Finance

Financial advice is not the same for everyone

20 March, 20198 September, 2022 Updated on8 September, 2022 Finance

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

When an SMSF may be the wrong idea

20 May, 20204 May, 2022 Updated on4 May, 2022 Finance, Investing, Superannuation

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 (SMSF’s) 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 summariseWhile 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.

6 common financial mistakes people make in their 30s

24 April, 20198 September, 2022 Updated on8 September, 2022 Finance

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

How much do I need to start investing?

5 June, 20198 September, 2022 Updated on8 September, 2022 Finance

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 call. Contact us today to get started! This is general information only

Why the share market is not the same as the economy

26 October, 202219 October, 2022 Updated on19 October, 2022 Economy, Finance

At the beginning of 2022 the Australian economy appeared to be sliding into recession, dragged down by higher interest rates and even higher inflation levels. As a result, it was tempting to believe the share market was also set to tumble. And while that’s not impossible, the local market traded higher during each of Australia’s last nine recessions, with some of the strongest trading on the Australian share market occurring when the economy was contracting. For example, 1983 was the best year ever on the Australian share market, climbing 60 per cent higher, while the economy was stuck hard in the 1981-1983 recession. So, while it is tempting to think poor economic times mean a dismal outlook for the market, there are four key reasons why that is usually not the case. Firstly, the market is driven by expectations. There is an old saying; investors buy on the rumour and sell on the facts. Big share market falls occur suddenly, well before the economy officially moves into recession, as investors promptly react to bad news. Once the economy is in recession, investors look to the future and how companies can take advantage of emerging opportunities in an improving economy. Improvements that can take time to show up in economic data. Secondly, the share market reflects investor sentiment, while consumer concerns and beliefs dominate the economy. Consumers might cut back on buying clothes or going out in preference to boosting savings when they fear bad times. In contrast, professional investors are constantly looking for opportunities, and economic downturns where small businesses go bust and consumer sentiment changes, usually create them. Thirdly, the share market comprises large successful companies. In contrast, economic statistics are dominated by what is happening to individuals and small businesses. Two groups that can respond very differently to world events. For example, the war in Ukraine prompted a rise in energy prices, particularly for oil. Most individuals and small businesses responded by cutting back on their petrol consumption, while large oil companies are cranking up production to take advantage of these higher prices. Finally, the share market has a much smaller universe than the economy. The market is made up of large companies entirely focused on getting larger and more profitable and, in doing so, attracting more investors to support their efforts. The economy is made up of Governments, individuals, and small businesses, all making a wide range of decisions about how they will live and operate in an ever-changing world and are basing those decisions on a raft of factors. So, while the share market and economy are connected, they are influenced by widely different variants that often see them heading in different directions. The information provided in this article is general in nature only and does not constitute personal financial advice.

What to consider when withdrawing your super early

17 June, 202021 December, 2020 Updated on21 December, 2020 Finance

[fsn_row][fsn_column width=”12″][fsn_text] 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 maxMuch 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 riskOn 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. [/fsn_text][/fsn_column][/fsn_row]

Does the value of the Aussie dollar affect you?

28 November, 20188 September, 2022 Updated on8 September, 2022 Finance

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: 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. 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. 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. 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. 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

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