Tag Archives: Superannuation

Investing during a recession

By Robert Wright /August 17,2020/

In times of uncertainty, when share markets and interest rates are falling, along with declines in consumer and business confidence, investors often question if their money is safe and if it’s still going to meet their long-term investment goals.

But whether it’s a period of sustained volatility due to a global financial crisis, a medical pandemic, or a recession, the basic rules of investing hold true.

• Set long-term investment goals
• Keep investing (if you can)
• Don’t try and time the market
• Spread your risk through diversification
• Don’t panic

Keep a level head

It’s almost thirty years since Australia last experienced a recession, so for many investors where to put money during a recession isn’t something they’ve had to think about before.

We understand you’re probably concerned about your investments and wondering what to invest in if Australia does enter a recession. Volatility isn’t something investors enjoy.  The pain of losing is significantly more powerful than the pleasure of gaining, which makes us more likely to overreact during market downturns than when the market is booming.

To help your investments continue to work hard for you, we’ve outlined four simple strategies you could consider.

1. Invest for the long term

If you’re a long-term investor (with a time horizon of 10+ years), don’t let emotion get in the way of sensible decision making. Selling out of your investments and moving to cash may seem like a safe option, but you’ll potentially be crystallising your losses and missing out on any opportunities that could arise when the market rebounds.

We recommend you seek good advice at the start, so you have a plan to realise your investment dreams, leaving you to get on with enjoying your life. You’re not a professional investor, it’s not what you do for a living, so there’s no need to fear every daily movement in the share market.

2. Try to invest regularly

Volatility doesn’t necessarily result in poor investment outcomes. It can present opportunities. The principle of investing regularly, regardless of whether the market is rising or falling, allows you to buy more of an asset when prices are low and buy less when prices are high.

Known as “dollar cost averaging”, not only will this average out over the long term, resulting in a better average price for the assets, but you’ll also potentially hold more of an asset, which will be beneficial when prices rise again.

3. Be sensible and leave the decisions to the professionals

Market timing is an investment strategy used to try and ‘beat’ the share market by predicting its movements and buying and selling accordingly. It’s the exact opposite of the long term ‘buy-and-hold’ strategy, where an investor buys shares or assets and holds them for a long time, designed to ride out periods of market volatility.

According to Morningstar, investors would need to be correct 70% of the time to get any benefit from an active market timing strategy. This is almost impossible to achieve, even for market professionals. You’re more likely to miss some of the best days of the market rather than picking them correctly.

4. Allow diversification to spread your risk

Not only is it difficult to time the market correctly, but it’s also hard to predict which asset class will perform best in any given year. Last year’s best performing asset class can easily become next year’s worst, or vice versa.

Many investors choose to manage this by diversifying their investments across different asset classes (shares, bonds, cash etc.) and create a portfolio that’s based on their risk tolerance, time horizon and investment goals.

However, it’s important to understand that diversification doesn’t mean you’ll avoid market volatility completely. Even with a well-diversified portfolio, your investments could still potentially experience periods of what you’d probably deem underperformance.

Staying positive during market downturns

The most important thing you can do during market downturns is not panic.

Stay emotionally strong and ensure your investments remain aligned to your investment goals.

Source: BT

Make Your Super Last

By Robert Wright /August 17,2020/

Australians enjoy one of the highest life expectancies in the world, which means you can look forward to a long and comfortable retirement.

While that’s fantastic news, it also makes saving for retirement more important than ever. Indeed, the majority of Australians over age 40 who are yet to retire are concerned about not having enough money to live on, with many recognising they need professional assistance to reach their retirement goals.

But by getting good advice and planning ahead now, you can take control and enjoy the peace of mind that comes from knowing your future may be secure.

The first step is to figure out how much income you want to receive each year in retirement, and how much you may need to save in order to get there. It’s also important to think about how your spending patterns may change during your retirement, and to plan ahead accordingly.

For example, in the early stages when you’re at your most active, you’re likely to need more funds for travel, sports and recreation. Then, as you enter a more relaxed phase of retirement, you’re likely to need to be ready for possible health issues, so you can afford the care you need as medical treatments are becoming more sophisticated and more expensive every year.

You may also want to keep your options open for the later years when you may need more intensive health support, including specialised accommodation.

Also don’t forget to factor in lump sum spending on big ticket items, such as home renovations or a new car. Because, as retirements grow longer, our cars and appliances are increasingly likely to fade away before we do.

Boost your super

When you crunch the numbers, you may find you’re facing a super gap. An effective way to boost your super savings while potentially paying less tax may be via salary sacrifice.

Even a small contribution can make a big difference over time, as you earn concessionally taxed returns on your contributions. When you invest pre-tax income through salary sacrifice, you may also benefit from the 15 per cent concessional tax rate on super contributions (rather than your marginal income tax rate), putting you even further ahead.

As of 1 July 2017, you can contribute up to $25,000 in concessional super contributions before additional tax applies. Concessional contributions include compulsory super guarantee from your employer, other employer contributions such as salary sacrifice, and personal tax-deductible contributions.

Finally, if there is a large sum you would like to contribute to super, for example, if you plan to sell a non-super asset, such as an investment property, you can do this by making a non-concessional personal contributions of up to $100,000 a year from your after-tax income.

You may also utilise the bring-forward rule which allows for members aged 64 or less to bring forward three years’ worth of non-concessional contributions and contribute up to $300,000 at any time over a three year period.

As of 1 July 2017, your total super balance (across all funds) may further limit your non-concessional cap – your cap is Nil if your total super balance is $1.6 million or more, while the amount of bring forward cap you can use is reduced once your total super balance is $1.4 million or more.

Review your investment options

Our super is one of our most valuable assets, so it’s not surprising many of us seek to protect it by investing in a low risk option.

But it’s also important to remember that trying too hard to avoid risk today could expose you to a greater risk — running out of money tomorrow, when your savings don’t produce the returns you need for a comfortable retirement.

So it’s important to choose the right investment option for your goals and investment time-frame. That’s where personalised advice from a professional financial adviser can make a difference.  Source: Colonial First State

Financial counsellor or financial planner: What’s the difference?

By Robert Wright /August 07,2020/

Ok we get it, knowing where to turn to for financial advice can be confusing sometimes! Financial planners and financial counsellors are both types of financial experts, so which one is right for you?

To answer this question, start by considering why you’re seeking financial advice. Is it to improve your financial wellbeing? Plan for retirement? Manage your debt? Or something else entirely?

What is financial planning?  

Financial planning is all about developing strategies to build your wealth and reach your financial goals, such as achieving financial independence or having a comfortable retirement.

A financial planner, sometimes called a financial adviser, will work with you to develop a financial plan and make suggestions on how to achieve it. Some of the areas they can provide advice on are:

• Investing
• Superannuation and retirement planning
• Estate planning
• Insurance

Importantly, they must hold, or work for a company that holds, an Australian financial services license, which is granted by the Australian Securities and Investment Commission (ASIC).

How is it different to financial counselling?

Financial counselling, on the other hand, is a free service that exists to support people in financial difficulty. It is usually offered through community organisations and some government agencies.

Financial counsellors are qualified professionals who provide advice and advocacy to people struggling to manage debt, or unable to meet their ongoing expenses. They aren’t licensed to provide investment advice or invest funds on your behalf.

Some of the services a financial counsellor can provide are:

• explore your financial options and advise you on the pros and cons
• develop a budget or money plan
• prioritise your debts
• speak to creditors on your behalf and negotiate repayment arrangements
• help you access government grants or concessions
• advise you on credit, bankruptcy and debt collection laws.

Unlike financial planners, financial counsellors are not required to hold a financial services license from ASIC, provided they meet strict conditions. This includes not charging clients any fees or accepting any third-party payments or commissions. They are also required to be a member of Financial Counselling Australia.

You should never pay for financial counselling services. Anyone charging fees is, by definition, not a financial counsellor.

When should I see a financial planner?

Many people believe financial planning advice is only for the ‘wealthy’. However, it can help people of all ages prepare for the future and achieve their financial goals. If you’re looking for strategies to build and protect your wealth, a financial planning professional can assist you.

Financial planners work with people at all stages of life, from those in their 20s and 30s, right through to those in retirement, so it’s never too early to get started. Ideally, your relationship with your financial planner will last a lifetime.

Often, people seek out financial advice around major life events. If you’re thinking about buying your first home, starting a business, having children or nearing retirement, it could be a good time to get professional financial advice.

When do I need to see a financial counsellor?

If you’re struggling with debt, at risk of being evicted or having your electricity, gas or phone cut off, we recommend speaking to a financial counsellor as soon as possible.

So, which one should I see?

Going back to our earlier question, what are your reasons for seeking financial advice? If it’s to build, grow and sustain your wealth, and you’re not in financial hardship, then a financial planner is the right professional for you.

If you’re experiencing any financial difficulty, then a financial counselling service is the best option to get you back on your feet. Once your financial situation has stabilised, you should definitely consider seeing a financial planner to help you reach your long-term financial goals.

Source: Money and Life

Who inherits your super?

By visual /May 13,2020/

There are only certain people who can inherit your super when you die. There are also two different types of nominations you can make. Here’s what you need to know before making your super beneficiary nomination.

Super is different from other assets, such as your house, because the trustee of your super fund ultimately decides who gets your super and any associated life insurance, if it’s held within the super fund, when you die.

Super doesn’t automatically go to your estate, so it’s not automatically included in your Will. That’s why you need to tell your super fund who you nominate. And, depending on the type of nomination, they’ll either consider your nomination or be bound to pay it as you’ve nominated.

Who can you nominate?

Super fund trustees can only pay your super to ‘eligible dependants’ or to the ‘legal personal representative’(LPR) of your estate.

Eligible dependants are restricted to these people:

Spouse

A spouse includes a legally married spouse or a de facto spouse, both same-sex and opposite-sex.

A spouse can be a person you’re legally married to but are now estranged or separated from. So, if you haven’t formally ended a marriage, your husband or wife is still considered your dependant under super law. And, while you can’t be legally married to two people, it’s still possible to have two spouses – a legally married spouse and a de facto spouse.

Child

A child includes an adopted child or a stepchild. Even though a stepchild is included in the definition of a child, if you end the relationship with the natural parent or the natural parent dies, the child is no longer considered your stepchild. However, they may still be considered a financial dependant or in an interdependency relationship with you and could therefore continue to be a beneficiary of your super.

Financial dependant

Generally, a person who is fully or partially financially dependant on you can be nominated as your super beneficiary. This is as long as the level of support you provide them is ‘necessary and relied upon’, so that if they didn’t receive it, they would be severely disadvantaged rather than merely being unable to afford a higher standard of living.

Interdependency relationship

Two people have an interdependency relationship if they live together and have a close personal relationship. One, or each of them, must also provide a level of financial support to the other and at least one or each of them needs to provide domestic and personal care to the other.

Two people may still have an interdependency relationship if they do not live together but have a close personal relationship. For example, if they’re separated due to disability or illness or due to a temporary absence, such as overseas employment.

Who is not a dependant?

A person is not a dependant if they are your parents, siblings or other friends and relatives who don’t live with you and who are not financially dependent on you or in an interdependency relationship with you. If you do not have a dependant you should elect for your super to be paid to your legal personal representative and prepare a Will which outlines your wishes.

Legal personal representative

A legal personal representative (LPR) is the person responsible for ensuring that various tasks are carried out on your behalf when you die. You can nominate an LPR by naming the person as the executor of your Will. Your Will should outline the proportions and the people you wish your estate, including your super, to go to.

Types of nominations

There are two types of nominations you can make once you decide which super dependants, or LPR, you wish to nominate:

1. Non-binding death benefit nomination

A non-binding death nomination is an expression of your wishes and the trustee will consider who you’ve nominated but they’ll ultimately make the final decision about who receives your super and any associated life insurance.

2. Binding death benefit nomination

A binding nomination means the trustee is bound by your nomination. They must pay your super benefits to your nominated dependants in the proportions you set out or pay it to your estate if you nominated an LPR. Binding nominations need to be signed and witnessed by two witnesses who are not named as beneficiaries. Also, they expire after three years unless you re-affirm your nomination.

If you’re not sure of the best way to nominate your super beneficiaries, or to discuss your situation in further detail, please contact us.

Source: IOOF