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Financial advice

Opening-up-about-money

Opening up about money

By | Financial advice | No Comments

Funny thing, money. On the one hand it can get us excited or give us a real sense of achievement (think reaching a savings goal). On the other hand, it’s something we tend to keep to ourselves. Whether our finances are in great shape or need a bit of TLC, talking about it openly with a partner or loved one could help you share your experiences and align your financial goals.

Why we don’t talk about money

There are all sorts of reasons we don’t discuss money, and the psychology behind it is different for each of us.

Some of us had it drummed into us at an early age. Remember gran telling you it was rude to talk about money? Well, her advice should have come with a few caveats.

Another reason is that, for many of us, our sense of self and success is wrapped up with how financially successful we are. So we play our cards very close to our chest. It’s also why we see people falling into the trap of using money they don’t have to project a false, more successful ‘version’ of themselves.

When we should be talking about money

Some things are best kept to yourself (like your PIN!), but there are circumstances where you could really benefit from an honest discussion about your finances. Here are a few examples:

  • In a relationship? Talking openly about your finances with your partner could help you align your goals and pool your knowledge.
  • Worried about your finances? Opening up to a close family member could help you regain psychological control of your situation.
  • Planning for the long term? Talking to a licensed financial advisor about what you want to achieve could help you set achievable goals for the future.

Getting the conversation going

Once you’ve decided to have the chat and chosen a trusted person to talk to, here are three steps that’ll help you make the most of your time:

  • Decide what you want from the conversation. Do you want advice, help or just someone to talk things through with?
  • Share your feelings. If you’re feeling overwhelmed or worried, say so.
  • Focus on outcomes. Try and walk away from the conversation with a positive change you can move forward with.

So there we are. Opening up about your finances could be a great help, but remember – your financial information is private, so treat it with care. You can still discuss goals, share hints and tips, and get advice without revealing sensitive information.

Source: ING

Ka-ching-talking-money-with-kids

Ka-Ching! Talking money with kids

By | Cash Flow and Budgeting Strategies, Financial advice | No Comments

Parents and guardians want to send children out into the world armed with the skills and knowledge they need to succeed but oddly, many of us never talk to them about money and how to manage it. Here are a few simple tips for passing on good money habits.

Earlier the better

If you’re wondering when to start a child’s financial education, here’s the answer: today. Every lesson in financial responsibility, no matter how small, can help shape a child’s view of money, its value and how it should be used. They’ll pick up on ideas like not spending more than you have by listening to you and watching how you act. Once those basics are in place, you can take them to the next level with practical applications – like earning money with chores and saving for something they want. Good habits picked up early in life will stay with them and help determine their future relationship with money.

Start them off at home

There are a number of ways you can help kids get used to handling money and budgets. And it’s important to remember that any practice is good practice. Lunch money might be a good place to start. If you usually give them a daily allowance, try changing to weekly or monthly. Then keep checking in to see how they’re doing and if they’re managing to stay on track. If they’re a bit older, you could set them up with a transaction account. It’s a good way to get them thinking about budgets, outgoings and living within their means.

Let them see you doing it

Setting a good example is a sure-fire way to pass on good financial behaviour. So while you’ve got the kids at the shops, show them what you’re doing and why. Explain why you’re buying extra units of a sale item to save in the long run. Or how coupons can help bring prices down. Once you explain your behaviour and they understand it, it’ll be reinforced every time they see you do it.

Let them learn by doing

One of the best ways to teach kids is to set practical financial tasks for them to complete. For example, you could put them in charge of the family’s meals for the week and give them a budget to shop with. Show them how they can save on some items (by buying own-brand or sale items) so they can spend more on others. They’ll get it wrong at least once, but that’s ok! It’s as much of a learning experience as getting it right. Just show them where they went wrong and let them try again.

Source: ING

Stay-one-step-ahead-of-online-scams

Stay one step ahead of online scams

By | Financial advice | No Comments

Just as the internet continues to surprise us every day, so do online scams and fraudsters. It’s good to stay in the know with the cyber dark arts so you can quickly spot them.

Keeping your computer secure

The first place to start is right under your nose. Spyware and Malware can snoop on your internet activities on your phone and computer. Here’s what you can do to protect your computer:

  • Install a reliable internet security program
  • Cover the camera on your laptop or computer (as certain Spyware allows the scammer to watch you and learn your everyday movements)
  • Regularly update your browser and operating system
  • Scan your USB sticks (and other removable media devices) before you use them
  • Disable autorun programs on your computer
  • Don’t open emails from unknown sources.

Phishing

Phishing is where criminals attempt to get your personal details, like bank account numbers, credit card numbers and most importantly your passwords, normally through the scammer portraying themselves as a trustworthy and genuine source through an email or text.

Phishing messages are designed to look genuine and will copy the format used by the organisation that the scammer is pretending to be.

Do not click on any phishing communication, or any attachments or links contained within that communication.

Skimming

This is a scam where your charge card numbers are stolen, often through card processing gadgets. For example, a device might be placed over the top of the card reader at an ATM to try and record your account numbers.

How to avoid skimming scams

Naturally, you should immediately contact your bank if you suspect there is something unusual going on, but it’s better to avoid the problem by making it harder for criminals to steal your information.

  • Choose an ATM that looks like it’s in a secure location (ie the location has visible security cameras), like a bank
  • Give the card reader a little jiggle before you use it. If it’s loose, there’s a good chance that it’s dodgy.

If you think that you’ve been skimmed, call the ATM’s bank and your bank straight away.

Porting

“Porting” happens when someone steals your personal information to transfer your mobile phone number to them without your knowledge or consent.

This can happen by the scammer:

  • setting up a new account with different phone company (by pretending to be you) and then porting your number; or
  • contacting your existing phone company pretending to be you and requesting a new SIM card which contains your number, for use on their mobile.

Once transferred, your stolen mobile phone number can be used to receive SMS verification codes and allowing that person to access your personal services, such as your bank, email and social media accounts.

You’ll know your phone number has been ported if you unexpectedly lose phone reception or coverage (you’re unable to make or receive calls or messages) and your phone goes to ‘SOS only’ when everyone else has reception bars.

How to protect your phone from being ported

Noting that scammers still need your personal information to port your phone (including your full name, mobile phone number, date of birth and answers to security questions), you should be extra careful with your personal information online.  Some handy tips to prevent porting are below:

  • Hide your mobile phone number from public viewing in your social media profiles. You can Google your mobile phone number to see where it shows up and have it taken down.
  • Remove your birth date from public view (similar to your mobile phone number) – keep in mind that a scammer can work out your birth date from photos or posts on social media.
  • Scammers can gain your personal information from your personal mail, so make sure you have a lock on your letterbox or consider using a PO Box.
  • Keep the PIN numbers and passwords you use for telephone companies and banks secret.

Unsolicited phone calls

Sometimes a scam will start with a phone call you didn’t ask for from a person or company you don’t know.

Some examples of unsolicited phone scams are:

  • The scammer mentions that you need to make a payment or confirm your bank details.
  • The scammer mentions a service you didn’t sign up for and needs your details to process it
  • You receive an automated voice call asking for sensitive information
  • If in doubt, call the company’s general line phone number advertised on their official website to confirm they called you. However, be wary that if you’ve never heard of the company before, the website may be set up to make the scam more credible.

Source: ING

Three-reasons-why-fun-should-be-in-your-budget

Three reasons why fun should be in your budget

By | Cash Flow and Budgeting Strategies, Financial advice | No Comments

It’s fair to say that most of us aren’t crazy about budgeting. Even with the latest budgeting apps that aim to make this common sense habit into something easy and fun, the thought of keeping tabs on what we’re spending from month-to-month fills many people with boredom or anxiety.

In their Know your Numbers survey results from February 2018, UBank revealed that 86% of Australians don’t know their monthly expenses and only 28% actively use financial management/budgeting tools. The survey also found that being in the dark about your spending can be a big source of stress, with 59% of Australians saying their current financial situation causes them stress or loss of sleep.

Taking it back to basics

When finances are this much of a worry, what does it take to face up to things and take control? One way is to put the fun back into budgeting by taking a step back in time.

Remember when you were young and had pocket money? Maybe you spent the lot every week on lollies or saved it up for a favourite toy. With Mum and Dad picking up the bill for clothes, food and other essentials, pocket money was there to spend on whatever you wanted, guilt-free

It feels great to know you can treat yourself to something without any concern about the impact on your finances. Thanks to credit cards and Buy Now Pay Later, it’s still easy to buy something just because you feel like it. But when you’re borrowing to buy, it’s not such a carefree experience. In fact, it’s a purchase you might regret if the cost of servicing debts makes it harder to just keep up with essential expenses.

Why fun should be in your budget

So instead of spending in an ad hoc way when the urge to splurge strikes, it’s well worth trying. By making fun money an essential ingredient in your budget and cash flow formula, you’ll be giving yourself a much more positive reason to keep an eye on money going in and coming out. And this is important for three key reasons:

1 – It makes your budget real and achievable

The problem with most budgets is that they start with what you need to pay for.  Rent, electricity, travel passes are all important for day-to-day living, but generally aren’t things to get excited about. So instead of basing your budget on needs, make a list of your wants and what they cost first. If the holiday of a lifetime is at the centre of your budget, doesn’t that give you a much greater incentive to be in control of your money?

With money in your budget dedicated to these future plans, you’ll have a good reason to bring more discipline to daily spending. But we’re only human, and it can be hard to wait for weeks on end to reap the rewards of self-control. By including a provision in your budget for some ‘pocket-money’ you can use to spoil yourself every month or so, you won’t have to feel like fun is always just out of reach. This kind of fun money in your budget is like the icing on the cake. It gives you that sweetener to keep you on track with your whole budgeting effort.

2 – It makes the fun money count

This monthly splurge budget doesn’t have to be much. $100 may be all you to need to spoil yourself a little and perhaps that’s all you can afford right now with your other day-to-day commitments and bigger fun goals to save for. But it’s an amount you should stick to. If you don’t put it towards something worth enjoying, you can be sure it will get spent anyway. And this can teach you an important lesson about why a budget works wonders for lifestyle goals, large and small. If you don’t take control of where your money goes, you’re very likely to spend it anyway and have little to show for it

3 – It gives you permission to spend – but not too much

Knowing that your fun money is finite can help you think more carefully about each spending choice. Keeping your monthly limit in mind when shopping or out with friends can remind you to put the brakes on spending when you’re at risk of getting carried away. Giving yourself permission for a couple of small splurges or one bigger one can feel more like a real treat when you know it’s money you can genuinely afford.

Source: FPA Money and Life

It’s the getaway you take when a getaway’s out of the question – the staycation.

Staycation: should you stay or should you go now?

By | Financial advice | No Comments

It’s the getaway you take when a getaway’s out of the question – the staycation. Whether it’s venturing out locally and returning each evening, or taking a few nights to explore places within driving distance of home, the staycation is becoming increasingly popular.

It might come down to time, or money, or just that you simply can’t be bothered with all the rigmarole of going overseas or interstate. Whatever the reason, it looks like the staycation is here to, well, stay.

Why are more people choosing to stay put?

Faced with the multi-headed hydra of stagnant wage growth, the rising price of many of life’s necessities, the lower value of the Australian dollar and an economy growing at its slowest rate since the global financial crisis, consumer confidence is low.

With the family budget top of mind, 62% of Australians plan to keep their annual trip to under $5,000 – which means splashing out on an overseas holiday is shoved on the back burner.

NSW Tourism Minister Stuart Ayres also believes staycations are an attractive proposition, “because of the convenience and comfort in vacationing so close to home. The ease of travel, coupled with exploring the hidden treasures of your own state, makes for a winning combination.”

He adds: “It’s an easy way for people to escape the day-to-day grind, but still have some flexibility within their itinerary. For example, friends or family may choose to join, it’s easy to add on a day or two, and the journey to your destination is often the best part.”

Other benefits, he says, include affordability and convenience: “Holidaying locally is an affordable option for people to get away without having to budget for expenses such as overseas flights, transfers and visas. The convenience of travelling somewhere familiar can also be appealing as the planning time required is far less.”

The pros and cons of a staycation

Pros

  • No queuing. An overseas trip involves queuing to check in, queuing at security, queuing at passport control, queuing to get on the plane. And then doing it all again at the other end to come home.
  • No need of passports or expensive, bothersome visas. And no chance of locking the passport in the hotel safe and only remembering it when you hit the airport.
  • Smaller, lighter bags are less hassle and you don’t have to check them in. They’re not needed at all if you’re a day tripper. There are no luggage size restrictions either, so if you’re taking a quick local trip with the kids, you can pack whatever you want.
  • There aren’t any so there are no delays and no cancellations.
  • You don’t need to take out extra, expensive policies.
  • Luggage again. Unless you’re a real klutz there’s no chance of losing your own bags.
  • Proximity to home. If there’s an emergency, you’re close enough to deal with it.
  • Getting to know your own area. Staycations are great ways to appreciate where you live.
  • No air miles and no flights mean it’s better for the planet.
  • Location, location, location. Spending money locally means you’re supporting local businesses.
  • It’s cheaper.
  • Pet-friendly. It’s not hard to find a local destination where your four-legged friends are welcome. No need for pet-sitters!

Cons

  • Being closer to home means being closer to work and the temptation to take that call or answer just that one email.
  • You can’t see the Eiffel Tower from your bedroom.

Source: Colonial First State

My-partner-doesnt-have-super-should-I-be-worried

My partner doesn’t have super, should I be worried?

By | Financial advice, Superannuation | No Comments

Picture the scene. You’ve moved past the honeymoon period of a new relationship and you think this could finally be the one.

You’re starting to think about the medium-term future and setting up your lives together.

So you’re at your favourite restaurant discussing joint finances when your partner drops a bombshell by revealing they hardly have any superannuation saved up.

Time to smash up the breadsticks, pour your glass of wine over them and storm out never to return?

Probably not. Ditching the love of your life for a lack of super could be a slight over-reaction. After all, there could be a number of entirely legitimate reasons their super is a bit low.

  • They could have been out of the paid workforce studying or volunteering for an extended period.
  • They could have been self-employed for a while and not got around to topping up their super.
  • They could have missed payments from a previous employer through no fault of their own.

But while a lack of super is probably not a very good reason to break up, it could give an indication of your partner’s overall attitude towards money.

The last thing you want is for any super secrets to fester. So even if one or both of you haven’t given super much thought up until now, if you’re getting serious it should be an important part of your discussion on joint finances.

7 questions to ask your partner about superannuation

Here are some of the super-related questions you might want to ask yourselves as part of your conversation on joint finances.

  1. Should you think about putting money into super to save for your first home together?

If you’re looking at setting up home together and you haven’t bought a property before, you could be eligible for the First Home Super Saver Scheme. You can contribute up to $30,000 each ($15,000 in any one financial year) into your tax-friendly super account and then withdraw it, along with a set earning amount, at a later date to pay for a deposit.

  1. Should you think about contribution splitting with your partner?

If you’re looking at boosting super for a spouse with a low super balance, a pretty easy way to get started is contribution splitting. If you’re living together in a de facto or married relationship, this strategy enables the spouse with a higher super balance to effectively transfer amounts of concessional contributions (including super guarantee payments) that they have received into the account of the spouse with a low super balance on an annual basis. And better still it won’t impact either partner’s cash flow.

  1. Should you think about making contributions to your partner’s super and claiming a tax offset?

If you’re living together—whether married or de facto—you can potentially benefit from the spouse contributions tax offset. This is where the higher-earning partner contributes towards the lower-earning partner’s super using after-tax dollars and claim a tax offset of up to $540.

  1. Should you think about taking advantage of government co-contributions?

If one of you is a low-to-middle income earner and they make an after-tax contribution to their super fund, they might be eligible for a government co-contribution of up to $500.

  1. Should you think about contributing more into your super?

If you’re thinking long term, super can be an effective tax-friendly vehicle to save for retirement. The current limit on concessional contributions is $25,000 a year (including super guarantee payments from your employer) so unless you’re a very high earner there could be more leeway to top up your super and save on tax each year.

And there’s also now an opportunity to claim a tax deduction for personal contributions made to super (regardless of whether you’re employed or self-employed). These contributions would be concessional contributions, taxed at 15% on entry, and would enable the person contributing to claim a tax deduction up to the balance of their remaining $25,000 concessional contribution cap.

Plus you can also put up to $100,000 a year (or $300,000 over a three-year period under bring-forward rules) in non-concessional contributions.

  1. Should you think about changing your investment options within super?

Your super savings are likely to become your biggest pot of money outside the family home. So it’s important to get up to speed with how your money is being invested. Depending on your super fund, you can usually choose between a basic set of options ranging from conservative (less risky assets like cash and bonds that have less potential for growth) all the way through to high growth (more risky assets like shares and property that have more potential for growth).

Your appetite for risk can change as you get older and your life changes so it’s important to revisit your options regularly to make sure they still match your circumstances.

  1. Should you think about making sure your partner receives your super benefits?

It’s important to make sure the right people receive your super if you die. So if you want to include your partner you’ll need to make the necessary arrangements with your super fund, nominate your beneficiaries and ensure your will is up to date.

Source: AMP

What-assets-can-you-have

What assets can you have before losing your pension

By | Financial advice, Pension | No Comments

There are many benefits to receiving a pension or even a part pension, but there are limits to what level of income or assets you can have to be eligible.

Regarding assets, the key limits as at 1 July 2019 are as follows:

To receive a full pension, assets (excluding the value of the primary residence) must be less than:

  Homeowner Non-homeowner
Single $263,250 $473,750
Couple $394,500 $605,000

Indexed every 1 July. Source: Australian Government Department of Human Services

To receive at least a part of a pension, assets must be less than:

  Homeowner Non-homeowner
Single $574,500 $785,000
Couple $863,500 $1,070,500
Couple –  separated by illness $1,017,000 $1,222,500

Indexed every 20 March, 1 July and 20 September. Recipients of Rent Assistance will have higher thresholds. Source: Australian Government Department of Human Services

There are a number of strategies that can be used to reduce asset levels, which can result in qualifying for a part pension or increasing the current pension amount received.

However, before reducing your assets it is important to bear in mind whether your remaining savings can support any shortfalls in retirement income needs, as any increased pension amount may still be inadequate.  Personal circumstances can also change and increase the reliance on your reduced savings.  For example, future health issues may require a move into aged care, which can bring increased expenses.

With that in mind, here are six assessable asset reduction strategies:

1 – Gift within limits, or more than 5 years before qualifying age

If there is a desire to provide financial assistance to family or friends, gifting can reduce your assessable assets.  The allowable amounts a single person or a couple combined may gift is $10,000 in a financial year or $30,000 over a rolling five financial year period.  Any excess amounts will continue to count under the asset test (and deemed under the income test) for five financial years.

If you are more than five financial years away from reaching your age pension age or from receiving any other Centrelink payment, you can gift any amount without affecting the eventual assessment once you reach Aged Pension age.

2 – Homeowners can renovate

Your home is an exempt asset and any expenses paid to repair or improve it will form part of its value and will also be exempt from assets testing.

3 – Repay debt secured against exempt assets

Debts secured against exempt assets do not reduce your total assessable assets.  An example is a mortgage against the family home.  However, using assessable assets to repay these debts can reduce asset levels.  Crucially, you must make actual repayments; depositing or retaining cash in an offset account will not achieve this outcome.

4 – Funeral bonds within limits or prepay funeral expenses

If you wish to set aside funds or pay for your funeral costs now, there are a couple of ways to do this and reduce your assessable assets.

A person can invest up to $13,250 (as at 1 July 2019) in a funeral bond and this amount is exempt from testing.  Members of a couple can have their own individual bond up to the same limit each. By contrast if a couple invests jointly, this must not exceed $13,250, not double the limit.

In comparison, there is no limit to the amount paid for prepaid funeral expenses.  For the expenses to qualify there must be a contract setting out the services paid for, state that it is fully paid, and must not be refundable.  Importantly, both methods of paying for funeral costs are designed purely for this purpose preventing assets being accessed for any other reason.

5 – Contribute to younger spouse’s super and hold in accumulation phase

If you have a younger spouse who has not yet reached their age pension age and is eligible to contribute to super, contributing an amount into their account may reduce your assessable assets.  The elder spouse can even withdraw from their own superannuation, generally as a tax-free lump sum, to fund the contribution.

Investments held in the accumulation phase of superannuation are not counted towards their assessable assets if the account holder is below the pension age.  Before using this strategy any additional costs incurred should first be considered.  Holding multiple superannuation accounts may duplicate fees.  Shifting funds into an accumulation account may increase the tax on the earnings on these investments to 15%.  Alternatively, earnings on the funds are tax-free if invested in an account-based pension or potentially even personally.

Additionally, contributing to a younger spouse who is under age pension age who is still working will ‘preserve’ the funds.  They should also ensure they do not exceed their contribution caps.

6 – Purchase a lifetime income stream

Lifetime income streams such as an annuity purchased after 1 July 2019 may be favourably assessed, according to the Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Bill 2018.  Where eligible, only 60% of the purchase price is assessed.  This drops to 30% once you reach the later of, age 84 (based on current life expectancy factors) or five years.

To receive concessional treatment, the lifetime annuity must satisfy a ‘capital access schedule’ which limits the amount that can be commuted voluntarily or on death.

Conclusion

Reducing your assessable assets within the relevant assets test threshold can provide many benefits such as increasing your existing pension or allowing you to qualify for a part pension if you were above the upper threshold.

While it is tempting to intentionally reduce your asset levels to gain these benefits, it is important to remember the payment rate is determined by applying both an income and assets test.  The one that results in a lower entitlement determines the amount payable.  If the income test is the harsher test, reducing your assessable assets may provide no benefit.

If the assets test is harsher, you should not lose sight of the fact that any reduction in your assets means there are fewer assets for you to call upon if required.

Source: BT

The search for dividend yield in a low-growth environment

By | Financial advice, Investments | No Comments

Investors have faced a low-growth environment with low yield for some time now and this does not appear to be changing anytime soon.

Global economic activity is slowing notably, reflecting a combination of factors affecting the major economies.

Historically investors who look for income in the form of interest payments – also called yield, have looked to fixed income (bonds) and cash (bank deposits) in a normal low growth environment, but with record low interest rates these returns as a measure over inflation have proven harder to find. One of the strategies investors have been forced to look at is to invest into the share market for dividend yield, which is yield paid in the form of a dividend.

This strategy has pushed money into Australia’s traditionally high dividend-paying stocks, also driven by the benefit of our franking credit system – which has in-turn been one of the underlying reasons why our share market and many other developed countries share markets have risen strongly since the Global Financial Crisis in 2008.

The share market can be a generator of income, in the form of annual dividends from companies – but not all companies pay a dividend, and it is not compulsory. However, Australian companies pay out a high proportion of earnings as dividends, as measured by the dividend payout ratio. Listed companies have, on average, paid out 65% of their earnings in the form of dividends from 1917 to today.

Over time, dividends can provide a contribution to the total return earned from shares. In fact, just under half of the long-term return from holding Australian shares comes from the dividend component, looking at the market’s “total return” index, the S&P/ASX 200 Accumulation Index.

Over the last 10 years to June 2019, the S&P/ASX 200 Accumulation Index has generated a return of 10.0% a year, versus 5.3% a year for the S&P/ASX 200 price index – meaning that dividends are responsible for 4.7% a year, or just under 50% of the total return.

The importance of dividend yield in stock selection

A benefit for long-term investors who receive the dividend component of the total return, especially for large, mature companies listed on the Australian share market, is that it can be less volatile than the capital growth component, as such companies tend to ‘smooth’ the payment of dividends through the use of available cash flows, that is independent to the  changes in the company’s share price from time to time.

However, there are several aspects of the stocks-for-yield strategy that make it one that should be constantly monitored. First, a stock market dividend yield cannot be considered as certain, because the dividend amount is at the discretion of the company, each reporting period. Second, the risk of share-price capital-loss, while holding shares for yield, is always present.

How to find high yield growth stocks

For active stock-pickers with a value orientation – that is, those who like to buy  ‘unloved’ stocks at what they see is good value based on fundamental metrics – opportunities might look like they are thin on the ground, but they are usually present: it might just require a harder look.

The key to this process is to think of the businesses represented by the stocks on the stock exchange. Where short-term market volatility is often driven by macro-economic or geo-political events, the underlying fundamentals of businesses are what essentially drive the returns from the stock market, through the “duration effect” of a company’s ability to grow its value over time through the compounding of its cash flow.

From time to time, the stock market will under-value some businesses, and over-value others.

There is little correlation between the performance of individual stock-exchange-listed businesses and economic growth, because each company has specific factors that drive its revenue and profitability.

There are always stocks out-performing the market, and certainly out-performing the economy: whether the investor wants to back these stocks for short-term trading opportunities, or longer-term investment, is up to the investor. But they are always there to be found.

Source: BT

Estate planning

Understanding estate planning

By | Estate Planning, Financial advice | No Comments

What is estate planning?

If you’ve got people in your life who you love and want to take care of, it’s wise to build an estate plan. This plan, which you can put together with the help of an estate planning specialist, will make sure loved ones are taken care of in the event of your death.

An estate plan is more than just drawing up a will. It also involves formalising how you want to be looked after (medically and financially) if something happens to you, or if you’re unable to make your own decisions later in life. Your estate plan will also clarify how you want your assets to be protected during your lifetime and distributed after your death.

How does an estate plan help?

You can make your wishes known

One of the benefits of a sound estate plan is the ability to formalise your wishes in writing. This can help if someone contests what you’ve said you want after you’ve passed away, or if you’re unable to speak for yourself.

You could minimise disagreements

Unfortunately, disputes often arise when unsettled assets need to be distributed among others—especially if there are no clear guidelines set. Being prepared with an estate plan could go a long way in preventing disputes should family members need to divide assets among themselves or make other hard decisions on your behalf.

You may improve tax consequences for your heirs

As the distribution of assets (including your income) can come with different tax obligations, a good estate plan might also minimise any tax that your heirs would need to pay. For instance, if they decide to sell something they’ve inherited, depending on the type of asset, they may need to pay capital gains tax. Estate planning, particularly with the guidance of estate planning specialists, could reduce these extra tax costs.

Key points when creating your estate plan

Consider drawing up a will and whether you want something legally binding

A solicitor or estate planning lawyer can help you draw up a will that is legally binding and covers what you’d like to happen with your assets, children (if you have any) and funeral when you die.

It’s important this document is kept up to date, and be sure any changes to your situation (marriage, divorce, separation or otherwise) are accounted for, so those who matter most are taken care of.

While it’s also possible to draw up your own will (there are various kits available online), these may not be adequate in complex situations, which is why engaging a professional is still worthwhile.

A word of warning: if your will is deemed invalid, your estate will be distributed according to the law in your state (which may not align with your wishes), and claims could be made by unintended recipients. This is why it’s a good idea to enlist the services of an estate planning specialist, even if you think your situation is relatively simple.

Review your nominated beneficiaries for any super or insurance you might have

When it comes to your super, you’ll need to do some planning in advance to make sure it’s distributed properly in the event of your passing.

During this process, take the time to nominate your beneficiaries with your super fund, and make sure you’re across how long different nominations are valid for. If you don’t make a nomination, the super fund trustee could use their discretion to determine who your super money goes to.

In addition, if you have insurance outside of super, make sure you’ve listed your beneficiaries on your insurance policy and that those beneficiaries are also kept up to date.

Consider appointing an enduring power of attorney to make decisions if you can’t

There may come a time when you’re unable to make legal or financial decisions on your own because of advanced age or medical issues. Granting power of attorney means you are designating an individual to make these decisions on your behalf if such a scenario arises.

For this reason, it’s important to choose someone you trust, as they’ll be responsible for looking after your bank accounts, ongoing bills, and even selling your house if you need to move into a care facility.

It’s also worth noting that you may be able to appoint a different type of power of attorney depending on what tasks you’d like this person to carry out on your behalf. For example, you may want your son or daughter to make general lifestyle decisions for you, while you appoint a financial adviser to make financial decisions.

Choose an executor to help carry out your wishes when you’re gone

Generally, an executor is the legal individual who manages and distributes the estate with the assistance of a solicitor, according to the terms you’ve set out in your will (which your solicitor should have a copy of).

When you nominate an executor in your will it’s important to let your family know, to avoid disputes after you die. Make sure the executor also has a good understanding of their duties and where your will and other important documents are kept. You may also want to let your family know where this information is stored.

The executor will typically be responsible for things like making funeral arrangements, ensuring your debts are paid and bank accounts closed, and collecting any life insurance.

They will also usually need to apply to the court for a grant of probate, which is a required legal step before your estate can be distributed. A grant of probate certifies that your will is valid.

Source: AMP,

How-to-budget-for-a-baby

How to budget for a baby

By | Financial advice | No Comments

With a little bit of planning you should be able to successfully avoid having the joy of starting a family compromised by the financial burden of doing so.

Based on research by the National Centre for Social and Economic Modelling (NATSEM) it costs over $406,000 to raise one child from birth until they finish their education.

In light of these costs, here are some initial considerations that might be helpful.

Before baby arrives

This is an ideal time to assess your financial situation, and how it will be impacted by a new baby. For starters, consider the requirements before and immediately after the birth.

If you’re planning to ‘go private’, you have to decide whether the cost of prenatal care, can be covered by existing private health cover. Some private health funds have waiting periods before you can claim on pregnancy and birth-related costs, so it pays to check.

Income protection and health insurance

During pregnancy, it’s not just your family’s health insurance you should be thinking about. It’s equally important to consider what type of life insurance cover, including income protection, disability insurance and/or death cover, might be appropriate.

Having sufficient cover in place means you’ll have a contingency plan for your family’s lifestyle if you’re temporarily unable to work through injury/illness. The good news is by organising this cover via your superannuation, you don’t have to eat into the household budget.

Once baby is home

The next step is to realistically assess the upfront costs of caring for your baby over the first 12 months. If budgets are being pushed, focus on what you absolutely need to spend money on now – like baby-proofing your home, extra furniture like a crib, change-table, baby bath, car seat, stroller, bedding and clothes – and what can wait.

Try to work out what your weekly outgoings will be on things like nappies, milk formula, and baby food. Being willing to accept hand-me-downs or buy second hand can save you a lot of money.

Family entitlements

If you’re planning time off after baby arrives, remember to tell your employer well in advance. It’s equally important to ensure you receive all the benefits you’re entitled to from paid parental leave through to any baby bonuses, and family tax benefits.

Child-care and education

If you’re planning on your child receiving a private education – which at the secondary level typically costs an average $20,000 a year – it’s never too early to put money away. One way to do this is to open a high-interest saving account. There are also tax benefits for opening education-specific managed investment funds.

There are also onerous costs even before your child gets to school. For example, based on data by Stockspot, parents will on average spend $26,000 on childcare between the ages of three and five.

In light of these costs, it pays to honestly assess, what assistance you can expect to receive from immediate family. Equally important, assess how easy it will be to juggle time off, and how receptive your employer is to flexible workplace arrangements.

Ongoing costs of child raising

The cost of raising children has jumped sharply over the past two decades. Based on Stockspot numbers, parents on average spend $82,000 on a child between ages six and 12, and close to $131,300 during the following six years, with the bulk of this cost going on education.

Clothes swapping for school uniforms and buying home-brand or generic items in supermarkets, are practical measures to help managing finances. However, seeking help with budgeting can also drive your money further.

Source: FPA Money & Life

What happens to my super when I die?

By | Estate Planning, Financial advice | No Comments

You may not be aware that how and in what proportions your super is distributed can’t be covered in your will unless you’ve made the necessary arrangements with your super fund beforehand.

Why can’t super be covered in my will?

Your super can’t typically be covered by your will because your will only covers assets you own personally (things like, your house, car, investments, savings and personal items).

Your super on the other hand is held for you in a trust by your super fund trustee and governed by superannuation law, which is why different rules apply and why your super fund must be kept up to date with your instructions.

Who can I leave my super money to?

In the event of your death, your super fund must pay a death benefit to one or more people in your life who are eligible.

Your eligible super beneficiaries might include:

  • your spouse (including de facto and same sex partners), but not former spouses;
  • your children regardless of age;
  • anybody financially dependent on you when you die;
  • your estate or legal personal representative.

One reason you might nominate your estate or legal personal representative is you can then specify in your will how and to who you want to distribute your super money to, which can include eligible beneficiaries (mentioned above), as well as other people in your life.

It’s important however that you ensure the information stated in your will is up to date, so your legal personal representative pays out your super money as per your instructions.

How do I nominate my beneficiaries?

When it comes to specifying your beneficiaries, most super funds will give you several options.

These options are important to understand, particularly given that the type of nomination you choose could give you greater control over how your super benefits are distributed.

Binding nomination

If you make a binding death benefit nomination that satisfies all legal requirements, the trustee of the super fund must pay your super to the beneficiaries you have nominated, and in the proportions specified.

You should also know that there are lapsing and non-lapsing binding nominations.  Lapsing nominations typically expire every three years unless you renew them, while non-lapsing nominations may never expire.

Non-binding nomination

If you make a non-binding nomination, the trustee of the fund will have the final say over which beneficiaries receive your super and in what proportions, but your nominations will be considered.

No nomination

Depending on the product, if you don’t make a nomination the trustee will pay your death benefit to your estate, or use its discretion to determine which eligible beneficiaries the money should go to.

Super in pension phase already?

If your super is already in pension phase, then all of the above plus additional options may be available and need to be considered.

Source: AMP

Tap money

From bartering to smartphones—how our money habits have evolved

By | Financial advice | No Comments

Ever since King Alyattes of Lydia minted the first coin in 600BC, humanity’s relationship with money has been constantly evolving.

Fast forward to more recent developments and mobile banking was offered to European consumers as early as 1999, with contactless payment cards appearing in the UK in 2008.

When it comes to money, fashions come and go. But perhaps the best illustration of the changing trends is the lifecycle of the humble cheque.

Cheques—the decline and fall

At one time, the ability to pay for goods and services by signing an authorised slip of paper from your banking institution was cutting edge technology.

These signed pieces of paper took days to process, the signatures were easy to forge and settling the transaction involved a complex network of clearinghouses. But at the time they would have seemed the height of sophistication and ease. The concept caught on quickly and so the humble cheque was born.

Until quite recently it would have seemed unthinkable that you couldn’t use a cheque. But many Australians under the age of 40 have never even seen a cheque book, let alone used one.

The cheque is predicted to die out completely by the end of 2019.

Back to the future

As for the next big thing, who knows?

In the space of a few thousand years, we’ve gone from resource exchanges based on the need for survival to quick, instant and virtual money exchanges, driving mass consumption and instant gratification.

Cash is no longer king

So is cash on the way out? It would seem so if we look at overseas trends. Over in Europe, Sweden is moving to a completely cashless society, with cash payments due to be phased out by 2023. It’s not only about convenience. Among the mooted benefits of a cash-free society are reducing crime, fighting tax avoidance and helping businesses feel more secure.

And it’s not just small Nordic economies going electronic. The world’s most populous country is also moving away from cash. Chinese consumers have embraced mobile payments via QR codes, and spend 90 times more using their smartphones than their American counterparts.

Back here in Australia cards have overtaken cash as the most frequently used payment method, according to the Reserve Bank’s Consumer Payments Survey. Electronic transactions more than doubled to around 480 per person in the 10 years to 2018. And paper-based payment methods such as cash and cheques declined from 320 per person in 2007 to 210 in 2016.

What the future holds for cash

So if we look forward 20 or 30 years into the future—assuming current trends continue—it’s possible that the only place our children will see notes and coins is in the museum.

The implications are profound:

  • What does a cashless society mean for people on the margins who don’t have access to credit and rely on physical money to survive?
  • What does a cashless society mean for our spending and saving habits?
  • What does a cashless society mean for privacy when every transaction we make is logged, tracked and analysed?

Whatever the future holds, we’re living through interesting times as our relationship with money evolves at a pace unmatched in human history.

Source: AMP

Six-cognitive-biases-that-influence-how-we-save-spend

Six cognitive biases that influence how we save, spend and invest money

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We like to think we’re rational beings but the reality is that a lot of our daily behaviour is influenced by our subconscious.

Behavioural scientists have looked at the way human beings are wired and discovered some ‘cognitive biases’ that influence our everyday behaviour.  So if you find yourself clicking on that Amazon special or buying lunch at the same expensive cafe near work every day, they could explain why it’s so difficult to stick to your spending limits or saving plan.

Here are a few of their insights into how our minds work.

We tend to discount the future

We value immediate rewards over rewards in the distant future.  This tendency to want instant gratification is hard wired from birth.  Studies have shown that children find it hard to stop themselves eating a treat even when a bigger and better treat is offered for those who wait for a few minutes.  And ‘discounting the future’ doesn’t stop when you reach adulthood.  It could explain why it’s hard to get too excited about saving for your retirement in your 20s.  But the earlier you start planning, the more you’ll be able to put away.

We tend to feel the pain of a loss more than the pleasure of a gain

You can see an extreme example of this sort of behaviour at the casino when gamblers chase their losses.  This ‘loss aversion’ can also manifest itself in continuing to commit to a poor investment because you’ve already put a lot of money into it.  It can help to think long term and avoid focusing on short-term fluctuations in the value of your investments.

We tend to follow the herd

Much as we like to think of ourselves as independent human beings, we tend to look to others for affirmation.  Think about the rush to secure seats for the concert when you know that everyone else is using the online booking system.  It’s all about FOMO. This sort of ‘herd mentality’ can work in a positive way.  Just a generation or two ago it was socially acceptable to smoke in restaurants or to drive without a seatbelt.  Now it’s unthinkable.

When it comes to money, this ‘herd mentality’ can manifest itself after stock market downturns, when investors start panicking and selling up, even though rationally this will crystallise their losses.  It can help to shut out daily market noise and focus on long-term goals.

We tend to think things are more likely to happen than they are

You can see this in the popularity of lotteries around the world.  While the chances of winning are infinitesimal, the winners get a lot of publicity, which makes us think it’s more likely to happen. But at least the lottery is relatively harmless.  Thanks to the global mass media, this ‘availability bias’ often focuses on bad events like kidnapping, plane crashes or stock market downturns.

Investors who experience a market crash like the GFC over-estimate the chances of the same thing happening again, even though statistically it’s unlikely.  It can lead to people saving for retirement changing their investment preferences to lower risk investments, even though this may not be in their best interests as their long-term returns struggle to keep pace with inflation.

We tend to favour recent reference points when making decisions

This ‘anchoring bias’ can make it easy to overspend in shopping malls.  When you first see a pair of shoes for $200 and then a similar pair for $150 it’s easy to anchor on the first amount and perceive $150 as a great bargain.  And these days it doesn’t stop when you leave the mall—online shopping means plenty more opportunities for that anchor to embed itself and end up in an unwanted purchase.

To counter this, try setting your own ‘base price’ before you set out shopping and stick to it.  You can also see anchoring in practice when investors rush in to buy stocks that have just plunged in value without looking at the underlying performance of the company.  They have made the mistake of anchoring the recent high point in their mind.

We tend to be a bit lazy

We tend to stick with current plans rather than change if it’s too much hassle.  This is probably why so many of us stay with our utility providers rather than shopping around for a better deal.  If you find yourself suffering from ‘status quo bias’, try making a start with one area of the household finances—say, your electricity bill—to make it more manageable, rather than trying to tackle everything at once.

Source: AMP

BNPL

Is Buy Now Pay Later (BNPL) a better way to borrow?

By | Financial advice | No Comments

In the 21st century era of digital transformation, being able to browse, choose and pay for our purchases anywhere, anytime has taken shopping to a whole new level. The way we consume and spend has changed dramatically as a result. Here in Australia, Buy Now Pay Later (BNPL) arrangements have emerged as a very popular solution for both buyers and sellers, adding a new level of convenience to borrowing money to buy consumer goods. According to a report from ASIC, the recent growth in this type of credit has been significant, with the number of transactions rising from 80,000 in 2016 to 1.9 million in 2018.

How does BNPL work?

BNPL provides a way to buy and own something now and pay it off in instalments over an agreed period of time. The buyer doesn’t pay interest on the amount or any fees for the service, providing they make all their payments on time and in full. The ‘merchant’ – the store making the sale – is the one paying a fee to the BNPL service provider for the arrangement.

At face value, it seems like a great deal for anyone who wants to indulge an impulse to buy something right now, without having to pay for it right away. But like any type of consumer lending, BNPL has some pros and cons you should be aware of if you’re planning to make a habit of using services like Afterpay and Zip Pay.

Cheaper, easier credit

According to the ASIC report, four in five consumers (81%) find BNPL convenient and easy to use, thanks to minimal requirements to apply and easy repayment options. And if you do stick to the terms of your BNPL agreement, you’re basically getting credit for free. This makes BNPL a strong competitor in the consumer lending space. It’s also much easier to borrow using BNPL because you don’t need to go through the same application process it takes to get a credit card. So for people seeking an easier, less expensive way to borrow and spend, BNPL ticks these two boxes.

No credit checks

The flip side of no credit checks is there is nothing to stop you from taking on multiple BNPL contracts, even if you’re stretching your budget by doing so. “The ease of being able to access Buy Now Pay Later programs doesn’t mean that they should be taken lightly,” says David Boyd, Co-Founder of Credit Card Compare. “Tracking expenses and cash flow is not easy when you have multiple Buy Now Pay Later accounts running. A good repayment track record might not count towards building your credit score but the bad or late repayments get reported to credit agencies which can affect your credit score and financial opportunities later in life.”

Hidden costs

Storing up problems for borrowing money down the track isn’t the only issue with falling behind on your BNPL payments. If you don’t have the discipline to manage your budget to keep up with repayments, the penalty fees and interest can soon add up. The same ASIC report found that one in six consumers had experienced a negative impact as a result of using a BNPL payment method. Some had to delay payment of other bills to budget for repayments, others ended up borrowing money or becoming overdrawn. This shows how conscious you need to be of your household budget and what you can actually afford to repay if you’re considering BNPL to make a purchase.

Access to more than you can afford

With the growing popularity of BNPL, particularly for online shopping, it’s becoming common for stores to advertise product prices in instalments. This can make a purchase seem more affordable, and potentially encourage people to buy more expensive items than they would if paying the full amount. This is backed up by the ASIC report findings, with 81% of users thinking that BNPL has allowed them to buy more expensive items and 64% spending more than they normally would thanks to BNPL services.

Staying on top of spending

All in all, BNPL is a faster, more convenient way to borrow money for a limited period. To fill short-term gaps in your cash flow or take advantage of sales or other limited time offers, it can be a really easy, useful solution. But like any type of debt or loan, you should think about your ability to afford repayments based on your current income and financial commitments. If you find yourself stuck in a pattern of spending more than you can afford and struggling with repayments, a Financial Planner can help you examine your day-to-day habits and make changes based on your most important goals and values.

Source: FPA Money and Life, 2019

Investing

Five global themes that may impact your investment portfolio

By | Financial advice, Investments | No Comments

It’s important for investors to be aware of some of the key global and economic environmental factors that may impact their investment portfolio.  Here we look at five global themes that are currently playing out in world markets, and how they may potentially impact their investment portfolios.

1 – Trade Wars

Trade tensions between the United States and China have shown their ability several times to cause turmoil in the investment markets.

The showdown kicked off in July 2018, when the US implemented its first China-specific tariffs. In turn, China has retaliated with its own tariffs, and threatened a range of other measures that may affect US businesses operating in China.

Things escalated in May 2019, as the US extended tariffs on a range of imported goods from China, drawing further tit-for-tat measures from Beijing.

With the solution of the trade tensions having a long way to go; nobody wants to see a full-blown trade war. The prospect makes markets nervous, and that may mean volatility for portfolios.

2 – Slowing global economic growth

Global economic growth is an important driver of investment performance, but to a certain extent is hostage at present to the trade war concerns.

In March 2019, the Organisation of Economic Co-operation and Development (OECD), Australia’s peer group of developed countries, said in its Interim Economic Outlook that global trade growth had slowed from 5.25 per cent in 2017 to about 4 per cent in 2018.

In April 2019, the International Monetary Fund (IMF) cut its global economic growth forecasts for 2019 and said growth could slow further due to trade tensions. The IMF lowered its growth forecast for the global economy in 2019 from 3.5 per cent, which it expected back in January, to 3.3 per cent with the ongoing trade tensions remaining a risk for the global economy.

Any further deterioration in the outlook for world economic growth could mean volatility for equities.

3 – Growth in China and how it affects Australian Resources

As China’s economy has grown, the world has become used to spectacular numbers: its gross domestic product (GDP, the amount of goods and services produced in the economy) grew at an average annual rate of 9.5 per cent between 1989 and 2019, with a peak of 15.4 per cent in the first quarter of 1993.

Falling Chinese economic growth rates is not good for investors, as it raises concern for global economic growth. Investors are now conditioned to expect Beijing will stimulate the economy when growth rates slip, but there are also concerns about its ability to sustain this given China’s huge levels of debt.

One of the closest exposures to China that many Australian investors have is through holding shares in the big miners that supply the country’s voracious heavy industries including: BHP (iron ore and steelmaking coal), Rio Tinto (iron ore) and Fortescue Metals Group (iron ore). While China is a concern at the portfolio level, in terms of the sensitivity of the broader share market to perceptions of Chinese economic health, at the company level, these stocks continue to benefit from selling to China.

The big miners are also benefiting from the fact that iron ore supply from Brazil has suffered in the wake of January’s tailing dam disaster. Brazilian miner Vale has stated that it could be up to three years before it resumes exporting at full capacity, and the supply disruption means that iron ore prices are likely to stay stronger than had been expected over that time.

4 – The low-interest rate environment

The low-interest-rate environment that has been the investment setting for several years appears unlikely to change anytime soon.  This is mainly due to central banks being reluctant to lift interest rates from long-term lows and bond yields pushed lower as investors become pessimistic about economies.

The dilemma for yield-oriented investors is that income is difficult to find in the traditional areas, meaning that higher risk has to be borne to generate higher levels of income.  In Australia, listed shares have been popular for this purpose, using Australia’s dividend imputation system: infrastructure investments, real-estate investment trusts (REITs) and corporate bonds have been other alternatives used.

The challenge of a global low-interest-rate environment for investors looks like it will remain for some time.

5 – New and disruptive technologies

An area that has opened up for investors recently is new and disruptive technologies.  These include advances in areas such as cloud computing, artificial intelligence, virtual reality as well as social and new media.

Companies that have “disrupted” established industries by doing business differently such as the likes of Amazon, Uber, Netflix and Airbnb, have created new levels of value in very short periods of time, but now find themselves vulnerable to disruption.

The digital and IT-powered revolution will continue to pose both risks and opportunities for investors: the only certainty for an investor is that technological advances cannot be ignored.

Source: BT

What are the best investments for your retirement?

By | Financial advice, Preparing For Retirement, Retirement | No Comments

In the simplest terms, investing your money means buying an asset with the expectation of earning returns from ownership of that asset. If you own an investment property, for example, you can expect to receive rent as income. But if you then sell the property for a higher price than you paid, you’ve increased your returns from your asset even more.  This is known as a capital gain – the growth in value of an asset over time.

Different types of investments are grouped together into asset classes – a group of investments with similar characteristics, such as term deposits, bonds, property or shares/equities. When it comes to choosing between different investment options, they generally fall into two broad categories, defensive and growth assets.

Defensive assets offer less opportunity for growth, but more stability and security for your original investment. A term deposit is an example of a defensive asset – the interest you’ll earn is fixed but you’re guaranteed to get your original deposit back at the end of the term. Growth assets, such as shares, carry more risk but offer more potential to grow your wealth over time.

Why diversification is important

When choosing growth assets and defensive assets to invest in you’re looking at how much you can expect to earn compared with the risk of losing some of the original sum invested. Diversifying your investments can be a good way to strike a balance between risk and reward. Because different asset classes behave differently at different times, spreading your money across a number of assets can help you earn more stable investment returns overall.

Investing costs

Every type of investment comes with costs. For buying and selling shares, you’ll pay brokerage fees for each transaction. When you buy and own property, there are upfront and ongoing costs such as stamp duty, agency fees and maintenance costs. Plus, you’ll be liable for tax on the income from your investments and on any capital gain you earn when you sell assets. These are all things you need to take into account when looking at different investment options.

Should you invest in a super fund?

You can invest in all sorts of assets outside of super, either directly or through managed funds. Most super funds will also offer a wide range of choices for investing your money, including their own blended investment options, such as growth, conservative (defensive) or balanced.  So should you be investing your retirement savings in super or look elsewhere?

A key benefit of investing through your super fund is the potential savings on the tax on your investment income. Any investment earnings in your super fund are taxed at a maximum rate of 15%, regardless of the marginal tax rate on the rest of your income. The main drawback of investing in super is the money you invest and the investment earnings are locked away until you reach your preservation age and/or meet a condition of release. If you need access to the money you’re investing in the short or medium term, then your super fund isn’t the right place for it.

What about SMSFs?

If you’re looking for more flexibility in your choice of investments than you can expect from a super fund, a Self Managed Super Fund (SMSF) could be the answer. However, there are significant costs involved in setting up and managing an SMSF so your freedom to invest super savings in property or collectibles, for example, comes at a price.

Your superannuation investment strategy

There’s no one-size fits all when it comes to investing. Whether it’s your investment strategy for retirement or another purpose, there are lots of personal circumstances and preferences to think about. Some of these include your investment timeframe, your appetite for risk and how much you already know about different types of investments. To find out more please contact us.

Source: FPA Money & Life

How do Managed Funds work?

By | Financial advice, Wealth Creation and Accumulation | No Comments

If you want to diversify your investment portfolio to spread your risk across different asset classes, sectors or geographic markets, you may be limited by the amount of money you have available to invest. Managed funds are popular with investors looking to build their wealth over the long-term. By pooling your money with a group of investors, you can tap into much wider opportunities (such as infrastructure or overseas markets) that would be out of reach as an individual investor.

Want to invest in Brazil’s economy, or agribusiness ventures? You’re likely to find a managed fund that will give you access to that investment opportunity.

What is a managed fund?

A managed fund pools multiple investors’ money into a fund, which is professionally managed by specialist investment managers. You can buy into the fund by purchasing units, or ‘shares’. The unit’s value is calculated daily, and changes as the market value of the assets in the fund rises and falls.

Each managed fund has a specific investment objective, typically focused on different asset classes and a specific investment management philosophy to provide a defined risk/return outcome.

For example, the investment objective of a fixed interest managed fund may be to provide income returns that exceed the return available from other cash investments over the medium term.

Why invest in a managed fund?

There are three key advantages a managed fund brings to your investment portfolio:

  1. Diversify to reduce risk

By investing across different assets classes – and within different types of shares within asset classes – you can spread the risk of your investments falling due to market volatility. You can also balance different investment timeframes and income returns.

For example, investing $1,000 in a managed fund could give you exposure to 50 different company shares in an Australian equities managed fund. But to invest that amount in 50 companies as an individual would limit you to companies with low share prices (and cost a significant amount in brokerage fees).

  1. Expert fund managers

Selecting individual stocks is also time consuming, and requires a certain level of market knowledge. Professional fund managers have access to information and research, and have the processes and platform access to manage your money effectively.

  1. Reinvesting brings compound benefits

You can invest regular amounts into your fund, just like a savings account. And by reinvesting your fund’s distributions you could ‘compound’ your investment returns. Effectively, any future interest payments will be a percentage of a growing amount.

Are managed funds good for income or growth?

You usually get two types of returns from a managed fund:

  • Income is paid to you as a ‘distribution’, which you can easily reinvest back into the fund;
  • Capital growth if the unit price of your investment grows over time.

If you’re more interested in capital growth, you’ll need a longer timeframe for investing – and these funds usually carry a higher risk.

Types of managed funds

When you’re comparing managed funds, look at the asset allocation to understand its risk profile and potential performance.

  • Income funds – low risk of capital loss, focus on defensive, income generating investments such as cash and fixed interest;
  • Growth funds – longer-term (5+ years) investments, focused on capital growth rather than income and weighted towards securities and equities;
  • Single sector funds – specialise in just one asset class, and sometimes a sector within that class (such as Australian small companies);
  • Multi-sector funds – diversified across a range of asset classes, with varied risk levels;
  • Index funds – aim to achieve performance returns in line with a market index, such as the ASX 200. Also known as exchange traded funds (ETFs) or passive funds;
  • Active funds – an actively managed index fund that aims to outperform that index.

There are also multi-manager funds, which invest in a selection of other managed funds to spread your investments across different fund managers.

Who should I talk to about managed funds?

To find out more about managed funds, please contact Revolution Financial Advisers.

Source: Colonial First State

Feel freedom after defeating debts

By | Debt management, Financial advice | No Comments

If you’ve taken a look at your finances recently, you may have found yourself with a few debts.  While it’s possible to pay them off by simply keeping up your minimum repayments, you may want to get them sorted quicker.

If so, here’s a few simple steps to help you pay off your debts sooner and strengthen your savings.

Know what you owe

The first step to get started is to know what you owe.  This means making a list of all of your debts, and the interest rates of each.  Make sure to organise them from the largest interest rate to the smallest.  You’ll probably want to repay the higher interest debts first, because they can cost you the most to borrow over time.

Once you’re clear on your repayments, and where most of your repayment money is going, you’ll be ready to create a plan.

Make some cutbacks

When it comes to saving money, it’s important to identify where you could cut back your spending.  It may feel tricky, but to get your debt paid off faster, you need to be on-top of your outgoings. So, make a list of all of your spending to see where you could make some cutbacks, and free-up some cash.

Set a budget

Once you know how much you owe, and where you can make cutbacks on spending, you can give yourself a budget to work with each month.  You may find budget calculators helpful, because they can do a lot of the hard work for you.  Through following your budget, you may be able to free-up some extra cash each month to put towards your debt, additional to your minimum repayment.

Grow your savings

It may sound silly to start saving when you’re focusing on making repayments but once you’re in a rhythm, it’s time to think about the future.  In order to become (and stay) debt-free, you need to stay in control of your spending.  A great way to do that is to have a little rainy-day fund set aside for unexpected circumstances.

So, as you start making repayments, pop a little extra into your savings account, to get yourself going.

Source: ING

Should I borrow to invest in shares?

By | Financial advice, Investments | No Comments

Borrowing, or gearing, can help you accelerate your wealth creation. It can allow you to buy assets such as an investment property, or shares that you may not be able to afford outright. However, borrowing to invest is considered a high risk strategy and can result in you losing more than your invested capital.

Before taking out a share investment loan, you should ensure that you can service the costs associated with the loan, including repayment of the loan principal. You should also seek professional financial and tax advice regarding the potential risks and benefits of geared investing.

How do I borrow to invest in shares?

You can take out a margin loan to invest in shares. A margin loan allows you to buy shares by paying only a fraction of the cost of the shares upfront, and the lender uses your shares as security for the loan.

The prices of shares move frequently and you risk losses if they fall in value. Lenders often express your level of gearing using a loan-to-value ratio (LVR) or gearing ratio. The LVR is the amount of your loan divided by the total value of your shares.

If the value of your shares falls to where LVR exceeds an approved maximum, you may be required to top-up your loan collateral or repay some of the loan. This is known as a margin call. If a margin call is not met within a timeframe set by the lender, your shares may be sold by the lender to satisfy your margin obligations. This may result in you suffering a loss.

How do I manage the risks associated with a margin loan?

There are a few strategies that can help you manage the risks associated with a margin loan:

  • set a borrowing limit you are able to comfortably repay and stick to it;
  • make regular interest repayments on your loan to keep your loan balance within a manageable limit;
  • check your LVR regularly, because the value of your investments can change quickly;
  • have funds available to deposit if your lender makes a margin call and you do not wish to sell your shares.

What are the benefits and risks of borrowing?

Benefits

  • You can build a larger portfolio than if you were using just your own funds;
  • Some lenders allow you to borrow using an existing share portfolio as collateral. This allows you to increase the size of your investment without having to deposit additional cash;
  • Manage concentration risk by diversifying your portfolio. For example, if your share portfolio is overweight in a certain sector and you do not want to sell the shares, you could use the equity in your current portfolio to borrow and invest in companies in other sectors;
  • Potential tax efficiencies associated with borrowing.

Risks

  • While a share investment loan can help accelerate the growth of your portfolio, it can also magnify losses if prices move against you and you can lose more than your invested capital;
  • Interest costs associated with your loan may reduce your profits. Interest rates are also subject to change, and can result in an increase in the cost of servicing your loan;
  • LVRs, or margin rates, are subject to change at the lender’s discretion. This can lead to a requirement for you to deposit additional cash at short notice. In some cases, your shares can be sold by the lender to satisfy your margin obligations. This can result in your shares being sold at a loss and you will still be required to repay the outstanding balance of the loan.

To find out whether gearing may be a suitable strategy for you, please Revolution Financial Advisers for a confidential chat.

Source: Macquarie Group Limited

Rent vs lifestyle – can you have it all?

By | Financial advice | No Comments

So you’ve found the apartment of your dreams. It’s a stone’s throw from the CBD’s trendiest shopping street, boasts fabulous views of the sea and comes with a fully-equipped kitchen boasting European appliances plus luxury spa bathroom. OK, it’s a bit pricey but it ticks all the boxes, and you can worry about the rental payments later. Meanwhile you need to make a decision as there are plenty of willing buyers in line behind you.

Now where do you sign…

STOP! You might end up living in a palace but if you can’t afford to buy a bagel in the local artisan bakery then maybe it’s time to rethink your priorities. If you’re spending a high percentage of your salary on rent then you might be leaving yourself short and unable to enjoy any kind of social life, let alone save up for goals like holidays, a new car or buying a place. Equally, if you’re living in a cockroach-infested dive miles from anywhere then you’re unlikely to be happy even if you’re saving loads of money.

So how much rent is right for you?

If you’re looking to other Australians for a guide, the cost of renting varies enormously around the country – the percentage of our income going on rent ranges from 37.9% of average weekly earnings in Sydney to 25.2% in Hobart.

Anyone looking for a central one-bedroom apartment in one of our state capitals could pay from $1,035 a month in Hobart to $2,681 in Sydney.

If you’re happy to live in the ‘burbs you’ll save money, with a one-bedroom apartment ranging from $1,029 a month in suburban Perth to $1,957 in…yes…greater Sydney.

Of course, in Tassie they do things a bit differently and you’ll actually save the price of a latte by moving into the city centre from the burbs.

But everywhere else you could potentially save on rent by living in a slightly less trendy area—anywhere from $368 in Adelaide to $725 in…no prizes for guessing…Sydney again.

Finding ways to spend less and save more

The reality is you may not be able to up sticks and relocate so easily. If you’re like most Australians, you probably have family and work commitments that tie you to your local area.

So there may be other ways you could find a better balance between rent and lifestyle and save money—whether you’re just off Bourke Street or ensconced in the ‘burbs.

There could be some ways you could save on nights out by taking advantage of deals or making more clear-headed late-night choices.

There could be some ways you could save on essentials by being a bit more disciplined with your budgeting. There could be some ways you could save on weekend family activities – a great lifestyle doesn’t need to be expensive, and if you’re within a stroll or ride of a fantastic beach or bushland then you’ve got regular afternoon entertainment on your doorstep, free of charge.

Making sense of your finances

Meanwhile, finding the sweet spot with your rental costs all depends on your personal circumstances and financial goals. A financial adviser can help you make sense of your outgoings and draw up a long-term plan to build your wealth.

Source: AMP