more whoa, whoa, whoa to your spending and consumption ideas. Here are six simple tips Ebenezer Scrooge would be proud of:

  1. Ninety per cent of Australians claim to recycle something, sometimes. What better way to do this than to shop for presents in one of Australia’s 2,500 opportunity shops? Forget the old days of chipped crockery and stained used clothing. Op shops are full of trendy, mint condition items and are the perfect place to find something slightly offbeat or unusual for your loved one.

  2. Save on postage and reduce needless paper usage by sending clever and original e-Christmas cards. Head online to create your seasonal messages to email to friends and family. Many websites provide free cards, while others offer designer animated versions.

  3. Instead of giving a physical gift, give an experience such as tickets to a concert or a voucher to use at a favourite restaurant. Better still, why not gift something special of yourself by offering to cook a meal or provide free babysitting for a family member. Giving an experience rather than a physical gift also means you don’t need to waste precious paper by wrapping the present or spend money on postage getting it to that special someone.

  4. If you do give a physical present, think of some clever ways to wrap it, so you’re not adding to the 150,000 km of wrapping paper Australians needlessly use each year – that’s enough paper to circle the equator 4 times. Wrap your gift in a re-usable patterned tea towel or scarf, or better still, invest in some brightly patterned boxes to hold your present that can be recycled from one Christmas to the next.

  5. Stop for a moment and look around your home to see what you can re-use and turn into a gift. A great place to start is the garden. Many plants can be easily divided and, in doing so, will create new plants you can pot up in a re-usable pot to give away.

  6. Take time to plan your meals this season and, wherever possible, cut down on buying heavily packaged or processed foods. Instead, buy fresh foods that can be eaten without much cooking, re-used as leftovers, or frozen for later consumption. It’s estimated that ninety per cent of Australians discard some 25 per cent of all the food they buy during December – that’s food that has been needlessly produced only to end up in Australia’s landfills.

What really matters is remembering how blessed we are to be enjoying the festive season in whatever way we can and being with the people we care about most.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

concentration risk

Investing: How to reduce concentration risk

Concentration risk. No, it’s nothing to do with thinking too hard about something. In fact, it’s more likely to be a result of not paying enough attention.

Concentration risk is the increase in investment risk that comes about from not sufficiently diversifying your portfolio. In other words, too much money is concentrated in too few assets, sectors or geographical markets.

This can happen:

  • Intentionally, because you have a strong belief that a particular share or sector, such as resources, banks or property, is likely to outperform in the future.
  • Unintentionally, through asset performance. One or two shares deliver spectacular gains, making the entire portfolio more sensitive to moves in just a couple of assets. Or maybe shares as a whole enjoy a period of strong growth. Even though you hold a large number of different shares, the increased exposure to one asset class increases the risk to your portfolio.
  • Accidentally, through poor asset selection. As at December 2020, nine of the ten top companies that make up the MSCI World Index also appear on the top ten list of the main US index, the S&P 500. Investing in two funds, one that tracks the world market and one that tracks the US market won’t deliver the level of diversification you might expect.

Managing your risk

The solution to concentration risk is our old friend, diversification.

  • Appreciate the importance of asset allocation, the art of spreading your money across the main asset classes of shares, property, fixed interest and cash. Ensure your asset allocation matches your tolerance to investment risk.
  • Diversify within each asset class. Holding the big four banks is not a diversified share portfolio. If property is your thing, buying four one-bedroom apartments in the same building, or even in the same area, creates a huge concentration risk.
  • Understand each investment and its role in your portfolio. Does share fund A hold similar shares as share fund B? Do they both have the same strategy?
  • Get a professional opinion. Even if you are confident in making your own investment decisions it’s wise to run them by a licensed adviser.

It’s surprisingly common for investors to develop an emotional attachment to particular shares or properties they own. Concentration risk can also increase over time due to lack of attention. Your financial planner will assess your portfolio for hidden concentration risk and help you achieve a better balance of investments.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

economic update australia coronavirus

Economic Update: July-September 2021

COVID here to stay

The third quarter of the calendar year brought with it the third and by far the biggest wave in COVID-19 infections. Largely restricted to NSW and Victoria the outbreak was driven by the highly infectious Delta variant. Such was its speed of spread it forced a change in strategy from one of elimination to learning to live with the virus, supported by a massive vaccination campaign. By quarter’s end vaccination rates were closing in on key targets that will allow a slow and selective lifting of the severe lockdown conditions that have prevailed for months.

Time to chill

You know Australia has a housing problem when the head of one of the big banks, in this case Matt Comyn at CBA, calls for action “sooner rather than later” to stop the property market overheating. This was on the back of CoreLogic data showing house prices in Melbourne and Sydney rose 15.6% and 26% respectively over the 12 months to August. The International Monetary Fund (IMF) also called on Australian regulators to cool the market. Don’t expect this to happen through the usual instrument of increased interest rates. Rather, look for reduced lending in specific sectors, such as investors, higher deposit requirements, or testing loan serviceability at higher interest rates.

Pop goes iron ore

Iron ore’s price bubble eventually popped as China instructed its steelmakers to cut back on production. Over the quarter the ore price fell 45%, with major miners taking an equivalent hit. BHP, Rio and Fortescue saw their shares tumble 33%, 26% and 44% respectively.

Hot topic

In August the Intergovernmental Panel on Climate Change (IPCC) released its latest report. It warned that “unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to 1.5°C or even 2°C will be beyond reach”. The report paints a grim picture of what that warmer world will look like and returned climate change to the front pages of the world’s newspapers.

The numbers

Equity markets experienced a bit of a rollercoaster ride over the quarter. All the major indices posted record highs, but most ended up within 1% of where they started.

The Aussie dollar also had a volatile quarter, trading between 71 and 75.4 US cents and finishing at 72 cents. It was a similar story against the other major currencies.

In both cases the late-quarter sell-offs were blamed on expectations of higher US interest rates.

On the radar

Many of the world’s leaders will come together in Glasgow at the end of October for the 26th UN Climate Change Conference (COP26). If they heed the warning from the IPCC, and if they agree to take the necessary steps to limit warming to 2°C (and preferably 1.5°C), it will set the scene for a dramatic economic transformation, with huge opportunities for those who can sort the winners from the losers.

Of more immediate concern, Chinese property company China Evergrande appears to be on the brink of collapse. Heavily indebted to the tune of US$300 billion, if it is allowed to fail it is likely to have global ramifications, not the least for Australia. China’s construction boom has been a huge driver of demand for our iron ore.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

who gets your superannuation

Who gets your super?

Who decides what happens to your superannuation savings when you die?

You may think that you do, but that isn’t always the case. The ultimate decision may be made by someone you don’t even know – the trustee of your superannuation fund. Let’s look at how you can have greater control.

Binding death benefit nominations

The most certain way to direct payment of your superannuation death benefit is by making a binding death benefit nomination. The nominated beneficiaries must be ’dependants’ – a spouse, de facto spouse, child or financial dependant – or a legal personal representative (i.e. the executor or administrator of a deceased estate.)

If the nomination has been properly signed and witnessed, and is still current at the date of death, then the trustees of the superannuation fund must pay the death benefit to the nominated beneficiaries.

Unlike Wills, valid binding superannuation nominations are unlikely to be overturned by a court, so they provide great certainty. It is up to the trustees of each superannuation fund to decide whether or not to allow binding nominations, so they aren’t available to everyone.

Although some funds offer non-lapsing binding death benefit nominations, most are only valid for three years, so it’s important to check yours and ensure it remains up-to-date.

Trustee’s discretion

The trustee is under a legal obligation to pay a death benefit to the member’s dependants, and in most cases, benefits will be paid in a way that is consistent with the wishes of the deceased member. However, it is possible the trustee may recognise a wider range of dependants than the member would have liked – including a separated spouse.

In some cases, the member’s preferred beneficiary may not meet the legal definition of a dependant. This may apply to parents. In the absence of any dependants and a legal personal representative, the trustee may exercise their discretion, and pay the benefit to a non-dependant.

While dependants receive lump-sum death benefits tax free, the rate of tax payable by non-dependants can vary from nil to 30% depending on the components of the superannuation payment.

Superannuation pensions

The situation is a little different if the member has already retired and is drawing a superannuation pension. With pensions, it is common to nominate a surviving spouse as a reversionary beneficiary. This means the pension payments will continue to be paid to the nominee, either until their death, or until the funds run out. If the reversionary beneficiary dies, any remaining balance is then paid out as a lump sum death benefit according to the type of nomination they have made.

Good advice required

Increasing levels of wealth being held via superannuation and the nomination of beneficiaries should be made in the context of a comprehensive estate plan. This includes taking into account the way superannuation death benefits are taxed when paid to different types of beneficiaries. We can help you make the right decision.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

personal insurance

DIY insurance – is it right for you?

Research shows that Australians are underinsured which has led to the proliferation of television advertisements promoting personal insurance cover. Are these quick and easy plans suitable for your family?

Research undertaken by Rice Warner in 2017 revealed that on average Australians had Life and Income Protection insurance meeting only 61% and 16% of their needs respectively. Cover for Total and Permanent Disability was as little as 13% of people’s needs.

The cause may be attributed to peoples’ uncertainties surrounding medical examinations, probing application forms, costly plans and persistent salespeople.

Companies advertising on television attempt to eliminate some of these fears and often advertise products where:

  • cover will generally be accepted without a medical examination,
  • policies are easily arranged on-line or via a single telephone call, and
  • premiums are competitive.

For some people, these plans offer a practical solution; particularly older people, perhaps without dependents, who no longer have large financial commitments.

But if you have dependent children, a mortgage and other monetary obligations, and you wish to plan ahead for your family’s financial future, would a do-it-yourself product suit your needs?

Ask yourself the following questions:

  • How can I know how much insurance I really need?
  • How do I ensure my family won’t be financially worse off after an insurable event?
  • Would the family home need to be sold if the household income was reduced?
  • How do I ensure my children can afford the right education to start them off in life?
  • What if I became sick or injured and was unable to work for a significant period?

If these issues concern you then it’s likely that you need a more tailored risk management plan.

Discussing your circumstances with your financial adviser will ensure that your particular needs and goals are addressed. And as your situation changes, for example, welcoming a new child, your adviser can review your plan and update it as necessary.

Most people recognise the importance of car or home insurance, but neglect to consider their lives or their ability to earn an income. Given this, off-the-shelf insurance products fulfill their purpose as it can be said that encouraging people to take out some insurance is better than having no insurance.

But if a risk management plan specific to your family’s future security is important to you, it might take more than a short phone call to arrange, while the peace of mind it brings will last a lot longer.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

First time investor

Mistakes new investors should avoid

You’re young, expecting a satisfying future brimming with friends, family and a comfortable lifestyle.

You’re a Next Generation Investor, likely aged between 18 and 25, and you’re starting to think about financial security.

According to an Australian Stock Exchange study, nearly a quarter of all investors over the past two years were Next Generation Investors. Additionally, some 27% of surveyed people under age 25 intend to invest over the next year.

The excitement of embarking on a journey toward financial freedom is common, as is confusion, after all, in the rush of enthusiasm, how can you ensure you get the decisions made for the future, right today? What are the rookie mistakes to watch out for? Here are a few that can be easily avoided.

Not clearing debt first

Loans and credit cards have a knack for eating away income. It is recommended that you clear as much debt as possible before committing to serious investments. Track your spending to spot potential savings, then channel that cash towards your debts. Every little bit helps.

No strategy

Desire to build wealth through investment is not a strategy. The end game determines which investments will be most suitable. Consider how you feel about risk and whether you’ll need access to your money. Successful investment strategies are planned.

If it feels overwhelming, seek professional advice to help you build your strategy. You’ll be surprised at how inexpensive a financial adviser can be.

Not diversifying

Generally speaking, the higher the potential return, the higher the potential risk. Market-linked investments, like shares, can be big-earners, but you’ll have to ride economic ups-and-downs to get there – sometimes for ten years or more.

If this worries you, consider lower-risk investments. Conservative in nature, their returns are generally lower.

Decide how much risk you’re comfortable with. You may be better off minimising exposure to high-risk assets by diversifying your portfolio with a variety of investment types.

Trying to predict the market

Investment markets are notoriously unpredictable. Buying shares at the wrong time can mean you pay more than you should, similarly, selling at the wrong time can result in losses.

Short-term buying and selling might seem exciting, but it’s a fast-track to losing money. The way around this is, research, diversification and being prepared to stay the distance.

Review

No investment is a set-and-forget scheme. Always keep track of your savings and your ongoing investment plan, ensuring that it continues to align with your goals, particularly as they change over time.

A new car may be your priority today but fast-forward a couple of years and perhaps marriage and children are your priorities.

As your goals change, so must your investment strategy.

A few other things…

Fees and taxes are unavoidable and various investments attract different expenses and tax structures. Find out what you’re up for before making financial decisions.

Feeling lost? The Australian Stock Exchange offers free online courses and the Government’s MoneySmart website has a free info Starter Pack to get you underway.

Of course, nothing beats professional advice tailored to your needs. The Financial Planning Association of Australia will put you in touch with a qualified adviser suitable for you.

Strategic investing sets you up financially and helps create a savings habit for life. Your financial future begins today.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Insurances

Personal Insurance FAQs

Personal insurances are designed to provide protection from the financial consequences of death or disability. They therefore form an important part of most financial plans. Here, in brief, is how they work.

What are the different types of personal insurance?

Life insurance. This pays a lump sum benefit if you die.

Total and permanent disability insurance (TPD): This pays a lump sum benefit if you meet the definition of being totally and permanently disabled. It is often bundled with life insurance.

Trauma insurance: Also referred to as recovery insurance, trauma insurance pays a lump sum benefit if you are diagnosed with or suffer from one of the specified illnesses, such as cancer, heart attack or stroke.

Income protection insurance: If you are unable to work due to illness or injury, income protection insurance will pay you a regular income, usually capped at 75% of your pre-illness income. You can select the waiting period before benefits become payable, and the length of the benefit period.

How much life insurance should I have?

For life and TPD cover, one rule of thumb is to work out how much is needed to pay off debts and provide for current and future family living expenses. Subtract from this total the value of current investments, including superannuation, to arrive at an approximate value of the insurance cover you require.

Of course, individual circumstances vary widely. Your financial adviser will be able to help you assess your needs and resources and perform the relevant calculations for you.

How often should I review my cover?

Your personal insurances should be reviewed whenever there is a major change in your personal situation. Key events to look out for include:

• Taking out a home loan
• Getting married or setting up house with someone
• Starting a family
• Receiving an inheritance
• Retirement

Generally, as savings increase and debts decrease, the level of cover required reduces over time, but again, much depends on your individual situation.

How do I understand my insurance contract?

It’s important to understand what is and isn’t covered by your insurance. This will be detailed in the Product Disclosure Statement, so it’s important to read and understand this. If you are unsure about anything, ask your adviser for an explanation.

How do I choose the best insurance?

While pure life insurance is pretty straightforward, the other personal insurances may differ significantly from policy to policy. Definitions of diseases may vary. There may be a range of optional extras – some valuable, others more of a gimmick. With TPD insurance, you may have the choice of ‘own occupation’ or ‘any occupation’. Insurance companies vary in the speed with which they process claims, and beyond that is the question of which insurances should be held via a superannuation fund and which should be held directly.

All this complexity means that selecting the best insurance cover is best done with the help of an experienced financial planner.

More than one third of Australian families have no life insurance cover. Many more are under-insured, even though the financial impact of not being adequately insured can be severe.

Put your mind at rest. If you have any concerns about the level of protection provided by your current personal insurance policies talk to us today.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update: April-June 2021

Employment surprise

JobKeeper was a cornerstone of Australia’s response to the coronavirus pandemic. It provided millions of Australians with an ongoing income and kept thousands of businesses afloat, so when it came to an end in March expectations were that there would be a sharp spike in unemployment. One estimate was that 150,000 workers would lose their jobs.

Happily, that wasn’t what happened. From March to April the unemployment rate dropped from 5.7% to 5.5%, then fell to just 5.1% in May. That’s below the 5.2% that applied in January 2020 before the pandemic hit, and an amazing outcome given the damage that COVID-19 continues to inflict on a virus-weary world.

Housing continued to sizzle…

Aspiring homeowners and upsizers endured another quarter of woe as home prices continued to soar. Nationally, dwelling prices were up 6.1% for the quarter and 13.5% for the year, with houses outperforming units. Of course, on the other side of the equation are homeowners, many of whom are delighted by the significant boost to their wealth.

Continuing low interest rates remain the key driver, but other issues have played a part, including stamp duty discounts and households redirecting the cash they would otherwise have spent on overseas holidays. Lockdowns last year also affected the normal supply of property leading to pent-up demand. As subsidies are rolled back, supply and demand normalise and if population growth remains low, property price growth may well come back to ‘normal’ levels.

And despite the RBA not expecting to raise interest rates until at least 2024, some economists are pointing to the low unemployment figures to predict that interest rates may begin to rise by the end of 2022. There is also growing speculation that the RBA and APRA will lift lending standards (e.g. requiring lower loan to valuation ratios) in order to rein in galloping price growth.

…as did share markets

Global markets performed strongly over the quarter with many setting record highs. Locally the S&P/ASX200 rose 7.7%, beating the MSCI All-Country World Equity Index, which was up 6.9%. Tech shares were back in the lead with the NASDAQ gaining 11.2%, while the S&P500 rose steadily to gain 8.6%.

The Aussie dollar fell slightly against the major currencies weakening late in the quarter following talk that the next move in US interest rates may be up.

Also…

  • – Workers receiving the minimum wage will see a boost to their pay packets from July, with the minimum wage rising by 2.5% to $772.60 per week or $20.33 per hour.

  • – Most people will see the superannuation guarantee (SG) payment from their employers rise by 0.5% to 10% of normal wages. This is one step on the path to raising the SG to 12% by 2025.

  • – According to Credit Suisse, nearly one in ten Australians are now millionaires. Twenty years ago the figure was less than 1%. Of course a million dollars today doesn’t have the buying power it did 20 years ago, but only Switzerland has more millionaires per capita than we do.

  • – Massive infrastructure projects and home renovation booms have caused a global shortage of building materials. An indicator, perhaps, that some COVID-19 stimulus measures have been a tad overdone?

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Tap and Go payment

When was the last time you paid cash?

Prior to COVID, we were steadily moving towards a cashless world. Post 2020, even the most resilient of us has made the leap to tap-and-go payments sooner than we expected.

From the morning coffee to filling up the petrol tank, we wave that plastic with little thought to the impact on our account balances.

In fairness to us, many retailers are now adopting the ‘no-cash please’ trading regime, but we Australians have a reputation for embracing technology and touchless shopping is no exception.

According to the Organisation for Economic Co-operation and Development (OECD), Australian household debt is currently sitting at around 210% of net disposable income. That places us fifth in the world, behind Denmark (257%), Norway (240%), Netherlands (236%) and Switzerland (223%).

Compared with countries with spending habits similar to our own – the USA with (105%) and the UK (142%) – we’re quite high.

If your debt level is pushing northwards of your preferred limit, here are a few ideas for getting, and staying, on track:

  1. – Pay your full card balance off every month
    Sure, it’s an oldie but a goodie. You know what you need to do; if your current balance is too high, pay more than the minimum amount. The first step in breaking the credit cycle is to get off it, which leads into our next point:

  2. – Create a realistic budget
    This will identify where your money is going and how much extra you can pay off your credit cards. The government’s Moneysmart website has a free budget planner to help you. Alternatively, chat with your financial planner and work with them to develop a payment strategy to get your debts under control, and stay that way.

  3. – Keep your tap-and-go receipts and reconcile them against your account each week
    This is one of the best ways to see exactly how much you’re shelling out, and on what. You’ll identify areas of unnecessary spending, and you’ll spot any errors or dodgy transactions.

  4. – Instead of a credit card for your touchless transactions, consider using a pre-paid card
    Available from banks and other financial institutions – even Australia Post offers one – you load it with your own money and use it for in-person or online shopping. It’s just like a credit card but without the risk of getting into debt.

  5. – Consider your subscriptions
    You know, streaming services, magazines and memberships, etc. Many renew automatically and the first you’ll know about it is an unexpected – often expensive – transaction on your card. Do a stocktake to see what subscriptions you have and decide if you really need them. For those you no longer need, change your subscription settings so they don’t automatically renew. Don’t worry, they’ll alert you when the renewal is due in case you change your mind!


We’re definitely living in an interesting time. Our lives have altered in ways we’d never have imagined and we Australians, in our typical way, are adapting to these ‘new-norms’.

This is a good thing, just as long as we stay in control!

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

EOFY is coming – Have you thought about …

The end of another financial year is looming, and with that may come thoughts about your tax return and how your wealth has tracked throughout the year. Whether you’re nearing retirement, a high-income earner looking to reduce your taxable income, or you’re on a lower income and looking for ways to maximise your super contributions; there are a few things you can consider at tax time.

Nearing retirement? Maximise your super contributions

If you’re nearing retirement, putting as much money into your superannuation account now is a good way to make sure you build up a healthy nest egg to live off in your golden years. To maximise your super contributions, consider salary sacrificing to put more money into your super account.

Salary sacrificed super payments take money out of your pre-tax income. These are called concessional contributions and are taxed at 15%. This rate is lower than most taxpayers’ marginal tax rates, so it can be an excellent way to reduce your taxable income while increasing your superannuation savings. The maximum employer and salary sacrificed contributions that can be made each financial year is $25,000. And remember, if you’re self-employed, your concessional contributions are a tax deduction.

Non-concessional contributions of up to $100,000 can also be made each financial year. These contributions come from your after-tax income.

Consider a one-off contribution to lower your income tax

Let’s say you’re on an income of $170,000. If you haven’t opted to salary sacrifice, your employer contributions to super will be $14,748.86 in the financial year. Therefore, your taxable income will be $155,251.14. To lower your taxable income, you could make a one-off concessional contribution of $10,000. This will reduce your taxable income and still come in under the concessional contribution cap of $25,000.

Are you eligible for the Government co-contributions to super?

If you earn less than $54,837 per year (20/21 financial year) before tax, you could be eligible for the Government’s co-contribution on after-tax super contributions. Those who earn under the threshold can make an after-tax contribution, and the Government will calculate your co-contribution amount when you submit your tax return. The co-contribution will be deposited directly to your superannuation account.

Review your records now

Now is the time to check you’ve been keeping good records. Have you got a record of relevant receipts and policy statements for items such as income protection policies you have outside superannuation?

Understanding the paperwork you require now to maximise your deductions will save you time when it comes to completing your tax return. If you haven’t got all of your records organised, review your spending throughout the year, identify transactions that may be a tax deduction, and put aside those receipts for tax time.

Looking for more help?

If you’re looking to maximise your tax return and get ready for a successful financial year ahead, talk to a financial adviser about your options. It doesn’t matter your circumstances; there are options available to help you boost your super savings and get the best tax return possible.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Investment adviser giving advice

What does a good financial adviser do?

Some people may think that a financial adviser’s role is to forecast the direction of the share market from month to month and invest clients’ money accordingly.

This is not the reality, of course. Investments are only one small part of what your financial adviser can provide for you.

Consider for a moment the number of websites, newsprint and broadcast time dedicated to financial topics these days. Australians seem to have an insatiable appetite for understanding finance.

Whether it’s the latest share market activity, economic news or the constantly changing tax and superannuation rules, a licenced financial adviser can help answer your burning questions and save you the hassle of finding it yourself.

Usually, the benefit you receive from a financial adviser can be spelt out in dollar terms. It might be the income tax you have saved by re-structuring your salary, or a new concession from the Australian Tax Office (ATO) or Centrelink that you didn’t know you could get.

The finance section of your newspaper or online magazine probably includes a regular “advice” or “Q & A” column. By law, these columns must warn readers that the advice does not consider your personal situation or needs, and you should consider its appropriateness before acting.

In setting your financial strategy, a good financial adviser will take the time to get to know you and your circumstances. This means that everything recommended to you—the investment portfolio, super contribution strategies, savings plans and insurance advice—is tailored to your personal needs, goals, and tolerance to risk.

As the years go by, your financial strategies will need adjusting due to changes in the broader environment or something closer to home. Whatever the case, your adviser is there to help you make the most of the good times and the bad.

And a regular financial review doesn’t always mean major changes, but at least you’ll know that you’re on the right track – and not having to do it alone.

Quality, knowledgeable advice is critical, and wherever you are on your financial path, now is always the best time to talk to us.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Early retirement

Can you afford to retire early?

Many Australians caught in the nine-to-five grind of working for a living, dream of the possibility of taking early retirement and spending their days travelling or playing golf or doing nothing much at all. There’s even a name for it these days. The Financial Independence, Retire Early (FIRE) movement is prompting more and more young Australians to question exactly what it takes to retire early.

Yet, without winning Tattslotto or suddenly inheriting a fortune from a long, lost relative, how possible is it to structure your finances so you never have to work again?

According to the Australian Bureau of Statistics, the average Australian retirement age is just 55.4 years, which makes it seem that early retirement is somewhat the norm for Australians. However, this number is dragged down by partners who stop work while their spouses support them financially, and people forced into early retirement by redundancy or medical issues.

So, how plausible is it to stop working sooner rather than later?

The answer depends on the type of retirement you dream of, where you are hoping to live, and whether you have children or other dependents you need to support. It’s also more achievable if you can structure your life so you are still earning at least some money, albeit from a hobby or something you love doing and would do anyway.

The Association of Superannuation Funds of Australia (ASFA) suggests a couple requires $62,000 a year ($640,000 in savings), in addition to owning their own home, to live a comfortable retirement in Australia.

That’s a number that can seem unachievable.

Yet many people are eager to retire overseas to a country like Indonesia, where living expenses can be a fraction of what they are at home and enjoy a high quality lifestyle for $300 a week ($15,600 a year), requiring invested savings of as little as $300,000. Others have spent years travelling the world on a strict travel budget of $100 a day, which puts them in a great position to only require $36,000 a year, or $600,000 in invested savings.

Against this, industry analysts estimate that for an individual to be truly financially independent, they need to be earning $50,000 a year from invested funds, in addition to owning their own home, requiring millions in retirement savings.

The key, however, to decide whether you can retire early depends on just how determined you are to achieve it. You need to think through your lifestyle requirements and determine if you need a simple caravan and campsite, or whether you require a five-bedroom home in leafy suburbia. You’ll also need to ensure your retirement savings are invested in quality assets that will continue to generate a strong, consistent level of income, as well as capital growth. A good financial adviser can help you with this.

A good tip is to keep your options open and your skills up to date, in case you have a change of heart and decide you do want to go back into the office, even if only on a part time basis. In fact, you might be better off taking what is increasingly referred to as a mature age ‘Gap Year’ and try out what it’s like living overseas or spending all day on the beach before you quit your job.

While being permanently retired and free to live each day as you choose does sound wonderful, remember to still ensure you have purpose in life. Happy early retirement dreaming!

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Working from home

Working from home? How to boost your next tax return

With the range of technology and software available today, it’s become easier than ever to work from home. Employees can efficiently complete calls using teleconferencing software, many collaboration tools are now cloud-based, and work devices, including laptops and tablets, are light and portable.

If you’ve been working from home, you’ve likely also set up a dedicated work area, and you’re using your own electricity and resources to power your workday. But which of these items can you claim in your next tax return to ensure you maximise your return?

How many Australians work from home?

Working remotely has become more common as companies began providing the technology to enable employees to work from anywhere. Research from Roy Morgan found that in early-2020, at the height of the COVID-19 pandemic shut down, 32 per cent of Australian workers were working from home. This equates to over 4.3 million people.

It’s easier for employees in certain industries to work from home, such as finance and insurance, public administration and defence, and communications. In contrast, more “hands-on” industries such as retail, manufacturing, transport and storage and agriculture still require staff to be present in-store.

Tax deductions available if you work from home

Home office expenses you may be able to claim include:

  • – electricity;
  • – cleaning costs for your dedicated work area;
  • – phone and internet expenses;
  • – computer consumables – such as printer paper and ink cartridges;
  • – stationery; and
  • – home office equipment – including computers, printers, phones, furniture, and furnishings.

The Australian Taxation Office (ATO) provides a complete list of the available deductions and how to calculate each on its website.

How to calculate your home office expenses

There are three methods employees can use to calculate their home office expenses:

  • – Shortcut method: 80 cents per work hour – only available from 1 March 2020 to 30 June 2021
  • – Fixed-rate method: 52 cents per work hour
  • – Actual cost method

Be careful with home office expenses

If you include home office expenses in your next tax return, ensure you calculate and apply your deductions correctly. For example, you can claim the full cost of home office equipment up to $300, but you need to claim the decline in value (depreciation) for any items that cost over $300.

Regardless of the method you use to calculate your expenses, you will need to have records. You’ll need to keep receipts for any purchases you’ve made and a record of relevant utilities and bills. You’ll also need to keep a timesheet, roster or diary that shows the hours you’ve worked from home.

If you can, keep your relevant records and receipts aside and updated throughout the year to save yourself a significant administrative workload at tax time.

Have a professional prepare your tax return to maximise your refund

With the range of deductions that may be available to you, plus the different calculation methods for home office expenses, having a registered tax professional prepare your tax return can be worth the investment. Quite often, your maximised refund will more than cover the cost of having a professional prepare your return.

If you’re unsure about the home office deductions you’re entitled to, contact an accountant or qualified financial professional for advice.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Six super hacks to retire richer

Six super hacks to retire richer

While it’s easy to be discouraged by superannuation and fear you will never have enough money saved to stop working, remember even a modest superannuation balance can make a big difference in retirement. For every $100,000 saved in superannuation, you can expect these funds to generate a return of 6%, or $6,000, a year. When this is paid out as a pension, it equates to $500 a month tax-free. Of course, this is doubled if both you and your partner have $100,000 each in super. Depending on your overall financial situation, this can be paid in addition to you receiving a full age pension.

Here are six super hacks to help you maximise your super balance:

Hack 1. Consolidate your accounts

Consolidate all your superannuation accounts into one account best suited to your needs. The Australian Tax Office says some 6 million Australians have multiple super accounts, wasting millions of dollars in duplicated charges. These unnecessary fees will needlessly erode your super balance. Consolidating multiple accounts is easy. Simply log on to the ATO’s website and with one click, choose one account to accept all your funds. This alone could save you thousands of dollars.

Hack 2. Review your super contributions

Check your employer is contributing the right amount to superannuation from your wages each week. If you believe there is a shortfall, contact the ATO to investigate on your behalf.

Hack 3. Take advantage of co-contributions

If you earn less than $52,697 a year, consider making additional after-tax super contributions to take advantage of a matching contribution from the government, called a co-contribution. Under this scheme, you can contribute up to $1,000 of after-tax money and receive a maximum co-contribution of $500. This is a 50 % return on your investment. The government will determine how much you are entitled to when you lodge your tax return, and if you are eligible, the government will then pay the co-contribution directly to your fund. You don’t need to do anything more than make the original contribution from after-tax savings.

Hack 4. Benefit from spouse contributions

Review whether you can benefit from making additional contributions to your partner’s super. If you do make contributions to your partner’s super and they are on a low income or not working, you may be able to claim a tax offset of up to $540 a year.

Hack 5. Contribute any long-term savings to super

There are rules concerning how much you can contribute to super, and when, but any savings put into superannuation will be held within a tax benign environment. While your fund is in accumulation mode, these assets’ income and capital growth are taxed at 15%, rather than your marginal tax rate. Once you start receiving an income stream, these assets are held within a tax-free environment, making your superannuation your own personal tax haven.

Hack 6. Seek professional guidance

Of course, there are a raft of rules around superannuation that you must be aware of. To maximise your retirement nest egg, be sure to seek expert advice from a financial adviser or qualified accountant. While it is never too early to start making additional contributions to super, it is also never too late. Even small steps towards the end of your working life can and will make a difference to the way you live in retirement. Contact us today to get started.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic News

Quarterly Economic Update: January-March 2021

The global COVID-19 jab-fest gathered pace with some countries, including Israel and the United Kingdom, achieving high rates of immunisation. However, the rollout has had some issues. Rare side effects linked to the AstraZeneca vaccine saw a number of countries suspend its use for a period of time, and Australia was slow off the mark with its immunisation rollout. The longer it takes to vaccinate the world, the slower the economic recovery.

Hot property

Pushing COVID-19 off the front pages was the big jump in residential property prices. Nationally, CoreLogic’s home value index jumped 5.8% for the quarter. Sydney led the jump with a 6.7% lift. In March alone the index rose 2.8%, the biggest rise in 32 years. Most of the action was on the first home and owner-occupiers front, though investor purchases were also up.

The main fuel being added to the property price fire is ongoing low interest rates. With the RBA indicating rates will most likely remain low for years, that could continue to inflate property values and see more people priced out of the market.

Helping to fuel the market was good employment numbers. Seasonally adjusted, the ABS reported an unemployment rate of 5.8% in February, down from 6.3% in January. However, this counts people on JobKeeper as employed. Taking this into account, Roy Morgan put unemployment at 13.2% in February, with 21% of the workforce either unemployed or under-employed.

Blocked artery

In late March the container ship Ever Given provided a graphic example of how small things can have a huge impact. Strong wind gusts saw the giant ship wedge itself bank to bank across the Suez Canal, one of the world’s main shipping arteries. Suddenly 30% of world container shipping ground to a halt. Fortunately, the ship was freed after a few days, and the backlog of ships was cleared a few days after that, but it was a stark reminder of how vulnerable large parts of the economy are.

Key numbers

The pace of recovery in the local and international share markets slowed during the quarter as prices crept close to or exceeded their pre-pandemic levels. The S&P/ASX200 rose 3.1%, trailing the MSCI All-Country World Equity Index, which was up 4.2%. Tech shares ran out of puff with the NASDAQ only gaining 1.4%, while the S&P500 surged late in the quarter to gain 6.1%.

The outlook

Many countries are experiencing third and fourth waves of COVID-19, and it’s a fair bet that the virus will continue to dictate the way we live for some time to come.

But it’s not the only game in town. US President Joe Biden has taken climate change off the back burner and moved it front and centre. That means our government and businesses will need to pay it a lot more attention too. Expect carbon tariffs to become a hot topic.

On the local front, with interest rates all but ruled out as a tool for managing the residential property boom, talk is turning to the use of regulatory methods to dampen demand. These could involve requiring bigger deposits or limiting the rate of credit growth.

And with JobKeeper now wound up employment figures will come under close scrutiny. Expect to see a jump in unemployment this current quarter.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

In your 60s

It’s not too late for super planning in your 60s

For most Australians, their 60s is the decade that marks retirement. For some this means a graceful slide into a fulfilling life of leisure, enjoying the fruits of a lifetime of hard work. However, for many it means a substantial drop in income and living standards. So how can you make the most of the last few years of work before taking that big step into retirement?

How are we tracking as a nation?

In 2015-2016, 50% of men aged 60-64 had super balances of less than $110,000. For women the figure was a more alarming $36,000 – not even enough to provide a single person with a ‘modest’ lifestyle.

Last minute lift

If your super is looking a little on the thin side there are a few ways to give it a boost before retirement.

– Make the most of your concessional contributions cap. Ask your employer if you can increase your employer contributions under a ‘salary sacrifice’ arrangement. Alternatively, you can claim a tax deduction for personal contributions you make. Total concessional contributions must not exceed $25,000 per year.

– Investigate the benefits of a ‘transition to retirement’ (TTR) income stream. This can be combined with a re-contribution strategy that, depending on your marginal tax rate, can give your retirement savings a significant boost.

– Review your investment strategy. A common view is that as we near retirement our investments should be shifted to the conservative end of the risk and return spectrum. However, in an age of low returns and longer life expectancies, some growth assets may be required to provide the returns that will be necessary to support a long and comfortable retirement.

– Make non-concessional contributions. If you have substantial funds outside of super it may be worthwhile transferring them into the concessionally taxed super environment. You can contribute up to $100,000 per year, or $300,000 within a three-year period. A work test applies if you are over 65.

– The 60s is often a time for home downsizing. This can free up some cash to help with retirement. The ‘downsizer contribution’ allows a couple to jointly contribute up to $600,000 to superannuation without it counting towards their non-concessional contributions caps.

Get it right

This important decade is when you will make the key decisions that will determine your quality of life in retirement. Those decisions are both numerous and complex.

Quality, knowledgeable advice is critical, and wherever you are on your path to retirement, now is always the best time to talk to your licensed financial adviser. Contact us today for a chat.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Super in your 50s 360x220

Push the super pedal down in your 50s

If 50 really is the new 40, then life has just begun. The kids are gaining independence or may have left home, and the mortgage could be a thing of the past. Bliss. But galloping towards you is… retirement!

Here are some ways to boost your retirement savings.

Increase your pre-tax contributions
You can ask your employer to reduce your take-home pay and make larger contributions to your super fund. If you are self-employed, you can increase your level of tax-deductible contributions. This strategy is commonly known as ‘salary sacrifice’.

If you are earning between $120,001 and $180,000 per year, any income between those limits is taxed at 39%. Salary sacrifice contributions to your superannuation fund are only taxed at 15%.

Sacrificing just $1,000 per month to super will, over the course of a year, see you better off by $2,880 on the tax differences alone. Plus, the earnings on those super contributions will be taxed at only 15%, compared to investment earnings outside of super being taxed at your marginal rate.

Don’t overdo it though. If your salary sacrifice plus superannuation guarantee contributions add up to more than $25,000 this year, the excess is added to your assessable income and taxed at your marginal tax rate.

Retiring slowly
Once you reach your preservation age you might start a ‘transition to retirement’ (TTR) pension from your superannuation fund. The idea is to allow people to reduce working hours without reducing their income.

Keep your money working
There is a tendency to opt for more secure, but lower-return investments as we approach retirement. However, even at retirement your investment horizon may still be decades. With cash and fixed interest producing some of their lowest returns in history, it may be beneficial to keep a significant portion of your portfolio invested in growth assets.

Insurance and death benefits
With the mortgage paid off or much diminished and a growing investment pool, your insurance needs have probably changed. This is a good time to review your insurance cover to ensure it continues to be a match for your changing circumstances.

It’s also a good idea to check the death benefit nomination with your super fund. By making a binding nomination you can ensure that your death benefit goes to the beneficiaries of your choice, and may mean they receive the money more quickly.

Get a plan!
Superannuation provides many opportunities for boosting your retirement wealth. However, it is a complex area and strategies that benefit some people may harm others. Good advice is absolutely essential, and the sooner you sit down with a licensed financial adviser, the better your chances of having more when you reach the finishing line. Contact us today to get started.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Super in your 40s

It’s time to get focused on super in your 40s

Typically your forties is a time of established careers, teenage kids and a mortgage that is no longer daunting. There are still plenty of demands on the budget, but by this age there’s a good chance there’s some spare cash that can be put to good use.

A beneficial sacrifice
At this age, a popular strategy for boosting retirement savings is ‘salary sacrifice’ in which you take a cut in take-home pay in exchange for additional pre-tax contributions to your super. If you are self-employed, you can increase your tax-deductible contributions, within the concessional limit, to gain the same benefit.

Salary sacrificing provides a double benefit. Not only are you adding more money to your retirement balance, these contributions and their earnings are taxed at only 15%. If you earn between $90,001 and $180,000 per year that money would otherwise be taxed at 39%. Sacrifice $1,000 per month over the course of a year and you’ll be $2,880 better off just from the tax benefits alone.

It’s important to remember that if combined salary sacrifice and superannuation guarantee contributions exceed $25,000 in a given year the amount above this limit will be added to your assessable income and taxed at your marginal tax rate.

What about the mortgage?
Paying the mortgage down quickly has long been a sound wealth-building strategy for many. Current low interest rates and the tax benefits of salary sacrifice, combined with a good long-term investment return, means that putting your money into super produces the better outcome in most cases.

One caveat – if you think you might need to access that money before retiring don’t put it into super. Pay down the mortgage and redraw should you need to.

Let the government contribute
Low-income earners can pick up an easy, government-sponsored, 50% return on their investment just by making an after-tax contribution to their super fund. If you can contribute $1,000 of your own money to super, you could receive up to $500 as a co-contribution.

Another strategy that may help some couples is contribution splitting. This is where a portion of one partner’s superannuation contributions are rolled over to the partner on a lower income. Your financial adviser will be able to help you decide if this strategy would benefit you.

Protect what you can’t afford to lose
With debts and dependants, adequate life insurance cover is crucial. Holding cover through superannuation may provide benefits such as lower premiums, a tax deduction to the super fund and reduced strain on cash flow. Make sure the sum insured is sufficient for your needs as default cover amounts are usually well short of what’s required.

Seek professional advice
The forties is an important decade for wealth creation with many things to consider, so talk to us and we’ll help you make sure the next 20 years are the best for your super.

 

This is general information only

Happy young family

Pay attention to super in your 30s

If you are in your 30s, chances are life revolves around children and a mortgage – not super. And as much as we love our kids, the fact is they cost quite a lot. As for the mortgage, this is the age during which repayments are generally at their highest, relative to income. And on top of that, one parent is often not working, or working only part time. Even if children aren’t a factor, career building is paramount during this decade.

Don’t be alarmed, but by the time a 35-year-old couple today reaches retirement age in 32 years’ time, the effects of inflation could mean that they will need an income of about $150,000 per year to enjoy a ‘comfortable’ retirement. To support that level of income for up to 30 years in retirement they will want to have built a combined nest egg of about $2.7 million!

If you are on a 30% or higher marginal tax rate, willing to stash some cash for the long term, and would like to reduce your tax bill, then consider making salary sacrifice (pre-tax) contributions to super. For most people super contributions and earnings are taxed at 15%, so savings will grow faster in super than outside it.

Even if you can’t make additional contributions right now there is one thing you can do to help achieve a comfortable retirement: ensure your super is invested in an appropriate portfolio. With decades to go until retirement, a portfolio with a higher proportion of shares, property and other growth assets is likely to out-perform one that is dominated by cash and fixed interest investments. But be mindful: the higher the return, the higher the associated risk.

For any young family, financial protection is crucial. The loss of or disablement of either parent would be disastrous. In most cases both parents should be covered by life and disability insurance. If this insurance is taken out through your superannuation fund the premiums are paid out of your accumulated super balance. While this means that your ultimate retirement benefit will be a bit less than if you took out insurance directly, it doesn’t impact on the current family budget. However, don’t just accept the amount of cover that many funds automatically provide. It may not be adequate for your needs.

Whether it’s super, insurance, establishing investments or building your career, there’s a lot to think about when you’re thirty-something. It’s an ideal age to start some serious financial planning, so contact us today about putting a plan into place.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

super in your 20s

Super in your 20s: Boring? Doesn’t have to be!

Superannuation is for the oldies, right? In some ways that’s true, but even in your twenties there are good reasons to take a bit more interest in your super. The average 25-year-old has around $10,000 in super, but the decisions you make now, even with relatively small sums of money, could earn you hundreds of thousands of extra dollars over your working life.

Are you getting any?

Earn more than $450 in any given month? Then every three months your employer should be paying 9.5% of that into your super fund. Usually you can choose your fund; if you don’t, it gets paid into a super fund of your employer’s choice.

If you don’t know if your super is being paid, or the fund it’s being paid into, ask your employer. If you think you’re missing out, search ‘unpaid super’ on the tax office website (ato.gov.au) to see what you can do. This is your money.

Where have you got it?

Had more than one job? If you have a lot of little super accounts the money can disappear in a puff of fees and insurance premiums. Simple fix – combine your super into one account.

Is it working for YOU?

Your money is going to be stuck in super for a long time, so you want it to be working hard for you. Most funds offer a range of investment choices and some will do better than others.

What do you want?

Buying a new car. Travelling, Having fun. Let’s face it, there are lots more exciting things to do with your money than sticking it into super. The choice is yours but think about this:

  • If Mum and Dad retired this year, they would need a minimum of around $61,909 per year to enjoy themselves. If that doesn’t sound like much now, by the time YOU retire inflation could have pushed that annual amount to around $214,248. That means you will need to have at least $3.71 million in savings! Sure you’ve got 40-plus years but that’s still a lot of money to save up! It can be done if you start early enough – and you don’t need to miss out on enjoying life now.
  • Starting early and adding a bit extra when you can makes a big difference. Let’s work on another 40 years before you can retire. If you start now by making an extra post-tax contribution of just 1% of your annual income to super, ($350 from a $35,000 salary – and the government could add to that with a co-contribution) at an 8% investment return could add an extra $149,000 to your retirement fund. If you wait 20 years before starting to make that extra contribution, you’ll only get a boost of $49,000. $100,000 less! Continuing this small extra contribution as your salary increases will turbo boost your super fund balance. Imagine your retirement party?!

So, still find super boring? That’s okay; you’re not alone. But instead of finding the time to organise all this yourself, contact us today and we will review your current super, any insurance required, the investment choices and prepare a strategy to get your super into shape – then you can get back to enjoying life!

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update October-December 2020

Economic Update: October-December 2020

COVID-19 update
Finally, some good news on the COVID-19 front: several vaccines have been rolled out in a number of countries. While a huge step forward in bringing the pandemic under control, it comes at a time when, globally, more people are being infected with the coronavirus, and more people are dying from it than at any previous point in the pandemic. There is a long way to go before victory can be declared.

Meanwhile, Victoria squashed its second wave of COVID-19 infections, sparking a bounce in its economy as it enjoyed an extended period of no community spread of coronavirus. Unfortunately, the virus found a way back into both Victoria and NSW, kicking off fresh border closures and holiday chaos.

The local view
As was widely anticipated, the RBA cut the cash rate target by 0.15% to 0.1% in November. While welcomed by borrowers the cut put additional pressure on net savers by making it even harder to find low risk income yielding investments. Some are turning to peer-to-peer lending platforms, or even high yielding shares, which may partly explain the strong recent performance of the ASX.

The official unemployment rate in November was 6.8%, the same as in August. However, using a different methodology, Roy Morgan calculated unemployment to be 11.9% in November, with a further 9.1% under-employed. While hardly cause for celebration, this was the first time since the pandemic began that both figures showed a month-on-month drop.

The world stage
The US election delivered a change of president, with markets responding positively as the result became clear. As the year came to a close, a sigh of relief was heard from millions as the US Congress approved a coronavirus relief package worth $US892 billion ($1.18 trillion). The package includes $US600 payments to most Americans.

After years of negotiation and with just days to spare, the UK and EU managed to agree on a BREXIT trade deal. While it will keep the goods flowing between the UK and Europe, the agreement doesn’t cover the huge services sector.

The markets
It was a good quarter on the markets with the main global and US indices zooming past pre-COVID-19 levels. The MSCI All-Country World Equity Index rose 13.4%. The Australian market followed suit, with the S&P/ASX200 rising 13.3%. However, the Aussie market has yet to return to its February high. In the US the S&P500 rose 11% and tech stocks continued to attract buyers with the NASDAQ up 15.5%.

The A$ gained strength rising 8.2% against the greenback. While partly due to a weakening of the US$, the A$ was also up 2% against the British Pound, 3.4% against the Euro and 5.6% against the Yen.

The outlook
Beyond direct health effects much of COVID-19’s economic impacts have been due to fear. It will take many months, but as vaccines are rolled out, and provided they bring the pandemic under control, much of that fear will dissipate. As it does economic activity should pick up strongly.

Less likely to see any positive developments in the immediate future is the tense relationship between Australia and China. Australian coal miners, winemakers and barley growers will continue to bear the brunt of the dispute. Fortunately, China is still highly dependent on Australian iron ore, the price of which has soared by 78% since the start of the year.

For current market conditions and further economic analysis, contact our financial advisers. We’re here to help!

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Market crashes

Market crashes: The good, the bad and the ugly

Just as night follows day, it seems part of the regular cycle of the world’s share markets that market crashes and falling prices follow good times and rising prices.

The impact of the COVID-19 Global Pandemic has been typical of such downturns, prompting a 35 per cent sell off in world share markets and a dramatic fall in economic activity. For many, it has prompted memories of other equally, and sometimes more devastating, downturns in the world’s share markets.

The most famous was “Black Thursday” in 1929, which led to an 80 per cent collapse in share prices and sparked the Great Depression, lasting for more than 10 years.

What caused it? The wild excesses of the roaring twenties when consumer confidence was at a record high and the introduction of margin loans, where people could borrow up to 80 per cent of the value of shares. This created a classic investment bubble, where optimism overwhelmed caution, and people started buying shares with the mistaken belief they would always increase in value. A drop in agricultural production due to droughts and a fall in economic production caused a sudden reversal in sentiment.

A similar situation occurred 60 years later in 1987 where panic selling on Black Monday wiped approximately 30 per cent from the value of the key US market index, the Dow Jones – its biggest one-day fall. It put an end to the ‘Greed is Good’ mentality of the eighties and prompted a review of the relatively new, computerised share trading systems.

Yet it seems investor’s memories are short.

Not long after this, markets got caught up with a new investment bubble prompted by the development and growth of the Internet. Companies raced to find their place online, and suddenly, all Internet companies were considered a sure bet. This speculative buying ran out of steam when the Dot Com Bubble finally burst in 2000, wiping 45 per cent off the value of shares.

Whilst sharing commonalities with previous crashes, the Global Financial Crisis of 2008, was also in many ways unique. It was the direct result of dodgy lending practices in the US housing market, which created a toxic class of home loans, commonly referred to as sub-prime loans.

Typically, these lenders ignored the individual’s ability to repay the loans and instead focused on the belief property prices would continue to rise, and there would always be people prepared to rent these properties. It created a typical investment bubble in the US housing market. Eventually, people found they could not meet their repayments, nor could they sell the properties held as securities. Causing enormous problems within the US banking system and the collapse of several international banks.

The lesson to be learnt from all these devastating crashes is that while no two were the same, they were all similar in nature. All were created by exaggerated investor beliefs that prices would never fall. Therefore, it is essential to think carefully before investing, ensuring each investment is made with a long-term mindset, and that sudden market corrections do not lead to panic selling.

As history has shown, market downturns follow upturns, but as long as the investment is fundamentally sound, it will fully recover any lost value. Contact us today for sound investment and financial advice to withstand market volatility.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Christmas present financial advice

Why seeing a financial adviser could be your best Xmas gift

The run-up to Christmas is usually a hectic time. Aside from the shopping and Christmas parties, there are deadlines to meet, loose ends to tie up and, for many farmers, the last of the crop to harvest.

Whatever Christmas looks like for you, it’s essential you spend your time and money in a way that brings you and others around you joy and deeper connection. This is a time of year where there are rarely work and other commitments that need attention, leaving us with the space to focus on deepening the special relationships around us. Put simply, Christmas is about quality time with loved ones, not overextending yourself by spending too much.

Once the big day is over many of us are able to slip into a more relaxed mode, but as your focus turns to leftover turkey and pudding, or lounging on the beach, why not spare a thought for your financial situation? With everyone else relaxing, the Christmas holiday period can be an ideal time to check your finances and start the New Year with everything in order and heading in the right direction.

As their clients hit the beach, the holiday period is often a quieter time for the financial advisers who remain on deck. That’ll make it easier to see a busy adviser. And while there’s always plenty to do down on the farm, that post-harvest period may be the perfect time for farmers to sit down with their financial advisers.

If a rainy day puts a dampener on your holiday fun, why not dip into the filing cabinet and tidy up the paperwork? You may be able to get rid of old documents you no longer need (make sure you dispose of them securely), find new opportunities, or discover important things that you’ve overlooked. Is your cash working hard enough for you? Has your portfolio become unbalanced? Are your personal insurances all in order? Are you saving enough?

So why not make a Christmas resolution, to call us and make an appointment to review your financial situation. You’ll come away well equipped with some New Year resolutions to keep your finances humming along for the year to come.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Australia's pension plan

How does Australia’s pension plan stack up?

One in six people will be over 65 years old by 2050. With the world’s population ageing quickly, it is natural to think about how pension systems around the world will cope, particularly in Australia. Fortunately, Australia’s three-component retirement income system means our age pension system is well-equipped to support older Australians now and well into the future.

Is Australia’s age pension adequate for retirement?
Comparisons of age pensions around the world are generally made based on three key factors — adequacy, sustainability and integrity. The balancing act is tough, but essential for countries to get right. It is no use having an overly generous age pension if the current funding measures (typically tax revenue) aren’t adequate to maintain the system long-term. Integrity is also critical, ensuring an age pension system adequately protects a country’s older people.

What payment types are included in Australia’s age pension?
Age pension rates in Australia are based on an income test, assets test and your relationship status. For example, the normal maximum fortnightly rates for an eligible single person are:

Maximum basic rate $860.60
Maximum Pension Supplement $69.60
Energy Supplement $14.10
Total $944.30

The Pension Supplement is an extra payment to help eligible retirees pay their utilities, phone, internet and medical expenses. Similarly, the energy supplement is an additional payment which assists pensioners with their household energy costs.

What are the means tests for Australia’s age pension?
There are two tests to determine age pension eligibility in Australia — the income test and the asset test. The income test assesses all sources of you and your partner’s (if applicable) income, including financial assets. The asset test assesses the value of you and your partner’s assets (excluding your principal home).

How does Australia’s age pension stack up against other countries?
Australia is typically ranked amongst the best in the world for age pensions, trailing just behind the Netherlands and Denmark. In the Netherlands, for example, the maximum age pension is 50 per cent of the minimum wage for couples, and 70 per cent of the minimum wage for single people. Denmark differs slightly, though their system is still adequate, providing pensioners with a minimum of 40 per cent of a person’s average earnings along with support through the country’s universal healthcare and housing benefits.

Despite the Netherlands and Denmark consistently holding the top spots for their respective age pension systems, Australia’s age pension comes quite close. Australia is fortunate to have a stable, well-funded age pension system, with the maximum age pension equating to around 60 per cent of the national minimum wage.

Is Australia’s age pension adequate for your desired retirement lifestyle?
When planning for your retirement, it is important to consider your desired retirement lifestyle and what this will cost. Your ongoing costs in retirement will be impacted not only by your day-to-day living expenses but also by the value of your assets and any outstanding debt, such as a mortgage.

Seeking tailored advice from a financial professional as you plan your retirement will ensure you have adequate income to fund your desired lifestyle. Contact us today to get started.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

super success for women

Super success for women

While women earn less and spend less time in the workforce than men, sharply reducing their super contributions throughout their working lives, there are some simple steps women can take to boost their retirement savings.

The Simple Facts

This inequality is simply due to women earning and working less. Women in full-time work earn on average 18 per cent less than men, while almost half of all women in the workforce work part-time with an estimated 220,000 women missing out on any super contributions each year simply because they earn less than $450 a month – the lower threshold for super guarantee contributions.

Women also miss out on super contributions because they are often absent from the workforce for extended periods while on maternity leave or looking after loved ones, be they children or other family relatives.

When they do return to the workforce, it is frequently in casual positions or working for themselves, where the need to make super contributions is so often overlooked.

Check your super fund fees and charges

The solution lies with women taking control of their super and choosing the best possible super fund, which typically means low fees and good, low-risk investment options.

Regularly check what, if any, personal insurance premiums are paid from your precious super savings. While insurance is essential while you are raising a family, as you get older, you might find your need for insurance diminishes. You may be able to reduce your coverage and with it the cost of premiums from your super. (Remember to always check with your adviser before cancelling any insurances.)

Make sure you take the time to consolidate your super accounts into one low cost super fund. Visit the Australian Tax Office website to consolidate your super or ask your adviser to do this for you.

Wherever possible, ensure you continue to make contributions throughout your working life, starting as early as possible and not neglecting your superannuation during periods when you are out of the workforce, working on a part-time basis or self-employed.

Maximise Your Contributions

Make sure you speak to your adviser to maximise your contributions, and in doing so, minimise your tax bill at the end of the financial year.

If you expect your income to be less than $52,000 in a financial year, make sure you take advantage of the Federal Government’s co-contribution scheme. By putting just $20 a week of after-tax income into super, you will receive up to $500 from the Government directly into your super account as soon as you lodge your tax return.

That’s a guaranteed 50 per cent return on your money and the best investment you will ever make.

If you are earning less than $37,000 a year, you should receive the Federal Government’s low-income superannuation tax offset of $500. Both payments happen automatically, meaning you don’t have to apply or complete additional paperwork to receive them. Still, you should check your superannuation account to make sure these payments are there.

If you need more advice about your super, talk to us today.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Boost your retirement savings

Turbo boost your retirement savings

Once your mortgage and other financial commitments are manageable, it is usually time to put the pedal down on your super. Those prime income years, between age 40 and 50 in particular, should be used constructively. However, the task may not always be easy.

Many couples choose to have children later and as a result, parents’ financial responsibilities can now often extend well into their 50s, even 60s. Furthermore, the earning opportunities for many people over age 50 often begin to decline.

Other factors can also disrupt retirement savings planning – time out of the workforce to raise a family, periods of unemployment or extended illness are but a few.

Is there a logical solution?
Usually, the least painful (and most disciplined) option is to use a superannuation salary sacrifice arrangement. For most employed people on high incomes this can represent a useful and straightforward method of bolstering retirement provisions.

It works like this
You agree to forego a specified amount of future salary and in return your employer makes additional future super contributions for an equivalent amount. This means your extra long-term saving starts to accrue faster, pay by pay.

“Sacrificing” salary to super is also a tax-effective form of remuneration because if the arrangement is put together correctly, no personal income or fringe benefits tax is payable on the extra amount of contribution. You do need to keep in mind the impact of superannuation contribution limits however we can provide guidance on this issue.

Consider this case study:
Michael is 45 and he and his wife Marie have been working away at their mortgage for some time. Now they are beginning to see light at the end of the tunnel.

Michael’s employer has been contributing 10% of his $110,000 remuneration package to superannuation ($11,000 per annum). Michael thinks that he may now be able to afford more, but he is not all that happy with the employer’s fund investment options. He discusses the situation with Marie and their adviser. Together they agree that Michael should set up a new super fund with a different provider and increase his contribution to 15% of salary.

From the next fortnightly pay, Michael’s pre-tax salary is lower by $211.54 but the amount he actually receives will be lower by only $129.04 (since he will pay $82.50 less personal income tax as well). The $211.54 pre-tax amount was paid directly into Michael’s new super account. This means that his total after-tax super contributions for the next year will be $14,025 net instead of $9,350 and he has been able to select a fund that meets his needs.

Salary sacrifice to super is just one way in which you can enhance your retirement provisions. If you would like more information about the options, talk to us today and we can assist you in determining what is right for you.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Australian Money

What is money… really?

That $50 note in your pocket. What’s it worth? “$50,” you say, probably thinking it’s a dumb question. But is it really? Or a sheet of plastic and a bit of ink that likely cost the note printer less than a cent? Your $50 note only has value because the government declares that it does.

This lack of intrinsic value means your $50 note, and the balances of bank accounts that represent most money in circulation, might better be described as currency rather than ‘real money’.

Over the past few thousand years all sorts of items have been used as currency, from shells and cocoa beans to soap and cigarettes. But to be considered real money, several key criteria need to be met. The most important are that it is:

  • Recognised as a medium of exchange and accepted by most people within an economy.
  • Durable.
  • Portable, having a high value relative to its weight and size.
  • Divisible into smaller amounts.
  • Resistant to counterfeiting.
  • A store of value over long timeframes.
  • Of intrinsic value, i.e. not reliant on anything else for its value.

Throughout history gold and silver have come closest to meeting these and other criteria, though nowadays you’ll have difficulty in paying for your groceries with gold Krugerrands. Also, you’ll want to keep your gold and silver in a safe place, and it was people seeking to do just that which gave rise to paper money and our current system of bank-created money.

What started out as a good idea…
Centuries ago goldsmiths would take in gold and silver for safekeeping and issue the owners receipts, or notes, confirming the amount of gold held. The depositors soon discovered that these notes could be used for payment in place of the physical gold, but the goldsmiths noticed something else. It was rare for anyone to redeem all their notes at once. They saw the opportunity to issue notes as a loan that borrowers paid back over time, with interest. Provided borrowers paid back their loans on time and only a small proportion of owners wanted their gold back at any given time, all was well, and goldsmiths transformed into bankers.

But this didn’t always work out. An economic shock might see everyone wanting their gold back, and if the bank couldn’t deliver the full amount that was demanded, it went broke. To help prevent this, many countries created central banks, with some governments even acting as lender-of-last-resort. While government control and the rules around banking have evolved over time, private banks are still the source of most currency created today.

When things get real
In economically stable times it’s easy to think of currency and real money as the same thing. However, a couple of examples reveal the difference between the two. One is when a government starts printing money to pay for its programs. Inflation usually results, and the value of currency can plummet. In the case of hyperinflation, paper money and bank deposits can quickly become worthless as happened in Germany in the 1920s.

The difference between currency and real money and the issue of intrinsic value has implications for other investments. If you would like to learn more, talk to us. We’re here to help.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: July – September 2020

COVID-19 remained the big story of the last quarter. Tragically, by the end of September the pandemic had caused over one million deaths. That was up by 500,000 since the end of the previous quarter, and many countries were experiencing devastating ‘second waves’. While most of Australia managed to keep case numbers of coronavirus at very low levels, Victoria provided a case study in the severe human and economic impacts of having the virus escape control. Now it is epidemiologists, rather than economists, that we look to for advice on how to transition to a post-pandemic world.

Unemployment ups and downs
The official unemployment rate from the Australian Bureau of Statistics was 7.5% in July, but showed a welcome drop to 6.8% in August. Meanwhile, NSW claimed that 70% of jobs initially lost in the pandemic had been restored. However, when JobKeeper, people working zero hours but classified as employed, and a big jump in gig workers are taken into account, the real unemployment rate is much higher. Roy Morgan estimated that the actual unemployment rate is closer to 13.8% and the combined unemployment and under-employment rate is 22.8%. Still, both these figures were down from their peak in late March.

Property problems
The major property markets of Sydney and Melbourne declined for the fourth month in a row, with the ABS reporting that in the June quarter these major city housing markets dropped by 2.6 and 2.8% respectively. And the outlook for housing construction is none too rosy. Australia relies on immigration to generate the population growth that stimulates construction and supports the prices of existing dwellings. With our borders effectively closed that population growth will either be delayed or will fail to materialise. Rental income is also expected to decline, particularly in markets with a high proportion of overseas students who are unable to return to Australia.

The markets
After a bit of a rally through July and August the local share market ran out of steam, with the S&P 500 index finishing the quarter down by 1.4%. International markets continued to produce some excitement. Despite weakening a little towards the end of the quarter the MSCI All-Country World Equity Index rose 7.2%. Much of this was attributable to the US market with the S&P500 up 7.6% and the NASDAQ up 10.2%.

The Aussie dollar also weakened slightly towards the end of the quarter, finishing flat against the Euro and British Pound, up 2% against the Yen, and up 3.8% (from the high 60s to low 70s) against the US Dollar.

The outlook
If you thought that interest rates couldn’t go any lower, think again. The RBA has flagged the possibility of a further cut in the cash rate with commentators predicting a cut of 15 basis points to take the rate to just 0.1%.

Internationally, the US presidential election could see an increase in market volatility with the final outcome anything but certain.

For further information on current market conditions, contact us.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Insurance in Retirement

Reviewing your insurance as you get older

So, you are seriously starting to think about your retirement. The kids are finally more independent, the mortgage is less than it was, and the super is more than it was.

You look at your monthly bank statements and one particular debit is always there. The insurance premium. You have been paying it diligently for years now, maybe decades. But, for what? You’ve not claimed and ‘gained’ anything so far.

At this stage and age, it might be very tempting to cancel your policies and save a few dollars. Before you do, just consider what you could be losing in a future that’s not yet written. It could be hundreds of thousands of dollars. More to the point it could be your home, your lifestyle, or your health – the very thing you are hoping to protect.

Statistically you are more likely to claim the older you get. Look at these figures:

 

Type of cover

Average age people cancel policy

Average age people make a claim

Income Protection

45

46

Total & Permanent Disability (TPD)

49

48

Trauma Insurance

44

49

 

People often don’t realise an insurance policy is not an ‘all or nothing’ concept and there are options available. For example, as you get older and your debts and commitments reduce, so might the level of cover you require. When cover is reduced, so is the premium. Take care though, once a policy is in place it’s easy to reduce the cover but much harder to increase the amount, particularly as you get older. It often only takes a phone call to lower the amount but countless medical tests to increase it or apply again.

Before you rush off and reduce your cover, it’s important to tailor the amount of cover to your potentially changing circumstances, and this is where we can help.

There are many other options available including requesting a temporary freeze on the premiums; paying annually instead of monthly; moving your cover into your super fund (this is not applicable to all insurance however); or given that your adult children will usually be the ones who will eventually benefit, ask them to share the cost of the premiums!

The basic idea of insurance is not to put you in a better position than you were – it’s there to protect what you have. Regardless of what age you are, think twice about cancelling insurance completely. There are always other options available. Ask us for guidance before you make any decisions.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Turbulent market

Positioning your portfolio in turbulent times

As any experienced investor knows, all investment markets have their ups and downs. Regardless of investor experience, turbulent times are a cause of anxiety, and that can lead to poor decision-making. So, if turbulent markets are inevitable, even if their timing is not predictable, how should portfolios be positioned in anticipation of and in response to market volatility?

What’s your objective?
First up, it’s important to go back to your investment objective. Is it to grow wealth over the medium to long term? Or are you more concerned with preserving capital? Your objective also needs to take account of your risk profile.

With your risk tolerance and objectives clarified, it’s time to get to grips with asset allocation. This is the process of deciding what proportion of your portfolio will be allocated to each of the major asset classes: cash, fixed interest, property and shares.

Asset allocation is the engine room of your portfolio. The amount that you apportion to the major asset classes has the biggest effect on your portfolio performance. It has a greater bearing on your returns than individual asset selection.

Asset allocation is also your key risk management tool, the more you allocate to shares and property the greater the volatility, and therefore the risk. However, in this context, risk isn’t always a bad thing. A higher risk portfolio may at times fall more in value than a lower risks portfolio, but over the long term it is also more likely to generate higher returns.

Oops, too late
Unfortunately, the motivation to position a portfolio for turbulent times is often a sudden upset in investment markets. But this doesn’t mean it’s too late to do anything. If your investment objectives and risk tolerance haven’t changed, rebalancing your portfolio (i.e. bringing the asset allocation back to its ideal position) may help to position it for the next upswing in investment markets.

Waiting out the storms
While positioning can help with portfolio risk management, many investors opt to wait out any storms. Why? Because for all the ups and downs, bull markets and bear markets, bubbles and crashes, major share markets have delivered solid long-term growth. In fact, it has been claimed that investors have lost more money trying to anticipate corrections, than they would have lost in riding out actual corrections.

A detached view
Concerned about the financial outlook and your portfolio’s current position? We can provide an impartial assessment of your portfolio, help you identify your objectives and your risk tolerance, and recommend investments to help you weather the turbulent times. Talk to us today to get started.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Investing life cycle

Unlocking financial secrets for different phases of life

One of the keys to financial success is to adopt the right strategy at the right time. As you move through the stages of life, here are some tried and tested ‘secrets’ that will help you build and protect your wealth.

Teens and young adults
Time is on your side so get saving. Through the magic of compound interest, a little bit invested now can grow into a big amount over time. Most young people don’t want to think about life in 50 years time, but if a 15-year-old starts saving just $10 per week into an investment returning 5% pa (after fees and tax), when they turn 65 their total outlay of $26,000 will have grown to over $116,000. Contributing those savings to a tax-favoured vehicle such as superannuation may provide an even higher final return.

Single life
Saving is still a key strategy as careers are established, but usually with a shorter timeframe and a specific purpose in mind – buying a home, for example. This is a time when savings strategies can be brought undone by the allure of desirable things and the ease with which one can go into debt. Take care not to indulge in too many luxuries, and avoid taking on any high interest debt, such as credit cards. Rather, commit to working out a budget and sticking to it.

Family focus
The time of kids and mortgages is also the time of peak responsibility. It’s likely that your most valuable asset is your ability to earn an income, and illness, disability or death could deprive you and your family of that income. The financial consequences of each of these possibilities can be managed with a blend of income protection, total and permanent disability, trauma and life insurances.

Preparing for retirement
With offspring launched into the world and earning capacity often at a peak, a wealth of opportunities open up for pre-retirees. By all means enjoy some lifestyle spending, but don’t forget to supercharge your super in anticipation of a long retirement. In times of normal interest rates, using surplus income to pay off any outstanding home loan is often recommended, however, when interest rates are very low, investing spare income into super and leaving debt repayments until later may deliver a better outcome.

Golden years
Australians are up there with the leaders when it comes to enjoying long and healthy retirements. That means retirement savings need to last, so a): don’t go too hard too fast in spending your super, and b): don’t invest too conservatively, particularly in times of ultra-low interest rates. On the plus side, if you’ve employed the above secrets in each phase of life, you should be in good shape to enjoy a long, financially comfortable retirement.

Whatever your stage of life, there are many things you could be doing to secure your financial future. To find out more, talk to us today.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Investing or gambling

Are you investing or gambling?

The potential financial results of investing can feel limitless, and it can be tempting to think that just one stock pick could make you an overnight millionaire. Yes, stock-picking can have a place in your investment strategy, but if you’re using a “get rich quick” mentality, you may be gambling, not investing.

What’s the difference?
One of the key differences between investing and gambling is process and strategy. If you don’t have a process and strategy in place, it is a sign that you need to establish or refine your plan. Further, gambling focuses on emotions such as hope. Investing, on the other hand, is all about strategy. With a clear strategy, you know approximately how much your investments will grow and over what time horizons.

How do you know if you’re investing effectively?
If you’re unsure whether your current investment approach is working to realise your goals, think about your investment process and how many of the below five elements are included in your approach.

Completing no research
If you’re not completing any research and putting money into assets based on tips from friends or what you see on social media, you’re exposing yourself to increased risk and not doing enough due diligence.

Investing in micro-cap stocks only
Micro-cap stocks typically have a market capitalisation under $500 million and are ranked from 350 to 600 on the Australian Stock Exchange. With a relatively small market capitalisation, buying stocks in these companies can be cheap. The downside, however, is that these companies are usually in their infancy and experience volatile price fluctuations. There’s a place for micro-cap stocks in your investing. However, if you’re putting all of your money into these companies, you’re likely exposing yourself to unnecessary risk.

Investing with short time horizons
Putting all of your money into short-term investments or activities such as day trading is an indication that you’re too focused on short-term gains without a long-term strategy. There’s a place for short time horizons in your investing, but only once you’ve mastered the foundations such as establishing a long-term plan and ensuring you have adequate cash buffers.

Lack of diversification
If all of your money is invested in one asset class, you’ll be over-exposed to volatility in a single market. To ensure your money grows consistently over time, your money needs to be balanced across a range of asset classes and sectors.

Having no investment strategy
If you don’t have an investment strategy, your investing won’t be as effective as it could be. To start putting together an investment strategy, you need to think about things such as:

  • building up adequate cash buffers;
  • how much money you need invested to live comfortably off your returns; and
  • when you anticipate you’ll start drawing an income from your investments.

Moving forward with a long-term wealth strategy
Investing in different asset classes such as equities, commodities, and fixed-income assets is a great way to build long-term wealth. To build this wealth, however, you need a strategy and process to follow.

If you’re unsure how to develop an investment strategy, be sure to seek qualified financial advice. Investing in this advice now can reap great rewards in the years to come, ensuring your money is working to help you realise your financial and lifestyle goals sooner. Contact us to get started.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Consolidate super

Get your super together and save

If you have had different jobs with different employers over your working career you will probably have superannuation accounts in many different funds. Apart from the time it takes to keep track of these accounts, there are three more serious concerns of which you should be aware.

Investment strategy
Choosing the right investments for your situation is critical to maximising your retirement nest egg. Super is for the long term and just 1% extra in returns every year can make a significant difference.

For example, if you were earning $70,000 per annum and your fund was receiving only the 9.5% per annum superannuation guarantee contributions from your employer, you could have $288,000 after 20 years if the fund earned 7% per annum. If it earned just 1% per annum more, you could have $326,000. An additional $38,000!

Reports and fees
More than one fund means you receive multiple annual reports and statements. Apart from being a nuisance, the big danger is that your super will be eroded by fees.

Lost billions
An inactive account is one that has not been accessed or contributed to in the past 12 months and the super fund cannot locate the account owner. Superannuation held in inactive accounts with balances less than $6,000 is transferred into the federal government’s consolidated revenue account. As there are billions of dollars held in inactive accounts, this is a huge windfall for the government. Does any of this money belong to you?

You can easily find out if you have any lost super by using your MyGov account and linking to the ATO. If there is lost super showing, follow the instructions on the MyGov service to claim it. If you don’t have a MyGov account you can download a form from www.ato.gov.au and submit it to instigate a search.

Whichever way you do it, the key is to get your super all together now and make it work for your future. Contact us to get started.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Tax refund

What will you do with your tax refund?

Thousands of Australians receive tax refunds every year. Some refunds won’t even cover the cost of a pizza to celebrate, however many are quite substantial. If you’re one of the lucky ones, what will you do with your tax windfall?

If you go out and spend it, all you’re doing is giving part of it back to the government in the form of GST. Sure, it’s nice to splurge once in a while but there are other places you can stash your cash and reap a longer term benefit. Consider these options:

a) Superannuation contributions

Your superannuation fund will surpass any other investment vehicle simply due to the law of compounding… and your contributions are taxed at only 15%. Whilst superannuation funds remain the most tax-effective haven and thus the best way to grow your investments, the downside is that once your money is contributed it’s usually not accessible until you retire.

b) Regular investment plan

Consider investing the lump sum and setting up a regular savings investment plan to build it up. This will help you meet future objectives such as a new home, education or new car.

While a certain amount of money in the bank is helpful for emergencies, now could be the time to consider a longer term plan with assets such as property or shares. You can invest in a managed fund with an initial deposit of $1,000 and make monthly contributions. While such investments are subject to fluctuations in value, you will see them grow over time.

c) Reduce your mortgage

By paying it straight into your mortgage, you immediately acquire more equity in your home and reduce the interest. Having more equity in your home also means that you can re-borrow that money again for investment, gearing, or to purchase other assets. So that’s an option that could keep on working for you.

The moral of this story is to have a plan and then apply it. Work out where your tax refund will work best for you then talk your decisions through with your licensed financial planner.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update

COVID-19 Economic Update

During the last quarter one story has dominated the news – COVID-19. By the end of June at least 10 million people had contracted the disease, and over 500,000 had died. With 8,000 cases and 104 deaths, Australia was amongst the countries that have been most successful in limiting its spread. However, this success came with a major cost. By June, 800,000 fewer people were on the nation’s payrolls than at the start of the pandemic. The travel, hospitality and entertainment sectors were particularly hard-hit.

One consequence of this major loss of employment is that many people took advantage of the ability to withdraw up to $10,000 from their superannuation prior to the end of June. As of mid-June, over 2.3 million people had applied, with nearly $16 billion worth of withdrawals processed. A further $10,000 can be withdrawn in the new financial year. While this will prove a real lifeline for the many people who need the money now, those who do withdraw the maximum amounts are likely to be tens of thousands of dollars worse off in retirement, with younger people facing the biggest losses.

Key numbers
Perhaps surprisingly, investment markets took an optimistic view of the long-term financial consequences of COVID-19. While not returning to its record highs, the S&P ASX200 index rose 16% over the quarter, a little behind the MSCI All-Country World Equity Index (up 18.7%) and the US S&P500 (up 18%). However, the real action was on the tech-heavy NASDAQ, which lifted 30.6% over the three months to set a new high.

The RBA cash rate stayed at 0.25%, with no great expectations of a change anytime soon.

The Aussie dollar rose steadily, increasing from 61.7 to 69.1 US cents from the end of March until end of June. It enjoyed similar gains against the British Pound and Japanese Yen, and a slightly smaller gain against the Euro. While there are many factors that influence the value of the dollar, this last quarter saw it closely following the fortunes of one of our major export commodities – iron ore.

What next?
COVID-19 is likely to remain the dominant story for some time yet. Following the initial lockdown, countries around the world, Australia included, are conducting something of an experiment in trying to ease restrictions without triggering ‘second waves’ or other outbreaks. Events in Victoria have shown how challenging this can be, but successfully lifting lockdowns is a critical step towards restoring anything resembling normal economic activity.

Another challenge facing the federal government is how to continue to support the millions of people on the JobKeeper allowance and the JobSeeker supplement. With these programs due to end in September, there is concern that their sudden cessation will deliver another blow to the economy.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Investing 101

Investing 101

Whether it’s taking a more active interest in our superannuation, starting to build an investment portfolio, or even trying our hands at playing the stock market, we can all benefit by understanding the language and key concepts of investing.

 

Asset classes

There is a huge range of potential investments out there, and these can be grouped together in asset classes that are based on shared characteristics. There are many asset classes, however the major ones that most mainstream investors focus on are shares, property, fixed interest and cash.

 

  • Shares give investors part ownership in specific companies. The share market sets the value of each share and prices can fluctuate significantly, even from day to day. This price volatility means that, relative to other asset classes, shares are higher risk, particularly in the short term. However, investors expect to be rewarded for taking on this risk by the potential for shares to deliver higher long-term gains than the other asset classes.
  • Property also provides investors with full or partial ownership of growth assets. Income is received in the form of rent, and property can also provide capital growth. As property can, at times, fall in value, it is considered a medium to high-risk asset class.
  • Fixed interest refers to investment in government or corporate bonds. Bonds are a type of loan, and each bond has a maturity date (the date the loan is repaid), a maturity value (the amount returned at the maturity date), a coupon rate and a market value. The coupon rate is fixed for the life of the bond (hence the term ‘fixed interest’), but the market value can fluctuate depending on movements in interest rates.
  • Cash covers bank accounts and term deposits. Returns are in the form of interest payments, and cash is generally considered to be a low risk asset class.

Why are asset classes important?
One of the golden rules of investment is that when seeking higher returns, investors must take on a greater degree of risk. Quality fixed interest investments provide a high certainty of a particular return. They are low risk, and the returns they offer reflect this. However, for any given share, we don’t know what its price will be in a week, a month or a year. Prices may be volatile, the return is uncertain, so a share is a higher risk investment. However, that risk can be a positive thing – upside risk – which is the potential for the share to generate a higher than expected return.

 

Asset classes bundle together investments with similar risk and return profiles. By blending these asset classes together in different proportions – a process called asset allocation – investors can construct portfolios that provide levels of risk and return that suit specific needs.

 

This blending of different asset classes results in diversification, which is a critical risk management tool. As different asset classes over and under perform at different times, mixing different asset classes lowers the volatility, and hence the risk, of a portfolio.

 

As far as returns are concerned, studies have shown that over 90% of a portfolio’s performance is determined by the asset allocation. It’s vastly more important than individual investment selection or the timing of purchases and sales.

 

Help is at hand
Of course, there’s more to investing than can be conveyed in a short article, but that’s no reason to delay putting the various markets to work. Speak to us today and we can help you understand your risk comfort level and design an investment strategy that’s right for you.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

Withdraw Super Early COVID-19

What to consider when withdrawing your super early

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As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus.

 

One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year.

 

For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be.

 

Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation.

 

Taking the max
Much depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal.

 

At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal.

 

But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87.

 

Reducing the risk
On the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension.

 

There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution.

 

COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, speak to us.

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

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ASX share market investing

Shares are more than numbers

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Whether it’s by direct purchase, via a managed fund or through superannuation, most Australians hold some form of share investment. Many of us are aware that if the numbers in the finance report on the evening news are mostly green that’s good and if they’re red that’s bad, but beyond that we give little thought to what shares are and why we should take an interest in them.

 

What’s a share?

When you buy shares, you aren’t just buying a piece of paper or a digital entry on an electronic register. You are actually buying a physical part of a company. It might be a tiny fraction of the total value, but it still provides you with certain rights and responsibilities, including the opportunity to participate in the direction of the company. Shares are real assets and depending on the size and stability of the company, you can even borrow against them.

 

The benefits

For most people, the most important aspect to share ownership is being able to share in the profits and growth of the company. For ordinary shares, a portion of the profit is usually paid out via twice-yearly dividends. Some profits may be retained to fund the growth of the company, and this should be reflected in an increase in share price over time. These capital gains can be realised by selling the shares. The downside is that, if the company does poorly, investors may see a fall in the value of their shares.

 

Getting involved

Beyond receiving dividends and (hopefully) watching the share price increase, many investors take little interest in their shares. But shareholders also enjoy the right to have a say in the running of the business, by voting for or against the appointment of specific directors and on resolutions at the Annual General Meeting. One share equals one vote, so large institutional investors such as superannuation funds usually have the greatest say, but even small investors can turn up at the AGM and potentially ask questions of the board. And groups of shareholders may get together to influence a company’s direction on a range of business or governance issues.

 

Buying shares in up and coming companies is also a way of putting one’s money where one’s values and interests are, for example in renewable energy, recycling, medical technologies, batteries or emerging markets.

 

The rewards of investing in shares can be enormous, and they’re not just financial. There’s real pride to be gained from looking at a company that has achieved great things and to know that you’ve played a part in its success.

 

However, there is a financial risk associated with owning shares, so if you want to treat your share portfolio as more than just numbers on a screen, speak to us.

 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

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smsf right for me

When an SMSF may be the wrong idea

Since the Australian Government introduced compulsory employer contributions to people’s superannuation funds in 1992, Australia’s funds invested in super have grown to $3 trillion. In this time, self-managed super funds (SMSFs) have grown in popularity too. There are currently just over 1 million members with $747 billion in SMSFs across Australia.

SMSFs can have between one and four members. While not yet legislated, the government has proposed allowing up to six members in an SMSF. Most SMSFs in Australia have two members (70%), with most other SMSFs having a single member (23%). According to the ATO, the average value of assets in people’s SMSFs is $320,000. The general recommendation is to have a minimum balance of $200,000 in your SMSF. While it can be tempting to see the potential of being in complete control over your super balance, it may not always be a good idea to set up an SMSF.

Why set up an SMSF?
Many people opt to set up an SMSF to have more flexibility in where they invest their money. Along with more investment options such as residential property and rare asset classes such as art, valuable collectables and physical gold, your SMSF income is taxed at a lower rate of 15%. Compared to the marginal income tax rate for average and high-income earners (usually between 30% to 45%), establishing an SMSF can be an attractive option. However, as with any other type of investing, there are potential downsides and SMSFs can carry significant risks and costs.

What are the risks associated with having an SMSF?
There are several risks associated with having an SMSF. To establish an SMSF, you are legally required to have an investment strategy. When you have an SMSF, you also need to ensure you get tailored advice from your financial adviser to mitigate the risk of making poor investment and financial decisions. Many SMSFs also choose to invest in one asset, such as residential property. This leaves your super balance overexposed to risk, compared to if you had a balanced portfolio in a super fund.

Unlike a traditional super fund, an SMSF has time-consuming administrative tasks and costs. Some of the costs you may incur when you have an SMSF include annual compliance, audit and management costs, investment fees, brokerage fees, wholesale managed fund fees and advisory fees charged by your accountant and financial adviser. If you have an SMSF, it’s important that these fees don’t equate to more than 2% of your super balance. On a balance of $200,000 in an SMSF, the fees would ideally need to be below $4,000 per year.

When you have an SMSF, you are in complete control of your investing, which means you are also solely responsible for keeping up to date with your compliance requirements. The legislation around SMSFs is constantly changing. If you don’t have a genuine interest in continually staying updated on these changes, or the fees to seek regular advice are going to push your annual costs over 2% of your balance, you need to rethink whether an SMSF is the right option for you.

To summarise
While establishing an SMSF can offer you flexibility in how you manage your retirement funds, there’s a raft of risks and costs associated with having an SMSF. Further, an SMSF can be a lot of work, so it may not be the right option for you if you’re unsure whether you want to commit to the ongoing financial, legal and administrative requirements associated with having an SMSF.

If you are considering establishing an SMSF or deciding whether an SMSF is suitable for you, speak to us to obtain personalised advice for your unique situation. 

 

The information provided in this article is general in nature only and does not constitute personal financial advice.

wealth COVID-19

Your wealth during the COVID-19 pandemic

There isn’t a single person in the world who hasn’t been impacted by COVID-19. As new case numbers start to slow in Australia, so too is our economy. This time presents new challenges as everyone gets used to a “new normal” and figures out the best way to weather the coming months. This article provides an overview of different measures the Federal Government has announced to support individuals and businesses, current market performance and what you should be thinking about when it comes to your finances and continuing to build long-term wealth.

Government support for individuals and businesses
The Federal Government has announced two economic stimulus packages and the JobKeeper Payment to support individuals and businesses. An overview of the Federal Government’s measures announced to date is detailed below.

Support for individuals
The Federal Government has announced a range of measures to help individuals. Eligibility to access these measures is determined on criteria such as your employment status or loss of income due to COVID-19. Some of the key measures include:

  • two $750 payments to social security, veteran and other income support recipients (first payment from 31 March 2020 and the second payment from 13 July 2020);
  • access to the JobKeeper Payment from your employer (if eligible) equal to $1,500 per fortnight;
  • a time-limited supplementary payment for new and existing concession recipients of the JobSeeker Payment, Youth Allowance, Parenting Payment, and Farm Household Allowance equal to $550 per fortnight;
  • early release of superannuation funds (see overview below); and
  • temporarily reducing superannuation minimum drawdown rates (see overview below).

Full details about the Federal Government’s measures to support individuals are available on the Treasury website.

Early release of superannuation
Eligible people will be able to access up to $10,000 of their superannuation in the 2019-20 financial year and a further $10,000 in the 2020-21 financial year. To access your super early, you need to meet ONE of the following five criteria:

  • You are unemployed
  • You are eligible for the JobSeeker payment, Youth Allowance for jobseekers, Parenting Payment special benefit or the Farm Household Allowance
  • You were made redundant on or after 1 January 2020
  • Your working hours have reduced by at least 20 per cent after 1 January 2020
  • You are a sole trader, and your business activity was suspended, or your turnover has reduced by at least 20 per cent after 1 January 2020

If you are considering early release of your superannuation, you need to consider what the potential long-term impacts may be to the growth of your super fund and retirement income. While $20,000 may not seem like a lot of money now, it could have significant compounding value if left in your fund. Understandably, people may not have any other choice to support themselves financially. Make sure you speak to a financial professional to understand your risks and if this is a suitable option for you. If you are eligible, you can apply for early release of your superannuation directly with the ATO through the myGov website.

Temporarily reducing superannuation minimum drawdown rates
The temporary reduction in the minimum drawdown requirements for account-based pensions has been designed to assist retirees who do not wish to sell their investment assets, while the value of those assets is reduced. The minimum drawdown rates have been temporarily halved.

Support for businesses
The Federal Government has announced a range of measures to help businesses facing financial difficulty. Eligibility to access these measures depends on factors such as your turnover and how much your business’s revenue has decreased due to the COVID-19 pandemic. Some of these measures include:

  • increasing the instant asset write-off threshold for depreciating assets from $30,000 to $150,000;
  • allowing businesses with turnover below $500 million to deduct 50 per cent of eligible assets until 30 June 2021;
  • PAYG withholding support, providing up to $100,000 in cash payments which allows businesses to receive payments equal to 100 per cent of salary and wages withheld from 1 January 2020 to 30 June 2020; and
  • temporary measures to reduce the potential actions that could cause business insolvency.

Full details about the Federal Government’s measures to support businesses and eligibility criteria are available on the Treasury website.

How the banks are approaching home loans
Banks have announced that homeowners experiencing financial difficulty can pause their mortgage repayments for between three and six months. It’s important to remember that, in most cases, interest will still be capitalised and added to your outstanding loan balance. When payments restart, your lender may require increased repayments, or the term of your loan may be increased. These are important factors you need to discuss with your lender.

What should you focus on when it comes to personal finance?
While it can be tempting to sell all your investments now as the market declines, this locks in your losses and puts your wealth in a weak position. If you haven’t already defensively positioned your investments, speak with a financial adviser about how to best adjust your investing over the coming months. You should also consider how to maximise your returns as the market recovers. Investing and building wealth is a long-term game. As such, you should be investing with a long-term time horizon in mind.

What should I do next?
During this time, you may face some challenges with your finances. Your ability, however, to understand the options available to you and what the current period means on a long-term basis is key to getting through this challenging time productively. Further, making well thought out decisions now will give you the strong foundations you need in your health and wealth as the world recovers and embarks on a new period of growth.

Before you make any big changes to your financial situation, speak to us to obtain personalised advice for your unique situation.

 

This is general information only

Big banks

5 ways to benefit from record low interest rates

Interest rates have never been lower, and it’s possible they might fall even further. This creates opportunities for householders and businesses, so how can you best take advantage of low interest rates?

1. Pay off your debt more quickly
By maintaining constant repayments as interest rates fall, you’ll reduce the time it takes to pay off your loan. That’s because interest will make up less of each repayment, with more going to reduce the outstanding capital. And the great thing is that to take advantage of this strategy you don’t need to do anything. Lenders usually maintain repayments after each drop in interest rates unless you instruct them otherwise.

2. Refinance your home loan
Lenders vary in the extent to which they pass on cuts in official interest rates. So, if you want to reduce your loan repayments it might be worth shopping around to see if you can find a better deal from other lenders. Just make sure that, if switching lenders, you take all fees into account to be certain you really are saving money.

If you are restructuring your borrowing, another thing to consider is fixing the interest rate on all or part of your loan. This can provide protection from the impact of rising interest rates in the future, though it may mean you benefit less from any further cuts in rates. However, with interest rates already very low, there simply isn’t the room for rates to fall much further.

3. Buy a first home – or upgrade
Low interest rates create opportunities for first homebuyers to get a toehold in the property market, and for existing homeowners to upgrade to a bigger home or better location. While lower interest rates can be a bit of a two-edged sword, as they tend to drive up property prices, most people are happier borrowing in a low rate environment rather than when rates are high.

4. Borrow to invest
While Australians love to invest in property, borrowing to invest in shares is also a viable wealth creation strategy. Often referred to as gearing, the key to successfully investing borrowed funds is that the total returns must exceed the total costs. As the most significant cost is usually the interest on the loan, low rates make this strategy more attractive.

Take care, however. Gearing can magnify investment returns, but it can also increase your losses. It’s therefore important that you fully understand investment risk and how to minimise it.

5. Expand your business
The whole point of a reduction in interest rates is to stimulate the economy, and that includes encouraging business owners to invest in their enterprises. Low interest rates make it cheaper to borrow to buy equipment to increase productivity, to take on more staff, or just generally expand the business.

Take advice
Some of these strategies are simple ‘no-brainers’. Others involve significant levels of risk. To take a closer look at how you can make the most of low interest rates contact us today.

 

This is general information only

Economic update

Economic Update: First quarter results reflect shock

The first quarter of 2020 will forever be remembered for delivering one of the greatest health and economic shocks of all time. The economic damage was an inevitable consequence of governments worldwide taking unprecedented action to curb the spread of the novel coronavirus that emerged in China in December 2019. Never have so many people in so many countries experienced such major upheaval to their daily lives at the one time.

With numerous countries enacting harsh measures to reduce person-to-person spread of the virus, many sectors of most economies effectively ground to a halt. Tourism, travel, entertainment and hospitality were particularly badly affected, but the fallout will be felt far and wide for some time to come.

By the numbers
Financial markets (and many governments) were slow to appreciate the magnitude of the coronavirus threat. Major share markets rose steadily, setting record highs on 20 February, then, as the likely economic consequences of tackling coronavirus became apparent, markets plunged. From its peak of 7,163 the S&P/ASX 200 index fell to 4,546 on 23 March. A rally then saw the index rise to 5,077 at the end of March, 24% down from the start of the quarter.

In the US, the S&P 500 fell 34% from top to bottom. The MSCI All-Country World Equity Index dropped 35%. Both indices recovered ground at the end of the quarter to limit January to March losses to 18% and 21% respectively.

The Reserve Bank moved quickly to further cut interest rates to 0.25%. This is as low as the RBA is prepared to go, with the Governor indicating this rate will be with us for several years come. Partly in response, and partly due to investors seeking the relative safety of the US dollar, the Australian dollar plunged from US$0.66 US to US$0.55. It then staged a partial recovery to end the quarter at US$0.61. Falls against other currencies were less severe.

Massive stimulus
Governments around the world responded with programs that will, over time, pump almost unimaginable sums of money into the economy – hundreds of billions of dollars in Australia, trillions in the US. Banks have deferred some loan repayments, and many landlords will forgo rent payments.

The focus is on helping employers retain staff, to provide income support to people who do lose their jobs, and to assist pensioners. One aim is to minimise economic disruption now to facilitate a quicker recovery once coronavirus is brought under control. However, despite these economic initiatives, escalating public health measures saw thousands of businesses close in March, with job losses estimated to be more than one million.

While most of the economic stimulus measures were widely applauded, some concern was expressed over the ability of eligible people to withdraw up to $10,000 from superannuation this financial year, and again in 2020/2021. Withdrawing money from super at a time of depressed prices will likely have a major adverse impact on future superannuation savings, leading a number of observers to suggest that this option only be considered once all others have been exhausted.

Few silver linings
It’s difficult to find any silver linings in the clouds of the current crisis. While motorists may welcome the drop in petrol prices, due to oil falling from over US$60 per barrel to near US$20 per barrel, this is a sign of how hard the pandemic is hitting the economy. One small positive: with airlines grounded, people staying home and many industries closed, air pollution and carbon dioxide emissions are down.

For advice on how to manage your investments through this financial downturn contact us today.

 

This is general information only

Coronavirus fallout

The upside of a market downturn

Most people view share market downturns as unequivocally bad events. Suddenly, hard earned savings aren’t worth as much as they were yesterday. It seems as if our money is evaporating, and in the heat of the moment selling up can look like the best course of action.

The alternative view

But on the opposite side of each share sale is a buyer who thinks that they are getting a bargain. Instead of getting 10 shares to the dollar yesterday, they might pick up 12 or 15 to the dollar today. When the market recovers, the bargain hunters can book a tidy profit.

So why do share markets experience downturns, and what are the upsides?

A range of natural and manmade events can trigger market selloffs:

  • Terrorist attacks
  • Infectious disease outbreaks such as SARS and COVID-19
  • Wars, the possibility of war, and geopolitical issues such as threats to oil supplies
  • Economic upheavals, the bursting of speculative investment bubbles, and market ‘corrections’

In short, anything that is likely to reduce the ability of a broad range of companies to make money is likely to trigger a market sell off.

The common thread that runs through the causes of downturns is uncertainty. In the immediate aftermath of the 9/11 attacks nobody knew what the size of the threat was, and markets dropped. As the fear of further attacks receded, markets soon recovered.

However, the initial drop in market value occurred quite rapidly. By the time many investors got out of the market the damage was already done. Paper losses were converted to real losses, and spooked investors were no longer in a position to benefit from the upswing. After the initial sell off it took the ASX200 Accumulation Index just 36 days to completely recover from 9/11.

Other downturns and recoveries take longer. The Global Financial Crisis began in October 2007, and it wasn’t until nearly six years later that the ASX200 Accumulation Index recovered its lost ground. This caused real pain to investors who bought into the market at its pre-crash peak, but for anyone with cash to invest after the fall, this prolonged recovery represented years of bargain hunting opportunities.

If? Or when?

Of course, much hinges on whether or not markets recover. While history isn’t always a reliable guide to the future it does reveal that, given time, major share market indices in stable countries usually do recover. It’s also important to remember that shares generally produce both capital returns and dividend income. Reinvesting dividends back into a recovering market can be an effective way of boosting returns.

Seek advice

Of course, it’s only natural for investors to be concerned about market downturns, but it’s crucial not to panic and sell at the worst possible time. The fact is that downturns are a regular feature of share markets. However, they are unpredictable, so it’s a good idea to keep some cash in reserve, to be able to make the most of the opportunities that arise whenever the share market does go on sale.

For advice on how to avoid the pitfalls and reap the benefits offered by market selloffs, speak to us today.

 

This is general information only

coronavirus

The true cost of a pandemic

Recent events such as the coronavirus outbreak, bushfires across Australia and the drought highlight the far-reaching effects of an epidemic. Following the initial devastation of these events, the true cost of an epidemic takes time to filter through the economy. In this article, we’re taking a look at the economic impacts that epidemics and pandemics have on a local, regional and global scale.

How do epidemics and pandemics affect industries?

The biggest impact on many industries in an epidemic or pandemic is supply chain delays. Industries rely on specific regions to source parts and products. Using the coronavirus outbreak and assembly lines for technology products, as an example, people in assembly lines typically work in close quarters. To contain the outbreak, factories in China have delayed restarting production after the Lunar New Year break. One smartphone factory, Foxconn, is expecting a 12% decrease in production as a result.

Tourism is another key industry effected by epidemics and pandemics. In Australia, measures to contain coronavirus, including halting incoming flights from China will have significant impacts on the tourism and education industries.

How are individual businesses effected by epidemics and pandemics?

Businesses within the sectors most impacted by epidemics and pandemics experience the effects of an outbreak first. In Australia, for example, travel booking company Webjet experienced a 10% slump in its share price in late-January following the coronavirus outbreak. Other companies such as JB Hi-Fi and Harvey Norman have said their supply of electronics could be disrupted.
Small and medium businesses can often be the hardest hit. Businesses such as restaurants and retailers in tourist hotspots and tourism services companies will be among the hardest hit in Australia over the coming months.

How long does it take for markets to recover after an epidemic?

Market recovery following an epidemic is dependent on a range of factors. Following the SARS outbreak, for example, the Chinese Government deployed fiscal stimulus to aid in economic recovery. At the time of the SARS outbreak (first quarter of 2003), China’s economic growth was 11.1%. By the second quarter, the country’s economic growth fell to 9.1%. As the outbreak was contained, and fiscal stimulus was deployed, China’s economic growth recovered to 10% by the third quarter of 2003. Looking at other markets, the S&P500 posted a gain of 14.59% following the first confirmed case of SARS. The index posted a gain of 20.76% a year after the outbreak.

How will an epidemic or pandemic impact my investments?

The economy has changed since the SARS outbreak. China is now a much larger part of the global economy, accounting for around 17% of global GDP, compared to 4% in 2003, so the economic impacts of coronavirus may be more pronounced. The best thing investors can do right now is exercise caution, but don’t panic. Often market corrections provide investors an opportunity to invest into the market at discount prices. To discuss how your investments may be impacted by coronavirus speak to us today.

 

This is general information only

New Year

4 financial resolutions to kick start the New Year

The dawn of a new year sees many people setting new year’s resolutions such as losing some weight or giving up smoking.

Similarly, the beginning of a new year is the ideal time for setting financial goals, and here are four practical ways you can kick your year off to a great start.

  1. Decide what you want to achieve. January is perfect for taking stock of where you’re at financially, particularly as those post-December bills start rolling in. So perhaps you’d like to start by paying off debt or commence a savings plan for a new car or family holiday. The main thing is to be decisive.
  2. Setting a realistic household budget will provide understanding of your finances and identify areas of unnecessary spending. This will not only assist in balancing your income and expenses, but will help you clear debt and allocate money to other financial goals like setting up an emergency cash fund.
  3. Tidy up your filing cabinet. According to the Australian Taxation Office, you should keep financial records for five years. Shred financial paperwork older than five years and file everything else, including bills, invoices and bank statements. Remember that any filing system you implement should be quickly and easily maintained so you’re motivated to keep your records in order.
  4. Review your paperwork; start with insurances – life insurance, house, car etc. Are they current and are you adequately covered? Are your premiums appropriate for your level of cover? Assess your superannuation and nomination of beneficiary. Is your will up to date or have your circumstances changed? While we’re experiencing record-low interest rates, do a few sums and work out whether you’re getting the best deal on your mortgage. Perhaps it’s time to renegotiate with your lender!

While the idea of setting a new year’s resolution is common, sticking to resolutions and accomplishing them are less so.

The key to achieving any goal is to be SMART about it:
S – be Specific. Clearly define your goal.
M – ensure it’s Measurable so you know when you’ve achieved it.
A – make it Achievable. Planning to complete a marathon in February may not be achievable if you’ve never run before.
R – be Realistic; could you really lose 20 kilos in a month?
T –set a Time by which you want to achieve your goal.

If you’re not sure where to start, talk to us. We can help you put processes in place to get your SMART goals underway.

With a little planning and organisation, being clear about what you want to achieve, and mapping out how and by when you expect to achieve it, you’ll be giving yourself the best possible start to a successful year.

 

This is general information only

360x220 low rates

5 ways to benefit from record low interest rates

Interest rates have never been lower, and it’s possible they might fall even further. This creates opportunities for householders and businesses, so how can you best take advantage of low interest rates?

1. Pay off your debt more quickly
By maintaining constant repayments as interest rates fall, you’ll reduce the time it takes to pay off your loan. That’s because interest will make up less of each repayment, with more going to reduce the outstanding capital. And the great thing is that to take advantage of this strategy you don’t need to do anything. Lenders usually maintain repayments after each drop in interest rates unless you instruct them otherwise.

2. Refinance your home loan
Lenders vary in the extent to which they pass on cuts in official interest rates. So if you want to reduce your loan repayments it might be worth shopping around to see if you can find a better deal from other lenders. Just make sure that, if switching lenders, you take all fees into account to be certain you really are saving money.

If you are restructuring your borrowing another thing to consider is fixing the interest rate on all or part of your loan. This can provide protection from the impact of rising interest rates in the future, though it may mean you benefit less from any further cuts in rates. However, with interest rates already very low, there simply isn’t the room for rates to fall much further.

3. Buy a first home – or upgrade
Low interest rates create opportunities for first homebuyers to get a toehold in the property market, and for existing homeowners to upgrade to a bigger home or better location. While lower interest rates can be a bit of a two-edged sword, as they tend to drive up property prices, most people are happier borrowing in a low rate environment rather than when rates are high.

4. Borrow to invest
While Australians love to invest in property, borrowing to invest in shares is also a viable wealth creation strategy. Often referred to as gearing, the key to successfully investing borrowed funds is that the total returns must exceed the total costs. As the most significant cost is usually the interest on the loan, low rates make this strategy more attractive.
Take care, however. Gearing can magnify investment returns, but it can also increase your losses. It’s therefore important that you fully understand investment risk and how to minimise it.

5. Expand your business
The whole point of a reduction in interest rates is to stimulate the economy, and that includes encouraging business owners to invest in their enterprises. Low interest rates make it cheaper to borrow to buy equipment to increase productivity, to take on more staff, or buy out a competitor and generally expand the business.

Take advice
Some of these strategies are simple ‘no-brainers’. Others involve significant levels of risk. To take a closer look at how you can make the most of low interest rates, talk to us. We’re here to help. 

 

This is general information only

Afterpay 360x220

Being sensible with Buy Now Pay Later this silly season

Move over debit and credit cards; consumers are flocking to Buy Now Pay Later (BNPL) services. Afterpay, Zip Pay and several similar payment solutions allow shoppers to take home their goodies now while paying them off via a few weekly, fortnightly or monthly payments. There’s no interest payable as such, although fees are charged for late payments.

A survey by Mozo reveals that 30% of Australian adults have one or more BNPL accounts and we’re not afraid to use them. Afterpay, our most popular BNPL service, achieved sales of $4.3 billion across Australia and New Zealand in the 2019 financial year, nearly double its sales of the previous year. With the nation set to splurge around $25 billion on Christmas, it’s a safe bet that plenty of that spend will be by BNPL. But with 60% of those surveyed by Mozo admitting that BNPL lead them to buy things that they wouldn’t have otherwise, it begs the question: how to use this payment option sensibly during the silly season?

1. Set your limits
Make sure you have a budget for your Christmas spend, and use it to help resist the temptation of impulse purchases.

2. Track your spending
Don’t just track your BNPL spending. Make sure you review credit and debit card purchases, too. Are you staying within budget across all your spending methods?

3. Avoid fees
Around one third of BNPL users have missed at least one payment. While late fees may seem modest, they can add up.

4. Don’t repay BNPL loans with a credit card
If you don’t pay off your entire credit card bill within the interest-free period, adding your BNPL repayments to the card may see you paying a high rate of interest on your purchases. Better to use a debit card or direct debit from your bank account, and making sure there’s enough money in the account to meet payments.

5. Avoid BNPL if you’re saving for a home loan
Lenders may look at your use of BNPL as a sign that you don’t have significant savings and are living from payday to payday. The lower your debt, of all types, the easier it will be to get a mortgage.

6. Have a happy festive season
Used wisely, BNPL can help you jingle your bells and put the merry in your Christmas. Just make sure you know what you’re signing up for and that you can meet all of the regular payments.

Take care, and you’ll be able to enjoy the start of the New Year without a financial hangover.

For further budgeting tips and financial assistance, talk to us. We’re here to help. 

 

This is general information only

Royal Commission

Financial Advice, Royal Commission and You

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry delivered its final report in February 2019, capping off a process that revealed the unethical and, in some cases, illegal practices of some of Australia’s largest banks, insurance and other financial services companies.

Many of the Royal Commission’s recommendations are aimed squarely at financial services companies, and they should lead to changes in corporate attitudes and practices that will deliver indirect, and hopefully positive changes to many consumers. The Royal Commission also made a number of recommendations that will have a more direct impact on investors. Unfortunately, these may not always be for the better.

Even though the Royal Commission unearthed a wide range of bad behaviours, it’s important to acknowledge the large number of financial advisers who have always adhered to high ethical standards while delivering great outcomes to their clients. Clients of these advisers may see little change in the relationship with their adviser and how their money is managed. So what changes are likely to affect consumers?

A ban on conflicted remuneration
Conflicted remuneration arises when an adviser has an incentive, such as a sales bonus, to recommend an investment product.

Conflicted remuneration was banned some time ago, but existing arrangements were ‘grandfathered’. These grandfathered arrangements will now cease.

An end to trailing commissions
Investment and superannuation products may pay the recommending adviser an ongoing annual or ‘trailing’ commission. The expectation is that the adviser will continue to provide ongoing review of the suitability of the product and recommend changes when warranted.

Unfortunately, the Royal Commission revealed numerous cases where fees were charged and no advice given. This extended to fees being charged to dead peoples’ accounts. All investment and superannuation trailing commissions will cease from 2021. While this should lead to higher investment returns, many consumers will miss out on proactive follow up from advisers unless they ‘opt-in’ and agree to pay for advice. As the cost of such advice may be uneconomic for investors with smaller portfolios, the end of trailing commissions may deliver mixed outcomes. One prediction is that it may spark an increase in so called ‘robo advice’, where automated systems deliver lower cost, albeit more generic advice.

Increased educational requirements for advisers
New advisers must now hold a relevant, degree level qualification. Existing advisers without such qualifications will need to undertake further study.

While qualifications are important, they overlook the value of the real-world knowledge of experienced advisers. Many older advisers may retire rather than undertake additional study, which may lead to a shortage of advisers.

Incidental outcomes
Another indirect outcome of the Royal Commission is that many of the larger banks and insurance companies have decided to sell off their financial advice businesses. This also has the potential to reduce the number of active advisers but may see a rise in the number of smaller, independent advisory firms.

The Royal Commission has delivered a major and necessary shake-up of the financial services industry. To find out what the direct, personal impacts may be for you, talk to us. We’re here to help. 

 

This is general information only

Low rates

Making the most of low interest rates

Banks have not been passing on the full reduction in the Reserve Bank’s official cash rate, but no one knows with any certainty, what the future holds for rates and to what extent.

Most predictions are that they will remain at the low end for some time to come, so while borrowers love low rates and savers curse them, what can be done to make the most of the situation?

Yay!

Major winners of low interest rates are households with mortgages that were taken out at a higher rate. Keeping up repayments at the original level will see the mortgage paid ahead of schedule, delivering a big reduction in the total interest bill.

Property investors can also be winners, particularly when buying property away from the high prices and low rental yields of inner capital city areas. However, care still needs to be taken to avoid excessive debt that could have a disastrous effect when rates rise.

Businesses benefit from a low and stable interest rate environment. It’s cheaper to borrow to grow the business; and a major reason why the Reserve Bank lowered interest rates to stimulate business investment.

Boo!

For everyone cheering on low rates there will be someone booing them.

People who depend on term deposits, high-interest savings accounts and bonds have seen their interest income fall by more than half! Self-funded retirees are particularly affected, especially where interest payments make up most of their income.

Low rates aren’t always the friend of new entrants into the housing market as commonly touted. Low interest has been a major contributor to the rise in house prices, saddling new borrowers with higher levels of debt. With higher debt, any future rate rises will bite harder, so new borrowers need to carefully assess their ability to meet loan repayments when interest rates do rise. It’s also a good idea to reduce debt whenever possible.

Life is also difficult for investors, including everyone contributing to superannuation. The low yield from conservative investments (cash and fixed interest) means there is a greater ‘cost’ in minimising portfolio risk than has previously been the case. One consequence of this is to drive many investors to search for other investments that offer higher cash returns at a potentially higher risk.

Looking for yield

While a bank share paying an annualised 5.83% dividend (including franking credit) looks very attractive beside a term deposit offering 1.70% interest, it needs to be remembered that, in the current climate, any effort to increase yield comes with an increase in risk. Even so, high yield shares can be a viable option for some investors who need a regular income.

What to do?

The best way to navigate the world of low interest rates depends very much on your personal circumstances. Good advice is critical, so talk to us about your situation.

 

This is general information only

Free-Money-Compounding

Tap into the amazing power of compounding

When you invest over a period of time, compound interest is your best friend. In effect, it means you are earning interest not just on your own capital, but also on the interest you’ve already earned. Over the long term, this might be phrased as “interest on interest on interest on interest on interest …” or more simply, “free money”! So how do you get this free money? This is how…

A simple start

Imagine you place $100 in an investment that earns 10% pa. At the end of one year, you’ve earned $10. Then you spend all the interest you receive. At the end of each year, your investment amount is back to $100. That’s simple interest. At the end of 10 years, you will still have your $100, and you will have received a total of $100 in interest.

I = P(1+r)n-P

Don’t worry, we’ll do the maths for you. It calculates your net profit when you earn interest on the interest. That’s what compounding is all about. Going back to our first example – if you re-invest the interest on your original $100, at the end of the first year you will have $110. Leaving it invested at 10% pa, you will earn interest of $11 in the second year, bringing the total in the account to $121. If you keep going for 10 years, your investment will grow to $270.70 – that’s your original $100 plus $170.70 in interest.

Time is money – literally

This example may not seem so impressive, but the power of compound interest really shines over the long term. Looking at our simple situation and taking the interest out each year for 30 years, you will earn a total of $300 in interest. But relying only on the compounding of the interest (ie. no other deposits are made), the total interest earned over the same time would be $1,883.74.

A child born today could easily live to 100. Simple interest on a $100 investment would amount to $1,000 over their lifetime. Left to compound untouched at 10%, that same investment would grow to $2,113,241! Even on such a small initial investment, that’s an incredible difference!

The other critical factor is the actual rate of earnings. If the earnings rate dropped just 1% to 9% pa, a one-hundred-year investment would grow to only $783,548

A couple of drags

Don’t forget to take into account tax and inflation. They act as drags on investment performance.

Let’s assume investment earnings remain at 10% pa and are fully taxable. What will your $100 grow to over 30 years at different tax rates?

As for inflation, although we are currently experiencing very low inflation, nobody knows how long this will last. If it reaches the Reserve Bank’s target of 3%pa, you will need $2.43 in 30 years’ time to buy something that costs $1.00 today.

There are many ways of minimising the effects of tax and inflation. Picking the right tax environment is clearly important. Capital gains are only taxed when an investment is sold, so growth assets have an advantage over those that only produce income. They also cope better with inflation.

Investment risk

Always remember, seeking higher returns generally involves taking higher risks but some of those risks can be managed with an effective and professionally constructed investment strategy.

If you want to take advantage of “the most powerful force in the universe” contact us for a chat.

 

This is general information only

 

Millennials 360x220

Millennials & Money – your unique needs

If you entered the world between 1980 and 1996 you’re part of the “millennial generation”. You’ve grown up in an age of unprecedented abundance and incredible technical innovation, and as a group, enjoy a greater wealth of opportunity – professionally, socially and recreationally – than any previous generation. Many goods and services have never been cheaper in real terms, allowing you to live more for today than adopting your parents’ and grandparents’ single-minded focus on buying a home and saving for retirement.

Career or a combo?

That’s not to say you don’t face challenges. Increased employment casualisation, short-term contracting, and the threat of automation, can potentially threaten your job security. Or you might actually embrace a ‘come and go’ career, interweaving periods of work with stints of travel, child-raising or volunteering. Indeed, many millennials are discovering that the whole concept of work versus recreation is becoming blurred. With a computer the primary tool of trade in many professions, you may be able to work just as easily from a spare bedroom in Berlin or Barcelona as in Parramatta or Perth.

Medical advances promise a long and healthy life, meaning you may not even intend to ‘retire’, choosing to work for as long as health allows.

Is home ownership that important?

Some of your cohort find it liberating not to be tied down to one place by a mortgage and a heap of stuff, however the likelihood is that if you haven’t bought a house already, you still aspire to the great Australian dream of home ownership. This is a real challenge particularly for younger millennials and may involve unacceptable compromises such as living a long distance from work. But attitudes to long-term renting are changing. While Australia has yet to develop both the culture and cooperative ownership structures that make life-long home rental the norm in some countries, it’s a sure bet that enterprising millennials are working to change that. In any case, renting can be an economically viable alternative to buying.

There’s an app for that

Whether it’s finding a meaningful job, financing a new venture through crowd funding, borrowing through P2P platforms, finding a house or just a room, or even looking for love, you know where to find the apps. Still, with the mass of opportunities that have arisen from greater connection and changing social attitudes, life is in many ways more complicated than it was for your forebears.

Let’s talk about money

Managing money is no exception. For a start, there’s the challenge of working out what the right balance is between funding a desirable lifestyle now and saving for medium and long term goals. Once that’s decided there are the questions of how to save and where to invest. The Internet is awash with information and advice, with much of it of a high standard. Unfortunately this is balanced by a vast amount of misinformation and an abundance of shonky investment offers, making it difficult to distinguish the good from the bad.

Fortunately, help is at hand. We’ve made it our business to understand the wants and needs of all generations. There is more to life than saving for retirement and maximising entitlement to the age pension. If you have that millennial feeling and need some advice on how to manage your unique financial needs to get as much out of life as possible, explore our website a little more, find us on Adviser Ratings, then contact us for a chat.

 

This is general information only

Home-loan-refinance

Five reasons to refinance your home loan

Many people treat their home loan as a set-and-forget, riding out whatever the original loan terms and prevailing interest rates dish up. They may be doing themselves a disservice, as there are several ways in which borrowers can benefit from refinancing their mortgage.

1. Find a lower interest rate.
Whether interest rates are rising or falling, in a competitive mortgage market you may be able to refinance your mortgage at a lower interest rate. The benefits are that you can then…

2. Reduce your home loan repayments.
For a given loan term the lower the interest rate the lower your repayments. This then frees up some of your income for other purpose. Or you can…

3. Shorten the term of your loan.
If you maintain your current repayments with a lower interest rate loan, you’ll pay it off sooner and save heaps on interest.

4. Switch from a fixed to a variable rate mortgage (or vice versa).
A fixed rate home loan can help you lock in an interest rate for several years into the future. This can provide some protection against rising interest rates. Conversely, when interest rates are falling, a variable rate loan is the better way to go. Be aware, however, that even the experts often get it wrong when it comes to predicting the direction of future interest rates.

5. Consolidate debt or access equity.
If your home has increased in value then refinancing may allow you to access some of the greater equity you have in your home. This may allow you to pay off higher interest debt, such as credit cards, take a holiday, or pay for renovations.

Take care
While refinancing a home loan can be a winning strategy that’s not automatically the case. There will likely be costs involved in both paying off the existing loan and in establishing the new loan. If the difference in interest rates between the old and new loans is small, it may be hard to gain a benefit.

And take care when refinancing for debt consolidation or to free up equity.

If you promptly max-out the credit card you’ve just paid off, you could be digging a deeper debt hole for yourself.

To find out what would work best in your circumstances, please contact us today.

This is general information only

Insurance

Insurance: Inside or outside Super?

Most people can choose to own life insurance themselves or to hold this insurance in their superannuation fund. But it’s not a simple decision – the way these policies operate and are taxed may vary depending on whether they are held inside or outside super.

A key benefit of having life insurance within your super fund is that the premiums are deducted from your super account, rather than your personal account. The disadvantage is that it can reduce the amount of money you have available in retirement.

In some circumstances, the super fund can claim a tax deduction for the cost of the premiums. So it’s tax-efficient because the premiums are effectively paid with pre-tax money.

However, it’s important to realise that not every superannuation fund offers every type of life insurance cover. Few super funds offer trauma cover because they can’t claim a tax deduction for these premiums. It may not be possible to get the amount of cover that you need, and the terms are sometimes less comprehensive than a policy owned directly.

Another disadvantage is that it’s not always possible to immediately withdraw the money from your super fund. This is because superannuation is designed as a retirement savings vehicle subject to a strict set of rules controlling access. As a result, a beneficiary must satisfy a condition of release as defined in the legislation before receiving any lump sum payment from a Total and Permanent Disability policy held within a super fund.

Anyone can own or be a beneficiary of a life insurance policy owned directly, but the options are narrower for policies held in super because the person must be considered a beneficiary under the super, and may end up paying tax on the payout.

Another option is to take out cover both through super and directly, and in fact, this combination may sometimes offer the best solution.

To find out what would work best in your circumstances, please contact us today.

 

This is general information only

trauma insurance

Trauma insurance fills the gaps

According to an Australian Bureau of Statistics report published in September 2018, cancer is the most common cause of death in Australia accounting for more than 29,000 fatalities in 2017.

Incredibly, thousands of Australians are underinsured or have no insurance in place to cover the expenses caused by life-threatening illnesses. The grief experienced by family for loved ones suffering is often compounded by the costs associated with treatments forcing some to sell the family home to pay for extra time.

If you were one of these statistics, what value would you place on having access to the best available treatment to help you in beating a potentially fatal disease?

Think about how important it would be to take as much time off work as you needed to recover and not worrying about having enough money to pay the bills.

What is trauma insurance?
South African heart surgeon Dr Marius Barnard pioneered the idea of trauma insurance when he regularly witnessed his patients’ families struggling with medical costs. The first policies were offered here in the 1980s.

Trauma insurance, also known as ‘living insurance’ provides a lump sum payment in the event that you are diagnosed with or suffer one of a range of traumatic conditions such as cancer, heart attack and stroke.

Medical advances have meant that our chances of surviving traumatic events are much better than in the past. However, the cost of treatment can sometimes be beyond your normal means. Without insurance cover, you may need to dip into your children’s education fund or your retirement savings; or you might even have to increase your mortgage to pay for expensive treatment.

The difference to income protection
Importantly, a trauma payment is not dependent on you being unfit to work (unlike income protection, where you need a doctor to certify your ongoing health). The diagnosis of a traumatic condition might mean that you physically could go to work, but would prefer to spend time with your family and reduce any work-related stress while you recover and consider how your future will be affected.

Trauma insurance can provide the financial support to allow this flexibility with your work arrangements.

To make sure you don’t increase the statistics, carefully compare the many variations of trauma policies available. There are significant variations in the features between policies such as the number and types of events covered, premium options and ancillary benefits payable. If you require assistance, please contact us today to obtain the right policy for you.

 

This is general information only

financial planner great asset

A good financial planner is your best asset

Financial planning is about establishing a long-term strategy to secure your financial future with the lifestyle and living standards you desire.

‘Value’ often goes beyond dollars and cents. It can be the peace of mind and security that comes with being better prepared for the future. Once you’ve begun a relationship with a licensed adviser you will quickly see that he or she adds value to your circumstances by helping you in a number of ways.

How can a financial planner help?

  • Setting goals
    This process helps you decide where you want to go in life. A skilled financial planner can assist you to identify your financial goals, prioritise them and understand the steps required to turn your vision into reality.

    By knowing your goals and timeframes, it’s easier to see where to concentrate your efforts. You’ll also quickly spot the distractions that would otherwise blow you off course.

  • Getting a financial plan started
    Developing a written plan with a clear emphasis is critical to achieving your financial objectives. Your planner can provide budgeting and debt management advice to help you start creating wealth. Protecting your future dreams with appropriate insurance is another key aspect your planner will manage.

  • Maintaining a diversified portfolio
    Every financial planner is required by law to take a client’s risk tolerance into account as part of their personalised financial plan. Diversification is another important tool for managing risk.

    This means that the advice given and any investments recommended as part of that process are suited to your specific needs and risk level. And these will change to meet your circumstances as they vary throughout life.

  • Being there over the long term
    Going your own way is rarely the best option. Most people don’t have the background knowledge to feel confident about making investment decisions that will have a large bearing on their financial future. Keeping up with all of the legislative changes and new investment offers is also an onerous task. Your planner will be there to steer you on your path to financial independence and ensure your plan remains relevant and on track.

While investment magazines and online subscription services can provide very useful information, they are often written by journalists with a general grounding in financial concepts but who are not looking at the complete picture. A financial planner is trained to take into account all legislative and strategic implications to ensure you receive the best advice possible… and this training is ongoing.

Your financial plan is not a one-off, set-and-forget arrangement. Just as life has its many twists and turns your plan must be flexible and appropriate to your needs at any point in life.

Working together with a qualified, experienced and licensed financial planner will help you develop a plan that is tailored to you and your life goals.

The opportunity to invest tax-effectively using some of these methods will vary from one person to the next. Make sure you seek advice about how they relate to your own situation. Contact us today to get started!

 

This is general information only

Tax Income

Tax rules do not treat all income equally

Anyone who has completed their own tax return will know that the tax office treats different types of income differently. Bank interest is recorded in one section, dividends from shares in another and managed fund distributions somewhere else. And unless you are taking a pension or lump sum from your super, you don’t need to include your earnings on those funds at all.

Returns from investing in shares and property – in particular – come with some real tax benefits. The trick is to make sure you take advantage of them.

Understand the rules

The most common tax benefits are:

  • Franked dividends from Australian shares – these represent a tax credit of up to 30% for tax already paid by the company. But beware, if your franking credit entitlement is over $5,000 the shares must have been held for at least 45 days.
  • A fifty percent discount on the capital gain made from the sale of a personally held asset. Superannuation funds can qualify for a one-third discount. But this only applies where the asset has been held for at least 12 months.
  • Capital losses can be offset against capital gains and the net gain is only payable when the asset is sold. The tax can be deferred for a long time.

Choose who owns the assets

The best tax outcome can be achieved with a low-income earner holding investment assets. They could earn up to $20,542 tax-free, receive a refund of all imputation credits and pay less tax on capital gains. For instance, if an investor on the top marginal tax rate of 47% had a $100,000 capital gain they would pay $23,500 in tax and Medicare. If an investor with no other income had a $100,000 capital gain they would pay $8,797 – a saving of $14,703.

Choose the structure

Superannuation funds have the most generous tax arrangements. If you manage a share portfolio in a super fund, capital gains will be taxed at 10% or 15%, whereas if you held them privately they would be taxed up to 23.5% or 47%.

Imputation credits are especially valuable in a super fund because the fund pays a flat 15% tax and the 30% tax credit can be used to offset tax on other income.

Be smart about timing

The 45-day and 12-month rules are obviously important to maximise tax benefits. Capital gains are only incurred when an asset is sold and capital gains tax (CGT) can be deferred indefinitely. An investment asset can be passed through your estate to future generations and no CGT would be payable.

Superannuation provides special opportunities to avoid CGT altogether. In the accumulation stage of superannuation, the fund pays tax at 15% but once a pension is started, the fund pays no tax at all. A share portfolio or a property can be sold once the pension has started and no CGT would be payable.

The opportunity to invest tax-effectively using some of these methods will vary from one person to the next. Make sure you seek advice about how they relate to your own situation. Contact us today to get started!

 

This is general information only

Invest

How much do I need to start investing?

Far from being the realm of the rich, building an investment portfolio is something that most people can do. It can start as a simple savings plan – a few dollars in the bank – before expanding into a diversified portfolio containing a range of asset classes.

Getting started may be easier than you think, so let’s look at some of the basics.

How do my goals influence investment choice?

Your goals have a big bearing on how you invest.

If you are saving for a specific purpose such as an overseas trip, a car or a home deposit, you’ll most likely have a relatively short investment time frame and will want your savings to grow in a predictable way. In this case an interest-bearing bank account or term deposits will provide the greatest certainty of meeting your savings goal. With no upfront costs you really can get started with a few dollars.

If you have a longer timeframe and the desire for your investments to deliver higher returns, you’ll be looking to include asset classes that can provide capital growth as well as income. These include shares and property. For small investors the most practical way to access property may be via a managed fund. Shares can also be purchased through managed funds, or directly via a share broker.

Taking into account minimum brokerage costs on shares and minimum investment amounts set by fund managers, you’ll probably want to have $1,000 to $2,000 available to make the move from ‘saver’ to ‘investor’.

What are the risks?

Shares, property and even fixed interest investments can all rise and fall in value. In other words, they carry greater risk than cash investments. Spreading your money across a range of asset classes and specific investments, and sticking to a long-term strategy decreases investment risk. But fluctuating markets also create opportunities. If you regularly contribute new funds to your portfolio, you’ll get more for your money during down times than you will when markets are booming.

What about costs?

Fund managers may charge entry fees, management fees and exit fees, and it’s important to be aware of all of the specific fees that apply to you. All other things being equal, the higher the fees the lower your investment returns. Tax can also be considered a cost, and depending on the complexity of your investments, you may also incur fees for accounting and financial advice.

Should I start with a lump sum or with a savings plan?

This depends entirely on you circumstances and desires. Receiving a lump sum such as an inheritance or a tax refund is often the catalyst for someone to start investing. But without such a windfall, it’s still possible to build a great portfolio. Many managed funds offer the option of starting with a relatively small initial deposit followed by regular or irregular additional contributions.

How do I start investing?

Over long time frames, decisions made now can make a big difference to the performance of your portfolio. If you’re new to the field one of the best investments may be to consult a financial adviser. An adviser can help you clarify your goals, understand the jargon and determine your tolerance of risk. They can also recommend specific investments and point out the potential tax implications of different investment choices.

Excited by the possibilities? Getting started is as easy as making a phone callContact us today to get started!

 

This is general information only

Super FAQs

Frequently asked questions about Super

If the ins and outs of superannuation leave you confused, the answers to these frequently asked questions will help you understand the basics.

How much do I need to retire?
According to the Association of Superannuation Funds of Australia (ASFA), a couple requires savings of $640,000 if they wish to enjoy a ‘comfortable’ lifestyle in retirement. For a single, the figure is $545,000. Due to support from the age pension, a single or a couple can fund a ‘modest’ lifestyle with savings of just $70,000 at retirement.

How is my super taxed?
Broadly, contributions are categorised as either concessional or non-concessional.

Concessional contributions are contributions on which an employer or an individual has claimed a tax deduction.

Non-concessional contributions are made from after-tax income. They include many personal contributions and government co-contributions.
Concessional contributions are taxed at 15% within the superfund, with a tax offset available to low income earners. Non-concessional contributions are not taxed within the fund.

Investment earnings are taxed at 15% in the accumulation phase. Over age 60, earnings in the pension phase, and any payouts from the super fund, are tax-free.

How can I contribute to super?
If you are over 18, employed, and earn more than $450 per month your employer will contribute 9.5% of your ordinary time earnings to super. You can further boost your super by:

  • Asking your employer to make concessional salary sacrifice contributions from your pre-tax income.
  • Making personal contributions from your after-tax income. Subject to set limits you may be able to claim a tax deduction for these contributions in which case they will become concessional. If no tax deduction is claimed they will be non-concessional.
  • Low to middle income earners who make a personal non-concessional contribution may receive up to $500 as a government co-contribution.

Age limits and work tests may apply to some types of contribution.

When can I access my super?

  • When you turn 65, even if still working.
  • When you reach preservation age (between 55 and 60 depending on date of birth) and have retired.
  • If you start a transition to retirement (TTR) income stream.
  • If you face severe financial hardship, specific medical conditions or under the first home super saver scheme.

Who can I leave my super to?
If your super fund allows binding death benefit nominations, you can elect to have your superannuation paid to your legal personal representative. The money will then be distributed as instructed by your Will. Alternatively, you can instruct your fund trustees to pay your death benefit to one or more of your ‘dependents’. Under superannuation law these are:

  • Your spouse (includes same-sex and de facto partners).
  • Children.
  • A financial dependent.
  • People you had an interdependency relationship with.

Without a binding nomination, your super fund’s trustees decide which dependents will receive the death benefit. They will be guided, but are not bound by, any non-binding nomination.

How do I make the most of my super?
Superannuation remains, for most people, the best vehicle within which to save for their retirement. However, it can be complicated and there are numerous rules to navigate.

That creates challenges, but it also generates opportunities, many of which can add thousands of dollars per year to your retirement income.

Ready to unearth those opportunities and make the most of your super? Now is the perfect time to talk to contact us!

 

This is general information only

Insurance FAQs

Personal Insurance FAQs

Personal insurances are designed to provide protection from the financial consequences of death or disability. They form an important part of most financial plans. Here, in brief, is how they work.

What are the different types of personal insurance?

Life insurance. This pays a lump sum benefit if you die.

Total and permanent disability insurance (TPD): This pays a lump sum benefit if you meet the definition of being totally and permanently disabled. It is often bundled with life insurance.

Trauma insurance: Also referred to as recovery insurance, trauma insurance pays a lump sum benefit if are diagnosed with or suffer from one of the specified illnesses, such as cancer, heart attack or stroke.

Income protection insurance: If you are unable to work due to illness or injury, income protection insurance will pay you a regular income, usually capped at 75% of your pre-illness income. You can select the waiting period before benefits become payable, and the length of the benefit period.

How much life insurance should I have?

For life and TPD cover, one rule of thumb is to work out how much is needed to pay off debts and provide for current and future family living expenses. Subtract from this total the value of current investments, including superannuation, to arrive at an approximate value of the insurance cover you require. Of course, individual circumstances vary widely. Your financial adviser will be able to help you assess your needs and resources and perform the relevant calculations for you.

How often should I review my cover?

Your personal insurances should be reviewed whenever there is a major change in your personal situation. Key events to look out for include:

  • Taking out a home loan
  • Getting married or setting up house with someone
  • Starting a family
  • Receiving an inheritance
  • Retirement

Generally, as savings increase and debts decrease, the level of cover required reduces over time, but again, much depends on your individual situation.

How do I understand my insurance contract?

It’s important to understand what is and isn’t covered by your insurance. This will be detailed in the Product Disclosure Statement, so it’s important to read and understand this. If you are unsure about anything, ask your adviser for an explanation.

How do I choose the best insurance?

While pure life insurance is pretty straightforward, the other personal insurances may differ significantly from policy to policy. Definitions of diseases may vary. There may be a range of optional extras – some valuable, others more of a gimmick. This complexity means that selecting the best insurance cover is best done with the help of an experienced financial planner.

More than one third of Australian families have no life insurance cover. Many more are under-insured, even though the financial impact of not being adequately insured can be severe. Put your mind at rest. If you have any concerns about the level of protection provided by your current personal insurance policies contact us today!

 

This is general information only

30s

6 common financial mistakes people make in their 30s

Climbing the career ladder, perhaps buying a home and starting a family – the 30s are an exciting stage of life. However, decisions made now can make a big difference to future financial wellbeing, and with so much going on it is understandable, even inevitable, that the best decisions won’t always be made. So what are the common financial mistakes that 30-somethings should be alert to?

1. Buying an expensive car

New cars plummet in value when driven off the showroom floor, and the higher the price tag the greater the fall. Buy with borrowed money and you’re paying interest on an asset of diminishing value. Settling for what you need in a car, rather than what you want, can add hundreds of thousands of dollars to your future nest egg.

2. Living on plastic

If you don’t pay off your credit card balance in full each month you’ll be paying a high rate of interest on the carryover balance. Over time, the growing interest bill makes it increasingly difficult to clear the debt. If not used carefully, buy-now-pay-later schemes can also become something of a debt trap.

3. Forgetting to save

A rule of thumb is to save at least 10% of your income, but saving even a small amount is better than doing nothing. And in your 30s you have time on your side. For instance, when you turn 30 if you put away $200 per month at an interest rate of 5% per annum (after tax), by the time you’re in your 60’s the savings will grow to $166,452. If you wait until you’re 40 to start your savings plan you will accumulate just $82,207.

4. Getting caught up in investment fads

Tulips, alpacas, ostriches, the tech boom, crypto-currencies. Investment fads have come and gone, making fortunes for a few, but big losses for many. It pays to heed tried and true rules such as only investing in things you really understand, and diversifying investments to reduce risk.

5. Not insuring your most important asset

For most 30-somethings your biggest asset is the ability to earn an income. Most health-related absences from work are due to illness or non-work related injuries – things that are not covered by workers compensation. Income protection insurance can replace much of the income lost due to accident or illness.

6. Being too hard on yourself

Let’s face it. We’re all human, and we all make mistakes. Unfortunately, if we beat ourselves up about a mistake we have made it may compound the problem. The sour taste of a bad investment, for example, might put us off making a good investment. That would be a pity because the 30s is a decade of huge potential. Good advice now can help you unlock that potential. To find out more, contact us today!

 

This is general information only

retirement

6 common financial mistakes before retirement

Many of us would like to think that ‘older’ means ‘wiser’, but when it comes to money that isn’t always the case. The complexity of Australia’s superannuation system doesn’t help. The upshot is that there are a number of common mistakes that retiring and retired Australians make. What are those mistakes and how might you avoid them?

  1. Underestimating how much you need

The Association of Superannuation Funds of Australia’s (ASFA) Retirement Standard calculates that a “comfortable” retirement for a couple costs $60,843 per year. For singles the figure is $43,200 per year. To fund these levels of income, the ASFA calculates that a couple will need a nest egg of $640,000, and a single $545,000 at retirement.

  1. Retiring too early.

Australians retiring today can expect to live until their mid-80s. For retirees in their mid-50s, that means finding a way to pay for a further 30 years of life. The obvious solution to retiring too soon is to work longer. This provides a double benefit: it extends the savings period allowing a greater sum to be saved, and delays the point where withdrawals start to eat into accumulated funds.

  1. Not topping up super.

Making additional contributions into superannuation can really boost super savings. Strategies involving salary sacrifice, spouse contributions and government co-contributions should all be in play well before retirement.

  1. Withdrawing super as a lump sum.

Superannuation can be withdrawn as a lump sum after retirement, and if you are over 60 it’s all tax-free. But then what? Common choices are to take that big trip or renovate the home. If you’re thinking of dipping into your savings in a big way, make sure you understand the potential implications for your future lifestyle.

  1. Carrying debt into retirement.

It can be hard enough keeping up mortgage, car finance or credit card interest payments even when you’re working. It can become a real burden in retirement. Where possible, do your best to pay down debt.

  1. Paying for unnecessary insurance.

Free of debt and without financial dependants, you may not need to maintain the same level of life and disability insurance you once required. Also, premiums can become expensive as you get older. The run up to retirement is an ideal time to review your insurances, a task best done under the guidance of your financial adviser.

Invaluable advice.

While the expectation may be that life should get less complicated as you get older, this short list reveals that’s not always the case. Many of these mistakes come with a high price tag but can be avoided by seeking professional advice. Your financial planner will be able to assess your specific circumstances and help you develop a plan for your retirement. But don’t wait until you actually retire. As you can see, it’s never too early to start planning. Contact us today!

 

This is general information only

Financial-Advice

Financial advice is not the same for everyone

Investment planning is an important part of financial planning but underpinning the whole process of creating wealth in the first place is having a good financial strategy. For many people that strategy is taking each day as it comes and letting the future look after itself; but in a complex and ever-changing world, isn’t a more active approach a good idea? Each of us has specific needs and desires, of course, but there are a number of common challenges that we need to think about when developing our financial strategies.

Stage of life

Baby boomers are moving into retirement in droves, so Gen X is taking on the mantle of being the great wealth accumulators. For the most part, this generation has their strategies in place: pay down the mortgage, contribute to super, maybe buy an investment property, and wait for the kids to leave home.

Generationally, it’s millennials who face the greatest challenges in developing a financial strategy. Younger millennials are just embarking on careers and the focus is, understandably, on having a good time. Many feel priced out of the housing market, and while the ‘gig’ economy promises greater work flexibility, this comes with reduced job security and often no employer superannuation contributions. Then there’s the challenge of balancing starting a family with establishing a career. All up there’s a lot to plan for.

Gender

The path to income equality is a slow and frustrating one. In general, over their working lives, women continue to earn significantly less than men. This is largely due to time out of the workforce to look after children. However, progress is being made, and an increasing number of women are earning more than their partners. Having Dad take time off to look after the kids then becomes a viable financial strategy. On top of that, the gig economy, and technology in general, is opening up more opportunities for stay-at-home parents to earn a decent income.

Relationship breakdown

Sadly, many long-term relationships end, and the emotional and financial costs can be high. This isn’t an issue that anyone wants to think about but is obviously a trigger for developing a new financial strategy. This is particularly important when children are involved, and expert help will likely be needed.

Inheritance

More wealth is being transferred from older to younger generations than ever before, and thanks to superannuation, this trend can only grow. Receiving an inheritance is often the event that leads many people to seek financial advice. While the focus may be on creating an investment plan, this is an ideal time to look at the broader financial strategy to make the most of any inheritance.

Never too soon to start

The upshot is that pretty much everyone can benefit from having a financial plan. It doesn’t need to be complicated and you can get the ball rolling yourself. A simple savings plan or paying off credit card debt can be good places start.

To make the most of your situation it’s a good idea to talk to a financial adviser. A qualified financial adviser can help you understand the complex financial environment and what you need to know to work out the likely outcomes of different strategies. Contact us today!

This is general information only

Start living

Retirement: it’s time to get busy living!

Many people eagerly anticipate retirement. Others view its approach with trepidation, worried over how they’ll fill their days.

Australians are living longer; it’s not unreasonable to assume you’ll be retired for 20 or 30 years. Not sure how you’ll fill all those days? We have a few ideas to kick-start your new life.

Learn/Teach something

Do you have skills and talents you can share with others? Are you interested in learning from others in return? The University of the Third Age (U3A) may be your kind of group.

Located all over Australia, U3A groups meet regularly to provide learning and engagement for older people and disabled younger people. Organisers run structured courses with professional leaders or casual knowledge-share sessions conducted by group members or invited guests.

Look up the U3A in your area or visit www.u3a.org.au for information.

Become an Olympic athlete

Return to your favourite sport or learn a new one. Sports like archery and golf are Olympic sports! It’s true, and organisers of the 2020 Tokyo games are considering including bowls as well. Or closer to home, you can begin preparing now to enter the Pan Pacific Masters Games on the Gold Coast in 2020.

Write your memoirs

Everyone has a story to tell – yes, even you! You may think your life is rather ho-hum, but your children and grandchildren might disagree. Many independent publishers will help you produce a beautiful memoir with a short print run, perfect for family and friends.

Community

Feel like giving something back? The Australian Men’s Shed Association is a body that supports the health and wellbeing of men. It’s a terrific organisation for retirees with academic or practical skills to share through events and learning activities. To find a Men’s Shed near you, go to www.mensshed.org for details.

If that’s not your thing consider helping 4-legged friends at your local animal shelter. Love children? What about becoming a “Pyjama Angel”? Full details can be found on the Pyjama Foundation website www.thepyjamafoundation.com. Or check out your community notice board for local opportunities.

If retirement has snuck up and caught you unprepared, think about what you enjoy doing, what your skills and interests are and get busy. You’ve still got a lot of living to do – and finally, it’s all about you!

This is general information only

zero-percent-loan 360x220px

Making interest-free deals work for you

They have been around for decades, but interest-free deals can still be confusing and costly when not managed correctly.

Excitable advertising can make these offers almost too good to refuse, particularly with longer terms applying to higher levels of finance. For example, to get five years’ interest-free on purchases from some retailers, the minimum spend is $1,000. This simple condition could turn a necessary purchase of say, a new fridge, into a multiple purchase prompted by the seemingly innocent question, “do you need to upgrade your TV?”.

Five years up your sleeve to pay off a larger purchase may sound too tempting to pass up but never forget the age-tested maxim “buyer beware”. In the case of interest-free it’s not always as simple as it sounds.

How do these deals make money?

Not to be confused with the newer “buy now, pay later” products where no interest is ever charged, interest-free deals simply defer the interest to the end of the promotional period and then it appears with guns blazing! Interest will be charged on any outstanding amount at ridiculously high levels, often close to 30% per annum.

For instance, if you had a loan of $3,000, how would you feel about paying an extra $1,000 interest per year? That’s not smart buying.

Although some do, the credit provider is not obligated to warn that the interest-free period is ending. It’s up to you to calculate the monthly repayments to clear the debt during the interest-free period and pay that amount – or more if you can.

It’s not just interest

It may seem attractive but having a longer period to pay off a purchase will cost you more, particularly when it’s for a relatively inexpensive item, e.g. a $1,000 TV. The monthly account-keeping fee will add up considerably over a longer period. Five years (60 months) at $5.95 is an extra $357 in fees. Reducing the period of the loan will save you money on these fees. There are also late payment fees if you miss the monthly due date.

As part of the deal, you will usually be provided with a store card or another credit card for this purchase. The card credit limit may be much higher than your initial purchase as a way to encourage you to spend more, so if you don’t need the extra credit ask for the card limit to match the full purchase price when completing the application. The salesman may explain that you might not be able to increase it later but take control and stick to your decision.

The card could also have an annual fee so if you repay the total balance within the first 12 months and don’t plan to use it for another purchase make a note to cancel it before the provider charges another annual fee.

Buying smart

If you intend to buy using an interest-free offer, check your budget and make sure you can repay the entire purchase price (plus fees) before the expiry of the interest-free period. Managed well, interest will be your friend. If not, it will be a very expensive enemy.

Looking to learn more about interest?

Check out our free Understanding Credit Cards course – we’ll tell you what you need to know to ensure you never let your credit card get the best of you!

 

This is general information only

aussie dollar

Does the value of the Aussie dollar affect you?

You might think that only importers and exporters pay attention to the value of the Aussie dollar, but movements in the exchange rate affect us all.

After peaking at US$0.81 in late January 2018 the Australian dollar fell as low as US$0.70 in October. It also fell against a number of other currencies.

A falling Aussie dollar makes it more costly to travel overseas and increases the local cost of imported goods. On the upside, it makes many of our exports less expensive for foreign buyers, giving a boost to our farmers and other exporters.

The reverse applies in the case of a rising dollar, but movements in exchange rates don’t just influence our living costs. Most people with superannuation will have a portion invested in overseas assets, and changes in currency values can also influence the performance of retirement savings – a lower dollar boosts the local value of our overseas investments while a higher dollar has the reverse effect.

So what are the main influences on exchange rates? Ultimately it comes down to supply and demand, and that can be determined by a number of things:

  1. Interest rates. Imagine an Australian investor earning 1% interest on her money. She looks across the Pacific and sees that she can earn 2% in the USA. Here’s an opportunity to double her income! To do so she needs to buy US dollars, increasing demand for the greenback and thus increasing its value against the Australian dollar. Exchange rates respond very quickly to both actual changes in official interest rates, and to expectations of where interest rates in different countries are heading.
  2. Commodity prices. From wheat and wool, to iron ore and natural gas, Australia produces a wealth of commodities. When demand for materials falls, less money flows into Australia, and with decreased demand our dollar falls in value.
  3. The economy. If the economy is doing it tough the Reserve Bank of Australia may drop interest rates to encourage borrowing and stimulate investment. This takes us back to item 1. A weak economy relative to other countries attracts less overseas investment, causing the local currency to fall.
  4. Politics. Elections and referenda can create a climate of economic uncertainty that investors, on the whole, don’t like. However, if the market thinks that a more business-friendly government is likely to be elected, this could boost the value of our dollar.
  5. Fear. In times of market volatility and global political upheaval, investors flock to the US dollar as a ‘safe haven’ currency. Most other currencies, including ours, usually fall relative to the US currency.

But it’s not that simple

Other things can influence currency values, such as speculation or central bank intervention. There’s also a lot of interaction between the influences outlined above. For example, strong commodity prices may give a boost to the economy, which leads to higher interest rates. Throw in some political uncertainty add a touch of speculation and things quickly become very complicated.

So, will the Aussie dollar rise or continue to fall? History suggests flipping a coin may provide as useful an answer as following the opinions of ‘experts’.

 

Does the value of the Aussie dollar affect you?

18/11/2018

This is general information only

What can you tell your employees about super 360 x 220px

What can you tell your employees about Super?

It’s a common question asked by employees: “what should I do about my super?” If you are an employer or manager and feel confident of your knowledge of superannuation and investment, it can be tempting to give an answer. However, just about anything helpful you have to say will likely fall within the definition of giving financial product advice, and that could land you in very hot water.

The boundaries

Financial product advice is a recommendation or statement of opinion that:

  • is intended to influence a person or persons in making a decision in relation to a financial product or class of products; or
  • could reasonably be regarded as being intended to have such an influence.

The Corporations Act casts a wide net. Financial product advice can include anything you say about:

  • joining, or making contributions to, a superannuation fund;
  • making additional contributions to a super fund, including by salary sacrifice;
  • rolling accumulated superannuation into or out of a fund; and
  • selecting particular investment or insurance options within a superannuation fund.

The ability to provide advice is generally restricted to holders of an Australian Financial Services Licence or their representatives. Very few employers, or their staff, fall into this category, and giving financial product advice, even inadvertently, could lead to prosecution.

What can you talk about?

You can provide factual information that does not include a recommendation, an opinion, or an intention to influence a person’s decision regarding their super. This allows you to provide information about:

  • employees’ rights and employer obligations;
  • how your employees can tell you what superannuation fund or retirement savings account (RSA) they want their superannuation guarantee contributions paid into; or
  • the employer fund into which you will pay superannuation guarantee contributions if the employee doesn’t nominate a superannuation fund or RSA.

You can also give your employees the Product Disclosure Statement (PDS) of your default superannuation fund. Just don’t provide any explanation of the material it contains or attempt to recommend the default fund.

How can you help?

None of this precludes you from helping your employees. You just need to go about it the right way.

For example, you can refer employees to a licensed or authorised adviser. Just be sure to disclose any benefit you may gain from making such a referral. Or you can ask a superannuation fund provider to make a presentation to your employees. Take care, though, that you don’t give the impression of either endorsing or disapproving of the fund in question.

Being asked for advice is recognition that your employees respect your views and knowledge. It can be flattering and you may well know a great deal about superannuation and investment. However, without the necessary authorisation, you need to steer well clear of financial product advice. And it’s not just you who needs to be aware of these restrictions. You need to ensure that your HR staff and line managers are also aware.

 

What can you tell your employees about Super

14/11/2018

This is general information only

Gifting 360 x 220px

To gift or not to gift

With Australia’s age pension being subject to an assets and income test, a simple way for part-pensioners to increase their pension payments is to give away some assets.

Not surprisingly the government is on to such an obvious strategy. It’s called gifting, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess, what it calls “deprived assets”, for five years.

The limits

Gifting is defined as giving away assets or transferring them for less than their market value. Limits are the same for both singles and couples.

If you give away less than $10,000 within a single financial year and no more than $30,000 over five consecutive financial years, Centrelink will disregard these gifts.

Any gifts in excess of the allowable amount will be assessed as an asset (and, where applicable, subject to the income test) for a period of five years from when the gift was made.

Planning ahead

These rules don’t just apply to existing pensioners. They also concern anyone who is applying for the age pension, as recent retiree Frank discovered.

Frank has reached age pension age and based on his current assets and income he should be eligible for a part pension. However:

  • Four years ago he gave his daughter one of his cars, valued at $25,000.
  • At the same time he gave his son $25,000 in cash, to match the value of the car.
  • Two years ago Frank sold a beach house on the open market for $210,000. This was $40,000 less than the initial valuation from the estate agent.
  • In the past year he spent $35,000 on home renovations and $15,000 on an overseas trip.

What does this mean for his pension assessment?

The money spent on renovations and holidays count as normal living expenses, not a gift. Likewise, with $210,000 being the best offer Frank received for his holiday home after it had been on the market for a couple of months, the property would not be considered to have been disposed of for less than its market value.

Whilst he understands that the money he gave to his son is clearly a gift, Frank’s biggest surprise is the treatment of the car. Four years after he gave it to his daughter it’s about to be treated by Centrelink as an asset Frank still owns.

That means Frank gave away $50,000 in one year. The annual ‘Gifting Free Area’ is $10,000, so the difference, $40,000, will be counted as an asset for the next year. This will reduce his pension by more than $100 per fortnight.

If Frank had thought about his pension five years before he was eligible to apply for it, he could have achieved a better outcome.

Seek advice

To gift or not to gift? It’s an intricate question. The right answer depends very much on personal circumstances, so talk to your financial planner. He or she can help you work through all the issues, including the complex calculations of the impact of multiple gifts over several years.

 

To gift or not to gift

31/10/2018

This is general information only

Switch 360 x 220px

Switch and save

When developing a budget, it’s easy to think that you have no control over costs for essential items such as electricity, particularly when every bill seems to be higher than the last. But if you look closely at your energy usage at home and make a few small changes to reduce your consumption, you will be able to use that extra cash in more enjoyable ways than paying it to an electricity provider. In addition, you are making a valuable contribution to the environment.

The following five tips can help put more money in your pocket.

  1. Install efficient appliances. Compact fluorescent light bulbs use 80% less energy and can last up to eight times longer than conventional bulbs. Similarly, installing a water-saving showerhead can cut water usage by up to 50% and save on water heating costs.
  2. Control the temperature. Set the air-conditioner thermostat at an appropriate level that is optimum for comfort and efficiency. 25°C is the recommended temperature. Wearing appropriate clothing for the climate and installing insulation can reduce the need for additional heating or cooling.
  3. Go natural. Using the sun and fresh air to dry your laundry is a free alternative to the clothes dryer.
  4. Consult the stars. When purchasing new appliances, check the star or energy rating. The more stars, the greater the energy efficiency, and the more you can save.
  5. Turn it off. Turn off appliances if you are no longer using them; even turning off the standby function on electronic equipment will save dollars. A very simple habit is to switch off the light every time you leave a room.

There are many more ideas– just look around your home to discover ways you can switch and save. Don’t forget to involve your kids. It will help them to learn about saving money at the same time.

And finally, with so many energy companies vying for your business, shop around for the best deal for you. Visit the Australian Government’s website www.energymadeeasy.gov.au/ to compare energy offers.

 

Energy made easy

17/10/2018

This is general information only

Loan maze 360 x 220px

Navigating the loan maze

When choosing the right type of loan to suit your needs now and into the future, there are many factors to consider.

What is the purpose of the loan?

Credit cards provide immediate access to credit that can be used for many purposes, but the interest rate is high so they are best relied on only for short-term loans.

If you need a larger loan to pay back over a longer period, consider a personal loan. These tend to be used for purchases such as holidays or cars.

As the name suggests, a home loan is used for property purchases, either for your own home or an investment. They come in a variety of forms, from the “no-frills” products with low interest rates through to loans offering features such as offset accounts or redraw facilities. Home loans can alternatively be structured as lines of credit that enable a borrower to repay and redraw the loan on an ongoing basis.

If you are planning to invest in shares and managed funds, then a margin loan might be more appropriate; or products with built-in lending facilities, such as installment warrants.

Principal and interest or interest only?

A principal-and-interest loan involves a repayment comprising the monthly interest on the outstanding balance plus an amount that will reduce the principal over the term of the loan.

Under an interest-only arrangement, the borrower pays the interest expense while the loan is held and doesn’t repay the amount borrowed until the end of the term. These loans are not generally provided for long terms. For instance, a homebuyer or investor takes out a 25 or 30-year mortgage and repays only interest for the first five or ten years, after which the property is sold and the loan paid out in full, or it reverts to a P&I loan for the remainder of the term.

If you’re borrowing to invest, the interest charged on the loan is generally tax-deductible. This means that choosing an initial interest-only loan, rather than a principal-and-interest product, could be simpler for tax purposes and allow you to maximise your deductions over the term that you hold the investment.

On the other hand, using a line-of-credit facility to buy a depreciating asset, such as a car, could mean that over time you end up owing much more than the item is worth, and pay more interest than a traditional principal-and-interest loan.

Which loan is right for me?

In determining the most suitable loan, look closely at the fees, charges and the interest rates – these can add significantly to the cost of the loan. Also, remember that you usually pay for any additional features attached to the loan. If you’re not sure, we can help you navigate the many choices.

 

Navigating the loan maze

05/09/2018

This is general information only

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