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Wealth Creation and Accumulation

Australians are boosting their income through the sharing economy

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One in 10 Australians are supplementing their income through the sharing economy.

Erika Munoz and Lucerito Farrell from Sydney’s Rozelle are among the millions of Australians turning to the sharing economy to earn extra income.  The half-sisters have a pet-sitting business, Petsisttars that is bringing in about $1200 a month.  Munoz, 32, works full-time in software sales, while Farrell, 23, is a student.

It’s a way of combining their love of all creatures great and small with earning money.  The sisters have looked after everything from dogs and cats to lorikeets and rabbits in their own home or as part of housesitting.

“We had two dogs and a cat back home at home in Colombia and we miss them a lot and pet sitting is a good way to have pets around,” Munoz says.  “Now we get to mind pets of different shapes and sizes and they fill our hearts with lots of happiness.”

Their services and those of other sitters are offered through online marketplace, Mad Paws, which matches them with pet owners who need a hand.  The sisters have been using the site since halfway through last year and have managed to make enough money to take themselves and their mother on holiday to the Philippines.

Sharing economy is mainstream

One in 10 Australians are significantly boosting their income through the sharing economy by supplying services, according to estimates by the Sharing Hub.

Many are able to earn $1,100 a month, on average, working just five hours a week, providing handy extra cash to help pay bills, pay-off debts and even paying off the mortgage.  Almost half are also using the sharing economy several times a month as customers, with affordability cited as the number one reason, while one in four believe they receive a better service.

This year, comparison site Finder released the results of a survey of more than 2,000 people, showing that it is possible for them to make up to almost $20,000 year by making money from their spare time and from unused physical assets.  Finder estimated that one in five Australian adults are turning to the sharing economy for at least some additional income, with the average income from sharing platforms of about $7,300 a year from these side jobs.

Uber driving

The Finder survey suggests the most lucrative way to earn money on the side is as an Uber driver – with drivers, on average, earning $10,490 a year from the ride-sharing service.

Renting out a spare room on online platforms, such as Airbnb, is earning property owners $8,140 on average.

People working full-time jobs are also most likely to be making extra cash in the shared economy.  One in three of those with full-time jobs also have a side job through the sharing economy, compared with fewer than one in four part-time employees, fewer than one in five students and about one in eight of those who are unemployed.

Bessie Hassan, money expert at Finder, says Aussies are making some extra cash by utilising resources that sit idle and using technology.

“How much you make is dependent on how hard you work, but the research shows it can be very profitable,” she says.

“The sharing economy has taken-off in Australia and it’s seen as a legitimate way to boost income.  It may not make you rich, but it could be enough to pay for an extra holiday or boost your savings account.”

The survey found about 17 per cent of adults report renting out a property or a spare bedroom, 7 per cent say they have driven an Uber, and 6 per cent report freelancing or running errands and getting paid for it.

“It’s expected that this number will skyrocket as households look for creative ways to shield themselves from rising living costs,” Hassan says.

Local platforms

While Airbnb and Uber are the most well-known global sharing economy brands, Australia has its own successful home-grown platforms such as Airtasker, a hiring marketplace to find someone to perform tasks from assembling furniture to data entry, Zoom2u, for the transport of packages and parcels, and Spacer, where you can share your spare garage or attic space.

Mike Rosenbaum, the co-founder of Spacer and one of the founders of The Sharing Hub, which mentors about 25 Australian sharing economy businesses and is an investor in some of them, says one of the advantages of the platforms is that users don’t have to be business savvy as the platforms provide the bookings.

“These platforms give you a marketplace so that you can work for yourself with flexible working hours,” Rosenbaum says.  “The users of the platforms just have to have an appetite to earn a bit of extra income.”

Tax man wants a cut

It is important to remember that money made through the sharing economy is taxable income, just like any other form of income.

Those offering their services through sharing platforms, including those letting rooms on Airbnb and offering services through Airtasker, are required to pay tax on the income.

The Tax Office is using enhanced data matching protocols for the sharing and online economy, which is making it harder for taxpayers to hide income.

If you do only use online marketplaces like eBay to, say, sell household goods or possessions that you don’t want anymore, you are not carrying on a business and do not have to declare the income.

But Uber drivers, for example, are treated no differently to taxi drivers as far as the tax law goes.

The Tax Office has repeatedly warned income from renting out a car space or attic needs to be declared.

Source: AMP News & Insights

Investment bonds – An alternative to super

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

A number of changes came into effect on 1 July 2017 that limit the amount of money those saving for retirement can put into super.  This includes new limits on concessional (or before tax) and non-concessional (or after tax) contributions.

The limit on concessional contributions has been reduced from $35,000 to $25,000 per annum and the limit on non-concessional contributions has been reduced from $180,000 to $100,000 per annum.

Additionally, the threshold where an extra 15 per cent tax (total of 30 per cent) is paid on concessional contributions applies to anyone earning $250,000 or more of ‘income for surcharge purposes.’  This threshold was previously $300,000.

In light of these changes, high income earners (those earning $250,000 and above) may now feel compelled to consider alternative investment structures outside of the superannuation environment that offer similar tax-effective benefits.  There are a number of options which may be useful in minimising or deferring tax, such as a family trust, or setting up a private company to hold investments, but for those on high incomes one of the more cost-effective, flexible, and tax-effective options may be an investment bond.

What is an investment bond?

Investment bonds (also known as insurance bonds or growth bonds) have features similar to a managed fund combined with an insurance policy and can be tax-effective for those on high incomes  providing certain rules are followed.

Most investment bonds offer investment options such as cash, fixed interest, shares, property, infrastructure, or a range of diversified investment options, with risk levels ranging from low risk to high risk.  The value of the investment bond will rise or fall with the performance of the underlying investments.

A long-term investment strategy

An investment bond is designed to be held for at least 10 years and you can make additional contributions over the life of the insurance bond.  To make the most of the tax benefits, each year you can contribute up to 125% of your previous year’s contribution.

Withdrawals

Money can be withdrawn from the investment bond at any time, however if you withdraw your money before the 10 years is up, some of the income may be taxable, depending on when the withdrawal is made.  If no withdrawals are made in the first 10 years, any earnings on the bond will be tax-free.

10 year rule

Investment bonds are tax-paid investments.  This means when earnings on the investment are received by the insurance company, they are taxed at the corporate tax rate (currently 30%) before being reinvested in the bond.  This can make insurance bonds a tax-effective long term investment for those with a marginal tax rate higher than 30%.

If you hold the bond for at least 10 years the returns on the entire investment, including additional contributions made, will be tax-free subject to the 125% rule.  If you make a withdrawal within the first 10 years, the rate at which earnings in the investment bond are taxed will depend on when you make the withdrawal.

The 125% rule

Investors in investment bonds can make additional contributions each year.  As long as the contribution does not exceed 125% of the previous year’s contribution, it will be considered part of the initial investment.  This means each additional contribution does not need to be invested for the full 10 years to receive the full tax benefits.

If contributions are made to the investment bond that exceed 125% of the previous year’s investment, the start date of the 10 year period will reset to the start of the investment year in which the excess contributions are made.  You will then have to wait a further 10 years from this date to gain the full tax benefits.  If you do not make a contribution to the investment bond in one year, any contributions in following years will reset the 10 year rule.

If you are approaching (or have reached) your superannuation contributions limits and would like to find more about investment bonds and whether one may be suitable for you, please contact us to find out more.

Spread your money using diversification with Revolution Financial Advisers.

Spread your money and reduce risk

By | Wealth Creation and Accumulation | No Comments

Six out of ten Australians own investments outside of the family home and super. That’s good news. The only problem is that many people are still putting all their eggs in one, or just a few, baskets.

The latest investor study by the Australian Securities Exchange (ASX) found 40% of investors admit they don’t have a diversified portfolio. Almost one in two investors think their portfolio is diverse, yet they hold, on average, less than three different investment products.

Diversification plays a key role in long-term investing. To understand why, it can help to think about what goes on at the racetrack, where the bookies always seem to win while the punters are invariably left empty-handed.

The secret to bookmakers’ success is that they spread their risk by continually changing the odds to encourage punters to back as many different horses in a single race as possible. This spread of money means the wins should outweigh losses.

Punters, on the other hand, concentrate risk by betting on just one horse in each race. Unless the horse wins, the punter loses his money.

When it comes to investing, the strategy of spreading your money so you have a little in a broad number of investments, not a lot in one, can strengthen long-term returns and minimise losses in much the same way that bookies hedge their bets.

However, a wealth of research shows diversification is a weak spot for many investors. The ASX found we tend to stick to cash, property and Australian shares. In addition to concentrating risk, this can mean missing out on decent returns earned by other asset classes.

As a guide, a recent ASX/Russell report found residential property topped the league table of returns for mainstream investments over the last 10 years, averaging gains of 8.1% annually. What’s surprising is that over the same period, global bonds (hedged) and Australian bonds were the next best performing investments with average annual returns of 7.4% and 6.1% respectively.

Aussie shares didn’t even make the top four, earning an average of 4.3% annually over the past decade (though to be fair, this period includes the global downturn when sharemarkets tanked). Cash delivered woeful returns of just 2.8% annually over the 10-year period.

It’s a compelling argument to consider expanding your portfolio beyond the mainstays of cash, bricks and mortar and local shares.

Investments like bonds, infrastructure, or international shares can be good additions to a portfolio.

These types of investments can be difficult to access as an individual investor, and a managed investment fund – either listed or unlisted, offers an easy way to expand your portfolio into new areas and reap the rewards of diversification.

Source: AMP.

smart investing

Don’t let your emotions get in the way of smart investing

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It’s often said that the share market is driven by two emotions – fear and greed. While this might be an over simplification, it helps to explain investor behaviour and why so many people are unsuccessful at investing.

Emotional investing refers to the way in which investors have a tendency to make investment decisions based on how they feel about the market at a particular point in time. If the market is low, investors typically feel dejected, and when the market is high, they feel ecstatic.

Poor investment behaviour is typically driven by a fear of loss, or overconfidence. During rising markets, investors may become over confident and assume that the good times will continue into the future. This tempts some investors to pour more money into the market when the costs of entry are high. This can create over-inflated markets and stock bubbles which will inevitably burst at some point.

Just as markets can become overheated with greed, they can also collapse through fear. When markets suffer large losses over a sustained period of time, investors can become fearful of incurring further losses and may rush to exit the market when stock prices are falling.

Unsurprisingly, buying when share prices are high and selling when they are low is a recipe for disaster.

By contrast, successful investors generally have a disciplined approach to investing and tend to succeed when they stick to, and make decisions based on, their investment decision-making process.

The key is to avoid getting swept up in the dominant market sentiment of the day which is typically driven by fear and greed, aided and abetted by the 24 hour news cycle. The media supplies an incredible amount of information on a constant basis often prompting investors to make emotional decisions based on the news of the day rather than what’s in their long term best interests.

The investor who attempts to time the market – hoping to make quick gains by buying low and selling high – is most likely guided by emotion and more likely to fail than an investor with a longer term perspective. Mature investors understand that volatility is a natural part of investing in the share market and they learn to ignore the day-to-day ‘noise’ of industry commentators.

Attempting to time the market is a road fraught with failure. While it is possible to understand overall trends and market movements, knowing when to buy or sell at precisely the right time is very difficult. You may well turn to the experts in the media for advice on market timing, but the reality is they don’t know the answer either.

Remember no one can predict whether the market will rise or fall, however you do have control over the amount of time you spend invested in the market. Generally, the longer you are invested, the more likely you are to be successful.

As an investor, it is important to recognise the symptoms of the emotional investing trap and to avoid making decisions based on the ‘herd’ behaviour of others. It can be challenging to remove the emotion from investing, especially during times of market volatility when all others around you are losing their heads, but there are some key steps you can take to ignore the noise and remain focused on your long term investment goals.

Key ways to remove the emotion from investing

Develop a detailed long term plan. Investing is a long term strategy that requires careful planning. Your investment strategy should involve a detailed plan with specific goals. Your financial adviser can provide invaluable advice in developing a well-structured, diversified investment portfolio that’s tailored to your needs, your circumstances, and what financial advisers call your ‘risk profile’ or tolerance towards risk.

Learn to ignore the noise. Sensational headlines and day-to-day share market commentary from economists and reporters may well keep the media and those commentators in business but they only serve as an unnecessary distraction from achieving your long term investment goals.

Avoid the herd. It’s a natural human tendency to follow the behaviour of large groups. However just because everyone else is jumping on a particular investment bandwagon it doesn’t necessarily mean that it’s a smart strategy or one that’s right for you. In fact, investments favoured by the herd run the risk of becoming overvalued as the investment’s initial appeal may well be based on optimism rather than legitimate underlying fundamentals. As the renowned investor Warren Buffett once said “Be fearful when others are greedy, and be greedy when others are fearful.”

Adopt a disciplined approach to investing. Stick to the plan. You are more likely to be successful if you invest a fixed amount of money on a regular basis, regardless of whether the share market is up or down, rather than investing ad hoc amounts based on emotional speculation about future market movements.

Investing over the long term is one of the key ways to grow your wealth, however, it is not without risk. As always, we recommend seeking professional advice before making a decision.

If you’re considering investing in the future, or if you wish to review your existing portfolio, please contact us to make an appointment to discuss your situation.

Savings account v term deposit

Savings account versus term deposit

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

In a low interest rate world, it’s important to think about the best place to stash your cash – a savings account or a term deposit?

New research shows Australian households are tucking away an average of $409 each month. That is pretty impressive though chances are many people are using their spare cash to pay off debt rather than grow savings, and it can be a sensible strategy. You’re likely to save more on interest charges than you’ll earn on your savings.

That said, it always makes sense to have a pool of savings for rainy day expenses or to grow cash for personal goals. Record low interest rates make it essential to consider where your savings should be held, not just to maximise returns, but also to make it easier to reach savings targets.

Savings accounts and term deposits are the most popular choices for cash investments, and both have their pros and cons. The key to making the most of the different features offered by both is to allocate savings across short, medium and long-term goals.

A high-interest savings account provides at-call access to your money, so it can be a useful option for short-term goals like purchasing some new furniture or appliances.

The catch with many savings accounts is that your money is likely to earn a very low ‘base’ rate. Strict conditions apply in order to earn bonus interest. You need to be sure you can consistently meet these conditions, be it depositing a minimum amount each month or restricting your withdrawals, to earn the top rate. Even then, the bonus rate may only apply for a limited time.

A term deposit on the other hand, may offer a marginally higher interest rate, and it’s definitely worth shopping around for the best return.

Along with a guaranteed rate, you can’t easily tap into your savings during the fixed period, which can make term deposits a good option for medium to long-term goals like saving for a holiday or some home improvements. Pick your term with care though as unwanted fees and interest penalties can apply if you need to access the cash before the full term expires.

At present, online savings account rates can hit 3%, while the typical 24-month term deposit rate is 2.58%, though there are some at a fraction above 3%.

Savers may also want to consider a notice saver account. These are offered by a growing number of banks, and they act as a hybrid between a savings account and a term deposit. You’ll typically be asked to provide reasonable notice, often 30 days or more, before a withdrawal can be made. That’s not a bad thing as it makes savers think twice before dipping into their cash reserves.

 Source: AMP.

Dollar Cost Averaging

Dollar Cost Averaging: An investment strategy for volatile times

By | Wealth Creation and Accumulation | No Comments

Trading on the share market is widely regarded as being motivated by two powerful human emotions; fear and greed. In recent weeks, share market volatility has many investors fearful and compelled some to sell off their investments. More often than not, basing investment decisions on emotions and following the herd tends to be a poor course of action. It’s a poor move because it crystallises what may be just a temporary loss and runs the risk that you could miss out on any rebound or recovery in share prices.

Attempting to time the market in this way is rarely successful. An alternative approach to investing is a practice known as dollar cost averaging. Dollar cost averaging can remove the fear and emotion from investing as it works like a regular savings plan, the difference being that rather than making a regular cash deposit into a bank account, make a regular contribution into investments held in the share market.

Dollar cost averaging can be an attractive investment strategy for those who are new to investing on the share market as it can help to reduce the overall volatility risk of your portfolio and maximise its long term growth by smoothing out the market’s ups and downs.

How does it work?

 Dollar cost averaging involves investing a set amount of money on a regular basis over a long period of time. This could be an investment in a specific stock, managed fund or an index fund. Consider the following example, say you put $100 per month into a managed investment that had an initial unit price of $10. Over the next few months, the market falls (causing the unit price to drop) before recovering to its original value.

Month Investment Unit Price Units Purchased
1 $100 $10 10.0
2 $100 $8 12.5
3 $100 $5 20.0
4 $100 $8 12.5
5 $100 $10 10.0
Total $500 65

At the end of 5 months, you have 65 units each worth $10, so you have $650. You only invested $500, so your profit is $150 even though the unit price is the same as when you first invested.

Had you invested a lump sum of $500 at the beginning of month 1, you would still only have $500 at the end of month 5. So even though the market declined during the 5 month period, you were better off investing small amounts over regular intervals rather than attempting to time the market by investing a lump sum when things looked rosy.

Of course, dollar cost averaging doesn’t guarantee a profit but with a sensible and long term investment approach, dollar cost averaging can smooth out the market’s ups and downs and reduce the risk of investing in volatile markets.

Getting started with a Dollar Cost Averaging Strategy

The first step in planning a dollar cost averaging strategy is to decide how much you can realistically afford to invest over an extended period of time. The next step is to establish an appropriate investment vehicle as it’s important to consider how diversification may further reduce risk. By combining a dollar cost averaging strategy with a diversified a portfolio, an investor can maximise the profit potential and minimise risk. Remember that you need to stay with this investment strategy for many years in order for it to be effective.

The aim is to remain committed to this investment strategy over the medium to long term and to not allow short term fluctuations in price to influence your buying strategy.

As always, before making any decisions about an investment strategy for your needs, it’s important to seek professional advice. Please contact Revolution Financial Advisers for further information.

Source: Capstone and BT

Downsizing can be an excellent strategy to supplement your income

Would downsizing be worthwhile for you?

By | Self-Managed Superannuation Funds, Superannuation, Wealth Creation and Accumulation | No Comments

It seems to make logical sense. You retire, sell the now cavernous family home, buy a cosier place and use the cost difference to boost your retirement income – win-win right? The answer is – “it depends.”

Downsizing can be an excellent strategy to supplement your income and simplify your lifestyle, but it’s not right for everyone.

Here’s what you need to consider to see if downsizing is the right move for you.

Where you could save

Super: If you own your home outright and choose to downsize, that extra money could substantially improve your retirement income. The attraction of contributing money into super is that investment earnings on money in a super fund are generally taxed at 15%, representing a potential tax saving of up to 34%. This is because when you hold an investment outside super, the earnings are generally taxed at your marginal tax rate which could be up to 49%.

Also, as part of the May 2017 budget changes, the Government announced that individuals who are home owners can, from the proceeds of sale of their principal place of residence, each contribute up to $300,000 to superannuation. This special superannuation contribution will not be affected by the work test and can still be made even if they have a total superannuation balance of $1.6m or more.  However, there are a number of preconditions. First, the sale of the principal place of residence must occur after 1 July 2018; Secondly, the member making this special contribution must be aged 65 or more; Thirdly, the principal place of residence must have been held for 10 or more years. Finally, the downsizing contributions can be made even if the total superannuation balance already exceeds $1.6m.

Mortgage: If you’re still paying off your home, downsizing could help you minimise your repayments or eliminate them entirely. You could even downsize and continue to make the same repayments to pay off your mortgage much sooner.

Utilities: A smaller home typically runs more economically. Why pay to heat or cool space you no longer need? If your new home provides renewable energy options such as solar power, you may even be able to sell energy back to the grid and make money.

Maintenance: Less space to occupy means less space to maintain. In the case of larger properties, downsizing could offer substantial savings on cleaning and garden maintenance.

Travel: Downsizing can help you relocate to a more convenient location. If the local shops, public transport and amenities are all within walking distance, you could make substantial savings on fuel.

Garage sale: Selling your home is a great time to sell any items you no longer want, need, or will fit into your new house. Any money you make could be contributed towards moving costs.

Costs to consider

Home value: If you sell your home during a market lull, you could lose some or all of the equity you’ve built up. This could eat into, or erase entirely, the cost saving you make by purchasing a less expensive property.

Fees and commission: Home selling is a highly competitive market. To ensure your home is positioned favourably to sell, you may need to appoint a real estate agent and potentially pay for marketing services, which can cut into your profit margin.

Moving costs: If it’s been a while since your last move, you might be surprised at how much it costs to pack up and transport all of the items you’ve accumulated. That’s why it’s a good idea to offload all the items you can live without before your move. Why pay to transport items you no longer need?

Strata fees: If you purchase an apartment you’ll have to pay quarterly strata levies. Although these fees can end up saving you money in the long term, compared to paying for the maintenance of your home and yard, they will eat into your profit margin in the short term.

Stamp duty: You’ll have to pay stamp duty to buy a new home or apartment so you’ll need to include this cost in your calculations.

Storage costs: One drawback of buying a smaller home is you have less space to store your treasured belongings. If you run out of room, you may need to purchase additional storage which can add up quickly.

Doing the sums

Balancing the potential savings and costs of downsizing can be tricky, and that’s before you take all the potential lifestyle impacts into consideration. At Revolution Financial Advisers, we can help you work out if downsizing makes sense for you as a part of a tailored financial plan.

Source: MLC

Helping the grandkids

Helping the grandkids

By | Estate Planning, Holistic, Wealth Creation and Accumulation | No Comments

There is an increasing trend for Grandparents to factor in grandchildren when deciding how they want to allocate their money in their later years. For some, it may be via business succession planning, leaving a legacy for the family or simply contributing to important financial events (tertiary education, house, car etc). Passing on wealth can be one of the greatest gifts you can give your family.

With increasing child care costs and housing affordability issues, it is becoming common for Grandparents to look after the children while their parents are at work. This means Grandparents are having a greater involvement in the day-to-day lives of their grandchildren and often electing to pass on some wealth.

However, there are some traps for the unprepared and it’s important to consider the various options and risks to allow for an effective transfer of intergenerational wealth.

Asking the right questions

Typically, strategies around wealth transfer fall into the category of having “the right money in the right hands at the right time”. However, it is not always that simple.  It’s important to discuss wealth transfer in detail. Ask plenty of questions, understand what your objectives are and seek professional advice.

As an example, if you want to help your grandchildren with their first home; here are a few questions to consider above and beyond the usual cash flow, assets and liabilities:

  • Do you want to help pay for the deposit and/or repayments?
  • Do you want to invest this money in them now, at retirement or leave it in your legacy?
  • How much money will be available for the grandchildren after you have provided for your own retirement?
  • What is the income of their parents?
  • Are your grandchildren financially dependent on you?

The above considerations are very important and will help determine the appropriate strategy structure you undertake (i.e. family discretionary trusts, testamentary trusts, or gifting).

6 key issues to consider when helping out grandchildren

  1. Age and income of the grandchildren – Remember investment income for minors is taxed at penalty rates (up to an effective rate of 45%). Whereas, for over 18s, investment income up to their respective marginal tax rate may be tax free. This can be particularly important when developing strategies to help pay education costs.
  2. Centrelink benefits – It’s important to remember that if you receive a pension or part-pension from Centrelink you are only able to gift up to $30,000 every five years at a maximum of $10,000 per year without adversely affecting your entitlements.
  3. The right team of experts Selecting an appropriate Financial Adviser can make life easier as they will often access a team of other specialist experts such as Accountants and Estate Planning Lawyers – thus ensuring your advice is comprehensive and consistent across all areas.
  4. Relationship risks – Consider the risks associated with relationship breakdowns in the family such as sibling rivalry on the death of a parent or divorce of family. This may mean a well intended gift for a grandchild ends up being fought over in divorce courts. Consider if testamentary trusts or drip feeding financial assistance may be more appropriate than gifting lump sums.
  5. “Pay yourself first” – Be very clear on your retirement funding needs and look after yourself before committing to help your grandchildren. It’s a rewarding act to help out your family financially as long as you ensure you are not forgetting about yourself.
  6. Manage family risk – Families are often called on for help in the event of illness and injury of a child or grandchild. Discuss the option of funding grandchildren’s income protection or trauma insurance premiums; that way you create peace of mind and minimise financial stress if the unfortunate occurs.

For further advice on the most tax effective strategies to transfer wealth, make an appointment with us today.

What to do during market volatility? Contact Revolution Financial Advisers for Help.

What should you do during market volatility?

By | Wealth Creation and Accumulation | No Comments

When markets are volatile, many investors become anxious about their investments and begin to question whether their investment strategy is really working for them.

Anxiety is a normal reaction when markets are falling but making investment decisions based on emotions is more often than not an unwise course of action. It can be tempting for inexperienced investors to pull out of the market altogether and wait on the sidelines until it seems safe to return. The risk here is that you could risk selling at the bottom of the market and buying when prices are high – that’s a recipe for disaster.

It’s important to realise that share market volatility is inevitable. It’s the nature of the market to move upwards as well as downwards and while dramatic swings can be unsettling it’s wise to remain calm. Often, the most sensible thing to do during periods of extreme market volatility is to stick with the investment plan you already have in place.

A ‘do nothing’ approach might seem tough to swallow if you’ve been caught off-guard by recent volatility but remaining calm while others are losing their heads could be the most prudent course of action in the long term. In fact it’s a good time to remember Warren Buffett’s classic mantra: “Be fearful when others are greedy, and be greedy when others are fearful.”

Warren Buffet is widely regarded as one of the world’s most successful investors. What he means by this statement is that when people are rushing to invest in a particular stock or asset class then it is wise to remain cautious. In other words when something looks too good to be true, it probably is. Conversely when the majority of people are reluctant to buy into the market then it may just be the right time to consider investing. The rationale behind this approach is that most retail investors base their investment decisions on their emotions, which is precisely the wrong thing to do.

The key to surviving turbulent times is to accept that volatility is a natural occurrence in the share market. Investors who get spooked by sharp market shifts and decide to sell when share prices dip effectively crystallise the loss – which up until the point of the transaction – was really a loss on paper only. Investors who panic and dump stocks when markets dip, forego the opportunity to participate in the rebound when markets recover. This is where most inexperienced investors fail as they attempt to ‘time’ the market.

The most effective way to protect your investments is to ensure that your portfolio is broadly diversified and has the appropriate balance for your financial goals, time horizon, and tolerance towards risk.

Seasoned investors recognise that investing in the share market is a medium to long term proposition. They understand the importance of resisting the urge to modify their long term investment strategies when short term swings occur.

While many economists and share market commentators make a comfortable living from providing a day to day analysis of market movements and short term predictions, no one really knows what the future holds. Experienced investors learn to ignore the ‘noise’ of market commentary in the media and to approach market swings when they do occur with a cautious eye.

Providing your investment strategy remains consistent with your long term goals and objectives, you may find that ignoring short term swings is the best course of action. However, should you have any issues or concerns, please contact Revolution Financial Advisers to discuss your investments.

Receiving a tax refund

Receiving a tax refund, bonus or inheritance

By | Cash Flow and Budgeting Strategies, Wealth Creation and Accumulation | No Comments

If you get a windfall such as a tax refund, a bonus, or an inheritance, you might be tempted to splurge on things you don’t need.

Here are some smart ways to spend this money that will give you long-term benefits.

  1. Pay off your debts

You could use this money to pay off your credit card debt or pay down your mortgage or personal loan. Try to focus paying off debt with the highest interest rate first.  Paying off debts means you’ll pay less interest and save money. This will allow you to use the money you would have used to pay these debts to build and accumulate wealth instead.

  1. Put in high interest savings account

To alleviate the desire to make a rash purchase or decision, place the money in a high interest savings account until you have decided what you really want to achieve from your windfall. Your money will grow with the power of compound interest. For example, if you put a $3,000 tax refund into a high interest savings account that earns 5% interest, in 5 years’ time you’ll have $3,850.

  1. Contribute extra to your super

Making extra contributions to your super can really boost the amount of money you have to retire with. The catch is you won’t be able to spend it until you retire but with favourable tax rates inside of super it may suit your current circumstances.

  1. Consider investing your windfall

Investing your windfall can help you grow your money and make it work for you. If you choose to invest, make sure you take the time to consider your investment goals.

Make an appointment with us to discuss any of the above but especially if you would like to receive solid strategic advice on large amounts of money, such as an inheritance or a redundancy payment.

Cash important part of any investor’s portfolio

Cash – Why it’s an important part of any investor’s portfolio

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Investing is all about putting your money to work for you. Instead of just putting money aside with no particular goal in mind, investing involves setting in place a deliberate plan to grow your wealth over time to achieve the financial security and lifestyle you desire. Additionally, spreading your money across a range of assets (called diversification) is an effective way to manage the risks involved with investing.

Why is cash an important part of any investor’s portfolio?

Cash plays an important part because it provides the defensive component of any investor’s portfolio. It provides investors with high levels of liquidity – meaning they may enjoy the comfort of knowing that they can access their money at any time. Cash can also help smooth out volatile returns from the growth assets of an investor’s portfolio. When market conditions change, one of the unique benefits of being invested in cash may be the ability to move from a defensive position into growth assets or vice versa.

Understanding the risk/return profile

Every investor is different. Age, income, assets and investment experience all play a part in determining your risk/return profile. As an investor, you are aiming to get the highest return at the level of risk you feel comfortable with.

Risk and return are generally related and so by choosing a lower level risk investment (such as cash) or adopting a lower risk investor profile you are also choosing to reduce your longer term return expectations. Your financial adviser can help you determine your risk profile.

Financial advice is key

Your financial adviser can help you decide how much of your portfolio should be allocated between growth and defensive assets. They do this by assessing your risk profile along with your financial needs and goals and tailor the ideal investment solution to match.

For example, someone who is willing to accept a moderate level of risk may be recommended a balanced portfolio by their financial adviser. This portfolio would traditionally hold 70% growth assets (shares and property) and 30% defensive assets (cash and fixed interest).

Many of us would like to establish an investment portfolio but might think it’s not possible without a large lump sum to invest all at once. Your financial adviser can also help you with investment strategies that will help grow your investment over time, such as dollar cost averaging. By making a fixed investment at regular intervals over time, you may be able to take advantage of market movements to smooth your investment returns and reduce risk within your investment portfolio.

What is cash?

Cash is an asset that includes investments such as term deposits and regular bank deposits. Cash investments generally have a low risk of losing your capital and you can easily access your funds.

What is fixed interest?

A fixed interest investment (or bond) is a debt security issued by a corporation or government in return for an investment of cash. Interest is paid at set intervals in addition to the principal when the security matures. Investing in fixed interest through a managed fund enables you to invest in this type of security while giving you the flexibility to access your investment at your convenience.

What are defensive and growth assets?

Defensive assets include cash and fixed interest. They can help to reduce risk of loss in an investor’s portfolio during times of volatility. They generally provide consistent and stable returns and are often characterised as low risk/low return, with relatively low volatility (movement in returns) and easy access to capital.

Growth assets include shares and property.  They are used to achieve capital growth for an investor’s portfolio. They are regarded as high risk/high return assets with increased volatility and reduced liquidity.

At Revolution Financial Advisers, we can discuss if cash could be the defensive component of your investment portfolio. Contact us to make an appointment.

Source: One Path

Investment bonds

Investing in your child’s future

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Parents and grandparents with the means to do so, often wish to help their children or grandchildren financially with education costs, purchase of a car, a deposit for a house or even overseas travel.

Investing on behalf of a child has its complications and there are various rules that must be considered. For example, did you know that children under 18 and not earning an income are taxed at the highest marginal tax rate? This means that if you invest in your child’s name, he or she will lose almost half of their gains in tax. The Australian Taxation Office (ATO) established these rules to prevent parents from investing their money under their child’s names as a way to avoid paying tax.

There are other complexities when it comes to adults investing on behalf of children. Often, the adult will still be regarded as owning the investment (if their money was used to fund the investment and it’s in their name) and this may impact the parents’ Centrelink entitlements. There are also gifting rules around the Age Pension that must be considered.

How about Estate Planning considerations?  If the adult were to pass away (an important consideration for grandparents), and they are still the legal owner of the assets, the investment would form part of their Estate. Even if these assets are to be passed on according to the Will, issues could arise if another family member wished to contest the Will.

One way to reduce all this complexity is through an Investment Bond. An Investment Bond allows you to invest in various asset classes such as cash, fixed interest, property and shares. Investment Bonds have a unique tax treatment and are particularly useful for long term investments such as a child’s costs of education.

An investment bond has a number of key advantages over other investment products:

  • Tax effective: income is taxed inside the bond at the corporate rate (30%) rather than your marginal rate (great for high income earners looking to get their kids into private schooling).
  • No capital gains: when you switch between investment options, you don’t incur any capital gains tax (whereas you do with managed funds).
  • No impact to your tax return: there’s no need to include anything (income or capital gain) on your tax return if your funds remain invested for 10 years.  If withdrawn in less than 10 years, tax rebates apply.
  • After 10 years there is no tax liability whatsoever on withdrawals.  That’s right, if you keep your investment bond ticking away for ten years you will not pay any tax on the proceeds when you withdraw.
  • You can access your money at any time (just like any other managed fund, which should give you peace of mind).
  • You can nominate beneficiaries (the kids) and the proceeds can be paid very quickly and directly to them with no tax implications. Proceeds do not go via the estate so it cannot be contested.

How it all works in practice

The adult is the policy owner who nominates an age (between 10 and 25 years old) when the policy is to be transferred into the child’s name. No stamp duty is payable on the transfer. At the time of application the nominated child needs to be less than 16 years old and if no vesting age is nominated, the transfer automatically occurs at age 25.

You can set up multiple Investment Bonds for specific purposes. For example one for university education, another for a house, and so on.

You can begin with a lump sum, or as little as $500.  You can also make extra contributions to your investment bond each year, provided you don’t invest more than 125% of your previous year’s investment amount.  If you do, the ten year tax free period starts again.

Of course investing on behalf of a child or grandchild requires considerable research and consideration and the most suitable option for you will depend on a range of factors such as your tax position, the child’s situation, grandparent’s situation and how and when the investment needs to be accessed.

It always makes sense to talk to seek professional advice specific to your situation before proceeding with a strategy.  If you would like to discuss these options in more detail, please contact us to make an appointment.

What to do during market volatility? Contact Revolution Financial Advisers for Help.

Being a confident investor

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In recent years, with the global economy going through a relatively chaotic phase, we’ve seen plenty of screaming headlines like “$40 billion wiped off Australian share market in one day!” “Markets brace as crisis in Europe flares up again.” These headlines might be great for selling newspapers, but they’re not much use to us as investors and can seriously mislead us.

In the face of all these apparent disasters, it’s very easy to panic and make snap decisions. That’s only natural—it’s also one of the worst things you can do.

Don’t panic

Douglas Adams put it very neatly on the cover of the Hitchhikers’ Guide to the Galaxy, which read ‘Don’t Panic!’. When we see share prices plummeting due to the latest apparent economic catastrophe, our immediate reaction is likely to be “I must do something before it’s too late!”

So what do we typically do? We withdraw our investments and reinvest the money in a term deposit. Then, when prices pick up again, we cash in the term deposit and buy shares again. What are we really doing when we do this? Often the result is that we have repurchased our shares at a higher price than we sold them —exactly the opposite of a desirable outcome.

But is it different this time?

After every major fall, the Australian share market has bounced back in a big way—over the last 100 years the overall trend has been consistently upwards. Of course there have been negative years but these are easily outnumbered by years with positive returns.

Any attempt to pick short-term stock market high and low points for buying and selling inevitably leads to incorrect decisions by a majority of people. Even the most expert investors don’t have a crystal ball telling them what the market’s going to do in the short term, so what chance do we have of getting it right?

Slow and steady wins the race

For those with capital to invest, a simple a comparatively low risk way to invest is to ignore the rises and falls of the market and keep investing at a steady pace. You might buy at a higher price one month, a lower price the next. Over time it all averages out, but you’ve substantially reduced the risk of making a big but avoidable mistake.

Assuming we have very well diversified investments, good advice might be to just to stop tinkering with them altogether. A sensible approach can be to stop trying to squeeze out the last percentage point of potential return and accept ‘market’ returns which can be the far easier to obtain and very satisfactory.

To make this approach work though, you need a long-term plan.

What’s your idea of long-term?

People have different ideas of what long-term means, but it’s probably longer than you think. Take James for example: he’s 50 and his wife is 45. He can reasonably expect to live to 86, and at that time his wife’s life expectancy will still be six years. This means that at age 50, James and his wife need to assume their translation of the words ’long term’ mean together they are a 42-year investor!

Retirees who have been sensible enough to seek advice which would normally have resulted in owning broadly diversified well managed investment portfolios to generate their income, continue to be very content even during recent stock market volatility. Evidence suggests even after drawing minimum legislated income from such a portfolio (this % amount increases with age), our capital can last very many years.

And what’s your idea of a plan?

If you’re serious about investing you’ll have already worked out a long-term plan with your financial adviser; a plan designed to ride out the lows and highs of the investment markets; a plan that covers investments, superannuation and insurance.

Your adviser will show you how to diversify your investments so that when one class of assets goes down (e.g. shares), another may well go up (e.g. bonds). The key is choosing a mix of investments that suits your goals and where you are in your life, and then sticking with these investments through the market highs and lows or until your objectives change.

Which investments? Your financial adviser can help you diversify your investments across Australian and international shares, bonds property. This approach will reduce your exposure to any one class of asset and is most easily done through a managed fund.

So what makes a confident investor?

 A confident investor is one who can stand back while the markets rise and fall and simply ignore it all; an investor who resists the temptation to panic and intervene when it seems like the whole world is collapsing; an investor who remains focussed solely on their long term and, if and when we have surplus capital to invest we invest a little at a time and avoid any attempt to choose the ‘right’ day.

In the long term this is the investor who can very confidently expect returns that beat inflation; the investor who will increase the real value of their money: slowly maybe, unspectacularly sure, but with high levels of certainty. If you want to be a billionaire, try inventing something useful; if you’re happy just to be a confident investor, try this:

  1. Work out your financial goals, then ask an adviser to help you plan how to achieve them and how to take advantage of the tax laws
  2. Invest small amounts regularly and consistently, regardless of the share price
  3. Ignore the media headlines—if you’ve set yourself up with a properly-diversified range of investments, they will manage themselves without you needing to intervene all the

Source: BT Financial Group.

Wealth creation, wealth protection

10 steps to financial security in your 30’s

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Being 30 today is very different from what it may have looked like for our parents. While many baby boomers were married with children by 25, people today are settling down later, taking time in their 20’s to establish their careers and explore the world. This makes financial security potentially both easier and harder to achieve. While 30-somethings today have more time to establish themselves career-wise, they’re less likely to have stayed in the same job, or to be on the property ladder. We’ve put together 10 tips for becoming – and staying – financially secure in your 30’s.

1.  Get your super sorted

Your 30’s is the time to get serious about your Super. If you’re anything like the majority of people your age, you probably spent much of your 20’s switching jobs, and Super is probably all over the place, accruing fees and getting lost. Consider putting it together and speak to a Financial Adviser about the best options for your future.

2.  Advance your career

You’ve built the skills in your 20’s, now put those skills into practice and start moving towards those career goals.

3.  Save

Put as much as you can away for a sunny future. If you’re planning a family and don’t yet have one, your disposable income is probably at its highest so use it to your advantage and work out a savings plan.

4.  Invest for the future

If you haven’t already, start thinking long-term. Do you have plans for a holiday house? Do you want to spend time travelling? When do you want to stop working? How much money will you need? It might seem like a long way off but the sooner you start the sweeter those margaritas on the beach will taste in holiday house and no longer need to work.

5.  Make a budget

Once you have your goals more firmly set, you can figure out a budget that helps you live within your means and achieve the things you want to achieve. Be realistic, and be consistent.

6.  Start climbing the property ladder

If buying property is important to you, then your 30’s are a good time to do it. Be realistic about what you can afford to pay on a mortgage, do your research and consider taking advice from a Financial Adviser. Even if the property is purely for investment purposes in a place you never plan to live, it will get you started and may give you the equity and standing to buy your dream home further down the track.

7.  Protect your most valuable asset

Life insurance might not seem the most fun way to spend your money, but it’s important. If you’re in a long- term relationship then it can take the burden off your significant other and children should something happen to you, and if you’re single it can provide injury insurance in the event that serious illness prevents you from working and meeting your financial obligations. It’s a way that helps you keep affording the life you plan for.

8.  Pay down debt

It’s time to get serious and pay down that debt you accrued in your 20’s. Whether it’s paying off your HECS debt or finally knocking that debt from the gap year you took after university, your 30’s are the perfect time to focus on getting out of debt. Also watch the credit cards. Keep them in check and try to pay them fully every month.

9.  Learn to be your own advocate

Whether it’s with your accountant, your employer or business partners, use the confidence and skills that come with having worked your way up in your 20’s. Advocate for yourself and negotiate a raise, a good deal or a better rate – take matters into your own hands and see how empowering it can be.

10.  Have a plan

It doesn’t have to be the plan you had when you graduated university, nor does it have to be the plan your family or society has for you – but it’s a good idea to have one. Financially, your 30’s can be the power years for making your dreams come true, but you need to be organised in order to make the most of them.

Contact Revolution Financial Advisers today to make an appointment to discuss your financial security.

Source: BT