Welcome to our Blog

Blog

Are You Engaged With Your Super?

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Hands up who knows where their super is invested and what fees they are paying for the administration services they receive?   Anyone..?  You aren’t alone in the unengaged zone.  What is also emerging is that women are less likely than men to regularly engage with their superannuation¹… which is another issue in itself.

Seems crazy doesn’t it.. our superannuation assets have ballooned to $2.3 trillion² yet we aren’t paying attention.  Most rental property owners pay attention to the rent they charge (asset performance) and get quotes on repairs/bargain with real estate agents (manage costs) – so how do we start paying attention to our super?

The ‘Compare the Pair’ advertising campaign for industry super has been around for a couple of years now, but what has become interesting is there has never been a better time to compare superannuation funds.

Recent legislative changes to Regulatory Guide 97 have required superannuation funds, industry funds included, to disclose their fees and costs in a more transparent way resulting in a raft of new Product Disclosure Statements being released.

Many of the clients I have worked with since these changes have been surprised to realise their ‘cheap’ industry funds, aren’t the cheapest option out there anymore.  But on the flip side, it isn’t all about being in the cheapest fund – especially if it is at the expense of asset performance.  Investing in cash because it has low fees is unlikely to be in your best interest long term.

Different assets (cash, term deposits, shares, property) have different performance characteristics, and your superannuation administrator is investing a percentage of your money in each of these assets on your behalf. Make sure you are paying attention to the percentages you have in each asset class as this is one of the main drivers behind investment performance.

So why not log in whilst you are winding down before Christmas and get engaged with your super – check out what fees you are paying and how you are invested.  If you aren’t confident reviewing your superannuation yourself, we are here to help.

1. https://www.commbank.com.au/content/dam/caas/newsroom/docs/2017-06-28-financial-security-report.pdf

2. https://www.superannuation.asn.au/resources/superannuation-statistics

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

Capital VS Income – Which is more valuable?

When we ponder our wealth, most of us immediately jump to the capital value of their assets. We believe that if we own things that are worth more than what our neighbor owns, we are wealthier. But are we?

 

Firstly, most of us believe our house is our greatest asset, therefore representing the bulk of our asset base. There is a stark distinction between a financial asset and a personal or lifestyle asset. Centrelink does not assess the homes we live in as financial assets because by definition, our house is a lifestyle asset. This is mainly due to the simple fact that our house costs us money rather than making it for us. Yes, if you use your equity wisely, you can purchase a financial asset, but more on that another day.

I want to focus on comparing capital and income.

Australian’s believe simply owning as many financial assets as possible is the key to wealth creation. The more they’re worth, the wealthier they are. I challenge this theory. Imagine I owned a financial asset base in retirement worth $1million, and this generated around $25,000 of income a year. You own a financial asset base in retirement worth $800,000,¹ which produces income of around $35,000 a year. I am $200,000 wealthier than you in capital perspective, however you’re $10,000 worth of annual income wealthier than me. Who is the wealthier person?

Let’s say our ideal retirement income is $35,000pa. I would need around another $400,000² worth of the financial assets I own, just to generate that much income. You only need $800,000. My balance sheet might have a higher bottom line, however, your income statement is stronger again. Which is more valuable? An asset base that you would need to slowly drawdown on to reach your ideal income level? Or an asset base which produces your ideal income level without needing to sell any of it? And, you did not need to save as hard for it.

If you need to sell portions of your capital base in retirement just to breakeven, you bring in avoidable and unnecessary risk you just do not need. You might hypothetically own a parcel of shares, that historically have failed to pay regular dividends, and thus, to make your $35,000 you need to sell some. What if this happens on the same day President Trump puts out a ridiculous Tweet, and in a knee-jerk reaction from the public, the market drops? (In reality I would tell you to buy more shares, because in this situation I like to say that they’re on special so stock up, similar to bananas at Coles) What if this also happens on the same day the RBA raise the cash rate by 50 basis points so the offer to buy your investment property gets revoked? You cannot chip off a couple of bricks or sell the spare room to pay for your annual flights to Bali. Not to mention that whenever you sell shares or a property, you have to fork out relatively high transactional costs and in the case of property, wait around 90 days to see the cash in your account. And once you do sell your shares or property, you do not want to leave too much of the net sale proceeds in the bank, because 2% interest rates are not helping your income situation too much.

Income is spending power and spending power enables us to do the things we want to do. We do not want to see the retirement finish line on the horizon, to suddenly realize we are riding a truck full of assets, but are income poor. At income solutions, our definition of wealth is an absence of financial worry, an income stream you cannot outlive, and a meaningful legacy for those whom you love. This definition is deliberately ambiguous enough for anyone to apply his or her own situation to it.

I now ask you if the financial asset base you are slowly building meets this definition?

If you would like to organize an informal discussion about you and your financial situation, please do not hesitate to contact me at danny.archer@incomesolutions.com.au or alternatively at 03 5229 0577.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
¹Assuming a growth asset base earning 4.35%
²Assuming an asset base of cash, earning 2.5%
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

Solutions to the Gender Gap in Retirement Savings

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

Women in Australia face specific issues when it comes to securing their financial future. Women have significantly less money saved for their retirement – the current average superannuation payout for women is 1/3 that of the payout for men [2]. This results in many women who are retiring on their own facing the possibility of doing so in poverty.
Why is this occurring and how can we help solve this issue?
Lack of superannuation savings can arise from a number of scenarios. Women are more likely to work part time to allow them to perform unpaid work such as caring for family members as well as managing the majority of domestic work at home – whilst the majority of men work full time performing less of these duties.
Women’s employment also tends to congregate in low paid areas such as retail, front line financial services as well as health care and social assistance. Women also often find they sacrifice income for flexibility in working arrangements to allow for their caring obligations.
So how can we address the issue of low super balances?
In my view, one of the ways we can drive cultural change is for both men and women to push for flexible working arrangements. This means challenging the traditional view that men should maintain full time employment whilst women drop to part time employment to raise their young children. If both men and women have access to flexible work hours, then it becomes easier to juggle the caring requirements of young children. This in turn should allow women to work additional hours and build larger superannuation balances in their own right.
What can we do from a practical sense in the mean time?
As a financial planner, we have a number of superannuation strategies we utilise for our clients, each with various benefits. Please seek advice to determine whether these strategies will suit your personal situation.
Contribution Splitting: In certain circumstances, an individual can split up to 85% of their previous years concessional (employer) super contributions with their spouse. This strategy has significant planning benefits including:
• Managing equalisation of superannuation account balances between spouses given the new $1.6 mill cap. Where one client is on track to build a large superannuation balance close to the new $1.6 mill cap, splitting up to 85% of contributions each year can allow the spouse with the lower balance to take full advantage of their cap.
• Where spouses have an age difference, there may be a difference in the years where superannuation can be accessed. Splitting contributions to the older spouse means superannuation benefits that would otherwise not be eligible to be accessed due to age restrictions, will become accessible to the elder spouse earlier under the low-rate tax threshold.
• Where spouses have an age difference, there may be Age Pension planning benefits to split contributions to the younger spouse. This is because superannuation only becomes an assessable asset once you become eligible for the Age Pension.

Leanne is 57 and is planning on retiring in the near future. Her husband John is 47 and earns $100,000 p.a. as a contractor. During the year, John contributes $25,000 into his super, reducing his taxable income to $75,000. Then in August, John opts to split $18,750 into Leanne’s super. These contributions will boost Leanne’s balance and become available for her to withdraw from super tax free under the low-rate tax threshold when she retires – effectively allowing John to reduce his income tax whilst not locking away the funds until John retires.

Spouse Contributions and tax offset: In certain circumstances, if an individual has an assessable income (plus reportable employer super contributions and reportable fringe benefits) of $37,000 or less, their spouse can make a contribution of $3,000 into the low-income spouse’s super account and receive a tax offset of up to $540. This will boost the super balance of the spouse whilst saving tax for the high-income earner.
Tony currently earns $90,000 p.a. and is married to Sophie, who works part time earning $30,000 p.a. Tony receives a bonus and opts to contribute $3,000 into Sophie’s super fund. By doing this, Tony receives a rebate in his tax return which reduces the tax he will pay by $540.
So, if you would like to hear more about these strategies and how they can help you, please contact Income Solutions for a catch up.

[2] Ross Clare, ‘Are retirement savings on track?’ (The Association of Superannuation Funds of Australia Limited 2007).
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

Is Rent Money Dead Money?

In the eyes of a 24 year old

Let’s face it; at one stage or another, we have all been advised that rent money is dead money. Sound familiar? Maybe you can relate to one of the following examples:

  • ‘Why would you pay all that money so your landlord can pay off their mortgage?’
  • ‘Why would you waste all that money when you’ll have nothing to show for it?’
  • ‘If you had of been paying a mortgage off instead, you have paid off your most valuable asset.’

Firstly, the definition of an asset is something that pays you.

The definition of a liability is simply something that you are required to pay for.

Let’s take these definitions and apply it to our situation when we own a house.

A house:

  • Asks us to put our hand in our pocket to pay for it
  • Accrues rates & insurances
  • Requires all kinds of maintenance
  • Even the government takes their slice of our property thanks to stamp duty – great!

I now ask you, is your house truly an asset?

Circling back to the age-old question in Australia: Is rent money, dead money?

I’ll counter by asking: is interest payable to the bank dead money?

If you were to borrow $400,000 tomorrow at today’s record-low interest rates, and make principle and interest repayments at 4.5% over 30 years, you would repay $729,130, with your initial weekly liability being $467. Not too bad? $211 of which is the interest portion of your loan. Meaning, over the course of your loan, you would pay an approximate $329,626 in interest to the bank. Thank you very much says the CBA CEO. **

So, assuming a 20% deposit, it is costing you $467 per week, or $24,288 per year, to live in a house with a perceived value of roughly $500,000. But is it? At Income Solutions we reasonably assume annual expenses (rates, maintenance, etc.) to average at least 1.5% of the property’s value each year. Therefore, throw around $7,500 on top of your existing $24,284. Roughly, on average, it will cost you a touch over $31,000 per year to run the house you own.

Let’s say I rent the same house at an assumed rent price of $450 per week. This works out to be around $23,400 per year. And that is where my dwelling expenses stop. As a tenant, I have no obligation to pay any maintenance, rates or property management fees. This is the landlord’s responsibility. I simply pay my rent on time, and because my dwelling expenses are so low, I do not make a fuss when my landlord attempts to increase the rent by $20 a week every few years. As I pay on time and look after the place, the landlord is more than happy to keep re-signing me to 2-year lease agreements, providing me some security. Therefore, I pay $450 per week, compared to the landlords $611[1].

This is where renting becomes interesting. I am paying $161 less than the landlord/homeowner per week, so let’s say I use this, add another $50 to equal the $211 the landlord pays in interest in year 1 of the loan[2] and contribute this to a tax-effective income-producing asset, over the same 30-year period.

Basically, the difference between what I pay in rent per week, and the total amount the landlord/homeowner pays to own the home per week.

Assuming an annual return of a conservative 9.5%, (the Australian Share market has averaged a return of around 12.5% over the past 100 years) the power of compounding becomes your friend here, as my $211 weekly investment for 30 years would grow to a modest $2.9 million dollars. Again, this is a conservative figure, and it also assumes I never contribute more than $211 per week over the course of my working life. I’ll be 54 by this stage, and thanks to the Franking Credit system, this $2.9 million can reasonably produce me a cool, highly franked, beautiful income stream of approximately $178,000. Enough to retire, I think.

At the end of the loan period, the homeowner is hoping the value of their property has grown to at least equal to the total amount spent on the property, which in this scenario is around $945,000. If they were 24 when they bought the home, they have finally paid it off at age 54. However, they have had to find more disposable income on top of their weekly $611, which has been swallowed by their house for 30 years, to contribute to some form of financial asset. They may own their house outright, but we know our house does not produce us any income, it actually asks us for a share of ours to service it. There is a potential that they will be examples of the typical ‘asset rich, income poor’ description we sadly see too often in this country.

By renting and spending the same $611 per week, I can own an asset and not a liability. If I would like to own my dream home, I will simply withdraw the $945,000 from my investment and pay for it in cash, no interest paid to the bank. Furthermore, I’ll still have around $2mil producing me highly Franked income.

Rather than paying interest to the bank, I’d rather get paid by the bank.

 

Now, is rent money dead money?

 

*All figures are present value.

[1] This includes the P and I repayments, and the averaged costs of $7,500, broken down into a weekly figure.

[2] The interest payable will reduce over the loan term, however, the $467 will remain constant.

https://www.yourmortgage.com.au/calculators/home-loan-repayment/result/

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.  Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. 

Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

Don’t mention the ‘B’ word…

Lee Nickelson is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

 

To quote Peter Thornhill’s two golden rules of wealth creation:

  1. Spend less than you earn
  2. Borrow less than you can afford ¹

Sounds simple, doesn’t it?!  Hardly!  One of the most common hurdles I encounter with clients is gaining a full understanding of their spending – I estimate only around 25% of clients have a clear idea of where their money is being spent as most people dislike the idea of a budget.

At a basic level, we have control over 3 facets of our ability to earn and maintain wealth – how long we work for, whether we invest to educate ourselves to increase our earning (income) potential, and…. this is often the hardest to manage… how much we spend.

The benefits of having an idea of expenses in comparison to earnings are clear.  You will gain confidence when future decisions on spending are made (yes, I can afford this holiday), you will be able to prioritise spending more easily (would I rather upgrade the car or pay the mortgage back 3 years faster) and you will avoid buyers’ remorse (geeze I shouldn’t have bought these shoes, I’m worried I can’t afford them).

Where to start?  Best to define the difference between the ‘B’ word (budget) and spending analysis

  • A budget is forward looking – an estimate of expenses over a specific period
  • Spending analysis is rear looking – it involves tracking what you have spent over a specific period

There are any number of budgeting and spending analysis theories, tools and programs online which can then be overwhelming.  I find a great place to start for my clients is to get them to split their spending between Non-negotiable items and Negotiable items.  What appears in each list may change from client to client (i.e. holidays may become negotiable for some, whilst Foxtel to watch the football may be non-negotiable for others).  Once the Non-negotiable items list is complete, we minus this from net earnings.  This leaves the amount of funds left over to cover the spending items under Negotiable column.

This blue print allows the spending analysis to happen – is there enough left to fund the negotiable column?  Is a rethink required regarding negotiable and non-negotiable items?  Can money be saved on any of the line items (i.e. reviewing your Electricity bill / home insurance provider)?  Am I saving enough off my mortgage to repay it before retirement?

This analysis is also the confronting part – am I borrowing from my future to fund the lifestyle I am living today?
Once the non-negotiable items are agreed and reviewed, it becomes as simple as dividing this figure by your pay cycle and setting aside this amount each period in a separate ‘bills’ account.  Anything left over can be spent with the confidence and knowledge that you will have enough to cover your non-negotiable expenses.

Unsure how to proceed?  I’d be happy to help you review your spending.  Please contact our Melbourne office to set an appointment.

1             Thornhill, P. (2003) Motivated money. Gordon, N.S.W.: Motivated Money.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

What Do We Talk To Our Clients About?

Elise Ryan is an authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

We like to focus on their education, and we run five different seminars each month

  • Common Sense Investing
  • Common Sense Estate Planning
  • Pivot – Your Future Starts Now
  • Kickstart!
  • Income Solutions for Women

We have built a well-researched process for clients when they are

The best investment you will ever make is in yourself, and we believe this investment is not only financially focused. At Income Solutions we encourage our clients to invest in education, health and fitness, career and following your goals.

A big focus when talking to our clients is around their goals, what they want to achieve, and we work with them to build a strategy to help them achieve it. We try and make it easy, we know your goals don’t come to you in meeting with your advisor, for this reason we built the my.solutions application. This enables you to log in 24/7, even when you are on holidays, sipping cocktails by the pool and dreaming of what your future will look like, you can log into my.solutions, pop in your goals, and your advisor will be notified immediately. This allows your advisor to consider strategies before your meeting and help you get the most out of your appointments.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.  Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

You don’t need money to start investing

Kane Leersen is an authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

I regularly hear people stating that they do not have enough money to start investing. Anyone can start investing, right at this second. You don’t even need money to start investing. Sounds silly, doesn’t it? You might not believe me, but this is fact. Investing in yourself, your family and your future.

Now before you start shaking your head and muttering that I have lost my marbles, bear with me and I will tell you how you can do this with three different ways, anyone can start investing, and by anyone, I mean anyone. Teenagers, parents, millionaires, grandmas and granddads.  So no excuses because this applies to you. I will give you the strategies, but then it’s up to you to take responsibility.

 

1. Start investing in yourself. 

Now, this is the easiest and the hardest investment to make, it’s also the most rewarding and by far the most valuable. You can start nice and simple and slowly progress it from there. Your first investment in yourself is to finish reading this article. Open up your mind to different ideas and strategies. Go onto bookdepositry.com, amazon.com, dymocks.com.au, or pop into your local book store and purchase any book that piques your interest. Read what ever your heart desires. Personal development, sci-fi, autobiographies, finance, marketing. It doesn’t matter what it is, just read as much as you can. Learn from other peoples experiences, highlight words you don’t understand, write questions on the side of the page.

The next step, when you are feeling ready, enrol in that course you always wanted to do. Make sure, no matter how long it takes you, finish that course. Then maybe find another course, never stop learning. Find yourself a mentor, someone doing something you have always wanted to do and ask them how they have done it, why they do it and what have they learnt from these experiences. Turn up to work early and tell your boss that you want to be the best employee that you can be.

All of these little investments eventually add up and they make you the rare and valuable asset. Remember, every day we are going to work we are trading our time for money. By being the best that you can be, you will make your time as expensive as possible.

 

2. Invest a few dollars, regularly

Now that you have started investing in yourself you can start to invest some money for your future. Maybe you have received a payrise, or picked up a few extra shifts.

Now the next step.

To start investing money you do not need hundreds of thousands of dollars, you don’t even need thousands of dollars. Many of my clients start investing in the hundreds, the trick is to do it regularly, don’t try and be too clever and most of all ask for advice if you are not quite sure.

I have recently purchased the 300 biggest companies in Australia, 300 of the biggest and brightest companies built by some of the best brains in Australia. The best part is, these companies are going to pay me to invest in them! Imagine, this investment returns around 10% for shareholders over the next five years. If I contribute $200 a week this means I will be investing $10,400 a year. On a 10% rate of return, I could have $69,842 invested in five years time. Not a bad investment, when we consider the early years of compounding returns are the hardest!


3. Invest in your superannuation

In Australia it is compulsory for businesses to pay 9.5% of your wage into a superannuation account for your working life. The reality is many Australians don’t understand the impact of what our employers are doing for us. Many people haven’t consolidated multiple superannuation funds into one account. They don’t ensure that they have appropriate levels of insurance to protect their family if something goes wrong. They have no idea that they can invest in just about anything they want inside of their superannuation, no different to everyday life.

Yes, inside super we can buy shares, we can buy property, we can have term deposits. We don’t have to rely on the default option. You can even put more money into superannuation to help it grow by salary sacrificing from your wage before you have paid tax. You can also contribute your inheritance after you have paid tax.

So my challenge to you is to step up, and take charge. I don’t want any excuses. We all know life can be hard sometimes, but we also must be thankful that we are living through a period of time that has generously provided us with an abundance of wealth. Think of running water, electricity, employment, aviation and globalisation for example.

So please master these three investments. Invest in yourself, start investing a little a lot and understand what your superannuation is doing. It is simple and incredibly effective. Fortunately or unfortunately, it requires discipline, commitment and understanding.

Good luck.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.  Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product. Past performance is not a reliable guide to future returns. 
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

Ignore the Hype

Gareth Daniels is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

As I have mentioned before (and no doubt mention again) when reading articles in the papers, watching news on TV or even listening to the radio to and from work, it is always vital to objectively consider the information we are being given.

As a history student, I was taught to always consider who has produced the source of the information, who their intended audience is and why it may have been produced. That foundation can serve us well when considering decisions that relate to our long term financial security.

At the heart of this is accepting that popular media constantly misuses the word ‘investor.’ Many of you may have heard Peter Thornhill speak or even read his book Motivated Money. He correctly spends time focusing on the difference between speculation and investing; the first being the “buying or selling of commodities or stocks… in the hope of an unexpected rise in the price“¹ and the second being “use of money productively so that an income is obtained.

Peter goes on to note that “speculation is described as investment simply to legitimise activity that has nothing to do with investing.

I read with interest the article This asset manager thinks Australian property ‘calamity’ is coming, so he sold all the firms shares². Consider this article in conjunction with the process of analysing a source:

Who has produced it: A national media organisation that knows doom and gloom predictions sell papers

Who is the intended audience: The misconception that all investors are speculators and all speculators are investors means they are attempting to reach as many people as possible. Regarding the interviewee, I would suggest he is trying to reach future potential customers (pitching for business as he apparently knows better than the market) and those clients to whom they have just returned their money (justification for selling the fund).

Why has it been produced: Again, for the publication it is the desire to get eyeballs on their paper and website and for the interviewee, future potential customers by an apparent display or foresight whilst pacifying those clients to who they have just had their money returned by way of defense of their actions.

Philip Parker may be a top fund manager as the article notes, but by what bench mark? The ASX top 200 is cited in the article, all well and good but it is the capital value of this bench mark that is the apparent measure? I would prefer to measure against corporate profits shared out as income via dividend. I would also not like to get sucked into the yield trap, jumping in and out of different assets and significantly increasing the likely effects of market timing risk.

If values are over inflated then surely it is speculators that are at risk with their hopes of gains at considerable risk that should be worried. Investors who own quality assets for the long term to be in receipt of income, should not even dedicate a second of their time to read an article clearly aimed at speculators. It can become stressful to build wealth via a fund manager who believes that over the long term, through active management³ they can beat the market rather than simply owning the best that the market has to offer. The latter allows you to confidently ignore the short term fluctuations in perceived value and and enjoying the true value of a repeating, tax-effective and increasing income stream over time.

What is intriguing is the (potentially) strategic move by this fund manager. Despite the litany of unfulfilled doomsday predictions that regularly crop up, the article even sites a few, these are readily forgotten, whilst the ones that do appear to come true elevate those that predicated them to genius status. So, this firm and it’s investment team either get lauded as the special few that were able to read the tea leaves correctly, or they simply “enjoy their time off” before returning to the fold to make further predictions; attempting to reach those that believe in speculation rather than investing. All this whilst the rest of us carry on with our investment strategy, focusing on what is important to us and critically analysing the overload of information that we are unnecessarily bombarded with.

 

1. Thornhill, P. (2015) Motivated Money; Sound Financial Advice for the post GFC World, 5th Revision. Australia: Motivated Money, pg 12

2. Patrick Commins, B. (2017) This asset manager thinks Australian property ‘calamity’ is coming, so he sold all the firm’s shares. [online] Business Insider Australia. Available at: https://www.businessinsider.com.au/this-asset-manager-thinks-an-australian-property-calamity-is-coming-so-he-sold-all-the-firms-shares-2017-5 [Accessed 7 Jul. 2017]

3. The belief that a manager knows better than most can pre-empt economic cycles, property bubbles, threats of war and crisis around the world and a whole host of other fads. They are effectively trying to speculate their way to wealth via capital appreciation.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

Who is Financial Planning For?

Elise Ryan is an Authorised Representative, GWM Adviser Services Limited, Australian Financial Services Licensee

 

Financial Planning really is for everyone. It’s a misnomer that you have to have a lot of money to see a financial planner. Your financial advisor will tailor your advice and strategies to your specific life stage and current situation. As you progress through different life stages your advisor will work with you to evolve your financial plan to suit your needs.

We can review your current situation and put strategies in place around your superannuation, personal insurances, investments, debt management, retirement planning and estate planning.

It does not matter what life stage you are in, we will tailor your plan to help you achieve your goals. At Income Solutions we believe the best place to start is education and we hold free, no obligation information sessions monthly that cover all life stages:

  • Kickstart! Your Financial Future
    • Have you recently started your first full-time job? Or perhaps you’re a uni student and need some guidance around setting up your banking structures? Kickstart! has been developed for anyone who needs some advice around how to get themselves set up
  • Pivot – Your Financial Direction
    • This event is ideal if you want to actively plan, and taking the right steps toward achieving what is important to you. We can help you with setting goals, investing in yourself, investing in your career, managing your cash flow, protecting your wealth, protecting your lifestyle, and making a plan for now – don’t wait for later
  • Common Sense Investing
    • This information evening is designed to help you understand some of the basics of financial planning and will cover conquering debt, volatility and the impact on your investment strategy, what asset class will look after you long term and how to build a passive income stream
  • Income Solutions for Women
    • This event is designed specifically for women. Why women? What if we told you that statistics show us that women earn less than men, women have lower super balances than men, women are more likely to have breaks in their employment, women live longer and retire with less money than men. There are solutions and we believe that education is the first step
  • Common Sense Estate Planning
    • Presented by our Financial Planners with Coulter Roache Lawyers in Geelong and Hunt&Hunt Lawyers in Melbourne. This information session will cover why you should have a will, intestacy, enduring powers of attorney, testamentary trusts, capital gains on estates, and estate planning for your superannuation

I really believe the best time to start is now, the earlier you get started the more potential there is to increase your retirement savings. Don’t leave it until you are ready to retire to get your finances organised.

 

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather

When? How Much? Where From?

– Retirement in the eyes of a 24 year old –

When? How much? Where from? These three questions are asked of all Income Solutions’ prospective clients, and from time to time, asked of our current clients as well. Let’s break down what we mean by these questions, shall we?

When would you like to retire? Do you have an age in mind where you would like to be able to clock off from a day’s work, never intending to return? How much income would you need to be able to live your desired retirement lifestyle? Finally, and in my opinion most importantly, where will this income come from?

The first 2 of those questions are quite ambiguous and a bit of an unknown, particularly for a 24-year-old. So, I’ll use myself as an example. I have no idea when I would like to retire exactly. By that I mean I do not know the age when I would like to walk out of works door for the last time. I love my job, and hope to forge a long and successful career as a Financial Planner, however, we all must stop at some point, I am mindful of that. One goal of mine is to volunteer 2-3 days per week of my time in helping 2 charities very close to me: MND Australia/Fight MND and the Epilepsy Foundation. I would like to be able to retire at an age when I can be of some real value when I am volunteering my time assisting these great organisations; whatever age that is, I am not sure at this moment.

I also have no idea how much income I will need to support my desired retirement lifestyle. The obvious answer you may be thinking is ‘as much as possible’. True, but let’s be realistic. I would like to have the affordability to travel overseas on an annual basis. Treat myself to some luxuries in life. Hopefully by then I will have a lovely family to spoil; maybe help pay the grandkids school fees; spend time tending to a little hobby farm I hope to one day have. Most importantly, I do want an absence of financial worry, an income stream I can’t outlive and I would be content if I could leave a meaningful legacy to those whom I love. Funnily enough, this is the definition of the term ‘wealth’ here at Income Solutions.

Now question three, where from? This one is considerably less ambiguous and unknown because I have the capacity to be able to influence this variable of my future now. I do know that to be able to achieve my goals, I need to be in receipt of a passive income stream – preferably one that is reliable, replenish-able and in an ideal world, growing. So, as a prudent 24-year-old, I began to contemplate the best way I can generate the passive income I will need in retirement. To do this I decided to educate myself on the 3 true asset classes available to us all: cash, property and shares.

The old folklore is that cash is safe. It can’t go anywhere; $100,000 today is $100,000 in 10 years. You may have lovely memories of Grandma or Grandpa telling you to put all your cash under the mattress and leave it there. The thing is that inflation ruins this because $100,000 today simply does not have the same purchasing power in 10 years. Plus, everybody knows how mediocre interest rates are now. This interest is the income produced by your cash. It is small, tax ineffective and can only grow if you contribute more cash to your account. This asset option is out.

Then we have the Great Australian Dream: Property. This country is internationally notorious for being obsessed with property. Why? Because we can see and touch it every day. (The GFC was actually caused by the domestic property market in the US – not shares. I recommend you watch The Big Short if you haven’t already) We can drive our friends past our investment properties. We have a perception that because we can touch and feel them it is a safe investment. This is quite deceptive, however, due to the hidden costs associated with this asset. I recently attended a very well run property investment seminar just outside Geelong to educate myself on the stats. A $470,000 investment property in the estate had an average rental yield of about 4.4%. I also learned that for my property to have the best chance of being tenanted I needed to have things like 900mm benchtops, a 1 metre wide fridge space, a sound dishwasher, a microwave compartment and good-quality blinds. These might seem standard for a home, but I learned that without them potential tenants can walk away – which means no rental income for the investor and no passive income. Then, once you have found a tenant, you must hope they pay their rent on time for you to be paid your income. You must hope the hot water system and that sound dishwasher do not break because as the landlord, that’s coming out of your pocket. And in 10-15 years down the track, the walls need to be painted, the carpet updated and the oven replaced. There are types of insurances available to cover these, but, again, these are simply another expense. This asset is asking you to pay for it, rather than it paying you! Most importantly, the rental income you receive – like bank interest – is tax-ineffective. Once you deduct all those expenses from the rent, you need to pay tax on the balance at your marginal tax rate. These are all headaches I do not want to have whilst I am volunteering at one of my charities, or spending a few weeks away escaping the Victorian winter whilst I am retired.

You might be reading this and are thinking to yourself something like ‘The capital growth seen with property over the past few years has been off the charts, why hasn’t he mentioned that?’ Good question. Yes, the capital growth of property is going bananas at the moment. Corresponingdly, as is the rapid rise in household debt. A home is worth what a buyer is willing to pay for it, which means whatever sum the bank are willing to loan to them. What happens when these record-low interest rates (which are already increasing) go up 1 or 2%? People are willing to pay less because the bank will give them less. So you’ll see a drop in the perceived capital value of property. Also, you cannot spend capital growth unless you sell. This brings in market timing risk, loads of transactional costs and is an issue I do not want to be worrying about when I need some cash fast.

This asset option is out.

Lastly, we have shares. Thanks to our friends in the media, the populous of this country have an ingrained fear of shares. ‘Share market crash’, ‘Sell while you still can’ and ‘Billions gone’ are all quotes you may have heard about the share market. The media paint horror stories out of anything to sell newspapers and increase viewership. Admittedly, the capital value of shares is volatile in the short term. We can thank the media again for that. If we can ignore this, and simply focus on the long-term and the income generated by shares – not their capital value – we start to see the true value they hold.

Having attended Common Sense Investing at Income Solutions, I learned the Australian share market has returned an average of about 12.5% over the past 100 years. Last financial year, it returned closer to 14%. This was the same year we saw Trump elected president, potential nuclear war in North Korea, Brexit and continuing warfare in the Middle East. All the while, the companies of this country endeavoured to carry on business as usual, and made a lot of corporate profits. As a shareholder, these profits are distributed to you in the form of a dividend. You did not need to worry about the air conditioner at your investment property breaking. How enjoyable does getting a call on Sunday afternoon to fix a front window or the hot water service sound? Or having to make a call to your property manager asking why rent hasn’t been paid for 3 weeks. You simply lived your life as you would, and relied on the businesses of this country living theirs. This sounds like passive income to me. The clients that Gareth Daniels looks after, shared in over $850,000 of investment distributions this past financial year. Without putting in an ounce of effort or worrying about the state of their investment property.

These investment distributions are a result of people paying their utility bill, filling their car up with petrol, shopping at Coles and even making the monthly trip to Bunnings to buy something to fix an issue at their investment property. All these things contribute to company profits. Most importantly, the income received as dividends is tax effective thanks to Paul Keating implementing the Franking Credit system. This is a real trump card for retirees; as they do not pay tax from an account-based pension in retirement!

Now the prudent 24-year-old in me is thinking that this asset sounds good. It does sound like a passive income stream that is generated by human consumption and endeavour. If businesses in this country keep on keeping on, human consumption and endeavour will never stop. The only thing I need worry about in retirement is where in the world do I want to go to next?

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee or any of the National Australia group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product.
Share on social mediafacebooktwittergoogle_pluslinkedinmailfacebooktwittergoogle_pluslinkedinmailby feather
Book an Appointment

Accessing Income Solutions Accounting is as easy as clicking to book an appointment and completing our simple online form.

captcha
Book an Appointment

If you have any questions, or would like to book a free initial consultation, please enter your details, and any comments below.

captcha
Are You Engaged With Your Super? registration

Please complete the following registration form, and you will receive a confirmation e-mail. We look forward to seeing you at our upcoming event.

captcha
Apply Now:

To apply please fill out the form below, and upload your resume.

captcha
Book an Appointment

If you have any questions, or would like to book a free initial consultation, please enter your details, and any comments below.

captcha