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The first step that I would take would be to make a concessional contribution of $10,000 to superannuation, and for this money to be invested into a managed growth model that we regularly recommend to our clients. The tax office would take a 15% tax out of this contribution and the remaining $8500 would be invested.
Crucially, though, this step would see me receive a tax refund, as I can claim the $10,000 as a deduction, resulting in a refund of about $4500. I would invest the refund in my professionally managed share portfolio, which is family-linked to my superannuation account.
Both portfolios would have an allocation of 90% to shares and property and 10% to defensive strategies. The portfolios are diversified in terms of managers and asset class and rebalanced on a quarterly basis. This is how it would work:
- Concessional super contribution: $10,000
- Contributions tax: $1500
- Invested amount: $8500
- Tax refund: $4500 (assuming assessable income of $200,000)
- Invested amount: $4500
- Super investment: $8500
- Managed share portfolio: $4500
- Return on investment: 30%
When boring delivery goods, plus piece of mind
At any given time there are investment trends and themes. Some examples at the moment are cryptocurrency, non-fungible tokens, emerging markets, impact investing and, of course, property.
When building plans for our clients, we like to break the choices they have around assets into five categories. And right up front I want to make a disclaimer: yes, this article is general in nature, but, more importantly, it is going to be quite boring. Boring in a good way, though, as our type of boring will help you avoid the big mistake, the next get-rich-quick scheme, and will deliver long-term peace of mind that only a plan can provide.
By aligning investment choices and behaviours with what is important to investors, it is far more likely they will ride through the investment cycles and put themselves in a better position in the long term.
An important place to start the planning process is lifestyle assets -notably to be able to own your own home and to get rid of any bad debts (home loans, personal loans and credit cards). Home ownership is one of the building blocks to any long-term plan for financial success, as it provides stability, and when it comes to the repayment of a mortgage it creates discipline and a forced savings mentality.
Cash flow makes all the choices possible, and unless you spend less than you earn, financial success will continue to elude you. Money magazine readers would be familiar with offset accounts and, as strong believers that every account should have a purpose, we have taken our offset strategy a step further and advocate the use of home loans that allow borrowers to use multiple offset accounts that are linked to their home loan.
What this means is that borrowers can have several months’ worth of expenses in their “rainy day” offset account, but also regularly allocate money to a “holiday” and a “bills” offset account. Having this money readily available in cash frees you up to allocate more money to our suggested strategies.
We now turn our attention to the investment choices that are going to help you build passive assets. A passive asset is an investment that has no debt and will provide you with an ongoing income stream and access to some capital growth. Some common examples of passive assets are superannuation, a share portfolio and an investment property.
For many people, superannuation may well have been your very first investment, and one that provides a very timely reminder of the magic of compound interest. All investors should be mindful that you achieve better outcomes for your retirement assets by driving down costs, ensuring your funds are allocated to the right types of assets and contributing as much to super as your personal budget allows. For example, concessional (tax-deductible) super contributions increased to $27,500 from July 1, and for those with less than $500,000 there is scope to catch up on payments.
Building a managed share portfolio is really no different from building your super. It requires a long-term approach, discipline and alignment with your risk profile, and for consistent outcomes it should be professionally managed. Professional management will allow you to invest in the portfolio monthly, and for your portfolio to have proper levels of diversification with quarterly rebalancing and to be invested in line with your personal preferences.
While it might be tempting to add gearing, in my experience for most investors this will only add risk and complexity and lead to anxiety. Many public offer super funds also allow investors to establish a personal share or fund portfolio, and to take advantage of generous fee savings via what is called family fee linking.
Having at least one investment property is a choice that can provide benefits throughout your working life and peace of mind knowing that you have a substantial asset working for you in the background. Once your home loan has been repaid, it is important that you turn your attention to minimising your investment debts so that by the time you retire this asset is debt free.
We have consistently applied this framework with our clients over a 13-year period and it is central to our proposition to create healthy, wealthy and happy outcomes.
This article appears in the November issue of Money magazine. You can purchase the magazine here to read the full story by Julia Newbould.
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We believe the true value of financial advice isn’t found in dollars and cents (although this is important too!) but in the peace of mind a financial plan can provide. It’s knowing where you want to go and how to get there, with a dedicated team behind you every step of the way.
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The amount of super you’ll need when you retire depends on your big costs in retirement and the lifestyle you want. The Associate of Superannuation Funds of Australia (ASFA) estimates for a single $44,224 a year and for couples $62,562 a year is how much you may need. This is only an indicator and our advisers assess everyone’s individual circumstances.
The fees we charge for financial advice is only a fraction of the value we derive for our clients, meaning our clients are always better off after seeing us. Rarely do we encounter a new client invested appropriately for their needs, with adequate risk protection, structuring and estate planning provisions in place. Even small tweaks to a financial plan over a long period of time can result in drastically better outcomes for our clients which eclipses the fees of the financial advice. Additionally, you can opt-out of an ongoing fee arrangement at any time.
In our discovery meeting with you our advisers discuss the initial advice fee and the ongoing fees associated with our services.
After our initial phone call to discuss why you are seeking a financial adviser, we arrange a discovery meeting that outlines what is important to you, your current position, our areas of advice, our approach. We then present a Statement of Advice (SoA) to discuss your goals and our recommendations and go through the steps of how to proceed to the implementation stage. After signing the SoA, we discuss your questions, get you to sign the authority to proceed and complete any application forms before implementing the recommendations detailed in the SoA.
One thing to consider is the interest rate on your home loan in comparison to the rate of return on your super fund. Before making a decision, it’s also important to weigh up your stage in life, particularly your age and your appetite for risk. Whatever strategy you choose you’ll need to regularly review your options if you’re making regular voluntary super contributions or extra mortgage repayments. As bank interest rates move and markets fluctuate, the strategy you choose today may be different from the one that is right for you in the future
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